Welcome to the Third Quarter 2014 Walt Disney Company Earnings Conference Call. My name is Ellen, 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 will now turn the call over to Lowell Singer, Senior Vice President, Investor Relations. Mr. Singer, you may begin.
Thanks, and good afternoon, everybody. Welcome to The Walt Disney Company's Q3 2014 earnings call. Our press release was issued about 45 minutes ago and is available on our website at www.disney.com Investors. Today's call is also being webcast and a recording and a transcript of 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 Rasullo, Senior Executive Vice President and Chief Financial Officer.
Bob is going to lead off followed by Jay and then of course we be happy to take some of your questions. So with that, let me turn the call over to Bob and we will begin. Thanks, Lowell, and good afternoon, everyone. We delivered the highest quarter in the history of The Walt Disney Company with adjusted EPS of $1.28 and we've Generated greater EPS in the 1st 3 quarters of fiscal 2014 than we have in any previous Full fiscal year. As evidenced by these results, we remain committed to building strong brands and growing franchises, a strategy that is creating value On top of this earnings report, this week we're especially excited about the fantastic debut of Marvel's Guardians of the Galaxy 181,000,000 in global box office so far.
Domestically, Guardians delivered the biggest August opening weekend ever And with Monday added in, it's at over 106,000,000. This result reinforces what we've known for a while and that is that we have incredibly talented We're looking forward to Avengers 2 next May. The footage we shared at Comic Con was a huge hit Fans will follow Avengers with Ant Man in July, then Captain America 3 in May of 2016. And last week we announced we were going to make a sequel to Guardians. We see great promise in Guardians as another fantastic Marvel franchise.
We also have strong franchises from Pixar, Walt Disney Studios, Disney Animation and Lucasfilm, truly an unprecedented And we're seeing the impact across the company. For example, Disney Consumer Products just delivered its 4th consecutive quarter of double digit growth in both revenue and operating income. And we have multiple franchises that have already More than $1,000,000,000 each in retail sales so far this year. We're very excited about our new line of Frozen merchandise Coming this holiday season. This quarter also marked Disney Interactive's 4th straight quarter of profitability.
Disney Infinity continues to be a key driver and will add Marvel characters including Guardians of the Galaxy to the Infinity When Disney Infinity 2 launches next month. Turning to theme parks, progress continues on Shanghai Disney Resort. This is our most Ambitious project ever and we're thrilled with the way this spectacular destination is coming along. We hope to set an At Walt Disney World, This was the 1st full quarter in which My Magic plus was available to all guests. About half of the guests now use And 90% of them rate the experience as excellent or very good.
We're very pleased with the growing popularity of MyMagic And expected to contribute to Park's earnings growth starting in the Q4. We're also developing ideas and designs for a far greater Star Wars presence in our parks. We expect to provide details about this sometime next year. Production on Star Fan frenzy and excitement this movie is generating around the world. Episode 7 will open on December 18, 2015, so Star Wars fans who've been waiting a decade for a new movie only have about another 500 days to go.
Until then they can enjoy Star Wars Rebels, a new series launching on Disney XD this fall. Turning to ESPN, the spectacular 2014 World Cup once again demonstrated the value of having the number one sports brand covering Cup was the most streamed sporting event in history. In the month of June alone, an astounding 80,000,000 people connected to ESPN via and mobile devices to keep up with the World Cup and other sporting events such as the NBA finals, the NBA Draft, the U. S. Open, Wimbledon And Major League Baseball Games.
ESPN's new SEC network will debut in almost 60,000,000 homes nationwide on August 14, Making it one of the most successful launches in cable TV history, making a lot of sports fans extremely happy. We're obviously very proud of our performance this quarter. It's satisfying to see the growing impact of our strategic focus I'm building strong sustainable franchises across all of our brands and businesses. There's also a long term growth opportunity That is unique to Disney and one that we will continue leveraging to deliver results and create greater value for our company and our shareholders. Now I'm going to turn the call over to Jay to talk about the details of our Q3 performance.
Jay? Thanks, Bob, and good afternoon, everyone. We delivered yet another strong quarter of financial performance with record 3rd quarter earnings per share of 1 point The strong performance in the quarter was broad based with operating income growth and margin expansion at Studio Entertainment, Parks and Resorts, Broadcasting, Consumer Products and Interactive Media. As expected, our cable business was adversely impacted By higher programming costs at ESPN. Let's start with Studio Entertainment.
Our operating income doubled in the 3rd quarter to last year. For the Q2 in a row, Frozen was the biggest contributor to growth in segment operating income at the studio due to its performance at the Increase in unit sales. Operating income at Media Networks was comparable to the prior year as an increase in broadcasting was offset by a decrease at Operating income at Broadcasting was up nicely due to higher affiliate revenue and increased operating income from program sales Due to lower amortization expense and higher revenue from Marvel's Agents of Shield. Ad revenue network was up in the 3rd quarter. So far this quarter scatter pricing at the network is running mid single digits above Turning to Cable, operating income was lower in the quarter as a result of higher programming and production costs at ESPN, lower recognition of previously deferred affiliate revenue and the absence of contribution from ESPN U.
K, which as We sold in the Q4 last year. The impact of these factors was partially offset by higher affiliate Rates and advertising revenue. Higher programming and production costs were driven by increases for Major League Baseball due to the 1st year of our new contract The World Cup. These higher costs were partially offset by the absence of both ESPN U. K.
Rights and production costs for the Global X Games. Domestic cable affiliate revenue in the Q3 was comparable to the prior year due primarily to the adverse impact The timing of program covenants. At the time of our Q2 earnings call, we expected ESPN to recognize $190,000,000 less in previously deferred affiliate revenue for the Q3. As it turned out, ESPN recognized only 98,000,000 dollars less as ESPN met certain program commitments during Q3. As a result of this shift, ESPN has now recognized all Previously deferred affiliate revenue for the year.
So like last year, ESPN will not recognize any deferred affiliate revenue In the Q4. Adjusted for the timing of deferred revenue at ESPN, domestic cable affiliate revenue was up mid single digits In Q3, we expect domestic cable affiliate revenue to return to high single digit growth in the 4th quarter and expect high single digit growth For the full fiscal year. We also remain confident in our ability to drive high single digit growth in domestic cable affiliate revenue through 2016 as we discussed at our recent ESPN Investor Day. Ad revenue at ESPN was up 10% in the quarter due to the strength of the World Cup, partially offset by lower ad revenue for the as the series went 5 games this year compared to 7 games last year. Adjusting for the World Cup And the absence of games 6 and 7 of the NBA finals, ESPN ad revenue was up an estimated 5%.
So far this quarter, At our international resorts, the results this quarter include the benefit of 1 week of the Easter holiday compared to Q3 last year. Adjusted for the timing of the Easter holiday, operating income would have been up an estimated 17%. Growth in operating income at our domestic operations was driven by increased guest spending, higher attendance at our parks and higher ticket prices at Disney Cruise Line, Partially offset by higher costs primarily related to the continued rollout of MyMagic Plus. Operating income at our International operations was lower in the quarter as a result of lower performance at Disneyland Paris. Total segment margins were up 260 basis points in 3rd quarter and were adversely impacted by about 60 basis points due to new initiatives.
We continue to see positive trends in the business with 3rd Order per capita spending in our domestic parks up 8% on higher ticket prices, food and beverage and merchandise spending. Attendance at our domestic parks was up 3%. Per room spending at our domestic hotels up 5% compared to prior year levels, while book rates are up 3%. At Consumer Products, Growth in operating income in the quarter was led by our retail business and merchandise licensing. Disney stores continued to be a positive story with double digit growth comp store sales in North America, Europe and Japan.
Growth in licensing was driven by the performance Frozen, Disney Channel, Spider Man and Plains Properties, partially offset by lower revenues from Monster's. On basis earned licensing revenue in the 3rd quarter was up an impressive 13% versus last year and that's following 8% growth in earned revenues Results at Interactive Media continued to improve. We had yet another profitable We saw improvement in our core games business due primarily to the success of Disney Infinity, Which was released in the Q4 last year. And in addition, this quarter we also saw a nice uplift from our mobile games business. During Q3, we repurchased 22,800,000 shares for about $1,800,000,000 Fiscal year to date, we have repurchased 74 point 3,000,000 shares for $5,600,000,000 And with that, we are now ready to take your questions.
Thank you. We will now begin the question and answer session. The first question is from Jessica Ms. Cohen with Bank of America.
Thanks. I have two questions. You've always been able to drive your franchises throughout the organization. And just wondering when you see something like Harry Potter becoming a game changer for Universal, is there a franchise for you that can do not that you need to have game But is there something that can drive that kind of a lift? Maybe that's what you were referring to Bob.
And then I have a second question.
I think we have a lot of them. Cars Land is a great example of it or Cars. Clearly, Disney Princesses is a franchise that are all over our parks globally. Star Wars is going to be just that. We have global Rights to Avatar.
I mean I could go on Pixar, there's plenty of monsters presence. There's a Toy Story attraction in every one of our parks around the world. I think there are literally dozens of them. We have more than anyone. And unlike competitors in the Except for a couple, like Avatar being probably now the only example, we don't have to license from 3rd parties.
We own them all.
Right. Maybe that's what you mentioned Star Wars, if there was something with Star Wars. But and then the other question is also Park related. With MyMagic Plus, can you talk about any I mean, you've anniversary the costs. Is there a longer term benefit in terms of a revenue component?
There is and we've said that it's going to contribute to our growth in the next quarter. This is actually the quarter that we just announced is the first Full quarter that was basically fully operational and were available to all guests, both those that come as basically walk up guests To our parks, but also or single day ticket holders and those that reserve in advance. And the plan all along was that For it to enable us to grow revenue, clearly, that happens in a variety of ways. It's increasing guest satisfaction. So that should have an impact on Essentially length of stay, repeat visitation, word-of-mouth.
There are other opportunities from a direct revenue generating perspective I won't get into in great detail, but we'd be glad to detail it at a later date. PhotoPass is one specific example of that, but there are many more. And this is going to start delivering basically a positive impact to the bottom line in the quarter that we're just in That we're now in.
Thank you.
Thanks, Jessica. Operator, next question please.
Michael Nathanson with MoffettNathanson. Please go ahead.
Thanks. I have 2, one for Jay and one for Bob. Jay, firstly, when you look at your domestic parks, it looks like over the past couple quarters or years, you've been getting low single digit attendance growth and Good mid single digit per cap spending growth. I wonder when you look at the next couple of years and given your history in parks, think that's kind of the right way to think about the drivers to the revenue model there?
Well, Michael, we've seen If you look at the last 5 years, we've really seen incredibly strong results from the addition of Attractions, lands and experiences based on franchises that have been incredibly powerful. A few minutes ago, Bob, just mentioned Cars and before that Toy Story. And we know that these are the kinds of attractions that Pull people from, gee, I'm going to go to a Disney park someday to I want to go this year. If you look forward, whether it's And we've spoken of the opportunity for Star Wars in our parks. These are the kinds of things that have been Absolutely, the basis of our growth here in the U.
S. And if you look overseas like at Hong Kong for instance, you'll see Ironman I'll be introduced into that park soon. So I think that from a volume perspective, we remain keenly focused On enhancing the experience, having guests who come to Central Florida or Southern California extend their stay with us and that has served us for 30, 40 years as a strategy and I don't see any reason why we won't continue that. In terms of the other side you mentioned on per caps, Bob just mentioned that we expect MyMagic Plus to have Some revenue impact as it continues to be fully utilized by guests. We also have been able to continue to price behind the value of our offering.
So I also see that as a continuing trend. So I don't we don't like to get out Predict what's going to happen tomorrow, but the fundamental strategies that have delivered those results you mentioned are still in place and are still serving us well.
Okay. And thanks Jay. And then for Bob, over the years you've been pretty straightforward about challenges you've seen in different businesses that you guys are in. I wonder given the past upfront when volumes are pretty weak for broadcast and cable, whether or not you see that's a sign that's changed in the TV ad model or is it just something else? Wonder to get your opinion on what happened in the past that time?
Well, I think that you are definitely seeing more compelling growth in advertising spending on new media platforms, digital platforms than you are on the traditional. I don't think though that it's matched dollar for dollar in the sense that I don't think all the money that flowed away from broadcasting in the upfront Necessarily flowed directly into new digital platforms, even though I believe that these platforms have siphoned off some money from the traditional broadcasters. I think some of the money just wasn't expressed because advertisers are choosing to essentially commit to spending much closer to the time that the spots Actually, Ron. So I think you're going to see some of the money that wasn't in the upfront expressed in scatter and some of it Clearly moved to new platforms. That said, ESPN had an extremely good upfront.
It happened late, so it basically just ended. But there the numbers were very compelling and that you had absolute increased volume of spending over last year. So not just increased rates or Increased units sold, but increased dollars committed to ESPN and the upfront. Now that may speak Volumes about live programming and about the nature of the live programming that ESPN has. But I think you are definitely seeing a shift.
We've made a
conscious decision as a company to essentially
not be as decision as a company to essentially not be as reliant on advertising as we were in the past. So it represents Probably somewhere in the neighborhood of low to low 20 percent low 20s percent range of our total revenue. That's pretty purposeful Because we see a much more competitive environment out there for advertising. We intend to participate in that environment in the sense that By moving product into new digital platforms, we fully expect to gain revenue on the digital advertising front. But I think you're going to see Continued pressure on traditional advertising platforms.
We're certainly seeing it a lot, Not we as a company, but you're seeing it in the business in print and in radio and probably in outdoor. And I think that's pretty telling. Television, a little less Susceptible to that, because as an advertiser we can say it's still a very, very effective way of advertising a product. But definitely the world is changing.
Thanks, Bob.
Thanks, Michael. Operator, next question please.
Alexia Quadrani with JPMorgan. Please go ahead. Thank you. You've done such a great job improving profitability at the parks. I guess, can that continue?
How should we think about profitability longer term at least domestically?
We have been steadily adding to our margins in our domestic operations. You're absolutely right about that Alexia. And we have Said that the ramp up of all the new initiatives that we've launched over the last 3 to 5 years have There's a drag on those margins. Those as they continue to become fully operational and now start contributing as we always thought they would To the profitability of the parks, you're seeing quarter on quarter year on year growth in our margins and I think that you will continue to see that. Now Remember, as I answered to Michael's question, the introduction of new product and new initiatives is part of our fundamental It does have short term impacts on margins, but positive long term impacts on value.
So, you may see it's not a straight line upward as we introduce major new Products, but the fundamental operation of that business has been strong and of course volume and pricing increases help that And supportive.
The other thing I will add is and this goes back to the question that Jessica asked is as we spend money at the parks and new attractions That are based on known intellectual property and brands, the likelihood of their success is greater. So when we put when we increase Toy Story's presence or other Pixar presence, when we put Frozen in the parks, when we grow Star Wars presence, We will do significantly. When we do it with Princess, for instance, you're going to see, I think, basically better bets being made that pay off They are more likely to pay off for us than some of the bets that were made in the past. Again, it's just a question of essentially leveraging the great collection of franchises and IP that the company has in ways that have better returns on capital expenditures at the parks than we saw in the past.
And just a follow-up if I may. I guess given your success with Marvel and very high optimism for Lucas Films, I guess combined with the growing value for content these days, have your priorities shifted at all when you're thinking about use of cash? I mean are you more focused I guess now than Before on M and A.
No. We made those 3 big bets in Pixar, Marvel and Lucas. 2 of them clearly have paid off handsomely and one we are pretty certain will, Lucas. We've had a blend, as you know, in terms of how allocating capital or cash between acquisition, organic growth, Disney Junior is a good example of that for instance. The Disney Channels Worldwide another example.
And of course our Continued increase in dividends and our buyback program, which Jay addressed. I don't necessarily see that shifting that much. We've said that we're not targeting any acquisitions that were of the size of the 3 that we bought, and I don't want to speculate at all whether that could
Operator, next question please.
We have Todd Juenger with Sanford Bernstein. Please go ahead.
Hi, thanks. 2, I'll keep them quick. Jay, a bunch of releases recently on the SEC network. Can you just update us on where you hope that will stand in terms should be thinking about. Thanks.
We are incredibly happy with the SEC network launch, best cable channel And we suspect that that will translate into about 60,000,000 subscribers that will On August 14, start watching great programming on the SEC. I don't want to get into and I won't get into the details Of the financial arrangements and results, but we are very bullish on this.
All right. Fair enough. And the one quick following Bob, love to hear your thoughts on how big an opportunity you think international pay television is For Disney and if you had any ambitions to get bigger there either through organic or even M and A efforts. Thanks.
Well, I think growth in international pay television is good for us because of the great content that we have and the content that we have is Fairly universal in appeal. So as entities grow their presence in pay television worldwide, Our content is sought after more and we're monetizing that well. The Marvel TV product that we recently announced is a great example For instance, everything that's Disney branded. In terms of us getting involved directly, we have said for a while that we are going to launch product in Marketplaces around the world that's going to enable us to sell some of our product direct to consumer. I don't want to get too specific about that, but those opportunities To sell directly to consumer and that would be movies, TV and probably other Disney products will be international and domestic in terms of opportunity.
All right. Fair enough. Thanks, guys.
Thanks, Todd. Operator, next question please.
We have David Wang with RBC Capital Markets. Please go ahead.
Okay. Thanks. I feel like I asked this question about every other quarter when you have just a blowout studio performance here, but I'll take another crack. And if you kind of look back 4 or 5 years ago, the expectation for the Studio was kind of a run rate of like $600,000,000 $700,000,000 of EBIT. And beginning with the first Avengers movie and the just Rollout of this staggering pipeline of intellectual property related to Marvel on top of Pixar and now Lucas, I mean, it sort of looks like you're in a unless something goes just incredibly wrong, there's just been a massive step function up in the earnings Part of the studio that looks to me like a run rate at kind of 1.1%, 1.2% in EBIT.
Can you talk about what your expectations are given the incredible visibility in the pipeline for just kind of like profit Generation for the studio for the next couple of years?
Well, I can agree with most of what you said, but I will not give you specifics in terms of a predicted run rate Because we just don't do that. But given the pipeline, that includes basically the brands and the franchises you mentioned, The slates not just for 2015, but beyond are incredibly rich with tentpole movies that are branded and known that should work worldwide. And obviously, releasing a Star Wars film every year starting in 2015, what we said about Marvel with Avengers and Ant Man and Captain America 3 and a sequel to Guardians and plenty others. The obvious Disney Animation success, which is now 3 pictures in a row and Growing because I think that the one we've got this Christmas, Big Hero 6 will also be strong. And then a very rich Pixar slate coming up.
You're going to see some great results from the studio on top of the fact that we feel very well positioned Both in terms of our slate and our talent on the Disney live action front, Maleficent has done well over $700,000,000 worldwide. You look at the slate coming up from Tomorrowland and Cinderella and a number of other films, we think that group is operating at a top level, and We're very bullish about their prospects too. So we think we're well positioned for the studio to be a significant driver of bottom line results for the Certainly, through the next 5 years, and I'm not sure I know what's out there that could disrupt us except for wide scale Creative failure and I certainly don't expect that.
Okay. All right. Thanks very much.
Thank you, David. Operator, next question please.
We have Ben Swinburne with Morgan Stanley. Please go ahead.
Thanks. Bob, in light of the FOX Time Warner news, which Obviously dynamic as we speak. Presumably one of the ideas there is that having significant scale in the domestic Pay TV business and having size and affiliate fees has value. And I'm wondering given Disney's position with ESPN and ABC and Disney Channel where you already have Scale, do you view adding even more scale as helpful in creating value for the company, adding more cable networks to your portfolio or maybe conversely There starts to be some dis synergy from size as you become sort of it is too many mouths to feed so to speak. So I'd love to get your color on that since it's obviously pretty topical.
Well, we like the hand that we have and we believe that we can continue to mine Growth from the channel properties that we own in Disney and Pianne, obviously, and ABC, in our 50% ownership of the A and E Lifetime Networks, which is also very significant for us, we like that hand. We don't necessarily believe that we have to grow those businesses in order to prosper. We think we're positioned to continue to prosper in that business. I will say that in the multichannel business, there's a lot out there. There are a lot of channels.
And Channels that have questionable brand propositions, channels whose ratings are not necessarily consistent, I'm not sure are going to be served as well over time. I don't think the marketplace continues to grow for all. I think the marketplace will continue to grow for those channels that are best branded, most in demand, best Programmed. And I think we've got those channels.
Got it. And if I could just ask a follow-up to Jay on a different topic on Cable affiliate revenue growth, I guess same topic but on the quarter. Jay, you mentioned that domestic affiliate revenue growth I think was up mid singles in the quarter. I it was high singles last quarter. So any color on the deceleration and then the acceleration into Q4?
Is that Basically the SEC network kicking in or is there anything additional you'd want to add?
Thanks, Ben. I'll be happy to try to shed some light on that. There are a number of factors that have Led to this quarter's affiliate revenue growth to be in mid rather than high single digits as it has been. First, as you probably know, we We have completed all of our deals with the multichannel operators. Some are still operating under the old rate card And that is something that obviously we expect to change going forward.
Secondly, we've experienced some modest ESPN sub losses that we believe are mostly economically driven. We've talked about this in the past. And finally, the growth rate was impacted by some contractual adjustments during the quarter. But what's important to know as you Said in your question is that we do expect to be back to delivering the high single digit domestic Cable affiliate growth in Q4 that we've been speaking of and also that the full fiscal year will be high single High single digit compounded annual growth in domestic cable affiliate revenue through 2016. We don't really break out individual products like the SEC Network.
So I'm not going to specifically speak about it.
Terrific. Thanks a lot.
Okay. Thank you, Ben. Operator, next question please.
Anthony DiClemente with Nomura. Please go ahead.
Thanks a lot. Just a question on your ongoing relationship with Netflix. It seems that Disney has been more aggressive than your peers in terms of Deals with Netflix on the SVOD side, not only the Payone deal that you have in the U. S, but I think in the quarter you struck a similar deal with Netflix in Canada. Why have you guys been more aggressive than other media content companies?
Do you think it's your genre, the kids genre is more value add from SVOD As compared to sort of traditional premium pay TV or is it just that you're getting kind of a pretty material pioneer tax from Netflix? Thanks.
Netflix, we're growing our business with Netflix, first of all, because we believe in their platform and its And we have from the beginning when we did the output deal with our studio. And we also believe that our can be well monetized on their platform, which is evidenced by what they're paying for our brands and our content. As long as that continues, which I think we will, Not just domestically, but internationally, our business is expected to be robust with them or even grow. It's just a good Combination. We've got brands and content that they want and they have a platform that we like and that we want and they're willing to pay The right price for our content, good prices for our content, I think it's mutually beneficial.
Okay. And then just maybe a follow-up, maybe I guess for Jay, more specifically, as Netflix expands into new territories internationally, France and Germany coming I mean you guys being natural partners of Netflix, should we expect that you'll see a bump in digital revenue As Netflix turns on new countries and should we expect to sort of see that flow through the P and L?
I'm not going to foreshadow what revenue will come off of Netflix in the future, but everything that Bob I believe applies to every market that Netflix would enter in the future.
Okay. Thanks a lot.
Sure. Hey, Anthony. Thank you. Operator, next question please.
Jason Bazinet with Citi. Please go ahead.
Maybe this is a little bit of a strange question, but I think it was probably about a decade ago, Disney invested in Movie Beam. And I was just wondering, I mean, is there still an appetite on the part of Disney to have something that is more direct to consumer? Or that just an experiment and strategically sort of moved on?
Well, it definitely moved on from MovieBeam itself. Barely remember it. Well, I think it actually was a noble experiment, might have been slightly ahead of its time and a little bit off base in terms of The technology because it required an extra device in the home. I think actually this company is very well positioned To offer product directly to the consumer. Right now, we do that primarily at parks and resorts.
I think that we would, in all likelihood, Grow our direct to consumer business and out in the media space, in the movie space, etcetera and so on, over time. And I think that will be an important strategy for the company In the future, for all kinds of reasons. One being that I think that access to the consumer It has all kinds of value. Secondly, I think we can better serve the consumer with our certainly our Disney branded product by going direct. That said, we have good relationships with distributors whether they're big box retailers or theater operators or MVPDs for pay television or pay media platforms like Netflix.
So I think you'll see over time growth in Disney's direct to consumer business, but that doesn't necessarily mean we'll get out of The 3rd party distributed business that would be an impossibility.
Understood. And can I just ask one unrelated question? Do you think that there's any chance at all over the next few years to sort of clean up the A and E ESPN sort of ownership structure?
Well, you say clean it up suggesting that there's something wrong with it. We have a great relationship with Hearst on a great partnership with them that dates back decades And works extremely well for both companies. We like being partnered with them. They've been great both in terms of investing for future growth and also sustaining and supporting the current business.
Okay. Thank you very much.
Thanks, Jason. Operator, next question please.
Michael Morris with Guggenheim Securities. Please go ahead.
Thank you. Good afternoon. Two questions on ESPN. First, there is some growth in sports Advertising inventory, whether it's launch at SEC Network, another night of NFL on broadcast this fall. I'm curious what you're seeing in terms of growth on the demand side for the inventory.
Is it are you seeing growth from your existing or Traditional sports focused advertising partners or are you able to draw new partners And to buying into sports programming. And then second of all, I'm curious about the relationship between ESPN and the parks and they're both Obviously, huge businesses for you. The relationship between the two does seem relatively limited. Why is that? Is there opportunity for expanding that relationship or are there some structural limitations to partnership there?
Thanks.
The first question, we definitely have seen growth in terms of number of advertisers coming into the sports space. We've also seen a lot of growth with advertisers who want to buy the sports base on a multi platform basis. And in fact, I think virtually 100% Well, ESPN sales were close to it, certainly well north of 3 quarters of their total sales So they're buying the digital platforms, the magazine, radio, the television channels, etcetera. I think sports is definitely a growth area For advertisers, obviously, live means a lot, but there just seems to be growing interest in sports in general. I think that's one of the reasons why you've seen more competition for sports rights in the last probably five For sports rights in the last probably 5 years because it's just more appealing to advertisers.
On the second part of the question, there is limited presence of ESPN in the parks. We have the big branded sports space in Orlando. We've tried our hand at some ESPN zones in a few locations. There's one at Downtown Disney in Anaheim. We're kicking around some other ideas possibly for some other locations.
But in general, the experience people want When they enter our parks is more of a, I'll call it, a storytelling experience, not necessarily a sports experience, even though There are a lot of stories created and told in sports. It does the blend just doesn't seem to be that obvious The presence doesn't seem to be that obvious. So there is not much in development in terms of increasing ESPN's Presence in Parks and Resorts.
Thanks. On the first question, are there any categories that Seem to be coming in more on the sports side or is it pretty broad based incremental demand that you mentioned?
I don't know any categories off the top of my head. I do know though that advertisers that have traditionally looked for Varied audience, I mean, not just men are coming in, which is interesting. So in other words, advertisers that typically look for Audiences that included women's components or young people components are buying more sports time. Great. Thank you.
The audience is more diverse. Thanks, Mike. Appreciate it. Operator, next question please.
We have Alan Gould with Evercore. Please go ahead.
Thank you. Bob, I want to go back to David's question a second. My question is can the film business get any better than this? I mean I recognize that you have an adventure sequel next year in Star Wars the year after, But you are on track to have the highest profits any studio has ever had in a year And it seems like every single film seems to be working.
Well, I can pretty much guarantee over time Every single film will not work. I've been in the business long enough to know that. I can't tell you which one won't right now, But that's the business. I will say that we've got a great team across the board from Marvel Pixar, Disney Animation, Lucasfilm folks and Disney live action. It kind of starts with that team, Which all rolls up under Alan Horn's leadership.
Really pleased with the team that we've got in place. And when you combine that team with The quality of intellectual property that the company owns, you have a much greater likelihood of sustainable success, which is something that Has been has eluded us in the past and I think in some respects has eluded many studios. We just have a we have a great hand of people and a great hand Of intellectual property?
But do you even think there'll be growth off of this level?
I'm not predicting that there will be, but I think given the slate, particularly when you consider Star Wars The cadence of Star Wars films and the growth in Marvel and the addition of some Pixar films, look, you're talking about record year in 2014. It doesn't include a Pixar film, which was something that we pushed purposely because The film that we were slated to release, we didn't feel was ready and we thought we were much better off seeking quality than rushing a Product to marketplace, which we'll continue to do. And so just the fact that we're doing as well as we're doing without a Pixar film probably says a lot about what's up the future, but we don't want to make specific predictions.
Okay. Thank you.
Thanks, Allen. Operator, next question please.
David Miller with Topeka Capital
Congratulations on the stellar results. Bob, what if anything can you tell us about The accident to Harrison Ford on the Star Wars set, there's still a lot of rumors flying around or I guess there were maybe 2 3 weeks ago, is it going to affect your release date? Are you still targeting the I believe it's a December 18, 2015 release date? And then related to that and David Banks Question aside, it just seems like overall over the last maybe 2 or 3 years that the studio is just a lot leaner. You guys have used technology in many wonderful and kind of creative ways to kind of lift operating income.
It's not just about Film performance, it's about use of technology. Do you agree with that? And is there other stuff there left to do? As you go to bed at night, do you think about other things that you can do technologically to uplift that margin within the studio? Thanks a lot.
2nd part of your question, the studio is definitely running more efficiently for a variety of reasons. One being something that has nothing to do with technology. They've reduced their Development costs significantly, meaning basically the overall deals they have with certain talent, which I think over Didn't prove to be as valuable as they would have liked. And so if you look at the commitments long term, we have these commitments to great intellectual property, but we've reduced our development In addition to that, the studios found all kinds of efficiencies, some the result of technology, some the result of just better Strong leadership. And I believe the question about as I go to bed tonight, the one area that I think there's still potential for efficiency, Which is somewhat technology driven is in the marketing area.
I know there's been some things written recently about studio marketing costs. I think in today's world, the opportunities that studios have to reach people with marketing messages on new technology platforms, obviously, In terms of the first question, we're not going to get into any details about Harrison Ford's accident Except to say that we're on track to premiere the film on December 18, 2015.
Okay. Thank you very much.
Thank you, David. Operator, next question
Vasily Karasyov with Stern AG. Please go ahead.
Thank you. I have a couple.
You mentioned that you now have $31,000,000,000 franchise properties and consumer products revenue. I think I know the 2 of them, Princess and Star Wars. Do you mind telling me what the third one is?
The third one is followed by 5 others and we have 8: Poo, Mickey Mouse, Monsters,
Star Wars, Spider Man, Cars, Disney Junior and Princess. Okay.
Thank you. And then Jay
And we have over $1,000,000,000 in global retail sales In fiscal 2014.
All right. Thank you very much. And Jay, I have a question about the income and equity of investees for Cable Networks. It seems like it's getting a little bit more volatile in terms of year on year change recently and I think you're highlighting elevated Pending at A&E. Can you please tell us what the is $230,000,000 to $250,000,000 a quarter a good run rate to think about it?
What are the puts and
Well, I think we've shared with you that it was our expectation That with some of the product investment that we were doing that we were in the back half of the year that we expected A and E's results, Which is the by far and away the largest driver of that number would have A back half of the year that would be flat or lower than it had been before. So it really does have To do with the constant building and rebuilding that's going on at the A and E network, we've We've got channels there and the leadership has done extremely well with them, but wants to continue with that success. And of course that involves investing in new programming as it does with any successful cable or network channel and that's really what you're seeing in those numbers Nothing beyond that.
So if I understand it correctly, we should see a slight decline in Q4 too year on year. Is that correct?
Q4 is looking flattish. And I think we said we were looking for flat numbers for the second Thank
you very much. Have a good afternoon.
You're welcome.
Thank you, Vasily. Operator, we have time for one more question.
We have Marci Ryvicker with Wells Fargo. Please go ahead.
Thanks. You asked a little bit about increasing your scale domestically and then global pay TV penetration. But Do you feel any need to gain global scale in cable networks through M and A? That's the first question. And then We've been hearing some of the weakness in national advertising pretty much across the board might have been some sort of These are the World Cup and since you had the World Cup, I'm just curious if you saw some advertisers really move money out of the traditional marketplace into the World Cup?
We don't really believe that we need to gain any additional scale in terms of global channels, our primary basic channel play worldwide is the Disney The Disney branded channels that includes Junior and XD. We continue to invest in growing that portfolio of channels. It's now well over 100. We'll continue to do that. We're not necessarily looking to acquire more for more scale.
With these brands and the content Opportunities that we have to mine them. There are plenty of places for us to bring our product beyond just an owned channel. As we've talked about on this call with the various growth in pay television, for instance, across the globe. The second question Was World Cup advertising? Honestly, no one has cited to us internally The fact that the World Cup may have taken advertising away from the more traditional broadcast channels.
I think what you saw is, 1, some money migrating to new digital platforms and 2, money not being expressed in the upfront being held back for scatter And essentially being expressed near term to when the spots would run.
Thank you.
Thank you, Marcy. Thanks again everyone for joining us today. Note that a reconciliation of non GAAP measures that were referred to on this call to equivalent GAAP measures can be found 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 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 ks and in our other filings with the Securities and Exchange Commission.
Thanks again everyone for joining us today. Have a good afternoon.
Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.