CEO Bob Iger: Disney’s Studio Business ‘Lost Some Focus’ in Fiscal 2023

Disney CEO Bob Iger didn’t mince words explaining the Walt Disney Studios Motion Pictures’ relative underperformance in fiscal 2023, which ended Sept. 30.

Disney reported an operating loss of $149 million on revenue of $1.86 billion in the fourth quarter for its “Content Sales/Licensing and Other” business segment, which includes theatrical and home entertainment. The segment posted an operating loss of $8 million on revenue of $1.9 billion in the previous-year period.

Speaking on the Nov. 8 fiscal call, Iger said the movie studio’s quarterly results should be put into perspective. He said Disney had four top 10 box office theatrical titles in the fiscal year, led by Avatar: The Way of Water, which topped the 2022 box office with $2.3 billion in global ticket sales.

Iger said that in addition the pandemic’s impact on movie production, heading into the global COVID-19 shutdown in March 2020 (when he abruptly relinquished his CEO title to Bob Chapek to become executive chairman) the studio was “leaning into” a huge increase in content spending and production.

“I’ve always felt that quantity can actually be a negative when it comes to quality,” Iger said. “And that’s exactly what happened. We lost some focus.”

Since returning to the helm late last year (following Chapek’s abrupt dismissal), Iger said the studio is working to consolidate operations and make fewer movies, while focusing more on quality.

“We’re all rolling up our sleeves, including myself, to do just that,” he said, alluding to the pending theatrical slate that will revolve around sequels and original content, beginning with animation comedy Wish on Nov. 22.

“I feel good about the direction we’re headed, but I’m mindful of the fact that our performance from a quality perspective wasn’t really up to the standards that we set for ourselves,” Iger said.

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Indeed, the huge spike in the Q4 operating loss was due in part to the theatrical performance of Haunted Mansion ($117.4 million in global revenue) in the current quarter compared with Thor: Love and Thunder ($760.9 million global revenue) in the prior-year quarter, partially offset by lower theatrical marketing costs for future releases. An increase in home entertainment distribution results was driven in part by higher packaged media unit sales of Black Panther: Wakanda Forever and Thor: Love and Thunder, among others.

Overall, when combining linear TV networks, DTC, and Content Sales/Licensing and Other, Disney’s Entertainment business segment reported an operating profit of $236 million on revenue of more than $9.5 billion, compared to an operating loss of $608 million on revenue of $9.3 billion last year.

Disney Q1 Content Licensing/Sales Operating Loss Widens, Including Home Entertainment

Disney Feb. 8 reported a “content sales/licensing and other” business segment operating loss of $212 million in the first quarter, ended Dec. 31, 2022. The loss was 86% greater than the operating loss of $114 million in the previous-year quarter. Revenue for the segment, which includes Disney Studios, Marvel Studios, Pixar Animation, Lucasfilm, 20th Century Studios, Searchlight Pictures, television production and home entertainment, increased 1% to $2.5 billion, from $2.43 billion.

The increase in operating loss was due to lower TV/SVOD distribution results, higher overhead costs and a decrease in home entertainment distribution results. These decreases were partially offset by higher theatrical distribution results, which included ongoing revenue from Marvel’s Black Panther: Wakanda Forever, and theatrical revenue from Avatar: The Way of Water (released Nov. 11) and Strange World (Nov. 23).

Speaking on the fiscal call, CFO Christine McCarthy said the segment’s results came in below the guidance given in November, primarily due to the softer-than-expected performance of certain theatrical releases, including Black Panther: Wakanda Forever.

“In the second quarter, we believe that content sales, licensing and other operating results will be roughly breakeven,” McCarthy said.

The decrease in TV/SVOD distribution results was primarily due to lower sales volumes of both movie and episodic television content reflecting the shift from licensing content to third parties to distributing it to Hulu and Disney+. The decrease in sales of episodic television content was also driven by the comparison to a license of animated series in the prior-year quarter.

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“The decrease in home entertainment results was due to lower unit sales of new release titles, reflecting fewer releases, and catalog titles,” McCarthy said.

The animated musical Encanto was Disney’s top-selling packaged-media release in 2022.

Disney Content Sales Business Unit Posts $98 Million Q1 Loss

Disney’s “Content Sales/Licensing and Other” business segment, which includes home entertainment, posted a first quarter (ended Jan. 1, 2022) operating loss of $98 million, compared with net income of $188 million in the previous-year period. Revenue for the quarter increased 43% to $2.4 billion, from $1.67 billion in the previous-year period.

Disney said the decrease in operating results was due to lower theatrical distribution results and higher film cost impairments, partially offset by higher TV/SVOD distribution revenue.

The decrease in theatrical distribution revenue was due to losses on titles released in the current quarter, including Oscar-nominated West Side Story and Nightmare Alley, animated musical Encanto, The King’s Man, Eternals, and The Last Duel. There were no significant titles released in the prior-year quarter.

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Despite their Oscar nominations, West Side Story and Nightmare Alley generated just $64 million and $30 million, respectively, at the global box office.

Disney said the aforementioned movies incurred “significant” marketing costs before and throughout the theatrical release, which it said contributed to a loss during theatrical distribution.

Higher TV/SVOD distribution results were due to higher sales of both episodic television and film content to proprietary and third-party platforms. The increase in episodic television content sales reflected more significant titles sold in the current quarter. Higher sales of film content were driven by an increase in sales of library content and more title availabilities in the free television window.