DIS (Trans): No plan to acquire more IP; focus on developing existing franchises

Below is Dolphin Research's Trans of Disney's FY26 Q1 earnings call. For our read-through, see 'Disney: Volatility in a consolidation phase; awaiting the next growth trigger'.

I. Management Remarks

1) Quarterly performance

(1) Entertainment

In 2025, our studios generated over $6.5bn in global box office, making it our third most profitable year ever. We also ranked No. 1 worldwide for the ninth time in the past decade.

'Avatar: Fire and Ash' became our latest $1bn-grossing title. Together with 'Zootopia 2' and 'Lilo & Stitch', the three titles have grossed $3bn.

'Zootopia 2' is now the highest-grossing animated film in Hollywood history and one of the top-10 highest-grossing films of all time, with box office over $1.7bn. This further cements Disney as the world's most beloved film studio.

To date, 37 Disney releases have crossed $1bn at the global box office, vs. just 60 across the entire industry. That is 4x more than any other studio.

'Zootopia 2' also became the highest-grossing foreign film ever in China. In China, the franchise is a key driver of attendance growth at Shanghai Disney Resort, with the Zootopia land among the park's most popular attractions. The IP continues to reinforce park demand.

(2) DTC streaming

This quarter reflected strong content appeal and continued tech improvements. Our investment in local content is delivering, and we remain committed to Intl growth while continuously upgrading the Disney+ product experience to deepen engagement.

We are building new vertical formats and short-form to attract audiences. Under our recent licensing deal with OpenAI, we plan to launch a slate of Sora-generated content on Disney+. This expands format diversity and discovery.

Major progress with ESPN Unlimited. While still early, adoption and engagement are encouraging. As the sports leader, ESPN offers the deepest live events, programming, and originals with multiple ways to watch.

In Q1, all ESPN live franchises posted standout ratings: ESPN's CFB regular season was the strongest since 2011, and ABC's CFB ratings hit their best since 2006. 'Monday Night Football' delivered its second-highest ratings in 20 years, and ESPN's NBA regular season ratings are tracking the third-best ever.

We have just closed a deal with the NFL to acquire NFL Network and other media assets, including linear rights to RedZone. This further enriches ESPN's football slate and enhances the fan experience.

(3) Parks, Experiences & Products

Every one of our parks is under expansion. Next month, 'World of Frozen' will open at the reimagined Disney Adventure World at Disneyland Paris.

This marks a new phase for Disneyland Paris, with the second gate nearly doubling in size. It is a meaningful capacity and content upgrade.

On Disney Cruise Line, 'Disney Destiny' recently set sail to strong guest reviews. We are also preparing to launch 'Disney Adventure' next month, our first Asia-based ship, bringing Disney storytelling to more guests globally.

2) FY26 outlook

1) Film and content pipeline

• 2026 theatrical slate: 'The Devil Wears Prada 2', 'Toy Story 5', 'Moana: The Wayfinding', 'Avengers 5: Doomsday', and 'The Mandalorian & Grogu', among others. Multiple tentpoles are lined up over the next year.

• Strategy: Leverage strong storytelling/IP to drive the full flywheel (theatrical → Disney+ viewership → parks & consumer products) for synergistic growth. Execution is centered on marquee franchises.

2) DTC product roadmap and growth

• Intl growth: Emphasis on Intl expansion and local content investment, with encouraging early results. Focus remains on market-by-market relevance.

• Product experience: Ongoing Disney+ feature upgrades to improve UX. Enhancements aim to lift engagement and retention.

• Format evolution: Will develop vertical and short-form experiences. Post-OpenAI license, plan to bring curated Sora-generated content to Disney+.

3) ESPN and the new sports product cycle

• ESPN Unlimited launched: Still early, but management is pleased with adoption and engagement. Momentum is building from the live sports + shows + originals bundle, aggregated in the new app.

• Growth drivers: Reinforce the live sports/programming/originals mix and onboard users through the new app to deepen time spent. Monetization will follow engagement.

4) Sports-side asset/content reinforcement

• NFL deal closed: Acquired NFL Network and other media assets, plus linear rights to NFL RedZone, strengthening ESPN's football offering. This broadens rights and shoulder content.

5) Experiences: Expansion and global footprint

• This quarter, Experiences revenue topped $10bn in a single quarter for the first time, with 'all parks expanding' emphasized. Capacity additions underpin growth.

• Europe: 'World of Frozen' at Disneyland Paris's Disney Adventure World opens next month, marking a phase where the second gate is 'nearly doubled' in size. This should elevate throughput and per-capita spend.

• Cruise: 'Disney Destiny' is live with strong reviews; 'Disney Adventure' launches next month as the first Asia homeport ship to extend reach and global growth. Cruise remains a multi-year growth vector.

II. Q&A

Q1: Bob, you have engineered major IP deals for Disney over the years. From the outside, do you view Warner Bros. Discovery's IP as highly valuable, and does that inform your strategy to better monetize Disney's top-tier IP?

A: The fight for control at WBD highlights the tremendous value of Disney's IP assets, anchored by our brands and franchises, with ESPN as a key component as well. Looking back at the Fox acquisition, we were prescient in many ways: we knew we needed more IP, hence the deal announced in 2017 and closed in 2019.

Against the WBD deal pricing, our valuation for Fox looks very reasonable in hindsight. Our advantages are evident in how the biz has evolved. Most importantly, this underscores the value of IP beyond the big screen.

Over the past two years alone, we invested $6bn in films, and $37bn cumulatively across the slate. These investments have created substantial, enduring value.

'Zootopia 2' and 'Avatar: Fire and Ash' have driven significant gains for Disney+, both in initial views and total hours watched. The titles monetize across windows.

On parks, 'World of Frozen' in Paris opens in a few months, and our 'Star Wars' footprint remains powerful. Shanghai Disney Resort's Zootopia land is massive and extraordinarily valuable, with a very high share of guests visiting primarily for that land.

We believe we have great IP in hand and do not need to buy more now; the focus is on further developing what we own, creating new content from a deep bench of stories. That is the highest-ROI path.

Q2: On the limited disclosure of subscriber data: what drove the +13% SVOD subscription revenue, and can you split U.S. vs. Intl? Also, outlook for subs and ads for the rest of the year?

A: Pricing was the primary driver, followed by growth in North America and Intl, and finally bundling — our 2-service, 3-service, and 'Max bundle' performed well, lifting engagement and revenue. Bundles are a core lever for ARPU and churn reduction.

Q3: Domestic parks trends seem to be improving, with visitation and per-capita spend recovering. How did Walt Disney World perform, and are bookings a good forward indicator?

A: Walt Disney World was very strong this quarter, helped by an easy compare due to last year's hurricane and some pent-up demand this year. Pricing held up, and attendance continued to grow.

For the full year, bookings are up 5%, skewed to the back half. From that lens, momentum looks healthy.

Q4: You did not reiterate FY27 Adj. EPS growth. Should we still assume double-digit, and similarly on capex?

A: No update on FY27 today. You can assume no change unless we announce otherwise.

Q5: Bob, as your CEO term nears its end, you made moves early on that materially boosted profits, such as moving 'Monday Night Football' to ESPN and acquiring Pixar. Where should your successor focus to drive long-term growth?

A: Appreciate the callout — that was a long time ago, and I am proud of what we accomplished then and since. Three years ago when I returned, there were many urgent issues to fix, but running a company also requires preparing for the future and creating opportunities.

The company is in a much better place now because of the changes we made. We also created significant growth opportunities, including investing in Experiences to scale across regions and at sea.

In a fast-changing world, trying to preserve the status quo is a mistake, and I am confident my successor will not do that. They will inherit a stronger company with many opportunities, and expectations to keep adapting and growing. That is the mandate.

Q6: Operationally, with the NFL deal closed, how do you see the relationship and rights evolving, including a potential renewal in about a year?

A: The NFL deal closed earlier than expected, enabling faster integration. The coming NFL season and ESPN's first Super Bowl represent a huge opportunity for ESPN. It is not just about operating NFL Network and RedZone better, but also broadening our NFL content resources, which are especially valuable for ESPN's streaming strategy.

I will not comment on the future of the ESPN–NFL relationship. Note that under the current agreement, the NFL has a termination option in 2030, and it is too early to speculate.

Q7: How is streaming bundling progressing? Is ESPN Unlimited growth coming more from bundles or TVE, and what will drive the next leg of adoption? Also, key steps for the Hulu integration this year?

A: We have made great progress in turning streaming into a profitable business. We built tech to improve UX and outcomes, and we are scaling globally. This sets the stage for acceleration, and you will likely hear more soon.

Key growth levers: First, continue delivering quality content, especially Intl; second, execute tech improvements; third, as you noted, deliver a unified app experience; fourth, launch new features like vertical video and Sora-generated content, which we discussed. Those are our focus areas.

Bundling across Disney+ and Hulu has reduced churn meaningfully. Bundling with ESPN has also improved churn. Churn reduction is critical to performance and growth.

We are actively building toward a 'one-stop' experience — while consumers can still buy Disney+ or Hulu separately, most will likely use both within a fully integrated experience. We expect to roll this out by year-end.

Q8: What does the OpenAI license cover, how will you curate and distribute UGC on your platforms, is it mainly vertical short-form, and does AI reduce the need for traditional programming or library?

A: It is fundamentally a licensing agreement with OpenAI that allows users to generate 30-second videos featuring ~250 Disney characters via Sora, without real human voices or faces, for a three-year term with licensing revenue to Disney. We also have the right to bring curated Sora-generated shorts onto Disney+ to accelerate our short-form and UGC capabilities, given strong growth of those formats on external platforms.

We aim to enable Disney+ subscribers to create short videos directly on-platform using Sora to boost engagement. We do not expect material displacement of traditional production or the library; we see AI's value in three areas: augmenting creative workflows, improving efficiency, and deepening user connection for richer interactions.

Q9: Is the org set up for succession and long-term operations?

A: My first move on returning three years ago was a reorg to strengthen accountability in streaming. Studios and TV invest the most in content, and those making the largest investments should be accountable for the impact on company results.

The core was to tie streaming P&L accountability directly to content owners, putting streaming under Alan Bergman and Dana Walden, who run global film and TV, so their investments link to streaming profitability. Back then, the segment lost about $1.5bn in the prior quarter and nearly $4bn the prior year; over the past year it generated over $1bn in profit — proof the reorg worked.

While I cannot speak for my successor's org choices, any structure must be built on accountability and maintain it. That is essential. It has underpinned the turnaround.

Q10: You are investing in Intl content and product tech for streaming. How much margin drag does that create, and how much operating leverage can you unlock next year and beyond?

A: We have indeed been investing. A few years ago we were losing about $1bn per quarter, but that has improved significantly.

Bob set targets: first to reach profitability in streaming, then to lift margins into double digits. Last year, margins were 5%, and this year our goal is 10%. In the quarter, revenue grew 12% and profit grew 50%+, showing operating efficiency at work.

We will keep improving efficiency while investing in Intl content and tech upgrades to elevate product quality. It is a balance: sustain double-digit revenue growth while scaling leverage.

Q11: For Entertainment, what drives the Q2 comparable operating income guide, and why the acceleration in 2H? Also, is the narrowing Sports sub decline mainly ESPN streaming, with better bundling trends?

A: Quartile differences in Entertainment reflect the cadence of content and launches; Q2 will see more network programming vs. last year, driving comparable OP. Acceleration in 2H is anchored by a stronger slate: 'The Devil Wears Prada 2', 'The Mandalorian & Grogu', 'Toy Story 5', and live-action 'Moana'. These titles should also monetize later via consumer products and parks.

'Zootopia 2' and 'Avatar 3' are expected to arrive on Disney+ before fiscal year-end. Both franchises saw near-1mn first-time views on Disney+, and the first 'Zootopia' plus 'Avatar' 1 and 2 have accumulated hundreds of millions of hours watched, so their arrival will add significant value.

Q12: Timing for Sora UGC on Disney+, will 30-second length be extended? Also, how are Intl visitors affecting parks ops, incremental demand, and 'Disney Adventure' bookings?

A: No specific launch date yet for Sora; we are still working through technical details and expect to launch sometime in FY26, with the 30-second limit maintained for now and no immediate plan to extend. On Intl visitors, visibility is lower since they are less likely to stay at Disney hotels, but we track other indicators and have tilted promos and marketing more to domestic guests to sustain high traffic.

Q13: How does the new disclosure approach for the Entertainment segment better reflect how you manage the business, and what does it improve for investors?

A: Operationally we run Entertainment as one business; continuing to split linear, streaming, and theatrical adds complexity and does not match reality as consumers simply migrate across distribution. We produce content and distribute across channels under a unified logic.

Such splits may have been more meaningful in the past but no longer carry the same value. We adjusted disclosures to align with how we operate and reduce non-productive complexity. It should improve clarity on drivers and accountability.

Q14: Over 5–10 years, will profit be more balanced vs. still led by Experiences? How do you see the relative contribution of the two engines?

A: In 2005, park ROIC was modest and expansion limited. As we added high-value IP — Pixar, Marvel, Lucasfilm, and 20th Century Fox — IP boosted park attractiveness and return visibility, supporting larger capital deployment and better returns.

Experiences is now broader and more diversified, with in-flight projects set to further scale reach and footprint. Following a recent visit to Abu Dhabi, we see significant potential there given access to large populations new to Disney parks and the ability to build with more modern, advanced tech, so we are very optimistic on long-term Experiences growth.

At the same time, Entertainment's outlook is also strong, with improving streaming profitability and a robust film slate. We expect 'healthy competition' between the two engines internally, with both capable of being the top profit driver and both well positioned to grow under current investments and trends. That is the balanced path forward.

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