Has Disney recovered its magic?


We are all familiar with Walt Disney. For older folks like me, I grew up watching Mickey Mouse and his friends. The Walt Disney Company is a global entertainment company with 2 segments: Disney Media and Entertainment Distribution (DMED) and Disney Parks, Experiences and Products (DPEP).

DMED division encompasses global film and television content production and distribution activities. Content is distributed through a single organization with 3 lines of businesses: Linear Networks, Direct-to-Consumer and Content Sales/Licensing. 

Linear Networks consist of Domestic Channels such as ABC Television Network (ABC), Disney, ESPN, Freeform, FX and National Geographic. The international channels consist of  Disney+, Disney+ Hotstar, ESPN+, Hulu and Star+. Content licensing is for sale of film to third party television and subscription video-on-demand services, theatre, music distribution, stage and live entertainment events. DMED consists of a 30% ownership interest in Tata Sky, which is a direct-to-home satellite distribution platform in India.

DPEP division encompasses Parks and Experiences and Consumer Products. Theme parks and resorts include Walt Disney World Resort in Florida, Disneyland Resort in California, Disneyland Paris, Hong Kong Disneyland Resort and Shanghai Disney Resort. Tokyo Disney Resort is licensed to third parties to operate. There are Disney Cruise Line, Disney Vacation club, National Geographic Expeditions, Adventures by Disney and Aulani, Disney Resort & Spa in Hawaii. Consumer Products will involve licensing of trade names, characters, visual, literary and other IP to manufacturers, game developers, publishers and retailers. The company owns Disney-, Marvel-, Pixar- and Lucasfilm-branded products, including books, digital comics, apps and ebooks.

Risk – COVID-19 impact on business

Beginning in early 2020, the world was impacted by COVID-19 and its variants. This affected the DPEP segment most significantly as theme parks and resorts were closed and cruise ship sailings and tours were suspended. Film and television production resumed in the fourth quarter of fiscal 2020. Production delays and fewer theatrical releases will limit film content. 

Sports content continues to be delayed or impacted by COVID-19 restrictions. COVID-19 is eroding the revenue at Linear Networks businesses, reducing numbers of reservations at hotels and cruises. There are more returns and refunds.

The management has raised funds through senior notes in March and May 2020, entered an additional $5 billion credit facility in April 2020 and did not pay a dividend in 2020 and 2021. They are temporarily reducing management compensation, board retainer fees and reducing employees. In March 2021, Disney closed a substantial number of Disney-branded retail stores and moved into other types of businesses. 

Disney highlighted that they have approximately 190,000 employees, the cost of pension, current and post-retirement medical benefits will result in high cost due to increase in cost of health care. COVID-19 may lead to further increase in cost of medical insurance and expenses. 

We believe the DPEP segment is highly vulnerable and will be affected by COVID-19 and its variant which will affect its capacity. Hence revenue will be adversely affected as well. Just when we see America’s travel is almost back to its 90% travel pre-pandemic level, there’s another variant in South Africa that is causing countries to close their borders. Parents will hesitate to bring their unvaccinated young children for international travel. Whenever international travels are affected, the DPEP segment will feel the blunt.


The above table summarizes the fourth quarter results for fiscal 2021 and 2020 (in millions).

The revenue for the quarter improved by 26% year over year to $18.5 billion.

Revenue for the Disney Parks, Experiences and Products segment has bounced back by 99% to $5.4 billion due to parks reopening and improved capacity at those parks that have already opened. There is strong demand but lack the return of international travellers. There is continued growth in bookings which shows signs of return back to growth.

Revenue for the Disney Media and Entertainment Distribution segment grew 9% to $13 billion in October 2021 compared to October 2020 at $11.97 billion. There is growth at Direct-to-Consumer (DTC) services and content sales/licensing which offset the drop at the linear networks. As seen in the image below, DTC has grown by 38% from $3.3 billion in October 2020 to $4.56 billion in October 2021. Whereas Linear Networks shrunk by 4% in terms of revenue from $7.012 billion in October 2020 to $6.698 billion in October 2021. This was due partly with one less week in the quarter compared to Fiscal year 2020. 

The Linear Networks are affected due to lower affiliate revenue at Cable in Domestic channels, decrease in advertising revenue, coupled with increased costs for college football games. NBA and MLB games were shifted into the fourth quarter, and college games were shifted out of the fourth quarter into the first quarter of fiscal 2021, due to COVID-19. 

Let us now zoom into their bright spot which is the Direct-to-Consumer services. Although there is higher revenue at $4.6 billion in the quarter, there is an increase in operating loss from $0.4 billion to $0.6 billion due to higher losses at Disney+ and lesser for ESPN+, offset by improved results at Hulu. The higher loss at Disney+ was due to higher programming and production, marketing and technology costs. 

The increase in subscribers for Disney+ shows the ongoing expansion of Disney+, the number of paid subscribers (in millions) have increased by 60% from 73.7 in October 2020 to 118.1 million in October 2021. This is a strong growth rate in terms of subscribers. ESPN+ shows an increase of subscribers by 66% from 10.3 October 2020 to 17.1 October 2021. Total Hulu increased by 20% from 36.6 million in October 2020 to 43.8 million in October 2021. 

Cash flow

Cash provided by operations less Capital Expenditures and Depreciation Expense will get Free Cash Flow (FCF). In October 2021, the FCF is $1,988 million which is less than the FCF in October 2020 of $3,594 million. From Cash Provided by Operations, it has decreased by $2 billion from $7.6 billion in prior year to $5.6 billion in the current year, Disney has a higher spending for film and television content.

Competition for subscription

Disney+ had 73.7 million subscribers in November 2020 and it has hit astronomical growth to 118 million in November 2021. It is expected to have 230 to 260 million subscribers worldwide by 2024. As of October 2021, Netflix has 213.5 million subscribers worldwide. Apple TV+ and Disney+ launched at around the same period but Disney+ has rapid growth due its catalog of Disney, Marvel and Star Wars content. For now, we don’t think Apple TV+ will be able to catch up, the key contender will be Netflix and how Disney+ can overtake with its original content and new production will be the next growth frontier. 

Source: Statista 

Although Disney+ subscribers have shown strong growth, the stock price was hammered due to the slower quarter on quarter growth as seen from the image above. We believe that Disney+ is making inroads internationally and there is still a long runway for this. Let’s monitor this for Q4 2022. 


Disney Parks, Experiences and Products division has recovered from the COVID-19 impact. Its Disney Media and Entertainment division is spending more money to drive out more content to grow its subscription model. COVID-19 has inevitably increased the cost of production and hampered the speed to roll out new production to the market. We feel that the Disney+ model is the bright spot and there’s a strong growth story with its Marvel, Disney and Star Wars’ contents. We are looking forward to the next Marvel movie. We believe the Disney Parks will eventually return to its pre-pandemic days but this will take a while. 

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