Walt Disney Company (The)

Ladies and gentlemen, thank you for standing by and welcome to the Walt Disney Company's Fiscal Fool Year and Fourth Quarter 2019 Financial Results Conference Call. At this time, all participants' lines are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the discussion, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Mr. Lowell Singer, Senior Vice President of Investor Relations. Thank you. Please go ahead, sir.

Good afternoon and welcome to the Walt Disney Company's Fourth Quarter 2019 Earnings Call. Our press release was issued about 25 minutes ago and is available on our website at .disney.com. forward slash investors. Today's call is also being webcast and a transcript will be available on our website. Joining me for today's call are Bob Iger, Disney's Chairman and Chief Executive Officer, and Christine McCarthy, Senior Executive Vice President and Chief Financial Officer. Following comments from Bob and Christine, we'll be happy to take your questions. So with that, I'll turn the call over to Bob to get started. Thanks, Lowell, and good afternoon, everyone.

We're now just days away from launching Disney Plus, the culmination of four years of planning, organizational transformation, and a lot of hard work. And we're excited to be on the verge of this new era. We're also pleased to have delivered a solid quarter, which Christine will discuss shortly. Before she does, I wanted to share a few thoughts about our DTC business to give you a sense of the confidence we have in our strategy and to provide a few updates. As you know, we began this process with the acquisition of Bantech, which gave us the means to implement our DTC strategy, putting us into the market quickly and ensuring we have the technology to deliver a quality experience. Our first effort was ESPN Plus, which was an immediate hit with sports fans when it launched last year and continues to deliver steady growth. I'm pleased to announce that as of today, ESPN Plus has over 3.5 million paid subscribers who are drawn to its unique and growing mix of original content, like the legendary NFL Primetime with Chris Berman, now exclusively on ESPN Plus. And exclusive live events, including UFC, college sports, domestic and international soccer, and top ranked boxing. The UFC 244 -per-view event last Saturday delivered one of ESPN Plus' largest live audiences to date. Viewing patterns show ESPN Plus appeals to a broad array of sports fans, those who want more of everything, as well as fans who are highly passionate about a specific sport, conference, or team. We believe we have numerous interesting opportunities to expand ESPN Plus' live and original program offerings and to steadily grow subscribers. As I said, our acquisition of 21st Century Fox was largely driven by the value it brought to our overall DTC strategy, adding a number of critical elements, including Control of Hulu, which opens numerous growth opportunities domestically and internationally. We also gained a large library of quality film and television content, along with additional filmmaking capabilities and the industry's best TV production studios, great talent, great brands, and franchises, like Nat Geo and FX, along with The Simpsons and Avatar. This collection of IP and talent will contribute significantly to Disney Plus and Hulu, and with that in mind, beginning in March, Hulu will become the official streaming home for FX networks. As I've mentioned on previous calls, FX is a producer of high quality, award-winning content and will become a key content driver for Hulu. Since 2014, FX has earned 277 Emmy nominations and won 57 Emmys. The awards FX have garnered come from programming that is recognized for its quality and its boldness, and the Hulu and FX teams have been collaborating to develop an exciting strategy to bring the full breadth of FX content and production capabilities to Hulu subscribers with the introduction of FX on Hulu. FX on Hulu will include all seasons of more than 40 FX series and will offer episodes of current and new FX series immediately after they air on the linear network. Additionally, FX will produce original series exclusively for FX on Hulu, starting with four new series in 2020. Debz from Alex Garland, Mrs. America starring Cate Blanchett, A Teacher starring Cate Mara, and The Old Man starring Jeff Bridges and John Lithgow. This is a great way to expand the FX brand and an important step for Hulu as it adds original content to compete more aggressively with new and legacy DTC platforms. The FX presence on Hulu combined with original production from our ABC and Fox television studios and our Fox movie studios including Searchlight will greatly enhance Hulu's consumer proposition. Turning to Disney Plus, in preparation for the US launch, we tested the technology in the Netherlands, giving consumers free access to a curated collection of library content. And we've been very pleased with the results, including the technical soundness and reliability of the platform. The user feedback has been extremely positive with praise for the elegance and ease of the interface and the quality of the overall experience. The ability to download the content has also been a big hit and the brand-centric navigation has generated an elegance and an ease of use that was well received by users. The viewing patterns in the Netherlands test were also encouraging. Even without access to our full library or any original content, the service connected with users across all four quadrants, male and female, adults and kids, driven by the breadth of our content and the affinity people of all ages have for it. Disney Plus launches in the US, Canada and the Netherlands next Tuesday with Australia and New Zealand coming online November 19. And today, I'm pleased to announce, on March 31, Disney Plus will launch in markets across Western Europe, including the UK, France, Germany, Italy, Spain and a number of other countries in the region. At launch, Disney Plus users will have immediate access to more than 500 movies, including all of our beloved vault titles and more than 7,500 episodes of library television content, including 30 seasons of The Simpsons. By year five, this growing collection will include more than 620 movies and more than 10,000 television episodes, along with countless shorts and features. And as planned, when we first conceived this service, all creative engines across our company, including the teams at Disney, Pixar, Marvel, Lucasfilm, National Geographic, Disney Channel and Walt Disney Television Studios are focused on creating compelling original content for Disney Plus. At launch, we'll offer 10 original movies, specials and series exclusive to the platform, including The Mandalorian. The first live action Star Wars series is unlike anything audiences have seen before on any platform and it's a strong indication of the quality and the storytelling that will define Disney Plus. We recently screened a significant portion of the first episode of The Mandalorian for press and the extremely positive reaction is driving tremendous buzz around this extraordinary series ahead of its debut on Disney Plus. Within a year of launch, the amount of original content on Disney Plus will increase to more than 45 series, specials and movies and will expand to more than 60 original projects per year by year five. In addition to creating a phenomenal product, we're supporting the launch of Disney Plus with an unprecedented marketing campaign drawing on every existing connection the Walt Disney Company has with consumers. It's an historic effort to raise awareness and drive demand, one that reflects our all-in commitment to the strategic initiative and our determination to launch big and scale fast. We're also very pleased with the consumer enthusiasm we're seeing, as well as the interest from partners like Verizon, which is now offering a free year of Disney Plus to many of its customers. Consumers can directly subscribe to the service for $6.99 a month or $69.99 a year at Disney Plus dot com. And starting November 12th, they can access the service to a growing variety of partners and platforms including Apple, Google, Microsoft, Sony and Roku. And today, we're pleased to announce additional distribution partnerships with Amazon Fire, Samsung and LG. Disney Plus will also be available in a bundle with ESPN Plus and ad-supported Hulu for $12.99 a month. We spent the last couple of years completely transforming the Walt Disney Company, making strategic acquisitions and organizational changes to focus the resources and immense creativity across the entire company on delivering an extraordinary DTC experience, unlike anything else in the market. With the launch of Disney Plus, we're making a huge statement about the future of media and entertainment and our continued ability to thrive in this new era. I'd like to take this opportunity to publicly acknowledge and sincerely thank the technical and creative teams, along with countless others across our company, who invested their tremendous talent and a lot of time and effort in creating an exceptional DTC experience that is worthy of the Disney name. I talk a lot about the inevitability of change, our ability to both drive it and adapt to it. It's part of Disney's DNA and it helps keep us relevant to each new generation while also creating new opportunities for growth. It's exciting and exhilarating and on the eve of launching one of our most ambitious initiatives to date, I'm more confident than ever in our strategy and in our ability to execute it effectively to deliver compelling value to our consumers and shareholders. I'm going to turn the call over to Christine to talk about our performance in the quarter and then we'll take your questions. Christine?

Thanks, Bob. And good afternoon, everyone. Excluding certain items affecting comparability, earnings per share from continuing operations for the fourth quarter were $1.07. We are pleased with our results this quarter and how we closed out the fiscal year. Our core businesses delivered another solid year of financial performance. We continue to make meaningful progress in integrating the 21 CF businesses while making significant investments to drive future growth. Our studio had another great quarter and a phenomenal year. In the fourth quarter, operating income was up 79% driven by growth and worldwide theatrical due to the performance of the Lion King, Toy Story 4 and Aladdin in the quarter compared to Incredibles 2 and Ant-Man and the Wasp last year. The increase in operating income was partially offset by about a $120 million loss at the 21 CF studio business which was driven by the performance of Ad Astra, Art of Racing in the Rain and Dark Scenics. The loss from the 21 CF studio business was about $100 million higher than the loss we estimate the business generated in Q4 last year. At Parks, Experiences and Products, operating income was up 17% in the quarter driven by higher results at Consumer Products and at our domestic Parks and Experiences business. Consumer Products operating income was up 36% due to growth and merchandise licensing as a result of strong revenue growth from sales of Frozen and Toy Story merchandise. At Parks, our strategy of managing yield to drive greater profitability and enhance the guest experience continues to pay off. Operating income at domestic Parks and Experiences was up 13% driven by growth at Disneyland on higher guest spending and an increase at Disney Vacation Club. Results at Walt Disney World were comparable to the prior year as increases in guest spending, occupied room nights and attendance were offset by higher costs associated with the launch of Star Wars Galaxy's Edge. Domestic Parks and Experiences margins were up 70 basis points in the quarter. I'll note that Hurricane Dorian had an adverse impact on Walt Disney World which we estimate impacted the -over-year change in domestic Parks and Experiences margins by about 80 basis points. Attendance at our domestic Parks was comparable to the fourth quarter last year and reflects the impact of Hurricane Dorian which we estimate adversely impacted attendance growth by about one percentage point. Per capita guest spending was up 5% on higher admissions, merchandise and food and beverage spending. Per room spending at our domestic hotels was up 2% and occupancy of 85% was comparable to the fourth quarter last year. Results at our international operations were comparable to the fourth quarter last year as operating income growth at Disneyland Paris and Shanghai Disney Resort was largely offset by about a $55 million decline at Hong Kong Disneyland as circumstances in Hong Kong have led to a significant decrease in tourism from China and other parts of Asia. And based on the trends we saw in Q4 and what we are seeing so far in Q1, we expect operating income at Hong Kong Disneyland to decline by about $80 million for Q1. If the current trends continue, we could see a full year decline of approximately $275 million versus fiscal 2019. On the domestic front, we expect Q1 revenue growth at our domestic parks and resorts to benefit from a full quarter of Star Wars Galaxy's Edge at Walt Disney World and the December opening of Rise of the Resistance at Walt Disney World. However, the revenue growth will be partially offset by meaningful cost growth driven primarily by operational expenses associated with Galaxy's Edge and higher labor expense due to the impact of higher wages under new collective bargaining agreements. So far this quarter, domestic resort reservations are comparable to prior year. We believe some guests are deferring visits to Disneyland and Walt Disney World until the complete opening of Galaxy's Edge at those respective locations. I'll note that awareness and intent to visit remain strong. Booked rates at our domestic hotels are currently pacing up 5% versus this time last year. Turning to media networks, operating income was down 3% due to declines at cable and broadcasting, though results came in better than what we expected at the time we reported Q3 earnings. Lower cable results reflected decrease at ESPN, partially offset by the consolidation of the 21 CF cable businesses. At ESPN, higher programming and production costs driven by contractual rate increases for NFL, college sports, and MLB programming and higher marketing expenses related in part to the launch of the ACC network more than offset growth and affiliate revenue. ESPN's domestic linear advertising revenue was down 2% in the fourth quarter and so far this quarter ESPN's domestic cash ad sales are pacing up 3% compared to last year. At broadcasting, results in the quarter were adversely impacted by lower program sales compared to last year. We sold two Marvel series, Daredevil and Iron Fist during Q4 last year and we didn't have comparable sales in the fourth quarter this year. We also had lower sales of Blackfish in the quarter compared to last year. The difficult program sales comp, coupled with higher programming expenses at the ABC television network and lower TV station ad revenue were largely offset by the 21 CF broadcasting business and higher affiliate revenue. Ad revenue at the ABC network was up modestly in the quarter. Quarter to date prime time scatter pricing at the ABC network is running 47% above upfront levels. Total media affiliate revenue was up 18% in the fourth quarter and reflects the consolidation of 21 CF and growth at both cable and broadcasting. The increase in affiliate revenue was driven by 15 points of growth from the acquisition of 21 CF and seven points from higher rates, partially offset by a four point decline due to a decrease in subscribers. Results that are direct to consumer and international segment reflect the consolidation of Hulu and ongoing investment at Disney Plus and ESPN Plus, partially offset by the consolidation of the 21 CF international cable businesses. Results that are direct to consumer businesses had an adverse impact on the year of year change in segment operating income of about $600 million. ESPN Plus had a little over 3.4 million paid subscribers at the end of the fourth quarter and Hulu had approximately 28.5 million paid subscribers. Overall we are pleased with our fourth quarter in full year results and with the progress we're making on integrating 21 CF. The 21 CF businesses we acquired excluding 21 CF, Stake and Hulu and net of intersegment eliminations contributed approximately $130 million in segment operating income in the fourth quarter. Consolidating Hulu's operating losses and netting out intersegment eliminations resulted in an adverse impact to segment operating income of about $170 million. We estimate the acquisition of 21 CF and the impact of taking full operational patrol of Hulu had a total dilutive impact on our Q4 EPS before purchase accounting of 47 cents per share. Before I conclude I'd like to highlight a few additional items that should help frame our fiscal 2020 first quarter and full year results. First we expect our direct to consumer and international segment to generate about $800 million in operating losses for the quarter. We expect the continued investment in our DTC services, specifically Disney Plus, which will launch in just a few days and the consolidation of Hulu to drive an adverse impact on the -over-year change in segment operating income of our direct to consumer businesses of approximately $850 million. At the studio we are very excited for the release of the much anticipated sequel to Frozen and the final film in the Skywalker saga, Star Wars the Rise of Skywalker. We expect the theatrical performance of these films to be key positive drivers of studios Q1 results. However we expect the results to be partially offset by an operating loss of about $60 million at the 21 CF film studio. While 21 CF's performance will not be reflected in our prior year results, we estimate that 21 CF film studio generated about $30 million in operating income during Q1 of fiscal 2019. I'll note that we don't expect a material increase in studio profitability in the first quarter from licensing the legacy Disney Studio library to Disney Plus. We estimate the acquisition of 21st century Fox and the impact of taking full operational control of Hulu will have a dilutive impact on our Q1 earnings per share before purchase accounting of about 30 cents per share. We still expect the acquisition to be accretive to EPS before purchase accounting for fiscal 2021. We expect consolidated CapEx in fiscal 2020 to be $500 million higher than in the prior year. The increase in CapEx is primarily due to increases at DTCI and corporate. And lastly, I'll note that our fiscal 2020 calendar will contain an extra week of operations, so our Q4 and full year results will benefit from the 53rd week. With that, I'll now turn the call over to Lowell and we would be happy to answer your call.

Okay, thanks Christine and operator we are ready for the first question.

As a reminder to ask a question you will need to press star one on your telephone. To withdraw your question press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from Ben Swinburne with Morgan Stanley. Your line is now open.

Thanks, good afternoon. Bob, I want to ask you about two of the most important brands of the company Marvel and Lucas and how we should think about the contribution of those businesses or those studios over the next couple of years. I mean there's been a lot written about what's happening on the Star Wars front so I'd love to get your thoughts there and on Marvel sort of in the post Avengers world. How you think about mining that IP broadly for the company, whether we should be expecting a bit of a gap period in terms of contribution over the next couple of years. And then Christine, you know one of the things that happens when you give us a lot of We come back to them so I wanted to ask you about the numbers you gave us at investor day for 2020 in particular around Disney Plus. I think you talked about three billion of OpEx. You talked about Hulu peak losses of a billion and a half in 19 and ESPN Plus losses of 650. I'm just wondering if any of those numbers we should be thinking have moved around materially or if those are still decent places to be thinking about. Thank you guys.

Ben when we think about those two businesses, Marvel and Star Wars, we think about them as more than just films and film franchises. We look at them across you know multiple businesses and with different basically creative strategies in mind. So just as a for instance in both cases while they're continual they will continue to be films either in development or in production. There's a lot of activity on the television front. Star Wars has three television series. They're in varying forms of production and more in development for Disney Plus and Marvel is has many more. So while in the Star Wars case Star Wars 9 which comes out this December will be the last of the South Skywalker saga and we'll go into a hiatus for a few years before the next Star Wars feature. There'll be a lot of creative activity in the interim. In Marvel's case I'll call it in the post Avengers world it doesn't mean there aren't films that aren't being made with characters from the Avengers. Back we had Black Widow coming out in fiscal 20 and a Thor 4 movie in the works and I could go on and on. We also are mining other characters and characters steps like Eternals. So as we look at these businesses, they're film businesses, they're TV businesses, they're still big consumer products drivers and more and more they have a greater presence at parks and resource and we feel really good about both their creative direction but also their commercial direction.

And then this is Christine on the guidance question regarding the guidance that we provided in April at the Investor Day. It's fair to say that all of the guidance and that goes across the three platforms Disney Plus, ESPN Plus and Hulu is still as it was. We haven't made any changes to that and having gone through the planning process for fiscal 20 we feel really good about fiscal 20 and achieving the goals that we've set.

Great thank you. Thank you Ben. Operator next question please.

Thank you our next question comes from Alexia Quadrani with J.P. Morgan. Your line is now open.

Thank you so much. Just two questions on the streaming side if I may. First any call you can provide on the early sign-ups on Disney Plus put along even just sort of general you know color not necessarily numbers which I'm doubtful you might offer so early on. And then if you can talk about the advertising opportunity of some of your other streaming services specifically Hulu where you're seeing a really meaningful scale now and ESPN Plus which also has you know seen such great growth. I think you've also recently increased the pre-roll ad loads there. I guess how meaningful can the advertising side become for you guys?

Well Hulu is a significant driver of advertising revenue and will continue to be particularly as we grow Hulu out to essentially the guidance that we had given back in investor day. That basically edge supported Hulu has very high ARPU which is the reason this Alexia that it's being bundled with ESPN Plus and Disney Plus for that $12.99 price because the value of an ad supported Hulu subscriber given the advertising revenue that it drives is very very high. ESPN there's all there are also opportunities for growth but probably the biggest opportunity is on the Hulu on the Hulu front. On the your first question just in terms of color regarding Disney Plus and we call pre-sales we're not getting any specifics. Consumers were drawn to basically the marketing messages that we had out there which is a reaction to the brands and the content both library product and original product that's coming. Clearly the price was met with you know a great enthusiasm among consumers not just the single month price but because what we were really selling was the three-year subscription which is a big deal for us in terms of lowering churn. Now we're still relatively small in terms of the scope of things to a number of subscribers but I think the best way for me to characterize it would be to say that we were enthusiastic about what we saw the consumer reaction to be. We certainly feel good about the product that's going to the marketplace next week and you know we'll know a lot more in just a few days but it was good and I should also say I said it in my comments the Netherlands launch was also very very positive and what was positive there were a few things not just the fact that there was an enthusiasm for the service but we had a good sense about how people were using it and what people were using it. The demographics were far broader than a lot of people expected them to be. This is well beyond kids and family. Clearly where this is four-quadrant product with you know adult men and women as well as kids families watching or using the service. We also saw that people's interest in the product itself was very very broad meaning across all the brands wasn't it specific and that also bodes very well and we learned that some of the features including the 4k HDR movies were very very popular. The fact that you can have four concurrent live streams also very popular. The personalization was also quite popular and most importantly the ability to download without restriction was very very popular.

Thank you very much.

Alexia thanks for the questions.

Operator next question please. Thank you. Our next question Councilman Michael Nathanson with Moffitt Nathanson. Your line is now open.

Thanks. Bob a couple on Hulu. I guess on your scripted comments today you refer to maybe a Fox searchlight product you know the movie is going to Hulu. I wonder does that represent you know where all the pale and movies go from this point on? Is that a strategic shift for you know Fox and studio on the film side? The second question is you also in the comments mentioned international and Hulu helps you internationally. So what's is there an update on the Hulu international side based on those comments that you made before?

On the first of the year we're working through the formulation of a strategy in terms of what markets when. It's complicated in terms of our need to make sure that we have the right product in all the markets that we launch in and to be such locally relevant and locally compliant in terms of some of the rules and regulations. So I don't have much more to say there. Obviously we have opportunities and we're going to pursue them. I mentioned searchlight briefly in the call. Searchlight is actually developing some original content for Hulu. The searchlight and the Fox movie studios had an output deal with HBO that runs for a few more years. I think eventually it's likely that the output would move to Hulu but it's premature right now to speculate. What I mostly talked about on the call as you know Michael is the fact that we're creating a huge FX presence on Hulu and what that means is that FX is producing original programming for Hulu, original exclusive programming. We're also moving FX library some 40 series and over 1600 episodes onto Hulu and we're making available current shows that air on FX available on Hulu within hours after they air as we do with traditional network shows.

Thanks Mike.

I'll

operate

our next question please. Thank you. Our next question comes from Doug Nicholson with Credit Suisse. Your line is now open.

Thanks so much. It would obviously be fun to know about what you picked for Disney plus subs in the office pool but for something you might be willing to comment on. I'm curious on sports. You mentioned inevitability of change. Do sports need to change? It's viewed live. The bundle delivers sports well, monetizes it well. Obviously you're pursuing ESPN plus. I'd love any learnings on ESPN plus and how it fits in the future of sports and what you think there. Christine, I'm just curious for Disney plus disclosures. Are you going to give us U.S. subs separate from international in the future and then I'm just curious on Fox execution, how that Fox solution might scale during the year? Does it improve linearly during the year or is it more of a step function improvement in fiscal 21? Thanks so much.

Doug, to answer your first question is I'm not aware that there is an office pool and if there is an office pool I'm not participating in it and I don't intend to. On the sports side, as I look at it what ESPN plus is teaching us is that the opportunity for company with sports is probably multi-platform. What I mean by that is I think you'll continue to see ESPN available through essentially the multi-pack multi-channel bundle on cable and satellite platforms. You'll see it available on a direct to consumer basis on ESPN plus which we intend to grow both in terms of the product that is on and obviously in terms of the subs. I think you're likely to see more sports on ABC as the value of live grows on the live basically linear channels. So as we look long term at sports we look at basically making sports available to the consumer on the live traditional network on ESPN and on ESPN plus. We think that would be a good way not only to reach more consumers but to monetize cost the acquisition of sports program rights in the best possible way.

So Doug your question on subs and what we'll be disclosing on a go-forward basis. As we said at Investor Day and in all the conversations we've had with analysts and investors since then we intend to be very transparent as it relates to our DTC business and the sub counts are going to be something we know people will be interested in. So we will be providing by the different platforms subs by those platforms and because we'll be launching domestically obviously we expect Disney Plus domestically to have a head start on any of the international markets but as we go into the international markets recognizing that it's not a big bang approach to launching all at the same time there'll be a rollout there but we'll give you enough guidance so you can look at the success of the rollout.

Thanks Doug.

And then the Fox dilution that's facing during the year is it a step function improvement into fiscal 21 or is there sort of a linear improvement in Fox dilution throughout fiscal 20?

Well what we said about Fox dilution is you know we are reiterating that we will be accretive in fiscal 2021 and we haven't gone into any more specifics than that. All right thanks so much.

Thanks Doug. Operator next question please.

Thank you our next question comes from Jessica Rice Ehrlich with Bank of America, Maryland. Your line is now open.

Hi a couple of questions. I'm busy for one more question. Can you talk about your plans and I'm sorry I can't speak today your plans for further third party distribution. You haven't said anything about pay TV operators and what are the key trade-offs with these third parties whether you know is there billing but you have access to the data will the subs come into your app so you have the data and then on the parks you called out your press release lower attendance at Disneyland which seems a little surprising. Are consumers waiting for the second attraction the second Star Wars attraction and your price increases in the past year have been on the high end of the historic range. Can you talk about the outlook for pricing in the next year or two?

Thanks. All right I'll take the second part of your question first. Price increases at the parks really we don't look at just as increases we look at it overall strategy as Christine said in her comments is designed to basically grow yield or yield management. We're trying to basically increase the park experience by spreading demand out and by making the parks more affordable during periods of time that basically lower peak periods and obviously more expensive during peak periods to limit the number of people that go in. There was we believe that there were some delayed visit it was some delayed visitation to Galaxy's Edge both at Disneyland and at Disney World people waiting for the second e-ticket attraction to open. It opens in less than a month in Disney World and it will open in January at Disneyland so we sense that there are people that are just waiting for the whole thing to be open which is fine. In the meantime those two lands have been far more successful than have been reported. They've had a significant lift on per caps and merchandise and in food and beverage as a for instance. Just to give you one crazy stat the Millennium Falcon attraction has carried over 1.7 million people already since they've opened across both places so and the and the guests experience guest satisfaction very very high and ride availability or traction availability in the 90s that basically means that a very very complex technological attraction is running really well. The first part of your question regarding Disney Plus the we're certain the apps will be made available in most traditional apps selling stores or platforms. I don't have comment on access to consumer data if the MVPDs are distributing or selling it. We do have access to some data obviously following both the law on some of the other platforms including Verizon as a for instance but I just don't have the answer to the question if it's sold on by an MVPD. As you know we did announce today that would deal with Amazon and they are added to a long list of other distributors including Apple and Samsung and Google and Microsoft and and LG and others.

Thank you. Jessica thanks for the questions. Operator next question please.

Thank you. Our next question comes from John Hodulic with UBS. Your line is now open.

Great thanks. Maybe first on the Verizon deal. It looks like Bob you're going to have access to about 20 million households or just under 20 million households that have eligibility for to Disney Plus for free. Anything you can tell us about the wholesale arrangement you have with Verizon and T-Mobile with its distribution of Netflix for free got about 50 percent penetration. Are you guys ready for the that kind of scale in with Disney Plus soon after launch? And then if I could just one more follow-up question. You talked about putting more supports on ABC. Just any thoughts that you have on potentially bidding for maybe an extra NFL deal and putting that on the broadcast network? Thanks.

The first question you know we believe and we're confident that we're really ready for scale. You know that BAM tech platform has been tested under pretty interesting circumstances including this past Saturday night when you have you know hundreds of thousands of people signing up for a -per-view event in a very very short concentrated period of time. We believe that the people who are signing up for Disney Plus will not sign up and is concentrated away. Now there will be many more of them we certainly hope but we feel that the platform is robust enough and that all the elements that need to be in place to manage that kind of the second part of your question was just

taking on the wholesale agreement.

Yes you know the wholesale agreement we're not prepared to give you any any more information about that but I can say that the deal is positive for us from an economic perspective because it's just not being given away. In other words we're not just giving it away we're getting paid a certain amount for it but I won't get into specifics regarding that. And then the last part I think we have an interesting opportunity here to use our platforms in a variety of different ways including with live sports and not just take a sort of a one platform approach or a two platform but to really look at the different ways this company can now reach consumers. And we've done that with simultaneous coverage of say the NFL draft would probably be a great example of that. We have a very unique reach as a company right now in terms of these multiple platforms that in some respects is unrivaled. That launch of Disney Plus went a long way to us reaching more customers in a different way when you add that to ESPN and its channels and you add that to AEBC that's an opportunity. I think you have to also look at the opportunities we have for our other programming as well. The Fox Acquisition brought with it some great creative talent and some very very successful television studios or production entities which gives us the ability to produce more and own more of our programming. When we then take that programming and put it on ABC and our other live linear channel like Freeform, FX, Disney Channel and then we move it through a system that ultimately ends up on SVOD or Hulu or Disney Plus for that matter that's an extraordinary way to reach more consumers and to monetize our investment in this product in a much more effective way. And it does give us a competitive advantage of sorts to other companies we're competing with who don't have as many platforms or as many ways to both monetize product or reach consumers.

Thanks. Hey John thanks for the questions. I'll write your next question please.

Thank you. Our next question comes from Jason Bevinette with Citi. Your line is now open.

Thanks. I just had a question for Mr. Eicher. Maybe the most common question we get from investors is how consumers are going to navigate a world with so many apps out in the marketplace and so I just wanted to run a hypothesis by you and see if it resonates with how you're thinking about the world. Do you think it's reasonable that there will be three or four, for lack of a better word, broadcast apps meaning they're sort of broad-based and they're offering, they sort of serve the masses and then there will be dozens of, I'll call them niche apps, which are more like cable networks that sort of super serve a customer with a narrow interest. So that's my question. Do you agree with that and if that's true is Hulu sort of your broadcast app and ESPN Plus and Disney Plus positioned as niche apps? I heard your comment about the four quadrants but if you could just react to that, that would be helpful.

Well the second part of your question, I don't think any of these are niche apps necessarily and I think what we're trying to do as a company is not to look at the apps as entities unto themselves but look at the apps as part of a broader production, creativity, distribution, monetization play. What I mean by that is if you look at Disney or Disney Plus, obviously films that are monetized in two windows first, one the theatrical window, then what I'll call the home video window and then they move on to this SVOD platform and it's also, which is also a place that is monetized in the vast library. The same thing can be said for the television programming that we're creating although a lot of it for Disney Plus will be original or exclusive to Disney Plus but there's nothing to be, although nothing to keep us from then putting some of it on maybe a Disney Channel down the road. But we're not looking at any of these in isolated way. I talk about Hulu but I also talk about it in the context of ABC, of FX and of Freeform. Interestingly enough if you look at current viewing patterns of some of our hit shows on ABC, Grey's Anatomy, The Good Doctor would be two examples. They're on ABC Live, they go through that Live Plus 3, Live Plus 7 or Live Plus 8 cycle. Ultimately they end up on Hulu. By the end of the run of a show after one month often these shows have tripled in terms of their consumption once they're made available on Hulu and that's only a month. It could be on Hulu for years to come. So again I think the second part of your question Jason, again we're not looking at any of them in isolated form right now. As it relates to your first question which I guess is consumer choice, consumer confusion, I think a lot about it as it relates to the website consumption patterns and even the current app patterns where no two people use the same websites or the same set of apps. There's obviously a lot of overlap with the most popular ones and then there's a lot of fragmentation. I think you're going to see that in these sort of video-centric or program-centric apps where there are going to be haves and lesser haves. There are going to be a lot of them available and there are varying levels of consumption and the viewer or the consumer will be able to navigate basically relatively easily because they're easy to find. Hopefully they'll be easy to buy or use and they'll be easy essentially to find. There's a lot of space on mobile devices and on desktops and I actually think that if you're thinking about just these TV and movie apps or wherever you want to describe them, there are probably going to be fewer of them than there are apps for games and apps for everything else that you can currently use. So it's not a concern. I do believe though that brands will matter as we've been saying as a company for a long time and if you're in a list of choice for sports and you have ESPN on as your name or for other kind of product that says Disney or the other brands, I think that immediately rises to the top of a list in terms of consumers interest and records because of the recognition factor and they trust they have in these brands.

That makes sense. Thank you very much. Thanks Jason. Operator, next question please.

Thank you. Our next question comes from Dan Sabin with DMO Capital Markets. Your line is now open.

Great. Good afternoon everyone. Bob, I recognize obviously a lot of focus on the DTC business of late but the media networks business also working through a number of major renewals. We'd love to maybe just hear a little bit of an update on your near and medium term outlook for linear subscribers both with the traditional sorts and the VMVPDs and then maybe just more broadly how just the conversations with the MVPDs are evolving as your DTC story emerges. And then just a quick one for Christine, maybe just an update on your conversations with the agencies, excuse me, the ratings agencies to be clear how they're viewing your leverage and maybe the potential to resume a buyback at some point. Thanks.

Dan, before I answer your question, I just want to clarify two things. My number on the number of people who have been carried on the Millennium Falcon attraction was way low. Usually I pride myself on being right with statistics. It's 5 million not 1.7 million. And secondly, we will have access to significant amount of user data when people use our apps that have been purchased through MVPDs. Your question about MVPD renewals, I can say that we have reached a deal in principle with AT&T and we're in the process of papering that, which is significant in terms of our progress. We've been candid and transparent about sub trends. As Christine mentioned, updating that today, there's been a lot of talk about it. We can't predict where that goes. We just feel that as a company, the MVPD platform is still very important to us and very valuable to us. And I think quite viable as well. I happen to believe long-term that people will be interested in less channels. It doesn't mean that they don't subscribe at all to multi-channel services, but I think the trend will be in the direction of fewer channels rather than as many or certainly more. And that's where the app business could benefit because I think people will buy into the app side of it and maintain some channel relationship. But I don't know what the floor is and nor do I think the floor is anything close to being in sight. But we're looking again holistically across all of our businesses and the platforms with an eye toward the broadest form of monetization and consumption.

So Dan, on the rating agencies, we do have an active dialogue with the agencies. It's a combination of me, the IR team, and our treasury team. And we keep them very -to-date on our plans as well as our performance. We have a schedule. We go in and see them a couple times a year. We're planning on that shortly. We'll go back in and see them. But I think people saw that we had a significant bond offering in August, a $7 billion bond offering. The ratings were confirmed at that time across all three agencies as mid-single A. And if you look at our leverage at the end of this quarter, you can calculate it. It comes in around $2.7 on a gross and about a .3 turn less on a net basis. And although the agencies make some adjustments to those calculations, suffice it to say that even when they calculate using their adjustments, the agencies are still well below three times.

Thank you both. Okay, Dan, thanks, operator. We have time for one more question.

Thank you. Our final question comes from Stephen Cahill with Wells Fargo. Your line is now open.

Yeah, thanks very much. I was wondering, first off, just how you think about the right amount of content spending for Hulu, maybe cash basis of both total and originals. And do you think you'll need to do things like lock up some of the FX showrunners like some of your peers have done? And then maybe just Christine one on the park side of things. How do you get comfortable that you're not seeing any underlying weakening demand and it's all just deferrals? And since you think that is the case, is there a point in the year where you think that you might start to see some acceleration in the attendance at the domestic parks? Thanks.

Stephen, we're facing what is obviously an extraordinarily competitive marketplace for talent in television and in films. That's just not just creative and producing and writing and directing talent, but acting talent as well. It's a good time to be on that side of the business. We're making deals selectively based on both the talent of the people involved, but also the cost. We're trying to be mindful of the need both to fuel our platforms with enough high quality talent while at the same time managing the bottom line. We're not changing our guidance in terms of when we believe that these DTC businesses will achieve profitability. And that's based on what we think is a reasonable amount of original content that will be made for these platforms at a cost at least in today's world that we think is deliverable.

Steve, on domestic parks, we still feel very good about the demand for our domestic park product. We do a lot of research in our parks business. Guest satisfaction is something that we track when people come and their intent to return. And also we have metrics that look out year over year at what the booking trends are. And as I mentioned in my prepared comments, our booked rates that our domestic hotels are currently pacing up 5% versus prior year. So given everything that we've talked about previously, especially as it relates to Star Wars Galaxy's Edge and the complete opening of that land in both world and Disneyland, we feel really good about the momentum we have going into 19 domestic parks.

Thank you. Okay, thanks Stephen. I want to thank again everyone for joining us today. Please note that a reconciliation of non-GAAP measures that were referred to on this call to equivalent GAAP measures can be found on our Investor Relations website. In our remarks, we provided estimates of the performance of certain 21 CF businesses in periods of the prior year. These estimates are based on an analysis of 21 CF records but are nonetheless unaudited estimates and are not precise measures of historical results before the acquisition. Let me also remind you that certain statements on this call, including financial statements, may constitute forward-looking statements under the securities laws. We make these statements on the basis of our views and assumptions regarding future events and business performance of the time we make them. And we do not undertake any obligation to update these statements. Forward-looking statements are subject to a number of risks and uncertainties and actual results may differ materially from the results expressed or implied in light of a variety of factors including factors contained in our annual report on Form 10-K, quarterly reports on Form 10-Q, and in our other filings with the Securities and Exchange Commission. This concludes today's call. Have a good evening everyone.

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