My name is Jotin, and I will be your operator for today's call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. Please note that this conference is being recorded. I would now like to turn the call over to Mr.
Lowell Singer, Senior Vice President of Investor Relations. Mr. Singer, you may begin.
Good afternoon and welcome to The Walt Disney Company's 4th quarter 2014 earnings call. Our press release was issued almost and the webcast will also be available on our website. Joining me for today's call are Bob Iger, Disney's Chairman and Chief Executive Officer and Jay Rasulo, Senior Executive Vice President and Chief Financial Officer. Bob will lead off followed by Jay and then we will of course be happy to take your questions. So with that, let turn it over to Bob and
we'll get started. Thanks, Lowell, and good afternoon, everyone. I'm happy to announce that fiscal 2014 was the biggest year in history of The Walt Disney Company with operating income up 21% to over $13,000,000,000 and adjusted EPS up 27% to $4.32 We're obviously very pleased with this historic performance and believe it reflects the extraordinary quality of our creative content. It also demonstrates our unique ability to leverage our content across the company and to adapt to emerging consumer trends and technology. Today, I want to focus on our unrivaled pipeline and its tremendous value in an evolving distribution environment.
The accelerated advances in technology have created a new golden age for content with more opportunities than ever before to reach people around the world. Our extensive pipeline of branded content from Disney, Pixar, Marvel, Star Wars, ABC and ESPN puts us in a unique position to create significant value in this dynamic era as evidenced by our 4 consecutive years of record performance. Our studio business has been a tremendous content engine driving opportunity across the company. In fiscal 2014, the studio achieved record operating income and also released 4 of the year's movies: Frozen, Guardians of the Galaxy, Maleficent and Captain America 2. Most are franchise drivers And this focus on creating and growing franchises is even more pronounced in our slate of future releases.
The most obvious example of this strategy is Marvel, which has become a strong brand since our 2000 and acquisition. The 5 Marvel movies we've distributed to date have averaged almost $1,000,000,000 in global box office and established 2 new franchises, the Avengers and Guardians of the Galaxy. Marvel has a brilliant team of storytellers with an incredible slate of upcoming movies that create unbelievable potential for our entire company, starting with The long awaited Avengers sequel Age of Ultron, which will be in theaters next May. Ant Man will open in July, followed by Captain America 3 and Doctor Strange in 2016 and then Guardians of the Galaxy 2, Thor: Ragnarok and Black Panther in 2017. There will also be 3 Marvel releases the following year, The Avengers: Infinity War Part 1 as well as Captain Marvel and Inhumans.
And in 2019, we'll release the second part of Avengers: Infinity War. And on the Star Wars front, this morning we announced the name of Episode 7, which is The Force Awakens and we're looking forward to exciting footage. And so far everything suggests this will be the movie Star Wars fans around the world have been waiting and hoping for. We'll follow The Force Awakens with the release of our first of 3 standalone movies in 2016. Episode 8 will be in theaters the following year and will complete the trilogy with Episode 9 in 2019.
We've got a strong slate of upcoming Disney branded movies, including our very first live action Cinderella, which brings one of our most beloved heritage characters to life in a whole new way for a new generation. We're also looking forward to Into the Woods, Tomorrowland, The Jungle Book and Alice in Wonderland 2 as well as a new movie from our Pirates of the Caribbean franchise. And our animation is stronger than ever as well. In the last 4 years, we've released 7 major animated movies under the Disney and Pixar brands to an average global box office of $750,000,000 including Frozen, which became the most successful animated movie of all time and a tremendous franchise. The incredible reviews it's generating, we expect a strong opening weekend when it opens tomorrow.
Next June, we'll release Inside Out, a truly innovative original movie from Pixar and we'll follow that with 3 animated features in fiscal 2016: Pixar's The Good Dinosaur and Finding Dory, the sequel to Finding Nemo and Zootopia from Disney Animation. 2017. John created Toy Story and directed its first two films and it's great to have him back directing one of our most valuable properties. As you know, Toy Story 3 was a tremendous success generating wide critical acclaim as well as more than $1,000,000,000 in global box office and almost $10,000,000,000 in retail sales, demonstrating that these wonderful characters are clearly just as relevant and beloved as In fiscal 2014, we had 11 franchises, 5 more than $1,000,000,000 each in retail sales and more than half of them originated from our studio. We're releasing a total of 21 tentpole movies under our great banner brands over the next 3 years compared to only 13 in the last 3.
While there is no sure thing in a creative business, We believe the proven appeal of our brands and franchises reduces risk and maximizes our unique ability to create significant long term value by leveraging successful content across our diverse array of businesses. Turning to our Media business, ABC is off to an excellent start this season. And while other networks have seen ratings trend down significantly, ABC is holding strong and is number 1 in C3 ratings excluding sports. We're especially pleased The network's performance is driven by the success of shows owned by ABC Studios. Once Upon A Time is up 22% year over year in C3 ratings for the key demo.
And Scandal, one of the fastest growing shows last year is also up this season. Additionally, ABC has the number one new comedy Blackish as well as the number one new drama How to Get Away with Murder. At ABC News, Good Morning America continues its reign as the number one morning show and World News with David Muir is number 1 in the key news demo. ESPN has locked down an extraordinary portfolio of sports rights well into the next decade, including deals with the NFL, will also be home to the college football playoffs for the next dozen years starting with the first ever playoff in January, which is already generating a lot of buzz. Now I'd like to turn to the evolving distribution landscape.
The media environment is far too dynamic for anyone to expect the status quo to continue. And we've clearly demonstrated our willingness and ability to be at the forefront of change impacting our industry, driving technology and business models that enhance value to consumers. Given the quality of our content and the strength of our brands, Disney is in a great position to thrive in any distribution environment. The multichannel model provides compelling value to consumers relative to a collection of SVOD and over the top services as evidenced by the fact that there are 101,000,000 Multi channel subscribers in the U. S.
Today, down only slightly from 101,500,000 a year ago. Economic factors as well as technical advances and an explosion of entertainment choices drove this relatively small erosion. Consumers in most markets can get a multichannel subscription with more than 150 channels and a wide array of diverse and quality programming for around $65 a month, a much greater value than a do it yourself portfolio of stand alone options. Between ESPN, ABC, ABC Family and Disney Channels, we own a collection of compelling broadcast and cable networks. We continue to Well positioned for the future.
And now I'm going to let Jay walk you through the details of our Q4 fiscal year. Jay? Thanks Bob and good afternoon everyone. 4th
quarter earnings per share excluding items affecting comparability were $0.89 an increase of 16% over last year. And for the fiscal year, earnings per share excluding items affecting comparability were a record 4 point $0.32 or 27 percent higher than last year. The financial results we reported in the 4th quarter And the record revenue, net income and earnings per share we posted in fiscal 2014 demonstrate how our strategy of investing high quality content can generate attractive financial returns across all of our businesses, while further strengthening our brands and their position in the marketplace. I'm going to spend a few minutes discussing our 4th quarter results in more detail and then I'll go through some key factors to consider as we look to fiscal 20 15. Let's start with the studio, which had its best year ever with over $1,500,000,000 in operating income in fiscal 2014.
Frozen was the biggest contributor to studio results in the year. However, the record studio performance in 2014 performance this year was without the release of a Pixar film. Studio operating income more than doubled in the 4th quarter compared to the Q4 last year due to strong performance in worldwide theatrical and home entertainment markets. Higher worldwide theatrical results to prior year as lower operating income at ESPN was partially offset by higher operating income at worldwide Disney channels. As expected, at ESPN higher programming costs for Major League Baseball, NFL, College Football and the World Cup Domestic cable affiliate revenue in the 4th quarter was up high single digits due primarily to higher contractual rates.
Ad revenue at ESPN was up 5% in the quarter driven by an increase in units sold and higher rates, partially offset by lower ratings. At Broadcasting, operating income was comparable to prior year as higher affiliate revenue and higher income from program sales were largely offset by higher prime time programming costs and lower ad revenue at the ABC Network. Programming costs were higher in the quarter as a result of higher programming write offs and a higher cost mix of programming as well as contractual rate increases. Ad revenue at the network was down low single digits in the 4th quarter due primarily to fewer units At Parks and Resorts, the investments we've made over the last couple of years, specifically in our domestic business continued to pay off. During the Q4, operating income was up 20% on revenue growth of 7%.
We continue to see strength in our domestic operations due due to increased spending and attendance at our domestic parks and higher spending and passenger cruise days at the Disney Cruise Disneyland Paris recently announced a recapitalization plan aimed at helping to improve its capital structure and liquidity, while enabling it to continue investing in the guest experience, which we fully support. Total segment margins were up 100 and investment plan, My Magic Plus and Shanghai Disney Resort are still in ramp up mode, the other investments are clearly making meaningful contributions to the segment's results. The early returns we're seeing from My Magic Plus are encouraging. During the Q4, My Magic Plus had a positive contribution to year over year increase in the segment's operating income. We continued to see positive trends in the business with 4th quarter per capita spending in our domestic parks up 6% on higher ticket prices, food and beverage and merchandise spending.
Attendance at our domestic parks was up 4% with Walt Disney World setting a new 4th quarter record. Per room spending at our domestic hotels was up 5% and occupancy was up 5 percentage points to 83%. So far quarter domestic resort reservations are pacing up 11% compared to prior year levels, while book rates are up 3%. The 11% includes the benefit of the timing of promotional offers, but nevertheless we feel very good about the volume and pricing trends we're seeing in the business. Our consumer products business continues to benefit from strong merchandise sales.
In the 4th quarter, Growth in operating income was driven by the sales of Frozen and Spider Man merchandise. On a comparable basis, Earned licensing revenue was up 10%. At the Interactive segment, operating income was comparable to the our year as strong results from our Japan games business and the recognition of a minimum guarantee were largely offset by lower Infinity sales driven by the timing of the release of Infinity 2.0. As you recall Infinity 2.0 was released in late during the middle of August last year. We are very pleased with the results of the first installment of the game and we feel good about the launch of the installment thus far, but we'll have a better sense of overall performance as we enter the holiday season.
During the Q4, we repurchased 16,400,000 shares for about $1,400,000,000 And for fiscal 2014, we we repurchased 84,400,000 shares for $6,500,000,000 Before I conclude, let me proactively address a couple of questions you may have about 2015. We expect total consolidated CapEx in 2015 to be about $1,500,000,000 higher than in 20 or up $1,100,000,000 adjusted for the contribution from our Shanghai partner. Points in fiscal 2015, primarily driven by the 1st year of both our new NFL and college football playoff contracts. The increase will be heavily skewed towards the first half of the year given the timing of the NFL and college football seasons. Total segment operating income in fiscal 2015 will be adversely impacted by about $225,000,000 due to higher pension and a negative impact from FX.
We will benefit from a 53rd week in our accounting calendar, which will fall in the fiscal Q4. Also in 2015, we expect to continue to return capital to our shareholders via share repurchase and dividends. So far this year, we have opportunistically purchased 11,300,000 shares for $970,000,000 Fiscal 2014 was a record year for our company. And as Bob discussed, there is much to look forward to in fiscal 2015 and And with that, I'll now turn the call over to Lowell for Q and A.
All right. Thanks, Jay. Operator, we are ready for the first question.
The first question comes from Todd Juenger from Sanford Bernstein. Please go ahead.
Hi, thanks. Two questions, if
you don't mind, both on
the same theme, which is around affiliate fees of the cable network. So Bob, you gave a rather impassioned defense and advocation for the value of the bundle as it exists. I know in recent quarters, at least in most recent quarter, you had a comment around how some trading down to lower bundles or skinnier packages did have Didn't make
the list of things that
had hurt affiliate fees at ESPN and I think in the past quarter. I didn't see that on
the list today. So I
just wonder if there's any update on sort of the trends Or any more evidence of the growth of people seeking those lower bundles? And then the quick very quick follow-up, if you don't mind. Jay, I don't know if you're willing to comment anything specifically on affiliate fees in Q4 just how they paced and any puts and takes on that? Thanks.
We saw, Todd, some modest erosion of the expanded basic bundle, but it wasn't a driver of earnings quarter that we just announced. And I did have some bullish comments to make because if you look at the numbers and you see that 101,000,000 Households have some form of multichannel bundle. It's still clearly the dominant entertainment or television package in the home. And we think that's going to continue for this foreseeable future. And while clearly the economy has had some impact over the last few years and we do see that millennials seem to be Becoming subscribers a little bit later than perhaps they used to, we just feel that when you look at the quality of what's offered, Meaning the number of channels and the programming across those channels and you consider the price that that is likely to remain dominant for a long time.
Jay, you want to Yes.
And on the cable affiliate revenue growth, Todd, as I said Last quarter, we expected to see high single digit growth in the 4th quarter. And in fact, domestically, we did see that High single digit growth, mostly due to contractual rates increases.
Okay. Thank you for that color. Thanks.
You're welcome. Operator, next question please.
Thank you. The next question comes from Michael Nathanson from MoffettNathanson. Please go
Thanks. I have one for Bob and one for Jay. Bob, last month the news came out that
So now that you're staying for
a few more years, what other priorities are you going to add to that list of things that you're focused on?
Well, thank Thank you for the question. When I got this job almost 10 years ago, there were 3 priorities. Technology to distribute more broadly to make our company more efficient to get closer to the customer and to innovate meaning to make our products better through innovation and to create new products. And the third was to grow internationally. And it's interesting, here I am essentially almost 10 years after becoming CEO And those are still the priorities.
We look at the movie slate and you look at Star Wars and you look at Marvel and you look at what we're doing with Disney Animation and Pixar, There's no better example probably in terms of the first priority than that. And of course, Star Wars is something particularly for the first film since we've purchased Lucas That is a priority. But I talked on an earlier interview about our movie slate. We have great visibility 1 tentpoles versus 13 in the last 3 years. But if you look at the lineup that is not only that been talked about, but we've actually put into production, we Writers and directors and titles and development, it's unbelievably strong.
And that ability, as you So, to well, the ability of the company has to leverage that across our businesses should drive great growth. So that There's nothing probably greater from a priority perspective than that. Shanghai Disneyland represents our best International growth initiative in a long time and it's rising from the ground as we speak in a pretty compelling way because of its size and the innovation and the breadth of its quality. And we hope to be able to announce an opening date sometime early 2015 meaning when the date that we will open. We think that will be a great driver of growth in China and we believe that we've got more opportunities in Asia, not just in China, but in other markets for the company.
So international continues to be a priority. And on the technology front, We took stock fairly recently at the technology and the technological efforts across our company. And Even we were blown away by the scale. Disney Movies Anywhere is just one recent The Magic Band is another. When you see Big Hero 6 and you see where we've taken the quality of Disney Animation, that's another one.
So I don't intend actually to change my priorities at all in the remaining three and a half years that I'm in this position. And I'm really excited about not only we've got in store, but what those priorities have meant for the company in terms of creating value in the past 9 years.
Thanks, Pavel. Let me just ask Jay following on the Shanghai comments. Jay, when you look in this fiscal year coming up, what is the impact on Shanghai on the operating expenses on the Park side. I know you've been building expenses as you've not opened but have had operating expenses. So how do you think about that in 2015?
Well, Michael, at the outset, when we announced the building in this park, we said There would be $300,000,000 to $400,000,000 of expenses that were part of that overall spend and that that tends to be very back loaded because a lot of those expenses are the hiring, training and pre opening rehearsals, if you will, Before we start taking in revenue for the parks. So they're very back loaded. And We also believe that when we announce the opening date, we'll have a better fix on exactly how those numbers will affect fiscal 2015. But you should assume that they will be pretty significant. But the good news is, Is that as MyMagic Plus ramps up in terms of overall new initiatives, we hope that the benefits from that project will actually offset if Looking at the segment as a whole, the incremental cost that we're going to take on for Shanghai Disneyland.
So I don't think on balance they're going to Huge driver in your model for Park returns for the year.
Okay. Thanks, Jay. Yes. Thank you, Michael. Operator, next question please.
Thank you. Our next question comes from Alexia Quadrani from JPMorgan. Thank you. With so many great brands gaining momentum here that we're seeing, I guess, should we think about the consumer products business long term? And then specifically, how much of a positive influence might the opening of Shanghai Disney on the growth opportunities in the syrup products in China?
Well, I don't think that The opening of Shanghai Disney will have an appreciable impact on consumer products in China. What's having the best impact and what We'll continue to have a strong impact on consumer products in China is the movie business. As you know, China has become among the largest movie markets in pace. Our films have done extremely well in China, particularly the films that drive success in consumer products are retail, Disney and Pixar, Marvel, we believe Star Wars will do the same thing. So we're quite excited about that.
If you look at consumer products overall, their growth the last 3 years has been stunning. It's actually been over 20% over the last 3 years, Which I think has gone largely unappreciated and unrecognized. The movies that we've been talking about, the most versus consumer products business. The Marvel slate that we just announced, what we talked about with Star Wars, they will be as well. But then we have other Creative content engines of the company that are also helping consumer products.
Disney Junior is another example of that. When you look at Doc McStuffins and A variety of other product coming out of the Disney Channel organization. So consumer products right now has Wealth of properties or intellectual property to mine across the board in so many categories. And I just asked the other day, our Head of Consumer Products, what the outlook is for Christmas season. And you said that our stores in the United States and Japan and in Europe, and I emphasize Europe because everybody's been talking about the woes of the European economy, but even Our European stores are comping up significantly over a year ago and buying at mass retail across The globe for our consumer products is also extremely strong going to the holiday season.
I think they've done a great job of mining our IP and creating some of their own And we're going to look to continued growth from that unit over the next 3 to 5 years.
Thank you. And just a quick follow-up for Jay, if I can. I think this time last year, Jay, you gave us some Range for the buyback going into the year, I guess is there any way you can sort of give
us some sense of how
we could expect the buyback to be in fiscal 2015?
Well, I am not going to make you happy with my answer because I'm really not going to any guidance into what the level of buyback would be. But I'll remind you of this. We said that over the long run, We look towards about 20% of the cash generated by the company being returned to shareholders in the form of dividends and buybacks. We've been very much on track with that. You know what the numbers have looked like over the last 3 years that have been in that range between $3,000,000,000 and this year $6,500,000,000 on an annual basis.
You saw that we opportunistically Given what happened in the marketplace, we opportunistically took a big buyback in so far This fiscal quarter, I would not look to that number for guidance on what the whole year would look like in terms of the pace. But obviously, we'll we meet with our Board on this subject. That meeting is coming up. And we We haven't we've neither made a decision as to where what the level will be yet nor am I inclined to announce that. But as I said, part of our fundamental philosophy has been to use that vehicle on an opportunistic basis to return capital to shareholders.
Thank you.
Thanks. Thanks. Operator, next question please.
Thank you. The next question comes from David Bank from RBC Capital Markets.
Hey, thanks very much. Two questions. I guess the first one for Jay. Jay, can you talk about the progress or the I I guess the progress on Maker, now it's been part of the portfolio for 6 months or so or a little more than that. How are you tracking kind of the earn out progress?
And how are you using the maker audience? Are you directing to other audiences within the Disney portfolio, how are you monetizing it beyond just the impressions on Maker? And then second question, I know you can't give us guidance on the studio earnings run rate that I always ask for. But When you think about you have such great visibility into the film slate for the next 5 years. When you think about what those films cost from the past couple of years and what the P and A spend has been both negative cost of P and A, Do the expense profiles of the upcoming slate look pretty similar to the ones that we've just had.
So would the profitability per film tend to be about the same on average? Thanks very much.
Okay. Thanks, David. Let me start with Maker. So as you know, we don't report Maker's financials and I'm not going to get into But I can tell you from a progress report perspective, it is notable how Well integrated Maker's efforts have been across all of the segments of the company. They've engaged Short form applications of that content.
They've also really put their shoulders to the wheel on the marketing front. And I think that Guardians that you can have on distribution vehicles like maker. Tv and YouTube, which are ubiquitous and really target the audience for a lot of our films. So I think that so far we are extremely pleased with How integrated they've become into all of the thinking around the use of the platform that they are so Dominant in and how their skill base both on the analytics side and as well as the content side in terms of short form is showing real promise moving forward. So stay tuned there and I think you'll see a lot more.
On the studio side, in terms of I guess the ultimately what was your question, do we envision that the kinds of films that we announced from an successes we've had with these franchise films in the past. And I think the answer is yes that we do see a similar cost profile in terms of both the negative costs and the likely range of P and A. But more importantly, When these films hit their ultimates with every part of the company, whether it is spin off work in other divisions, whether it's consumer products, the rates of returns on these films are staggering as you can imagine. And that's why we are in the much more limited slate dedicated to franchise and branded films business that we're in, Because we like the way the economic profile looks and we like the kinds of returns they deliver.
That's exactly what Thank you.
David, thank you for the question. Operator, next question please.
Thank you. The next question comes from Jessica Reif Cohen from Bank of America Merrill Lynch.
Thanks. I have two questions. I was hoping you could comment on some of the impact of the bigger global issues like the strong dollar, lower gas prices on your parks and if you could on your other businesses? And then secondly, you haven't gotten the advertising question yet. So clearly, if you've listened to any of the other media company calls, there's tons of concern about what's going on, how much is cyclical, how much is secular.
But you probably actually are enjoying Very solid advertising. So I'd love to get your views of not only the current marketplace, but how you see share shifts in different evolving models?
I'll take the advertising question, Jay can answer the other part of your question, Jessica. And I'll break down between ESPN and ABC, although I think they both are experiencing a marketplace that has similar characteristics. First of all, from the secular cyclical question or angle, I think there's no question that some Money has siphoned out of traditional media and onto digital platforms. We know that because we have taken advantage of it with our digital presence. We also know it because we are an advertiser and a substantial component of our advertising buys, particularly the studio and our Theme Parks is digital, even though by the way there's still a little less data than we would like to back that up.
But digital has Become a large component of most advertising campaigns or a component and that came from somewhere. That said, there's still huge value in the 32nd we're seeing particularly when the spot runs in high quality programming. The other thing that I think is a dynamic that I've heard both from our sales people, but also from the advertising community in general is that many advertisers are now resorting to far more surgical approaches to developing their media campaigns and their buys than ever before. And there are sophisticated procurement procedures in place behind that. So I've heard complaints from an advertising executive fairly recently that all of his clients are using procurement officers.
We've seen that too in terms of selling adds and that's changed the buying patterns a little bit. The other thing I'll add on the secular side is the marketplace right now is, I'll call it mildly off or soft. On the ESPN front, we don't we're not really declaring that a trend. We had a very, very Notably, the NBA, college football leading into the college playoffs, which is a really hot property. So our outlook for the advertising marketplace from ESPN's from ESPN's perspective for the year is actually not bad.
On the ABC front, a similar story in that the marketplace today is Scatter not great. But when you have Scandal and other returning shows on ABC and you have hot new shows in Black How to Get Away With Murder, you've got really high quality shows, including, by the way, Good Morning America, which has Well, on the ratings now World News Tonight, which is doing quite well. Our sales team has a lot of good product to sell. And so when you ask them their outlook, it's actually not that bad.
Jay, do you want to take that? Yes. Let me take your question Jessica in a 2 part. First oil prices, we've over the years been asked a lot of questions about oil prices. And I can tell you that it other than an indicator of overall economic activity, oil prices per se Have never been a real driver for our business either on the upside or the downside.
So I don't expect there to be big particularly in our Parks and Resorts business where that people tend to believe that that would be very relevant. I don't expect that to be a driver as it's never been before on much more dire situations. In terms of the strength of the dollar, obviously, I mentioned in my prepared remarks That we have an FX impact coming up. We've also had one this year. It was part of the reason, for instance, that International Parks was down due to the weakness of the yen.
Obviously, we took the Venezuela valuation this past year below the line. And we expect to see a not gigantic, but an impact from Basically the conversion of our business our foreign businesses into dollars. If you look on the other hand relative to The impact of the stronger dollar on our parks business, this year this quarter we happen to be kind of at the high end of the range that I usually talk about in terms of percent of international attendance at our parks, which tends to be between 18% 22%, we're at the very high driven, I think, than exchange rates. So we'll stay tuned, but I we don't see any fundamental impacts on our business yet.
Thank you.
Thanks Jessica. Operator, next question please.
The next question comes from Jason Bazinet from Citi.
Thanks. Just a question for Mr. Iger. At the press event that you had when you rolled out your Marvel slate, I had a chance to speak Some of your most avid Marvel fans. And one of the young gentlemen framed the 3 studio acquisitions you've done in the last 8 years in an interesting way.
It went like this that Marvel was actually the least risky because you bought intellectual property and talent. Pixar, you really weren't buying IP, you were just buying movie making talent. But Lucas in a way was actually the most risky because you were just buying intellectual property, but no talent. And so I know that's a somewhat simplistic formulation, but can you just remind us or walk us through the steps that you're taking today to ensure that the Star Wars films are successful in terms of the talent you're putting there?
Well, interesting assessment, because I think about Pixar and Marvel that's largely correct. There was IP too at Pixar in the sense that there were great movies that have been made in Nemo and Toy Story and Monsters and Incredibles that has the potential for sequels and today we announced Toy Story 4 as one example of that. And while when we bought Pixar, we weren't guaranteeing we were going to make those sequels. We thought with the companies combined, there was a better shot at making them and making them well. And I think we've proven certainly that that was true.
Marvel something that I learned very early on in the exploration process. And so as you said, it was a combination of the brand and the storytelling And can the affinity for those stories that people had with this great movie making talent and a real discipline, we didn't think it was necessarily a no brainer because there's still a lot of work that goes into it. But we certainly believe that if you're looking at a business that is inherently a risky business because of creativity, We were actually reducing the risk. In Star Wars, there's no stronger IP in terms of the passion that people have for storytelling characters and a brand I think than Star Wars and we're seeing that already. It's actually exceeded with a great one that there was a lot of care that went into it and we were fortunate to have Kathy Kennedy to manage that process, but we also knew that that IP would attract Great movie making talent and J.
J. Abrams is a good example of that. Now there wasn't a long list of people that wanted to Star Wars films because that's a tall order. There's a lot of pressure on those folks that do so. We're fairly certain it would be long enough and that the talent interested in doing it would be strong enough that we'd be in good shape.
And we're really pleased that a combination of the writing team, JJ, Kathy and everyone else that's been involved in the creative on the Star Wars film is really delivering, which we can't wait to prove to everybody next December.
Thank you very much.
Jason, thanks for the question. Operator, next question please.
Our next question comes from Ben Swinburne from Morgan Stanley.
Thanks. I have 2 related to ESPN. Bob, there were some comments from Time Warner yesterday about the potential for an over the top service from ESPN including the NBA and how that product might look. But obviously, we'd love to hear from you what you and the folks at ESPN are thinking about in trying to attack the broadband only sub base, Which may be growing in the U. S.
As you put rights together and think about packaging and pricing ESPN over the top. And related maybe for Jay, You have guidance of high single digit OI growth for cable, 14 through 2016 and you just did I think 7% reported this year. You said that programming costs would be up teens, so that's an acceleration. So I'm wondering Is that CAGR sort of are we going to see a step down in 2015 and then reacceleration in 2016 to hit that high single digit number? It would seem That might make sense mathematically given the programming cost comments you made.
And the whole issue of The sustainability of the bundle over the top, the impact of new technology is a really interesting one and a tricky one. ESPN has got a few priorities. 1st of all, buy great product and buy a broad array of rights that gives them the flexibility to essentially exhibit those rights in multiple forms of media, so that they have the ability to essentially adjust or or adapt to the changing media universe, thanks to technology. The second thing they want to do is they want to engage more with their consumers. That essentially means be present on new platforms in a robust way, get closer to the consumer.
And I said this in an interview earlier too, No traditional media company has done a better job at going digital than ESPN. We see that on the bottom line with huge growth in Advertising revenue, we see it in numbers. ESPN's uniques basically off channel are just staggering in terms of their numbers. That said, we also have a priority and that is to do whatever we can to make sure that, that multichannel bundle sustainable and valuable and continues to add value to consumers because it is a more competitive marketplace today than it has ever been. So we don't feel a compelling need to take a product to market right now.
That is a direct challenge to that multichannel bundle. In part because if the bundle were to break up, which we don't foresee happening anytime soon, we are Very well positioned to move very quickly to take advantage of, I'll call it, a broadband only universe or an a la carte universe because The strength of the brand, the programming, the rights that we bought. There's no need to do it now in a way that precipitates the downfall of that I don't the bragging rights to say we're doing it, to say that we're we've already established as a company we're pro technology. We've probably been at the forefront of it from a media perspective in terms of leading change and adapting to change. But if We're ready to do it if we have to.
There may be some experimenting with new product. We're going to create new product like the NBA over the top that is designed As add ons, it's not designed to the package of NBA games that's going to be on ESPN will be stronger than what we'll ever offer on an over the top package, including the finals, which will be on ABC and a good part of the postseason. If you're really a great NBA You're not going to your over the top package isn't going to satisfy you enough. It may enhance your connection to or your enjoyment of the sport, but it's not going to replace it. And that's how we're looking at it.
I think it's interesting because I Some may call that a conservative approach. We think it's actually a smart approach because we're going to continue to grow our digital offerings Nicely, but we're also going to work really hard at making sure that, that bundle is viable. Interesting, what we've done on the mobile side with the watch apps is one great example of We've got really compelling product that is available. You can watch it on a computer or a great new mobile device If you're a subscriber and that makes subscribing that much more valuable. And I also want to say it's not just about ESPN.
You look at ABC and you look at Disney and other potential products that we could create as a company under the Marvel and the Star Wars brand. We'll be well positioned to go direct to the consumer or to with alacart offerings if the marketplace demands it, We don't feel a great need to do that now.
Thank you, Rob.
Then relatively to the perspective On the OI at ESPN, I guess I'll say this. I'm not going to change the guidance that we gave on the Investor Day relative to The compound annual growth rate out through 2016. But as way of perspective, I think it's worth noting as you think about Obviously, over the next 2 years, the 1st year of those, we've talked about the step up in costs that we're facing. We kind of articulated those in the prepared remarks, but whether it's NFL or Major League Baseball, The cost of the college playoffs, college football playoffs, the SEC, those are all step ups in costs that you we'll see this year, which when we look a year from now at fiscal 2016, obviously, coming against those, you won't see that as an increase in the relative cost base. So I think maybe that can give you some perspective on how to think about sort of the path to that overall compounded growth guidance.
Thank you, both. Good morning. Thank you. Operator, next question please.
Thank you. Our next question comes from John Tanavides from Jefferies.
Hi, thank you. Maybe a related question on advertising and sports. It seems like the number of hours of live sports have increased fairly appreciably across TV this year. And so I'm wondering, are you sensing any kind of sports fatigue or pricing flexibility in the market from either an advertiser or a ratings perspective?
No, we're not really. ESPN's lineup of sports is fantastic. Actually in talking to their sales group About the current marketplace, one of the things they emphasized is the strength of their hand from a programming perspective in a marketplace that I said is at least at the moment Not all that great. We do know that live programming has a lot of value to advertisers. In ESPN's case, it's got a great demo with men.
So that's also quite attractive. So we've not seen what you described.
Okay. Thanks, Bob. Maybe a related I think there's something like 33 games in at the SEC network. So I know it's early, but can you talk about how you view the network's performance and to what Then you're seeing some of your traditional ESPN advertisers maybe spending on the SEC network as well?
So far, what we've seen and we're not prepared to be public with any numbers, it's been very, very encouraging both their Football game performance and adjunct programming around it. They actually have a great SEC Nation show, I think it's called SCC Nation, which is tremendous and they're doing quite well. I don't have any facts to Address the second part of your question about whether we've cannibalized ourselves from an advertising perspective. I do know that we've moved some games from what would have been on ESPN or ESPN2 onto the SEC network, but that had always been the plan. It's also nice that this network is launched in a year that the SEC has been Even stronger than it is traditional as it has traditionally been and that's actually if ever there was a great time to launch this network, it's now.
Great. Thank you.
Thank you. Operator, next question please.
Thank you. Our next question comes from Anthony DiClemente from Nomura.
Thanks. I have one for Jay and one for Bob. I hear you guys on the really constructive commentary on the ad sales outlook for ESPN. I was just wondering, Jay, if maybe you could give us the ad pacing specifically For the December quarter, if you have it, that'd be great. And then, I mean, there have been a lot of great questions on this call in terms of the changing media ecosystem.
I thought maybe I would ask about the soft ratings in cable. And Bob, Maybe you guys mentioned the ratings at ESPN in the quarter that you just reported, but more broadly in terms of cable ratings, I mean, you sit at the top, you have a Very robust internal research team at Disney. And what's your best explanation for the accelerating declining ratings over the summer? And If you will, which are in your opinion the digital platforms that are taking the biggest share of those eyeballs be it ad supported, subscription video formats or
1st, let me talk about your question on advertising. So I'm going to reiterate a little bit about what Bob said because I want to put it in context. 1st, ESPN had a very strong upfront in terms of both volume and pricing. And we are seeing He talked about NBA advertising were up like 21% year on year in NBA advertising and the excitement about the college Football playoff series is palpable. I will say though that we are looking at a very late moving market and advertising.
I think you've talked to the different media companies, you've heard this over and over that people are committing cash late, Which makes it very hard to read what the numbers really are going to wind up for the quarter. But suffice to say that There's a little bit of softness in the pacings. They're slightly down to the tune, I would call it lowtomidsingle digits for ESPN. But I think that we are optimistic that as the quarter comes to attend and those events that I just mentioned take hold that we may feel better about it at the end of the quarter. But right now, we are down slightly.
Okay.
On the ratings front, we've seen some ratings erosion. I actually don't want to jump to too many conclusions because I don't think it's fair to compare a season to a season, meaning this year versus last year and all of a sudden declare it a trend. I do know at the Disney Channel where we have seen some ratings fall off, we've had less original programming. That's more a timing issue than anything else, and we're not concerned about it. In terms of where competition is coming from and where we see, I guess, the competition the greatest, you'd have to conclude that it's from all over the It's a very, very competitive fragmented marketplace that has people consuming media from multiple sources on multiple devices and multiple platforms across the board.
And if I were to conclude anything there, it would be that The HAVES or the better brands with a stronger programming will endure even if they see some erosion. The product that is in danger or the product that has been that is marginal in nature that is either unbranded or does not have the kind of Audience affinity or built in audience affinity that many of the other channels have. I actually When you think about the health of the bundle as well, while if the bundle were to fray or break up, everyone would suffer. The ones that will suffer the most are those smaller, less branded, less popular channels. They're by the way, they're not going to suffer, they're going to disappear.
In a la carte world, they completely disappear. So interestingly enough, what happens in a la carte is much lower choice from traditional platforms or traditional programmers and just even more fragmentation. But everybody talks about diversity and everybody talks about Variety and that goes away. It's that simple. We like our position because of DC and Disney and Pixar and Marvel and obviously Lucasfilm and Star Wars because they're branded In a world where there's substantially greater choice, whether you're looking at movies, whether you're looking at television, whether you're looking at apps, whether you're looking at Internet sites, We think we're fairly well positioned there because of the value of those brands.
Thank you very much. With that,
Anthony, we have a broadcast day.
Operator, we'll take one more question.
Thank you. The next question comes from Tim Nollen from Macquarie.
Hi. Thank you very much.
I wanted to ask also about advertising. And I'm particularly interested in your position with ESPN, which is very much obviously about live sports And then ABC, which faces some of the same broadcast issues as its peers. My question is, how are you thinking about alternative measurement for these two networks, ESPN being very much about out of home and mobile, ABC being perhaps more about time shifting. And I guess what will it take to fully adapt and commercialize new ratings methodology so that we can start to really finally close the gap between what I think real viewership is, which is not declining that much versus your ability to actually monetize these networks? Thanks.
That's a very good question and it describes a very frustrating situation in a way because we know there's more consumption, but The measurement isn't there to back it up. There is some data available, but it doesn't the audience with what's on the network. And so it's harder to use. In other words, We were to try to figure out who's watching scandal on the Watch app and who's watching scandal on the network, we get numbers for both, but it wouldn't necessarily The CUM numbers and there could be some all kinds of duplication. So right now, it is Not a particularly positive situation.
I don't know what it's going to take except probably significant investment to come up with numbers that really reflect what where consumption is today, which I think would be quite important and quite interesting for Those that sell advertising time and those that buy advertising time. And I can't predict When or even if that's going to happen, but I'm assuming at some point the marketplace is going to demand it and it will develop, but doesn't seem to be anywhere It's not in sight at the moment.
Are you saying we need different types of measurement to capture that? Or is it simply not being used effectively enough by the industry as a whole.
Well, I'm not a tremendous expert on this, My sense is we need a different type of measurement. It doesn't exist today, which will take investment.
Okay.
Thank you.
Thank you, Tim.
And thanks again everyone for joining us today. Note that a reconciliation of non GAAP measures that we'll refer to on this call to equivalent GAAP measures can be found on our Investor Relations website. Let me also remind you that certain statements on this call 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 at the time we make 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 ks
Thank you. Ladies and gentlemen, this concludes today's conference. We thank you for your participation. You may now disconnect.