Walt Disney Co. (NYSE:DIS) reported its first-quarter results for fiscal 2018 this past week. The entertainment giant's revenue increased 4% year over year, while earnings per share (EPS) adjusted for one-time factors jumped 22%.
Disney dished out a significantly larger profit than Wall Street was expecting, driven by strength in its parks and resorts business. The company's quarterly results marked a return to growth following a fiscal year in which both revenue and earnings declined slightly.
Here are three key things CEO Bob Iger shared on the earnings call that investors should know.
1. Primary benefits of the Twenty-First Century Fox acquisition
As background, Disney announced in December its agreement to acquire the entertainment assets of Twenty-First Century Fox (NASDAQ:FOX) for approximately $52.4 billion in stock. From Iger's remarks:
[T]here are three primary strategic priorities fulfilled by this acquisition.  It will deliver more content and the production capabilities and talent to produce even more.  It will enhance our direct-to-consumer initiatives with platforms, technologies, brands, and existing customer relationships to build on, and  it will greatly diversify our businesses geographically.
Disney's already powerful position in the entertainment space will be bolstered if it receives approval on its pending acquisition. Along with fortifying its legendary studio business, this megadeal will bring the company valuable content that it can use in its video-streaming services, as the basis of attractions at its parks, and license out for use in consumer goods. Disney will acquire such popular entertainment properties as X-Men, Avatar, The Simpsons, FX Network, and National Geographic. Its stake in the Hulu video-streaming platform will also get boosted from 30% to 60%. (Comcast and Time Warner own 30% and 10% stakes, respectively.)
2. Details about the ESPN+ direct-to-consumer video-streaming service
From Iger's remarks:
This new business will launch sometime this spring when we unveil a completely reconceived and redesigned ESPN app. ... This one-app approach will deliver three main features. (1) It will provide countless scores and highlights, as well as podcasts and other sports information with a more user-friendly mobile interface. (2) It will enable access to live streams of all ESPN's networks, provided consumers are subscribers to multi-channel packages. (3) And it will feature our new ESPN+ subscription service. [W]e're pricing ESPN+ at $4.99 per month. It will be available on a variety of platforms at the time of launch...
Disney has been setting itself up to thrive in a media environment in which consumers are increasingly moving away from cable and embracing video-streaming options. Its boldest move began in the fall of 2016, when it plunked down $1 billion to acquire a 33% stake in BAMTech, a leading video-streaming company. Last fall, Disney announced it was paying $1.6 billion to acquire an additional 42% stake from MLB Advanced Media, the digital-media company of Major League Baseball. The National Hockey League (NHL) and MLB Advanced Media are minority owners.
The BAMTech controlling stake enables Disney to power ahead in its plans to launch direct-to-consumer, subscription video-streaming services. As Iger noted, the ESPN-branded product will launch this spring for $4.99. The company also plans to bring to market a Disney-branded, Netflix-like offering in late 2019. The movies that its studios -- Marvel, Pixar, Disney, and Star Wars-creator Lucasfilm -- make in 2019 and beyond will be licensed to its own platform and will not be available on Netflix. Iger said on the call that "we'll talk at a later date about our intentions regarding the Fox studio output."
3. ESPN+ will use artificial intelligence (AI) to personalize and optimize users' experiences
From Iger's remarks:
[ESPN+ will] will be highly personalized, both [by] implicit [behavior] and explicit [choices]. So it's going to use the BAMTech engine, data collection, data management and all of the bells and whistles from a personalization/customization perspective that [BAMTech] can provide. [Content will be] customizable, obviously, by teams, by locations, by general interest. But also basically machine-learning elements of it will enable the app to determine what [users are] interested in and feed them more of that as they use the app more.
It's not surprising that Disney's ESPN+ service -- and all of its streaming products that follow, we can safely presume -- will use machine learning to personalize and optimize the content it provides to each user. (Machine learning is a burgeoning type of AI that allows computers to learn what to do from examples.) How well companies use AI to improve their products and services is going to increasingly separate the winners from the losers in many industries. Given Disney's top-notch techie chops, extensive research and development (R&D) efforts, and deep pockets, there's good reason to believe that its use of AI to optimize its video-streaming services will make it a force to be reckoned with in the space.
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Beth McKenna has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Netflix and Walt Disney. The Motley Fool recommends Comcast. The Motley Fool has a disclosure policy.