q4 fy16 earnings transcript - The Walt Disney CompanyFiscal Full Year and Q4 FY16 Earnings...

©Disney

FiscalFullYearandQ4FY16EarningsConferenceCall

NOVEMBER10 , 2016

DisneySpeakers:

BobIgerChairmanandChiefExecutiveOfficer

ChristineMcCarthySeniorExecutiveVicePresidentandChiefFinancialOfficer

Moderatedby,

LowellSingerSeniorVicePresident,InvestorRelations

FiscalFullYearandQ4FY16EarningsConferenceCall November10,2016

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PRESENTAT ION

Operator

WelcometoTheWaltDisneyCompanyfiscalfull-yearandQ4FY16earningsconferencecall.My

nameisAnnaandIwillbeyouroperatorfortoday'scall.(OperatorInstructions).Pleasenote

thatthisconferenceisbeingrecorded.

IwillnowturnthecallovertoLowellSinger,SeniorVicePresidentofInvestorRelations.Please

goahead.

LowellSinger–SeniorVicePresident,InvestorRelations,TheWaltDisneyCompany

Goodafternoon,andwelcometoTheWaltDisneyCompany'sfourthquarter2016earningscall.

Ourpressreleasewasissuedabout45minutesago,andisavailableonourwebsiteat

www.Disney.com/investors.Today'scallisalsobeingwebcast,andarecordingandtranscript

willalsobeavailableonourwebsite.

Joiningmefortoday'scallareBobIger,Disney'sChairmanandChiefExecutiveOfficer,and

ChristineMcCarthy,SeniorExecutiveVicePresidentandChiefFinancialOfficer.Bobwilllead

off,followedbyChristine,andthen,ofcourse,we'llbehappytotakeyourquestions.

Andwiththat,letmeturnitovertoBob,andwecangetstarted.

BobIger–ChairmanandChiefExecutiveOfficer,TheWaltDisneyCompany

Thanks,Lowell,andgoodafternoon.

Wejustfinishedagreatyear,oursixthconsecutiveyearofrecordresults,andsincefiscal2013

we’vedeliveredEPSgrowthofalmost20%.Fiscal2016alsoincludedtwoofthemost

importantachievementsinthehistoryofourcompany:ThephenomenalreturnofStarWars


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andthespectacularopeningofShanghaiDisneyResort.We’reextremelyproudofthese

accomplishments,whichwilldrivelong-termgrowthforourcompany.

StarWars:TheForceAwakensexceeded$2billioninglobalboxofficemakingitthethird-

highestgrossingmovieofalltimeandwe’reonlyjustbeginningtoreapthebenefitsofour

Lucasfilmacquisition.Nextup,wehaveRogueOne–afantasticoriginalStarWarsstory,

openinginDecember.StarWars:EpisodeVIIIwillbeintheatersDecemberof2017,followed

byastandalonemovieaboutyoungHanSoloin2018.Andwe’llreleaseEpisodeIXthefollowing

year.Workonallthosemoviesisalreadyunderwayandwe’rethrilledwithwhatwe’veseenso

far.

ThemagnitudeofourStudio’ssuccessinfiscal2016issimplystunning.Wereleasedfourfilms

thatbroke$1billioninworldwideboxoffice:TheForceAwakens,CaptainAmerica:CivilWar,

FindingDoryandZootopia.AndJungleBookcameveryclose,with$966million.OurStudio

slatetoppedarecord-breaking$7.5billionintotalboxofficefortheyear.Disney,Pixar,Marvel

andLucasfilmallcontributedtothisremarkableachievementandtheircreativemomentum

continues.

DoctorStrangejustopenedtogreatnumbers–Marvel’s14thconsecutivemovietoopenat#1

attheUSboxoffice–andithasalreadysurpassed$377millionworldwide.

Ournextanimatedmusical,Moana,isalreadygeneratinggreatbuzzaheadofitsopeninglater

thismonthandweexpectitwilljointhepantheonofrecenthitsfromDisneyAnimation

alongsideZootopiaandFrozen.

TurningtooursuccessinShanghai,wewelcomedfourmillionguestsinourfirstfourmonthsof

operation,whichincludedthepeaksummerseason.Someofyoumayinferfromthisearly

performancethatwecouldachieve10millioninattendanceinthepark’sfirstyear–anumber

wewouldbethrilledwith,butwearenotprovidinganyannualguidanceatthispoint.


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Iwastherelastweekandtheplacelooksfantastic.It’sveryclearourguestsarethoroughly

enjoyingit.They’reenthusiasticallyembracingourstoriesandcharacters–classicslikeMickey

Mousearefanfavorites,buttheyloveournewIP,too–likeZootopia.Andwerecently

announcedwe’realreadyexpandingtheparkwiththeadditionofToyStoryLand.

ShanghaiDisneylandisnowanationaltouristdestination.Morethanhalfourguestscome

fromoutsideShanghai,andmillionsofpeopleacrossChinaaredevelopingamuchgreater

awarenessandaffinityforourbrand,whichwillcertainlyhelpdriveourgrowthinthathuge

marketoverthelongterm.

TurningtoMediaNetworks,ESPNgrewinfiscal2016andweexpectthatgrowthtocontinue

overthelongterm.AswesawwiththeWorldSeries,peoplelovetheexcitement,the

immediacyandthesheerentertainmentoflivesports.AndESPNhastherichestcollectionof

sportsrightsinthebusiness,includingtheNBA,CollegeFootball,theCollegeFootball

Championship,MajorLeagueBaseball,CollegeBasketball,andtheNFL.

OurnewNBAdealrunsthroughthe2024-2025season,securinglong-termrightstoasportthat

continuestogrowinpopularity.Theagreementgivesusmoreinventoryandmorerightsthan

we’veeverhad,andwillserveESPNverywellintheyearstocome.

MaintainingtheunequalledscopeandqualityofESPN’sprogrammingisatoppriority,andsois

distributingthatvaluablecontentasbroadlyaspossible.Andwe’vemadesignificantstridesin

thatdirection,particularlywhenitcomestolicensingESPN’sprogrammingtoover-the-top

distributors.InadditiontoourdealswithSonyandSling,we’verecentlycloseddealswithHulu

aswellasAT&T/DirecTV--whichfeaturesESPNamongthe100channelsofferedonthenew

DirecTVNowservice.


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WebelievethesenewserviceswillultimatelymovemoreMillennialsintothePay-TVuniverse,

andwe’recurrentlyinnegotiationswithotherdistributorstofurtherexpandourpresenceon

thesenewplatforms.

OurrecentinvestmentinBAMTechisalsotargetedatexpandingourreach,andwe’reexcited

aboutrollingoutourfirstESPN-brandedcontentdirect-to-consumersviathisplatformin2017.

BAMTechisalsoexpandingitsbusinessintoEurope,throughanewdealwithDiscovery.

Overthelastseveralyears,we’verepeatedlyexpressedourstrongbeliefthatourunrivalled

portfolioofvaluablebusinesses,brandsandassetsgivesusthestrongesthandandthebest

strategicpositioninthemediaindustry.Oursustainedperformanceclearlydemonstratesour

abilitytousethestrengthofourincredibleassetstodrivevalueandweareextremely

confidentthatwe’llcontinuetodeliversignificantlong-termgrowth.

WithmodestgrowthduetosomecomparabilityfactorsthatChristinewilldetail,fiscal2017will

beananomalyinourgrowthtrajectory.Wefullyexpectareturntomorerobustgrowthin

fiscal2018andbeyond–particularlygiventhepowerfulupcomingslatefromourStudio.In

fiscal2018alone,wehavefournewMarvelmovies,threeanimatedfilmsfromPixarandDisney

AnimationandtwoStarWarsreleases,includingEpisodeVIII,whichwillalsobenefitour

ConsumerProducts.

Wehavealwaysmanagedthiscompanyforthelong-term,andoursustainedperformance

reflectstheenduringstrengthofourstrategy,theincreasingvalueofourtremendousbrands

andfranchisesandouruniqueabilitytoconsistentlyleveragecreativesuccessacrossourentire

company.

Andwiththat,I’llturnthecallovertoChristinetogooverthedetailsofourquarterandtrends

thatmayimpactfiscal2017.Christine?


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ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany

Thanks,Bobandgoodafternooneveryone.Iampleasedtoreportanothersolidquarterof

financialresults,which,asBobsaid,capsoffanothergreatyearforourcompany.Excluding

itemsaffectingcomparability,earningspersharewere$1.10forthefourthquarterand$5.72

forthefullyear.We’vebeenabletodeliversolidresultsyearafteryearwhilemaintaininga

strongbalancesheet,which,combinedwithrecordoperatingcashflowof13.2billiondollarsin

fiscal2016,providestremendousflexibilitytomakekeyinvestmentstoexpandourexisting

businesses,capitalizeonnewgrowthopportunitiesandreturncapitaltoourshareholders.

BeforeIdiscussoursegments’fourthquarterresults,IwanttoremindyouthatourQ4results

lastyearincludedthebenefitofanadditionalweekofoperationscomparedtothisyear.This

53rdweekinourfiscal2015calendarmakescomparisonsofourresultsalittlechallenging.

Whilethereisanelementofimprecisioninquantifyingtheimpact,wearegoingtogiveyouour

bestassessmentofhowthe53rdweekaffectedkeysegmentsanddrivers.Aswe’vepreviously

discussed,weestimatethebenefitofthe53rdweektoourQ4fiscal2015resultswas

approximately$350milliondollarsinoperatingincome,orabout$0.13centsinearningsper

share,withthemajorityoftheimpactatCable,followedbyParksandResortsandtoalesser

extentConsumerProducts.

AtMediaNetworks,weestimatethe53rdweekhadanadverseimpactontheyear-over-year

changeinoperatingincomeofabout12percentagepoints.Asaresult,operatingincomewas

down8%inthequarterasgrowthinBroadcastingwasmorethanoffsetbyadeclineatCable.

Theyear-over-yearchangeinCableoperatingincomewasweigheddowninQ4byabout14

percentagepointsduetothe53rdweek,whichadverselyaffectedresultsatESPNandDisney

Channels,andledtoa13%declineinCableoperatingincomeforthequarter.


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LowerresultsatESPNweredrivenbydecreasesinadvertisingandaffiliaterevenuecompared

tothefourthquarterlastyear.ESPN’sadrevenuewasdown13%inthequarter.Theyear-over-

yeardeclinewasduetothreefactors:asignificantdecreaseindailyfantasyadvertising,an

additionalweekofadrevenueinQ4lastyear,andtheimpactofaddollarsbeingdivertedto

Olympicsprogramming.Sofarthisquarter,ESPN’sadsalesarepacingdowncomparedtolast

year,mostlyreflectingthetimingofkeyCollegeFootballbowlgames.Thisyear,ESPNwillair

onlythreeoftheNewYear’sSixbowlgamesduringourfiscalQ1,whereasallsixgamesaired

duringthefirstfiscalquarterlastyear.Affiliaterevenuewaslowerinthequarterashigher

contractualratesweremorethanoffsetbytheimpactofthe53rdweekandadecreasein

subscribers.

TurningtoBroadcasting,operatingincomewashigherinthequarterduetogrowthinaffiliate

revenueandhigheroperatingincomefromprogramsales,partiallyoffsetbyloweradvertising,

higherprogrammingcostsandanincreaseinequitylosses.Theincreaseinaffiliaterevenuewas

drivenbyhighercontractualrates.HigherprogramsalesweredrivenbysalesofLukeCageand

Quanticoduringthequarter.Programmingexpenseswereupinthequarterasaresultof

highercostsfornetworkprogramming,theadditionoftheEmmyAwards,andhighercostsfor

politicalnewscoverage.

AdrevenueattheABCNetworkwasadverselyimpactedbyanestimated8percentagepoints

duetothe53rdweek,whichwastheprimarydriverofthe5%declineinadrevenueduringthe

fourthquarter.Quarter-to-date,primetimescatterpricingattheABCNetworkisrunning24%

aboveupfrontlevels.

Turningtoaffiliaterevenue,weestimatethe53rdweekandFXhadan8percentagepoint

adverseimpacttoMediaNetworksaffiliaterevenuegrowth,whichwasdown3%inthe

quarter.GrowthintotalCableaffiliaterevenuewasadverselyimpactedby8percentagepoints

duetothe53rdweekandFX,whichdrovea5%declineinthequarter.DuringQ4,wealsosaw

solidgrowthinBroadcastingaffiliaterevenue,whichonceagainwasupdouble-digits.


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AtParksandResorts,weestimatethe53rdweekhada12percentagepointadverseimpacton

theyear-over-yearchangeinoperatingincome,whichwasdown5%inthefourthquarter.

Ourunderlyingdomesticbusinesshadanothergreatquarter.Weestimatethe53rdweek

createda16percentagepointheadwindtogrowthinoperatingincome,yetgrowthinOIatour

domesticoperationswasstillup2%.Operatingmarginsatourdomesticoperationswereup

120basispointscomparedtoQ4lastyear,despiteanadverseimpactofabout120basispoints

duetothe53rdweek.

Attendanceatourdomesticparkswasdown10%inthequarter,reflectingtheadditionalweek

ofoperationsinQ4lastyear.Onacomparablefiscalperiodbasis,attendancewasdownabout

3%ashigherattendanceatWaltDisneyWorldwasmorethanoffsetbylowerattendanceat

Disneyland,whichwascompingagainstverystrongattendanceinQ42015duringthepark’s

60thAnniversarycelebration.Percapitaspendingwasup7%onhigheradmissionsandfoodand

beveragespending.Perroomspendingatourdomestichotelswasup1%andoccupancywas

upover2percentagepointsto86%.

Whiletheunderlyingperformanceofourdomesticbusinesswasquitestronginthequarter,

operatingincomeatourinternationaloperationswaslowerdrivenbyabouta$100million

dollardeclineatDisneylandParis,partiallyoffsetbyapositivecontributionfromafullquarter

ofoperationsatShanghaiDisneyResort.DisneylandPariscontinuedtoexperiencesoftnessin

thequarterduetothelingeringeffectofterrorismandeconomicandpoliticaluncertainty.

Whilewe’redisappointedwithDisneylandParis’resultsinthequarter,weexpecttoseenear-

termimprovementinconnectionwiththe25thAnniversarycelebration,whichbeginsinspring

2017.

AsBobdiscussed,wecouldn’tbemorepleasedwiththelaunchofShanghaiDisneyland.The

financialresultsforthepark’sfirstfullquarterofoperationswereaheadofourexpectations.As


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welooktofiscal2017,weexpectShanghaiDisneyResorttobeveryclosetobreakevenforthe

year.

AttheStudio,operatingincomewaslowerforthefourthquartercomparedtoQ4lastyeardue

tolowerworldwidetheatricalresults,partiallyoffsetbyhigheroperatingincomefrom

televisiondistribution.LowertheatricalresultsreflecttheperformanceofPete’sDragonand

QueenofKatweinthequartercomparedtoAnt-ManinQ4lastyear,aswellashigher

marketingspendingforfilmsyettobereleased.Toputthingsinperspective,whileQ4results

werelowercomparedtolastyear,ourStudiohadaphenomenalyearwithoperatingincomeup

37%toarecord$2.7billiondollars.

AtConsumerProductsandInteractiveMedia,weestimatethe53rdweek,whichweighedon

ourlicensingresults,hadanadverseimpactonsegmentoperatingincomeofabout9

percentagepoints.Asaresult,segmentoperatingincomedeclinedby5%duetolowerresults

inourlicensingandgamesbusinesses.WhilewecontinuedtoseestrongsalesofFindingDory

merchandiseinthefourthquarter,thiswasmorethanoffsetbystrongsalesofFrozen

merchandiseinQ4lastyear.

Duringthefourthquarter,werepurchasedabout16.6millionsharesfor$1.6billiondollars.

Andforthefullyear,werepurchasedabout73.8millionsharesfor$7.5billiondollars.Sofar

thisquarter,we’verepurchased6.1millionsharesforapproximately$560milliondollars,and

weexpecttorepurchasebetween$7and$8billiondollarsfortheyear.

Aswelooktofiscal2017,weexpecttodelivermodestEPSgrowthfortheyearduetosome

comparabilityfactors.

Let’sstartwithCable,whereweexpectfiscal2017programmingcoststobeupabout8%

versusfiscal2016drivenprimarilybythefirstyearofournewNBAcontract,whichaccountsfor

$600milliondollarsofthatincrease.


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OurParksandResortssegmentispositionedforcontinuedgrowthin2017due,inpart,tothe

openingofAvatarlandatWaltDisneyWorldandafullyearofresultsfromShanghaiDisney

Resort.

TherearethreeParkscomparabilityitemsI’dliketomention.First,HurricaneMatthew

disruptedouroperationsatWaltDisneyWorldinearlyOctober,whichresultedintheclosure

ofourparksforaboutadayandahalf.WeestimatetheimpactofthehurricaneonQ1

operatingincometobeapproximately$40milliondollars.Second,duetotheimpactof

HurricaneMatthewandtheconversionofroomsatWildernessLodgetoVacationClubunits,

Q1totaldomesticresortreservationsarepacingdownabout2%,whilebookedratesarepacing

up3%.Andthird,I’dliketopointoutthatoneweekofthewinterholidayperiodwillfallinQ2,

whereastheentireholidayfellinQ1lastyear.Asaresult,thiswillshiftabout$20million

dollarsofOIfromQ1intoQ2.

TurningtotheStudio,BobdiscussedthestrengthofourslateinQ1,andit’sworthmentioning

wewillalsoreleaseBeautyandTheBeast,GuardiansoftheGalaxyVolume2,thefifth

installmentofPiratesoftheCaribbean,andCars3duringtheyear.Whileweremainthrilled

withourStudiobusinessandthegreatfilmswehaveinthepipeline,I’llremindeveryonethat

resultsinfiscal2017willcompagainstarecord-breaking2016dueinpartduetothe

phenomenalsuccessofStarWars:TheForceAwakens.

AtConsumerProductsandInteractiveMedia,whileweexpectoperatingincomegrowthforthe

fullyear,weexpectOItobedownmorethan20%inthefirstquarterduetothestrengthof

StarWarsandFrozenmerchandiselicensingandourlicensedStarWars:BattlefrontgameinQ1

lastyear.

Andfinally,resultsinfiscal2017willbeadverselyimpactedbyabout$175milliondollarsdueto

FXratesandhigherpensionexpense.Also,intermsofnetinterestexpense,the$100million

yousawinthefourthquarterrepresentsareasonablequarterlyrunratefortheyear.


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Weareverypleasedwithourfiscal2016results,whichonceagaindemonstratethatour

strategyofinvestinginhigh-quality,brandedcontent,coupledwithgreatexecutionanda

balancedapproachtocapitalallocation,continuestogeneratesolidearningsgrowth.Once

again,weexpecttodelivermodestearningsgrowthinfiscal2017and,asBobsaid,wefeel

extremelyconfidentthatwe’llreturntomorerobustearningsgrowthinfiscal2018and

beyond.

Andwiththat,I’llnowturnthecallovertoLowellforQ&A.


Okay.Thanks,operatorwearereadytotakethefirstquestion.

Operator

OurfirstquestionisfromMichaelNathansonfromMoffettNathanson.Pleasegoahead.

MichaelNathanson–Analyst,MoffettNathanson

IhaveoneforBob,oneforChristine.Bob,onESPN,youguyshavebeenveryclearaboutthe

2017step-up.You'vebeenclearthatESPNwillnotgrowattherateitusedtogrowtheprevious

decade.Andyou'vebeenclearthatyouexpectgrowthinthefuture.Ithinkonthosepoints,

everyoneagreeswiththefirstandsecondones.Butonthethirdpoint,myquestionis,what

canyousharewithusthatgivesyoutheconfidenceaboutgrowthinthefuture?Isitanaffiliate

feecycle?Isitnewsubscribergrowth,advertising,costs?Soanythingthatcouldgiveussome

senseofwhyyou'resoconfidentabouttheoutlook.


IthinkyouhavetostartwithwhatESPNoffersanditspopularity.Imentionedinmycomments

thepopularity–andtherearecertainlyrecentexamples,liketheWorldSeries–oflivesports.


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SoIfeelreallygoodabouttheirprogramming.Ifeelgoodabouttheircontinuedabilitytodrive

solidadvertising.Wehaveagoodsenseofwhattheirratestructureisintermsofexistingdeals

withdistributors.Butwehavesomeopportunitiesinsomenewdealstoimprovetherate

structureevenmore.

WehavetakenamorebullishpositiononthefutureofESPN'ssubbase.Wethinkthatwhilewe

werecandidayearagoonsublosses,webelievethat,tosomeextent,thecausesofthose

losseshaveabated,notablythemigrationtosmallerpackages.Butwealsobelievethatnew

entrantsinthemarketplace,particularlyDMVPDs--digitalMVPDs,Ishouldsay--aregoingto

offerESPNopportunitiesthattheyhaven'thadbeforetoreachmorepeople.

Andinparticular,wethinkthoseofferings,becauseoftheirpricing,theuserinterface,their

mobilefriendlynature,arelikelytocausemoreMillennialstoeitherstayinthemultichannel

ecosystemassubscribers,ortoenteritwhentheymightnothaveinthepast.

SowejustgenerallyfeelbullishaboutESPN'sfuture.Weare,I'dsay,realisticaboutwhatwe've

seenwithrecentsubtrends,andagainhavebeen,Ithink,fairlycandidaboutthat.Andwe

thinkthelong-termprospects,forthereasonsIcitedforESPN,aregood.

TheotherthingthatESPNhas,whichwe'vetalkedaboutalot,istheabilitytotakeproductout,

direct-to-consumer.Andthat'swhyweinvestedinBAM.Wethinkthatgivesusareally

interestingopportunitytocreateanewproduct.Itgivesusaninterestingopportunitytocreate

productthatismoreuserfriendlyandthereforeislikelytogainmoreconsumption.Anditgives

usanabilitytominedatafromthatuserconsumptionthatcanimproveouradvertising

prospectsandgivesusanabilitytotailortheproductmore--inamorecustomizedwayfor

thoseconsumers.


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Okay.Thanks,Bob.AndthenforChristine,IthinkmostofuswhohavecoveredtheCompany

foralongtimeexpectedShanghaitolooklikeotherparksthatopenedwithbiglosses.So

what'sdifferentaboutShanghai?Whyisitgoingtogetclosertobreakevenayearinto

operation,thanmaybesomeoftheotherinternationalparks?


I'lltakethefirstpartofthat.Christinemaywanttoaddressitalittlebitfromafinancial

perspective.Butthishasopenedverysuccessfully,verysuccessfully.AndImentionedtwo

thingsinmyearliercomments:one,justthesheernumberofpeoplethathavecomein;butwe

alsohaveafairamountofdataalreadyaboutguestsatisfaction.Weknowthatconsumersare

stayinglonger.Obviouslythat'stheresultofthemlikingit.Andtheotherthingthat'sreally

interestingtousiswhatanationalproductthishasbecome.Weexpectedthatattendance

wouldbeprimarilyfromtheShanghaiarea,atleastintheearlymonthsandmaybecoupleof

years,aswordofmouthspreadacrossthecountry.Butthefactthat50%ofattendancealready

isfromoutsideofShanghaitellsusthatthisisaproductthat'sresonatingacrossChina.And

obviously,giventhepopulationbasethatChinarepresents,thatbodesverywellforus.

Sotheproductisworking.Peoplearecoming.Theyarestayinglonger.Welikethetrendsthat

we'reseeinggenerallyaboutspending.Ourhoteloccupancyisextremelyhigh.Wedidn'tget

intodetailsthere,butIcantellyouthatit'svery,veryhighoffthebat.Wehavealreadymadea

decisionaboutexpansion,andthat'salreadybegun.Andso,ouroutlookforthis--andwhatwe

evenseehappeningin2017--isquitepositive.


Yes,Michael,Iwouldaddtothatthatthefirstquarteroffulloperations,whichwejust

concluded,exceededourexpectations.We'vegotaveryestablishedteamoverthere;

establishedinthesensethatthey'veworkedinthethemeparksforawhile.Theyarevery


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nimble,andtheycanadjusttofindingsthattheyareencounteringalongtheway.Andwe're

veryoptimisticthatwhatwegaveyouforthefiscal2017expectationofaroundabreakeven

resultiscertainlysomethingthatwe'relookingforwardto.


Okay,thanks.


Michael,thankyou.Operator,nextquestionplease.

Operator

OurnextquestionisfromAlexiaQuadranifromJ.P.Morgan.Pleasegoahead.

AlexiaQuadrani–Analyst,J.P.Morgan

JuststayingontheParksforaminute,we'veseensuchimpressivegrowthoverthelastseveral

years,bothintermsofrevenueandmargins,reallyallmetrics.AndIknowthere'sbeenbenefit

fromtheexpansions,theMyMagic+,aswellasobviouslytheusualorganicdrivers.

Iguesslookingforward,whenwelookfortheincrementalgrowthoverthenextseveralyears,

isitahighercontributionfromShanghai,givenwhatyoujustsaid?Oristheresomethingelse

that'sgoingtobeincremental?Anycoloryoucouldgiveustobetterframehowthisimpressive

growthcancontinue.


Well,firstofall,webelievewestillhavepricingleverage.Andthat'snotjustfromraisingprices

onourstandardticket,it'sfromcreatingnewpackages.Andwecertainlyhaveseenthatinthe

lastyear,whichwasdesignedtodoafewthings.One,obviouslywhenweputinmoredemand-


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orientedpricing,we'reabletomovesomeoftheattendanceawayfromthepeakperiodsand

improveguestsatisfaction.Butwebelievethatthereareanumberoftoolswehaveavailable

tousontherevenueyieldmanagementsidetocreatemorerevenueoutoftheattendancethat

we'regetting.

Wealsohaveotherkindsofexpansionopportunities,likehotels,forinstance,wherenotonly

dowehavethepropertybutwe'veseensuchhighoccupancyratesinOrlandoandinCalifornia,

thatwebelievethatitwouldbesmartforustobuildmorehotelsout--wehaveno

announcementstomake,perse--butbuildmorehotelsoutatbothsitesandtakeadvantage

ofwhatwe'reseeingthere.Thatclearlyisverybeneficialtous.

Andthenwe'veonlyjustbeguntominesomeofthecriticalIPthatwehavecreatedinthelast

fewyears,StarWarsbeingthebiggestone.We'rebuildingtwoofthebiggestlandswe'veever

builtinOrlandoandinCalifornia.Andwethinkthat--Iknowyoutalkedaboutwhatwe'vedone

already,butthere'ssomuchmorethatwecando,andsomuchmorewearedoing.

AndIthinkusuallywhenwetalkabouttheStudio,wetalkabouttheStudioresultsthatrelate

toboxofficeandthebottomlineforthatbusiness.Butyoualsohavetothinkaboutitinterms

ofhowweminethoseassets,notjustintheUnitedStatesbutglobally,atourparksandin

ConsumerProducts.

IwasinShanghailastweek,anditwasjustthrillingtoseethereactionpeoplearehavingto

thosefranchises.Wehad11franchisesinConsumerProductslastyearthatdid$1billionor

moreinglobalretailsales.Butyoureallyseethatresonatingwhenyougotothethemeparks.

AndnotjustMickeyMouseandcorecharacters,andPiratesandthingsyou'dexpect,butaline

fromthecharactersfromZootopiainShanghaiwassignificant.SoIthinkwe'reatatimeinthat

productcyclethattheabilitytoincreaseprofitabilityfromitisreallyjustkickingin.


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AlexiaQuadrani–Analyst,JPMorgan

AndthenifIcouldjustsneakinanotheronequickly,onthesportsside,I'dlovetohearyour

commentswiththe--ratingshavebeenverymixedlately,somefranchisesshowingrecord

viewership,yousaidoftheWorldSeries;others,liketheNFL,beinginabitofaslump.Iwould

lovetohearyourviewonhowmuchofthisvolatilityyouthinkiscyclical?Ordoyouseeany

sortofpermanentchangesinviewershipthatmaygiveyouadifferentviewofthesefranchises

atthispoint?


We'veseensomeofthenumbersfromtheNFL,aswell.Iactuallythinkthatthereisalotof

prematurespeculationthere.Idon'twanttomakelightofit.ExceptIdowanttosay,thisisa

season,andithappenstobeaseasonthat'soccurringwhenpost-seasonbaseballwasvery

strong,andclearlytheelectionhadsomeimpact.Certainlythedebatesdid.So,Ithinkit'sa

littletoosoontojumptoconclusions.We'rebeingpatientaboutit.We'regoingtolookatthe

trendlinesandseeandcontinuetowatchit.ButIthinkitwouldbe--it'sfartooearlyforusto

suggestthatwe'reconcerned.

It'sstillthehighestratedsportsprogrammingthat'soutthere,andwethinkwe'reluckythat

we'vegotitlicensedonalong-termbasis.Look,it'sclearalso,themostimportantthingtheNFL

candoistomaintainquality.Anditjustcouldbethatwhatwe'reseeingamongthe

contributorsisthatthematchupsorthestrengthofcertainteams,particularlysomeofthe

teamsthathavedoneextremelywellinthepast,isnotwhatitwas.Andthatcouldjustbe

aberrational.Sowe'renot--we'dlovetoseetheratingshigher,butwe'renotexpressinglong-

term--concernaboutitonalong-termbasis.

AlexiaQuadrani–Analyst,JPMorgan

Thankyou.


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Alexia,thanksforthequestions.Operator,nextquestionplease.

Operator

OurnextquestionisfromJessicaReifCohenfromBankofAmericaMerrillLynch.Pleasego

ahead.

JessicaReifCohen–Analyst,BankofAmericaMerrillLynch

Hi,hopeyoucanhearme.


Wecanhearyou.


Thankyou.There'sbeentonsofspeculationonpotentialacquisitions,notablypotentially

NetflixandTwitter.CanyoutalkaboutjustgenerallywhatyouthinkismissingatWaltDisney?

Whatacquisitionswouldfillaholeforyou?AndthenIhaveafollow-up.


Well,obviouslywe'renotgoingtogetspecificaboutthat.Butwethinktherearesomereally

interestingopportunitiesto--givenwhat'sgoingonfromatechnologicalperspective--toboth

improveourbusinessesandalsotoimprovetheconsumerexperiencebysellingdirectlyto

consumers.Imentionedthatearlier.Andwe'reconsideringandexploringvariouswaysto

accomplishthis.Wethinkit'ssomethingthat'simportantforustodo.

I'llgobacktoBAM.ThepurchaseofBAMwasdesignedjust--todojustthat.Whetherthere

willbemoreornot,Ican'treallysay,excepttosaythatwe'reobviouslyinterestedinthe


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opportunitythatexiststodaytohaveamoredirectrelationshipwiththeconsumerforthe

reasonsthatIcited.


Andthen,Bob,couldyou--again,thisiskindofanawkwardquestion--butyou'vestatedthe

timethatyouplantoleave.Canyoutalkalittlebitaboutyoursuccessionplanning,andhow

youarethinkingaboutthat?


Yes,it'snotawkwardatall.TheBoardhasdiscussedsuccessionateverymeetingthattheBoard

hashadinthelastfewyears.AndIdon'tthinkthere'snecessarilyaneedfortheBoardto

provideanymoredetailspubliclyabouttheprocess,excepttosaytheprocessisongoing,it's

robustandwe'reallconfidentthatit'sgoingtoresultintheBoardchoosingnotonlytheright

candidate,buttherightcandidateonatimelybasis.


Jessica,thanksforthequestions.Operator,nextquestionplease.

Operator

AndwehaveaquestionfromToddJuengerfSanfordBernstein.Pleasegoahead.

ToddJuenger–Analyst,SanfordC.Bernstein

AquickoneforChristine,andthenmaybealittlefollow-onforBob.Christine,justontheAsian

parkattendance--ordoesn'thavetobeyou,butprobablyyou,Christine--especiallywith

Bob'scommentsaboutthestrengthofthestart,justwonderingacrossallofChina,canyoutalk

aboutwhetherthere'sanyimpactatallthatyouseebetweentheattendanceatHongKongand

theattendanceinShanghai?Whetherthere'sanyinter-relationthere,orevencannibalization?


Page19

AndatShanghai,nowthatschoolsareopenIassumeinChina,isthereanydifferenceinthe

attendanceprofileduringtimesofschoolperiods?

Andthenthebroaderquestion--thisisreallyapick-uprightfromwhatJessicasaid,sosorryif

it's--Ihopeit'snotredundant.It'snottome.Bob,Ijustpickedupalinethatyousaidinyour

openingcommentsinthepressreleasearoundstrengthening--furtherstrengtheningyour

technologicalcapabilities.

AndIjust--you'vetalkedaboutthatalittlebit,butthat'sa--Ihaven'tseenthatstatement

beforeintheopeninglineofapressrelease.SoI'mjustwondering,whattypesoftechnological

capabilitiesyouarethinkingaboutthatneedstrengthening?Andwhataresomedifferentways

tostrengthenthem?IsthatmostlyabouttheBAMTechtypeofstuff,oristhereotherstuff

goingon?Thanks.Sorryforthelong-windedquestions.


Firstofall,byusingthetermstrengthening,I'mnotinanywayimplyingthatwe'reweak.Itjust

meansthatthereareopportunitiesforustogetstronger.Let'susetheParksasanexampleon

whatwe'redoinginImagineering,wherethere'ssignificantinvestmentinnewtechnologyto

improvetheguestexperience,both--andthat,bytheway,includeshowguestsbuyaccessto

ourparks,thewholeonlinesaleore-commerceexperience,asaforinstance.We'rere-doing

DisneyStore.com,usingbasicallybettertechnologicaltools,anotherexample.

BAMclearlywaswhatIwasmostlyreferringtobecausethatisaninvestmentinatechnology

platformaimedatstrengtheningourtechnologycapabilitiessothatwecanstrengthenour

business.

OntheParksquestionthatyouasked,wehaven'tseenanegativeimpactatHongKongdueto

Shanghaiatall.Infact,therewassomeuptickinitiallyonHongKongattendancewhenShanghai

opened.AndthereseemstobeaninterestinggrowthinpridelocallyinHongKong,inthatpark.


Page20

Iguesstheircompetitivespiritshave,somehoworanother,beenstimulated.Intermsofwhat

we'reseeinginShanghaiattendance-wise,themakeupofthevisitor,weekdayorpost-summer,

it'sreallykindoftooearlytotell.

Iwillsay,havingbeentherelastweekontwoweekdays,Iwassurprisedathowmanykidswere

inthepark.Theywereyoungerkids,butthereweremanymoreofthemthanwhatwe

expected.Andweareseeingsomeinterestingpatternsalreadywithvisitation.Icitedone,just

intermsofwherewe'resourcingvisitorsgeographically.Idon'twanttogetintotoomanyof

theothersyetbecausewe'reonlyfourmonthsin.Butthestrengthofcertaindaysoftheweek

thatwedidn'texpect,andsomedaysoftheweekthatareslightlylessstrongthanwethought

initially.Butsofar,Icansay,sogood.Meaningwereallyarehappywithhowthisproducthas

launched.

AnotherthingthatIhaven'treallyaddressedhere,butoneofthethingsthatwewantedtobe

incrediblysensitiveabout,andbereallygoodat,wasthewholenotionofenteringanew

marketwiththisproductunderwhatI'llcallculturallysensitiveorculturallycorrect

circumstances.OpeningsomethingthatthepeopleofChinaactually--thatresonatedwith

themintermsoftheirexperience.Andthathasbeenletterperfect.

ToddJuenger–Analyst,SanfordC.Bernstein

Thankyou.


Todd,thankyouforthosequestions.Operator,nextquestionplease.

Operator

OurnextquestioncomesfromDougMitchelsonfromUBS.Pleasegoahead.


Page21

DougMitchelson–Analyst,UBS

OneforBob,oneforChristine.So,Bob,Iguessit'snotaneasyone,butdoyouseethechange

inthepowerstructureinWashingtonhavinganimpactonTheWaltDisneyCompanyatall,

positivelyornegatively?AndI'lljustaskthequestionforChristine:yououtlinedanother

aggressiveyearofsharerepurchases.AndIwashopingyoucouldofferyourlatestthoughtson

optimizingbuybacksversusdividendsanddebtleverage.Thanks.


Ithinkit'sreallytooearlytospeculateaboutwhatthechangesinWashingtonaregoingto

meanforourbusiness,orforbusinesses.Wehave,though,beenexhortingWashington,both

theexecutiveandthelegislativebranches,totakealookatthecurrenttaxpolicyoftheUnited

States,particularlythecorporatetaxrate,andtoclosemoreloopholesbutlowerthecorporate

taxrate.

Wearenolongercompetitivewiththerestoftheworldinthatregard,andthatmustbe

addressed.Andit'spossiblethat,givenwhat'sgoneonthisweek,thatthat'slikelytobe

addressedsoonerratherthanlater.That'sobviouslyagoodthing.

It'salsoagoodthing,Ithink,forthemarketandformostbusinessesthatthetransitionis

alreadyofftowhatappearstobeafairlysmoothstart.Meaningitlookslikethere'scordiality,

whichwehavenotseeninalongtime.Andthereisanattemptbybothsides,theincumbent

andthePresident-elect,toapproachthisinarational,cordial--Iguessthebestway--effective

andpoliteway.Thatcanonlybegoodforbusinessandforthecountry.Andsmoothtransitions

aregood.Iwillsay,onthesmoothtransitionfront,we’regoingthroughasmoothtransitionas

well.WehavealreadypreparedabustofPresident-electTrumptogointoourHallof

PresidentsatDisneyWorld.


Page22


Okay.Thankyouforthat(laughter).


Okay,Doug,onbuybacks--asyouknow,infiscal2016,weboughtback$7.5billionofour

stock.Wegaveyou$7billionto$8billionfor2017.AndIthinkyouknowwehaveavery

balancedapproachtoaddressingreturnofcapitaltoshareholders.

Wealsoconsiderdividends,butthat'safterweinvestinourbusinessesandlookatother

growthopportunities.IthinkyoualsonotedinmycommentsthatIcalledoutarecordyearfor

cashflowfromoperationsat$13.2billion.So,wehavealottoworkwith.Andonceagain,we

investinourexistingbusinesses,lookforotheropportunities,andofcoursealwayskeep

shareholdersinmind.


Andbytheway,justtoaddtowhatChristinesaid,wehadrecordyearsinfiscal2014and2015,

reallystrongyears.And2016hadgreatgrowth,butalittlebitmoremodestthanthetwoyears

prior.Todeliverfromoperations$13+billionofcashisquiteanextraordinaryperformance.


Thankyou.


Doug,thankyouforthosequestions.Operator,nextquestionplease.

Operator

OurnextquestionisfromOmarSheikhfromCreditSuisse.Pleasegoahead.


Page23

OmarSheikh–Analyst,CreditSuisseSecurities

Thankyou.Ihaveacoupleofquestions.Firstofall,Bob,onBAMTech,goingbacktothat,I

wonderedifyoucouldmaybejustgiveusasenseofhowbigofaninvestmentyouthinkyou'd

needtoputintothateffortinfiscal2017.Soyouhadobviouslytalkedaboutneedingtoget

closetotheconsumer,andthatseemstobetheonlyprojectyouhavethatweknowabout.So

maybeifyoucouldgiveusasenseofhowmuchyouneedtoputbehindthat.That'sthefirst

question.

Andthensecondone,maybeforChristine,isonConsumerProducts,ifIcouldswitchtothat.

Yougavesomeguidance,IthinkyousaidforQ1OI.Iwonderedmaybeifyoucouldgiveusa

littlebitofasenseofhowyouexpect2017overalltopanout.I'mparticularlythinkingabout

thelicensingrevenuesandthetrendsyoumightseethere.Thankyou.


Omar,ontheBAMTechside,theinvestmentthatwe'rethinkingaboutintermsoflaunching

newproductisvery,verymodest.Theprimaryinvestmentisinbuyingthe33%stakein

BAMTechthatwearebuyinginitially.Wedoplan,asImentionedinmycomments,tolaunch

anESPN-brandedservicein2017.Butwehavealreadylicensedenoughsportstoputontothat

servicesothattheincrementalcostfromaprogrammingperspectivewouldbedeminimis.And

thetechnology,aswehavetalkedabout,alreadyexiststodowhatwewanttodo.Andso,

you'renotlookingreallyatsignificantinvestmenttoaccomplishnear-termwhatweneedto

accomplishthere.


Hi,Omar.OnConsumerProducts,asImentionedinmypreparedcomments,wedoexpect

growthfortheyearinthesegment.WhileIdidnoteachallengingfirstquarteroperating

incomeperformance,onceagain,thatisgoingtobeprimarilyduetothedifficultcompwehad

lastyeartoStarWars.Andasyouremember,lastyearwealsohadthefourthquarterrevenue


Page24

recognizedinourfirstquarter,soitmadeitevenalittlemorechallengingthanjustastraight

quarter.Butyear-over-year,weexpecttheretobegrowthinthatsegment.

Wealso--lastquarter,IgotaquestiononFrozencomparisons.AndIjustwanttomentionit,

becauseitstillistricklingthroughinourresults.Butwedidseedifficultcompsforthe

phenomenalperformancethatwehadinFrozen.Andwesawthoseinfiscal2016inthesecond,

thirdandfourthquarter.AndwestillexpecttohavedifficultcompsforFrozenmerchandise

throughout2017.


Okay,great.Andthenit'sjusttheCarslaunchinthemiddleofnextyearthatyouexpecttosee

somesortofreaccelerationonthetoplinethere?Wouldyousaythat'scorrect?


Absolutely.CarsisoneofthoseevergreenfranchisesthathasbeenverysuccessfulinConsumer

Products.Alsothroughoutour--itisalsorepresentedinourparks,asyouknow,throughCars

LandinAnaheim.Andalsothisyear,wehavethemovieSpider-Man.It'snotourmovieto

release,butourConsumerProductswillrepresentthestrengthinthatfranchise,aswell.


AndMarvelisproducingthatmovie.


Great.Thankyouverymuch.


Thanks,Omar.Operator,nextquestionplease.


Page25

Operator

AndwehaveaquestionfromBenSwinburnefromMorganStanley.Pleasegoahead.

BenSwinburne–Analyst,MorganStanley

Bob,IjustwanttogobacktoyourcommentsaboutthePay-TVuniverseandyourenthusiasm

forthenew,emergingbundles.AnycommentsyoucouldsharewithusonHulu,givenyour

positionasanownerofthatcompany,whattheproductmaylooklike?Andanycoloronwhy

youthinkthatmayexpandthepie?AndanyroleBAMTechmayfillforyouinalsoaddressing

thatbroadband-onlyuniversewithESPN?

AndthenChristine,IjustwantedtogobacktoyourpreparedremarksonCable.IthinkifIjust

adjustoutthe53rdweek,I'mlookingatlike3%Cableaffiliaterevenuegrowth.Ithinkyousaid

down8--an8%hitfromthe53rdweek,down5%reported.SojustwantedtomakesureIgot

allthatright.Iwasjottingitdownquickly.Thanks.


Huluis,atsomepoint,goingtogopublicwithfarmoredetailsaboutitsproduct,theuser

interface,thepricing,andIguessultimatelytheprogrammingthatit'slicensed,althoughsome

ofithasalreadycomeout.SoIcan'treallyaddmuch,excepttosaythatbetweenwhatHuluis

doing,whatSlinghasdone,whatAT&T/DirectTVisdoing,whatothersaredoingthatwe're

alreadyinnegotiationwith,webelievethatyou'regoingtoseeanumberofdifferentpackages

broughtout--meaningdifferentprices,differentbundles.

Inallcases,webelievetheuserinterfaceandthetechnologyisgoingtobeverycontemporary,

anditwillbeverymobile-friendly.Andwethink,giventhepricingandthenatureofthe

productthatiscomingout,thattheopportunitytoeitherkeepMillennialsinassubscribersor

toattractthem,meaningcausethemtosubscribeearlierthantheymayhave,isactuallyvery


Page26

encouraging.Andthat'soneofthereasonswhywe'remorebullishaboutthefutureof

multichannelTVthanperhapseitherthemarketplaceorothersare.

Thatdoesn'tmeanthereisn'tgoingtobeashifteitherawayfromthegiantexpandedbasic

bundle,orawayfromsomeofthetraditionaldistributors.Butwebelievethattherewillbe

plentyofotheropportunities.

Theotherthingthatwehavetonote,whichwe'vesaidbefore,isthesenewentrantsinthe

marketplacearevery,veryinterestedindistributingourproduct.Theyknowthepopularityof

sports,andinparticularESPN;andtheyknowthatitisintheirbestinteresttolicensethat

producttolaunchtheirservicemoreeffectively.

We'veseenthattimeaftertimeaftertime,negotiationafternegotiation.Andthepricing,tous,

isalsogood.


Yes.Justasafollow-up,whereisyourheadonadirect-to-consumerESPN,eitherleveraging

BAMTechoronyourown?Isthatstillbeingdeliberated,orhaveyoumovedtothepointof

thinkingmoreseriouslyaboutthat?


Ithink--it'snotreallysomethingto--we'retakingitseriously.It'snotreallysomethingIthink

weneedtodeliberateabout.Ithinkiftheopportunityexistsoriftheneedexists,orboth,we

willtakeadvantageofit.Meaningwehavethetechnologynow,throughBAMTech,to

accomplishexactlywhatwewouldneedtoaccomplish.Andwe'reprobablymorelikelytobe

aggressiveaboutitthannon-aggressive,buttheneeddoesn'texistatthemoment.Andwe're

goingtogivealotofthesenewproductsthatarelaunchingachancetoprovewhatwebelieve

isthecase,andthatistheyaregoingtobeconsideredattractiveforthemarketplaceand,

therefore,delivervaluetousonatimelybasis.


Page27


Makessense.


Hi,Ben.It'sChristine.Sothanksforaskingthequestiononaffiliaterevenue.Iknowmy

commentswerealittleladeninsome53rdweekinformation,sothanksfortheopportunityto

hopefullyclarify.

SoonCableaffiliaterevenue,theactualwasdown5%.The53rdweekwas8%foranetof3%,as

younoted.ForMediaNetworksaffiliaterevenue--andthereasonI'msayingthisisthe

numbersareclose,butthey'reflipped--it'sdown3%withthesame8%adjustment,for5%

growth.

Now,asyouknow,we'llbefilingour10-Kinacoupleofweeks,whichwillprovidetheaffiliate

revenuegrowthdriversforthefullyear.ButletmegiveyousomecontextnowonQ4affiliate

growth.

So,the53rdweekwasa7-pointdragontheQ4affiliaterevenuegrowth.Rateswerea6-point

benefittotheQ4affiliategrowth.Subswerea2-pointdraginthequarter,whichisconsistent

withwhatwesawlastquarter,andconsistentwithwhatyou'llseeinthe10-Kasthefull-year

impactofsubscriberdeclines.Andalsolastly,foreignexchangewasa1-pointdragonthat

quarterlygrowth.


WasthatCable,Christine,orMediaNets?Sorryto--


ThatwasMediaNetworks.


Page28


Gotit.Thankssomuchforallthehelp.


Okay.Ben,thankyou.Operator,nextquestionplease.

Operator

WehaveaquestionfromKannanVenkateshwarfromBarclays.Pleasegoahead.

KannanVenkateshwar–Analyst,BarclaysCapital

Thankyou.Justacoupleoffollow-upsonthat.RecentlytherewasthisdisputebetweenNielsen

andDisney,itlookedlike,onthenumbersitself.Ifyoucouldjusthelpusunderstandwhatthe

differenceswere,intermsofthewaythosenumberswerebeingarrivedat.

Andsecondly,fromabalancesheetperspective,howsacrosanctarethekindofleveragelevels

youlookat,incasesomethinginterestinginsizedoescomealongfromanM&Aperspective?

Howdoyouguysviewyourbalancesheetflexibilityfromthatperspective?Thanks.


Thankyou,Kannan.WethoughttheNielsennumbers,whentheywerereleased--wecontinue

tothinkthis,bytheway--areananomalyintermsofwhattheindustryoverallisseeing.And

further,theycontradictedwhatotherrespectedthird-partyobserversandexpertshadbeen

sayingandtellingus.Sowe'veexhortedNielsentotakeaverycarefullookattheir--basically

theirmethodology.Theyareobviouslyanimportantbusinesstousbecauseoftheservicethey

provide,particularlyontheadvertisingside.Butgiventhefactthatwhattheyprovidedwasan

anomaly,andgiventhefactthatitcontradictedwhatotherobserverswereseeing,wethinkit's

importantthatmorescrutinyisgiventoit.


Page29

Inadditiontothat,Nielseniscurrentlynotmeasuringdigitalsubs.Wehavetalkedtothem

abouttheneedtodothat,andtheyhavetalkedaboutdoingit.Butwebelieve,giventhe

growthinthesedigitalplatforms,thatneedstohappenonamuchmoretimely,fasterbasis

thanithasbeenhappening.

Thatbasically,Ithink,isitinanutshell.


AndKannan,onthebalancesheetandyourcommentsonleverage,weendedtheyearwith

totalleverageofabout1.1times.So,weview--andIsaiditinmycomments,andwe'vesaidit

consistently--weviewourbalancesheetasasourceofstrengthandgreatfinancialflexibility.

So,that'sthewaywetreatit.There'snothingsacrosanctaboutit.Butwedotreatitasa

valuablefinancialflexibletool,andwewilldealwiththingsastheycomealong.

KannanVenkateshwar–Analyst,BarclaysCapital

Thankyou.


Kannan,thanksforthequestions.Operator,nextquestionplease.

Operator

AndwehaveaquestionfromAnthonyDiClementefromNomura.Pleasegoahead.

AnthonyDiClemente–Analyst,Nomura

Ihavetwoquestions,oneforBobandoneforChristine.So,Bob,onthesubjectofdirect-to-

consumerandgettingclosertotheconsumer,IwanttoaskaboutDisneycontentasadirect-to-

consumerservice,outsideofESPN.SoyouhaveintheUK,Ibelieve,DisneyLife,whichyou've


Page30

talkedaboutinthepast.Whendoweseesomethinglikethat--Disneyasaservice,sotospeak

--backintheUS?Sodirect-to-consumer,Disney-brandedapps,here,stateside?Andthen,

Christine,youmentionedCableprogrammingcostsup8%infiscal2017.Iwascurious,does

thatincludetheexpectationforastep-upintheBigTencostsforrenewalthere?Ithinkthat's

upforrenewalduringtheyear.CorrectmeifI'mwrong.Thankyou.


Ithinkthere'saninevitabilitytousbringingaDisney-brandedproductoutintheUnitedStates,

butI'mnotpreparedtodiscusstimingyet.Oneofthereasonsisthatwe'restilllearningabout

theproductintheUK.We'restillconsideringitspricing,thenatureoftheproduct,theuser

interface,andthemannerinwhichitisdistributed.Andwewanttolearnasmuchaswe

possiblycan,whichiswhatthatwasdesignedtodo,beforewebringitoutinanyothermarket.

Butwedoknowthat,tothosethathaveusedit,it'squitepopular.Andwethinkthere'san

opportunityhere,butwe'renotpreparedtosaywhen.


Andonprogrammingexpenses,Anthony--yes,theCableprogrammingexpensesareestimated

tobeup8%fortheyear.WetalkedabouttheNBAcontractdriving$600millionofthat

increase.TheBigTen,wedon'thaveadealwithcurrently,sowe'dlovetobeinbusinesswith

theBigTenlong-term,butwedon'thaveadealcurrentlytoannounce.


Soifyouweretohaveadeal,itwouldbeagreaterstep-upinprogrammingcosts,justtoclarify.


We'renotgoingtocommentonspecifics,butthe8%iswhatwe'vegivenpublicly.


Page31


Okay,thankyouverymuch.


Thanks,Anthony.Operator,nextquestionplease.

Operator

AndwehaveaquestionfromMichaelMorrisfromGuggenheimSecurities.Pleasegoahead.

MichaelMorris–Analyst,GuggenheimSecurities

Thankyou,goodevening.Twoquestions.Bob,youtalkedalittlebitabouttheregulatory

environmentpreviously,butI'mcuriousspecificallyaboutyourpositiononnetneutrality.How

importantisthecurrentpolicytoyourbusiness,boththeexistingbusinessandalsostrategy,

howyouthinkaboutthingsgoingforward?Andwhat--howcouldthatimpactyou,ifitwere

removedaspolicy?AndthensecondontheBAMTechpartnershipwithDiscoveryinEurope.I'm

curious,sinceESPNseemedtomoveawayfromEuropeanexposure,whydoyouthink

EurosportandDiscoverycansucceedwhereESPNkindofpulledback?Thanks.


It'sinteresting,weusedtoown,asacompany,agoodpieceofEurosportandwedivesteda

longtimeago.Ithink,tome,toanswerthatpartofthequestionfirst.Wethinkit'sbetter

becausetheywerealreadyinthemarketsuccessfully,andwewouldbeanewentrantwith

ESPN,andsothismadesenseforus.

Onthefirstpart,wereallyhaven'tbeenvocalaboutnetneutrality.Ithinkitwouldbesafeto

sayrightnow--notevensurewehaveastrong--bigoarinthewater,sotospeak.Andsowe

don'treallyhaveapublicpositiontotakeonit.Frankly,it'snotsomethingthathasevenbeen


Page32

discussedwithmeintheveryrecentpast.So,I'mcaughtmildlybysurprisebyit.ButIdon't--I

thinkoneofthereasonsithasn'tbeendiscussedisithasn'tbeenofissuetous.

MichaelMorris–Analyst,GuggenheimSecurities

Great,thankyou.


Mike,thanks.Operator,wehavetimeforonemorequestion.

Operator

AndwehaveaquestionfromJasonBazinetfromCiti.Pleasegoahead.

JasonBazinet–Analyst,Citi

AquestionforMs.McCarthy:youtalkedaboutthe$175millionFXhitforfiscal2017.Isthat

independentofanycurrencymovesintra-yearbecauseofyourhedges?


So,that$175million,Jason,isboththeyear-over-yearimpactofforeignexchangeaswellas

pensionexpense.Thewayyoushouldlookatourforeignexchangeforfiscal2017isthatweare

fullyhedged.Sothenumberthatwe'vegiven--whichisacombinednumber--butifyou

wantedtodisaggregateitalittlebit,andI'mhappytodothat,it'salittleover$100millionfor

foreignexchange,withthebalancebeingpensionexpense.


Okay.


Page33


Andtherecentmoves,bytheway,incurrencieshavenotimpactedus,becausewearefully

hedged.


Okay.Thankyouverymuch.


Allright,Jason,thankyou.Andthanks,everyone,forjoiningustoday.Areconciliationofnon-

GAAPmeasuresthatwerereferredtoonthiscalltoequivalentGAAPmeasurescanbefound

onourInvestorRelationswebsite.

Letmealsoremindyouthatcertainstatementsonthiscallmayconstituteforward-looking

statementsunderthesecuritieslaws.Wemakethesestatementsonthebasisofourviewsand

assumptionsregardingfutureeventsandbusinessperformanceatthetimewemakethem,and

wedonotundertakeanyobligationtoupdatethesestatements.

Forward-lookingstatementsaresubjecttoanumberofrisksanduncertainties,andactual

resultsmaydiffermateriallyfromtheresultsexpressedorimplied,inlightofavarietyof

factors,includingfactorscontainedinourAnnualReportonForm10-Kandinourotherfilings

withtheSecuritiesandExchangeCommission.

Thisconcludestoday'scall.Haveaniceevening,everyone.

###


Page34

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-KfortheyearendedOctober3,2015andinsubsequentreportsonForm10-QunderItem1A,“RiskFactors”.Reconciliationsofnon-GAAPmeasurestoclosestequivalentGAAPmeasurescanbefoundatwww.disney.com/investors.

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