Walt Disney Co (The) (DIS) — Q4 2019 Earnings Call Transcript

Good afternoon, and welcome to The Walt Disney Company's Fourth Quarter 2019 Earnings Call. Our press release was issued about 25 minutes ago and is available on our website. 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. Following comments from Bob and Christine, we will be happy to take your questions. So with that, I will turn the call over to Bob to get started.

Thanks, Lowell, and good afternoon, everyone. We're now just days away from launching Disney+, a combination of four years of planning, organizational transformation, and a lot of hard work, and we're excited to be on the verge of this new era. We're also pleased to have delivered a solid quarter which Christine will discuss shortly. Before she does, I want to share a few thoughts about our DTC business to give you a sense of the confidence we have in our strategy and to provide a few updates. As you know, we began this process with the acquisition of BAMTech, which gave us the means to implement our DTC strategy, putting us into the market quickly and ensuring we have the technology to deliver a quality experience. Our first effort was ESPN+, which was an immediate hit with sports fans when it launched last year and continues to deliver steady growth. I'm pleased to announce that as of today, ESPN+ has over 3.5 million paid subscribers, who are drawn towards a unique and growing mix of original content like the legendary NFL PrimeTime with Chris Berman, and exclusive live events including UFC, College Sports, domestic and international soccer, and Top Rank Boxing. The UFC 244 pay-per-view event last Saturday delivered one of the ESPN+’s largest live audiences to date. Viewing patterns show ESPN+ appeals to a broad array of sports fans, those who want more of everything, as well as fans who are highly passionate about a specific sport, conference, or team. We believe we have numerous interesting opportunities to expand ESPN+'s live and original program offerings and to steadily grow subscribers. As I've said, our acquisition of 21st Century Fox was largely driven by the value it brought to our overall DTC strategy, adding a number of critical elements including control of Hulu, which opens numerous growth opportunities domestically and internationally. We also gained a large library of quality film and television content along with additional filmmaking capabilities and the industry's best TV production studios, great talent, great brands, and franchises like Nat Geo and FX along with Simpsons and Avatar. This collection of IP and talent will contribute significantly to Disney+ and Hulu. With that in mind, beginning in March, Hulu will become the official streaming home for FX Networks. As I've mentioned on previous calls, FX is a producer of high-quality, award-winning content and will become a key content driver for Hulu. Since 2014, FX has earned 277 Emmy nominations and 157 Emmys. The awards FX has garnered come from programming that is recognized for its quality and its boldness. The Hulu and FX teams have been collaborating to develop an exciting strategy to bring the full breadth of FX content and production capabilities to Hulu subscribers with the introduction of FX on Hulu. FX on Hulu will include all seasons and more than 40 FX series and will offer episodes of current and new FX series immediately after they air on the linear network. Additionally, FX will produce original series exclusively for FX on Hulu, starting with four new series in 2020; Devs from Alex Garland, Mrs. America starring Cate Blanchett, A Teacher starring Kate Mara, and The Old Man starring Jeff Bridges and John Lithgow. This is a great way to expand the FX brand and an important step for Hulu as it adds original content to compete more aggressively with new and legacy DTC platforms. The FX presence on Hulu combined with original production from our ABC and Fox Television Studios and our Fox Movie Studios including Searchlight will greatly enhance Hulu's consumer proposition. Turning to Disney+, in preparation for the U.S. launch, we tested the technology in the Netherlands, giving consumers free access to a curated collection of library content, and we've been very pleased with the results, including the technical soundness and reliability of the platform. The user feedback has been extremely positive with praise for the elegance and ease of the interface and the quality of the overall experience. The ability to download the content has also been a big hit, and the brand-centric navigation has generated an elegance and an ease of use that was well received by users. The viewing patterns in the Netherlands test were encouraging. Even without access to our full library or any original content, the service connected with users across all four quadrants, male and female, adults and kids, driven by the breadth of our content and the affinity people of all ages have for it. Disney+ launches in the U.S., Canada, and the Netherlands next Tuesday, with Australia and New Zealand coming online November 19. Today, I'm pleased to announce that on March 31st, Disney+ will launch in markets across Western Europe, including the UK, France, Germany, Italy, Spain, and a number of other countries in the region. At launch, Disney+ users will have immediate access to more than 500 movies including all of our beloved titles and more than 7,500 episodes of library television content, including 30 seasons of The Simpsons. By year five, this growing collection will include more than 620 movies and more than 10,000 television episodes along with countless shorts and features. As planned, we first conceived this service, all creative engines across our company, including the teams at Disney, Pixar, Marvel, Lucasfilm, National Geographic, Disney Channel, and Walt Disney Television studios, are focused on creating compelling original content for Disney+. At launch, we will offer 10 original movies, specials, and series exclusive to the platform, including The Mandalorian. The first live-action Star Wars series is unlike anything the audience has seen before on any platform and it's a strong indication of the quality and the storytelling that will define Disney+. We recently screened a significant portion of the first episode of The Mandalorian for press, and the extremely positive reaction is driving tremendous buzz around this extraordinary series ahead of its debut on Disney+. Within a year of launch, the amount of original content on Disney+ will increase to more than 45 series, specials, and movies and will expand to more than 60 original projects per year by year five. In addition to creating a phenomenal product, we're supporting the launch of Disney+ with an unprecedented marketing campaign drawing on every existing connection The Walt Disney Company has with consumers. It's a historic effort to raise awareness and drive demand, one that reflects our all-in commitment to the strategic initiatives and our determination to launch big and scale fast. We're also very pleased with the consumer enthusiasm we're seeing, as well as the interest from partners like Verizon, which is now offering a three-year Disney+ subscription for many of its customers. Consumers can directly subscribe to the service for $6.99 a month or $69.99 a year at disneyplus.com. Starting November 12, they can access the service through a growing variety of partners and platforms including Apple, Google, Microsoft, Sony, and Roku. Today, we're pleased to announce additional distribution partnerships with Amazon Fire, Samsung, and LG. Disney+ will also be available in a bundle with ESPN+ and ad-supported Hulu for $12.99 a month. We spent the last couple of years completely transforming The Walt Disney Company, making strategic acquisitions and organizational changes to focus the resources and immense creativity across the entire company on delivering an extraordinary DTC experience unlike anything else in the market. With the launch of Disney+, we're making a huge statement about the future of media and entertainment and our continued ability to thrive in this new era. I'd like to take this opportunity to publicly acknowledge and sincerely thank the technical and creative teams along with countless others across our company who invested their tremendous talent and a lot of time and effort in creating an exceptional DTC experience that is worthy of the Disney name. I talk a lot about the inevitability of change and our ability to both drive it and adapt to it. It's part of Disney's DNA and it helps keep us relevant to each new generation while also creating new opportunities for growth. It's exciting and exhilarating. On the eve of launching one of our most ambitious initiatives to date, I am more confident than ever in our strategy and in our ability to execute effectively to deliver compelling value to our consumers and shareholders. I'm going to turn the call over to Christine to talk about our performance in the quarter and then we'll take your questions. Christine?

Thanks, Bob, and good afternoon, everyone. Excluding certain items affecting comparability, earnings per share from continuing operations for the fourth quarter were $1.07. We are pleased with our results this quarter and how we closed out the fiscal year. Our core businesses delivered another solid year of financial performance; we continue to make meaningful progress in integrating the 21CF businesses, while making significant investments to drive future growth. Our studio had another great quarter and a phenomenal year. In the fourth quarter, operating income was up 79%, driven by growth in worldwide theatrical due to the performance of The Lion King, Toy Story 4, and Aladdin in the quarter compared to Incredibles 2 and Ant-Man and the Wasp last year. The increase in operating income was partially offset by about a $120 million loss at the 21CF studio business, which was driven by the performance of Ad Astra, The Art of Racing in the Rain, and Dark Phoenix. The loss from the 21CF studio business was about $100 million higher than the loss we estimate the business generated in Q4 last year. At Parks, Experiences, and Products, operating income was up 17% in the quarter driven by higher results at Consumer Products and at our domestic parks and experiences business. Consumer Products operating income was up 36% due to growth in merchandise licensing, as a result of strong revenue growth from sales of Frozen and Toy Story merchandise. At Parks, our strategy of managing yield to drive greater profitability and enhance the guest experience continues to pay off. Operating income at domestic parks and experiences was up 13% driven by growth at Disneyland on higher guest spending and an increase at Disney Vacation Club. Results at Walt Disney World were comparable to the prior year, as increases in guest spending, occupied room nights, and attendance were offset by higher costs associated with the launch of Star Wars: Galaxy's Edge. Domestic parks and experiences margins were up 70 basis points in the quarter. I'll note that Hurricane Dorian had an adverse impact on Walt Disney World, which we estimate impacted the year-over-year change in domestic parks and experiences margins by about 80 basis points. Attendance at our domestic parks was comparable to the fourth quarter last year, and reflects the impact of Hurricane Dorian, which we estimate adversely impacted attendance growth by about 1 percentage point. Per capita guest spending was up 5% on higher admissions, merchandise, and food and beverage spending. Per room spending at our domestic hotels was up 2%, and occupancy of 85% was comparable to the fourth quarter last year. Results at our international operations were comparable to the fourth quarter last year, as operating income growth at Disneyland Paris and Shanghai Disney Resort was largely offset by about a $55 million decline at Hong Kong Disneyland, as circumstances in Hong Kong have led to a significant decrease in tourism from China and other parts of Asia. Based on the trends we saw in Q4 and what we are seeing so far in Q1, we expect operating income at Hong Kong Disneyland to decline by about $80 million for Q1. If the current trends continue, we could see a full-year decline of approximately $275 million versus fiscal 2019. On the domestic front, we expect Q1 revenue growth at our domestic parks and resorts to benefit from a full quarter of Star Wars: Galaxy's Edge at Walt Disney World and the December opening of Rise of the Resistance at Walt Disney World. However, the revenue growth will be partially offset by meaningful cost growth driven primarily by operational expenses associated with Galaxy's Edge and higher labor expense due to the impact of higher wages under new collective bargaining agreements. So far this quarter, domestic resort reservations are comparable to the prior year. We believe some guests are deferring to Disneyland and Walt Disney World until the complete opening of Galaxy's Edge at those respective locations. I'll note that awareness and intent to visit are strong. Booked rates at our domestic hotels are currently pacing up 5% versus this time last year. Turning to Media Networks, operating income was down 3% due to declines at cable and broadcasting, though results came in better than what we expected at the time we reported Q3 earnings. Lower cable results reflect a decrease at ESPN, partially offset by the consolidation of the 21CF cable businesses. At ESPN, higher programming and production costs driven by contractual rate increases for NFL, College Sports, and MLB programming and higher marketing expenses related in part to the launch of the ACC Network more than offset growth in affiliate revenue. ESPN's domestic linear advertising revenue was down 2% in the fourth quarter and so far this quarter, ESPN's domestic cash ad sales are pacing up 3% compared to last year. At Broadcasting, results in the quarter were adversely impacted by lower program sales compared to last year. We sold two Marvel series, Dare Devil and Iron Fist during Q4 last year, and we didn't have comparable sales in the fourth quarter this year. We also had lower sales of Black-ish in the quarter compared to last year. The difficult program sales comp coupled with higher programming expenses at the ABC Television Network and lower TV station ad revenue were largely offset by the consolidation of the 21CF broadcasting business and higher affiliate revenue. Ad revenue at the ABC Network was up modestly in the quarter; quarter-to-date prime time scatter pricing at the ABC Network is running 47% above upfront levels. Total Media affiliate revenue was up 18% in the fourth quarter and reflects the consolidation of 21CF and growth at both cable and broadcasting. The increase in affiliate revenue was driven by 15 points of growth from the acquisition of 21CF and 7 points from higher rates, partially offset by a 4-point decline due to a decrease in subscribers. Results at our Direct to Consumer & International segment reflect the consolidation of Hulu and ongoing investment at Disney+ and ESPN+, partially offset by the consolidation of the 21CF international cable businesses. Results at our direct to consumer businesses had an adverse impact on the year-over-year change in segment operating income of about $600 million. ESPN+ had a little over 3.4 million paid subscribers at the end of the fourth quarter and Hulu had approximately 28.5 million paid subscribers. Overall, we are pleased with our fourth quarter and full year results and with the progress we're making on integrating 21CF. The 21CF businesses we acquired excluding 21CF's stake in Hulu and net of inter-segment eliminations contributed approximately $130 million in segment operating income in the fourth quarter. Consolidating Hulu’s operating losses and netting out inter-segment eliminations resulted in an adverse impact to segment operating income of about $170 million. We estimate the acquisition of 21CF and the impact of taking full operational control of Hulu had a total dilutive impact on our Q4 EPS before purchase accounting of $0.47 per share. Before I conclude, I'd like to highlight a few additional items, such should help frame our fiscal 2020 first quarter and full-year results. First, we expect our Direct to Consumer & International segment to generate about $800 million in operating losses for the quarter. We expect the continued investment in our DTC services, specifically Disney+, which will launch in just a few days, and the consolidation of Hulu to drive an adverse impact on the year-over-year change in segment operating income of our direct-to-consumer businesses of approximately $850 million. At the studio, we are very excited for the release of the much-anticipated sequel to Frozen and the final film in the Skywalker saga, Star Wars: The Rise of Skywalker. We expect the theatrical performance of these films to be key positive drivers of Studio’s Q1 results. However, we expect the results to be partially offset by an operating loss of about $60 million at the 21CF film studio. While 21CF's performance will not be reflected in our prior year results, we estimate that the 21CF film studio generated about $30 million in operating income during Q1 of fiscal 2019. I'll note that we don't expect a material increase in studio profitability in the first quarter from licensing the legacy Disney Studio Library to Disney+. We estimate the acquisition of 21st Century Fox and the impact of taking full operational control of Hulu will have a dilutive impact on our Q1 earnings per share before purchase accounting of about $0.30 per share. We still expect the acquisition to be accretive to EPS before purchase accounting for fiscal 2021. We expect consolidated CapEx in fiscal 2020 to be $500 million higher than in the prior year. The increase in CapEx is primarily due to increases at DTCI and Corporate. Lastly, I'll note that our fiscal 2020 calendar will contain an extra week of operations. So our Q4 and full-year results will benefit from the 53rd week. With that, I'll now turn the call over to Lowell, and we would be happy to answer your questions.

Okay. Thanks, Christine. And operator, we are ready for the first question.

Thanks, good afternoon. Bob, I want to ask you about two of the most important brands in the company, Marvel and Lucas, and how we should think about the contribution of those businesses or those studios over the next couple of years? I mean there's been a lot written about what's happening on the Star Wars fronts. I'd love to get your thoughts there and on Marvel sort of in the post-Avengers world. How you think about mining that IP broadly for the company? What should we be expecting a bit of a gap period in terms of contribution over the next couple of years? And then Christine, one of the things that happens when you give us a lot of guidance, as we come back to; hence, I wanted to ask you about the numbers you gave us at Investor Day for 2020, in particular around Disney+. I think you talked about $3 billion of OpEx, you talked about Hulu peak losses of $1.5 billion in '19 and ESPN+ losses of $650 million. I'm just wondering if any of those numbers we should be thinking have moved around materially or if those are still decent places to be thinking about? Thank you, guys.

When considering Marvel and Star Wars, we view them as more than just films and franchises; we see them across various businesses with different creative approaches. For both, while films are still being developed and produced, there is significant activity on the television side. Star Wars has three series in different stages of production and more in development for Disney+, while Marvel has numerous projects ongoing. Although Star Wars 9, set to release this December, will conclude the Skywalker Saga, there will be a hiatus before the next Star Wars film, during which creative activity will persist. In Marvel's case, even in the post-Avengers landscape, films featuring Avengers characters are still being produced, such as Black Widow and Thor 4, among others. We are also exploring characters like Eternals. Overall, we view these ventures as film and television businesses that drive consumer products and have an increasing presence in parks and resorts. We are optimistic about both the creative and commercial trajectories.

And Ben, this is Christine. On the guidance question regarding the guidance that we provided in April at the Investor Day, it's fair to say that all of the guidance, and that goes across the three platforms, Disney+, ESPN+, and Hulu, is still as it was. We haven't made any changes to that. Having gone through the planning process for fiscal '20, we feel really good about fiscal '20 and achieving the goals that we've set.

Great, thank you.

Hi, thank you very much. I have two questions regarding the streaming aspect, if I could. First, can you share any insights on the early sign-ups for Disney+, even if it's just general information? I'm not expecting specific numbers this early on. Secondly, could you discuss the advertising potential of your other streaming services, particularly Hulu, which seems to have reached significant scale, and ESPN+, which has experienced substantial growth as well? I understand you've also recently increased the pre-roll ad loads there. How significant do you think the advertising side could be for your company?

Well, Hulu is a significant driver of advertising revenue and we will continue to be particularly as we grow Hulu out to essentially the guidance that we had given back in Investor Day. That basically ad-supported Hulu has very high ARPU, which is one of the reasons, Alexia, that it's being bundled with ESPN+ and Disney+ for that $12.99 price, because the value of an ad-supported Hulu subscriber, given the advertising revenue that it drives, is very, very high. ESPN, there are also opportunities for growth, but probably the biggest opportunity is on the Hulu front. On your first question, just in terms of color regarding Disney+ and presales, we're not giving any specifics. Consumers were drawn to basically the marketing messages that we had out there, which is a reaction to the brands and the content, both library product and original product that's coming. Clearly, the price was met with great enthusiasm from consumers, not just the single month price but I guess what we are really selling was the three-year subscription, which is a big deal for us in terms of lowering churn. We're still relatively small in terms of the scope of things in terms of the number of subscribers. But I think the best way for me to characterize it would be to say that we are enthusiastic about what we saw the consumer reaction to be. We certainly feel good about the product that's going into the marketplace next week and we'll know a lot more in just a few days. But it was good. I should also say, I said in my comments, the Netherlands launch was very, very positive as well. What was positive there were a few things: not just the fact that there was enthusiasm for the service but we had a good sense about how people were using it and what people were using it. The demographics were far broader than a lot of people expected them to be. This is well beyond kids and family; clearly, this is a four-quadrant product, with adult men and women as well as kids' families watching or using the service. We also saw that people's interest in the product itself was very, very broad meaning across all of the brands, it wasn't a specific and that also bodes very well; we learned that some of the features including the 4K, the HDR movies were very, very popular. The fact that you can have four concurrent live streams is also very popular, the personalization was also quite popular, and most importantly, the ability to download without restriction was very, very popular.

Thank you very much.

Alexia, thanks for the questions. Operator, next question, please.

Thanks, Bob. I have a couple of questions about Hulu. In your comments today, you mentioned that Fox Searchlight movies will be available on Hulu. Does that indicate the source of all movies moving forward? Is this a strategic change for Fox studio and the film division? Additionally, you also mentioned international Hulu. Can you provide an update on the international expansion of Hulu based on your earlier comments?

On the international front, we will share more information after the beginning of the year as we work on formulating our strategy regarding market timing. It's a complex process because we need to ensure that we have the appropriate products for each market and that they are locally relevant and compliant with regulations. Therefore, I don't have much more to share at this time. Clearly, there are opportunities that we plan to pursue. I briefly mentioned Searchlight during the call; they are developing original content specifically for Hulu. Searchlight and the Fox movie studios have an existing output deal with HBO that lasts for several more years. It’s possible that this output will eventually transition to Hulu, but it's too early to make predictions. As you know, Michael, I primarily discussed our significant FX presence on Hulu, which includes FX producing original exclusive programming and moving the FX library, consisting of around 40 series and over 1,600 episodes, onto Hulu. Additionally, we will make current FX shows available on Hulu just hours after they air, similar to how we handle traditional network shows.

Thanks a lot.

Thanks, Michael. Operator, next question, please.

Thank you very much. Bob, we know you predicted the Disney+ subscriber count in the office pool, but I wanted to ask about sports. You mentioned that changes are necessary and that sports should evolve since they are primarily viewed live, which ties into effective monetization. You're actively pursuing ESPN+, so I would appreciate any insights on how ESPN+ fits into the future of sports. Christine, are you planning to provide separate disclosures for U.S. and international Disney+ subscribers in the future? Additionally, I'm interested in how Fox's execution may scale throughout the year. Will it improve progressively or will there be more discrete improvements in fiscal '21? Thank you.

Doug, the answer to your first question is, I'm not aware that there is an office pool. If there is, I’m not participating in it and I don't intend to. On the sports side, as I look at it, ESPN+ is teaching us that the opportunity for the company with sports is probably multi-platform. What I mean by that is, I think you continue to see ESPN available through essentially the multi-pack, multi-channel bundle on cable and satellite platforms; you'll see it available on a direct-to-consumer basis on ESPN+, which we intend to grow both in terms of the product that is on and obviously in terms of the subs. I think you're likely to see more sports on ABC as the value of live grows on the live linear channels. So as we look long-term in sports, we look at basically making sports available to the consumer on the live traditional network on ESPN and on ESPN+. We think that would be a good way not only to reach more consumers but to monetize costs like the acquisition of sports program rights in the best possible way.

So your question on subs and what will be disclosing on a go-forward basis. As we said at Investor Day, and all the conversations we've had with analysts and investors since then, we intend to be very transparent as it relates to our DTC business and the sub counts are going to be something we know people will be interested in. So we will be providing, by the different platforms, subs by those platforms; and because we'll be launching domestically, obviously, we expect Disney+ domestically to have a head start on any of the international markets. But as we go into the international markets, recognizing that it's not a big bang approach to launching all at the same time, there will be a roll-out there, but we'll give you enough guidance so you can look at the success of the rollout.

I mean on the Fox Solution, the pacing during the year, or is it a step function improvement into fiscal '21, or is there a sort of a linear improvement in Fox Solution throughout fiscal '20?

So what we said about Fox dilution is we are reiterating that we will be accretive in fiscal 2021, and we haven't gone into any more specifics.

Thanks, Doug. Operator, next question please.

Hi, I have a couple of questions about Disney+. Can you discuss your plans for further third-party distribution? You haven't mentioned anything regarding Pay-TV operators. What are the main trade-offs with these third parties in terms of billing and data access? Will subscribers come through your apps, allowing you to access the data? Also, regarding the parks, you noted lower attendance at Disneyland in your press release, which is somewhat surprising. Are consumers waiting for the second Star Wars attraction? Additionally, your price increases over the past year have been on the higher end historically. Can you share your outlook for pricing in the next year or two? Thank you.

I'll address the second part of your question first. We view price increases at the parks not merely as increases, but as part of a broader strategy aimed at enhancing yield management. Our goal is to improve the park experience by distributing demand more evenly, making products more affordable during off-peak times, and raising prices during peak periods to control crowd sizes. We believe there have been some delayed visits to Galaxy's Edge at both Disneyland and Disney World, as guests await the opening of the second attraction, which launches in under a month in Disney World and in January at Disneyland. We sense some visitors are holding off until everything is fully operational, which is understandable. In the meantime, those two areas have performed much better than initially reported, with significant boosts in per capita spending on merchandise and food and beverage. For instance, the Millennium Falcon attraction has already welcomed over 5 million guests since opening at both locations. Guest satisfaction is very high, with ride availability in the high 90s, indicating that this complex technical attraction is functioning exceptionally well. Regarding Disney+, it will definitely be accessible on most traditional app-selling platforms. I cannot comment on consumer data access regarding MVPD distribution or sales. We do have access to some data, as long as it's permissible by law, particularly on other platforms like Verizon, but I can't clarify if it's sold through MVPDs. As announced today, we have a partnership with Amazon, adding to a list of distributors that includes Apple, Samsung, Google, Microsoft, LG, and others.

Thank you.

Jessica, thanks for the questions. Operator, next question please.

Great, thanks. Maybe first on the Verizon deal. It looks like, Bob, you're going to have access to about 20 million households or just under 20 million households that have eligibility to Disney+ for free. I think you can tell us about the wholesale arrangement you have with Verizon and T-Mobile with its distribution of Netflix for free. You get about 50% penetration; are you guys ready for that kind of scale in with Disney+ soon after launch? And then if I could just one more follow-up question, you talked about putting more sports on ABC. Just any thoughts that you have on potentially bidding for maybe an extra NFL deal and putting that on the broadcast network. Thanks.

Your first question, we believe that we're confident that we're really ready for scale that BAMTech platform has been tested under pretty interesting circumstances including this past Saturday night when you have hundreds of thousands of people signing up for a pay-per-view event in a very, very short concentrated period of time. We believe that the people who are signing up for Disney+ will not just sign up; it is concentrated away. Now there will be many more of them; we certainly hope. But we feel that the platform is robust enough and all the elements that need to be in place to manage that kind of scale are there. The second part of your question was …

Just anything on the wholesale agreement?

Yes, the wholesale agreement, we're not prepared to give you any more information about that, but I can say that the deal is positive for us from an economic perspective, because it's just not being given away. In other words, we're not just giving it away. We're getting paid a certain amount for it, but I won't get into specifics regarding that. I think we have an interesting opportunity here to use both our platforms in a variety of different ways including with live sports and not just take sort of a one-platform approach or two-platforms, but to really look at the different ways this company can now reach consumers. We've done that with simultaneous coverage of say the NFL draft would probably be a great example of that. We have a very unique position as a company right now in terms of these multiple platforms that in some respects is unrivaled. The launch of Disney+ went a long way to us reaching more customers in a different way. When you add that to ESPN and its channels, and you add that to ABC, that's an opportunity. I think you also have to look at the opportunities we have with our other programming as well. The Fox acquisition brought with it some great creative talent and some very successful television studios or production entities, which gives us the ability to produce more and on more of our programming. When we then take that programming and put it on ABC and our other live linear channels like Freeform, FX, Disney Channel, and then we move it through a system that ultimately ends up on SVOD or Hulu or Disney+, for that matter, that's an extraordinary way to reach more consumers and to monetize our investment in this product in a much more effective way. It does give us a competitive advantage of sorts to other companies we're competing with who don't have as many platforms or as many ways to both monetize product or reach consumers.

Hey, John, thanks for the questions. Operator, next question please.

Thanks. I just had a question for Mr. Iger, maybe the most common question we get from investors is how consumers are going to navigate a world with so many apps out in the marketplace. And so I just wanted to run a hypothesis by you and see if it resonates with how you're thinking about the world. Do you think it's reasonable that there will be three or four, for lack of a better word, broadcast apps meaning sort of broad-based in their offering, they sort of serve the masses? And then there will be dozens of column niche apps, which are more like cable networks that sort of super serve a customer with a narrow interest? So that's my question. Do you agree with that, and if that's true, is Hulu sort of your broadcast app and ESPN+ and Disney+ position does niche apps? I heard your comment about the four quadrants. But if you could just react to that, I know that would be helpful.

I don't believe any of these are niche apps. Our goal as a company is to view the apps as part of a larger strategy rather than as isolated entities. For example, if we consider Disney or Disney+, they monetize films through multiple windows: first theatrically, then through home video, and finally on an SVOD platform, which also helps monetize their extensive library. The same applies to our television programming. Although much of the content on Disney+ will be original or exclusive, there is nothing preventing us from potentially airing some of it on the Disney Channel later. We consider all these platforms in relation to each other. When discussing Hulu, I also reference ABC, FX, and Freeform. If you examine current viewing habits for some of our popular shows on ABC, such as Grey's Anatomy and The Good Doctor, they follow a viewing cycle and subsequently become available on Hulu. Often, these shows see their viewership triple after just one month on Hulu, and they could remain there for years. Therefore, to Jason's point, we don't see any of these services as isolated. Regarding your first question about consumer choice and confusion, I believe it relates to website and app consumption patterns. No two users interact with the same websites or apps, creating fragmentation alongside common favorites. In the realm of video-centric or program-centric apps, there will certainly be a variety of options with differing levels of consumption. However, we anticipate that consumers will find it relatively easy to navigate and utilize these apps, particularly as they become more accessible on mobile and desktop devices. I think we might see fewer TV and movie apps compared to gaming apps and others. However, I do believe brand recognition will play a significant role. As we've mentioned before, brands matter, and if a consumer has choices related to sports with a name like ESPN or other Disney products, that recognition will increase their interest and trust in those offerings.

That makes sense. Thank you very much.

Thanks, Jason. Operator, next question please.

Good afternoon, everyone. Bob, I understand there's been a lot of attention on the DTC business recently, but I also wanted to discuss the media networks business, which is currently navigating several significant renewals. Could you provide us with an update on your near- and medium-term outlook for linear subscribers, both from traditional sources and vMVPDs? Additionally, how are conversations with the MVPDs changing as your DTC narrative develops? Lastly, Christine, could you provide an update on your discussions with the ratings agencies regarding their perspective on your leverage and the possibility of resuming a buyback in the future? Thank you.

Before I answer your question, I wanted to clarify two things. The number of people or carriers who have experienced the Millennium Falcon attraction is actually 5 million, not 1.7 million. Secondly, we will have access to significant amounts of user data when individuals use our apps purchased through MVPD. Regarding MVPD renewals, we have reached a deal in principle with AT&T and are currently formalizing it, which marks significant progress. We have been open about subscriber trends, as Christine mentioned in her update today. There has been some continued decline, which slowed somewhat last year but has picked up again. We cannot predict future trends, but we strongly believe that the MVPD platform remains critical and valuable to us, and I find it quite viable as well. I believe that over the long term, people will prefer fewer channels, though it doesn’t mean they will completely stop subscribing to multi-channel services. The trend seems to be moving toward fewer channels rather than more, which could benefit our app business. I don't know what the lowest point might be, and I don't believe it is settled yet. However, we are examining all our businesses and platforms with an eye toward the broadest monetization and consumption opportunities.

So, Dan, regarding the rating agencies, we actively engage with them. This involves me, the investor relations team, and our treasury team, and we keep them informed about our plans and performance. We have a schedule to meet with them a couple of times a year, and we are preparing for our next meeting soon. People noticed our significant bond offering in August, which was $7 billion. At that time, all three agencies affirmed our ratings at mid-single A. By the end of this quarter, our leverage comes in at approximately 2.7 on a gross basis and about 0.3 turns lower on a net basis. While the agencies make adjustments to those calculations, it's clear that even with their adjustments, they still calculate our leverage to be well below 3 times.

Okay. Dan, thanks. Operator, we have time for one more question.

Yes, thanks very much. I was wondering, first off, just how you think about the right amount of content spending for Hulu, maybe cash basis of both total and original, and do you think you'll need to do things like lock up some of the FX show runners like some of your peers have done? And then maybe just Christine, one on the park side of things. How do you get comfortable that you're not seeing any underlying weakening demand and it's all just deferrals? And since you think that is the case, is there a point in the year where you think that you might start to see some acceleration in the attendance at the domestic parks? Thanks.

Steven, we're facing which is obviously an extraordinarily competitive marketplace for talent and television and films that's just not just creative and producing and writing and directing talent, but acting talent as well. It's a good time to be on that side of the business. We're making deals selectively based on both the talent of the people involved, but also the cost. We're trying to be mindful of the need both to fuel our platforms with enough high-quality talent while at the same time managing the bottom line. We're not changing our guidance in terms of when we believe that these DTC businesses will achieve profitability and that's based on what we think is a reasonable amount of original content that will be made for these platforms at a cost at least in today's world that we think is deliverable.

Steve, on domestic parks, we still feel very good about the demand for our domestic parks product. We do a lot of research in our parks business; guest satisfaction is something that we track when people come and they are intend to return. Also, we have metrics that look out year-over-year what the booking trends are. As I mentioned in my prepared comments, our booked rates at our domestic hotels are currently pacing up 5% versus prior year. Given everything that we've talked about previously, especially as it relates to Star Wars: Galaxy's Edge and the complete opening of that land in both world and Disneyland, we feel really good about the momentum we have going into '19 domestic parks.

Thanks again, everyone for joining us today. Please 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. In our remarks, we provided estimates of the performance of certain 21CF businesses in periods of the prior year. These estimates are based on an analysis of 21CF records, but are nonetheless unaudited estimates and are not precise measures of historical results before the acquisition. Let me also remind you that certain statements on this call, including financial statements 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 good evening, everyone.