Walt Disney Co (The) (DIS) — Q2 2019 Earnings Call Transcript

Good afternoon, and welcome to The Walt Disney Company's Second Quarter 2019 Earnings Call. Our press release was issued about 25 minutes ago, and it's available on our website at www.disney.com/investors. Today's call is also being webcast, and a transcript will also be available on our website. Joining me for today's call are Bob Iger, Disney's Chairman and Chief Executive Officer; and Christine McCarthy, Senior Executive Vice President and Chief Financial Officer. Bob will lead off, followed by Christine, and we will then be happy to take your questions. So with that, I will turn the call over to Bob, and we'll get started.

Thanks, Lowell, and good afternoon, everyone. We're pleased with our results in Q2, which were impacted by our acquisition of 21st Century Fox in late March as well as our ongoing investment in our direct-to-consumer business. But I'd like to start by mentioning the phenomenal success of Avengers: Endgame, which continues to exceed even our highest expectations. After delivering the biggest opening of all time, the movie has generated almost $2.3 billion in worldwide box office to date, making it the second-highest grossing film of all time, after just 2 weeks in theaters. We've also been extremely pleased with the reaction to our Investor Day presentation, which offered an in-depth look at our DTC plans, including additional information regarding ESPN+ and Hulu as well as a detailed look at the content interface and pricing for Disney+. And I'm happy to announce that Avengers: Endgame will be available on Disney+ on December 11, just a month after we launched the service. While the initial response to our DTC efforts has been gratifying, we're not taking anything for granted, and we continue to leverage our creative engines across our company to ensure we deliver a strong value proposition to consumers. We're expanding into the DTC arena with tremendous excitement and optimism, confident that the indelible connection we've built with billions of people over a century of great storytelling gives us an advantage in the marketplace and provides a strong foundation for success. This is the first earnings call since our 21st Century Fox acquisition closed, and I'd like to give you a quick summary of our integration and consolidation efforts across the company. From the beginning, we analyzed this acquisition through the lens of our new strategy. When we first considered the deal, we had just announced our DTC initiative, and we saw tremendous value in the Fox assets in terms of expanding our ambitions and enhancing our potential for success. And as you saw on Investor Day, we're already moving forward in that regard. In addition to Fox's tremendous wealth of content, we now have a deep bench of experienced industry leaders across the entire company, a veritable all-star team of proven management talent who embraced the Walt Disney company strategy and are working in concert to execute it. In our media business, the senior leadership from Fox are now in place, including Peter Rice who's running the Walt Disney Television group; and Dana Walden, who's running our television studios as well as managing the ABC Network and owned stations. John Landgraf with FX is looking for opportunities to increase the production capacity at FX to support our DTC businesses. Uday Shankar is running all of our non-parks businesses in India and Asia-Pacific. And Jan Koeppen is head of our media and DTC businesses in EMEA. Last week, we elevated Alan Bergman to co-chair of our studio and entertainment group, and he and Alan Horn are focused on integrating and managing the combined studio businesses. Emma Watts from 20th Century Fox is now part of their senior leadership team focused on making movies for theatrical release as well as for our DTC platforms, including major titles such as Ford V. Ferrari, James Cameron's next Avatar films, and Steven Spielberg's West Side Story. Fox Searchlight, run by Nancy Utley and Steve Gilula, is another creative engine that has defined itself with unique high-quality films. The further we get into the integration process, the more impressed we are with the value of the assets, the quality of the talent, and the opportunities we're able to create. National Geographic is a prime example. We're already working with National Geographic to explore the brand's potential across the company from creating content for our DTC business to eco-travel adventures and merchandise for our Parks, Experiences, and Product business, and there's a strong alignment with our ongoing environmental and conservation efforts. Looking forward, we've got a very busy year ahead, including a number of major developments in our parks and resorts. We're breaking ground on a significant expansion at Tokyo DisneySea on the 21st, which will add new themed areas and attractions to that park. And we're looking forward to the grand opening of Star Wars: Galaxy's Edge at our Disneyland Resort on May 31. The excitement around this new land is unbelievable and will only grow once people have a chance to experience it for themselves. As we've said, it's the largest land we've ever built, but the sheer audacity of the creativity and technology is even more impressive than the size. Disney World is getting its own Galaxy's Edge on August 29. Turning to our studio, our incredible film slate for 2019 is now even more ambitious as a result of our 21st Century Fox acquisition. The movies we'll release between now and Christmas include: Aladdin, The Lion King, and Maleficent: Mistress of Evil, from Disney; Pixar's Toy Story 4; Frozen 2 from Disney Animation; and Star Wars: The Rise of Skywalker, as well as Dark Phoenix, Stuber, The Art of Racing in the Rain, Ready or Not, Ad Astra, Woman in the Window, Ford V. Ferrari, and Spies in Disguise from the Fox Studios. Needless to say, this is clearly an exciting time for our entire company. I'm now going to turn the call over to Christine to talk about our quarter, and then we'll take your questions. Christine?

Thanks, Bob, and good afternoon, everyone. Excluding certain items affecting comparability, earnings per share for the second quarter were $1.61. As you know, we closed the acquisition of 21st Century Fox on March 20, so our Q2 results reflect the consolidation of the Fox assets, including the impact of consolidating Hulu for the last 11 days of the quarter. Results for 21st Century Fox for the 11 days, which we are reporting as a separate segment, reflect the contribution of $373 million in revenue and $25 million in operating income. We recorded $105 million in purchase price amortization in Q2, which is not included in these results. At Studio Entertainment, lower worldwide theatrical and home entertainment results were partially offset by higher TV SVOD distribution results. As we discussed last quarter, we expected the studio's results this quarter to face a tough comparison given that Q2 last year was the best second quarter in the studio's history. We were pleased with our worldwide theatrical results in the quarter, especially the strong performance of Captain Marvel. However, the year-over-year comparison reflects the outstanding performance of Black Panther and the carryover performance of Star Wars: The Last Jedi and Coco last year. Our home entertainment business also faced a difficulty due to different comparisons given last year’s Q2 titles included Star Wars: The Last Jedi, Thor: Ragnarok and Coco. In total, our worldwide theatrical and home entertainment results came in modestly better than our previous outlook due primarily to the stronger-than-anticipated performance from Captain Marvel. At Parks, Experiences and Products, operating income growth was driven by higher results at our theme parks and resorts and the Cruise Line businesses, and growth of consumer products. Second quarter parks and resorts results reflect an adverse operating income impact of about $45 million due to the timing of the Easter holiday period as both weeks of the holiday period fell entirely in Q3 this year, whereas last year, one week of the holiday period fell in Q2. Despite this headwind, we continued to deliver solid growth at our domestic parks and resorts business. In the second quarter, higher operating income was driven by increased guest spending and attendance at the park and higher occupied room nights at the hotels, partially offset by higher costs. Attendance at our domestic parks was up 1% in the second quarter, and per capita spending was up 4% on higher admissions and food and beverage spending. Per room spending at our domestic hotels was up 1%, and occupancy was up 3 percentage points to 93%. So far this quarter, domestic resort reservations are pacing up 3% compared to prior year, while booked rates are up 2%. Growth at Disney Cruise Line reflects the impact of a 14-day dry dock of the Disney Magic during Q2 last year and higher average ticket prices in Q2 this year. Results at our international operations were higher in the second quarter due primarily to growth at Hong Kong Disneyland Resort. At consumer products, growth in operating income was due to higher results at our games businesses, which benefited from the sale of rights to a videogame and the release of a licensed title, Kingdom Hearts III. These results were partially offset by a decrease in our merchandise licensing business driven by lower minimum guarantee revenue due to the adoption of the new revenue recognition standard, partially offset by a favorable foreign exchange impact. Total segment operating income margin was up about 220 basis points compared to Q2 last year. We estimate the timing of the Easter holiday period had an adverse impact on the year-over-year change in operating margin of about 60 basis points. Margins at our domestic parks and experiences businesses were up about 140 basis points and were adversely impacted by about 80 basis points due to the timing of the Easter holiday period. At Media Networks, operating income was modestly lower in the second quarter as the decline in broadcasting more than offset growth at cable. Total Media Networks affiliate revenue was up 4% in the quarter due to growth at both cable and broadcasting. The increase in affiliate revenue was driven by a 7-point growth due to higher rates, partially offset by a little less than a 2-point decline due to a decrease in subscribers and a 1-point decline due to the adoption of the new revenue recognition standard. At Broadcasting, operating income was lower in the quarter as growth in affiliate revenue was more than offset by higher programming costs, lower programming sales, and a 3% decline in advertising revenue. Quarter-to-date, prime time scatter pricing at the ABC Network is running about 40% above upfront levels. Program sales were lower in the quarter, though came in better than expected since we were able to recognize the sale of season 3 of Jessica Jones in the quarter. Domestic cable results were up in the quarter as higher operating income at ESPN, and to a lesser extent, the Disney Channel, were partially offset by a decline at Freeform. At ESPN, operating income was higher in the second quarter as higher affiliate revenue more than offset higher programming and production costs and lower advertising revenue. ESPN's programming and production costs were higher in the quarter as lower programming costs due to the timing shift of the college football semifinal games were more than offset by contractual rate and production cost increases for ski sports programming. ESPN aired three of the New Year's Six bowl games during the second quarter, similar to last year. However, this year, the two semifinal games aired during the first quarter. ESPN's domestic linear advertising revenue was down about 2% in the second quarter, though we estimate it was up mid- to high single digits when adjusted for the adverse impact of the shift in the timing of the college football semifinal games. So far this quarter, ESPN's domestic cash ad sales are pacing up compared to last year, driven in part by scatter CPMs that are up nicely above upfront levels. Turning to direct-to-consumer and international. Growth at our international channels, which was due to higher affiliate rates and lower sports programming costs, was more than offset by lower results from our direct-to-consumer businesses, which reflect ongoing investment at ESPN+ and Disney+ and losses from the consolidation of Hulu. Last quarter, I told you we expected the continued ramp-up of ESPN+ and ongoing development of our Disney+ service to have an adverse impact on the year-over-year change in operating income for the second quarter of about $200 million, with about two-thirds of that attributable to ESPN+. The actual number came in a little better than the guidance we provided last quarter, driven by timing of expenses. As we look to the third quarter, we expect operating income from our direct-to-consumer businesses to reflect full consolidation of Hulu's results, the continued ramp-up of ESPN+, and ongoing investment in Disney+. As such, we expect our direct-to-consumer businesses to have an adverse impact on the year-over-year change in segment operating income of about $460 million. Overall, we estimate the acquisition of 21st Century Fox to have a dilutive impact on our Q3 earnings per share before purchase accounting of about $0.35. Additionally, we expect about $900 million in purchase accounting charges related to the amortization of intangible assets and the step-up on film and TV assets, which we estimate will impact third quarter GAAP reported earnings per share by about $0.37. We expect these purchase accounting charges to total approximately $1.8 billion for fiscal 2019. And as you can see in our reporting of this quarter's results, we are reporting the impact of purchase accounting outside of individual segment results. I'll now turn the call over to Lowell, and we'd be more than happy to take your questions.

Okay, Christine, thank you. Operator, we are ready for the first question.

Bob, I want to ask you and Christine about Fox now that the acquisition is complete and the streaming Investor Day has passed. Bob, could you provide context for this acquisition? When you consider the deals you've completed in the past, you've often mentioned acquiring strong brands like Pixar, Lucas, and Marvel, which have been successful. This seems like a different type of transaction, but I'd like to hear your thoughts on the biggest opportunity in running this company and integrating it into Disney, as well as potential opportunities looking ahead. Christine, I have a similar question for you regarding synergies and the balance sheet, which you've discussed before. Now that you own the business, could you share your updated views on the timing of synergies and any opportunities you see concerning debt?

Thanks, Ben. To provide some context, during our August earnings call in the summer of 2017, we announced our plan to acquire a controlling interest in BAMTech and to launch Disney and ESPN’s direct-to-consumer service. Shortly after that, Rupert and I began discussions regarding the potential acquisition of 21st Century Fox assets. As we evaluated their value, we did so through the lens of launching direct-to-consumer platforms. This analysis allowed us to carefully consider how we could utilize the content we were acquiring, including the library, brands, and titles, as well as the talent at Fox, which is crucial for us to achieve our direct-to-consumer objectives. Fast forward to our Investor Day, where Uday Shankar discussed our direct-to-consumer business in India—something we hadn’t even envisioned back in 2017. The presence of National Geographic and the announcement of The Simpsons deal are just a few examples illustrating that our vision to assess value through this lens was being realized. I cannot stress enough the importance of talent in this process. We understand that our plans are ambitious, particularly regarding technology management and consumer interfaces, but they are especially bold when it comes to creating original content. Whether in movies or TV—though television takes precedence in the direct-to-consumer space—we require exceptional people to develop programming and oversee the talent necessary to serve consumers effectively on these platforms. What we gained from this acquisition is remarkable, and I am confident in our announced plans and our capacity to execute them because of what we have acquired. It's that straightforward. Comparing these acquisitions to those of Marvel, Pixar, and Star Wars reveals both similarities and differences. Pixar and Marvel, while brand-focused, particularly helped address challenges in Disney Animation. Both Marvel and Star Wars were primarily about their brands and the long-term value of their franchises. Here, we are getting a diverse mix. Along with strong brands like Nat Geo and The Simpsons, we have the potential to enhance these brands by providing them with more resources to create additional products and elevate them within our new platforms. I have previously discussed these brands extensively. In every instance, we have secured great talent, which is clear to us now. Moreover, we have quickly integrated both the assets and personnel into our strategy. If there’s anything that has pleasantly surprised me, it’s how swiftly we've positioned individuals in significant leadership roles within the company, capable of managing our current businesses and guiding them into the future.

So Ben, let me address your questions on synergy and the balance sheet. First of all, regarding synergy, we're still on track to achieve the $2 billion in cost synergies related to the acquisition. Initially, we indicated that you should expect us to realize about half of those benefits by the first full year and the rest in the second full year. Additionally, the $2 billion in cost synergies does not include anything from the RSN, so it is not a factor in our ability to reach this $2 billion in the future. I've also noted, and you will see it in the press release and additional details in the Q, that we recorded some restructuring charges totaling $662 million. We will continue to incur those charges as we work toward achieving those synergies, and you will be able to track this progress on a quarterly basis. On the balance sheet, we significantly increased our debt portfolio. At the close, we had approximately $18 billion of long-term debt. With the additional debt and related positions from other entities, the total debt portfolio rose to about $52 billion. Our treasury group is actively managing this. We executed some bond exchanges leading up to the acquisition's closing. We are managing that portfolio aggressively, as we have always managed our short-term and long-term liquidity and the positioning of our balance sheet. You might also be interested in our leverage, and we have not restarted any share buybacks because we stated we would hold off until our leverage ratios align with those of a single A company. Therefore, for now, you can expect that our share repurchases will be on hold.

Just maybe returning to the parks. It seems like you have so many drivers right now, especially in front of the Star Wars Lands plural openings. So can you give us color on how you're thinking about pricing, particularly given the past year's price increase, which have had no negative impact that we could see on attendance; the timing of the second major attraction at the Star Wars Lands; and maybe some insight into how you're thinking about expanding in China over time? I know attendance has been weak recently.

Okay. Multifaceted question. On the first question, the parks, I'll start with pricing. We have been very strategic at our approach to pricing over the last number of years, and it's really paying off. The results this quarter certainly are evidence of that. And what we're trying to do basically is two things: to price according to demand, and in managing demand try to basically spread out attendance so that we can preserve or improve the guest experience; it's that simple. The popularity of what we've been building, which I think is tied to both the quality and the scale of what we've been building, but also the fact that we've been building attractions in lands and shows that are tied to some of our best stories and franchises, I think has created an even greater demand and more popularity, which gives us more flexibility on the pricing side. But it's not just about raising prices; it's about being really smart about it, and it's showing. We have, as you know, Jessica, a tremendous amount of expansion going on. Star Wars Land is only one of them, and there are two of them, I should say. We're breaking ground on a big project in Tokyo just in 1.5 weeks, for instance, so we're building cruise ships, and we've got expansion just about every place that we operate. Specifically in China, where business actually has been quite good lately, we have announced that we're expanding with the Zootopia Land. I don't believe we've announced the date for that yet, but we're continuing to look at expansion. And right now, our plans for expansion there are solely focused on Shanghai. We've now talked about building at another location at this point. By the way, going back to Galaxy's Edge and Star Wars, the lands, which are attractions themselves, have two e-ticket attractions. One is the Millennium Falcon experience or ride that I've tried a number of times, and it's fantastic. We're opening with that. The second attraction will open later in the year, but we've not said when. And as I've mentioned on my call, the Star Wars Land or Galaxy's Edge will open in Orlando at the end of August. Did I cover all the aspects of that question?

Jessica, I want to add something about margins. Since I've been in this role, whenever questions about the growth in the parks' margins have come up, they've usually been asked in the context of whether this margin improvement can continue. I want to emphasize that while we do not provide guidance on margins, there is nothing fundamentally preventing our margins from growing further. As Bob mentioned, the yield strategy benefits the parks in multiple ways, including spreading demand, enhancing the guest experience, and contributing to profitability. We also see potential for improvement in our international parks business and are effectively managing our costs by deploying capital and labor efficiently. Therefore, we do not believe there are any constraints on our parks' margins at this time.

On the studio side, after the fantastic Endgame, it's kind of hard to imagine there's more to come from Marvel, but I'm sure there is. I guess when do you think we'll get an update on the longer-term slate there? And then a follow-up question, staying on the studio, how much opportunity do you think there is on the film side of Fox, taking their IP and refining it further over the years to the success level more in line with Disney's historical portfolio?

We recently announced a few new Marvel titles, but we haven't disclosed the specifics yet. While there's a lot of online speculation about them, Marvel has not authorized me to share the details as they intend to announce them themselves later this summer. If you've seen Avengers: Endgame, you might have noticed some hints about upcoming movies, but I'm unable to divulge more about that either. When we acquired Marvel, we began analyzing their characters and reached about 8,000 before pausing, but there are plenty of directions we can take. We’ve established a lot of groundwork for various characters and stories, even though some narratives concluded with that film. Additionally, in terms of television, we previously mentioned during our Disney+ presentation that Marvel is developing a series for Loki, as well as Falcon and Winter Soldier, and one featuring Wanda and Vision. All of these projects are closely connected to the film storytelling. We're looking at telling Marvel stories in a way that transcends platforms. While we'll continue to produce major films for theatrical release, these films will also be available on the Disney+ platform alongside the series we create, which is a unique approach. Regarding Fox, there are various opportunities available, especially with our library titles that may not have planned sequels or theatrical remakes that we could explore for Disney+. There’s also significant potential for theatrical storytelling using the Fox brand. Emma Watts is reporting to Alan Bergman and Alan Horn as we develop new projects, inheriting a slate of films currently underway. We are collaborating with her to establish future projects beyond what has already been announced, likely aiming for around five or six films annually, but we won't be confined to that number. Furthermore, Searchlight will continue its operations as usual.

Alexia, before you go, I just want to add one thing on Avengers: Endgame. And I said a very similar thing a year ago as it related to Avengers: Infinity War. Given the size of the cast involved and anyone who's seen it knows that the cast was extremely large, and the cost to produce a film of that scale of magnitude and length, while we expect the results for this film to be terrific, they will be tempered somewhat by the cost structure. And I said the exact same thing as it related to Infinity War.

So one for you Bob and one for your Christine. Bob, at Investor Day, one thing that didn't come was China. And I look at parks you have there and how well Marvel does, how are you thinking about the OTT opportunities for China? And then for Christine, in answering Ben's question, you want to get to a single-A credit; when do you think you'll hit that threshold in the coming years?

Right now, there are regulations in China that may restrict our options for over-the-top services. If we decide to launch something, it will have to be done in partnership with a local entity and involve shared ownership. We believe there are opportunities ahead. For instance, the success of Avengers: Endgame in China, which has already grossed around $600 million, shows the immense popularity of Marvel. We are very interested in bringing Marvel television shows to China as part of a direct-to-consumer offering. Specifically, in Shanghai, we see a significant opportunity for Marvel. We created a temporary setup featuring Marvel franchises and characters when we were initially designing the park, soon after acquiring Marvel. There are great long-term possibilities given the strong affinity in China for these characters. This is a reminder for our parks and resorts team to begin planning and developing a Marvel presence in Shanghai. They're aware of this need.

Our approach to physical discipline remains unchanged, though we are managing more at the moment. Currently, we are in the midst of our long-range planning process, which will be followed by our annual planning. We will work through this over the next few months and expect to have more clarity by the next earnings release. The rating agencies maintain a strong working relationship with the company, especially with the treasury team, and are well informed about our activities, including the integration of Fox. They are currently supporting us at our existing ratings level. We plan to reduce our ratings as quickly as possible while also investing in our businesses to ensure long-term value for shareholders.

Going back to the DTC Analyst Day, I think there was a lot more content available on Disney+ than the Street had been expecting, at least in the first year. So is this just a timing of when the content is flowing in from your contracts? Or did you have to negotiate with third-party distributors to get that content back earlier?

We did some deals, Marci, to get some of the content back that had been licensed to third parties. We continue to explore ways that we might be able to get more back. But what we announced at Investor Day included some of the rights that we've managed to buy back or negotiate back from what had been licensed to third parties. And there's still some out there that we're exploring.

Okay. And then what happens with content in the P2 window? So if you get content from Netflix, does it go back to them? Or do you keep it forever?

I don’t want to get into too much detail, but there was a period in the Netflix agreement that allowed us to access certain films. We were licensing those films to them, and I prefer not to elaborate further. However, when we initially entered into the Netflix agreement, we anticipated the possibility of eventually launching our own service, even though it seemed distant at that time. Therefore, we secured the option to feature some films on that service, and it has proven beneficial.

I guess a couple. First on the KPIs for DTC going forward, just wanted to understand what kind of metrics we should be tracking in order to figure out the progress. I mean, Disney+, of course, doesn't launch until later in the year. But would you be helping us with subscribers on the Hulu front or on the ESPN+ front? And the second question is, when we look at film margins of Fox, that's significantly lower than Disney, and I know you don't manage studios from margins. But the delta is just very big, and it could be a $1 billion-plus opportunity over time on the margin front. So just wanted to figure out how you're thinking about margins on the studio side for film.

Let me first address this sub-question. As we demonstrated during Investor Day, we are committed to being very transparent about our strategy and progress regarding our direct-to-consumer initiative. Although Disney+ has not been launched yet and there is nothing to report at this time, we plan to share subscriber numbers later in the year. While I can't provide an exact timeline, we will communicate these metrics as well as others discussed during Investor Day at the appropriate time. Transparency is crucial for us to help you understand the progress we are making in this business. Additionally, on the theatrical side, we manage our studio with a focus on margins and returns, and we regularly assess those returns, particularly when a film is in its early release period. Ultimately, it is a return-driven business.

And we would hope to bring that same approach, that same discipline to the Fox Studios.

So one for Bob, one for Christine. Bob, for Hulu, does the expansion of your non-Disney+ entertainment content require you to own 100% of Hulu if you want to take that internationally? And so if I ask that right, do you need to own all of Hulu to do Hulu international? And pushing that further, because I imagine you're going to say you don’t need to. Disney+ has numerous advantages. You laid those out at Analyst Day. How do you think about the Hulu opportunity overseas and how that service would be differentiated? And any timing on that? I imagine it will be a couple years before enough content is available. And for Christine, Bob talked about the Fox Film slate coming down to 5 or so films a year ex Fox Searchlight. Fewer films will reduce costs a lot in the Fox Studios side. Does the $2 billion of cost synergies include that sort of bringing down the number of films at Fox? Or should we think about those more as sort of core SG&A and other OpEx-type items?

Doug, first of all, we're bullish about Hulu for a number of reasons, but mostly because as we see it, it's the best consumer television proposition out there because it offers linear channels that include a lot of live news and sports, in-season stacking of network programming, a lot of great original programming, and then, of course, a lot of library beyond just the network library in season that I suggested. With Comcast as basically a 33% owner, any big decisions that are made as it relates to investment or expansion would have to be done with their cooperation. And again, I think we would probably both share a bullish outlook about Hulu, but we can't do it on our own.

And Doug, as it relates to the studio and where it factors in with the $2 billion of synergies, at the time that we announced the transaction, that was the number, and it did include the studio. It included a reduction in output as well as two studios that had a significant amount of overlap. With overlap came redundancies, and that's all part of the cost synergies that we're well on the way of realizing for the studio.

And Christine, if I could just follow up real quick. The $0.35 Fox solution for the fiscal third quarter seems unusually high. Can you confirm that you're still targeting Fox to be accretive by fiscal '21?

As I mentioned earlier, we are currently in the midst of our long-range planning, which is expected to be more detailed than it would have been had we not made this acquisition. We are actively working on this. Any updates regarding the accretion dilution will be communicated at the appropriate time.

Bob, it looks like the NFL's going to move forward with a digital version of the Sunday ticket. Couple of questions from that. First of all, is that a set of rights that could possibly be a good fit for ESPN+? Or are you still sort of focused on second and third-tier rights? And two, does that change your view on, say, the value of the broadcast NFL packages? And then if I could ask just one follow-up, Fox just announced an equity stake in Stars Group to pursue sports gambling and sort of leverage their existing set of sports rights. And I know you’ve said that, that's not something that you had on the drawing board. But as you look out and becomes more mainstream, is that something that you could potentially revisit?

On the gambling front, we have indicated that we will integrate some programming related to it, but we will not be facilitating gambling directly. We aim to offer programming that educates those who are betting on sports, but that is the extent of our involvement. You will see more integration in our programming, but we do not plan to enter the gambling business. Regarding Sunday Ticket, I won't go into detail, but there have been discussions about potential opportunities related to it. Overall, we are very optimistic about the NFL, especially with the great schedule coming up this year, and we believe there are opportunities to enhance our relationship with the NFL.

My question is back on the subject of Hulu, if that's okay. News of AT&T selling out and then some discussion of Comcast considering selling. I just wonder, if you lose any partners, what happens to the content that they are contributing to the platform? Do you still get a lot of that Warner content for a long period of time? Does it fall off? And likewise, if Comcast were to drop off, I'm assuming the answer is they won't do that. But if they were to, what would happen to their content in Hulu?

Warner has sold their stake to us, or AT&T Time Warner sold their stake to us. I can't provide specifics about what was involved, but there are ongoing relationships related to their products, including their channels. Regarding Hulu, we own two-thirds of it. Major decisions require a vote, and we will be mindful of how that is managed due to our fiduciary responsibility to the third-party owner, Comcast, which has a 33% stake. We have confirmed that there have been discussions with Comcast about them possibly divesting their stake. If that happens, there would likely be some ongoing relationship related to programming.

Bob, you talked about China possibly expanding a Marvel land. I've never seen a series as successful as Marvel. I believe you have the rights west to the Mississippi. Is there any thoughts of having a Marvel land in the U.S.?

We're currently enhancing the Marvel experience at Disneyland. I visited the site recently and noticed significant construction activity. I'm not sure if we've disclosed specific details about what’s in the works, but I did see a design concept image online, though I'm uncertain if it was an official release. We have mentioned that there is already a Guardians of the Galaxy attraction since we repurposed the Tower of Terror, and there will be a new Spider-Man attraction included in this expansion. Additionally, we are constructing a Guardians of the Galaxy coaster at Epcot in Florida, where there are stricter regulations than in California. In China, however, we face no such restrictions, so we are planning ambitious developments for Marvel at Shanghai Disneyland.

Alan, thank you. And thanks, everyone, for joining us today. Please note that a reconciliation of non-GAAP measures that we 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, including financial estimates, 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, quarterly reports on Form 10-Q, and in our other filings with the Securities and Exchange Commission. This concludes today's call. Have a great afternoon, everyone.