Walt Disney Co (The) (DIS) — Q2 2015 Earnings Call Transcript

Good morning and welcome to The Walt Disney company second-quarter 2015 earnings call. Our press release was issued earlier this morning and it's available on our website at www.disney.com/investors. Today's call is also being webcast and we will later post the webcast and a transcript on our website. Joining me in Burbank for today's call are Bob Iger, Disney's Chairman and Chief Executive Officer; Tom Staggs, Disney's Chief Operating Officer; and Jay Rasulo, Senior Executive Vice President and Chief Financial Officer. Bob, Tom and Jay will each make some comments and then, of course, we will be happy to take your questions. So with that, let me turn the call over to Bob and we can get started.

Thanks, Lowell. Good morning, everyone, and thank you for joining us. We appreciate your flexibility and your understanding. We're very pleased with our performance in Q2 with adjusted EPS of $1.23, up 11% over the prior year. Our results once again reflect the strength of our brands and the quality of our content. These key elements are evident in the phenomenal opening of Marvel's Avengers: Age of Ultron. Released in about 70% of international markets so far, the movie opened number one in every single market. And in the process, it broke a number of box office records. As of this morning, the movie has surpassed $650 million in global box office, which speaks to the popularity of these characters and the enduring connection that millions of people have with them. In fact, the three top movies with the highest-grossing opening weekends of all time are Marvel's Avengers, Avengers: Age of Ultron, and Iron Man 3. Of course, when it comes to franchises that inspire tremendous fan devotion, Star Wars certainly sets the standard. We unveiled the second teaser trailer for Star Wars: The Force Awakens a couple of weeks ago and the reaction was unprecedented. The excitement around this movie is unlike anything we've ever seen before. The new trailer had more than 88 million views in the first 24 hours and now has more than 200 million views to date. So that gives you some sense of the tremendous interest and excitement around this film, which should only intensify as we get closer to the December 18 release date. We're also looking forward to the grand opening of Shanghai Disney Resort, which is just about a year away. We've been very selective about sharing specifics so far, but this summer, we'll unveil a number of details that will give everyone a true sense of how spectacular this authentically Disney, distinctly Chinese destination will be. And I'm looking forward to seeing our progress when Tom and I go back to Shanghai in just a few weeks. Speaking of Tom, this is our first earnings call since he was named Chief Operating Officer. Before Jay covers the financial details, I'd like to ask him to take you through some of the highlights across our businesses. Tom?

Thanks, Bob, and good morning, everyone. It's great to be back in an earnings call with all of you. With my move back to a corporate role, we're pleased to have Bob Chapek running parks and resorts. He's been working his way around the world to get an in-depth understanding of the business, and he is off to a great start to continue his strong performance. Later this month, he'll help us officially kick off the celebration of Disneyland's 50th anniversary, the park that started it all, and we plan to mark this historic milestone in true Disney style, including a fantastic new parade, a new World of Color show, and a new Firework Spectacular, among other features. Looking ahead, we have plenty of reason for excitement across the entire company, starting with an incomparable slate of upcoming movies. In addition to the ones Bob mentioned, we also have Disney's Tomorrowland, starring George Clooney, in theaters later this month. Paul Rudd takes on the role of Marvel's Ant-Man in July. We're also thrilled to have two new Pixar movies coming to theaters this year. Inside Out opens on June 19 and it's already generating a lot of well-deserved buzz and excitement. And we're looking forward to even more great Pixar storytelling when The Good Dinosaur opens at Thanksgiving. Our media networks group is home to some of the strongest brands and content in the business, which consistently drives demand and value in the market. ESPN continues to invest in extraordinary programming and innovation to super-serve sports fans. In Q2, this unparalleled sports coverage drove double-digit audience growth on ESPN and ESPN2. And the total average audience across ESPN's compelling suite of sports networks was up 9% for the quarter. On the broadcast side, ABC has 7 of the top 20 series this season, including 3 of the top 5 dramas. It has also achieved greater growth in the key primetime audience of adults 18 to 49 than any other major network. In a recent survey, media buyers and planners identified ABC as the network having the most impressive year, a good sign as the network kicks off the upfront sales season next week. We're also extremely pleased with the instant success of Daredevil, the first of four live-action series produced for Netflix by Marvel Television and ABC Studios, which further demonstrates the power, breadth, and value of the Marvel Universe. Just two weeks after the first 13 episodes launched to great acclaim and strong demand, Netflix ordered a second season. This initial success bodes well for the three other upcoming serialized programs on Netflix: Marvel's Jessica Jones, Iron Fist, and Luke Cage, as well as the planned miniseries event uniting all these characters into a shared story line. Our consumer-products business also had a great quarter, driven by the continued popularity of our strong franchises, especially Frozen and Avengers. Retail sales for Frozen merchandise so far this year are more than 10 times higher than the same period last year. And sales of new merchandise for Avengers: Age of Ultron indicate strong global demand. We expect the release of The Force Awakens to accelerate growth of the Star Wars franchise. As we just announced, we're planning a global event on September 4 to launch new merchandise inspired by the upcoming movie with retailers around the world and online kicking off sales of the new line at midnight, with a unique celebration of all things Star Wars. We're also very excited about the November release of Star Wars: Battlefront, an incredible new action title from EA for core gamers based on epic Star Wars battles set in new landscapes featured in The Force Awakens. This game and other upcoming initiatives demonstrate that Star Wars, like Marvel, represents a storytelling universe that can cut across platforms and mediums throughout our businesses and have a profound effect on our growth and profitability for years to come. Obviously, we have a lot to look forward to throughout the rest of this year and beyond. We're pleased with our results in Q2 and remain confident that our proven strategy can continue to drive value and opportunity well into the future. With that, I'll turn the call over to Jay to walk you through the details of the quarter.

Thanks, Tom. Good morning, everyone. Second-quarter earnings per share, adjusted for items affecting comparability, were up a solid 11%, driven by a 7% increase in revenue. Media networks revenue was up 13% and operating income was down 2%, as lower operating income at cable more than offset strong results at broadcasting. At cable, while total revenue was up 11% due to strong growth in affiliate and advertising revenues, operating income was down 9%. This decline was driven by higher programming and production costs at ESPN due to the College Football Playoff and NFL wild-card game at the Disney Network. As you know, fiscal 2015 is the first year of the new College Football Playoff and the first time ESPN has aired an NFL wild-card game. So as we expected, cable programming and production costs were up significantly in the second quarter. We continue to expect relatively flat programming and production costs in the second half of the year, so our full-year outlook is unchanged. We still expect programming and production costs to be up low teens percentage points for fiscal 2015. Domestic cable affiliate revenue was up low double digits in Q2, benefiting from contractual rate increases, the SEC Network, and lowered deferred affiliate revenue at ESPN. The increase in domestic cable affiliate revenue includes a year-over-year benefit of $40 million, as ESPN did not defer any affiliate revenue in the second quarter this year compared to $40 million in Q2 last year. Adjusting for the timing of deferred revenue, domestic cable affiliate revenue was still up 10%. And just to remind you, ESPN didn't defer any revenue during either Q1 or Q2, resulting in an aggregate year-over-year affiliate revenue benefit of $176 million for the first half of the year compared to the prior year. This benefit will be reversed during Q3, which means ESPN will recognize $176 million less in deferred revenue in Q3 compared to last year. And for those of you who have followed us for many years, you will be happy to know that Q3 will be the last quarter in which we need to discuss programming covenants and their impact on revenue recognition. Due to contractual provisions and ESPN's new affiliate agreement, ESPN is no longer required to defer a portion of its affiliate revenue. Turning to advertising, ESPN ad revenue was up 18% in the second quarter due to higher rates and increasing units sold. Ad revenue at ESPN benefited from the strong interest in the first-ever College Football Playoff and our NFL wild-card playoff game. So far this quarter, ESPN ad sales are pacing down a few percentage points compared to the prior year. So keep in mind that ad revenue in Q3 of last year benefited from the World Cup. Broadcasting operating income increased 90%, driven by an increase in affiliate revenue, higher program sales, and an increase in ad revenue, partially offset by higher marketing costs at the ABC Network. The growth in affiliate revenue was due to contractual rate increases as well as new contracts. Program sales were up in the second quarter, driven by the sale of Marvel's Daredevil and by higher sales of ABC Studio shows, including Lost and Once Upon a Time. Ad revenue at the ABC Network was up mid-single digits in the quarter as a result of higher primetime ratings and higher rates. Quarter-to-date scatter pricing at the network is running low single digits above upfront levels. At parks and resorts, operating income was up 24% net on revenue growth of 6% due to higher results at our domestic operations, which were partially offset by lower results at our international operations. Total segment margins were up 230 basis points. During the second quarter, growth in operating income at our domestic operations was driven by higher guest spending and attendance at our domestic parks, sales of vacation club units at Disney's Polynesian Villas and Bungalows, and higher pricing at the Disney Cruise Line, partially offset by higher costs. For the quarter, attendance at our domestic parks was up 2% and per capita spending was up 7% on higher ticket prices and an increase in spending on food and beverage and merchandise. Occupancy at our domestic hotels was up 2.5 percentage points to 89%, and per-room spending was up 6%. So far this quarter, domestic resort reservations are pacing up 7% compared to prior-year levels while book rates are up 2%. At Studio Entertainment, revenue and operating income were down in the second quarter, given very difficult comps due to the impact of Frozen in the prior year. We continue to be very pleased with the performance of the Studio slate, as Q2 was one of the best quarters in the Studio's history. Lower operating income at the Studio was driven by decreases in domestic home entertainment and international theatrical distribution, both of which reflect the record-breaking performance of Frozen in the prior year compared to Big Hero 6 this year, partially offset by higher revenue per share from consumer products. Consumer product segment operating income was up 32% on revenue growth of 10%, which is net of consumer products revenue share for the Studio. Margins were up over 600 basis points in Q2, reflecting continued strength in merchandise licensing which was driven by Frozen and, to a lesser extent, Avengers. On a comparable basis, earned licensing revenue in the second quarter was up 23% over last year, which underscores the strength, depth, and breadth of our licensing portfolio. At interactive, higher operating income in the second quarter was due to lower marketing and product development costs, driven by fewer titles in development and higher results of our mobile games business, which continue to benefit from the success of Tsum Tsum. These increases were partially offset by lower performance of Disney Infinity. During the second quarter, we returned an aggregate $2.4 billion in capital to our shareholders, consisting of $485 million for share buybacks and a dividend of almost $2 billion. Fiscal year to date, we've returned about $3.9 billion to our shareholders via dividends and buybacks, including roughly $2 billion of share repurchases. And with that, I'll turn the call back to Lowell and we'll be happy to take questions.

I have one for Bob and then a follow-up for Jay. Bob, can you help us with this? We've seen Disney's networks on Sling TV, but the same networks are not on Sony's new platform. And then there's a dispute with Verizon over their mini bundle. So I wonder, could you share with us your perspective on the factors and the principles that guide your willingness to work with new MVPD offerings?

Sure, Michael. As you'd expect, when we look at these new offerings, we look at a couple of factors, namely do they have strategic value to the company and are they beneficial to us financially? We also like to analyze the packages in terms of what we believe they offer customers, because we believe that navigation has become really critical. On that note, by the way, the reason we like navigation is the better the navigation, usually the better the consumption. Poor navigation usually leads to less consumption. In the Verizon case, we were simply asking them to adhere to the contract that they had negotiated with us. In general, as it relates to skinny packages, we've been, for the most part, at the forefront of offering consumers more choice, because we believe that we've entered into an era where the consumer has more authority and therefore is going to demand more flexibility and more customization. But it's also clear that the price-value relationship is important. Consumers still want a lot of choice at the right price. Sling's case was mostly of interest to us because their strategy was to go after the roughly 12 million broadband-only households in the United States with a skinny or a less expensive package. So we thought there was value there from a strategic and a financial perspective. In the Sony case, I don't have to get into many details, but simply put, it wasn't to our advantage financially. But again, overall, we think new entrants into the distribution marketplace are good for us. I will say that I have not seen many so-called skinny packages, except for the Sling package, that I think is particularly attractive to consumers in terms of the price-to-value relationship. And I think the last thing that needs to be said is that when you unbundle, particularly from your broadband service, there are going to be hidden costs. For instance, if you buy an expanded basic bundle, you get broadband with it. If you buy a skinny package, you have to pay extra for broadband and that cost goes up substantially. So I think one of the questions that has yet to be answered is what savings or how large the savings have to be for the consumer to essentially abandon the expanded basic package and the choice that it gives for some less expensive package with far less choice. And are there other cost ramifications, like the one that I just cited? So again, the jury is still out on a lot of this. No question that there are changes going on in the media landscape, although we do not see a disturbing trend as it relates to the expanded basic bundle. And we're going to continue to evaluate these things based on the criteria I just mentioned.

And for Jay on broadcast. In the past, you guys stated that retrans would be somewhere between $400 million and $500 million. You reaffirmed that last quarter. But given the strength of results now, I wonder could you update us on retrans? Is it going to be larger than that range now that we've seen these results?

We previously stated a goal a few years ago, and we are quite confident that we will exceed that goal in our total retrans. Looking at the second half of the year, we expect retrans and license fee revenue to be similar to what we've experienced in the first half. However, in terms of growth, the new deals we've secured will lead to significantly greater growth in the first half compared to the second half.

It seems like MyMagic+ has really improved capacity at Disney World. And you've had a number of record attendance quarters lately. I guess how much can you continue to see those gains? And any color on how international visitors may have trended in the quarter?

Sure, Alexia. So as you know, MyMagic+ has had an impact, especially as we've now started to anniversary the startup costs that we had there. It really is integrated into the total Walt Disney World guest experience. So it's difficult to say just how much it contributed because it's so integrated, but it clearly was a contributor to results. We've got roughly half of our guests now entering the parks with Magic Bands, and the response from those guests has been overwhelmingly positive. So we're very pleased with that. MyMagic+ will still be a factor going forward, but perhaps not with this great an impact as we've seen just in this quarter, as it becomes even more integrated into the base experience. Looking forward, I think that we're most excited about what we see in terms of the prospects outside of the United States with the opening of Shanghai Disney Resort next year and that should drive growth well into the future. Having said that, though, we saw strong international attendance this year at our domestic parks. There's no question that those results have been strong. And the top-line growth, coupled with the close management of the expense line, has resulted in strong growth and we hope to see our results continue there.

And just any update you can give us on plans to further incorporate Star Wars into the parks?

Well, nothing specific to announce, although I think, as Bob mentioned on the last earnings call, we're working on development of potential plans. And it's something that we look for as likely a factor in our development in the future, especially as we look into future years.

I have two questions. First on Star Wars, this is a franchise unlike any other, obviously. We've never seen anything like this. So could you talk broadly about your strategy to drive consumer interest? It seems like there's a frenzy already, but can you just talk about the ramp-up to December 18 on a global basis? Because there's a whole generation that wasn't born for the last round of films. And I know Tom mentioned the consumer products phase. So if you could just expand on what you're doing leading into December 18.

First of all, it's important to recognize that this franchise is already very strong. However, it has been a decade since the last film was released. We are aware that there is a whole generation that may not be as familiar with the Star Wars lore or as emotionally connected to the franchise as older fans. Additionally, there are global markets that have changed significantly since then, with China being a prime example, now the second-largest movie market. When the last Star Wars film came out, it was still developing as a movie market. We are taking a careful approach to our marketing strategy to reach this new generation and explore new markets, while ensuring that we don't oversaturate the market too quickly. Our efforts so far have been intentional, and we have a well-structured plan for what we will introduce in the market, both in terms of products and marketing. For instance, releasing the six films on digital platforms this past April was a thoughtful step to make them available worldwide for the first time. Although we have started to increase our product presence in the market, a significant ramp-up in consumer products will occur just a few months before the film's release. We've already discussed upcoming games, with EA making an announcement at Star Wars Celebration. You can expect more game-related activity leading up to the film's release. Overall, we are committed to a carefully designed marketing plan that will gradually introduce elements of the film as we approach the release date. We've been amazed by the level of interest generated so far. When we acquired the franchise, we anticipated strong interest, but the response has exceeded our expectations. For example, the two teaser trailers have received over 80 million views in just 24 hours, and hundreds of millions overall. We are excited about the film and can’t wait to share it with audiences worldwide. We believe it has the potential to create significant value for the company for years to come. Additionally, I want to highlight that we have three films planned for release by May 2017: Star Wars VII: A Force Awakens in December, Rogue One, the standalone film, a year later, and Star Wars VIII in May 2017. All three films are at different stages of development and production. As Tom mentioned, there’s also major potential for our parks and resorts. We have had successful attractions like Star Tours in various locations, and we see tremendous opportunities in the U.S. and around the globe that we are currently developing.

My second question is about advertising. How different will the upfront be this year, given the measurement issues and changes in guarantees and the onset of programmatic buying? How are you approaching that?

We are focusing on creating a solid schedule at ABC, which has shown strong development. There remains a traditional interest, particularly among the 18-to-49 demographic, and to a lesser extent the 25-to-54 demographic, with notable interest in women aged 18 to 49 and an increasing interest among those aged 18 to 34. We are aware that secondary viewing, including DVR and streaming on demand, is on the rise. ABC is excelling in this area with multiple shows that are performing well in both SVoD and DVR playback. ABC had a successful season, being the only network that saw an increase, thanks to the introduction of new shows like Black-ish, How to Get Away with Murder, and Fresh off the Boat. They recognize that addressable advertising is poised for growth, as it offers more tailored opportunities for advertisers to reach their target audiences. They will also continue to prioritize content from their own studio. We have been effective in featuring more ABC-owned shows on the network, and this should remain true for the upcoming season. Our company has the capability to create programming for various television platforms, as demonstrated by the Netflix and Marvel collaboration. In the television landscape, we believe the network is well-positioned and that the growth of new media will persist, allowing us to capitalize on it. Overall, we anticipate that the advertising upfront market will perform well for our network and company. It’s clear that we are witnessing a shift in the advertising landscape, with funds moving from traditional media to new media, which is a key reason for our interest in this area. Lastly, approximately 16% of our revenue this year is generated from advertising, which remains a significant amount, although our exposure to these market changes is lower compared to many other media companies.

This question is directed at Bob primarily, but I would like to hear everyone's thoughts. It's a follow-up to Michael's earlier question. I believe Disney has embraced change in the evolving ecosystem as much as possible over the past decade. We have conducted some analysis on the lighter OTT bundle. If we consider that cost relates to the value added for the consumer, the majority of the value in a product like Sling mainly comes from the Disney bundle, particularly ESPN. When you look at it this way, Disney has the capability to mirror the general entertainment content in Sling, excluding the ESPN product. It seems feasible to replicate what's in Sling. If that is successful, why not launch your own direct-to-consumer product? If the goal is to target broadband-only homes, you could do that yourself and create the best interface. When is the right time to execute that? Thank you.

I don't believe there's a definitive answer regarding the timing. However, we have stated that through our channels and brands such as ESPN, ABC, Disney, and potentially even related to Star Wars and Marvel in the future, we have the capability to deliver our products, particularly filmed entertainment, television, and movies, directly to consumers. We are currently working on some developments to make this happen. Nonetheless, distributors like cable and satellite companies, as well as emerging platforms, also provide significant value for us. They are already engaged in customer acquisition, have invested substantial capital in building their platforms, and effectively manage consumer relationships, including billing and technology aspects. Thus, they contribute to our overall value and assist in marketing. There is a balance to be struck here. As long as the existing distribution ecosystem continues to be beneficial for us, we will depend on it for our product distribution. When we determine that our ability to distribute directly surpasses or is more advantageous than that of others, we will pursue that avenue more vigorously. No other company is as well-positioned as we are to do this, thanks to the strength of our brands. I found your analysis to be quite insightful, David. I read most of it—it was comprehensive and well articulated, even if lengthy. Some aspects were particularly thought-provoking. In fact, the earlier comment I made regarding unbundling broadband was influenced by your analysis, which I appreciate. We are stepping into an intriguing landscape where technology is mostly a friend to high-quality media, providing us with numerous opportunities to reach customers, either directly or through third parties. We see this as a new era in many respects due to the impact of technology on media, one that will ultimately be very advantageous for our company.

I'd like to come back to more of a traditional television environment a little bit, for whoever would like to comment. Would just love your thoughts on you and your partners at A&E and your thoughts on what might be going on there. Ratings are not, I'm sure, where you want them. Would love to hear your thoughts on how much you think of that as structural, how much of it is specific content-related or cyclical, and thoughts on how you might plan to turn that around. And also any comment on whether we expect to see anything material from that, good or bad, in earnings. And I have a quick follow-up. Thanks.

As you know, A&E and Lifetime is a 50-50 joint venture with Hearst, so obviously it is a value to us because of its size and impact on the bottom line. But we rarely comment about it or we rarely speak for them, I should say. What we do know about A&E's ratings is that they were highly driven by and dependent upon the success of Duck Dynasty. Those ratings have definitely decreased, and that is, I think, having some impact. But we really believe in the direction of A&E led by Nancy Dubuc and know that she's addressing the issue in many, we think, very positive ways. Generally speaking, we're quite bullish about our business in the future. It remains a good brand.

Todd, not a driver for the quarter, by the way.

Okay, thanks. A quick follow-up on something you do fully own and control, then, if you don't mind, which is turning to the kids' side. There's obviously been a massive dislocation in traditional advertising GRPs targeted at kids. You happen to have the leading kids' properties and networks right now. Anything you can do to take advantage of that dislocation, either through traditional or nontraditional means? Thanks.

Well, the Disney Channel doesn't sell advertising in the United States, so we're far less vulnerable to some of those shifts. Disney XD, we do sell advertising in. I mentioned earlier that advertising is only 16% of our revenue, which I guess on the big base is still a big number, but not as significant to our company as it is to others. We think that the opportunity in kids' programming for us is to continue to leverage the brand and the intellectual property that we have to drive increased consumption, which will, in our case, probably generate revenue that's more on the subscription side or, so I'll call it, the video-on-demand or pay-per-view side. That also, by the way, will drive other revenue at the company, whether it's the theme parks or consumer products.

I have a question for Bob and another for Tom and Jay. Bob, I'd like to hear your thoughts on virtual MVPDs and their long-term impact on the ecosystem in a specific way. Sony Vue and Apple TV can operate their virtual bundles at minimal margins since they use your software to support their core hardware business. The advantage is they can offer better prices to consumers while paying you more for the same bundle. However, if they aren't running those businesses for profit in the long run, could their interests start to conflict with those of programmers, and might companies like Sony or Apple gain negotiating power over programmers that current traditional distributors lack? I realize it's still early, but you tend to have a forward-looking perspective on digital matters. Now, for Tom and Jay, I find it challenging to forecast the financial performance of the Star Wars franchise and Shanghai Disneyland. Could you assist investors in understanding the potential financial contributions of these assets? What comparables or metrics can you share to give us some insight into their financial impact? Thank you.

So Doug, regarding virtual MVPDs, I appreciated your question about Shanghai and almost overlooked the initial inquiry. We have significant leverage because of these channels. Frankly, I don't believe anyone can effectively start a distribution business without the channels this company possesses. Whether those channels are operated as loss leaders doesn't really affect us. Generally, new players in the market will create fresh opportunities, either by attracting more consumers or providing a consumer experience or price-to-value ratio that surpasses existing distributors. Overall, I see this as a positive dynamic for us. Also, I mentioned earlier about navigation. If a product emerges with a superior user interface, that's beneficial for us. If our product is more easily found, utilized, and enjoyed, I believe it will lead to increased consumption. That's why it's not solely about pricing for us; the overall experience matters. As for Shanghai, I’m not sure—Jay and Tom, do you want to take this?

I represent Shanghai, as Bob mentioned. We're really excited about the developments happening there. You can expect to see an increase in preopening costs over the coming quarters leading up to the opening, which will continue into 2016 with a spring launch. From that point, we won't make specific predictions, but we will work towards profitability after the opening. The significant positive impact from Shanghai Disneyland will be more noticeable in the years following 2016. At the same time, as we've discussed in previous calls, the potential there is remarkable. Establishing a presence in China is expected to create a ripple effect throughout our other businesses as we strengthen the brand.

Would you be willing to entertain a question around the cadence to reaching some normal level of margins for that park? Is it something that gets to breakeven relatively rapidly or does it take a long time?

It's not something we want to provide specific guidance on at this point.

I have a question for Bob and then a follow-up for Jay. Sticking with the theme of leverage over distributors, but turning to the film business, you've had tremendous revenue growth, but you had even more tremendous margin expansion in film. Putting up these huge box office numbers and big margins is tough to do. I wonder, Bob, if you could talk about what you've done and what Alan has done at the Studio to drive costs down or margins up. Should we be thinking that you guys are going to get 60% splits with the exhibitors for these large tent pole films, as discussed in The Journal today? Because that has a 10 point improvement from the standard 50%, which has a pretty profound impact on the profitability of these films. Is there any implication for the international splits where they're always typically lower? Are you able to exert a similar leverage on the international front?

We have clearly developed a successful film strategy that creates significant value for theater owners both in the United States and globally. With our strong lineup including Disney, Pixar, Marvel, and Star Wars, our discussions regarding payment rates and splits are influenced by the films we release. I prefer not to disclose specific details about potential increases or the nature of these discussions. I want to highlight the considerable investment this company has made in its motion pictures, which is reflected in the value we provide to theater owners. Our approach, guided by Alan Horn, has been to concentrate on our core brands and acquire others with similar strengths. We focused on enhancing the Disney brand, particularly in animation, which led to the acquisition of Pixar. We also invested in Marvel because of our confidence in that brand within the film industry, and of course, Star Wars. Alan’s role is to manage these brands effectively on the motion picture side and ensure the studio prioritizes quality. The results since his arrival have been remarkable; he is an exceptional movie executive with a deep understanding of the business and outstanding management skills. Our recent successes in this sector are partly due to his experience and talent. We are committed to our brands and continuously improving product quality. We aim to deliver value not only to Disney shareholders but also to distributors globally. The growth we’ve experienced in this business in recent years is a testament to this strategy, and we expect it to persist. Looking ahead, we have a strong lineup with Marvel films like Iron Man and Captain America, two more Avengers films, along with Black Panther and Captain Marvel. On the Star Wars front, and in animation, we have exciting projects from both Pixar and Disney Animation, including two films from Pixar this year, Inside Out and The Good Dinosaur, marking the first time we’ve released two Pixar films in a single year. Additionally, we have Toy Story IV, Incredibles 2, Cars 3, and Finding Dory. With such a strong portfolio, we anticipate significant growth for the studio over the next five years.

Ben, I can't provide specifics on the individual businesses that contribute to our cable affiliate revenue. However, I want to emphasize that the launch of the SEC Network was one of the most successful in cable history, and we are very pleased with its progress and the way fans have welcomed this new network, particularly considering it represents one of college football's top conferences.

I just have a question for Mr. Iger. I suspect a lot of the acquisitions that you've made over the years were sort of at least in part influenced by your view of how the video ecosystem would change. So I'd just be curious to get your comments in terms of how do you see it evolving relative to your prior expectations and what do you think we can expect next? Thanks.

Well, I actually think, Jason, I guess my view about the world in general as it related to those acquisitions wasn't specifically related to what you just cited, but it was I guess more related to looking at a world that was going to expand in terms of its voracious appetite for quality content and brands. I thought technology was going to be more friend than foe in terms of offering us opportunities to reach customers, either directly or through third parties. I also thought technology was going to give us the ability to make better products, whether it was at theme parks or on the filmed entertainment side. I thought markets were going to develop that were going to create compelling opportunities for us. I think China is a great example of that, whether you look at it from a Shanghai perspective or whether you look at it from a movie perspective. I just thought the value of high-quality intellectual property in the entertainment space was only going to increase because of various developments in the world. It was that simple. I saw in Marvel and Pixar and Star Wars/Lucas great intellectual property in known and valued brands that were only going to benefit from the changing dynamics in the marketplace. We felt we would be great stewards of because of the stewardship we had of the Disney brand over decades.

All right, thanks, Jason. Thanks, everyone for joining us today and for accommodating the change in the schedule. We will be around all day to answer any follow-up questions. 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 conference call may constitute forward-looking statements under the securities laws. We make the statements on the basis of our views and assumptions regarding future events and business performance at the time we make them. 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 good day, everyone.