©Disney
4thAnnualMoffettNathansonMedia&CommunicationsSummit
MAY17 , 2017
DisneySpeaker:
ChristineMcCarthySeniorExecutiveVicePresidentandChiefFinancialOfficer
P R E S ENTAT ION
MichaelNathanson–Analyst,MoffettNathanson
Thanksforbeinghere.Thisisthekickoffofour4thAnnualMedia&CommunicationsSummit,
andthankyouallforthegreatsupportyou'vegivenustostartourbusiness.
Today,IwanttothankChristineMcCarthy,theCFOandExecutiveVicePresidentofTheWalt
DisneyCompany.WereallyappreciateChristinebeinghere,kickingitoffasDisneydidlastyear
aswell,sothanksforbeinghere.Weappreciateit.
4thAnnualMoffettNathansonMedia&CommunicationsSummit May17,2017
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Givennextweek'sopeningofPandora–TheWorldofAvatar,let'sstartwithThemeParks.
You'reabouttoopenthisnewattractionatOrlando'sAnimalKingdomandthentwoyearslater
you'regoingtoopentwonewStarWarsattractionsinCaliforniaandFlorida.Whathaveyou
seenhistoricallywhenyouaddnewattractionsorlands?
ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
Thanks,Michael.Wecouldn'tbemoreexcitedabouttheopeningofPandora–TheWorldof
Avatar.ItopensnextweekdowninOrlandoandit'sbeenaprojectthat'sbeenintheworksfor
awhileandit'ssomethingweverymucharelookingforwardto.Oneofthethingsthatwelook
atis,everytimewedoaparkexpansionoraprojectinapark,ittendstobeuniqueanddriven
bydifferentthings.Someoftheelementsofthethingsthatwelookforareprettyconsistent:
Welooktomakeourparkdestinationsmust-seedestinations;wealsolookforprojectsthatwe
believecannotonlydrivenewattendance,butcandriveincreasedattendancethroughrepeat
visitation;wealsolookatimprovingguestspending,andyou'llseethatinthingslikepercaps;
wealsolookatextendinglengthofstay;andmostimportantly,welookatimprovingtheguest
experiencebecausethat'sreallykeytogettingrepeatvisitationforourconsumersandguests
towanttocomebackagainandagain.
Sowhenwelookatallofthose,webelievethatPandora,whichisaten-acreimmersiveland,
andwhenIsayimmersive,yougoinandyoufeellikeyou'reintheworldofPandora.Thereare
acoupleofkeyE-typeticketattractions,butinadditiontothat,youhavedining,retail,
entertainment,andmerchandisethat'sthemedtotheland.Soallofthatcomestogetherto
makeavery,veryattractiveandcompellingexperience.
MichaelNathanson–Analyst,MoffettNathanson
AndthenStarWars?
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ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
Oh,andStarWars--andtheotherthingI'dliketomentiononPandora,soifyou'relookingfor
whatdoesitdo,andIthinksometimesyoulookinthepastandyousay,whatexperienceis
analogoustoit?Andtheonethat'smostanalogoustoitisin2012,whenweopenedCarsLand
atDisneyCaliforniaAdventure,verysimilartypeofimmersiveexperience.Itwentintoapark
andupliftedthepark.Wehadanimmediateincreaseinattendanceandalotofthat
attendancewasverysustainable.WhatitalsodidinCaliforniaAdventureisitbalancedmoreof
ourload,ourguestvisitation,acrossthetwoparks.Andweexpectthatsamekindof
phenomenontobeapparentwithDisney'sAnimalKingdom,thatthiswilldrawmorepeople
intoAnimalKingdomandwillbetterbalancetheloadthroughoutWaltDisneyWorld.
MichaelNathanson–Analyst,MoffettNathanson
Okay.
ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
SoStarWarslands,wealsohavethosecoming--comingsoon.IntheStarWarslands,wehave
two:therewillbeoneinAnaheim,oneinOrlando.They're14acres,andat14acres,theywill
bethelargest,single-themedadditionstoanyparkwe'veeverhad.They,too,willbeimmersive
andyouwillfeellikeyouareinStarWars.Onceagain,thesamearrayofdining,retail,
entertainment,merchandise,andalsoalotofcharactersthat'llbewalkingaroundsoyouwill
reallyfeellikeyou'rethere.Andthereareacoupleofattractionsandthereprobably--these
twoI'dliketomentionbecauseIthinkthere'sprobablysomeStarWarsfansintheroom.One
oftheattractionsallowspeopletotakecontroloftheMillenniumFalconandtheotherputs
youintoabattlebetweentheFirstOrderandtheResistance.Sothesearethingsthatpeople
wholovetheStarWarsuniversearereallygoingtofindcompelling.
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Webelievethatthesewillalsodrivesignificantincreasedattendancethatwebelievewillbe
sustainableinbothHollywoodStudios,wheretheOrlandoStarWarsisgoing,aswellasin
Disneyland,wheretheAnaheimStarWarsislocated.
MichaelNathanson–Analyst,MoffettNathanson
Isthereananalogy?Yougaveustheanalogyof--theCarsLandanalogy,whichisreallygreat
forAvatar.IsthereananalogyfortheStarWarsexpansion?Canyouthinkofsomethingthat
bigthat'sbeenadded?
ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
Ithinkyoucouldthinkofitasthatonsteroids.Becausethefanbaseissosignificantandso
loyaltotheStarWarsuniverse,therewillbepeoplewhoprobablyhaveneverbeentooneof
ourparksthatthiswillbringthemin.
MichaelNathanson–Analyst,MoffettNathanson
Okay.Soayearago,whenBobwashere,hesharedapre-openingvideooftheShanghaiDisney
Resort.Nowthat'sopen,how'stheparkperformedversusinitialexpectations?
ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
Yes,Idon'tknowhowmanyofyouwereherelastyearandsawBob'svideo,butifyoudidorif
you'vebeentoourparkinShanghai,Ithinkyou'llnotethatwhatwecallauthenticallyDisney
anddistinctlyChineseand--thetranslationofthatisyouknowthatyou'reinaDisneypark,but
youalsoknowthatyou'reinChina.Sotherearethingsaboutthatparkthatareveryuniqueto
thepark,butitalsoincorporatesalotofourDisneyIP.Whenwelookathowtheparkhas
performedtodate,wecouldn'tbehappier.It'sperformedaboveexpectationsandIthinkalot
ofpeopleinthisroomprobablywanttothinkaboutprofitability,andtwoofthelastthree
quarters--soitwouldbeourfiscalfourthquarteraswellasitsmostrecentquarter--were
profitable.Andyou'llseesomeseasonalityforattendanceinChinathat'srelatedtojusttheir
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schoolholidaysandChineseNewYear.Sofourthquarter,you'llhavethepeakholidayseason
andinsecondquarteryou'llhaveChineseNewYear.Sothosewillbethetwohighest
attendancequarters.
Whenwethinkaboutsomeofthelearningsandsomeofthethingsthatweexpectedor
surprisedus,Iwouldn'tsaythere'sanythingthat'sabig--therewasnothingthatwasabig
surprise,butoneofthethingswaswheretheattendancewascomingfromsofar.Wehad
thoughtitwouldbemoreofalocalShanghainesepopulationthatwouldbevisiting,andsofar,
two-thirdsofthevisitorshavebeenfromoutsideofShanghai.Sowefindthatveryencouraging
becauseitmakestheparknotjustalocalShanghaipark,butsomethingthat'smuchmore
nationalinscopeanddesiretovisit.That'salsodrivenaveryhighoccupancylevelatourhotels,
andinthosehotels,we'vebeenabletogetabove-expectationADRsandrevenue.Sothoseare
allgoodthings.
MichaelNathanson–Analyst,MoffettNathanson
Right.Oneofthequestionsweaskedlastyear,andIthinkitwastooearlytofindout,washow
wouldtheparkleverageotherpartsofDisney'sfranchises?Sowhattypeofbenefitsyou're
seeingtomaybefilms--DisneyfilmsinChina?AndCPsalesinChinaduetotheParksbusiness?
ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
Yes,thisis--beingin--theparkpresenceissignificantinthatitallowsustoonceagainkeep
someofourfranchisesfreshinthemindsofconsumers.OnefilmIjustwouldliketopointout
thatwasreleasedinChinaanddidextremelywellwasZootopia.Itdid$235millionatthe
Chineseboxoffice.ThosefurrycharactersareextremelypopularinChina,andwhenyousee
ourparades,they'reveryprominent.SothisissomethingthatreallyresonateswiththeChinese
guest.Andthat'sjustoneexampleofunderstandingwhattheyreallylikeandwhatappealsto
themandreallymakingitaliveandrelevant.
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MichaelNathanson–Analyst,MoffettNathanson
Okay.Letmetakeyoutosomethingmorenear-term,whichisyourlastearningscall.Yousaid
onthelastcallthatyouexpectQ3Parkscoststoincreasemeaningfully.Canyouhelpus
quantifytheincreaseanddiscussthedriversofwhat'shappeninginthecurrentthirdquarter?
ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
Sure.SoinourParksbusiness,Ithinkyou'veseenthatwe'vemadealotofinvestmentstodrive
growthandwe'vealsobeenmanagingourexpensegrowth.You'veseenthecombinationof
thosetwointhestrongmarginimprovementthelastfewquarters.Sowhenyoulookatthe
thirdquarterspecifically,wedohavebothincreasesinunderlyingvolumeandnewattractions
thatarecomingonline.Withnewattractions,wehaveexpenses.Thoseexpenseswillbepre-
opening,operational,sales,andmarketing.AndthreethatareinthisquarterarePandora,as
we'vetalkedabout.AlsoGuardiansoftheGalaxy–Mission:BREAKOUT!,whichisinAnaheim.
It'satDisneyCaliforniaAdventure,itisatotallyreimaginedTowerofTerror--Ifyou've
beentoDisneyland--orDCA,youknowthatwehaveTowerofTerror--itdoesn'tlooklikethat
anymore.ItisaGuardiansoftheGalaxyattractionandit'scomingveryclosetotheopeningof
ourGuardiansmovie,andthisisanotherthingthatwethinkwilldrawnewguestsinandhave
repeatvisitation.ThethirdnewattractionthatopenedearlierthisquarterwasExplorersLodge
andthatisourthirdhotelinHongKong,that'sa750-keythemedhotelandthat,too,came
onlinesoyouhavesomeexpensesassociatedwiththat.
Thethirdthingthatisgoingtoimpactthisquarter'sgrowthisafullyearofoperationin
Shanghai.Sothisisthefirstthirdquarterwhereyouhaveafullquarterofoperatingexpense.
AndthelastoneI'dliketomentioniswehavean18-daydrydockoftheDisneyFantasy.Disney
Fantasywaslaunchedin2012,sothisisthefirsttimeit'sgoingintodrydock.
Sowhenyoutakeallofthosetogether,thegrowthyear-over-yearweexpecttobehigh-single
digitstopossiblylow-doubledigitsinexpensegrowth.I'dalsonotethatsomeofthe--quitea
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fewoftheseexpensesarerelatedtonewattractionscomingonline,butyou'llalsohavesome
thingsthatwillberecurringandthatwillbethingslikeShanghai,becauseShanghaiisupand
operating.
MichaelNathanson–Analyst,MoffettNathanson
Right,okay.Thankyousolet'sturnto--we'regoingthroughallthedivisions,nextisStudio.
Overthepast3years,Disney'sfilmStudio,basedonourmath,sourced60%,6-0percent,ofthe
filmindustry'sprofitability.It'samazing.Andthequestionthatwehaveisit'sabusinessthat's
alwaysbeenhistoricallyknownasrisky,youcan'tguaranteesuccess.Sohowhaveyoubeen
abletocontinuethatsuccessoverthreeyearsinatoughindustry?Andhowhaveyoubeenable
tomakethathappenbothfinanciallyandcreatively?Sowhat'sdifferentaboutyourpastthree
yearprocessmaybeotherpeoplearenotrealizing?
ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
Thankyouforthatquestion.OurStudiohasbeenonagreatrunforthelastthreeyears,both
creativelyandfinancially.Sothere'sacoupleofthingsthatdistinguishourStudiofromothers
andtheyaregreatIPandasoundstrategy.
SosomeofthethingsI'dliketocallout,whenyoulookatouracquisitionsthathavebeeninthe
IPspaceandhowthey'veimpactedourStudiobusiness.FirstwasPixar--andallofthese
acquisitionsI'mgoingtotalkabout,theyaresimilarinmanyways,buttheyalsohavesome
uniqueelements.ThesimilaritiesaregreatIP;reallygood,creativetalent;aswellasstrong
management.ButwhenwelookatPixar,weallknowPixar'strackrecord,it'sbeengreat.And
oneofthethingsthatwewereabletogetwiththatacquisitionwasalsoareallystrong,
creativemanagementteaminJohnLasseterandEdCatmull.AndatthetimewedidthePixar
acquisition,ourDisneyAnimation--DisneyFeatureAnimation--wasn'tperforminguptothe
expectationsthatwehad.SowhatwedidwasEdCatmullandJohnLasseter,inadditionto
runningPixar,alsoworkedwiththeDisneyAnimationteamandreallyreinvigoratedtheir
process.Andovertheirperiodoftime,theyhadincreasingsuccesseswiththeiranimatedfilms
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andI'lljustpointtotworecentonesandIthinkyou'llagreethatithasbeensuccessful:Frozen
and--Iamdrawingablank--Zootopia.FrozenandZootopia,twoextraordinarilysuccessful
moviesandthey'realsoOscarwinners.SowhenyoulookatthePixaracquisition,itreally,
really,notjustPixar,butalsoreinvigoratedourDisneyAnimation.
TouchingforamomentonMarvel.Marvel'sIP,weknowthatthelibraryofcharactersis
extraordinarilydeepandmanypeopleknowthosecharactersthroughourfilmsintheMarvel
CinematicUniverse.Andthosearethingsthatappealtoawide--they'refour-quadrantfilms,
sothey'renotonlymaleskewing,theyalsoappealtowomenandchildrenandpeopleofall
agesandsizes.Sothat'sanotherone.
AndLucas.Lucas,Ithinkwecanallagree,hadwhatisprobablyoneofthemosticonicbrandsin
filmhistoryintheStarWarsuniverse.AndsincewehaveacquiredLucasfilm,we'vereleased
twofilms:TheForceAwakensbackinDecember2015,didextraordinarilywell.Ithinkitwasthe
thirdall-timebestboxofficeglobal--onaglobalbasis.AndthispastDecember,wereleased
RogueOne.ComingDecemberof2017,wehaveTheLastJedi,whichwillbeEpisodeVIII,and
followingthat,we'llhaveHanSolo.Soyou'llseeaseriesofStarWarsmoviesthat'llwork
throughourfilmreleaseslateformany,manyyearstocome.
Sowhenyoulookattheacquisitionsandtheimpactit'shadonus,sincethePixaracquisition,
we'reincludingPixar,Marvel,Lucas,andalsothereinvigoratedDisneyAnimation,we've
released33filmsthathaveaveraged$800millioninglobalboxoffice.Sowhenyoulookatit,
that'swhatit'sreallydoneforourStudio.
MichaelNathanson–Analyst,MoffettNathanson
Withalsoalowdegreeoffailureratebecausewhatblowsyouupinanygivenquarterisa
bomb,right?Andyou'venothad,fromthatcatalog,verymanyproblemsgettingyourmovies
toacertainthresholdintheboxoffice.
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ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
Well,that'sagoodpoint.Butno,webelieveourstrategyisverysound,butwealsoknowthat
nostudioisimmunetoamiss.SoIdon'twanttosaywe'reperfect,butwecertainlytrytobe,
butyoujustneverknow.Wedoourbest.Thestrategywehaveofcreatingbranded,franchise
filmsthataretentpolesisveryimportant.Andwe'vealsoreducedthenumberoffilmsonan
annualbasisthatwerelease.Onaverage,it'llbeaboutten.Sosomeyears,it'llbemore,some
yearsit'llbeless.Thisyear,fiscal2017,wehavesevenmovies.Infiscal2018,weplantorelease
11movies.Soifyoulookatwhatisthattenmoviescomposedof?Ingeneral,you'llseeoneto
twoStarWars,twotothreeanimatedmoviesandtheycouldbefrombothPixarandFeature
Animation,twotofourMarvelmovies.Wedohavefournextyearthatarebeingreleased.And
thebalancewillbefilledinbyDisneyliveaction.
NowletmetouchonDisneyliveactionforamoment.Since2014,wealsochangedourstrategy
forDisneyliveactionandwe'regettingmoreandmoretowardsreimaginingDisneyIPinthe
live-actionformat.Thefirst--we'vedoneseven1movies.Thefirstonein2014wasMaleficent
andthemostrecentwasBeautyandtheBeast.Andifyoulookatthosefilms,theyaveraged
$650millionattheboxoffice,sothatstrategyofreimaginingIPinalive-actionformathasalso
workedverywellforus.
MichaelNathanson–Analyst,MoffettNathanson
Okay.Canyoutalkabit--thisisacurrentdebatethatwehaveallthetime.Canyoutalkabout
howyoumonetizeyourfilmsthroughthevariouswindowsanddiscussyourthoughtson
premiumvideo-on-demandandwhetherornotit'sgoingtohappen?
1 Should be six
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ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
Yes,there'sbeenalotoftalkrecentlyaboutpremiumvideo-on-demand,butlet'sjusttalkfora
momentaboutthewindows.Thewindowsthatwehaveareverysimilartoanystudio.After
release,thehomeentertainmentwindowistypicallyfirst,andthat'llbebothphysicalaswellas
digitaldistributionofthefilm,followedonbyVOD,andtypicallynextisthepayTVwindow,
followedbyfreeTV.AndinthefreeTVwindow,youalsohavesalestobasiccable.Sothat'sthe
kindofsequencingofthewindowsthat'sfollowedformostmovies.
AsitrelatestopremiumVOD,becauseourstrategyisreleasingfilmsthataretentpoles,they're
branded,four-quadranttentpoles,manyofourmoviesareseenasevents.There'salotof
socialmedialeadinguptothereleases,alotofpeoplegetinvestedinthecharactersthrough
ourtrailers,someofourtrailershavebeenthemostdownloadedtrailers,you'veseenallthose
kindsofstatisticsrecently.Butwhenwerelease,webelieve,andIbelieveourconsumers
believe,thatourmoviesarebestseenonabigscreen.Definitelyinitially,andwe'dlikethemto
seeitonthebigscreentwoorthreetimes.Butbecauseofthat,wedon'tfeelthatweshouldbe
movingourmoviesoffofthebigscreenanysoonerthantheycurrentlyare.Sowhilepremium
VODisprobablyastrategythatdoesworkforotherstudiosgiventheirfilmsandgenres,forthe
kindsoffilmsthatwedo,wedon'tbelieve--we'renotengagedinconversationsonpremium.
MichaelNathanson–Analyst,MoffettNathanson
Okay.TurningtoConsumerProducts.Canyoutalkabitaboutprofitperformanceinthefirst
halfoftheyearandwhatdoyouexpectfortherestoftheyear?Soit'sbeenabitofalagging
category,Iknow.Eveninthepastthreequartersorso,ithasnotbeenasconsistentasitwas,
let'ssay,2013to2015or2016.Sowhat'shappenedandwhatdoyouexpectfortherestofthe
year?
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ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
Sure.Greatquestion,andI'dlikeamomenttostepbackandjusttalkaboutourConsumer
Productsbusinesstoputthingsinperspective.Soifwegobacktoafour-yearperiod,2013to
2016,ourConsumerProductsbusinesshasdoubledinoperatingincome,talkingfromabout$1
billionto$2billionoverthatfour-yearperiod.SoIjustwantto--thisisabusinessthathas
grownvery,very--hashadverystronggrowthoverafour-yearperiod.
Inthefirsthalfofthisyear,backinNovember,wesaidthatourConsumerProductsbusiness
wasgoingtohaveavery,verytoughcomptofirstquarterof2016,thereasonbeingwestillhad
strongFrozenmerchandisesalesandwehadthefirstStarWarsreleasethathitinthefirst
quarterof2016.InadditiontoStarWarsmerchandise,wealsohadalicensedgamebythe
nameofBattlefront,soallofthatwasinourConsumerProductsnumber.Thefirstquarterof
thisyearcomparedtofirstquarterof2016,weweredown25%andweprettymuchsaidwe
weregoingtobedownover20%.
Sothefirsthalfcomphasbeenverydifficultandthegrowthfortheyearwouldbe--ifitwas
year-over-yeargrowth,itwouldbedrivenbythesecondhalf.Nowwhileweexpectverygood,
stronggrowth--meaningfulgrowthinboththethirdandthefourthquarter,thatwillcome
frommerchandisesalesrelatedtotwoupcomingfilmsCars3,whichwe'llreleaseinJune,and
Spider-ManinJuly.Sorightnow,we'reabout,Idon'tknow,six,sevenweeksintothethird
quarterandwherewearenowIwouldsaythatwedon't--ifwe'rejustsayingwedon'tbelieve
thatwecould--thatsecondhalf,includingthethirdandfourthquarterwill--itmaynotbe
sufficienttohavegrowthforthefullyearsoit'sjustthatthefirsthalfwastough.Second
quarter--halfwillbegoodwithstronggrowthinthreeandfour,butitmaynotbesufficientfor
fullyeargrowth.
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MichaelNathanson–Analyst,MoffettNathanson
Andonthatpoint,howimportantarenewfilmreleasestodrivinggrowthinCPinanygiven
year?Givenwhatyouhavecomingin2018and2019,whatshouldwetakeawayfromthe
pipeline?AndhowimportantisthattotheoverallgrowthofCP?
ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
Well,filmreleasesare--theyhavebeenimportanttothegrowthespeciallywhenyoulookat
someofthecontentthathascomethroughacquisitionswithMarvelandwithLucas,withStar
Wars.Anygivenyearcanbeimpactedbyafilmrelease,butourunderlyingfranchises,wehave
elevenfranchisesthatgenerateover$1billioninretailsales,andamongthestrongest,the
largestare--actuallyMickeyandDisneystandardcharacters.Sothisisabusinessthathasa
verystrongbaseofIP,andontopofthat,wehavefilmreleases,whichaddtothefranchises.
Andwhenyoulookatthesefranchises,Disneyhasauniquewayofmonetizinganddistributing
ourcontentthroughoutourcompanyacrosstheworldandwe'reabletokeepthesefranchises
aliveforalongperiodoftime,andthat'suniquetoDisney.
MichaelNathanson–Analyst,MoffettNathanson
Andyouknowwhat,it'sfunny,Frozenwasasurpriseintermsof--Frozenwas--Iremember
whenFrozencameandallofasuddentheCPfollowed.SoFrozeniscomingin2019.It'sgoing
toneedadifferent--ithastobeadifferentsequencethistimearoundbecausepeople
anticipateFrozenatretail.
ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
Sure.Frozen--thereareacoupleofthingsthatareupcomingforFrozen.First,Frozenisoneof
thosefranchisesthatisveryappealingtoyoungchildren.Theylovethemusic,andifanyofyou
havechildren,youhaveprobablyheardthosesongsmany,manytimes.Butwehaveastage
playcomingin2018toBroadway,andin2019therewillbeasequeltoFrozen.
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Sopeopleareanticipatingthat,butwecankeepFrozenaliveinourThemeParks,notonlythe
storiesandnotonlyatretail,butinourThemeParks,onourchannels.Andwhenthemovie
comesin--themoviecomesout,peoplehaven'tforgottenaboutit,so--andthat'llbeasix
yearwindowbetweentheoriginalandthesequel.
MichaelNathanson–Analyst,MoffettNathanson
Andmovie'sinthefourth--thecalendarfourthquarter,it'saChristmasquarter?
ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
Yes.
MichaelNathanson–Analyst,MoffettNathanson
Ihavemore,butIhavetoremindeveryone,wedotakequestionsandTracyinabout10
minuteswillcollect--15minuteswillcollectquestionsfromtheaudienceandI'llaskChristinea
question,soifpeoplewanttowritequestionsin10to15minutes,we'llcollectthem.
Thisisnotanewsflashtoanyoneinthisroomthatbrick-and-mortarretailisstrugglingase-
commercegrows.HowdoesDisneyweatherthattrend?Andhowarethosestorespositioned
tosucceedgoingforwardgiventheretailfootprint?
ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
Yes,thisisnotanewsflashisright.Ithinkanyonewhofollowsconsumertrendsandretailsales
hasseenthat.Physicalretail,callitbrick-and-mortar,callitphysicalretail,ischallengedjust
withchangingconsumerconsumptionhabits.OurglobalfootprintforourStoresbusinessis350
stores.Thatis--thathasbeen,overthelastdecade,thestorecounthasreducedby30%and
it'sactuallydownmorethan50%since2000whenwehadourpeakstorecount.Welookat
optimizingourfootprint,rationalizingthewaywe'readdressingthisbusiness,lookingathow
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we'redesigningourstorestomakethemacompellingconsumerexperience,tohavepeople
wanttocomein.Ingeneral,ourstoresaresmallerthantheyusedtobeandnotonlyarethey
smaller,buttheyhavenewIP,incrementalIP,thatwaspickedupwithacquisitions.Sostore--
thewaythestoresarelaidoutisdifferentthantheywereadecadeago.Andwealso,whenyou
lookatourstores,thelocationsofthem,keepourfranchisesandournameinfrontof
consumers.Soyoucan't--peoplecan'tgotoaDisneyparkeveryday,everyweek,every
month,butifyou'reinalocationandyourkidsoryouarebigDisneyfans,youcangotoastore
andyou'rekindofsurroundedbytheIPandthefranchises.Sowhilewestillrationalizeand
addressthisbusinessonaphysicalbasis,wearealsoinvestingmoreine-commerceandreally
lookingatthedirect-to-consumerchannels.
MichaelNathanson–Analyst,MoffettNathanson
Okay,let'sgototheMediaNetworks,we'llgotowhateveryonewantstotalkabout.You've
alwayssaidandBob'salwayssaidandpeopleinthefirstrowhavealwayssaidthecompany
likesitshandwithESPN.Sowhatdoyouseethatgivesyouthatconfidencetokeepsayingwe
likeourhandatESPN?
ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
Well,Michael,Iamsogladyouaskedthatquestionbecauseit'ssuchalongwhilesinceanyone
elseaskedusaquestiononESPN.Soyes,ESPNisabusinessthatwebelieveisattractive.We
havecompellingproduct.Wearecompetitivelyadvantaged.Itisabusinessthatwebelievelive
sportshasneverbeenstrongerandlivesportsarenowbeingviewedonESPNthroughTV,
mobile,over-the-top,digital,audio,andthroughstreamingmorethaneverbefore.Andsome
oftherecentsuccessesthatwe'vehadinliveevents,andI'mtalkingreallyrecent,istheNBA
Playoffs,they'reonrightnowandI'mgladtosaymyhometownteamisstillintheplayoff,
guesswhichonethatis.
4thAnnualMoffettNathansonMedia&CommunicationsSummit May17,2017
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MichaelNathanson–Analyst,MoffettNathanson
Knicks.
ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
No.
MichaelNathanson–Analyst,MoffettNathanson
Joking.I'mjoking,joking
ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
No,itwouldbetheBostonCeltics.
MichaelNathanson–Analyst,MoffettNathanson
BostonCeltics.
ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
ButtheNBAPlayoffs,alsotherecentNFLDraftwasvery--hadverystrongratings.Andwe'rein
thecurrentMLBseasonandwe'regettinggoodratingsoutofMajorLeagueBaseball.Sowhen
youlookatthose,webelievethatthat'scompellingcontentthatpeoplewanttosee.Andin
fact,inthefirstcalendarquarter,theESPN2audienceonayear-over-yearbasiswasup15%and
whenyouincludeout-of-homeviewingandWatchESPNviewership,thataddedanother10%lift
totheiraudience.Sothosethings--Ithinkyouwouldagreethatlivesportsissomethingthat
viewersaregoingtocomeandviewonESPN.Wealso,andIknowthere'sbeenalotspoken
aboutthis,butwebelievewehavethesportsthatpeoplewanttosee.Sowhenyoulookat
2 primetime
4thAnnualMoffettNathansonMedia&CommunicationsSummit May17,2017
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national--theimportantnationalsportsrights,wehavemoreofthoserightsthanallother
sportsmediacombined.Andwedohavesomeofthosesportsthatweconsidermostimportant
--NFL,NBA,andMLB--andreallycovetedcollegesportsintothenextdecadeandwebelieve
thatthatisacompetitiveadvantage.
MichaelNathanson–Analyst,MoffettNathanson
Oneofthethingsyou'vesaidforafewyearsisthere'sgoingtobemorevirtualMVPDs.Sonow
we'veseentheexplosioninvirtualMVPDs.CanyoutalkabitabouthowDisney'snetworksfare
relativetothetraditionaldistributorworldandthevirtualworld?
ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
Sure.NowIthink--remindmetoanswerthatquestion,butletmefirstsaythatournetwork,
ourbrand,consumerdemandmakesournetworkscompellingtoputontheseplatforms.ESPN
wasnotinsomeoftheearlyskinnypackages,butitisinthedigitalplatforms:Sling,SonyVue,
DIRECTVNow,YouTubeTV,aswellasHulu.Weareencouragedbywhatweseeinthose--in
theadoptionofthosenewplatforms.Ithinkit'sfairtosaythesearenascentofferings.Manyof
thesehavecomeoutinthelastyearandtwohavecomeout,bothYouTubeandHulu,have
comeoutinthelastsix,eightweeks.Hulujustcameoutearlierthismonth,thefirstweekin
May.Sowe'reveryencouragedbywhatweseethereand--butonceagain,we'reverybullish
onthelong-term,butyoudohavetohavesometimetoallowforconsumeradoption.
Whenyoulookatonapersubbasis,beingontheseplatformsisasgoodforusasitisonthe
traditional.Sowedon't--soweviewtheseasbeinggreatofferingsthatareimportanttous,as
profitableforus.Andwhatwelikeaboutthesenewplatformsistheyareuserfriendly.The
interfaceskeepgettingbetterandbetter.They'realsomobile.AndBobIgerhastalkedalot
aboutthenecessityfortheseplatformstobeallofthethree:user-friendly,greatinterface,and
mobile-friendly.Andwhenyoucombinethoseattributeswithalowerpricepoint,webelieve
4thAnnualMoffettNathansonMedia&CommunicationsSummit May17,2017
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thatprovidesaveryattractivealternativeforconsumers.Sowe'reverybullishonthisinthe
longrunandwe'restillintheearlydays.
MichaelNathanson–Analyst,MoffettNathanson
Okay.SooverthemanyyearsI'vecoveredyourcompany,it'salwaysbeeneasiertobebearish
onESPN'svaluetodistributorswhenyou'reoutofanaffiliaterenewalcycle,right,sothat's
wherewejustdebatethevalueofthefutureofESPN.Sowhenwillthenextrefreshcyclestart
ontheaffiliatefeeside?
ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
SoIthinksomeofyouknowthatwehaveasmallrenewalthatwillbeattheendofthisfiscal
year,ourfiscalyearendsSeptember30.Soattheendofthefiscalyear,wehaveasmall
renewal.Thatwillstarttherenewalcycle.Thatrenewalcyclewilltakeahandfulofyearsto
workthroughthesystem.Andwhenwelookatwhat'simportanttous,we'renotgoingtogive
youallthestrategythatwehave,butwhat'simportanttouswhenwelookatthesearenot
onlytheratesthatournetworksget,buthowourrates--howournetworksareputonthese
platforms,andalsoit'sreallyimportanttounderstandwhatthefullentertainmentexperience
is,whatisthedistributorgoingtoprovidetotheconsumer.
Sowethinkallofthoseareveryimportant,butthosearejustveryhigh-leveldetails,and
there'samyriadofoptionsandalternativesandthingsthatarepartofthenegotiatingstrategy.
AndwhileIlikeyouverymuch,Michael,andeveryoneinthisroom,wedon'tthinknowisthe
righttimetotalkaboutournegotiatingstrategyforthese,buttheyarecomingup.
MichaelNathanson–Analyst,MoffettNathanson
We'reprovidingguidanceintothefuture.
4thAnnualMoffettNathansonMedia&CommunicationsSummit May17,2017
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ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
Goodtry,butno.
MichaelNathanson–Analyst,MoffettNathanson
Okay.Inthelastrounds,youlaunchedtheSECNetworkandyouestablishedWatchESPNasa
paidservice.Whatotherproductsdoyousee?IknowACCisanetworkthatiscomingtothe
fore--possiblecomingtotheforefront,sohowbigcanACCbe?OrisACConeoftheproducts
you'retryingtoestablishalongtheway?
ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
Well,Ithinkduringthese--ACChasnotyetlaunched,butit'scomingup.Duringthisroundof
negotiations,they'lltrytogetthenegotiating,sowe'lltrytogetfulldistributionaswedidwith
theSECNetwork.
MichaelNathanson–Analyst,MoffettNathanson
Okay.IftherewasalegitimateconcernaboutESPN,it'sonthechangingconsumer--
consumptionpatternsofsportsnews.SowhatareyoudoingatESPNtoshiftthisbusiness
modeltodealwiththistrendofhowallofusnowgetBostonCelticsnewsonourphonesthe
momentithappens?
ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
It'sagreatquestionandIdon't--Idon'tthinkit'ssomethingthatanyonehasn'talreadybeen
thinkingabout.Sonewsandinformationforsports,consumershavechangedthewaythey
consumeit.AndIhaveaprop,sothisisusedalotfornewsandinformation.Somobilephones,
mobiledevicesareusedalotfornewsandinformation.ESPNhasbeenaleaderinmobileand
they'vedone--they'vecreatedveryinnovativeprojects--productsthroughtheirdigital
platform.Theyhavecontinuedtodothingslikerationalizetheirapps,combinetheirapps,look
4thAnnualMoffettNathansonMedia&CommunicationsSummit May17,2017
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atengagementthroughtheirinterface,throughpersonalization,customization,useofvideo--
that'skeyforsportsfans--andthatisallwhattheyhavebeenworkingon,andincreasingtheir
integrationacrossalloftheirplatforms.Sonewsandinformationissomethingthatischanging
andESPNhasbeenaddressingthatchangeforseveralyearsnow.
AnotherthingIjustwanttotalkaboutisSportsCenter.Sothere'sbeenanawfullotoftalk
aboutSportsCenterandoneofthethingsthatwe'vedone,anditreallystartedabout18
monthsago,iswe'velookedatpersonality--brandedpersonality-drivensegmentsof
SportsCenter.So18monthsago,welaunchedScottVanPeltatthe12--midnighthour,and
sincethattime,hisshowhasdoneverywell.Andinfact,it'sthe#1showinhistimeslotfor
males18to34,andthat'scompetingagainstsomelate-nightTV.Sothat'saveryappealing
demographic.We'vealsorecentlylaunchedinthe6p.m.hourapersonality-drivenshowwith
MichaelSmithandJemeleHill.Andjustyesterday,weannouncedattheUpfront--ESPN's
Upfront--thatSageSteelewillbegoingtoBristolanddoingthemorningSportsCenter,7to10,
andwe'llalsohavewhatwebelieveisareallygood11p.m.SportsCenterthatwillhaverotating
anchorswithsomeofourfourbest-knownanchors,includingtheveryengagingandsometimes
irreverentKennyMayne,sohe'llbepartofthat.Andthat'stheleadintoScottVanPelt.Sowe
areaddressingSportsCenterandreallychangingitfromnewsandinformationtomore
personality-drivensegments.
MichaelNathanson–Analyst,MoffettNathanson
Okay.Tracy,youwanttocollectthem?I'llkeepaskingquestions.
Sinceyou'vebeenCFO,youreallysteppedupthebuybackeffortsofthecompany.Sohowdo
youbalancetheneedtoinvestininternalgrowthversusthereturnofcapitaltoshareholders?
4thAnnualMoffettNathansonMedia&CommunicationsSummit May17,2017
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ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
Sure.Youknow,sinceI'vebeenCFO,ourcapitalstrategyhasnotchanged.BeforeIwas
fortunateenoughtobetheCFOofDisney,IwasTreasurerfor15years.SoIwasveryinvolved
inourcapitalallocationstrategyaswellastheexecutionofit.Sowehaven'tchangedthat.
We'vealwaystakenaverydisciplinedandmeasuredapproachtocapital,andfirstand
foremost,ourpriorityistoinvestinourbusinesses.It'sinvestinginbusinesseswhereit's
investingforgrowthandalsonewinitiativesinsomeofthosebusinessesthatwebelievecan
alsonotonlydrivegrowth,butdrivestrongreturns.Sothat'sfirstandforemost.Wealsohave,
overtheyears,executeduponaverydisciplinedM&Astrategy,that'salsobeenpartofour
growth,andIthinkyouseewiththeacquisitionsofPixar,Marvel,Lucas,thatthosehavebeen
verysuccessfulandverywellintegratedintothecompany.
Sowhenyoulookatthestrengthofourbalancesheet,whichisstrong,we'vealsobeenableto
consistentlyreturncapitaltoshareholdersandwe'vedonethatthroughnotonlybuybacks,but
alsodividendsandthisissomethingthatweviewasastrengthofthecompany.Andjustlast
week,weannouncedthatweweregoingtoincreaseourfiscal2017sharerepurchase,which
wehadgivensortofanexpectationofit,wouldbeinthe$7billionto$8billionrange,thatit
willnowbeinthe$9billionto$10billionrange.Andthat,onceagain,justreinforcesour
confidenceinourcompanyaswellasourlong-termfuture.
MichaelNathanson–Analyst,MoffettNathanson
Yes,asaformerTreasurer,Idon'tknowifyouagree,butthecompanytouslooksveryunder-
levered.Sogiventhestabilityofyourcashflows,whynotraiseyourdebtleveltosomething
moreinlinewiththerestofthemediasector?
ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
Well,that'sagoodquestionandotherpeoplehavebroughtitupfromtimetotime.Wedo
generatealotofcash,Michael,andwedohaveaverystrongbalancesheet.Weconsiderour
4thAnnualMoffettNathansonMedia&CommunicationsSummit May17,2017
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balancesheetandourfinancialstrengthtobenotjustafinancial--notjustastrategicasset,
butalsoafinancialasset.Andweare--wehavelessleveragethantheothermediaand
entertainmentcompanies,andthat'sreallyreflectedwhenyoulookattheratingsdifferentialin
ourcompanyversustheothermediacompanies.
Whenwegotothecapital--thefixedincomecapitalmarketstoraisedebt,thefixedincome
marketreallylooksatourpeergroupasbeingthelargeglobalbrandedcompanies.Sowe're
notcompetingagainstthemediasector.We'rereallycompetingagainstglobalbranded
companynames.Sothat'sjustanotherdifferential.
Whenwethinkaboutourbalancesheetoverall,wethinkaboutitprovidingflexibility,financial
flexibility.Wehavebeenabletomakelong-terminvestments,acommitmentonourown
balancesheetwithoutstructuredfinancingtoo,butonourownbalancesheetandwe'vebeen
abletodothatthroughcycles.Andsosomeofthoseprojectsthatwehadthatbeganbefore
thefinancialcrisis,wewereabletocontinuethoseprojects.Wedidn'thavetoslowdown.We
justcontinuedandcompletedthemonourscheduledtimeframe.Sothat'sveryimportant.
We'realsoableto--whenwedogotomarket,we'reabletoraisedebtatveryattractivelevels
andwealso,andI'lljustquoteoneoftheratingagenciesthatrecentlyupgradedus,wehave
exceptionalliquidity.Andwhat'sgreataboutourliquidityisthatthathasalsoservedusvery
wellduringperiodsofmarketstress.Sohopefully,wewon'thavetodealwiththingslikewedid
afewyearsagowiththefinancialcrisis,butwebelievethatwe'llstillhavethesameexperience
wedidbackthen.
MichaelNathanson–Analyst,MoffettNathanson
Andyouguysdon'ttakefilmfinancing,that'soneofyourdifferences.Youdon'thavetogoto
thirdpartiesforfilmfinancing,soyouownallyourIPandyoudon'tshareoutsidewithanyone.
4thAnnualMoffettNathansonMedia&CommunicationsSummit May17,2017
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ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
Correct,correct.
MichaelNathanson–Analyst,MoffettNathanson
Okay.SoIhavesomequestionsfromtheroom.Howimportantareglobaldigitalrightswhen
negotiatingTVcontractswiththemajorU.S.sportsleagues?SoyouonlygettheU.S.rights,I
knowwiththeNFLyou'vegotsomeglobalrights,theNBAalso.Socouldyougiveusasenseof
how,perhaps,theglobalrightsopportunitiesisnowimpactingyourinterestinnegotiatingnew
deals?
ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
Yes.Whenyoulookatsportsrights,ESPNisprimarilyadomesticU.S.business.Theotherpart
oftheworldwheretheyhaveasignificantpresenceandsignificantsportsrightsisinLatin
Americaandwehavevariouschannelsdowntherethatarebettertargetedtowardsthekey
sports,oneofwhichweallknowisfootballorsoccer,butalsobaseball--thereareotherthings
thataredownthere.ButLatinAmerica--andthenwehavesomelicensedealsinotherpartsof
theworld.WehaveadealinChina,Tencent--withTencentandthey'verecentlydoneother
dealsinAfricaandinvariouslocations,butweareprimarilyaU.S.sportscompany.
MichaelNathanson–Analyst,MoffettNathanson
Okay.Andthis,willDisneyeverconsiderbiddingfordigitalsportsrightsinsteadoftraditional
airingrights,soIthinkrecentlywasthatUEFAChampionsLeague.SowithBAMTechinthe
background,howdoestheinterestindigitalrightsappeartoyouwithBAMTechdeveloping
soon?
ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
Sure,BAMTechwasaninvestmentweshouldprobablygiveamention.SoIthinkitwasabouta
yearago,looking--yes,aboutayearago,lastAugust.Wemadeaninvestmentof$1billionfor
4thAnnualMoffettNathansonMedia&CommunicationsSummit May17,2017
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abouta30--1/3ofBAMTechandwedohavetheabilitytoincreaseownershipovertimeand
theywillbelaunchingabrandedESPNofferinglaterthisyear,buttheywillbe--we'renotgoing
tocompeteagainstthemfordigitalsportsrights,butthat'scertainlyapossibilitythatwewould
beaparticipantasthecurrentthirdownerinthose.Theworld'schangingandESPN,whenI
lookatsportsrightsandwheneitherwe'relookingatrenewalsandrenegotiationsorthings
thatareoutinthemarketplace,they'llconsiderallthingsandthey'lllookatthecurrent
environmentandmaketherightdecision.
MichaelNathanson–Analyst,MoffettNathanson
YouhadaquestionthatwegetandI'msureyouhearthisallthetimeiswhywoulditmake
sensetoseparateABC,ESPNfromDisneyassets?Somepeoplethinkitmakessense,so--
ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
Theremustbeaninvestmentbankerintheroom.That'ssomethingthat'stalkedabout.We
haveafiduciaryresponsibilitytolookatthingsforshareholders.Andweareverydeliberate
andwelookatalotofthingsandIthinkit'sfairtosaythatwelookatourbusinesses.Welike
thehandwehavenow,butwecontinuetolookatourarrayofbusinessesanddowhatwe
believeisinthelong-termbestinterestofshareholders.
MichaelNathanson–Analyst,MoffettNathanson
Okay,ABCTVStudioyesterdaywastheirUpfront.Howdoyoubalancesellingoutsidetoother
networksversusonlyacquiringyourABCStudiocontentforABC?Andmaybeturningaround,
howmuchofABC'scontentiscomingfromABC'sownproductioncompany?
ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
SoABC--bothESPNandABChadtheirUpfrontyesterday.ABCStudiosisourin-house
productionstudioandIthinkover60--maybemostofthe--over60%oftheshowsthatwe
4thAnnualMoffettNathansonMedia&CommunicationsSummit May17,2017
24
pickedupthisyearwereABCStudioshows,andIbelievewehaveapieceofeveryshow.We
madesomeco-producedshowsinournewslate,butwehaveapieceinallofthose.We
produceshowsanddependingonourslate,whentheyputtogethertheslatefortheweek,
whentheylookatwhetherit'sacomedy,whetherit'sadrama,whetheritfitsintheschedule,
ourentertainmentpeoplewillmakeadecisionwhetherornotitmakessenseandalsoforthe
viewershipthatwehave,ifitmakessenseforourviewers.Withsomeshowsthatweproduce,
weownthem,buttheyactuallydoquitewellonothernetworks.Oneexamplethat'sbeen,for
severalyears,ontheairisCriminalMinds.That'saverysuccessfulshowforCBS,butweownit.
Sothat'sjustoneexampleandthereareafewshowsthatwe’llproducethisyearthatother
networkspickedup,butwedogetfirstlookandwe'llmakethedecisionifwethinkit'srightfor
ournetworkandrightfortheschedulethatweareputtingouttothemarketplace.
MichaelNathanson–Analyst,MoffettNathanson
Goingbacktovirtualbundles,youexpressedconfidencethatthesewillbequitepositivefor
revenuesintheindustrygoingforward.NowthatYouTubeandHuluhavebeeninthemarket
foronetotwomonths,havetheybeensufficienttoreversetheacceleration?Orisittooearly
andit'snotknown?Andperhapsyourvisibilityisnot--youguysarenotuptothe--soyou
wanttotalkalittlebitabouthowmuchyouseeandhowquicklyit'shelping?
ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
Ithinkthequestionisreally,doyoubelievethattheadoptionofthedigitalMVPDswillbe
sufficienttooffsetthelossoftraditionalcable,that'sthebasicquestion.Iwouldsaywe
certainlyhopeso,buttheseare--thesejustcametomarket.Theyjustcametomarket.People
aregoingto--I'msurethey'regoingtotalkaboutthem,they'regoingtogoonline,they're
goingtotalktofriends,doyoulikeit,whatdoyoulikeaboutit,whatdoyounotlikeaboutit.I
thinkit’sreallytooearlytotell,butwehaveseengoodadoption,initialadoption,early,early
days,andwhenyouhavethesedigitalMVPDs,you'vegottolookattheadoptionandalsoyou
havetolookatthechurn,andwe'rehopingthatthesenewproductsarecompellingenoughfor
thosewhochoosetousethemthattheywillkeepthemandthetrendwillbedownandthe
4thAnnualMoffettNathansonMedia&CommunicationsSummit May17,2017
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adoptionwillcontinuetorise.Theyarealowerpricepointsowebelievethattheywillappeal
topeoplethatmaynothavetraditionalcable,theymaybeyoung,theymaybegettingoutof
school,theymayhavejustmovedoutfromtheirparentsandtheymaylookitthisasagood
alternative.SoIthinkweareoptimistic,butwe'realsorealistsandtimewilltell.
MichaelNathanson–Analyst,MoffettNathanson
Andthisisafollow-upquestion.Onthelastcall,allcallsreally,thecompanyhasalwaysbeen
veryopenaboutwhatyou'reseeinginthebusiness,right?AndyouinvestedintoBAMTechand
you'vebeenbehindvirtualMVPDs.IsthereaPlanB--isthereaPlanB?Oristhis--isthere
anotherplan?Peoplewantedtoknowifthetrendsdon'tstabilize.OristhisthePlanBtowhat
was--usedtobePlanA,whichwasthebusinessisthebusiness?
ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
Boy,that'sacomplicatedquestion.Look,Ithinkwherewearenowinthiscycle,thesedigital
MVPDshavejustbeenlaunched.AndIsuggest–Imean,Icameoutofthebankingindustryfor
manyyearsandIrememberwaybackwhenATMscameonandpeoplewerekindofafraid,and
overtime,IthinkeverybodyusesanATMnow.AdoptionwilloccurandIthinkit'lloccurmuch
fasterbecausepeoplearealotmoretechsavvy.Theyknowhowtodownloadthings.They're
goingtosample,alotofmillennialslovetosamplethings.
SoIthinkrightnow,whereweareintheevolutionofthemediabusiness,thedigitalMVPDs,
we'llseehowtheywork.Nowsomethingelsemaycome,Idon'tknowwhatthat'llbe.Ifthere
wasamagicholygrailsomeplace,Ithinkwe'dallbejumpingonhorsesandgoingtothe
pilgrimage.Butwedon'tknowandIthinkwearevery--wehavegreatmindsandpeople
thinkingaboutthis.It'satopicwethinkaboutdailyandwe'llseehowtheseworkandI'msure
thattherewillbeiterationsandmodificationsthat'llcometothemarket.Butrightnow,I'dsay
givethemachance,thedigitalMVPDs.
4thAnnualMoffettNathansonMedia&CommunicationsSummit May17,2017
26
MichaelNathanson–Analyst,MoffettNathanson
Right.AndIwouldsay,lastquestiontowrapitup,iswhenyouallocateyourcapital,your
allocationofcapitalhasproducedprettygoodreturnsawayfromtheMediaNetworksbusiness,
right?Sothere'sbeenalong-termstrategytoinvestbehindthewholeDisneybalancesheet
andthewholeDisneyoperatingdivisions,justaround,andnotonlyaroundMediaNetworks,
right?
ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
Ohsure.
MichaelNathanson–Analyst,MoffettNathanson
SotheROICimprovementatDisneyiscomingawayfrom--theotherbusinessesarekickingin
muchmore--higherincrementalROIC.
ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
Oh,yes.Ithink,inclosing,ourbusinesses,whenyoulookatourStudiobusiness,ourConsumer
Productsbusiness,ourThemeParksbusiness,theyareallverystrong.Thereisalinkage
betweenallthosebusinessesthat'sIP-related.Andonceagain,whenyouthinkaboutwhat
makesDisneyuniqueversusothercompaniesinthemediaandentertainmentworld,it'sthe
factthatwecantakeourIPandwecanuseit,monetizeit,keepitalive,keepthefranchises
alivethroughthatwholeDisneyecosystem.Sowhenyoulookatthat,thathasreallyresultedin
improvedandvery,Iwouldsay,veryattractivelevelsofreturnoncapital.
MichaelNathanson–Analyst,MoffettNathanson
Okay.Christine,thankyou.Thankyouall.Weappreciatethesupport.Andweknowthere'stwo
comingupafterthis,sothankyouverymuch.
4thAnnualMoffettNathansonMedia&CommunicationsSummit May17,2017
27
ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
Thankyou.
###
Forward-LookingStatements:
Managementbelievescertainstatementsinthiscallmayconstitute“forward-lookingstatements”withinthemeaningofthePrivateSecuritiesLitigationReformActof1995.Thesestatementsaremadeonthebasisofmanagement’sviewsandassumptionsregardingfutureeventsandbusinessperformanceasofthetimethestatementsaremade.Managementdoesnotundertakeanyobligationtoupdatethesestatements.Actualresultsmaydiffermateriallyfromthoseexpressedorimplied.SuchdifferencesmayresultfromactionstakenbytheCompany,includingrestructuringorstrategicinitiatives(includingcapitalinvestmentsorassetacquisitionsordispositions),aswellasfromdevelopmentsbeyondtheCompany’scontrol,including:
-adverseweatherconditionsornaturaldisasters;-healthconcerns;-international,political,ormilitarydevelopments;-technologicaldevelopments;and-changesindomesticandglobaleconomicconditions,competitiveconditionsandconsumerpreferences.
Suchdevelopmentsmayaffecttravelandleisurebusinessesgenerallyandmay,amongotherthings,affect: -theperformanceoftheCompany’stheatricalandhomeentertainmentreleases; -theadvertisingmarketforbroadcastandcabletelevisionprogramming; -expensesofprovidingmedicalandpensionbenefits;
-demandforourproducts;and-performanceofsomeorallcompanybusinesseseitherdirectlyorthroughtheirimpactonthosewhodistributeourproducts.
AdditionalfactorsaresetforthintheCompany’sAnnualReportonForm10-KfortheyearendedOctober1,2016andinsubsequentreportsonForm10-QunderItem1A,“RiskFactors”.Reconciliationsofnon-GAAPmeasurestoclosestequivalentGAAPmeasurescanbefoundatwww.disney.com/investors.