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©Disney
FiscalFullYearandQ4FY16EarningsConferenceCall
NOVEMBER10 , 2016
DisneySpeakers:
BobIgerChairmanandChiefExecutiveOfficer
ChristineMcCarthySeniorExecutiveVicePresidentandChiefFinancialOfficer
Moderatedby,
LowellSingerSeniorVicePresident,InvestorRelations
FiscalFullYearandQ4FY16EarningsConferenceCall November10,2016
Page2
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
FiscalFullYearandQ4FY16EarningsConferenceCall November10,2016
Page3
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.
FiscalFullYearandQ4FY16EarningsConferenceCall November10,2016
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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.
FiscalFullYearandQ4FY16EarningsConferenceCall November10,2016
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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?
FiscalFullYearandQ4FY16EarningsConferenceCall November10,2016
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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.
FiscalFullYearandQ4FY16EarningsConferenceCall November10,2016
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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.
FiscalFullYearandQ4FY16EarningsConferenceCall November10,2016
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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
FiscalFullYearandQ4FY16EarningsConferenceCall November10,2016
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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.
FiscalFullYearandQ4FY16EarningsConferenceCall November10,2016
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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.
FiscalFullYearandQ4FY16EarningsConferenceCall November10,2016
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Weareverypleasedwithourfiscal2016results,whichonceagaindemonstratethatour
strategyofinvestinginhigh-quality,brandedcontent,coupledwithgreatexecutionanda
balancedapproachtocapitalallocation,continuestogeneratesolidearningsgrowth.Once
again,weexpecttodelivermodestearningsgrowthinfiscal2017and,asBobsaid,wefeel
extremelyconfidentthatwe’llreturntomorerobustearningsgrowthinfiscal2018and
beyond.
Andwiththat,I’llnowturnthecallovertoLowellforQ&A.
LowellSinger–SeniorVicePresident,InvestorRelations,TheWaltDisneyCompany
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.
BobIger–ChairmanandChiefExecutiveOfficer,TheWaltDisneyCompany
IthinkyouhavetostartwithwhatESPNoffersanditspopularity.Imentionedinmycomments
thepopularity–andtherearecertainlyrecentexamples,liketheWorldSeries–oflivesports.
FiscalFullYearandQ4FY16EarningsConferenceCall November10,2016
Page12
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.
FiscalFullYearandQ4FY16EarningsConferenceCall November10,2016
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MichaelNathanson–Analyst,MoffettNathanson
Okay.Thanks,Bob.AndthenforChristine,IthinkmostofuswhohavecoveredtheCompany
foralongtimeexpectedShanghaitolooklikeotherparksthatopenedwithbiglosses.So
what'sdifferentaboutShanghai?Whyisitgoingtogetclosertobreakevenayearinto
operation,thanmaybesomeoftheotherinternationalparks?
BobIger–ChairmanandChiefExecutiveOfficer,TheWaltDisneyCompany
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.
ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
Yes,Michael,Iwouldaddtothatthatthefirstquarteroffulloperations,whichwejust
concluded,exceededourexpectations.We'vegotaveryestablishedteamoverthere;
establishedinthesensethatthey'veworkedinthethemeparksforawhile.Theyarevery
FiscalFullYearandQ4FY16EarningsConferenceCall November10,2016
Page14
nimble,andtheycanadjusttofindingsthattheyareencounteringalongtheway.Andwe're
veryoptimisticthatwhatwegaveyouforthefiscal2017expectationofaroundabreakeven
resultiscertainlysomethingthatwe'relookingforwardto.
MichaelNathanson–Analyst,MoffettNathanson
Okay,thanks.
LowellSinger–SeniorVicePresident,InvestorRelations,TheWaltDisneyCompany
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.
BobIger–ChairmanandChiefExecutiveOfficer,TheWaltDisneyCompany
Well,firstofall,webelievewestillhavepricingleverage.Andthat'snotjustfromraisingprices
onourstandardticket,it'sfromcreatingnewpackages.Andwecertainlyhaveseenthatinthe
lastyear,whichwasdesignedtodoafewthings.One,obviouslywhenweputinmoredemand-
FiscalFullYearandQ4FY16EarningsConferenceCall November10,2016
Page15
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.
FiscalFullYearandQ4FY16EarningsConferenceCall November10,2016
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AlexiaQuadrani–Analyst,JPMorgan
AndthenifIcouldjustsneakinanotheronequickly,onthesportsside,I'dlovetohearyour
commentswiththe--ratingshavebeenverymixedlately,somefranchisesshowingrecord
viewership,yousaidoftheWorldSeries;others,liketheNFL,beinginabitofaslump.Iwould
lovetohearyourviewonhowmuchofthisvolatilityyouthinkiscyclical?Ordoyouseeany
sortofpermanentchangesinviewershipthatmaygiveyouadifferentviewofthesefranchises
atthispoint?
BobIger–ChairmanandChiefExecutiveOfficer,TheWaltDisneyCompany
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.
FiscalFullYearandQ4FY16EarningsConferenceCall November10,2016
Page17
LowellSinger–SeniorVicePresident,InvestorRelations,TheWaltDisneyCompany
Alexia,thanksforthequestions.Operator,nextquestionplease.
Operator
OurnextquestionisfromJessicaReifCohenfromBankofAmericaMerrillLynch.Pleasego
ahead.
JessicaReifCohen–Analyst,BankofAmericaMerrillLynch
Hi,hopeyoucanhearme.
BobIger–ChairmanandChiefExecutiveOfficer,TheWaltDisneyCompany
Wecanhearyou.
JessicaReifCohen–Analyst,BankofAmericaMerrillLynch
Thankyou.There'sbeentonsofspeculationonpotentialacquisitions,notablypotentially
NetflixandTwitter.CanyoutalkaboutjustgenerallywhatyouthinkismissingatWaltDisney?
Whatacquisitionswouldfillaholeforyou?AndthenIhaveafollow-up.
BobIger–ChairmanandChiefExecutiveOfficer,TheWaltDisneyCompany
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
FiscalFullYearandQ4FY16EarningsConferenceCall November10,2016
Page18
opportunitythatexiststodaytohaveamoredirectrelationshipwiththeconsumerforthe
reasonsthatIcited.
JessicaReifCohen–Analyst,BankofAmericaMerrillLynch
Andthen,Bob,couldyou--again,thisiskindofanawkwardquestion--butyou'vestatedthe
timethatyouplantoleave.Canyoutalkalittlebitaboutyoursuccessionplanning,andhow
youarethinkingaboutthat?
BobIger–ChairmanandChiefExecutiveOfficer,TheWaltDisneyCompany
Yes,it'snotawkwardatall.TheBoardhasdiscussedsuccessionateverymeetingthattheBoard
hashadinthelastfewyears.AndIdon'tthinkthere'snecessarilyaneedfortheBoardto
provideanymoredetailspubliclyabouttheprocess,excepttosaytheprocessisongoing,it's
robustandwe'reallconfidentthatit'sgoingtoresultintheBoardchoosingnotonlytheright
candidate,buttherightcandidateonatimelybasis.
LowellSinger–SeniorVicePresident,InvestorRelations,TheWaltDisneyCompany
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?
FiscalFullYearandQ4FY16EarningsConferenceCall November10,2016
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.
BobIger–ChairmanandChiefExecutiveOfficer,TheWaltDisneyCompany
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.
FiscalFullYearandQ4FY16EarningsConferenceCall November10,2016
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.
LowellSinger–SeniorVicePresident,InvestorRelations,TheWaltDisneyCompany
Todd,thankyouforthosequestions.Operator,nextquestionplease.
Operator
OurnextquestioncomesfromDougMitchelsonfromUBS.Pleasegoahead.
FiscalFullYearandQ4FY16EarningsConferenceCall November10,2016
Page21
DougMitchelson–Analyst,UBS
OneforBob,oneforChristine.So,Bob,Iguessit'snotaneasyone,butdoyouseethechange
inthepowerstructureinWashingtonhavinganimpactonTheWaltDisneyCompanyatall,
positivelyornegatively?AndI'lljustaskthequestionforChristine:yououtlinedanother
aggressiveyearofsharerepurchases.AndIwashopingyoucouldofferyourlatestthoughtson
optimizingbuybacksversusdividendsanddebtleverage.Thanks.
BobIger–ChairmanandChiefExecutiveOfficer,TheWaltDisneyCompany
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.
FiscalFullYearandQ4FY16EarningsConferenceCall November10,2016
Page22
DougMitchelson–Analyst,UBS
Okay.Thankyouforthat(laughter).
ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
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.
BobIger–ChairmanandChiefExecutiveOfficer,TheWaltDisneyCompany
Andbytheway,justtoaddtowhatChristinesaid,wehadrecordyearsinfiscal2014and2015,
reallystrongyears.And2016hadgreatgrowth,butalittlebitmoremodestthanthetwoyears
prior.Todeliverfromoperations$13+billionofcashisquiteanextraordinaryperformance.
DougMitchelson–Analyst,UBS
Thankyou.
LowellSinger–SeniorVicePresident,InvestorRelations,TheWaltDisneyCompany
Doug,thankyouforthosequestions.Operator,nextquestionplease.
Operator
OurnextquestionisfromOmarSheikhfromCreditSuisse.Pleasegoahead.
FiscalFullYearandQ4FY16EarningsConferenceCall November10,2016
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.
BobIger–ChairmanandChiefExecutiveOfficer,TheWaltDisneyCompany
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.
ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
Hi,Omar.OnConsumerProducts,asImentionedinmypreparedcomments,wedoexpect
growthfortheyearinthesegment.WhileIdidnoteachallengingfirstquarteroperating
incomeperformance,onceagain,thatisgoingtobeprimarilyduetothedifficultcompwehad
lastyeartoStarWars.Andasyouremember,lastyearwealsohadthefourthquarterrevenue
FiscalFullYearandQ4FY16EarningsConferenceCall November10,2016
Page24
recognizedinourfirstquarter,soitmadeitevenalittlemorechallengingthanjustastraight
quarter.Butyear-over-year,weexpecttheretobegrowthinthatsegment.
Wealso--lastquarter,IgotaquestiononFrozencomparisons.AndIjustwanttomentionit,
becauseitstillistricklingthroughinourresults.Butwedidseedifficultcompsforthe
phenomenalperformancethatwehadinFrozen.Andwesawthoseinfiscal2016inthesecond,
thirdandfourthquarter.AndwestillexpecttohavedifficultcompsforFrozenmerchandise
throughout2017.
OmarSheikh–Analyst,CreditSuisseSecurities
Okay,great.Andthenit'sjusttheCarslaunchinthemiddleofnextyearthatyouexpecttosee
somesortofreaccelerationonthetoplinethere?Wouldyousaythat'scorrect?
ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
Absolutely.CarsisoneofthoseevergreenfranchisesthathasbeenverysuccessfulinConsumer
Products.Alsothroughoutour--itisalsorepresentedinourparks,asyouknow,throughCars
LandinAnaheim.Andalsothisyear,wehavethemovieSpider-Man.It'snotourmovieto
release,butourConsumerProductswillrepresentthestrengthinthatfranchise,aswell.
BobIger–ChairmanandChiefExecutiveOfficer,TheWaltDisneyCompany
AndMarvelisproducingthatmovie.
OmarSheikh–Analyst,CreditSuisseSecurities
Great.Thankyouverymuch.
LowellSinger–SeniorVicePresident,InvestorRelations,TheWaltDisneyCompany
Thanks,Omar.Operator,nextquestionplease.
FiscalFullYearandQ4FY16EarningsConferenceCall November10,2016
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.
BobIger–ChairmanandChiefExecutiveOfficer,TheWaltDisneyCompany
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
FiscalFullYearandQ4FY16EarningsConferenceCall November10,2016
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.
BenSwinburne–Analyst,MorganStanley
Yes.Justasafollow-up,whereisyourheadonadirect-to-consumerESPN,eitherleveraging
BAMTechoronyourown?Isthatstillbeingdeliberated,orhaveyoumovedtothepointof
thinkingmoreseriouslyaboutthat?
BobIger–ChairmanandChiefExecutiveOfficer,TheWaltDisneyCompany
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.
FiscalFullYearandQ4FY16EarningsConferenceCall November10,2016
Page27
BenSwinburne–Analyst,MorganStanley
Makessense.
ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
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.
BenSwinburne–Analyst,MorganStanley
WasthatCable,Christine,orMediaNets?Sorryto--
ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
ThatwasMediaNetworks.
FiscalFullYearandQ4FY16EarningsConferenceCall November10,2016
Page28
BenSwinburne–Analyst,MorganStanley
Gotit.Thankssomuchforallthehelp.
LowellSinger–SeniorVicePresident,InvestorRelations,TheWaltDisneyCompany
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.
BobIger–ChairmanandChiefExecutiveOfficer,TheWaltDisneyCompany
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.
FiscalFullYearandQ4FY16EarningsConferenceCall November10,2016
Page29
Inadditiontothat,Nielseniscurrentlynotmeasuringdigitalsubs.Wehavetalkedtothem
abouttheneedtodothat,andtheyhavetalkedaboutdoingit.Butwebelieve,giventhe
growthinthesedigitalplatforms,thatneedstohappenonamuchmoretimely,fasterbasis
thanithasbeenhappening.
Thatbasically,Ithink,isitinanutshell.
ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
AndKannan,onthebalancesheetandyourcommentsonleverage,weendedtheyearwith
totalleverageofabout1.1times.So,weview--andIsaiditinmycomments,andwe'vesaidit
consistently--weviewourbalancesheetasasourceofstrengthandgreatfinancialflexibility.
So,that'sthewaywetreatit.There'snothingsacrosanctaboutit.Butwedotreatitasa
valuablefinancialflexibletool,andwewilldealwiththingsastheycomealong.
KannanVenkateshwar–Analyst,BarclaysCapital
Thankyou.
LowellSinger–SeniorVicePresident,InvestorRelations,TheWaltDisneyCompany
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
FiscalFullYearandQ4FY16EarningsConferenceCall November10,2016
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.
BobIger–ChairmanandChiefExecutiveOfficer,TheWaltDisneyCompany
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.
ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
Andonprogrammingexpenses,Anthony--yes,theCableprogrammingexpensesareestimated
tobeup8%fortheyear.WetalkedabouttheNBAcontractdriving$600millionofthat
increase.TheBigTen,wedon'thaveadealwithcurrently,sowe'dlovetobeinbusinesswith
theBigTenlong-term,butwedon'thaveadealcurrentlytoannounce.
AnthonyDiClemente–Analyst,Nomura
Soifyouweretohaveadeal,itwouldbeagreaterstep-upinprogrammingcosts,justtoclarify.
ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
We'renotgoingtocommentonspecifics,butthe8%iswhatwe'vegivenpublicly.
FiscalFullYearandQ4FY16EarningsConferenceCall November10,2016
Page31
AnthonyDiClemente–Analyst,Nomura
Okay,thankyouverymuch.
LowellSinger–SeniorVicePresident,InvestorRelations,TheWaltDisneyCompany
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.
BobIger–ChairmanandChiefExecutiveOfficer,TheWaltDisneyCompany
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
FiscalFullYearandQ4FY16EarningsConferenceCall November10,2016
Page32
discussedwithmeintheveryrecentpast.So,I'mcaughtmildlybysurprisebyit.ButIdon't--I
thinkoneofthereasonsithasn'tbeendiscussedisithasn'tbeenofissuetous.
MichaelMorris–Analyst,GuggenheimSecurities
Great,thankyou.
LowellSinger–SeniorVicePresident,InvestorRelations,TheWaltDisneyCompany
Mike,thanks.Operator,wehavetimeforonemorequestion.
Operator
AndwehaveaquestionfromJasonBazinetfromCiti.Pleasegoahead.
JasonBazinet–Analyst,Citi
AquestionforMs.McCarthy:youtalkedaboutthe$175millionFXhitforfiscal2017.Isthat
independentofanycurrencymovesintra-yearbecauseofyourhedges?
ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
So,that$175million,Jason,isboththeyear-over-yearimpactofforeignexchangeaswellas
pensionexpense.Thewayyoushouldlookatourforeignexchangeforfiscal2017isthatweare
fullyhedged.Sothenumberthatwe'vegiven--whichisacombinednumber--butifyou
wantedtodisaggregateitalittlebit,andI'mhappytodothat,it'salittleover$100millionfor
foreignexchange,withthebalancebeingpensionexpense.
JasonBazinet–Analyst,Citi
Okay.
FiscalFullYearandQ4FY16EarningsConferenceCall November10,2016
Page33
ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany
Andtherecentmoves,bytheway,incurrencieshavenotimpactedus,becausewearefully
hedged.
JasonBazinet–Analyst,Citi
Okay.Thankyouverymuch.
LowellSinger–SeniorVicePresident,InvestorRelations,TheWaltDisneyCompany
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.
###
FiscalFullYearandQ4FY16EarningsConferenceCall November10,2016
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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