Welcome to The Walt Disney Company First Quarter Fiscal Year 20 15 Earnings Conference Call. My name is Ellen, and I will be your operator for today's call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. Please note that this conference is being recorded.
I will now turn the call over to Lowell Singer, Senior Vice President, Investor Relations. Mr. Singer, you may begin.
Good afternoon and welcome to The Walt Disney Company's Q1 2015 earnings call. Our press release was issued about 45 minutes ago and is available on our website at www.disney. Com/investors. Today's call is also being webcast and the webcast and a transcript of the call will also be available on our website. Joining me for today's call are Bob Iger, Disney's Chairman and Chief Executive Officer and Jay Russillo, Senior Executive Vice President and Chief Financial Officer.
Bob will lead off followed by Jay and then of course we will be happy to take your questions. So with that, let me turn it over
to Bob and we'll get started. Good afternoon. I'm very pleased to announce that Walt Disney Company had another incredibly strong quarter with diluted earnings per share up 23% to 1.27 dollars These results were driven by solid performance across all of our businesses and once again demonstrate the strength of our brands and content in a proven franchise strategy that will drive long term value. And Frozen is a great example of this strategy. On March 13, along with Cinderella, we're premiering a new 7 minute short Frozen Fever bringing back all the beloved characters and voices song.
Which went on to win the Oscar and become the highest grossing animated feature of all time. Now a full year after its release, we're seeing the true impact of Frozen across our entire company. Overall, retail toy sales in North America were up 4% in 2014. And according to a leading market research firm, much of the credit for that growth belongs to Frozen, which was both the biggest and fastest growing toy property of the year. It's also enormously popular in our parks and resorts.
It's showcased in a successful mobile game and it gave a significant boost to our home entertainment business for the quarter, along with Maleficent and Marvel's Guardians of the Galaxy. And Frozen is just one of the 11 franchises at Disney, currently driving more than $1,000,000,000 each in annual retail sales. The strong holiday demand for Frozen as well as Mickey and Minnie, Spider Man and Avengers led to the most successful quarter ever for Disney Consumer Products. Among media companies, Disney stands out. No one else comes close to our unparalleled collection of strong brands or our pipeline of great And our unprecedented ability to leverage creative success and create value across the entire company allows us to adapt to emerging challenges, take advantage of new opportunities and most importantly innovate for the future.
For example, who else but ESPN could launch the 1st ever college football playoff with such enormous and immediate success? The 2 semifinals and the national championship broke previous records to become the 3 most watched telecasts in the history of cable television, an achievement that speaks to the tremendous potential of this annual event and further strengthens ESPN's undisputed position as the number one sports brand. Our studio is obviously a key franchise driver and we have a strong slate of upcoming movies. We started the fiscal year with Disney Disney Animation's Peak Hero 6, which has already generated just under $500,000,000 in global box office. It's also been number 1 in Japan for 5 weeks and is yet to open in some key markets.
And Into the Woods has been both acclaimed by critics and embraced by audiences. As I said, next month, one of our most beloved and iconic characters comes to life in Disney's first ever live action Cinderella. It's a fresh look at this classic story and it's also a stunningly beautiful film. Later in the spring, we're looking forward to an original Disney adventure called Tomorrowland starring George Clooney and directed by Brad Bird. As every Marvel fan knows, the highly anticipated Avengers sequel, Age of Ultron, opens in May.
And when the first trailer was released in November, fans viewed it more than 34,000,000 times in just 24 hours. The speed and magnitude of that reaction certainly speaks to the incredible excitement around Avengers. Ant Men debuts in July bringing another great character to the screen with Marvel's trademark blend of action, humor and heart. We're also thrilled to have 2 original Pixar movies underway this year. In June, Inside Out will give audiences an all access pass into the mind of an 11 year old girl.
And at Thanksgiving, The Good Dinosaur takes a humorous look at what the world would be like if the asteroid that wiped out the dinosaurs had actually missed. Of course for millions of Star Wars fans, the 1st 11 months of this year will be an exciting countdown to the December 18th release of Star Wars: The Force Awakens. There's a strong emotional connection to this franchise that transcends geography and generations and the brief teaser trailer released last November has been viewed more than 123,000,000 times. Having been on the set and seen most of the footage, I can definitely say their excitement is justified. It marks the beginning of a new era of exceptional Star Wars storytelling as well as an opportunity for continued growth across all of our businesses.
As a truly global company, we've talked a lot about the importance of developing local content and the success of the film PK in India is a perfect example. It's now India's highest grossing movie of all time with almost $107,000,000 in global box office. It's also Bollywood's most successful movie ever. Co produced and released by our Indian subsidiary UTV, PK will soon be on 3,500 screens across China. This is also a dynamic and exciting time for our parks and resorts with another very strong performance in Q1 and plenty to look forward to including the spectacular Shanghai Disney Resort.
I was in China the week before last and saw amazing progress. We just topped off our signature Shanghai hundreds of performers who'll need and we're getting ready to start casting hundreds of performers who need to entertain our guests. It's thrilling to see Shanghai Disney Resort rapidly coming to life. The artistry, complexity, the magnitude of the detail, it's all quite astonishing. As you recall, after we booked ground on this incredible resort, we announced an $800,000,000 expansion, significantly increasing both the size of the park and the number of attractions available to our guests on opening day.
Even with that expansion, we will complete major construction by the end of this calendar year and we're planning a spectacular grand opening in spring of 2016, which we believe is the optimal time to showcase the full grandeur of this world class destination. Obviously, we're proud of our performance and our record of creating significant value for our company and our shareholders and we're very optimistic about our future. And now I'm going to turn the call over to Jay to take you through the details of our Q1 performance
and then we'll take questions. Jay? Hi, Bob, and good afternoon, everyone. Fiscal 2015 is off to a great start as we delivered another strong quarter of financial results. Earnings per share were up 23%, driven by record revenue, up 9% over last year and 17% growth in segment operating income.
The results this quarter, which I'll go over with more detail in a moment, are further evidence that our strategy of investing in high quality content drives significant long term value across our businesses. At Consumer Products, our broad content portfolio fueled incredibly strong financial results. Segment operating income was up 46% on revenue growth of 22%. Margins expanded by 7 20 basis points, reflecting strength in both our merchandise licensing and retail businesses. Growth in licensing was driven by Frozen and to a lesser extent Disney Channel Properties, Mickey and Minnie, Spider Man and Avengers, partially offset by higher revenue share with the studio.
On a comparable basis, earned licensing revenue in the Q1 was up an impressive 23% over last year, which is particularly notable given the size of our licensing business. Higher results in our retail business were primarily due to the continued demand for frozen merchandise, which drove double digit growth in same store sales in North America, Europe and Japan, as well as higher online sales in those regions. At the studio, the success of our fiscal 2014 theatrical slate continued to drive financial benefits in the Q1. Operating income was up 33% over last year due to increases in home entertainment, higher revenue share of consumer products and an increase in television distribution. While we were very pleased with the worldwide box office performance of Big Hero 6, theatrical results were lower in Q1, reflecting the record breaking performance of Frozen last year.
The increase in home entertainment was primarily driven by higher unit sales of Guardians of the Galaxy, Frozen and Maleficent compared to Monsters University and The Lone Ranger in Q1 last year. The increase in television distribution in the Q1 was due to better performance of Q1 titles, including the Avengers, Captain America 2 and Frozen compared to last year's titles. The studio recognized a higher revenue share from consumer products in the Q1 due to strong sales of frozen merchandise. The Parks and Resorts segment had another great quarter. Operating income was up 20% on revenue growth of 9% due to continued strength at our domestic points with major new initiatives accounting for 80 basis points of the year over year increase.
We continue to be pleased with the performance of our recent major investments as they have contributed nicely to the robust growth of domestic based business. In the Q1, growth in operating income at our domestic operations was driven by higher guest spending and attendance at our domestic parks and higher passenger cruise days at the Disney Cruise Line, partially offset by higher costs. For the quarter, attendance at our domestic parks was up 7% with Walt Disney World and Disneyland Resort, each setting an all time attendance record for any quarter. Per capita spending in our domestic parks was up 4% on higher ticket prices, merchandise and food and beverage spending. Entrepancy at our domestic hotels was up 8 percentage points to 89% and per room spending was up 4%.
So far this quarter, domestic resort reservations are pacing up 3% compared to prior year levels, while book rates are up 4%. Turning to Media Networks, segment revenue was up 11% and operating income was up 3% as higher results at broadcasting were partially offset by lower results at cable due primarily to higher programming and production costs at ESPN. Broadcasting operating income increased 35%, driven by higher affiliate revenue and higher program sales, partially offset by lower ad revenue. The growth in affiliate revenue was due to contractual rate increases as well as higher rates in new affiliate agreements. Program sales were up in the Q1 due to sales of ABC Studio shows, including Criminal Minds, Scandal and Once Upon A Time.
Ad revenue at the network was down in the quarter as a result of fewer prime time units sold, partially offset by higher rates. Quarter to date scatter pricing in KBC network is running 10% above upfront levels. Cable segment results were down modestly as lower operating income at ESPN was partially offset by increases at worldwide Disney channels and ABC family. Lower results at ESPN were primarily due to higher programming and production costs and to a lesser extent higher marketing costs related to the college football playoff and the launch of the SEC network. This quarter's results reflect ESPN's continued investment in what is already the deepest and broadest portfolio of sports rights.
As a result, programming and production expenses were up mid teens percent during the Q1 due to higher expenses for NFL rights as this is the 1st year of ESPN's new 8 year contract and additional sports rights for the SEC network. As we've discussed in the past, we expect growth in cable programming costs to be in the low teens and that increase will be heavily weighted towards the first half of the year. We expect cable programming costs to be up about 25% in the first half of the fiscal year and relatively flat in the second half. The cost increase this quarter and what we expect in Q2 are consistent with the first half and full year outlook. ESPN has long term agreements in place for the most valuable sports rights.
While the 1st year of new contracts may result in above trend cost increases and adversely affect results in the short term, we remain confident in our ability to continue to grow ESPN over the long term. During the Q1, we renewed a major affiliate distribution deal, marking the completion of new agreements with our 10 largest affiliate partners. Due to contractual provisions in ESPN's new affiliate agreements, ESPN will no longer defer a portion of its affiliate revenue for most of its contracts as was previously the case. Domestic cable affiliate revenue was up 20% in the quarter, reflecting the benefits of new affiliate agreements, lower deferred revenue at ESPN and the launch of the SEC network. The 20% increase in affiliate revenue includes a year over year benefit of $136,000,000 as ESPN deferred $136,000,000 in affiliate revenue in Q1 last year compared to no deferred affiliate revenue in Q1 this year.
Adjusting for the timing of deferred revenues at ESPN, domestic cable affiliate revenue was up low double digits. Ad revenue at ESPN was down 2% in the Q1. While total day ratings were up, ad revenue was lower as ratings for certain key programs were down compared to last year, partially offset by higher rates. So far this quarter, ESPN ad sales are pacing up 18% on the strength of the 1st college football playoff, which aired last month. Increase at worldwide Disney channels was due to higher affiliate revenue at domestic channel and higher advertising revenue at international channels, partially offset by higher programming costs.
The increase at NBC Family was driven by higher affiliate and advertising revenues, reflecting an increase in units sold. At Interactive, operating income increased 36% in the quarter, driven by higher results from our global gaming business due to the continued success of Tsum Tsum as well as lower product development costs, partially offset by lower results at our console games Lower console game performance reflected higher per unit costs driven by Disney Infinity, lower unit sales and higher marketing costs. The decrease in unit sales was driven by lower sales of catalog titles and Disney Infinity figures, partially offset by higher sales of Disney Infinity Starter packs. We continue to take a balanced approach to capital allocation by investing for the long term sustainable growth, while returning meaningful capital to our shareholders. During the Q1, we repurchased 15,000,000 shares for about $1,300,000,000 and increased our dividend by 34% from $0.86 per share to $1.15 per share.
Fiscal year to date, we have repurchased 15,500,000 shares for about $1,400,000,000 Overall, we feel great about this quarter. As we look across our businesses, there is a lot to be excited about in 2015 and beyond. But we are not taking anything for granted as we recognize we have a lot of work ahead of us. We believe the strength of our brands coupled with the integrated nature of our company can create long term sustainable value for our shareholders. And with that, I'll turn the call back to Lowell to be happy to take your questions.
Okay. Thank you, Jay. Operator, we are ready for the first question.
Thank you. We will now begin the question and answer The first question is from Michael Nathanson with MoffettNathanson.
I have one for Jay. So Bob, now that we've seen the DISH Sling offer, we had a question. We wonder if you had any insight whether or not the ESPN viewer is also a heavy RSN viewer? And if so, how does that affect the take up rates of a bundle that doesn't have an RSN that has ESPN?
Michael, we don't really have that much data on one how much DISH has succeeded in selling the Sling package to its customers. And we don't have data on the customers themselves right now. So we just don't know. Attract consumers or households that are either cord nevers or cord laters. And we believe that there's an attractiveness to or a real justification for trying to convince particularly millennials to sign up for some form of subscription TV when they might not have signed up for any.
But I guess the question is, are millennials who are sports fans also RSN fans? Or do you think it's a starter package for them using ESPN?
We just don't have we don't have data. I think your premise is interesting that if they want ESPN chances are there are RSN viewers. And if there are RSN viewers, then they probably have to have the expanded basic bundle. So we're probably I'm guessing that I think I'm not sure what you're inferring here. Maybe what you're suggesting is that there aren't many left.
In other words, that if they're sports fans, then they probably have to have expanded basic cable because they'd have to get it to get our sense. Is that what you're saying?
Yes. That's what I'm saying.
But not many left? We'll see. We don't have enough data yet.
Okay. And let me move to Jay. Thanks, Bob. And then Jay you said occupancy in the hotels in Disney Parks and Resorts were up to 89%. Going back to your history of running Parks and Resorts, once you get to 89%, you talk about what types of pricing levers you see historically?
Because I think that's probably the best number we've seen pre recession or post recession.
Michael, I think hoteliers in general will tell you that to try to fill a hotel beyond 89%, 90%, 91% is extremely difficult because it takes to go beyond that, it takes too many matchups of people who are staying 3 nights, checking out, replaced by 5 nights, replaced in rapid succession, it becomes quite difficult. So I think that you're right that when you see occupancy in that kind of range, you're getting close to pretty much a full house and those were historically the numbers at which we started to think about expanding capacity. Of course, relative to the Orlando market, there are many still many, many more hotel rooms off property than they're on are on property. And I'm sure they're not experiencing rates of occupancy anything like that.
Okay. Thanks. Thanks, Jake. Thank you, Michael. Operator, next question please.
Jessica Reiss Cohen with Bank of America. Please go ahead.
Thanks. I guess on the theme parks two things. On is there any on My Magic plus is there any way you can give us some color or quantify the impact on guest spending and guest flow? That's something you mentioned that it would improve efficiency. How should we think about the benefits of My Magic Plus?
And the second question is, in this ramp up to Shanghai, can you give us some more color or detail on the financial impact in fiscal 2015 as you spend into the opening of 2016?
Well, on My Magic Plus, Jessica, I'll take this one. First of all, about 10,000,000 guests have already worn the bands. And so far, what we're hearing from them is overwhelmingly positive. Basically, the percentage that rated as excellent is significant. So what that basically tells us and what we actually have seen is that it is serving the purpose that we set out to serve, which is to essentially make the experience more seamless, basically make it easier to give people an opportunity to enjoy what they do when they visit Orlando or Walt Disney World even more than they used to or to make them enjoy more of it, meaning experience more.
Just to give you a for instance, there were days during the holiday season where we were when the park opens in the morning when the park opens in the morning, the fact that you have a van that enables you to basically walk right in, touch the van to a kiosk and keep going instead of handing a ticket to a cast member, making sure the ticket is right and then going in, that's obviously creating a huge improvement, meaning much quicker entrance into the park. And what this all adds up to is our ability to manage more people at a time without in any way diminishing guest experience. We did see in the quarter a positive impact to the bottom line from MyMagic plus just the beginnings of it. We will continue to see more of that. But we do not have data that we can share with you right now about specific guest spending.
Jessica, this is Jay. Tying in your second question about Shanghai preopening costs. I'm not going to go into the details of what that will be in fiscal 2015. But following on what Bob just said about My Magic Plus becoming accretive this quarter, I will tell you that the increase in contribution from My Magic Plus this year will outweigh the preopening spending on Shanghai Disneyland in our total numbers for fiscal 2015. So that might give you some sense at least that Shanghai will not be a drag on our earnings in fiscal 2015.
Great. Thank you.
Thanks, Austin. Operator, next question please.
Doug Mitchelson with UBS. Please go ahead.
Thanks so much. So one for Bob and one for Jay as well. Bob, your comments on Sling TV and not having data on the customers hit squarely on the question I wanted to ask you, which is with the broadband non pay TV market growing in size, I would think it becomes ever more interesting for Disney to address that. And I think the default is to generally support the existing pay TV bundle and highlight Hulu and Sling as dipping your toe in the water. But I was hoping you would address whether there's a potentially superior business model for Disney to capture the distribution margin yourself benefit from dynamic advertising targeted of course and having that direct relationship with the consumer that you've been questions on recent calls about ESPN's top line.
I wanted to refocus on margin. So with the March 2015 quarter, the decade you've only got a couple of tough quarters when the NBA hits. Are we thinking about that correctly that even if ESPN revenue growth might moderate a bit, cost growth is also moderating, any reason to think that margins shouldn't generally be flat up going forward ex those NBA quarters? Thanks so much.
Doug, I'll take the first part of the question or your first question since it was directed at me. And you're right, there are 12,000,000 right now, subscribers to broadband only service. And that's the subscriber that we're trying to reach with this Sling or that DISH is trying to reach with the Sling package. And we believe that it's a worthwhile experiment or a worthy attempt to try to convince young people or younger people to sign up to cable when they either wouldn't have signed up for it at all or they might have waited, Michael's comment aside. There is definitely an opportunity not just for ESPN, but for other Disney brands to ultimately put product in the marketplace that reach consumers directly.
We think we have that opportunity with a Disney branded service. We may have an opportunity to bring out a Marvel type product and possibly even Star Wars. But we also are mindful of the value of the expanded basic bundle to this company. And we do not believe that there is any reason for us to attempt to take out some of this product, particularly ESPN quickly or right now. In other words, there's time.
If we see that the market dynamics are changing in such a way that it's better for us as a company to take the product out directly and to not only improve our margins by taking out a middleman, but to create a closer relationship with the consumer that can be mined for other revenue generating purposes, then we'll do that. But we think if we were to do that now, it would be somewhat precipitous of us. And it doesn't seem to be any reason to be that way.
Understood. And then Dave?
In terms of your question on cost, let me tell you this Doug. First of all, there are only a couple of bumps left of big upticks in the ESPN programming cost base over the next, let's call it 4 or 5 years. The first one we're in the middle of, which is our new NFL deal, the launch of the SEC Network and start and next quarter in a pretty significant way the BCS College Football Playoffs. And the second big one down the road in 2017 is the beginning of our new NBA deal. Other than those bumps, which as I said, one we're in the middle of, in fact, we gave you some guidance on cost this year that we would be experiencing very heavy ESPN programming costs in the first half of the year and much lighter in the second.
I can tell you that those numbers look like about 25% in the first half of the year and only a flat to 1% increase in the second half of the year. And then there's 17% when the NBA deal sticks in kicks in. So we've told you many, many times, of course, I'm talking about overall cable margins because that's all we speak of. The other than that, we've told you many, many times we don't run ESPN on a margin basis. We won't give you guidance on what the margins will look like, but we expect the business to continue to grow.
We have those periods of year over year or quarter over quarter cost increases. And other than that, we still have high expectations for growth in this business.
Thank you very much.
You're welcome. Doug, thanks for those questions. Operator, next question please.
Alexia Quadrani with JPMorgan. Please go ahead. Thank you. Two questions if I can. First, are you seeing the fantastic momentum in the consumer products business continue past the holiday season?
And how early can we sort of begin see a ramp in front of Star Wars? And the second question sort of a bigger picture question on advertising. You've kind of it looks like you have a strong start to the year around advertising and advertising market? What you're seeing? I think you had mentioned earlier Bob that you see a little bit of flattening out to the share shift to digital.
I guess any color on that?
We can't give you much guidance on consumer products right now except to say that the business that we saw in January was quite strong. And we clearly were seeing some, I'll call it, even post holiday momentum, which is unique in terms of our experience. And I think it speaks to continued demand for our franchises. We've got a great lineup of product in the marketplace this year when you consider Cinderella, which is in March and it's a great film. And clearly, that's a very important franchise for the company.
And then we've got Avengers in May. And then of course 2 Pixar films in calendar 20 15, although we don't know that any one of them will drive significant consumer products and then Star Wars, as you mentioned, Alexia, the end of the year. We're not going to predict whether there'll be a ramp up of buying ahead of Star Wars except that we believe because of the strength of the franchise and the buzz around the movie, which we saw certainly was the case when we put the Caesar trailer out just around Christmas time that we're likely to see some buying in advance of the movie of consumer products. The other thing that I wanted to mention because we've talked a lot about Frozen, you didn't mention it, is that we're coming out on March 13 attached to Cinderella with a 7 minute Frozen short that's just great. That has all the key players, both the voice talent and the character talent and or the characters and a great song.
And we actually believe that's going to generate some more buzz for Frozen and that should generate more buying in terms of consumer products. Maybe Jay and I can maybe both address advertising. Yes. Well, Jay, why don't you go ahead, Jay?
So kind of looking separately at the advertising market for ABC and the advertising market for sports. Let me start with the latter. The Q2 marketplace seems to be improved on the sports front. And with the powerhouse lineup of rights that we have in the sporting events that we have in Q2, particularly around the college BCS, college football playoffs, we are going to be able to take advantage of that uptick in the sports marketplace in Q2. On the ABC front, I think that we're not seeing any radical change in the market from what we've talked about in past quarters.
Again, we are very, very happy with the lineup of shows that we've introduced both on the drama and comedy side. We have more of those coming into the market. And so we're hopeful that we can also take advantage of the dollars that are out there
side. And one other thing to add, I spoke to the Head of ESPN sales this morning. There haven't been that many new car launches in the last number of months. I know that one of the big automotives just recently just released results, which were quite positive. We think there's some real potential, particularly for ESPN and the automotive category, which has not been a hot category.
If you watch the Super Bowl, there weren't that many automotive spots in the Super Bowl, for instance. But that's rest of the year for ESPN as car companies roll out more new models, which they haven't been doing.
Thank you very much.
Alexia, thanks for the questions. Operator, next question please.
David Bank with RBC Capital Markets. Please go ahead.
Okay. Thanks. I have two questions for whoever is willing to answer them. The first one is a follow-up on the last question actually. I was a little surprised at the revenue or the advertising revenue declines at ABC in that this is one of the most successful seasons to date that I can remember for ABC 18% to 49%, I think you're flat to marginally up.
You're really sort of outperforming the rest of the industry. And I would think with the modicum of pricing, you would have had stronger growth. So maybe looking for a little bit more color there. And the second question is, can you give us Jay, can you give us the actual change year over year in total sub count at either ESPN or what you'd call the expanded basic bundle? Thanks very much.
Okay.
Advertising question. So to recap, scatter pricing was up in the market and overall ad sales as you said were down as ABC sold fewer units this year compared to last year. And the lower unit sales can be attributed to a number of factors and I think the combination is a combination of those factors had an impact on this quarter making the advertising sales numbers lower. And those are related to the length of the show, how the shows are written, the number of promotional spots we put in the shows as opposed to sold spots, the number of ads we insert into the programs and how we use inventory in the quarter to manage our make good liability. And that those all combined to deliver notwithstanding the ratings we had the relative ratings we had this season to slightly depress our advertising revenue.
Look, I think ABC is extremely well positioned this year relative to its peers. We expect a tightening of inventory as the year progresses. And I think we are well positioned to take advantage of the market conditions hopefully as they improve in the course of the year. On the subscriber side, I'm not going give you any help there. We don't talk about subscribers.
We don't we can't give you any guidance there. So I'm sorry about that.
Can't blame me for trying. Thanks very much guys.
David, it was a good effort. Thanks for the questions. Operator, next question please.
We have Todd Juenger with Sanford Bernstein. Please go ahead.
All right, thanks. Let me take an effort at looking a little longer range at the parks, if I may. So as the fruits of the Slea of Parks Investments projects are now, I think, successfully rolling in and Shanghai's grand openings in sight, I wonder if you're at a stage where you're ready to share with us anything on your thinking about the future horizon beyond that. I know you won't announce any specifics, but just generally, are there types of opportunities that you could generalize that you find particularly interesting at the top of your list? Are there certain things that you've considered and rejected?
How should investors think about your appetite to continue expanding your parts program? And then the second follow-up, J. D, if you could just remind us how you're thinking about leverage with all the growth in EBITDA and cash flow. I don't think you've issued much debt lately. So just remind us how you think about leverage as you move through the year?
Thanks.
Todd, in terms of the parks, I think what you have to consider is that we're in construction to build a sizable Avatar presence in Avatar Land at Animal Kingdom in Florida that's slated to open sometime in 2017. We have a fair amount of design development work going on right now to greatly increase, this is no surprise, Star Wars presence in multiple locations around the world. We'll have more details probably about that later on in 20 15. The plans are ambitious and so it's going to take some time for them to actually be built and open. But let's just say that we've got big plans for it in Hong Kong and Shanghai, obviously Shanghai has yet to open.
So it maybe would sound somewhat premature, but the size of the land that we have there, the expansion opportunities in a market that we think is just perfect for a Disneyland experience suggests that once we open, it's just the beginning in terms of variety of offerings that we'll be able to provide. And then of course, to well, the franchise that we talked about earlier, which is Frozen. But I think that actually says a lot about other franchises too. There are clearly more opportunities to mine some of these great franchises across the parks. And when you go to Imagineering, there's an embarrassment of riches, so to speak, in terms of stories and characters that the Imagineers have to draw from to create great park experiences.
And I think one of the things that we're seeing now in our parks and one of the reasons why the results were so strong across the board Christmas time is that there is definitely a halo effect that consumers have for Disney based on all of these franchises. And it's not just what exists in the parks. I think you have to include Marvel and you have to include Star Wars as well. The brand strength has never been stronger. The array of franchises has never been greater.
We've said we've got 11 franchises that are going to generate $1,000,000,000 this year enthusiasm for the brand and enthusiasm for the park experience that we provide that gives us not only ample opportunities to create from all of that, but for consumers to basically engage with us in more ways and more places than ever before.
Todd, in terms of the balance sheet and our overall perspective on leverage, I guess I'll say that we've been we're very happy with our balance sheet. We're very happy with our strong rating in the debt markets at all three agencies. And it really is a strategic asset for the company whether you look at our average cost of debt, the amount of subscription we get to any debt issuance we put out, the rates at which we're able to manage our working capital through commercial paper. And of course, the ease with which we can we have thought about and executed on acquisitions without a concern about the impact of those transactions and potential transactions on our rating and on our having the debt capacity to do that. So I think in general, I don't expect you shouldn't expect a radical change in that strategy.
It doesn't mean we won't be in the debt markets this year. But I would expect that you'll continue to see a balance sheet that reflects kind of the strategic use of not being strategic positioning of not being overleveraged on the operation of our company and our ability to go to the capital markets.
That's very helpful. Thank you both.
You're welcome. Todd, thanks for the questions. Operator, next question please.
Ben Slinger.
Two questions for either of you. The first one on consumer products. Can you help put Frozen into context for us now that you have a year, a calendar year behind you, including the holidays where you had the inventory where you wanted to? I think years ago, we thought cars was the high watermark in terms of annual revenue contribution. But can you tell us whether Frozen has now exceeded that growing licensing contributor year in, year out irrespective of whether there's film product.
Any comment on the margins too? I think your incremental margins at CP were in the almost 80% range. So any color on profitability would be really helpful. And then I just wanted to make sure that the cable guidance was reconfirmed the high single digit OI guidance. Jay, if you just could confirm that that would
be great.
Thanks. Okay. Let's start with your consumer products question. So look, I don't think that we can underestimate the impact that frozen has had across our company and all of our businesses. But I don't think it would be right to take from that the implication that even our consumer products business was overly dominated by the frozen franchise this quarter.
You asked whether we think frozen has to put words in your mouth, do we think Frozen has legs? We absolutely believe that this is the beginning of a long term franchise for the company and that will reflect itself in all of our divisions, consumer products certainly not the least of which. But even if you look at the last quarter, many other franchises were contributors to the success of the consumer products division, by the way, not the least of which was Mickey and Minnie, the Disney Channel franchises. And we like what Frozen delivered, but it's not it's certainly not the one and only for us. We have 11 franchises that now retail at over $1,000,000,000 as of the last year.
So our consumer products business really has a lot of breadth in addition to depth. And we're only beginning this year to see what the event what the Avengers and overall Marvel franchises are going to deliver, which has also been a huge contributor. And I think if you look down the road, you can imagine that we'll be adding Star Wars to that pantheon in a very, very significant way with the release of that film. So it's a broad based business and I think that Frozen will continue to play a big part in it. But I wouldn't make the mistake of thinking that is to say dominant force that you have to worry about repeating year on year in the consumer products business.
In terms of margin, obviously, the licensing business is incredibly highly leveraged. But I think the real margin story for this past quarter has been the Disney Stores business, where we saw increases both in the physical brick and mortar stores in all of the 3 regions we operate which is Japan, Europe and North America as well as the online business in those three regions. So we've I would venture to say and I think I'm right about this, we had historic margins in that business this past quarter and it was a big contributor to the margin story for consumer products. Your second question was about
High single digit. Yes.
Yes. OI growth guidance for domestic cable. And I'm only going to repeat, we don't give quarter to quarter or annual guidance on that, but I'm going to reassert what we said back in April last year at our Investor Day that fiscal 2013 to 2016 we are expecting high single digit growth in Cable OI and we still are on target to achieve that.
Thank you.
You're welcome. Thanks for the questions, Ben. Operator, next question please.
Jason Bazinet with Citi. Please go ahead.
Two very quick ones. You mentioned $1,300,000,000 of buybacks in the quarter $1,400,000,000 fiscal year to date. Was there anything that would cause you to be out of the market? Or in other words, if you're in our shoes, do you think we should be moderating our buyback for the quarter? And then second, we've been surprised at the strength in international inbound flights into the Orlando airport, particularly in light of the stronger U.
S. Dollar. Do you guys have any hypothesis for why international visitors would be up so much? Thanks.
Okay. On buyback, I guess I'll say this. I'm not going to really give you much guidance on this, but we remain committed to returning capital to shareholders as we have been through dividends and buybacks. You know this year we announced a very significant increase in our dividend of 34%, bringing it up to $1.15 and that happened in this quarter. And I wouldn't focus too much on the 1st couple of weeks of this fiscal quarter as an indicator or any kind of guidance as to where we will wind up on the entire fiscal year relative to buyback.
So I don't have any big news for you. Our dividend is almost $2,000,000,000 that we paid out in quarter 2. And I think you have to look at return to capital return to shareholders in aggregate, which is the way we think about it. Your second question on arrivals, so I don't think that we know or have seen an impact on international arrivals due to exchange rates. I've said for many, many quarters the overall range of our international business is between 18% 22% of total attendance at our domestic parks.
Q1 is usually on the low end of that range. It was again on the low end of that range this year. And I think that if there's going to be an effect of the varying exchange rates around the world, it will take a while. And if those exchange rates affect the economies from which our international business is sourced, we might see an impact. But as of yet, we have not seen that.
And actually quarter to quarter year on year there wasn't a huge change in our international business between fiscal 2014 and fiscal 2015.
Thank you very much.
You're welcome. Thanks a lot Jason. Operator, next question please.
Anthony DiClemente with Nomura. Please go ahead.
Thanks very much. I have one question for Jay first and then one for Bob. Jay on the Broadcasting segment, this has been 4 straight quarters of operating income growth. In addition to the raise resurgence at ABC, presumably retrans and affiliate comp are a big part of that growth. So I wonder if you could help us with the shape of the trajectory of retrans and reverse comp over the next 2 or 3 years?
And maybe even as part of that give us an update as to what you're annualizing on that on this either in 2015 or on an annual basis? And then for Bob, just on acquisitions, when Disney first made the acquisition of Maker Studios, you said that you saw it 1st and foremost as a distribution platform. And at a high level, I was just wondering if you could give us your thoughts on vertical integration or your updated thoughts, particularly vertical integration and digital? How does a more vertically integrated acquisition like Maker compare strategically for you to more horizontal acquisition in content like Lucas or Marvel? Thanks.
Okay. Let me start with your broadcast question. We have said in the past that we it by fiscal 2015 to be in the $400,000,000 to $500,000,000 range in terms of retrans. Well, it's $15,000,000 and we're there. We will be there comfortably, but I'm not going to update any further than that.
On the overall broadcast business, I think that we've been saying for many, many years that our play in this business is to be the creator and owner of great shows. And those shows pay back in the aftermarket when we sell them either to other networks in the syndication or increasingly sell them to other distributors. And that's what you're seeing in our broadcast results this quarter. It is exactly strategically where we want to be in this business. And the fact that we have shows on the network today that are being incredibly well received, have legs and are rating well is a very good indication for where we can be in this business.
To respond
to the question about vertical versus horizontal acquisitions and Maker, first of all, Maker's results in terms of consumption, number of videos streamed since the time that we bought them has been up substantially, just huge growth. And what that tells us is really what our instinct was when we bought them and that is that we were really interested in compelled by substantial increase in consumption of short form video and digital platforms. We had consumption of short form video on our own digital platforms like ESPN.com, Disney.com, ABC, But we didn't have the kind of traction or the kind of traffic that Maker had. We thought this would be a great opportunity for us to distribute much more effectively in the short form in short form. It also was entree into a world of creativity that we thought we could tap into, particularly when we allow those that are creating in that space access to our franchises and our brands.
So kind of a combination of things. It was just distribution expertise that we did not have as much as we thought we should and certainly production and creative expertise that we thought we could use. And it was I think a unique acquisition opportunity for us again given all the growth in short form consumption. I don't think it necessarily suggests a direction in terms of where we're heading as a company overall. The power of this company largely is in its brands and storytelling and the creativity that runs cross platforms and is often distributed by 3rd parties, whether they're movie theater owners, big box retailers, or MVPDs to name a few, or new platforms like Netflix and Amazon and Hulu.
So I think you'll the primary thrust of the continue to be investing in its brands and its creativity and selling as broadly as we possibly can. But we like being in new space as well. And one last thing that I think this is going to loom larger and larger in terms of Disney's future and we touched upon it a little bit earlier today is that I think this company needs to focus more on creating a tighter or closer relationship to its customers for a variety of reasons, not only to mine customer data and usage and obviously create revenue opportunities from that, but to provide customers with experiences that they want and demand basically to be even more user friendly, more customizable, more personalized. That's really important in terms of the long term future of this company. And you'll see it various initiatives that are aimed at achieving just
Thank you very much.
Anthony, thank you for the questions. Operator, I think we have time for one more question today.
We have David Miller with Topeka Capital Markets. Please go ahead.
Hey, guys. Congratulations on the stellar results. Just a couple of offbeat questions, I guess, I'm going last year, so a few of the obvious questions were taken. Bob, just first of all, I'm surprised you didn't call out the delay in Shanghai. I guess you can't really call it a delay.
Is the sort of postponement of the opening just due to you want to open this thing kind of coinciding with the Chinese Lunar New Year in the spring? Or were there other nuances? And then I have a follow-up. Thanks a lot.
When we signed the contract for Shanghai and when we broke we said publicly that we were targeting the end of 2015 as an opening day, targeting, which I think is important. We obviously were embarking on a very large fairly complicated project, one of the largest we've ever engaged in, probably one of the largest ever in China. After we opened, we decided that the opportunity existed in China and specifically in Shanghai to build something even bigger with more attractions and basically more capacity so that we could handle more guests. And so not only did we design, but we agreed with our partners to build approximately $800,000,000 more in capacity, which obviously added to the scale of what we're building. So now that we are well into construction and we released a great believe that targeting the spring actually was more than targeting, we plan to open in the spring of 2016 is much more opportune for us given the size of what we are doing, what we are building and the complexity of it.
And given the fact that the weather is better in the spring and as you said David it is after the Chinese New Year where we expect there would be huge demand and it's a bit easier to open after that than right before. And I think I might have misspoken on it. I meant after we broke ground we decided that we'll build larger, not after we opened. And so we've got a great project unfolding. I was there the week before last.
And every time I go, I'm just amazed at the scale of it and the variety and the uniqueness of this. And I continue to believe heavily in the opportunity that we've got to bring a great Disneyland experience to the most populous country in the world. And my enthusiasm has only grown for it, but because we're building something bigger. And we like spring versus winter than spring of 2016 it is. And we probably will be more specific about an opening date, I'm guessing sometime in the middle of this year.
Okay. And just a brief question on inside out. And there's just some mild confusion here, just albeit just not that much confusion. But was Inside Out and this is just I'm just asking out of personal curiosity was Inside Out original Disney IP that sort of got transferred over to Pixar and Pixar kind of took it over or was that from the very beginning original Pixar IP that we're going to see next year? Thanks a lot.
No, that's Pixar homegrown, actually grown from the mind of the great Pete Docter, who directed and created UP and Monsters prior to that. And it comes out in June? June. June of this year. No, totally Pixar through and through.
Thank you very much.
All right, David. Thank you for those questions. 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 ks and in our other filings with the Securities and Exchange Commission. Thanks again everyone for the time today and this concludes today's call. Bye.
Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.