Welcome to The Walt Disney first quarter fiscal year 2016 earnings conference call. My name is Bianca and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Please note that this conference is being recorded. I will now turn the call over to your host, Mr. Lowell Singer, Senior Vice President of Investor Relations. Mr. Singer, you may begin.
Good afternoon and welcome to The Walt Disney Company's first quarter 2016 earnings call. Our press release was issued about 40 minutes ago and is available on our website at www.disney.com/investors. Today's call is also being webcast, and a replay and a transcript will be available on our website. Joining me for today's call are Bob Iger, Disney's Chairman and Chief Executive Officer, Tom Staggs, Chief Operating Officer, and Christine McCarthy, Senior Executive Vice President and Chief Financial Officer. Bob, Tom, and Christine will each make some comments, then of course, we will be happy to take your questions. With that, let me turn the call over to Bob and we'll get started.
Thanks, Lowell, and good afternoon, everyone. I'm thrilled to announce that our Q1 performance was the greatest single quarter in the history of The Walt Disney Company and a phenomenal start to fiscal 2016. Revenue was up 14%, net income was up 32%, and adjusted earnings per share were up 28% to $1.63, which is our highest quarterly EPS ever and is also our tenth consecutive quarter of double-digit EPS growth. We had tremendous performance across our portfolio of businesses. With the incredible success of Star Wars: The Force Awakens, our studio delivered $1 billion in quarterly operating income for the first time in history. Our parks and resorts also made history with nearly $1 billion in operating income. Our Consumer Products and Interactive business set another record with $860 million in OI.
Our results clearly show that our long-term strategic focus and investments in brands and franchises are driving remarkable value in these businesses, greatly increasing their impact on the company and further diversifying our future growth. Over the last 10 years, we've built an enviable collection of vibrant, valued, and admired brands. We've also created, acquired, or re-envisioned several of the world's most valuable franchises, and we're fully leveraging these assets across our portfolio of businesses and around the globe. Of course, nothing reflects the impact of this strategy better than the phenomenal resurgence of the Star Wars franchise. There's no better way to propel this franchise into the future than producing quality products. It's been absolutely thrilling to see the reaction to our first Star Wars feature film, The Force Awakens. Audiences and critics alike really love this movie.
It's the only film in history to ever reach $900 million in domestic box office. As you may have heard, it crossed $2 billion in global box office over the weekend, more than doubling the worldwide box office for the last Star Wars release a decade ago. Breaking records at the box office is only the beginning. Global retail sales for Star Wars merchandise in the first quarter exceeded $3 billion, more than triple the global retail for this franchise in Q1 of last year. Star Wars is also driving unprecedented growth for our mobile games, EA's launch of Star Wars Battlefront was the biggest video game release in Star Wars history, with more than 13 million units sold. Filming of Star Wars: Episode VIII, the next chapter of the legendary saga, has just commenced and will be in theaters December 2017.
Production of Episode IX, a 2019 release, has also begun. In the meantime, we'll keep fans engaged in the Star Wars universe and further expand the franchise with the release of Rogue One this coming December. It's a compelling and original standalone story about a band of rebels attempting to steal the plans to the Death Star, set just prior to the events in the very first Star Wars movie, Episode IV – A New Hope. Filming of Rogue One is virtually completed and we absolutely love what we've seen so far. This is the first of a set of planned standalone stories, we're already in pre-production on our next one for release in May of 2018. On the parks front, later this year, we'll break ground on spectacular new Star Wars theme land in Disneyland and Walt Disney World.
Clearly, Q1 saw the impact of our extremely successful relaunch of the Star Wars franchise, as well as its enormous potential to drive value across our entire company for the foreseeable future. Given our unparalleled mix of some of the world's best IP and strongest brands, we're well-positioned for continued growth over the long term, regardless of changing dynamics in the media landscape. Now, turning to a subject that has gotten a lot of attention lately, ESPN and the status of the bundle. In the last couple of months, we've actually seen an uptick in ESPN subs, which is encouraging.
We're also pleased with what we're hearing from Dish about the response to Sling TV, a light package that includes ESPN. The service appears to be growing nicely and is proving very attractive to young consumers in particular, significantly over-indexing among millennials, and has been quite successful in bringing previous cord cutters back to pay TV along with new subscribers. Sling TV is clearly additive to the robust MVPD universe, our networks benefit accordingly. The popularity of sports and the strength of ESPN add great value for consumers who want lighter packages, we're currently in discussions with new and existing distribution partners to create an array of innovative new services and light packages featuring ESPN. We will continue to focus on subscriber trends, moving quickly to embrace and create opportunities to drive value in the evolving market.
It's interesting to note that Nielsen has significantly lowered its estimate of losses of multi-channel households in 2015. Regardless, in any market, we believe ESPN is well-positioned to continue to thrive for many reasons, including the demand for sports programming, especially live sports, is undiminished, and consumption is at an all-time high. Last year, 95% of Americans with a multi-channel bundle watched sports, and 81% of those viewers watched ESPN content. Across all platforms, more than 200 million adults engage with ESPN in an average month. In other words, four out of five adults in this country connect with ESPN on some platform every month, usually more than one. ESPN has the sports that most people want.
It holds more national sports rights than all other sports media combined. It has the most important rights secured into the next decade, including the NFL, the NBA, Major League Baseball, and the most coveted college sports. Consumers, advertisers, and operators see great value in ESPN. The vast majority of consumers still see tremendous value in the multi-channel universe, and they consistently rank ESPN as the number one or number two most valuable channel within it. ESPN's ad revenue continues to grow thanks to its proven ability to reach audiences that advertisers value most. In fact, ESPN's ad sales significantly outpaced the market, growing three times faster than television advertising overall over the last six years.
MVPDs just ranked ESPN number one in perceived value for the 16th year in a row, due in part to the fact that ESPN drives more local ad sales and broadband subscriptions than any other service in the market. The expanded basic bundle will remain the dominant product for consumers for the foreseeable future. The competition from new video services and products will only grow. Better user interfaces and greater mobility make these newer services enormously appealing, especially among young people. Many of our brands, including Disney, Marvel, Star Wars, and ESPN, are tailor-made for over-the-top, direct-to-consumer, app-based video products. Expect innovation and continued pursuit of new distribution opportunities.
Our results this quarter clearly demonstrate that our focus on high-quality branded content and franchises to diversify our asset mix, our ability to use technology to aggressively create new opportunities, and our ambitious global growth are paying off with record performance. We're proud of our achievements, we're excited about the future, and we're confident in our ability to continue to drive growth across the entire company. I'm going to turn the call over to Tom to walk you through some highlights across the company. Christine will take you through the details of our performance in Q1. Tom?
Thanks, Bob. Hello, everyone. As Bob just highlighted, the strength of our branded programming networks gives us confidence in our ability to continue to grow our media networks business. In addition, the marketplace offers a range of other new opportunities for us. They include our continued investment in the future of Hulu as both a compelling consumer platform and another active buyer of high-quality content, our investment in and collaboration with Vice, our distribution agreement with Alibaba for DisneyLife in China, and ESPN's undertaking with Tencent in China as well. Our opportunistic approach also led to our successful Marvel series on Netflix, which helps extend the Marvel franchise and broaden its reach. As importantly, after a decade of strategic value-creating acquisitions and capital allocation, our other businesses have grown significantly, increasing their impact on our results.
This purposeful diversification across branded franchises with attractive long-term potential, along with an aggressive approach towards leveraging new technologies and driving global growth, are the key strategies we laid out a decade ago. With branded content from Disney, ESPN, ABC, Pixar, Marvel, and Star Wars, we have the most valuable collection of branded franchises and other high-impact IP in the world. Few companies have embraced the promise of new technology as enthusiastically and effectively as ours. These strategies are bearing significant fruit today and continue to guide our path for the future. We've invested heavily over the last several years to significantly expand our parks and resorts business. Those efforts include the creation of Cars Land and transformation of Disney California Adventure, introducing MyMagic+, and doubling the size of Fantasyland at Walt Disney World, doubling the size of our cruise fleet, and adding three new lands in Hong Kong.
The record results for the quarter, which include all-time high global attendance Record results for our domestic parks and our best Q1 results ever for Disney Cruise Line reflect the impact and value creation of these investments. We're already benefiting from the success of Star Wars at our parks as well. Since December, more than six million guests have experienced new and refreshed Star Wars attractions and features in our parks. This year, we're rolling out even more themed attractions in parks and resorts around the world, including Star Wars: Day at Sea, which debuted on the Disney Fantasy last month. Our most important single new initiative at parks is Shanghai Disneyland, which will have its grand opening on June 16th. Tickets will officially go on sale on March 28th, an announcement that has been incredibly well-received in China.
Bob and I were just over there. We couldn't be more pleased or excited with how well our preparations are going. Thousands of new cast members have already been hired. Ride testing has started on the attractions. The anticipation is palpable and growing. Shanghai Disney Resort is going to be a tremendous source of pride for everyone involved. It's one of the most extraordinarily creative and innovative projects in the history of our company, which makes it the perfect way to firmly establish Disney in the hearts and minds of the people of China, as well as an attractive and profitable place to deploy our capital for the long term. Our franchise-focused strategy is driving growth across the company, including in our Consumer Products and Interactive business.
Star Wars was obviously a huge drive for consumer products and interactive results for the quarter, but it wasn't the only one. We're also very pleased with licensing growth this quarter for Marvel, led by Avengers. As we've discussed previously, we have 11 franchises that generated more than $1 billion each in annual retail sales for the last two fiscal years, making our consumer products business uniquely broad and deep. Our acquisitions of Pixar, Marvel, and Lucasfilm give us some of the most valuable IP in the world. They also brought some of the world's most gifted storytellers and innovators to Disney, unlocking even more creative potential across the company. Bob touched on the ambitious slate of upcoming Star Wars films, but that's just one aspect of our incredible studios pipeline.
We have two films from Disney Feature Animation this calendar year, starting with Disney Animation's Zootopia, an incredibly original, charming, and very funny movie opening March 4th. This Thanksgiving, we'll release Moana, a comedy adventure with incredible music, very much in keeping with the tremendous legacy of Disney Animation. As you know, a sequel to Frozen is in the works. In the meantime, Disney Animation is creating the first-ever Frozen television special, which will air on ABC during the 2017 holiday season. Following the tradition of Lion King, Beauty and the Beast, and Aladdin, we have a new Frozen stage musical slated for Broadway in 2018. Turning back to animation, we just celebrated the 10th anniversary of our Pixar acquisition. Pixar and our incredibly talented colleagues there have positively impacted every aspect of our company and contributed mightily to our success.
Looking ahead, Pixar has as strong a lineup of films as we've ever seen. Finding Dory, the long-awaited sequel to Pixar's beloved movie, Finding Nemo, opens this June. 2017 will bring us Cars 3, plus another Pixar original film set in Latin America called Coco. In 2018 comes Toy Story 4, followed by Incredibles 2 in 2019. From Disney Live Action, this April we'll bring Mowgli, Baloo, and a host of other classic characters to life in a new way with the release of The Jungle Book. Johnny Depp returns this May as the Mad Hatter in Alice in the Looking Glass, and again in 2017 as Jack Sparrow for our fifth installment in the hugely successful Pirates of the Caribbean franchise. 2017 will also feature Disney's live-action version of Beauty and the Beast.
In addition, we have a fantastic slate of Marvel movies that extends through the end of the decade. Captain America and Iron Man face off in an epic battle when Captain America: Civil War opens in May. The movie features some of the most popular Marvel heroes, and we believe it will prove to be one of our best Marvel movies yet. In November, we're launching another compelling character into the Marvel Cinematic Universe with the release of Doctor Strange, starring Benedict Cumberbatch. Marvel's Guardians of the Galaxy return next year, along with Thor: Ragnarok. In 2018, we'll release three more Marvel movies: Black Panther, Avengers: Infinity War, and Ant-Man and the Wasp. With more than 7,000 characters in the Marvel Universe, you can expect the Marvel storytelling to continue.
We're excited about the future of all of our great brands and the opportunity they provide to drive continued growth and value for our company across our businesses, around the world, and through platforms both old and new. Now, I'll turn the call over to Christine to walk you through our results in more detail. Christine?
Thanks, Tom, and good afternoon, everyone. It's worth noting again, fiscal 2016 is off to a phenomenal start. We delivered strong revenue growth of 14% during the first quarter to a record $15.2 billion. Earnings per share, excluding items affecting comparability, were up 28% to a record $1.63. Studio entertainment had its most profitable quarter ever. That's following record full-year results in fiscal 2015. Operating income was up 86% to over $1 billion. The growth in Operating income was primarily due to the fantastic worldwide theatrical performance of Star Wars: The Force Awakens. Home entertainment and television distribution results were also up in the quarter, demonstrating our studio strategy continues to create value beyond the theatrical window. The success of Star Wars at the box office also drove increased demand for Star Wars merchandise.
Operating income at the recently combined Disney Consumer Products and Interactive Media segment was up 23%. Segment margins were up over 500 basis points to 45%, driven by the growth in merchandise licensing and games primarily on the strength of Star Wars. On a comparable basis, earned licensing revenue was up an impressive 23% in the first quarter. That doesn't include the deferred revenue from Star Wars: Episode VII merchandise sold in the fourth quarter last year. The growth in games was due to higher licensing revenue from Star Wars Battlefront, partially offset by lower Infinity results. The Disney stores also benefited from sales of Star Wars merchandise. However, the increase in the quarter was offset by very strong sales of Frozen merchandise in Q1 last year.
At Parks and Resorts, Operating income was up 22% in the first quarter and reflects the favorable timing of the New Year's holiday period relative to our fiscal calendar, which we discussed on last quarter's call. We estimate this shifted about $90 million in Operating income into Q1 this year that was recognized in 2Q last year. Our domestic operations had another great quarter. We continue to see strong demand from guests, specifically at our domestic parks and at Disney Cruise Line. Attendance at our domestic parks was up 10% in the quarter. Per capita spending was up 7% on higher admissions, food and beverage, and merchandise spending. Per room spending at our domestic hotels was up 9%. Occupancy was up three percentage points to 92%.
Our cruise business had its best Q1 ever, driven by higher ticket pricing and onboard spending, and that's despite a three-week dry dock of the Disney Dream. Growth in domestic operations was partially offset by a decline at our international parks as a result of lower operating income at Disneyland Paris, which was closed for four days in November, as well as pre-opening spending at Shanghai. So far this quarter, domestic resort reservations are pacing up 2% compared to prior year levels, while booked rates are up 4%. At Media Networks, operating income was lower in the first quarter compared to prior year. However, operating income would have grown in line with the 8% revenue growth we delivered when adjusted for the timing of the College Football Playoff and an adverse impact from foreign exchange.
Results in our cable business were lower in the first quarter as higher programming and production costs offset increases in advertising and affiliate revenue. The higher costs in Q1, which we discussed during our Q4 earnings call, were due to the timing of the sixth New Year's Eve and New Year's Day College Football Playoff bowl games, including the two semifinal games, which aired on ESPN. These games aired during the first fiscal quarter this year, whereas they aired during the second fiscal quarter last year. Higher programming and production costs also reflect contractual rate increases for key sports rights, including the NFL and college football, partially offset by the absence of rights costs for NASCAR. Advertising revenue at ESPN was up almost 25% in the quarter, reflecting the timing of the six bowl games, as well as a strong advertising marketplace for sports in general.
We estimate that ESPN's ad revenue would have been up about 14% adjusted for the timing of the bowl games and the absence of NASCAR. Underlying ad trends remain very strong. However, due to the timing of the College Football Playoff, ad sales are pacing down in the second quarter versus prior year. Broadcasting operating income was down in the first quarter as growth in affiliate and advertising revenue was more than offset by higher programming costs and increased equity losses from our investment in Hulu. Ad revenue at the ABC Network was up 8% in the first quarter due to an increase in units sold, higher rates, and a shift in the timing of New Year's Eve programming to Q1, offset somewhat by lower ratings. So far this quarter, scatter pricing at the network is pacing high teens above upfront levels.
Media Networks affiliate revenue was up 4% in the first quarter, driven by a seven percentage point increase in rates, partially offset by roughly a two percentage point decrease due to lower subs and a two-point decrease from unfavorable foreign exchange rates. Broadcasting affiliate revenue was up more than the segment average, while cable affiliate revenue, adjusted for FX, was up approximately 3.5%. Recall that we have fully lapped the launch of the SEC Network and don't have any major affiliate agreement renewals in fiscal 2016. During the first quarter, we repurchased 21.1 million shares for $2.4 billion. Fiscal year to date, we've repurchased about 35.5 million shares for approximately $3.8 billion. Overall, we feel great about the start of the fiscal year. Our strategy of investing in high-quality content supported by the best brands in media continues to pay off.
We are mindful of the evolutionary changes taking place in our industry, we feel we are well-positioned to thrive in this evolving landscape due to the strength, depth, and diversity of our businesses. With that, I will now turn the call over to Lowell for Q&A.
Thanks, Christine. Operator, we are ready for the first question.
Thank you, sir. We will now begin the question and answer session. If you have a question, please press star then one on your touch-tone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. If you're using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star then one on your touch-tone phone. We have our first question from UBS. We have Doug Mitchelson then. Doug, please go ahead. Your line is open.
Oh, thanks so much. I guess two questions. One, Bob, you outlined the record results at Film, Consumer Products, and Theme Parks, I think investors are wondering, can it get any better than this? If you could help us just understand what the drivers of growth going forward in that business might be. Tom ran us through all the content that's coming, but there are particular initiatives that increase efficiency or is this just you think content in the future will continue to be better and better? Then, any clarification on the cable network affiliate fee growth, 3.5% FX. Are you guys confident as you look forward that revenue growth in the cable network business will be in line to ahead of operating expenses on a go-forward basis? If that makes sense.
Well, we're not going to give guidance, Doug, but I'll start by saying, as a response to the second part of your question, that we fully expect our media networks, including ESPN, to continue to deliver bottom-line growth, which means that revenue growth is going to outpace spending. Obviously, we're not going to give guidance on film and parks and consumer products, but I think you should look at a few things. First of all, the intellectual property cycle is not only robust, but in some cases really still growing. If you look at Star Wars and you look at Marvel as examples of that. We've got an incredible pipeline, as Tom outlined earlier, of Pixar and Disney animated films and Disney live action. We also know that those films drive a lot of business across parks and resorts and consumer products.
I would say that the studio will continue to provide more growth opportunities for the company, and that includes growth internationally because China continues to grow as a market. Consumer products is really a great story for this quarter because that is one business that while it did benefit significantly from Star Wars, we also saw continued success from other franchises and growth, notably Marvel, which is a great sign. We expected that Star Wars was going to cannibalize some of our other franchises more, and it didn't materialize. Lastly, on the parks front, we have obviously plans to build out domestically. We're building Avatar Land and we're building breaking ground, in fact, soon on Star Wars lands in the two domestic parks.
With Shanghai coming on board in June, while there are startup costs this year, you can expect that that's going to drive growth for parks and resorts for many years to come. We feel really good about how all four of our businesses are positioned. I think you have to also consider what the media landscape looks like, and that is that there is a voracious appetite for high-quality intellectual property, particularly branded. There isn't a new platform that launches that is not interested in licensing or gaining access to our channels or to our intellectual property. We believe that we're going to see continued expansion across the world in new platforms, and that will create opportunities for us to grow.
Thank you very much, Bob.
Hey, Doug. Thank you. Operator, next question, please.
From MoffettNathanson, we have Michael Nathanson. Please go ahead, sir.
Thanks. I have two for Bob. First one is on ESPN. Bob, can you just go back and clear up the differences in an answer you gave in August about what you thought the source of ESPN subscriber declines were versus what Skipper said in the journal about skinny bundles? We want to understand how much you think the decline is from cord-cutting versus skinny bundles. I wanted to put those two comments together.
It was a timing issue. At the time that I made the comments last August, we were seeing some sub-erosion from both sides, from skinny bundles and from essentially a decrease in the total number of subs. At the time, because of what Nielsen was telling us, we concluded that most of it was coming from simple loss of subs. Once Nielsen corrected those numbers, reducing the loss of subs by some 2 million subscribers, or 2 million households, I should say, then we concluded that at that point, our sub loss was largely due to the fact that ESPN was not part of skinny bundles that had launched.
Okay.
Does that answer the question?
Yeah. You mentioned this $3 billion Star Wars consumer products. One of the questions we wanted to understand is what do you think the tail is on Star Wars? Will you look like Frozen where it gets stronger as consumers become more familiar with the product? Or do you think it's more akin to tied to the release dates of these movies?
Well, look, Star Wars has always been one of the most popular franchises in the world. When we acquired it in 2012, all the way up to September, we saw some pretty robust sales of Star Wars merchandise, even though a film had not been in the marketplace since 2005. We knew that when we brought a film out, it was going to greatly enhance sales of Star Wars merchandise, not only did it do that, but it did it well beyond what our expectations were.
Don't forget, we did not bring new merchandise out for Star Wars until September 4th, the movie came out in December. We're still seeing quite a significant tail, even in this quarter, from the sale of Star Wars merchandise across the world. By the way, one thing that's very interesting is that is not just a U.S. phenomenon. In fact, we saw some pretty interesting consumer product sales, even in markets where the movie didn't perform as well as either we had hoped or as well as other markets. With Rogue One coming out at the end of this year, Star Wars 8 and 9 planned for 2017, meaning calendar year, and for 2019, and another standalone film.
We think that while I don't want to predict that it's going to be steady state, that we're not seeing just something aberrational right now, but what we're seeing is the establishment of an old franchise, but at a much higher level in terms of global interest and sales.
Okay. Thank you.
Thanks, Michael. Operator, next question, please.
From J.P. Morgan, we have Alexia Quadrani. Please go ahead.
Hi, thank you. I just have one on Parks and then a follow-up on Cable. I guess first on Parks, we've seen another great quarter of very strong profit growth at Disney's domestic Parks. I guess I'm trying to get a sense of how much longer that impressive growth can continue and any color you can provide on how we should think about profitability for the rest of this year, given all the moving pieces with Shanghai. Then a follow-up on Cable. Just wanted to check and make sure that you are still comfortable with the high single-digit affiliate revenue, sort of CAGR over the next three years guidance.
Alexia, it's Tom. Let me talk about the Parks. Bob mentioned that we've broken ground on the two Star Wars Lands, of course, we think that's going to be a nice catalyst down the road. Before that, we'll open Avatar at Walt Disney World. We have a cadence of new attractions here domestically, that we think guests will really embrace. I think we'll also see opportunities, given the strong occupancy and room nights that we see to consider expanding our hotel capacity down the road. I think there are many avenues for us to continue to grow that business. Of course, Bob talked about Shanghai and the growth that that will drive for us internationally. Remember that while we open this June, we also have significant room for expansion there over time.
We believe that the good news is the guests continue to really embrace our product. We think there's room to grow that product and continue to expand.
Can you say anything, Christine?
Yeah, I'll take the second one. Hi, Alexia, it's Christine. In reference to your question about the guidance update that was given in the 3Q call back in August, there is no change to that guidance, and we're still very comfortable with it.
Thank you.
Thanks, Alexia. Operator, next question, please.
From Bank of America Merrill Lynch, we have Jessica Reif Cohen. Please go ahead.
Thank you. Two different questions. On theme parks, U.S. demand seems insatiable year after year, driven by obviously your intellectual property and new attractions. With China four months away, you guys seem very excited about it. I know you do tons of studies of the market, how different do you think Chinese consumers will be over the long term, not just into the opening?
Well, Jessica, all of our research tells us that our intellectual property and our guest service and our parks experience will resonate extremely well with our Chinese guests. At the same time, we've taken great care to make sure that we design Shanghai specifically for that marketplace in terms of the layout of the park, the food that we're serving, the type, and scripting of the shows that we're putting on. We're definitely adapting to that market, but we have real confidence that it's going to be a product that's going to resonate and resonate for generations to come.
Okay, great. Then the second question, ESPN obviously hyper-focused by the market. Can you talk a little bit about the drivers of recent sub growth coming from pay TV? Is it more cooperation between programmers and distributors? Secondly, are you close to your minimum thresholds with pay TV operators? Should we be concerned that in your next cycle of contract negotiations, we heard that you said none this year.
15 year
Is there any concern that the next go around will be more difficult?
We don't know exactly what the drivers are or were for the uptick that we've seen recently in terms of sub growth. We believe that we benefited from the growth of certain light packages that ESPN has been part of, particularly Dish. I think you have to conclude that sports is very popular in this country. When you look at the percentage of people that access sports on television and across markets and that access it across platforms rather, and that access it on ESPN, it's among the most, if not the most popular programming out there. In fact, if you look at the studies that we've done among distributors, it's number 1 or number 2 in terms of value creation for them for 16 straight years. If you ask consumers, they say the same thing.
It's number 1 or number 2 in terms of the most valuable channels that they get. I actually believe, and I know you want to know about the floors in terms of our agreements, I actually believe that this notion that either the expanded basic bundle is experiencing its demise or that ESPN is cratering in any way from a sub perspective is just ridiculous. Sports is too popular. It's not just at ESPN. Just look at how the Super Bowl did as a for instance, which I realize is a penultimate event.
Day after day, week after week, month after month, year after year, live sports ends up being among the highest-rated programs across television. ESPN has this, as you know, incredible set of license agreements with all the major sports, got the best menu of live sports that is out there. We actually feel good about it. What we're trying to do now is we're engaging with virtually all of the traditional platform owners in pushing ESPN into light packages. The success that Dish has experienced, we think is a great selling point in that regard. The same token, we're also looking at other opportunities with new platform providers that are emerging in the marketplace. We don't comment on our relationship or contractual relationship with the distributors, it's safe to assume we have not really touched the so-called floor element of those agreements in about 15 years.
We do not foresee, by the way, that the next round of negotiations, whenever they are going to be particularly difficult for us, because we come to the table just with ESPN alone, with a product that people love. The other thing to note is the value of it from an advertising perspective. ESPN's ad pacing, as Christine mentioned, has been tremendous. If you look over the last six years, its advertising growth is three times the growth of television advertising. You have a product that's great for distributors, it's great for consumers, and it's great for advertisers. I believe, really, I guess, with great confidence, that it's going to thrive in whatever new media world order we're experiencing.
Great. Thank you.
Thank you, Jessica. Operator, next question, please.
From Credit Suisse, we have Omar Sheikh. Please go ahead, sir.
Hi, everyone. I'm going to surprise you by not asking a question about ESPN. I've got a couple of questions. First, to Bob, if I can, and that's on Hulu. I wondered, Bob, if you could just sort of update us on your current thinking on Hulu. How are subs going right now? Where do you think that business can get to in terms of subscribers in the domestic U.S. market? How do you think about potential international expansion? How does it fit into the Disney strategy? I'm just interested to hear your thoughts on that. The second question's for Christine, maybe. Christine, you mentioned there was some startup or pre-opening costs in Shanghai. I wonder if you could just update us on what that number was in the quarter, how we should think about perhaps phasing of those costs in the current quarter as well.
Thank you.
We're bullish on Hulu, that's reflected in the level of investment that we and our other partners are putting into Hulu. First of all, we like new platforms. We like their appeal to young people, particularly millennials. Clearly, the user interface the mobility of these new platforms is really attractive. It's also a great platform to license our product, too, we've actually derived a fair amount of revenue from doing that. We believe that we're going to continue to invest in Hulu, while I don't want to speak for Hulu completely, their investment strategy is going to be to continue to license off network movies, et cetera, also to grow their original programming, which they're doing nicely.
I don't want to speculate where Hulu goes, it fits very well into Disney's strategy in terms of our investment in new technology platforms our support of new distribution opportunities.
Okay. Hi, Omar. It's Christine. On the Shanghai question, back on our last conference call, we said the pre-opening costs, you should expect them to be in the $300 million range. That's an annual number. We've not broken them down by quarter, you can expect those pre-opening costs to ramp into the open, which is going to be in mid-June. Given that we'll be only fully operational for a little more than three months during the year, the pre-opening expenses will impact the full-year results.
Okay, great. That's very clear. Thanks.
Great. Omar, thank you very much. Operator, next question, please.
From Morgan Stanley, we have Ben Swinburne. Please go ahead, Ben.
Thank you. Christine, can you just help us think about expense growth at Cable through the rest of the fiscal year? You mentioned that you've now passed the college football, so I think peak growth is now behind us. Just how should we be thinking about the rest of the year? Then related, Bob, I'm just trying to square the subscriber growth comment with the subscriber headwind in the queue. I think part of this may be we're talking Nielsen and then paid subs. Are you saying you expect the subscriber headwinds to abate as we move through the next few quarters given what you're seeing? Or am I reading too much into that?
I'll take the second part of the question, then Christine can take the first. What I was talking about in terms of an uptick was recent. The uptick that we talk about really didn't have much of an impact on this quarter. What we believe we've seen, or what we have seen recently is that subscriber trends going in the negative direction have abated somewhat. We're not making any predictions about them going forward because we really don't know. We just feel great about the product, we believe that, again, the predictions that many have made are more dire than they should be.
Thanks for clarifying.
Okay, Ben, on the Cable programming costs, as we said in the last conference call, we expect fiscal 2016 Cable programming and production costs to be up low to mid-single digits. We are managing outside of the programming costs, we are managing aggressively other costs at ESPN.
Thank you.
Thank you, Ben. Operator, next question, please.
From Nomura, we have Anthony DiClemente. Please go ahead, sir.
Thanks for taking my questions. First for Christine or Bob, just thinking about the Disney balance sheet, it's the strongest in the media industry. It's stronger than most companies in the U.S. When you look at what's going on in the economy, in the media economy broadly, do you think about your balance sheet as a competitive advantage in any way? More specifically, what are the things that you can do to utilize the Disney balance sheet, not only financially but also strategically, whether it be more acquisition of IP, whether it be incremental capital spending on positive ROI projects, or whether it be being opportunistic with stock buybacks given some of the dislocation in the market? Thanks.
Thanks, Anthony. When you look at the Disney balance sheet, it is the strongest in the media space. There's no question about that. We do view it as an asset, and when we look at the things that we could do with it, your list of acquisitions, investing in our own businesses, having the flexibility to increase buyback, my answer to that would be all of the above. We do look at the leverage that we have, which is a little over 1x, the credit rating that we have, which is a single A rating, as all being very beneficial for us to be very flexible for all sorts of opportunities as you indicated.
Thanks, Christine and then one for Bob. Given the divergence in maybe the narrative at least between the non-media side of Disney and the media network side, I wonder, would Disney ever consider separating its businesses into two, with cable and broadcast on one side and the studio parks, consumer products, and interactive on the other? What the question is getting at is, maybe you can just remind us of the synergies between the media networks and the non-media businesses at Disney. Thank you.
I'm not going to talk about separating those assets. We fully expect that our media assets are going to continue to contribute to our growth. We also are designed as a company to leverage intellectual property across a lot of our businesses, or to leverage the collection of brands nicely in the marketplace. That also is reflected in the way we operate the businesses from an expense perspective, with consolidation in many different areas. If you look at the profile of the company, interestingly enough, since 2009, look at the growth profile, the company's grown on a compounded basis by 14%. The media networks have driven about 8% compounded a year, and the rest of the company grew 23%. 8% a year is pretty strong. 23% is extraordinary. 14%, pretty damn strong, too.
I think what that says is that over that period of time, we've actually diversified our ability to generate growth and profitability, and that was very purposeful. These investments that we made in Pixar and Marvel and in Lucasfilm, and the investments that we've made in our parks were designed for us to diversify our bottom line or our growth. That was not just across businesses, but really across the world, because a lot of these businesses are global in nature, unlike some of our media assets.
Okay. Thanks, Bob.
Anthony, thanks for the question. Operator, next question, please.
From Citigroup, we have Jason Bazinet. Please go ahead, sir.
A quick question for Ms. McCarthy. When I look at the buybacks, I think it was a record dollar amount last quarter and second highest the quarter you just printed. Should investors view that decision to buy back as much stock as you are a function of what you think the intrinsic value of your equity is relative to what it's trading at? Or is it more a function of the very lean balance sheet and the lack of M&A opportunities, i.e., other better uses for your cash?
Thanks, Jason. The way we buy back our stock, we do keep an eye on our intrinsic value. Obviously, the amount of stock we bought is an indication that we believe that our stock is a great investment, and it is well below that intrinsic value. The strength of the balance sheet does afford us a lot of flexibility. We're able to react to these opportunities, especially when the market dislocates in our name or the market overall. We have taken opportunities to be aggressive so far this year, and we intend to do it going forward for the balance of the year.
Thank you.
Thank you, Jason. Operator, next question, please.
From Sanford Bernstein, we have Todd Juenger. Please go ahead, sir.
Oh, hi. Thank you. Bob, I want to pick up on the comment you just made, if you don't mind. I was actually playing with the math myself. You talked about the 14% growth since 2009 and the different components of that. Is it wrong to think that when you talked about sort of an organic growth rate, I'll call it high singles, and then obviously great contributions from both organic investments in the Parks and M&A delivered something like 14% total growth for the company. Thinking forward from here, should we think about the company as a high single grower, or do you think the assets you put in place gets you to that double-digit rate that you've had for the past five-plus years? Will more M&A investment be required? How should we think through the natural growth rate from here? Thank you.
You should think nothing but happy thoughts about this company. I don't know what else to say. We're not going to give any guidance whatsoever. We believe that we've distinguished ourselves in the media sector, not only with our growth these last number of years, but with the assets that we've collected and with the growth potential that we've created for this company going forward. We'll leave it at that.
All right. I didn't mean to ask an unfair question. I understand. Given that, if I don't
I didn't take it as unfair, but as you know, we're not going to go there. I do think it's important, and I don't mean to be too wordy, but if you look at the profile of the company, we have four businesses that are going to deliver growth for this company. Parks and Resorts, Media Networks, the Studio, and Consumer Products. There was a time not that long ago, where we were getting growth really from just a couple of them, and some, like the Studio, were somewhat lumpy in nature, meaning there were good years and there were bad based on the slate.
I'm not suggesting that every year we grow, because there will be ups and downs in some cases, but they will be much flatter in nature, meaning that you can expect that the bottom line contribution from the businesses will continue on essentially a more consistent basis than you saw in the past.
That's helpful. If you don't mind, a very quick follow-up that follows right in line with that. If you think about the parks and the exposure to the cyclicality of recession, the footprint of the parks have changed a lot since the last recession. Any comment you can make upon sort of the risk to revenue or margins or growth rates whenever the next recession comes in parks? Thank you.
I don't think there's anything I can add to that. Sorry.
Thank you.
Thanks, Todd. Operator, next question, please.
From Guggenheim, we have Michael Morris. Please proceed, Michael.
Thanks. Good afternoon, guys. Two questions. First on Hulu, you mentioned you're confident, you feel good about it. Help us understand why you're not concerned that at the $12 price point for the ad-free version, that it doesn't represent a cannibalization risk to your core business. Second, if we could talk about the affiliate growth number, the 4% that you just reported. Most of your peers that have television stations have growth significantly above that in their retransmission fees, and I'm curious, are you seeing a higher rate in retransmission and therefore a lower rate on the cable side? What's the balance between those components when we look at that 4%? Thanks.
Do you want to address it?
Well, Christine took you through the relative growth on the affiliate fees, and we're very pleased with where we've been going on the retransmission side of the equation. In fact, we're well ahead of the guidance that we gave some time ago and expect that growth to continue. We feel very good about that and the relative contribution between the two. I don't really want to address the nature of the growth at other companies. The mix is often different, and they're coming off of different bases as well. With regard to Hulu, look, the Hulu business model has evolved over time and continues to. We've noticed that they have added subscribers rather nicely. That has not been overly driven by the ad-free portion of the equation. That's actually a small part of the subscriber base.
At this point, we're not overly concerned with the impact of that to the ecosystem as a whole. We'll obviously keep our eye on it, and as Bob's indicated previously, we take a balanced approach to both those businesses and then also how we think about positioning our programming within them. We'll continue to do that.
Great. Thank you. Just back to the first question or I guess my second on the growth rate. Was there anything unusual in the first quarter that impacted that 4% growth rate? Or is that, as you're looking at what we're seeing right now, a fair run rate, maybe with a little bit of variance for the either FX or for the subscriber numbers that Bob referenced?
Yeah, I think Christine's comments pretty much summarized it.
Yeah.
I wouldn't say there's anything unusual. Obviously, the foreign exchange impact is something that we wouldn't expect to see continue year after year, depending on clearly where foreign exchange goes. Other than that and also, as Bob's indicated, some of the trends that we see on the subscriber side have shown at least initial signs of abating somewhat, and we'll watch those very carefully.
Great. Thanks, Tom.
All right, Mike, thanks for the question. Operator, we have time for one more question today.
From FBR Capital Markets, we have Barton Crockett. Please go ahead, sir.
Okay, thanks for squeezing me in. I wanted to ask about the comment earlier that you could have growth in earnings at Media Networks even with this kind of lower affiliate fee growth trajectory. I was wondering if you could tell us how we get there, given what we know from the step-up in sports rights. Qualitatively, are we looking at cost cutting or are we looking at other revenues coming in to kind of make up the gap for the sports rights cost pressure that we see coming up?
Well, Barton, I just think the context that I'd give you on that is, first of all, you've seen how we've successfully grown our advertising revenues, and especially with the branded services and programming that we have, we continue to get a great response from advertisers, both on our linear channels and on new platforms. That looks good, and I think that trend will continue. I think we've discussed the affiliate side of the equation. The only other thing to keep in mind is that as new sports contracts kick in next year as an example, that will sometimes cause a shift in terms of how the growth is coming, but the overall growth story is intact. I think that gives you what color is available there.
Okay, great. I'll leave it there. Thank you.
Barton, thank you for the question, and thanks again, everyone, for joining us today. Note that a reconciliation of non-GAAP measures that were referred to on this call to equivalent GAAP measures can be found on our investor relations website. Let me also remind you that certain statements on this call may constitute forward-looking statements under the securities laws. We make these statements on the basis of our views and assumptions regarding future events and business performance at the time we make them, and we do not undertake any obligation to update these statements. Forward-looking statements are subject to a number of risks and uncertainties, and actual results may differ materially from the results expressed or implied in light of a variety of factors, including factors contained in our annual report on Form 10-K and in our other filings with the Securities and Exchange Commission. This concludes today's call.
Have a great rest of the day, everyone.
Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.