Disney (Minutes): New theme park to be located in the Middle East

Below is the $Disney(DIS.US) 2Q25FY Minutes. For earnings review, please refer to《Multiple Growth Drivers, Is Disney's Spring Coming?》

1. Key Financial Metrics Overview

2. Management Report

In the 102-year history of The Walt Disney Company, there have been many milestone moments and countless achievements. One significant moment was the opening of Disneyland in 1955.

Now, 70 years later, as we welcome 4 billion guests across our six Disney theme park destinations worldwide, we are celebrating another great moment in our illustrious history. I am currently attending this earnings call in the United Arab Emirates, and we have just announced an agreement to build a Disney theme park in Abu Dhabi.

The Abu Dhabi Disneyland will embody the authentic essence of Disney while showcasing the unique charm of the UAE. It will become an extraordinary Disney entertainment oasis, serving millions of visitors from around the world, connecting travelers from the Middle East, Africa, India, Asia, Europe, and beyond.

This seventh Disney theme park resort will rise spectacularly from the coast of this land, blending Disney's wonderful stories and characters with the culture and tastes of this country and region. It will combine modern architecture and cutting-edge technology with Disney's timeless magic to offer visitors a unique and modern immersive experience.

As part of our new strategic partnership with Abu Dhabi's Miral Group, Disney will be responsible for design, licensing our intellectual property, and providing operational expertise, while Miral will provide funding, construction resources, and operational oversight.

As we prepare to launch this exciting new project, we are undertaking more expansion initiatives domestically and globally than ever before. This includes investing over $30 billion to enhance the offerings at our theme parks in Florida and California, creating jobs and supporting the U.S. economy.

Our focus must always be on building for the future while managing the present. Looking ahead and driving growth are at the core of our efforts to advance our four strategic priorities. Based on our Q2 performance, we have made outstanding progress. Our Q2 results were very strong, with adjusted EPS up 20% YoY, marking a solid conclusion to the first half of FY2025.

1. Parks & Experiences Business

Our Experiences segment delivered strong performance this quarter, driven by exceptional results in domestic operations. Investments in this segment have achieved impressive returns on capital, with the Experiences business reaching historically high levels of profitability.

Experiences is clearly a vital business for Disney and an important growth platform. Despite questions about macroeconomic uncertainties or competitive impacts, I am encouraged by the strength and resilience of our business, as evidenced in these earnings and the bookings for Walt Disney World in the second half of the year.

2. Entertainment Business

Our Entertainment business, including films, TV series, news, and sports, continues to deliver robust growth. Our feature films continue to succeed at the global box office. Marvel Studios' "Thunderbolts" debuted last week and is currently the #1 movie worldwide, as well as one of the best-reviewed Marvel films in recent years.

We are also excited about the film slate for the remainder of the year, including the live-action "Lilo & Stitch," Pixar's "Elio," Marvel's "Fantastic Four: First Steps," "Freaky Friday," Disney Animation Studios' "Zootopia 2," and the spectacular "Avatar: Fire and Ash." We are also very pleased with the performance of our general entertainment and news programming.

3. Sports Business

Sports viewership trends remain strong. ESPN's primetime audience in the key 18-49 demographic grew 32% in Q2, making it ESPN's most-watched Q2 in history, driven by stellar programming including NFL and college football, the NCAA Women's Basketball Tournament, and other exciting events. This gives us optimism heading into next week's upfronts. Meanwhile, we are just months away from the launch of ESPN's exciting new direct-to-consumer product, and we look forward to sharing pricing and timing details soon.

Overall, our broad portfolio of high-quality content and programming enables us to continue growing revenue and profitability in streaming. Streaming remains a top priority and core growth platform for Disney. As we move forward, product improvements will continue to enhance the user experience, increase engagement, and reduce churn, allowing us to scale this strategic business at an accelerated pace over time.

3. Analyst Q&A

Q1: Over the past year-plus, you've been bringing more Hulu content and sports content into Disney+. Now, you're also introducing the ESPN+ flagship product from a bundling perspective. Under this broad content strategy, have you seen favorable momentum in terms of user engagement, penetration, etc.? Do you see more opportunities to further drive the business?

A: On content bundling—from a user experience standpoint, embedding Hulu into Disney and adding more sports content has indeed made an impact, a positive one. Not only has engagement increased, but churn has declined significantly. Looking ahead, our goal is to transform streaming into a true growth business, and we are optimistic about achieving this.

We see three ways to accomplish this:

First, as we just discussed, integrating Disney+ and Hulu into a unified user experience. You'll see more bundling in the coming months.

Second, when we launch ESPN's direct-to-consumer service, we plan to be smarter about bundling. For users who choose bundles, the experience will be fully integrated—another major step forward.

When you think of the Disney brand, you'll think of Disney+, Hulu, and a wealth of live sports. Our content quality, quantity, and diversity are unmatched in the streaming industry.

The second growth driver is technology. We've taken many steps to improve the business technically, including paid sharing (which we recently rolled out with Hulu), personalization, ad tech enhancements, and more. I've reviewed the roadmap for the rest of the year.

The third driver is content investment, particularly in local content outside the U.S. We've begun this process, which takes time, but we're aggressively targeting select international markets.

Q2: With higher earnings in 2025, has your prior guidance for double-digit EPS growth in Entertainment for FY2026 and FY2027 changed?

A: While 2025 earnings guidance has been raised, our long-term growth targets remain unchanged.

Q3: Why choose Abu Dhabi for the theme park partnership? Yas Island already has F1 racing and Ferrari World, and the UAE has strong infrastructure. Could you discuss the rationale behind this location?

A: Abu Dhabi was carefully selected after extensive research. Building a theme park here is a strong endorsement of the location's ability to support Disney's standards. The Middle East has hundreds of millions of people with disposable income who face long and expensive travel to our existing parks. Bringing Disney to them directly makes sense.

Our Singapore cruise ship, which hasn't even launched yet, sold out its first-quarter tickets in days—proof of demand. Abu Dhabi is also sufficiently distant from our other locations to avoid cannibalization.

Abu Dhabi is a global crossroads: 500 million people with qualifying income live within a 4-hour flight. Dubai and Abu Dhabi alone will welcome 120 million visitors this year, with Abu Dhabi expecting 39 million by 2030.

Our partner Miral shares our commitment to quality, innovation, and technology. Their projects, like the Louvre and Guggenheim, impressed us. We quickly aligned on vision and values, making this the perfect choice.

Q4: On domestic park margins, up 110 bps this quarter—is the improvement purely from cruise mix, or are underlying park margins also rising?

A: The margin improvement reflects performance across all businesses, not just cruises.

Q5: With a strong film slate, how do you expect upcoming releases to create long-term value and multiplier effects?

A: Our live-action "Lilo & Stitch" opens Memorial Day weekend, with excellent tracking. Pixar's "Elio" follows in June, then "Fantastic Four," "TRON," "Zootopia 2," and "Avatar" to close the year. Next year brings "Avengers," "Mandalorian," "Toy Story," and "Moana" live-action. This is the strongest lineup I've seen in years, rivaling 2019.

Q6: With "Thunderbolts" out, can Marvel remain a key growth driver as you refocus on theatrical releases and reduce Disney+ series?

A: We've acknowledged that Marvel's focus was diluted by producing too much content. Consolidating resources to prioritize films will elevate quality. "Thunderbolts" is the first proof point.

Q7: Ad upfronts seem optimistic—can you comment on market trends? Is programmatic advertising impacting sports? Disney+ ad revenue remains modest.

A: The ad market is healthy, with live sports (ESPN ad growth >20% this quarter) leading demand. Restaurants and healthcare are particularly strong. Streaming ad challenges are supply-driven (new entrants), but Disney demand remains robust.

Q8: On Abu Dhabi's financials—with no capital outlay, do you have ownership, or is this purely royalty income?

A: This is a licensing arrangement. We'll design and oversee operations to ensure Disney-quality standards but hold no ownership. Miral funds and builds the park.

Q9: On ESPN's flagship DTC service—how will content scheduling balance sports rights and ancillary programming vs. linear TV? How will features like betting keep subscribers in the ecosystem?

A: Linear ESPN subscribers will automatically access the DTC service (name and pricing revealed next week). The DTC version will offer more features than linear. Bundling Disney+, Hulu, and ESPN DTC will create a seamless experience.

Q10: Experience segment outlook remains strong—any changes to U.S. demand since last quarter?

A: Q3 Disney World bookings are up 4% (~80% of guidance), with Q4 up 7% (~50-60% of guidance). Very optimistic.

Q11: Implied H2 operating income growth is double-digit—any reason 2026 couldn't sustain this? Prior guidance suggested high-single-digit growth.

A: FY2025 guidance is 6-8% growth, likely at the high end. No comment on 2026 yet.

Q12: China demand remains soft—is it worsening? How much drag could this be?

A: Not worsening. Attendance is solid, but per-capita spending is lower due to China's consumer weakness. Domestic strength offsets some international softness.

Q13: Disney Treasure's early lessons—how will they inform Disney Adventure and Disney Destiny?

A: Treasure's high ratings reflect more embedded IP and quality. Future ships will build on this, with Singapore sales showing strong demand. Cruise expansion is a multiyear growth driver.

Q14: Beyond Abu Dhabi, any other global park opportunities?

A: Abu Dhabi is our seventh location, expanding global reach. No near-term plans for an eighth park, but we're investing $30B in Florida and California expansions.

Q15: Streaming operating leverage—more from revenue growth or cost optimization?

A: Both. Revenue growth provides leverage, but we also see cost-saving opportunities in G&A, marketing, and content delivery (e.g., ESPN bundling). Savings will be reinvested and flow to profits.

Q16: $30B capex for Florida/California—will this increase park capacity? How do returns compare historically?

A: Capacity expansion ensures guest experience isn't diluted. We're adding lands (e.g., Villains, Cars, Pandora, Coco) and leveraging IP. Park ROIC is at record highs, justifying capital allocation.

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