Welcome to the Q1 2014 Walt Disney Company Earnings Conference Call. My name is Robert and I will be your operator for today's call. Please note that this today's conference is being recorded. I will now turn the call over to Mr. Lowell Singer, Senior Vice President of Investor Relations.
Mr. Singer, you may begin.
Today. Thanks, operator, and good afternoon, everybody. Welcome to The Walt Disney Company's Q1 2014 earnings call. Our press release was issued about 45 minutes today's call. Today's call is also being webcast, today's call.
Joining me for today's call in Burbank are Bob Iger, Disney's Chairman and Chief today's call, and Jay Risullo, Senior Executive Vice President and Chief Financial Officer. Bob will lead off, followed by today. And then of course, we'll be happy to take your questions. So with that, let me turn the call over to Bob and we'll get started.
Thanks, Lowell, and good afternoon. Today. We had a very strong Q1 with earnings per share up 32% when adjusted for comparability and operating income up double digits across all business segments. Our Parks and Resorts had a great quarter setting attendance records at Walt Disney World, The 2nd consecutive quarter, the demand for Frozen, Star Wars and Disney Junior merchandise added up to a today. Great quarter for our Consumer Products division.
And Media Networks delivered 20% growth in operating income, led in this past quarter. We are particularly pleased with the performance of our studio, driven by the enormous success of Disney Animation today's Frozen, Marvel's Thor: The Dark World and Walt Disney Studios Saving Mr. Banks. And that's what I want to focus on today. As we've articulated in the past, our studio strategy is to essentially make 3 types today's release.
Big releases with broad appeal and franchise potential under the Disney, Marvel and Lucasfilm brands animation, which is today.
The heart and soul of this
company and is stronger than ever under the Pixar and Disney brands and lower budget original films that entertain audiences today. In today's global marketplace, big franchise films today. Extremely well, particularly those without action or family appeal. In fact, of the world's Top 20 highest grossing movies of all time, 19 are franchise drivers and almost half of those carry the Disney, Pixar, Marvel today. With all the creative brands that are now part of our company, as well as the thousands of characters and today.
Our success with Marvel is a great example. There's no question that the phenomenal success of Avengers strengthened the Avengers franchise and is now driving subsequent Avengers based character films to stronger box office today's performance. Iron Man 3 topped $1,200,000,000 in global box office, far exceeding the today. $632,000,000 for Iron Man 2. Likewise, Thor: The Dark World has delivered more than $635,000,000 of global box office today.
Versus $450,000,000 for the first film movie. We expect this trend to continue today. The Winter Soldier opens on April 4 in the United States. And having seen it a few times already, today. I can tell you this sequel takes the Captain America story to an incredible new level.
And I think audiences are going to be more invested in this character than ever before. Because all Marvel content and characters exist in a connected universe, today. This movie also sets some critical events in motion that will lead directly into Avengers: Age of Ultron and some facets of the story in today. The Winter Soldier will also be reflected in upcoming episodes of Marvel's Agents of S. H.
I. E. L. D. On ABC.
Today. In August, we'll release Guardians of the Galaxy introducing audiences to a new cast of great Marvel characters.
Today's call.
And as we announced last quarter, Star Wars Episode 7 Premieres in December of 2015 and it looks to be one of the biggest movies we've today. Nothing I say here today could ever capture or convey the magnitude of global anticipation for this movie. Today. So I'm just going to say the excitement is fully justified and leave it to that. We're also very pleased with the work being done at Walt Disney Studios blending their own form of tentpole films with lower budget great original films like Saving Mr.
Banks today. Do so much to enhance the Disney brand image. And we're excited about our upcoming slate including the Muppets Most Wanted, Angelina Jolie as Maleficent Jon Hamm in $1,000,000 ARM George Clooney in Tomorrowland, which is directed by Brad Bird and Disney's first ever live action Cinderella. Lastly, animation is one of our biggest priorities because it's one of our most important creative businesses. With Pixar and the creative resurgence of Disney Animation, we now have the 2 strongest animation brands today.
Generating some of the greatest creative work in the industry with Frozen being the most recent example. Frozen has now surpassed the Lion King to today. The most successful Disney animation movie of all time. It's exceeded $870,000,000 in global box office before even being released today. Frozen is not only a today.
Frozen is not only a tremendous financial success, it's also an incredible creative triumph, The Golden Globe for Best Animated Feature Film of the Year as well as Oscar nominations for Best Animated Film and today. It's also just picked up 5 Annie Awards for Outstanding Achievement in Animation. Today. 2 months after opening, Frozen is still big in theaters. It was 2nd in U.
S. Box office just this past weekend. Additionally, the soundtrack is at the top of the charts today's call. High demand for frozen merchandise continues to drive strong retail sales. And in the tradition of The Lion King today.
Beauty and the Beast, Disney's Frozen will also be going to Broadway. When we acquired Pixar in 2,006,
today's presentation under new leadership.
Accomplishing this was not only a priority, but something that is and will continue to drive value today. We congratulate all those involved with Frozen and success speaks volumes about the future of animation in our company. Today. We're obviously proud of our performance this quarter and it's very satisfying to see long term strategies come to fruition, delivering results and driving greater value for today. I'm going to turn the call over to Jay to talk about the details of our quarter performance and be back questions later on.
Jay? Thanks, Bob, and good afternoon, everyone. We are pleased with our Q1 results. Today. Segment operating income was up 27% on revenue growth of 9%.
The strong financial performance was broad based as each segment today. Our investment strategy continues to create value. Union Networks delivered another great quarter of financial performance today. This more than offset a decline in operating income at Broadcasting. Growth in ESPN's operating income today.
It was due to higher affiliate and advertising revenue. ESPN also benefited in the quarter from the absence of losses today. At our ESPN U. K. Business, which was sold in the Q4 last year.
Programming costs at ESPN today. And were comparable to prior year as contractual increases for the NFL and college football were offset by the absence of costs for U. K. Sports rights. Today.
During the Q1, ESPN deferred $18,000,000 less in affiliate revenue than last year. Today. As we look to the Q2, we expect ESPN to defer approximately $75,000,000 less in affiliate revenue than last year. Today. Ad revenue at ESPN was up 10% in the Q1 due to higher rates and an increase in units sold, partially offset by lower today.
So far this quarter, ESPN ad sales are pacing up slightly despite the impact of the Winter Olympics. Today. Over the last couple of years, we have provided insight into our cable affiliate revenue growth on an aggregate basis. Today. Given some of the recent business model changes internationally and the impact of foreign exchange rates, we think it might be more today.
Helpful to break out the domestic affiliate growth as it constitutes the majority of our affiliate revenue. As such, our domestic cable affiliate today. Revenue growth was up high single digits in the quarter. Adjusted for the timing of deferred revenue at ESPN, growth in domestic cable affiliate revenue today. It's also important to note that the growth in Q1 reflected the last quarter in which year over year Comparisons were aided by the new affiliate deals that took effect in the 2nd fiscal quarter of 2013.
Equity income was up in the quarter due to higher income from our investment in A&E Television Networks as well as the absence of Equity losses from our investment in the ESPN Star Sports joint venture, which we sold in the prior today. At Broadcasting, lower operating income was driven by higher programming expenses at the ABC Network today. Due to program write offs as well as a contractual rate increase for Modern Family. Program sales in the quarter were down compared to last year today. Ad revenue at the network was up low single digits in the quarter as a result of higher rates and today.
Increased units sold, partially offset by lower ratings. Quarter to date, scatter pricing at the ABC network is running more than today's call. As investments at Walt Disney World and the Disneyland Resort continue to pay off, results at our international operations were up modestly today. With growth at Hong Kong Disneyland, partially offset by a decline at Disneyland Paris. Today.
Total segment margins were up 170 basis points in the Q1. Growth in operating income at our today. This operation was driven by higher guest spending at Walt Disney World and the Disneyland Resort, partially offset by higher costs, primarily related to the continued rollout of MyMagic Plus. For the quarter, per capita spending in the parks was up today. 8% on higher ticket prices and food and beverage spending.
Room spending at our hotels was up 5%. Attendance at our domestic parks and occupancy at the hotels were comparable to Q1 last year, in which we saw increased visitation today. Due to the opening of Cars Land at Disney California Adventure and with the grand opening of Fantasyland expansion today at Walt Disney World, the last phase of which we'll complete in a few months with the launch of 7 Dwarfs Mine Train. Today. So far this quarter domestic resort reservations are pacing up 7% compared to prior year levels, while book rates are up 2%.
Today. As Bob said, Studio Entertainment had a great quarter as a result of the global box office success of both Frozen and Thor: The Dark World today compared to Wreck It Ralph and No Marvel title in the Q1 last year. Studio operating income was up 75% driven by increases today's call. Theatrical business and to a lesser extent an increase in home entertainment due to lower distribution and marketing costs, partially offset by lower unit sales. At Consumer Products, operating income increased 24% and margins were higher by 400 basis points, today.
Reflecting strength in our merchandise licensing business and continued improvement at retail. Growth in licensing was driven by the inclusion Lucasfilm's results as well as higher revenue from Plains, Disney Junior Properties and Monsters. Today. On a comparable basis, earned licensing revenue for the Q1 was up 5% versus last year and that follows to 9% growth in earned revenue in the today. We continue to be pleased with the results of our retail business, specifically in North America where comp store sales today.
We're up due to strong sales of Frozen and Disney Junior merchandise, demonstrating the power of our franchises to drive our retail businesses today as well as the Disney Store's ability to support the company franchise. The North American stores have now posted comp store sales growth for 8 consecutive quarters. At Interactive, we had another profitable quarter driven primarily by significant improvement in core gains and to a lesser extent continued growth in our Japan mobile business. Higher operating income in core games was due to strong sales Disney Infinity compared to Epic Mickey 2 last year. As we look at the Q2, I want to point out that the Easter holiday will today.
Entirely in Q3 this year, whereas 1 week of the 2 week holiday period fell in Q2 last year. Today. We estimate the impact of this 1 week shift on Park's results to be roughly $45,000,000 in operating income shifting out Q2 into Q3. At Interactive, we expect quarterly results to be somewhat lumpy throughout the year as they will largely follow the timing of key game releases. Today.
While the segment posted an operating profit in Q1, we expect an operating loss in the Q2 that's comparable to the loss in Q2 today. We significantly increased our pace of share repurchase during the Q1 by buying back 25.3 today. For about $1,700,000,000 Fiscal year to date, we have repurchased 33,700,000 shares for $2,300,000,000 Overall, we feel great about the start of the fiscal year. Our financial position is strong and given recent and ongoing investments, today. We remain confident in our ability to drive growth and must create value for our shareholders.
And with that, we are now ready today.
Thank you. We will now begin the question and answer session. Today. And our first question comes from Aleksey Quandrani from JPMorgan. Please go ahead.
Today. Thank you. Frozen seems to have had a really incredible staying power at the box office still doing so well domestically today. Many weeks after its initial release, can you help us frame, I guess, both the benefit we may see to the studio in the March quarter from these box office results Also home video release I believe in the middle of March and maybe the longer term benefit both in film and maybe consumer products.
Today. Well,
we won't give you specific numbers Alexia, but obviously the film success continues in quarter that we're currently in, although it was released as you know in November Thanksgiving weekend. So the box office is still growing today. Both domestically and internationally, we're second this past weekend with our sing along. Internationally, it continues to grow. We just opened in China within the last 24 hours and we opened in Japan March 15.
We had a mammoth opening and great success in South Korea. It's actually the Biggest animated film ever in South Korea, box office above $45,000,000 So we think that bodes well for both the Asian markets that are just opening or will open. It's continuing to drive sales in our stores and across licensing. So we'll have an effect there. Clearly, we're having today's call.
Success on the music front, albeit small from a numbers perspective. And this has real franchise potential. So just beyond the quarter that we're in, today. Expect to see not just with new product that we create from frozen, but expect to see continued interest in this And continued impact on the bottom line for quite a while.
And just a related follow-up if I may. Just on the consumer products business, today. Can you size to us about how I guess roughly how big the business is in China? And can that business in general or should that business in general post today. The Shanghai opening really have a much bigger opportunity.
Consumer products in China is still somewhat today. Small for us. We don't have stores. We have some licensing. But by and large, the numbers are fairly modest, but they are growing.
Today. We do believe that Shanghai will have an impact on the Disney brand in China, which should affect both consumer products and well actually movies and television post opening, but we have no idea what that will be. Today. But clearly, it is a growth market for us. It's become one of the largest markets in the world from a movie perspective because of all the today.
Added screens that have gone into China, the park will have obviously a big effect on the future of our business there. So today. We continue to believe and are very bullish in that market.
Thank you very much.
Okay. Thanks, Alexia. Operator, next question please.
Today. Our next question comes from Doug Mitchelson from Deutsche Bank. Please go ahead.
Thanks so much. One for Bob and one for Jay. Today. Bob, I would think there's a natural limit to the number of brands each business or one company could support. So maybe it's an odd question, but I'm curious if you see any challenges managing this many franchises and Any comment about the company's ability to build more franchises at this point?
And Jay, did affiliate revenue benefit in the quarter from a higher accrual rate for DISH today. So, a DISH deal wasn't done and you plan on ever signing
a DISH deal? Thanks.
I think we do plan on signing a DISH deal. Look, I think the key brands of the company are ESPN, Disney, obviously Marvel, Pixar, Lucas, ABC. Today. We're not really looking to build additional brands right now either organically or through acquisition, but these brands all have a lot of Growth potential, both by mining them better across platforms and across the world, but also by creating new franchises within each brand. So we've already demonstrated for instance under Marvel just how strong the Avengers franchise is and as my remarks indicated what impact that has on the individual today's components, Iron Man, Thor, Captain America.
Specifically, we're trying and believe we have a real opportunity to create other franchises under Marvel. Guardians of the Galaxy is the next one up, which is for next summer or coming summer. So we think that today. The opportunity for franchise building given all the characters and storytelling capabilities of these businesses are great for the company. We don't really have a problem managing the array of brands that we have.
We actually think that we're today. Quite an enviable position. We met recently just to look at our movie slate going forward and today. Everything seems to be fitting in nicely, meaning we don't seem to be crowd or bumping up against sort of one another within the company. Today.
And we think that we really are well positioned to take advantage of the marketplace without really creating traffic
DISH. Okay, great. Relative to DISH Doug, we I'm not going to comment on the financial terms of that renewal. But today. As Bob has said before, we continue to extend our agreement with them as we continue to have productive forward looking conversations that we believe will result in us moving forward with them for the long term.
Yes, Jay, specifically I was just wondering if the December quarter benefited from your estimates as to what
the new rate card would be.
So in other words, is the benefit of a DISH renewal already begun? Or does it is it delayed until a deal is actually signed?
No, I understand today. I understand your question, but I'm not going to give any guidance on that. Oh, I see. All right. Thank you.
Yes. Okay. Thanks. Operator, next question please.
Today. Our next question comes from Michael Nathanson from MoffettNathanson. Please go ahead.
Thanks. I have one for Jay and one for Bob. A. J, thanks for giving the taste in the affiliate Revenue growth for domestic, that's one of my go to questions. So let me ask this question.
There's been real lumpiness in cable network expenses the past couple of quarters. And if our math is right, this quarter costs were flat for cable in general. So can you talk a bit about expectations this fiscal for cable expense growth and the phasing of that growth over the next fiscal year? Sure. So cable programming expenses 2.
We expect it to grow in high single digits for the entirety of fiscal 2014. But And of course that's mostly driven by ESPN. That will be very back loaded this year Michael. And the reason for that is today. Basically the kick in of a series of new deals just to tick through the Major League Baseball, today.
Their contracts will kick in Q3 and Q4. The NFL contractual increase today. In Q1 2014 and the New Deal in Q4 2014 World Cup, which you know when that is in our 3rd today's call. And college football Q1 2014 and Q4 and the launch of the SEC network, which will begin in Q4 of 2014. So Most of those increases will occur in Q3 and Q4.
Okay. And then for Bob, you guys have talked about the today. Cost of MyMagic Plus this quarter, but can you give us some indications of how the rollout is going on revenue and customer behavior because PerCap's is really good this quarter. So What's going on by Metropolitan?
I can't quantify it from a financial perspective yet. It's still early and we're still rolling out 2. What I can say is that what has been rolled out has been a real success both for the guests and for us. So to give you for today. Since our parks people in Walt Disney World believed during the peak holiday season that we were able to today.
We'll accommodate about 3,000 more additional guests in the Magic Kingdom per day, thanks to Magic Plus. Today. One of the, I think, most attractive features and one that I think will have possibly the biggest benefit is the FastPass Plus, which is the ability to reserve today. Three times on 3 attractions per day, either before you visited the park if you are a resort guest Or on the day that you enter the park if you're a same day or a single day ticket holder. Today.
What we are seeing there is substantially higher utilization of that product among our guests than we saw with the traditional FastPass by the way by a wide margin. And since the goal of this was to make the guest experience today. These are very, very good signs for us because clearly guest satisfaction is very, very important to the value equation for us both today. Good. So I'd say the biggest impact is 1 being able to accommodate more people because it's just more efficient and Secondly, enabling guests to have a substantially better experience than they've had before because they're doing more.
Today. Michael, since you mentioned the higher spending, we reported out 170 basis points of margin improvement this today. But actually on an underlying operating basis, the quarter is actually even stronger than that because everything that Bob just mentioned, today. We are in rollout. New initiatives are a drag on our margins almost to the tune of 190 basis points.
Today. There is some pension benefit in there that we've talked about before at the parks desk, but when you look at adding back 190 basis points to
today. Our next question comes from Jessica Reif Cohen from Bank of America Merrill Lynch. Please go ahead.
Thanks. So I guess at this point follow ups to some of the questions asked. But so today. So I was just on the film strategy overall, I mean you have such a unique strategy with these very definable brands and each studio I guess doing 1 to 2 So I'm just wondering what is there a benefit in terms of marketing costs because they are focused, what you're getting with Marvel or Pixar. And what's the ripple effect to other Disney businesses?
Is there are you seeing I mean, obviously, there's a huge benefit in these franchises from home Entertainment and Consumer Products. But is there some way like a tie ratio that's like an improvement that you a relative improvement that you
today. Yes. Well, there's definitely benefit on the marketing front. When you put the name Marvel on a movie, today. We think that it gives us essentially a head start with the audience.
Just by the way, the anticipation of these films suggest that before we even go into the marketplace with significant marketing spend, Awareness among the potential audience is very, very high. Now that's the probably the most obvious when it comes to Star Wars, today. But I've really been impressed with the early buzz that we're seeing for the Marvel films. Today. Captain America is just huge.
Now we're already in the marketplace with some marketing, but it's been relatively limited. We had a pre game for instance in the Super Bowl And yet the din so to speak and the interest in the Captain America film which comes out here in the States April 4 seems much louder than it would today for what I'll call a non branded film. And I believe that Marvel, Pixar, Disney, certainly Lucas Star Wars All basically fall into similar categories. The ripple effect across all of our business from these films is already Not only clear, but pretty significant for us and we believe it will only grow in significance. Frozen probably is a great example.
Now you've seen countless times over the past where a big franchise animated film has really the ability to lift a number of our businesses. We've gotten that today. Over the last 10 years mostly from our Pixar films, the fact that we're starting to generate that from the Disney films, Tangled a great example of that, this is a huge example, Suggest that we're creating some momentum there. And of course, consumer product is obvious what we're doing in the bottom line in In terms of music, the impact of course on home video, all big. But for instance, the one of the characters in Frozen Ultimate was the host of a Christmas show, the World of Color at or the holiday World of Color version at California Adventure before the movie even opened.
Today. And there were huge crowds just to see the character and the movie wasn't in the marketplace. It ended up obviously helping us when the movie came out. So I think that there today. I hate to use the word synergy.
Maybe the better word is our ability to leverage the success of these characters and franchises, not just across the company, today. Few other things and we announced an Ironman attraction for Hong Kong. We've talked about developing more Star Wars presence at the park. We don't have specifics there, but I can tell you today. There's a lot of active development there, not just for domestic parks, but for some of our international locations.
You will see Frozen in more places today. You've certainly seen today there's much more potential for Marvel in certain parks too. What we're doing on the interactive front, I think is So key, the fact that the Infinity game did so well is great in 1.0, but can you imagine what will happen when we fuel future today's call. Iterations of that game with an even broader set of our stories, our intellectual property and our brands. Now there's just a lot.
Today. I know that I sound like a huge cheerleader for the Disney brands, but I obviously am feeling rather enthusiastic today because of these earnings, today's call. But continue to feel very optimistic about the potential.
No, it's obvious you have a very, very unique strategy in the film, well, Of course all your businesses, but started by Tom. And then just my second question on My Magic Plus. I know today. You said the benefit of guest satisfaction, but there must be some benefit to revenue to be able to swipe, but have the bracelet and get out of the store run at the stores quickly. Today.
Is it showing up in the per cap revenues? And on the cost side, how much more is there to go? How much more is there to go in this?
Today. Well, look what we spend and then how we account for it, I don't really want to get into that. There's some today. In fact, we're actually just learning more about how it's working and what impact it's having on our business today. I think you may be jumping to conclusions that the per cap Spending was a direct result of My Magic Plus at this point.
It's still a little bit early. It's possible it had some impact, but today. I can't say today that we I know for sure that it did. We do know as I said talking to George Callegrides who runs Walt Disney World, today. I did this morning that he really believes that we are he was able to accommodate 3,000 more people a day in the busiest period of the year in the Magic Kingdom, which is our number one park.
That obviously has bottom line value, but we can't tell you what that is.
Okay. Thank you.
Today. Okay, Jessica. Thank you. Operator, next question please.
Our next question comes from Todd Juengeri from Sanford Bernstein. Please go ahead.
Today. Hi, thank you. A quick one for Jay and then one for Bob. Jay, just on A&E Television, last quarter, today. I think we saw some surprising softness there.
This quarter looks to come through particularly strong. Can you just comment like is either quarter more emblematic today. How that business is performing or is the right answer somewhere in between? Thanks. And then Bob, I just want to ask you what you think about like what comes next today.
Euphoric listing of all the great brand strengths at Disney. But you've been marching with With a goal of profitability there for a long time and so you've gotten there. So what now? How big can that be? Are there more today.
Big product launches like Infinity to come or do you just keep adding that for a while? What is your where do you want to take that business over the next X number of years? Today.
Thanks, Todd. Look, starting with AETN, I would look at last quarter more of an outlier than I would this today. They basically have saw higher advertising revenue driven by shows that you can probably Some new scripted shows. So that's basically what is driving their success. They had some lower
today. On the interactive front, Todd, there will be new iterations of Infinity. What that game proved to us is today. The strength of that platform, basically the gameplay itself, which was great and the The fact that Disney characters, Disney intellectual property could work in that on that platform. Today.
So that's a big deal. So what's next of course is new iterations of that at 2.0 and 3.0 and mining a broader today. We're also in basically tracking what we're seeing in the industry doing a fair amount of work at creating efficiencies And moving off of some of the more traditional platforms into the mobile space, mostly on for social games and for other casual games. Today. That's a big move for us and some of the announcements that were made this week are indicative of a shift in strategy there to both reduce our spending In that space and to basically seek to grow the business where the customers or the users are, which is more on the mobile front.
I think those are the 2 today. Infinity and then a move to mobile basically for all our games are the 2 big trends you'll see. Again, all with an eye toward not just being Profitable, but improving profitability and no guidance there in terms of how profitable this could become.
All right. Thank you for preempting my call. I'll follow-up. Thanks, Yibai. Thank
you, Todd. Operator, next question please.
Today. Our next question comes from Ben Swinburne from Morgan Stanley. Please go ahead.
Thank you. Jay, I want to come back to the ESPN comments you made today. First on the expense side, I think you said high single digit programming costs for the year for the Cable segment. So overall maybe mid singles and you include today. SG and A.
And I don't know if you'd want to quantify the U. K. Impact on the revenue and OI line in the quarter, but just trying to get a better sense the organic trends in the ESPN business.
Thanks, Ben. The on coming back to today. The U. K. Question.
So you know that this was an unprofitable business for ESPN. In round numbers, the impact today. It's about $20,000,000 of benefit to the quarter. And they had round number $65,000,000 of today. Affiliate revenue that flow to that company and obviously expenses were higher.
Okay. And you had made a comment in your prepared remarks today. You're reminding us this was the last quarter benefiting from some renewals. Are you suggesting there should be a bit of a slowdown in the March quarter on domestic affiliate. I just wanted to ask you
a follow-up on that point.
I'm not going to give you a prediction on where those What those numbers will look like. I'm just saying that we as of next quarter we'll be lapping those I think it was 5 affiliate deals that were renewed in prior year.
Today. Got it. And then just lastly Bob on the film business, one of the things that's been a headwind in the industry has been home video and I'm wondering if you're feeling a little better about the outlook there given some of the successes on digital and EST. Is it sort of too early to get excited? Or do you feel like maybe that business that part of the
today. Well, at least as we see it, if you look back on 2013 across the industry, today. You saw a low double digit decline. I think the number I heard was 13% on the physical sales side and an increase of about 50% on Digital side, obviously, on a much smaller base. The result of both was that home video was relatively flat, not flat for the year.
I guess that is a good sign because the continued deterioration of the physical Good side, at least is being mitigated somewhat by digital. We have been bullish about digital, particularly our today. Prospects in digital because we think we've got brand advantage there by creating destinations on digital platforms for our brands. Think Marvel, Disney, Pixar, Lucas as a for instance. We think there will be opportunities either through current Digital Emporia or directly.
But I don't I think it's still early in terms of just how significant that all could be. I think the bottom line is that we are making movies TISS. Particularly movies that are directed at families.
Thank you very much.
Okay. Thank you, Pat. Operator, next question
Tuesday. Our next question comes from Anthony DiClemente from Nomura. Please go ahead.
Thanks very much. Today. A couple on ESPN. The 10% ad sales growth in the quarter, just wondering Jay maybe if
you could talk about the drivers of that.
You were able to grow ad sales today. Through some of the rating softness and just wanted to hear about how the drivers there. And then looking to the next quarter, today. If we were to kind of exclude the impact from the Olympics that you mentioned in your prepared remarks, what would the recurring ad sales growth at ESPN look like? Thanks.
Today. Okay. Well, I hate to be tautological, but what was really driving the today. Revenue growth are the rates that ESPN received for the ad that sold at its programming. And I think I also mentioned, but if I didn't, I'll tell you that the units were also up for the quarter and that was somewhat offset by The lower ratings that you mentioned.
So that was really the driver there. Relative to the Olympics, we don't We expect there to be a significant impact on our networks from the Olympic period coming forward nothing I would say
2. Okay. And just
a quick follow-up about the launch of the
SEC Network, we'd love to hear a little bit more If you could just remind us about the opportunity there in terms of ad sales growth, affiliate fee growth and will there be any launch costs associated? Today. Shait, I know you mentioned about the rights fees hitting, but are there any other launch costs that we should be mindful of as it pertains to the SEC network? Thanks.
Today. Well, obviously, Anthony, there'll be production costs associated with the SEC network in addition to the rights costs from the conference. Today. But I don't want to I don't like to predict out of the future in terms of what the rates and subscribers will look like as we ramp that up. Nice to say, we are extremely excited about this opportunity.
Anyone who's today. In all interested in college football is well aware of the impact of the SEC not only in the
today. Okay. Thanks a lot.
Hey, Anthony. Thank you. Operator, next question please.
Today. Our next question comes from David Bank from RBC Capital Markets. Please go ahead.
Thanks very much. This question is I guess for today. Bob, as improved VOD technology is being deployed and consumer behavior suggests it's sort of poised to supplant DVR usage as the preferred method of today. I guess Disney and the rest of the existing TV ecosystem have the opportunity to sort of out today. So I guess my question is in the long run, do you think that structure needs to change?
Would you like to see today. Full season stacking on VOD, what is stopping that? How do you see it evolving?
Today. That's a very good question. My our feeling about it is, first of all that product is differentiated from Netflix at least their off network deals offering prior season shows first of all for subscription. Today. The VOD largely has 5 look back on 5 episodes.
The demand for essentially a full season, which I think is growing, is out there, but I think that's an opportunity in terms of monetization for us either directly from the Consumer or by the distributor or from the distributor, I should say. And so if distributors are going to be given the ability to offer their customers essentially same season, full season stacking then there's a cost associated with this and we expect to get paid for it. Again, 2. An interesting opportunity for us. The other opportunity of course is a world where consumers do not have today.
The burden of having to set their DVRs for shows and in effect have access to many more shows without having to Essentially do something premeditated or before show airs perspective. That will increase in my opinion the non live viewing getting ratings for and getting and us getting paid by advertisers in that window. If consumption Increases there and I believe it will because of the availability or the ease of use in that window then I think the monetization can increase as well. And that's why today. I think it's very, very important for us in that window to protect the value of the commercial.
Eventually, there will be dynamic ad insertion And that will I think result in even more opportunities for IP owners or networks to monetize, but that's just starting.
Today. Okay. Thank you very much.
David, thank you. Operator, next question please.
Our next question comes from Jason Bazinet from Citi. Please go ahead.
Today. Thanks so much. This is the 2nd quarter in a row I guess where I've been surprised at the strength in your consumer products division. Today.
And I was just wondering if
you might you may not have this, but is there any rule of thumb you could share with us in terms of today. The linkage between box office gross and consumer product sales, in other words, if the movie sort of naturally fits toward Slide towards Star Wars 7. Thanks.
Jason, there's no rule of thumb. It's not really about box office, although box office has an impact. Consumer products, whether it's toys or books or clothing, you name it. So it's more about that. If you have both, which Frozen
is a
good case in point. You also play patterns. For instance, Princess, you've got great characters, you've got great music and you have huge box office. Today. That's as good as it gets.
The Marvel movies tend to fit into that category as we know, not all at an equal level, but Certainly, they have that opportunity. You mentioned Star Wars, of course, that's probably at the top of the heap. Cars was another great example of that. Today. But it's not more obviously box office has an impact because it suggests popularity of characters and stories, but you still have to have the right characters and stories today.
Also, it's not just about movies, it's also about television. Today. So if you look at Disney Consumer Products today and you look at the last couple of quarters, one of the reasons why you continue to see growth is the success of programs on Disney today. Which is a platform that we only launched within the last year and has suddenly hit big in terms of interest with young kids 2 to 5 where actually it's done well in ratings in kids older than 5 with a number of shows Doc McStuffins and Sofia the first two obvious 2 examples that are very monetizable on the consumer products front.
Thank you very much.
Thanks, Jason. Operator, next question
today. Our next question comes from Marci Ryvicker from Wells Fargo. Please go ahead.
Thanks. I have two quick questions.
First, it sounds like there was a benefit from the absence of Canstar Sports. So how much a drag was this last year in the comparable quarter? And then secondly, Jay, you mentioned fiscal Q2 there will today. And can you just talk about what that's from?
Starting with your second question, our results at Interactive are very tied Obviously, the division continues in terms of its production capabilities and distribution capabilities. So without the release of a Title of significant revenue, we're going to have some downdraft in those quarters. Your first question relative to ESS today. Look, round numbers, it's about $20,000,000 of drag that we got today.
Great. Thank you.
You're very welcome, Mark. Thanks, Mark. Operator, next question please.
Our next question comes from David Miller from Tochi Pika Capital Markets. Please go ahead. Yeah. Hey, guys. Congratulations on the stellar results.
Bob, I'm just curious if you guys Are in negotiations with the domestic theater circuit here so far on Star Wars? Are you in discussions with these guys about maybe taking advantage of just pent up demand here, a massive amount of pent up demand and maybe gunning for more than 52% on theatrical splits? Or are you just not there yet? It's just too early. Anything you're willing to tell us would be great.
Thanks very much.
We did today. We did some new deals with the domestic distributors within the last year. I'm not aware that we're in negotiations now, today. But we did some deals within the last year and those deals reflected the strength of our studio slate today. In the year the years to come that would obviously include Star Wars.
And there are Potentially additional opportunities worldwide, but I can't really comment further on the state of any negotiation or whether there
today. Thank you.
Okay. Thank you, David. Operator, next question please.
Today. Our next question comes from Tuna Amobee from S&P Capital IQ. Please go ahead.
Hi. Thank you so much. So Bob with regard to the today. I was wondering if there's any new data points that you can share with us. And I know you had outlined various avenues today.
To monetize that, if you can update us on which of those you see getting the most traction would be helpful. And then separately for Jay. Your retail business, I believe in North America, clearly, I think seems to be outperforming today. The overall industry for the holiday season, I know a lot of retailers have actually reported lackluster results and you guys have put together some really 2. So I'm just wondering if what you see as the main driver of that?
Are there any trends that you're seeing in terms of any particular today. Items or SKUs are driving the momentum? Any kind of color for the future would also be helpful. Thank Hello?
To get them to carry the Watch app and to enable us to monetize them today. That's a component of the negotiations that are underway right now. So growth and adoption will come in part from not just consumer demand, but greater adoption, but also when we start getting more meaningful data from Nielsen on consumption on mobile platforms. Today. So all very positive as we're concerned.
And clearly the quality of the devices is improving as well both from a speed
Tuna. On North American stores, Tuna, obviously, we are very, very happy with the development of our North American retail business. Today. I think I mentioned this 2 years in a row every quarter we've seen ops. And there are a couple of pieces to today.
First of all, you'll recall that we have reoriented our stores in our best locations towards a more franchise focus from what they were before, which for lack of a better term, I'll call a more emporium focus. And highlighting franchises that are hot and popular Has had a definite impact on the results of the Disney Store and it has resulted not only margins and those items end up getting purchased in part because of how they're merchandised, today. But you can't forget the power of the franchises that backs those. And over the most recent quarter, obviously, if I had to pick out a single item, I would say frozen items were the single most demanded items at Disney Store, but today. Quickly followed by the power of the Disney Junior properties that have come on amazingly strong.
So the combination of powerful franchises as Bob mentioned 10 or 15 minutes ago in terms of the quality that drives consumer products in addition To just better merchandising has resulted in much better results over the last couple of years. Okay. That's very helpful. Today. The new concept have anything to do with that at all?
I know you started to roll that out a couple of years ago. Where do you stand with that now? Today. Yes. That was the first thing I said as we renovated a lot of we're up to almost 100 stores now worldwide renovated into IP, today.
We call imagination Park stores that really reoriented the way we merchandise today to highlight franchises of the company rather than be an Emporium style where you might go to find anything Disney.
Today. Thank you so much.
Thanks, Tun. Operator, we have time for one more question.
Okay. Our last question comes from Michael Morris from Guggenheim Securities. Please go ahead.
Today. Thank you. Good afternoon, guys. Two questions. One is just back on the strength in advertising at ESPN in the quarter.
Today. Can you talk a bit most of us believe that advertising on related to sports is more valuable due to the DVR resistance of The content, can you talk about the relationship in pricing between sports inventory in general entertainment inventory? Is it much higher on sports inventory? And are you seeing the value increase at a faster pace there? And then secondly on talking about the films in China, you did the partnership, the production partnership today.
On Iron Man 3, can you talk about whether or not you think that was a strong a big contributor to the strength that that film had in China compared to the 2nd film in the series and whether you plan to do more partnerships like that in the future? Thanks. Today. Thanks, Michael. And your question
on advertising, look, I'm not 100% sure how to answer that because obviously there's a wide variety of programming across today. The ESPN network, some that demand very high rates and some that garner lesser rates. So I wouldn't I don't know how to compare that Head to head to the kind of advertising on entertainment product. There is also the notion of the multi platform today. Being number 1 in all but magazine publishing in terms of platforms really gives ESPN incredible leverage
today.
On the China question, the success of Iron Man 3, I think, was mostly due to the film itself And the continued interest in and knowledge of Marvel and Iron Man in that particular case. And we think that the Marvel brand as it grows in China bodes well for future
today. Maybe if I could just on the first question and ask it a different way. For the same size audience, today. Does someone is it more expensive to buy let's say a produced sporting event than it is today. A scripted original program that's also a high quality program.
And are you if so are you seeing or are you seeing a differential in let's say those 2 types of programs expanding as time progresses?
I'm not sure there's an easy answer to that. You're selling Basically, the same size audience within a or a specific sized audience today. Within a demographic, whether that's delivered in live or whether it's delivered in the C3 window. Now obviously, C3 is not a selling demographic or selling point in sports because it is live, But you're basically selling eyeballs whether they're delivered right away or within 3 days. I don't think you see a diminishment in quality if today.
If you deliver the eyeballs live versus if you deliver them within that window, there are plenty of entertainment programs ratings and again I'm talking delivery of demographics. So I don't think the advantage of course of Live is that today. It doesn't fall out of the C3 window or the non monetizable window. It's one of the reasons why we're all interested in monetizing consumption today. Just 3 days.
I was looking by the way at numbers for our prime time schedule and I was pretty impressed with The live plus 7 ratings, we've got shows that jump over 50% in 18 to 49 delivery in the L plus 7 rating category and yet we're only monetizing C3. So that just speaks to more of Opportunity there, but I don't think you're seeing much of a differential in terms of absolute rates again for comparable audience delivery for sports live today versus another program that is not live.
Great. Thank you.
Thanks, Mike. Today. 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 website. Today. 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 today's call. 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 today's call. And actual results may differ materially from the results expressed or implied in light of a variety of factors, including factors today. This concludes today's call. Have a good night everyone.
Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.