Good day, ladies and gentlemen, and welcome to the Second Quarter 2010 Walt Disney Earnings Conference Call. My name is Emmettie, and I'll be your operator for today. At this time, all participants are in a listen only mode. 10. Later, we will conduct a question and answer session.
10. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Sir Lowell Singer, Senior Vice President of Investor Relations. Please proceed, sir.
Thank you, Emmettie. Good afternoon, everyone, and welcome to The Walt Disney Company's 2nd quarter 20 10 Earnings Call. Our press release was issued a few minutes ago. It's now available on our website at www.disney.com/investors.
10. Today's call
is also being webcast and the webcast will also be available on our website. And after the call, a replay and a transcript will be available 10. Joining me in Burbank for today's call are Bob Iger, Disney's President and Chief Executive Officer and Jay Rizzullo, Senior Executive Vice President and Chief Financial 10. Bob is going to lead off, followed by Jay, and then we'll be happy to take your questions. So with that, let me turn the call over to
Bob, and we'll get started.
Thank 10. Thank you very much, Lowell, and good afternoon. Let me start off by saying how thrilled we are with the global success of Iron Man 2, which Which to date has grossed $334,000,000 in global box office. It makes me even more enthusiastic about the great things Marvel and Disney can do together 10. To build the value of the Marvel brand, its array of great characters and about our upcoming Marvel movies, Thor and Captain America.
Our 10. Strong second quarter performance was driven in part by Disney's Alice in Wonderland. This visually stunning and highly entertaining motion 10. The Picture has to date grossed over $962,000,000 in global box office, making it Disney's 2nd highest performing film ever, Both U. S.
And worldwide and the number 7 movie of all time. And we're excited too about our upcoming summer slate, which includes Prince of 10. Under the new studio leadership, a focus on 10. 10. 10.
With sequels of Cars, Pirates and Monsters, Inc. Arriving over the next 2 fiscal years, the opportunities to create additional value from 10. At our media networks, we're continuing to build on our strengths. ESPN has invested in the world's most exciting sports 10 and presents them in an integrated and engaging way. The NBA finals are a great example of how 10.
10. We're planning the same for the upcoming FIFA World Cup in South Africa. ESPN's innovation and 10. And emphasis on quality continue to drive strong ratings, and I'm particularly proud of the work ESPN has done in digital media. 10.
We are just a week away from the announcement of ABC's fall primetime schedule. I'm confident in the team's long term track record and its 10. 10. Series such as Dancing With the Stars, Grey's Anatomy and The Bachelor. With the scatter market strong, we are anticipating a very good upfront market.
10. We're also pleased with the creative strengths of Disney Channel and ABC Family, which continue to perform exceptionally well with great original programming. 10. Disney Channel has new hits in Phineas and Ferb and Good Luck, Charlie, while Disney XD is building share among its target audience of boys. 10.
Both are forging a broad international presence that's bringing the Disney brand into people's homes throughout
the world.
We're also developing a Marvel Block of programs for our XD channel. For its part, ABC Family is doing an excellent job of winning over millennials, a particularly sought after demographic. 10. At our parks and resorts, over the next 2 years, a magnificent new resort will open in Hawaii, 2 new cruise ships will set sail 10. And expansion of Disneyland Resort and Hong Kong Disneyland are coming along nicely.
The rollout of our additions and improvements to Disney's California Adventure 10. The Disney Dream, the first of our new ships, will embark on 10. Welcome to the Q2
of calendar 2011.
Together, these investments and our continuing emphasis on providing guests 10. Distinctive high quality experiences should serve Disney well as the economy improves, allowing a return to more normal pricing. 10. Jay will elaborate later. Our strategy is to create the best in branded entertainment to use technology both to make that entertainment more 10.
And to reach more people and to expand Disney's presence in promising global markets. But we've also taken steps 10. The creation of exciting new devices like the iPad, the growth of social media platforms and the choice demanded by consumers 10 and how and when they enjoy their entertainment offers incredible opportunities for companies like Disney with strong brands, quality creative content and 10. As the economy improves, I'm pleased the approach we've 10. We were resilient during the downturn and laid the groundwork for future growth through our 10.
Acquisition of Marvel and our continued investments in media and at our parks and resorts. Success rests on our continued ability to create quality 10. Thank you, Jay. Thanks, Bob, and
good
I'd like to turn things over to Jay.
Thanks, Bob, and good afternoon, everyone. We delivered solid 10 Q2 results with growth in revenue, operating income and earnings per share. The economy continues to improve and this is benefiting our 10. Studio Entertainment was the largest driver of our year over year increase in operating income in Q2. 10.
Our theatrical releases, particularly Alice in Wonderland, strongly outperformed last year's slate, contributing to higher results. 10. In addition to Iron Man 2, as Bob mentioned, our summer releases, including Prince of Persia, Toy Story 3 and Sorcerer's Apprentice will obviously be 10. Key drivers of our performance for the remainder of the year. Results at Media Networks came in flat to last year's Q2.
10. At Cable Networks, higher affiliate and advertising revenue at ESPN more than offset an increase in costs coming primarily from sports rights 10th quarter for Premier League Football in the UK, College Basketball and the NBA. ESPN's 10. Ad revenues were up by mid single digit percentage points in the quarter. Due to a shift in our fiscal calendar, 12 College Bowl games that were in Q2 10.
Q2 last year moved to Q1 this year. We estimate that if these College Bowl games had aired in Q2 this year,
10.
10. The addition of a portion of our affiliate revenue is dependent on when we deliver a certain quantity of sports programming. You may recall that last year, we achieved 10. Some of these programming commitments during our 4th fiscal quarter. This year, we expect to reach more programming commitments in the 3rd quarter.
10. As a result, we currently expect we'll have a year over year increase in net affiliate revenue recognition of at least $1,000,000 in Q3. At Broadcasting, softer primetime ratings and higher programming costs at 10 10. The sales of ABC shows. Scatter pricing came in more than 35% above upfront levels.
10. Ad revenue at our own TV stations came in 20% above prior Q2, led by increases primarily in automotive, political and retail categories. Thus far in Q3, scatter pricing for the ABC network is running 30 10. Double digits versus prior year. At Parks and Resorts, operating income came in 12 10.
Since the beginning of the fiscal year, we've been reducing the depth of our 10. We have done this with the expectation that we will make near term trade offs between rate and volume. 10. In Q2, we saw an improvement in both guests and per room spending, but a decline in occupied rooms. 10.
Attendance at our domestic parks came in 4% lower than prior year levels with Walt Disney World down 6% and 10. As we mentioned previously, Q2 had shifts in 2 holiday weeks in the fiscal year. 10. New Year's week moved from Q2 to Q1 and 1 week of Easter holiday moved into Q2 from Q3. 10.
We estimate that without these calendar shifts, combined attendance was nearly flat to the prior year. Per capita 10. Occupancy at our Orlando hotels came in 8 10. Percentage points lower than prior year levels at 81%, while Anaheim occupancy was down 2 percentage points at 67%. 10.
Room spending at our hotels came in 8% above prior year levels with an increase at Walt Disney World and a decline 10 at our Disneyland Resorts. Results at our cruise line were affected by increased fuel cost and higher promotional 10. For the segment as a whole, savings from lower volume related expenses and cost mitigation activities helped to partially offset 10. Higher expenses from inflation and pension and postretirement medical costs. Q3 hotel reservations on the books are pacing 10 percent behind prior year.
Again, we are not surprised by this since we are beginning to return to more normalized pricing levels. 2017. During fiscal 2011, we expect to no longer widely offer the deep discounts we've had in the market over the last 18 months. 10. At Consumer Products, the increase in operating income was driven by higher results at licensing, publishing and 10.
Licensing revenue benefited from strong retailer response to Toy Story merchandise. 10. Marble properties added to segment licensing revenue, but this gain was largely offset by cost of sales and amortization of intangible assets related to marble. 10. Earned licensing revenue grew by 4% on a comparable basis.
The increase in publishing reflects 10 Growth for Marvel Properties. At Disney Stores North America, we saw an improvement in comparable store sales. 10. Given our strong balance sheet and cash flow, we remain committed to buying back the shares we issued for the Marvel acquisition by the end of fiscal 2010. So far this fiscal year, we've repurchased over 11,000,000 shares for roughly $370,000,000
We
We are pleased with the results we delivered in the first half of the year. They reflect not only the financial discipline we've maintained through the downturn, but also the steps we've 10. We've taken to become more efficient and position our businesses for long term growth. More importantly, we've done 10. This while maintaining our focus on creating high quality branded entertainment and investing in key growth initiatives that we believe will position 10.
With that, I'll turn the call back over to Lobo. Okay. Thanks, Jay.
10.
10.
Your first question comes from the line of Jessica Reif Cohen with Bank of America. Please proceed.
I have two questions. 1, you You haven't said anything about the Shanghai Park. I was wondering if you could if there's anything holding that up. Does that have anything to do with you starting up a Disney channel in China? 10.
And then secondly, could you talk about the cost curve for ESPN over the next few years?
There's no news on the 10. Shanghai Park, Jessica. Since we announced that we had reached a framework agreement with 10. Our next task was to negotiate 10. Basically, a detailed agreement with the Shanghai government and that process is underway.
And 10. We are not making predictions as to when it will conclude except to say that it's moving along on a timely basis. 10. And there is no direct tie to a channel in China. As for the cost structure of ESPN, 10.
We don't specify just how that will grow in part because there are contracts 10. That expire in over the next few years with certain sports organizations. And until 10. Those are negotiated or until it's determined just whether we will negotiate extensions of those deals, we really can't 10. Predict just what the cost structure will be.
The big deals with the NFL, the NBA, Major League Baseball and NASCAR all run through 2013 to 16. And you can expect that there are increases in all of those contracts. But again, we We don't specify just what those are. And there are a number of other agreements that we have that will expire during that period of time.
10. Thank you, Jessica. Operator, next question please.
Your next question comes from the line of Spencer Wang with Credit Suisse. Please proceed.
10. Thanks. Good afternoon. Just to follow-up on the question about ESPN costs. Jay, could you 10.
Perhaps quantify for us how large the costs were for the new channel in the UK within the quarter? And then secondly, 10. For Bob, with some of the recent chatter about CNN and CBS News Perhaps doing something jointly. Could you just share with us your thoughts on where you can take costs out in the new side or what you would do strategically there? Thanks.
10. Thank you, Spencer. Obviously, we're very much in start up mode in the UK with English Premier League Football 10 and Rugby and FA League Football. I'm not going to specify the specific costs of that operation, but we are 10. We're in ramp up.
The rights that we had were for about 46 Premier League games this year, about 23 next year. But F. 10. Today adds a number of games and we'll be at 48 the following year and then we picked up rugby. So we're 10.
We're building our brand there. Obviously, we're investing to do so and feel that in the long run, the number of subscribers and the revenue on the
10. On the news front, ABC News has just gone through a rather 10. Analysis and an extensive process to address their cost issues as well as to 10. Focus more on the strategy of gathering and presenting news in a world that has changed a lot both in terms of how people access that news, 10. But also how technology has enabled us to cover the world differently.
And with that, they've taken substantial costs out, Spencer, 10 in a variety of different ways, including a substantial reduction in people. The 10. Chatter that you referred to about CNN is interesting in that we explored with CNN a few years ago, a joint venture. 10. We were unable to conclude an agreement with them.
We're not in discussions with them now about something similar. To the question you asked about costs, we are not 10. Looking to outsource news at the ABC Television Network or to outsource news gathering, although we do rely on certain third parties throughout 10. J. Rice:] The world to provide certain basically up to the minute or late breaking news on our behalf.
10. Thanks, sir. Operator, next question please.
Your next question comes from the line of Doug Mitchelson with Deutsche Bank. Please proceed.
Thanks so much. I guess also two questions, Jay, both for Jay. Jay, you said you're not surprised by the 10% below last year bookings at Park Hotels 10. Because you're weeding yourself off of discounting, does that mean your pricing is up 10% and this is a revenue neutral strategy or if not, 10. Given you've been managing the parks to flat attendance through the recession, why shouldn't we be concerned about a 10% drop now that we're in a recovery?
That's the first question.
10. Well, Doug, I think that the situation we're in right now and remember, when I gave this number out last 10. I said we were 10% down. We wound up the quarter 6% down. And so consumers are still 10.
Out there waiting for bargains, quite honestly, I think we're in a bit of a waiting for each other to blink. And we are, as I mentioned last quarter. And I'll repeat, we are determined and confident that we can take our pricing back to its normalized levels. So at this point, I'm not 10. I'm surprised that we're where we are in terms of bookings.
I told you in the second quarter, we've seen 10. Of our reduction in pricing both in terms of per capita spending and spending per room, both of which 10. I think 5% 8% are the numbers that go with that. And so we feel pretty confident that we're on 10. The right path and that in 2011, we will be back to our sort of normalized level of pricing, which by the way always includes for 10.
Some weeks of the year, some discounting and has for time immemorial. And just to be clear on
this point, 10. So to the extent that there might be a short period of time that's disruptive to attendance, it's important to get back to normal pricing and you're willing to go through that stretch, right?
10. You know what, we play the rate and volume and lever that on a daily basis. I don't want to go into how yield management 10. It's extremely complicated. We offer different rates every single day of the year and, of course, try to maximize revenue along 10.
But what we're talking about here is the longer run, getting back to normalized prices, and I'm pretty confident that that can happen.
And also, I think, Doug, you're 10. Inferring something that isn't necessarily going on right now, and that is that we've made a decision to reduce the 10. In doing so, we were pretty certain short term that was going to reduce volume, but we have increased revenue 10. And actually, in the very, very recent period, our bookings have actually increased nicely. Now, we're not making 10.
As to how that whether that pattern will hold or what will happen through the summer, but we thought after 10. Seeing an extremely strong week of bookings, which we did this past week, with a discount being less than it was, that that is a good sign and Perhaps a sign that, 1, people are planning to vacation more this summer than they did last 2, the closer you get to the summer, the more 10. The urgency to book to make sure you have the right hotel at the right time, etcetera, and that it's possible that we're starting to 10. Signs that the consumer is starting to look past, in effect, the smaller discount in order to take the vacation that they want to take when they want to take it.
10. Great. That's helpful. I'll just stay with
the one question. I've taken up enough time. Thanks.
Thank you, Doug. Operator, next question please.
Your next 10. Question comes from the line of Ben Swinburne with Morgan Stanley. Please proceed.
Thank you. Good afternoon, guys. I guess I have one for Jay, one for Bob. Bob, now 10. Now that the Marvel deal has closed and you got Ironman out, and I'm sure you've been looking at how you can exploit that asset across the Marvel properties across 10.
Can you sort of update us on the things you talked about when you announced the transaction? I think you mentioned licensing, particularly 10. International is a huge opportunity in terms of synergies. I think the parks has been some debate about what you can and can't do at the theme parks with the Marvel properties, anything on the 10. Video games are on domestic cable nets like Disney XD would be very helpful now that we're sort of into the acquisition.
And then I have one follow-up.
10. There's an awful lot of activity going on, and it's all good. On the theme parks front, though, we said 10. When we acquired Marvel that there were encumbrances in the United States notably and in Japan, notably between Marvel and Universal, deals that were done a long 10. And so Marvel presence in our parks, at least in the short term, is likely to be somewhat limited in nature.
However, in all the other businesses, 10. There's quite a lot of activity. On the games front and in digital media in general, there's been a fair amount of development and 10. And in fact, as you know, we've gone into the self publishing business, at least on the console side of 10. And we are starting to develop some Marvel properties that will be published by us.
We're looking for other 10. On the games front as well, it's obviously a much more diverse business than just the console business. We're also 10. Discussing with Marvel a variety of other digital media strategies, including social networking opportunities as well as things 10. Like mobile apps and in fact, Marva launched a great app for the iPad just last month.
Licensing 10. The next thing is probably where most of the activity is coming. Marvel had a very successful global licensing operation as do we. There's a significant 10. Amount of integration going on, not just in the U.
S, but in markets all around the world. Marvel working with Disney teams in places like India and China, looking 10. Looking ahead of both reduce costs and grow licensing revenue in Europe and Latin America. So 10. I'd say that's where the most activity and where the most opportunity is.
There's also an opportunity to sell Marvel 10. On Disney platforms, you can go to disney.com to the store and you'll see that we're selling Iron Man merchandise there. We're looking also 10. The opportunity to potentially sell Marvel merchandise at our parks. I mentioned in my remarks, we're developing a 10 Marvel Block of Television Programming for Disney XD, and we have 2 series in production and or development, and we hope that, that will expand 10.
Over the next few years, so we think we have a big opportunity in terms of television. And 10.
And then of course, once the Paramount
distribution deal is fulfilled, it's our intention for the Disney studio to step in and become the global distributor of Marvel's 10 Motion Pictures and Videos. Great opportunity as we cited when we announced the acquisition. I've said 10. A number of times that we're impressed with the Marvel team. And if anything, since the acquisition, I think we're our enthusiasm has increased 10.
Because of the quality of their people and the quality of the product and the opportunity to take that product, particularly in a world where 10. Technology is more friend than foe and distributed more readily in more compelling ways is pretty exciting.
That's helpful. And 10. Jay back on the ESPN front, at least we calculate if we back out the equity affiliate income, your OpEx at ESPN went from, I It was up 6% in the December quarter, up about 15% in the March quarter. Is that acceleration in cost growth primarily or 10. And even entirely related to the UK launch or did something else accelerate in the quarter?
Any comment there would be appreciated.
10. Yes. There was you're right, there are some rights fees and there are 10. Production expenses for some additional events that took place in the course of the year. As I mentioned in my comments,
10. The rights fees were associated
with UK Soccer and college basketball and sort of the next year of the NBA. 10. And that pretty much covers it.
Got you. Thanks a lot. Okay, Ben. Thanks. Operator, next question please.
Your next question comes from the line of Imran Khan with JPMorgan. Please proceed.
Yes. Hi. Thank you very much for taking my questions. Two questions, one about 10. ESPN and the other word ABC.
ESPN, it seems like looking at some of your competitors in the cable networks, they're experiencing pretty strong growth in the international market. Can you give us some 10. How should we think about ESPN International revenue growth opportunity? And also, can you get to the U. S.
Level margins in ESPN 10. Long term or do you think that international has is a lower margin business? And with regards to ABC, how should we think about the cost for ABC 10. Does NBSIs return to scripted programming impact programming cost for you? Any color would be helpful.
Thank you.
10. We didn't notice any uptick in expenses at ABC, at least through the development season 10. That were due to NBC developing more aggressively in the scripted side. Until 10. We choose the programs for the fall and determine how many will be bought.
It's difficult to predict what ABC's expense 10. Line will be, but there doesn't seem to be any real forces in the marketplace that would suggest that costs are going to go up. On the ESPN front, 10. As we've said in the past, international growth, while continuing, is still relatively difficult to achieve, mostly because in order 10. To really grow a sports platform or channel in these international markets, you have to spend very, very heavily 10.
On the most popular sports in each market. And in most cases, in the big markets, you have an embedded platform owner, 10. Sky in the U. K. Is a great example of this that is going after the same rights in order to grow subscriptions to their overall platform.
10. Since we do not own a distribution platform, we actually enter the sports rights market at a relative disadvantage to 10. So while we're pleased with the growth of ESPN internationally from what 10. Basically, a losing business some 5 to 10 years ago to a profitable business, we do not believe 10. International growth for ESPN can rival that of other U.
S.-based cable program services 10. That either can leverage the programming that they buy in the United States globally or buy programs in less under less competitive circumstances in 10.
Got it. Thank you very much.
Thanks, Imran. Operator, next question please.
Your next question comes from the line of Anthony DiClemente with Police Capital. Please proceed.
Hi. Thank you very much. I have one for Jay and one for Bob. Jay, I just thought with some of the currency swings that we've seen out there recently in the market 10. I thought it would be worth asking, what is Disney's exposure to the euro and the pound?
And are those currencies hedged? And just how do you think about your currency exposure abroad? And I have
10. Yes. We don't have a huge percentage of revenue for our company in Europe, 10. And we are hedged in those currencies. From time to time, we're in and out of hedging.
I don't see a huge exposure to either of those 10. As it relates to our business, we find that the business that people always ask about 10. Related to currency is our Parks and Resorts business, which tends to follow more the strength of the economies around the world than it does changes in 10.
Okay. Thank you. And I guess to follow-up a little bit on Doug's question about the parks. 10. Most of us on this call aren't leisure and lodging analysts, but it certainly seems like in some other pockets of leisure like for Starwood or Marriott that they're 10.
What I hear from some investors is that that's a business customer and 10 Disney's customer is primarily a leisure consumer. I'm just wondering in your research, have you noticed a tie 10. We in the business customer and your consumer at the parks. And is there any way that we as analysts can assume that 10. A rebound in attendance for your clientele can in any way predictably follow a rebound that we actually are
10. Well, a couple of things. First of 10. Well, the leisure traveler usually has a much longer booking cycle than the business traveler. So when you feel 10.
Good enough, I mean, economically to take a vacation. Then you've got to decide, okay, where am I going and when am I going. And quite often for us, of course, that aligns itself with school schedules and people's available time. And so we 10. And so we would, at the very least, be a lagger to business travel, which is usually more close 10.
In terms of booking, of course, we do run a sizable group business, group and convention business that has 10. And we have seen a lift in that business in the 2nd quarter, unmistakable relative to last year. So to that 10. And of course, we see the Starwood and others numbers as well as you do. 10.
But we don't share a huge customer base. Most of those chains you see reporting are primarily business 10. And I don't think there is a link, but of course, they need leisure travelers for a lot of their 10 business. So as their results improve, quite often you see ours improving as well, but I don't think there's a huge link there.
10. Great.
Thanks for answering the question.
Thanks, Anthony. Operator, next question please.
Your next question comes from the line of Doug Krause with Cowen and Company. Please proceed.
10. Thanks. When I think back to the things Pixar said about their pipeline 6, 7 years ago, they were asked about sequels and
one of the things they said is
they were Focused on working on whatever they thought the best ideas were in their pipeline. You guys announced Monsters 2 recently. And then Bob, I'm just wondering, 10.
Has the shift all of
a sudden now have 3 sequels in 3 years? Is that a reflection of kind of organically what's coming out of their pipeline? Is it 10. Reflection of Disney's strategic priorities and has there been any change in kind of how Pixar is thinking about their production process? Thanks.
10. Well, first of all, we're increasing capacity at Pixar. In fact, we're 10. We're building a new structure there as we speak. And the goal all along was to essentially 10.
I can't speak for where Pixar was before 10. But since the acquisition, we've talked about a blend of both original movies 10. And sequels, the movies derived from movies that have already been made. We are not forcing sequels though into the system unless we've got directors 10. And storytellers that have good ideas for those sequels because we feel that we'll do more damage either to the franchise or to our business If we just put sequels out there for the sake of making sequels.
I think you'll see when Toy Story 3 comes out exactly what we mean. We had a director and a group of storytellers that had a great story to tell and a real passion for telling it. And therefore, we put it into 10. The same thing is true with Cars 2 and the same thing with Monsters. We didn't mandate a sequel to any of those.
We just obviously said that we were open to 10. And certainly encouraged it, but only when there was a good idea. So other than the fact that there is a slight ramp up in capacity, 10. There's been real no change in philosophy since the acquisition was announced. And again, you'll see a blend over the next certainly 5 years of sequels 10.
And original films. Great. Thanks.
Thanks, Doug. Operator, next question please.
Your next question comes from the line of
ten. A couple of questions. One, Jay, I think you said that theme parks went from down 10% 10. On the last call tracking to actually down 6%, but I thought you said at the beginning that the actually domestic in total was down 4%. So I just want to make sure the spread was 10 10.
And then I was curious on your comment about 10% looking forward, what how 10. Losing an Easter week versus last year, how much does that impact that down 10? And then just a quick housekeeping question. There's a note in the release about film finance package 10. Gending early in a tax charge.
Just wondering if those are actually excluded in the $0.48 or whether that's an additional add back that we should be making an adjustment for? Thanks.
10. Okay. Let me start with your first question on the theme park numbers. So the 10% to 6 10. And is rooms on the was rooms on the books in the 2nd quarter at the time of our earning call and rooms 10.
Finally, when we got there. The 4% had to do with attendance. 10. Okay. So those are clearly apples and oranges.
They're not they're related, but there's no Spread between those numbers. They're different numbers. Got it. Okay. Is that clear?
And in terms of your second question, 10. The buyout of the film financing is an interest issue and it's about $20,000,000 round 10. The numbers that will be down in Q2.
And And then how much of theme parks was due to the switch in the calendar year related to holidays in terms of the 10% going forward?
10. Well, last quarter, I told you that the week that we lost was about $60,000,000 to 10. And the week that we gained is 20. So I'll let you work it from there. 10.
Thanks.
Your next question comes from the line of Tuna Amobee with Standard and Poor's Equity Group. Please proceed.
10. So I guess the first question I had was on Disney XD rebranding. If you can perhaps provide some more color on the 10. Timing of some of those programming blocks that Bob alluded to and over time, where do you see the upside from this channel? How you're kind of positioning it for this up 10.
You see mostly advertising affiliate upside. How do you think that kind of shakes out over time? And separately, with regard 10. To Alice, Bob, I was wondering how the performance of this film has kind of shaped your overall 10. 3 d philosophy, kind of specifically any titles that you've already announced in the near term that you might actually be 10.
And any comment as well on the DVD strategy for Alice would be helpful in terms of the 10. Timing, Blu ray, etcetera, that would be helpful.
Wow, okay. Multi question question. First First of all, 3 d, I've almost lost track of what we announced in 3 d and what isn't, but you can assume that 10. There's a lot under consideration. What we've announced is Toy Story 3, which is just coming up Step Up, which is a touchstone film 10.
Tangled, which is the retitled Rapunzel, Tron, The End of the Year, Mars Needs Moms and Cars 2 will all be in 3 d. We've not made announcements 10. Other future live action films, but we're in discussions on a number of them. Our overall 10. Feeling about 3 d is that it's obviously a valuable technology both for the movie industry and for the viewer.
It's one 10. We've taken advantage of for a long time and one that we really believe in, but we don't believe every film should be in 3 d. 10. And when applied, we think 3 d should be applied well and not done in a last minute sort of 10. Paste it on to kind of approach because we think that if, one, we make films in 3 d that don't really benefit from them being in 3 d, that's not 10.
And if 3 d is used badly either by us or the industry, that's not good. We obviously have something good going here, 10. Particularly when you look at the premium that the industry is getting from ticket price perspective, and if we go to the well too often or in the wrong ways, we're going to kill the goose that laid the golden 10. On the Alice front, we're very excited about the film overall and about its prospects in home video. As you know, 10.
We worked out arrangements on a global basis to bring this into the marketplace from 12 to 13 weeks after release. So that enables us to put the DVD 10. On June 1, instead of having to either wait till the middle of the summer, which wouldn't have been optimal or to put it out 10. When the market, in fact, recovers after the summer, and that would have been in September when we felt it would have been old. So we now go into the marketplace, 1, at a good time
10. To sell DVDs the 1st week
in June, 2 with a title that feels very, very fresh. And we think that, that bodes really well for this title. 10. And we know that this was kind of a hard fought victory of sorts, but 10. It's one that I think the industry will benefit from significantly and obviously will benefit from that.
Lastly, Disney XD. We rebranded a channel 10. In the U. S, it was called Jet X, and we're in the process of rebranding a number of channels globally that were either 10. FedEx channels or the former Fox Kids channels that we bought way back with the Fox Family acquisition.
So far, the programming 10. Results, meaning the effect on ratings, have been quite good for the overall channel. And we feel that, that not only bodes well for 10. But it bodes well for our ability to increase rates down the road with a channel that's just viewed 10. As more viable and more attractive to distributors and to consumers.
The only programming that I mentioned in the call was that we are 10. Working to create a Marvel block of programming on this channel, we are already licensing Marvel product for the channel and we're stepping up that activity 10, both as a means of growing ratings for the channel and thus growing advertising and distribution, but also as a means of helping 10. Use the channel to strengthen the Marvel brand and to put a real spotlight on it.
That's helpful. And just quick clarification for ten. Jay, on the Miramax charge, it was at $71,000,000 Is that just about all the charges that are expected there? 10. Or is there anything else that's on the radar for the rest of this fiscal year?
10. Yes.
The $71,000,000 charge on Miramax.
I think we've laid out anything on the Miramax charges.
Well, the $71,000,000 was presumably 10. Of a Miramax, am I correct?
Yes. That's not a Miramax charge. It is the closure of the IMD production facility.
Okay. Thank you very much. Thanks 10.
Thanks, Jun. Operator, next question please.
Your next question comes from the line of Jason Helfstein with Oppenheimer. Please proceed.
10. Thanks. Two questions. 1 on ad trends and the second on ESPN 360. So on ad trends, if I listen what you said, you said 10.
Was 35% over the upfront, but is now pacing 30% in the second quarter or in the third quarter. And then, stations were up 20%, they're now pacing double digits. 10. Is that reflective of a slowdown in the ad market or more of the March quarter was the bottom and kind of 10. So the comparisons get more difficult.
And then
Let me answer your first question. Those are 2 different things. 10. The first measure is a price measure. It's percentage of the price, the CPMs over what was sold in the upfronts.
Those are the 10. The other numbers are ad pacings, are ad sales. Okay, so those are revenue numbers. So that's the difference there.
10. No, no, no, no, no. I wasn't comparing them. I'm just saying so in this quarter, I think you said your stations were up 20%, correct, in revenue? 10.
Yes. Right. And you said the pay things are double digit?
Yes. We're using double digit. We're not being 10. Specific about the numbers there. We're going to leave it there as its perspective.
Okay. And then on ESPN 360, I mean, we've read about 10. Pretty high consumer comments on this and a lot of demand. Can you talk about when you think we might see this more widely deployed and 10. Perhaps has this come up in the Time Warner renewal?
Thanks.
Well, we've grown the ESPN3. We've now 10. We've grown it very nicely. In fact, we're now up above 52,000,000 subscribers, and it's 10. It's a dual revenue stream business for us.
We're getting subscription fees and we're selling advertising, and we feel very good about its prospects. So we're continuing to work on 10. The rollout, I don't want to comment about any aspect of the Time Warner negotiation. But wherever we can, whether we're 10. We're in separate negotiations just to increase ESPN3.
We're working to basically grow it because we think
10. It's a good service and a good business.
Thank you.
Thanks, Jason. Operator, next question please.
Your next question comes from the line of David Miller with Keyurice and Company. Please proceed.
Yes, hi. Two questions, one for Bob, one for Jay. Jay, I'm actually kind 10. Surprise to hear you talk about fuel costs at the cruise line. I was under the impression that you guys had a fuel hedge on the cruise line.
So if you can set the record straight 10. And then Bob, just given the global success, I should say, instant global success of Ironman 2, what is your taste, if any, for perhaps 10. Buying Viacom out of the distribution arrangement that they will, I guess, enjoy for the next 4 Marvel films. Thanks very much.
10. Okay. Quite simply on the fuel costs, we were hedged in the prior year Q2. We 10. We're not hedged in the current year's Q2.
Got
it. We've experienced a relatively modest, but 10. It was the primary driver of change for the Disney Cruise Line, increase in costs.
And
I have really 10. No real comment on the second question, Dave. I mentioned in my remarks that it's our intention to distribute Marvel's films 10. The Paramount deal is fulfilled and can't make any other further comment on that.
Okay. Thank you.
Thanks, Thanks, Dave. Operator, next question please.
The next question comes from the line of David Bank with RBC. Please proceed.
Thanks. 10. May I ask one question that a question I think you've been asked about 4 or 5 times before, I'm I'll take one last pass at it, which is the operating leverage at ESPN was 10. I think you guys did a good job of explaining what the costs were in quarter. They were soccer, NBA, basketball stuff.
But can you help us put some perspective on what the normalized margins 10. Even for the balance of the year, like was there a mismatch in delivery of programming versus revenue? Is there or is this kind of
10. First of all, you have lower margins in the early 10. Because as we've explained, we have revenue recognition issues as it relates to program 10. Covenants that we have with the distributors and the rates that they pay us for ESPN. And Jay, in fact, talked about how some of those some of that revenue is 10.
It's going to move from the Q4 to 3rd when you compare those quarters to last year. So operating leverage actually improves 10. As we recognize more revenue as we fulfill the program covenants. I think ESPN is
10. The business is kind of
difficult to compare on a quarter to quarter basis because first of all, there are timing issues that are at stake 10. Jay talked about bowl games shifting out of a quarter. Sometimes there are apples to oranges comparisons just in 10. How far certain series go, whether they go 4 games or whether they go 7 games, you'll see some 10. There, particularly in the basketball season.
What we say about ESPN, which is pretty clear, is that we continue to grow its 10 subscription revenues and we're entering into some negotiations that are critical in that regard and that ad 10. Have generally been quite strong and in fact, they feel extremely bullish about their upfront that's coming up. They're seeing extraordinary 10. Growth in a robust marketplace with automotives and consumer electronics and men's grooming products, and they feel really good about that 10 product. They're continuing to invest in their digital platforms and to some extent internationally, so there were costs associated with that this last quarter.
And by the way, on the Digital front, their digital revenue was up 30% over where it was a year ago, which is pretty remarkable. And 10. They're getting real demand for things like iPad apps and for homepages in the espn.com 10. World. And so, I think, again, we don't really look at ESPN on a quarter to quarter basis.
It's just not how 10. We manage it, particularly when you given all the timing issues and the fact that there are a variety of different ins 10. In terms of how revenue is recognized, how sports events are scheduled and how their and their outcome.
I have 2 quick things I'd like to add to 10. First of all, I've said again, in Europe, we're in ramp up. A lot of the costs we talked about are related to that. So there's some deleverage when 10. You're in ramp up in building a business.
Secondly, I want to clarify something that's out there relative to ad 10. What we report is basically revenue. And revenue includes both what a lot of other people report, which is cash sales and also 10. Whatever made goods there are in the course of the quarter of the year. So I want to so sometimes some of the numbers we see out there and you guys 10.
You see out there are not apples to apples across different companies.
Okay.
10. Thank you.
Operator, next question please.
Your next question comes from the line of Alan Gould with Salil Securities. Please proceed.
10. Thank you. Bob, in terms of the ESPN affiliate fees going forward, can you give us some sense as to 10. How much is contractually built in over the next few years versus how much we may see some variance, some upside of contracts get renegotiated?
10. We haven't and won't disclose when all of our carrier agreements 10. Obviously, they all, at some point over the next years, have expiration. And at that time, 10. And we can't give you too much guidance on what the trajectory is 10.
And of course, what's going to happen when we sit down and renegotiate those.
Jay, could you possibly give us what percentage you have renegotiated over the next 3 years or so?
10. Hi, Keith. Okay. Thank you.
The next question comes from the line of
10. Jay, you touched a bit on this, but can you expand more on how the weakening in the euro 10. Has impacted bookings during the fiscal Q3 and to what extent the fluctuation impacts the Class F hotel and spending at the domestic parks from European visitors?
10. I will tell you this that international attendance was not a major driver for parks and 10. In terms of movement in Q2 of this year. And historically, we haven't found, as I mentioned, changes in exchange 10. 10.
Related to the economic strength of the origin countries than anything else. We are in this past quarter, Walt 10. Disney World saw relatively flat international attendance. Disneyland international attendance was up, but it wasn't from currency fluctuation countries. 10.
So I really don't think that, that is something you can look to for a driver for this quarter. I didn't catch the second half of your question. I'm sorry.
10. Does the exchange rate at all impact the maybe the classic hotel or the spend once the visitors get to the parks?
10. Typically, it doesn't, but I will also hasten to add that at Walt Disney World, where we see most of our 10. Many of our folks stay many of the folks stay off property. So they stay in the vast 10. Number of vacation homes in Orlando, they usually stay for a 2 week period of time, 2 week plus.
So we wouldn't probably pick 10. That off at our resort anyway, even if there was an impact, but I don't think there is, to be honest with you.
Thanks. That's helpful. And maybe just one quickie would be, is Is it fair to say that the current discount at Walt Disney World is maybe in the 20% to 30% range versus 2 years ago?
10. I would say well, I mentioned on our last call and I'll repeat it. A year ago, we 10. We had our entire property on a promotional program that was basically buy 4 nights and get 3 free. Last year, we 10.
This current year, we did a tiered program where only the deluxe hotels were buy 4, get 3 free and the rest of the property was buy 5, get 3 free. So 10. We lowered the discount. I'll let you do the arithmetic on what 4 +3 10. But the numbers you threw out are relatively high compared to what we're looking at right now.
Thank you.
10. All right. Operator, we have time for one more question.
Your final question comes from the line of Tony Rydell with Janney. Please proceed.
10. Hi. I was hoping you can comment on your willingness to push ahead with ESPN 3 d, if we start to see more CE companies pushing these chipsets that 10. 2 d to 3 d conversion and also in that same vein, do you anticipate the leagues at some point fragmenting out the 3 d rights apart from the
2 d rights? 10. We're in development with 10. 3 d Technology for ESPN. Like we announced a deal with Sony some months ago to help jumpstart that.
And in fact, the World Cup is going to be offered in 3 d. There are a lot of issues that are related to this. Obviously, you're still you're looking at a world 10. There are very few 3 d sets out there and the ability to transmit still has some limitations, although it can be done. 10.
And so we think that as is the case with any technology that makes the experience better that it's worth spending money to develop 10. And ultimately, we'll create value, but this is slow going and we're just looking at the beginning. I don't anticipate 10. Sports rights being broken out, 3 d versus 2 d, it's certainly something that we wouldn't tolerate. If anything, it's possible that 10.
3 d channels will be offered to consumers on a separate or an add on basis, but I don't anticipate rights being sold to us that are
10. Essentially segregated between 2 d
and 3 d. Great. Thank you. Thanks, Tony.
Thanks again, everyone, for joining us 10. A reconciliation of non GAAP measures that we'll refer to on this call to equivalent GAAP measures can be found on our Investor 10th Solutions website. Let me also remind you that certain statements on this call may constitute forward looking statements under the securities laws. We make these statements 10. 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 safety 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 10th edition. This concludes today's Q2 call. Thanks, everyone, for joining us.
Ladies and gentlemen, that concludes today's conference. Thank you for