迪士尼 (DIS) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen.

And welcome to the third quarter 2010 Walt Disney earnings conference call.

My name is Melanie and I'll be your coordinator today.

(Operator Instructions)

As a reminder, today's call is being recorded.

I would now like to turn the call over to Mr.

Lowell Singer, Senior Vice President of Investor Relations.

Please proceed, sir.

Thanks, Melanie and good afternoon everyone and welcome to the Walt Disney Company's third quarter 2010 earnings call.

Our press release was issued a few minutes ago.

It's available on our website at www.disney.com/investors.

Today's call will be webcast and the webcast will also be available on our website, and after the call a replay and a transcript of today's remarks will be there as well.

Joining me in Burbank for today's call are Bob Iger, Disney's President and Chief Executive Officer, and Jay Rasulo, Senior Executive Vice President and Chief Financial Officer.

Bob's going to lead off, followed by Jay.

We will then be happy to take your questions.

With that, let me turn it over to Bob and we'll get started.

Thank you very much, Lowell, and good afternoon.

We're very pleased with our strong third quarter performance.

We grew revenues substantially and improved profitability across the majority of our businesses.

Over the last five years we've focused on building our creative capabilities and strengthening our portfolio of core brands.

We've also aggressively sought growth opportunities, both on newly emerging platforms and in promising international markets.

While at the same time divesting non-core businesses.

Our focus on high quality branded entertainment had a big impact on the results of our studio segment, which has delivered three of the top five global and the top three US films so far this year.

Disney's Alice in Wonderland, Pixar's Toy Story 3 and Marvel's Iron Man 2.

These films are both creatively and financially successful, and have been leveraged across many of our businesses.

Toy Story merchandise sales reached new heights as consumers responded to a fresh line of well-designed products available globally.

And this bodes well for Pixar's next feature film, Cars 2, opening in June of 2011.

At Media Networks, ESPN had a fantastic quarter, creatively and commercially.

What ESPN did with and for the FIFA World Cup was nothing short of spectacular.

The month-long event was a ratings, revenue and brand building success, while ESPN's high quality, multi-platform coverage significantly raised the World Cup's US profile.

It's worth noting that about one quarter of ESPN's total revenue from the event came from non-linear platforms, including ESPN 3, apps for the iPhone and iPad, ESPN mobile TV, espn.com and radio.

In addition to the World Cup programming, the NBA also delivered great results, with one of the most thrilling finals in a long time.

ESPN with ABC really rose to the occasion and the finals were the most viewed series in a decade.

Our other cable channels also performed well during the quarter.

Disney Channel continues to command high ratings with successful shows including Phineas & Ferb and Good Luck Charlie.

The channel also has continued to expand its international presence.

And ABC Family has been on an extraordinary run, with millennial audience favorites like Secret Life of an American Teenager and the new hit in Pretty Little Liars.

A few days ago we announced that ABC Family's Paul Lee will assume the role of President ABC Entertainment Group.

With six years at ABC Family, Paul is a proven leader, showing great commercial instincts and a skill at developing distinctive shows that really put ABC Family on the map as an identifiable brand, and we're pleased to have him in his new very important role.

At Parks and Resorts, earlier this summer we unveiled World of Color, an amazing new attraction that's been bringing record crowds to Disney California Adventure.

It shows, once again, that when our Imagineers blend smart story telling, technological innovation and brilliant execution, they create something truly special.

World of Color is the first of our next generation of attractions at California Adventure, and its early success is a promising sign for our investments there.

I would like to turn now to our acquisition of Playdom and to update you on our overall game strategy.

We're all aware of the rapid growth of social networks and the huge popularity of the games available on them.

In fact, a Nielsen study published last week shows that in the US, social gaming has overtaken personal e-mails as the number two activity on the web.

And we expect social gaming to grow at a compounded rate of more than 30% annually.

Game playing on social networks is already a main stream experience, attracting a broad, diverse customer base.

We feel it's essential for us to have a robust presence on social networks and to do so in the right way.

In Playdom we bought a successful company notable for its creative abilities and its potential to leverage our brands in this fast growing market that's already engaged millions of consumers worldwide.

Playdom brings us the talent, technical expertise and market know-how, vital to rapid success in this space.

With the acquisition of Playdom and of Tapulous, a developer that specializes in mobile games and apps, we now have a diversified, multi-faceted games business, capable of creating a wide range of experiences to meet evolving consumer interests.

We will remain in console games with Disney branded titles.

We'll also devote resources the creation of social games, mobile games and apps.

Our successful virtual worlds, like Club Penguin, continue to grow domestically and internationally and we'll continue to launch new ones, like the highly anticipated World of Cars, which debuts tomorrow.

We believe that having this kind of breadth and depth of both development skills and product offerings is important to achieving real and lasting growth in the games arena.

As is the case with Pixar, Club Penguin and Marvel, the talented people at Playdom and Tapulous will benefit from access to our content, brands and financial resources, while operating in an environment that led to their initial success.

In sum, our strong third quarter performance underscores the value of sticking to a smart strategy even in tough times, of investing in the right people and of focusing relentlessly on quality and innovation to drive growth and shareholder value.

I'm very proud of what we've been able to do and really excited about where we're going, and with that, I'll turn things over to Jay.

Thanks, Bob and good afternoon.

The strong results we delivered in Q3 reflect, in part, improvement in the business environment, but also our continued focus on managing a financial discipline, even as we invest in the future growth of our Company.

Starting with Media Networks, it was the largest driver of our year-over-year increase in operating income, driven primarily by ESPN.

At Cable Networks, higher affiliate and advertising revenue at ESPN more than offset an increase in sports rights and production costs for the World Cup and ESPN UK.

On our Q2 call, I said that we expected a year-over-year increase in net affiliate revenue recognition of at least $155 million in Q3.

ESPN ended up reaching more programming commitments than expected in Q3.

As such, ESPN benefited from the recognition of approximately $380 million more in net deferred affiliate revenue in Q3 this year compared to prior year, or $225 million more than we expected.

Although this timing shift does not impact our full year results, we do expect ESPN to recognize about $355 million less in net deferred affiliate revenue in Q4 than in the prior year.

Excluding the impact of earlier affiliate revenue recognition, Q3 operating income at cable networks was still up by 16%.

ESPN's ad revenue was up 31% in the quarter.

ESPN benefited from the World Cup programming and two additional NBA finals games compared to prior Q3.

After adjusting for these events, we estimate that ESPN's ad revenue was up by 17%.

At broadcasting, higher advertising revenues at our local stations and sales of ABC owned shows more than offset an increase in programming costs at the ABC Network.

Ad revenue at our owned TV stations came in 32% above prior year, led by increases in the automotive, political, and electronics categories.

At the ABC Network, scatter pricing came in 33% above upfront levels.

Thus far in Q4, ABC Network's scatter pricing is running almost 20% above upfront levels.

Ad sales at both ESPN and our TV stations are pacing up by double digits versus prior year.

While the advertising market is currently quite strong, visibility remains somewhat limited.

We are pleased with our upfront results across our media properties, including ABC, ESPN and ABC Family.

Our studio entertainment segment delivered strong results in Q3, driven by the theatrical performance of Toy Story 3, Alice in Wonderland, and Iron Man 2.

Results also benefited from lower home video costs and increased TV distribution sales in international markets.

But were impacted by higher costs incurred from film cost write-downs.

Turning to Parks and Resorts, while revenues were up 3% in the quarter, operating income came in 8% below prior Q3.

Several items impacted margins at the Parks segment.

Due to a calendar shift, Q3 results included one less week of the Easter holiday compared to prior year.

Our domestic parks also incurred costs associated with new entertainment offerings, including World of Color at California Adventure.

Our cruise line business had increased costs related to the upcoming launch of our new ship, the Disney Dream.

In addition, the segment continues to be impacted by labor cost inflation and higher pension and post retirement medical costs.

As we've said previously, we've been reducing the level of discounting in our promotional offers since the beginning of fiscal 2010.

With the expectation that we would make near term trade offs between rate and volume.

Similar to last quarter, per capita guest spending was up by 5%.

Attendance at our domestic parks came in 3% lower than prior year levels, with Walt Disney World down 2% and Disneyland down 4%.

When adjusting for the calendar shift of one Easter holiday week, we estimate that combined attendance was down by only 1 percentage point compared to prior year.

At our domestic hotels, average room spending was up, while occupancy was lower than in the prior year.

Per room spending at our hotels was 4% above prior year levels with an increase at Walt Disney World and a decline at Disneyland.

Occupancy at our Orlando hotels was about 8 percentage points lower than prior year levels at 83%, while Anaheim occupancy was down 3 percentage points at 80%.

Results at our cruise line were lower than in the prior year, driven by some softness in European itineraries, increased expenses for our new ship launch, which I mentioned earlier, and higher fuel costs.

At our international parks, guest spending improved at both Disneyland Paris and Hong Kong Disneyland.

Attendance was up 1% in Paris and also up 35% in Hong Kong, which was driven by higher guest visitation from mainland China and international markets.

Real estate operations in Disneyland Paris also benefited from a large transaction in the quarter.

So far this quarter, domestic hotel reservations on the books are pacing 9% behind prior year.

However, as you may recall, last year's fiscal Q4 included an extra week due to our accounting calendar.

Excluding the impact of the extra week, Q4 bookings so far this year are running just 1% behind last year.

At consumer products, we were very pleased with Toy Story merchandise sales in the quarter.

On a comparable basis, earned licensing revenue grew by 18%.

Licensing revenue from Marvel properties was offset by higher costs primarily from the amortization of intangible assets related to the Marvel acquisition.

The increase in operating income was driven by lower costs at our North American Disney Stores, and by publishing revenue from Marvel properties.

As I mentioned earlier, our fiscal 2009 year included an extra week, so results in this year's fourth quarter will, therefore, reflect one fewer week of operations compared to prior year.

On a separate note, a jury recently returned a verdict against ABC in our ongoing litigation with Celador regarding Who Wants to be a Millionaire.

We believe that the verdict was an error, and we intend to vigorously seek to have it reversed.

Based on our assessment of the merits of our position, we have not recorded a charge for this matter.

We continuously assess whether our portfolio of assets enables us to maximize shareholder value and aligns with our strategic priorities.

Our pending sale of Miramax for approximately $660 million reflects our focus on maximizing the value of our assets and on directing our resources towards branded entertainment with strong franchise potential.

We expect that the Miramax transaction, once completed, will have minimal impact on earnings moving forward.

Bob earlier referred to our Playdom acquisition.

We are acquiring the Company for a total consideration of approximately $563 million, with the potential for an additional earn-out payment of up to $200 million at the end of calendar 2012.

The deal is structured such that our projected return would be higher if the earn-outs are achieved.

We expect the deal to be modestly dilutive to earnings for the next several years.

The dilution is driven in part by both the amortization of intangibles and the treatment of a portion of the purchase price that will be paid over the next several years as compensation expense for accounting purposes.

We also expect to continue returning capital to shareholders through dividends and share repurchase.

We have completed buying back the shares we issued for Marvel.

As of today, we have repurchased over 61 million shares for approximately $2 billion in the fiscal year.

We're pleased with the results we delivered so far this year.

Looking forward, we plan to continue to closely manage costs.

At the same time, we will continue to make prudent investments to position our businesses for long term growth.

With that, I will turn the call back to Lowell for Q&A.

Okay.

Thanks, Jay.

Operator, we are ready for the first question.

Yes, sir.

Our first question comes from the line of Jessica Reif-Cohen with Banc of America.

Go ahead.

Thank you.

Just on the gaming strategy, I was wondering if you could talk a little about Playdom -- the Playdom acquisition.

Have you moved away from your previous targets on spending for the console games?

We've concluded, Jessica, that the game strategy has to reflect basically how consumers are playing games and as we look at the sector, we see a diversity of platforms and basically of experiences from the console games, which we will remain in, to the social games which we've just bought into, as well as mobile apps and casual games online and virtual worlds like Club Penguin.

So, we're going to continue to make console games.

They will primarily be Disney branded, not all Disney branded, and they will in most cases be derivative of a product that's been made for other segments of the Company like our motion pictures.

So, I guess as you look at our strategy, you see a blend of investment and some reallocation of investment from the console side to basically multi-faceted side.

Also, it became pretty clear to us that game playing and social networks is real, here to stay.

There are obviously a multitude of people that are already playing.

There are about a half a billion people who are members of Facebook already, about 40% of those people participate in game playing.

I mentioned in my remarks that the customer base is pretty diverse, from 18 to post 50.

It's dual gender, meaning it's not -- doesn't skew just in the men's direction, which we know a lot of other games do.

Seem tailor made for, not only Disney branded games, but Marvel and ESPN and we really like the opportunity.

The other thing that was really interesting to us is that we now have over 50 million people who are members of various Disney, ESPN, ABC groups on Facebook.

So we begin with a very, very solid base of people to market to and when you add to that the over 40 million people who are playing Playdom games already, that seemed pretty compelling to us.

Thank you.

Thanks, Jessica.

Operator, next question, please.

Our next question comes from the line of Spencer Wang with Credit Suisse.

Go ahead.

Thanks, good afternoon.

Just two questions.

First for Bob, away from the gaming strategy, I was wondering if you could just update us on how you're thinking about monetizing digital.

You seem to be taking a little bit of a multi-faceted approach being an equity investor in Hulu, ESPN 3, which is more of a wholesale arrangement with broadband providers, plus the iTunes stuff to STARZ Netflix stuff.

If you could update us on how you're approaching that, that would be great.

Second for Jay, coming out of the last recession on theme parks, Disney gave us at least a rough timetable to when we could see the domestic park margins back at 20%.

Was wondering if you could do the same or if it's too early to tell right now.

Thanks.

Digital is pretty diversified as well.

We think we're just really at the beginning of pretty significant migration in terms of consumption and distribution of digital media.

And, therefore, we've laid down a lot of bets, some relatively small or inexpensive and some substantially larger.

We watch with great interest, obviously the significant growth in consumption, just look at what's happened the past few months since the iPad was released, as a for instance, and we feel that in order for us not only to be relevant, but in order for us to grow our business, we have to be in this space.

We believe long-term that monetization will occur in compelling ways.

We think it will be diverse in terms of how it is delivered from micro payments, we'll see for instance on the social games front to subscriptions, which we'll see from places like Hulu and obviously on the social games front, to advertising, to varying forms of pay-per-view.

We're pretty pleased with how we've entered the market as broad and as diverse as it is.

It's clear that our audiences for our various brands are using digital media more and more and we feel good about where we are.

And very specifically, just look at some of the trends.

I mentioned basically off-network viewing of the World Cup on ESPN, and how significant that was.

If you just look at their growth in digital advertising, which is expected to be well over 40% this year, that's also rather significant.

So, we like the trends.

We think it -- we also like being there first because we like to learn quickly.

This some cases is a trial an error experience as well and generally speaking, as I think our actions have indicated, we're bullish about the future of digital media.

On your second question, Spencer, I think I've referred to and been clear in my comments about what our strategy is moving forward into 2011.

We basically are trying to reduce the amount of discounting, promotional discounting that we've been doing in the depth of the recession to maintain our volumes and carefully playing off our rates with our volumes.

That strategy evidenced itself in Q3 in some of the numbers that I talked about with some volume declines, but also rate increases and we will continue to do that through the fourth quarter and hope, and have stated before, that hope to be back to sort of a normal level of promotional activity in fiscal 2011.

I would say that the economy continues to characterize itself as a fairly uncertain place, so I think it would be imprudent to give a timetable for when our park business would return to what we've come to know as more normalized margins.

But at the same time, we don't see any structural reason why that can't happen.

Great.

Thank you very much.

Thanks, Spencer.

Operator, next question, please.

Our next question comes from the line of Doug Mitchelson with Deutsche Bank.

Go ahead.

Thanks so much.

Just a couple.

Bob, any concerns on Facebook as a gate keeper for online distribution for Playdom and social games generally.

And then Jay, you mentioned spending for launch cost for the fleet expansion, how should we think about that the next couple quarters before you actually get the new cruise ship up and running?

Is this sort of a steady state, we can look at June and try to take it forward?

Do those launch costs keep growing?

Thanks.

I think it's already been demonstrated that game playing on Facebook is good for Facebook and it's good for the creators and the owners of the games.

Clearly, the addition of Facebook currency I think could -- while it in some cases could be viewed as Facebook acting like a gate keeper, the existence of that currency I think will enable more people to spend money in their games experience, so I think it's mutually beneficial.

The other thing that I think has to be considered is that these games exist on multiple platforms and we're going to take a platform agnostic approach to the distribution of these games, not only to other social networks, but just to other platforms.

There's no reason why you can't play some of these games on what I'll call traditional dot-com sites or on mobile devices, and we intend to distribute rather broadly, particularly as we move our IP through Playdom into the system.

Doug, the -- relative to our cruise launch, remember that we have been blessed not to have to advertise our cruise line on television in particular, and not very aggressively elsewhere for about a decade and obviously when you are increasing the capacity in a business by 60%, you want to be sure that you lay yourself a foundation among consumers and describe what's new, why they should take the new cruise ships, particularly people who have cruised before.

I would call our Q3 spending quite modest, but probably by the time we launch the Disney Dream ultimately, we'll be looking in the area of tens of millions of dollars of advertising and prelaunch spending, in addition to the training that has to take place with the crew and all the other prelaunch and preopening activities.

Relative to the size of the business, it's extremely modest.

I don't think you're going to see a big spike in our overall spending in theme parks, but it was a contributing factor to obviously a decline in the operating income this quarter and we just thought we would point it out.

Thank you.

Thanks, Doug.

Operator, next question, please.

Our next question comes from the line of Anthony DiClemente with Barclays Capital.

Thank you very much.

I have a couple housekeeping for Jay and then one for Bob.

Jay, I was wondering if you could give us in the quarter, ESPN advertising growth and ABC Network advertising growth and then you had mentioned that at the theme parks the benefit from real estate transaction in the quarter.

I was hoping you could quantify that for us.

And then one for Bob.

Bob, you were very -- I think you were ahead of the curve on seeing the DVD downturn, so I just would like to get an update on what you're seeing out there on your consumer research on home entertainment trends.

Are you seeing a pick-up in DVD sales and in terms of the theatrical I heard that you were experiencing with early video on demand.

Just wondering how serious you were about that and what kind of upside incrementally you saw from the early VOD opportunity.

Thank you.

Okay.

Let me talk specifically to the straightforward questions.

VOD real estate sale was the sale of the land under the commercial mall that has been opened at Disneyland Paris for about five years.

It was originally structured as a long-term land lease.

Economic conditions were such that it made sense to monetize that all up front and sell the land to the mall operator.

Not outside, frankly, the normal course of business because there is a lot of commercial development that goes on at that resort.

And the magnitude was about $30 million of OI on a sale price of about -- well, in dollars, about $60 million in sales price of the land.

Second question, on advertising, the ABC Networks advertising revenue was flat.

We talked about higher pricing on the advertising which was somewhat offset by ratings and on average, it was a little off, but relatively flat and ESPN I think I said was up 31% in their advertising revenue.

And do you have that for just the US?

Because I imagine that was helped by international.

ESPN?

Yes.

It's all US.

Okay.

Thanks.

But it did -- but we did mention two events which was World Cup, obviously, and the two games of the NBA that led to the seven game final as contributing to that.

And do you -- I suppose it would be tough to exclude those to give us kind of like a recurring number?

You exclude them, it was mid double digits.

Okay.

Thanks.

On the DVD front, you can't have a conversation about digital media without quickly realizing or concluding that there's a lot more competition for people's entertainment time, social games being one primary example of that.

I think the DVD market is challenged, will continue to be challenged.

What we see is you're dealing with largely a title to title environment, meaning it's very title-driven.

And that collectability doesn't seem to be as important as it once was, except for real franchises and certain brands like Pixar.

So, I think that it's a market that we've seen get tougher and it has very much guided us in terms of our approach to the motion picture business to focus on those core brands and those key franchises, and to be judicious in terms of the number of films we release into the marketplace.

Great.

And then the early VOD opportunity, is that something that you plan to get -- become aggressive on?

Is it incremental?

What do you see there.

We're going to become aggressive in experimenting with new windows including that one.

It's too soon to make specific comments or predictions about that.

But I think it presents an interesting opportunity.

There are people who we believe would like to see movies sooner than later and would pay a premium price to do that.

Thank you very much for taking the questions.

Okay.

Anthony, thanks.

Operator, next question, please.

Our next question comes from the line of Ben Swinburne with Morgan Stanley.

Go ahead.

Thanks.

Good afternoon.

Jay, if I could ask a couple more housekeeping and then a question for Bob.

I think in the release you mentioned some write-offs at ABC on programming and write-offs at film, I think you say in the release they were actually up year-over-year, so I was wondering if you could quantify those two.

I wanted to also ask you, Jay, about the interactive segment.

I think you added about $84 million in revenue, but there was no OI improvement ,so if there is any comment there in the operating leverage or cost investment et cetera.

And then Bob, can you talk about ABC today and maybe compare it to what you saw at the studio a year ago when you were making several management changes.

I think you were disappointed in the results.

Trying to understand sort of where we are in the life cycle of ABC from a product offering, business model and management perspective.

There's been certainly press reports about how strategic that asset is.

Just wondering if you could talk to us about what we should expect there over the next year.

Okay.

Ben, let me first talk about your question about [dimgy].

Obviously, we're still in the very much the building stage of this business.

We launched what we hope and has every indications is going to be a great title for us with Toy Story 3, which we launched concurrent with the movie and getting out and marketing that and making sure that it hits the street with momentum is basically the offset to the revenue that we experienced in this quarter for dimgy.

And in general, of course, we're still in the building stages in that space.

The write-downs.

So, there were a couple of film titles, first at the studio, a couple of film titles that did not perform to our expectations in the quarter and obviously we take the write-down in the quarter they're released based on -- actually, if they're before our earnings announcement, based on the shortfall and what we see in the ultimate and that was the vast majority of that.

TV write downs, normal part of the business.

Pilots and things that we develop and movies that we develop for the network that don't live up to their perspective.

I don't think there's anything large enough there to call out specifically.

Ben, on the ABC front, as we know, ABC had a lot of success with shows like Grey's, Lost, Desperate Housewives and we've watched them age over time.

In one case, Lost is off the schedule because it had its finale this past season.

Therefore, the focus at ABC was basically adding to the schedule and building essentially up another foundation.

While some of those shows, Grey's and Desperate are still on the air.

You still have Dancing with the Stars, which is relatively popular and then last season they were able to add Modern Family and Castle to the schedule and those results pretty obvious, both did extremely well and both were viewed as commercial and critical successes.

So, I think the ABC schedule was in relatively decent shape.

Not to suggest that it doesn't need some strengthening, but we were pleased in general with some of the recent developments and we feel that the schedule they put together for the Fall was a good, solid schedule.

Those shows, those new shows in particular are all in production, so it's premature to really predict the outcome of those, but I think in general ABC in terms of primetime programming was heading in a right direction and Paul Lee, as I mentioned, I think generously and for the right reason in my remarks, we put an executive in who has a proven track record in primetime television.

ABC Family has had great success under his six year tenure and has some really strong shows in his schedule and I think he brings to ABC, not only an experience and a proven track record, but a great sensibility in terms of commercial instincts and feel great about the fact that we were able the to put Paul in that position.

Okay.

Thanks.

Thank you, Ben.

Operator, next question please.

Our next question comes from the line of James Mitchell with Goldman Sachs.

Go ahead.

A couple of questions on costs, if I might.

First off, could you discuss Cable Network OpEx trends in the next few months as you put the World Cup behind you and face fewer English premier league matches?

Secondly on the parks business, looks like OpEx accelerated to up high single digits year on year in the June quarter.

How much of that was due to calendar issues in the Disney Dream Boat and do you think those kind of growth rates persist?

Thank you.

Starting out with your question about operating expenses for the theme parks, we obviously have been talking all year in part about pension and post retirement, medical costs that we would be funding, a large portion of which of course falls on the theme park because of its employee population.

So, that hit in the quarter.

We also have the normal inflation that's part of our collective bargaining agreements that rolls through, and as I've been mentioning, trading off on this price and volume issue, that rolls through in a big fixed cost basis business anyway and we've added new assets.

Bob referred to the World of Color, but we have added entertainment on the east coast as well for the Summer and that has contributed to the increase in operating expenses as well.

The volume and price tradeoff, we've been pretty happy with domestically and it was not a contributor, but actually went the other way, offset some operating income issues.

And I'm sorry, I forgot your first question, James.

It was about OpEx trends at the Cable Network business as you put the FIFA World Cup behind you.

Yes, sure.

Obviously, kind of gotten in the habit of not giving guidance on either our expenses or our revenue trend looking forward, so I'm going to be a little opaque on that, but tune in next time.

Thank you.

Operator, next question, please.

Our next question comes from the line of Jason Bazinet with Citi.

Go ahead.

Thanks so much.

I just have a strategic question for Mr Iger.

You have such dominant franchises when it comes to men with ESPN and obviously kids.

And the marginal investments you've made either in terms of sports rights or gaming, or even the Marvel acquisition seems to just sort of extend your advantage in those markets as opposed to focusing on women.

Do you feel like there's sort of an opportunity to extend sort of the Company's prowess into the female segment or do you anticipate sort of continuing to invest in sort of, I'll call them the core areas, where you're focused now?

Thank you.

Well, we think we do a pretty good job of reaching that demographic.

Young and old.

Obviously, on the Disney front, from young girls who are into princesses through the High School Musical kind of Hannah Montana generation, into the ABC Family generation which are mostly millennials, as they call them.

Very strong young women's demographic and then ABC's ratings if you look at them are mostly women 18 to 49, shows like Grey's Anatomy, Private Practice, Castle, Modern Family, Bachelor, Dancing with the Stars, Desperate Housewives skew heavily to women.

So we've never felt we have a women's problem at the Company.

In the same breath, haven't you spoke then the past about potentially selling ABC and so seems like if strategically you don't like that particular asset given its sort of economics relative to the other assets you have, seems like if you feel comfortable with your sort of attention for that demographic, it doesn't feel like you're getting paid for it in the same way, just given the business that you're using to target that demo.

Well, as we look at our asset base, the issue of reaching that demo is not a primary factor for us and I don't have anything new to add to the discussion about the make up of our asset base, except the comment that I made about Playdom and what we've been saying publicly about the divestiture of Miramax.

Okay.

Thank you very much.

Thank you, Jason.

Operator, next question, please.

Your next question comes from the line of Allen Gould of Evercore Partners.

Please proceed, sir.

Thank you.

Bob, I was wondering if you could update us a little bit on what your thoughts are in terms of streaming rights on the movies, particularly in light of the Netflix deal with Epix and what sort of upside you have in the Starz deal.

And secondly, when we talk a premium VOD window, what are we talking about?

Are we talking about 28 days after theatrical at $25 a household?

$50 a household?

What's the parameters or what's the initial thought process on something like that?

When we were considering an extension of the Starz deal, we had a few alternatives and in fact, they were reflected in the deals that we made because we didn't -- all of our movie commitments this time around are not two Starz.

They have Disney primarily.

And one of the opportunities was Netflix at that point.

We concluded that doing the deal that we did with Starz was better than the alternatives.

Starz in turn, with our endorsement at this point, as part of our deal is the ability and is in fact streaming or making our films available to stream through Netflix, and I mentioned, I think, in a prior call or some prior public event that we actually could benefit from Netflix growth through that deal.

I won't get too specific, but basically if Netflix reaches certain thresholds then there's more revenue that will flow to us through the Starz deal.

I really don't want to get into the specifics on the premium VOD window.

You're going to see, not just by Disney, but I think a lot of companies in the space, a far amount of experimentation as new technology platforms emerge, there's more consumers gravitate in that direction and as the business gets more competitive and more challenging and we're looking at essentially a more aggressive window.

I won't get specific on how many days and more aggressive pricing.

I think actually some other studios have already experimented in this space and again, I don't want to -- just don't want to put any more specifics around it.

Okay.

Thank you.

Thanks, Allen.

Operator, next question, please.

Our next question comes from the line of Richard Greenfield with BTIG.

Go ahead.

Hi.

A few questions all related to theme parks.

One, when you look at the margins, you grew revenues in the quarter, especially if you take out the one-time gain in land, obviously margins get even worse.

Just wondering you talked about an improving trend in theme parks from a visitation standpoint even with the reduced discounting.

What type of revenue growth do you think you need to do in order to start seeing margins reaccelerate?

Obviously, 3% didn't do it.

Just wondering kind of how long it takes to get to a revenue growth rate where you can start to expand those margins again?

I realize you're not going to comment on peak margins, but just wondering when we're going to start to turn the corner.

And then if you could give us a sense on visitation trends, where are we in terms of US versus foreign travel to Orlando, drive traffic, whatever type of data you can give us on trends would with helpful.

And then lastly just on Hawaii, I think you've begun to start selling that property.

Does that hit in fiscal Q3 or that's a fiscal Q4 when it starts to flow into results?

Thanks.

Let me take your first question.

I'm not going to be very explicit, obviously, about what kind of revenue growth we would satisfy your question relative to margins, but obviously I think we've been crystal clear about where we're heading here.

We believe that we had a very strong strategy and maintaining volumes relative to an aggressive promotional strategy that started in the end of calendar 2008 and into 2009, and we think that time is over that we both need to do that and want to do that and clearly want to start moving our way towards what we would see as more steady state growth.

We have a lot of investment under way in our theme parks, as I'm sure you are aware, that comes online substantially in 2012, but starts to make its way in, in 2011 on both coasts and clearly the idea there is to continue to grow our business and continue to solidify our position -- our strong position and resulting revenue growth and margins will follow suit.

Your other question about international trends versus domestic, frankly, there's not a lot to talk about in the third quarter about that.

There hasn't actually been a lot to talk about in this fiscal year.

The two have kind of moved in tandem.

There's no great movement and international visitation as a total percentage of our parks business is not out of line with what it's been historically.

There's been some switching around by different parts of the world, but so minor that not worth talking about.

Rich, to expand just a moment on the question about theme parks, Jay mentioned this in his comment.

When you back out the extra week in the fourth quarter, right now we're running about 1% behind in bookings at our domestic theme parks, and I want to emphasize that visibility is still relatively limited and you're dealing with an economy that I think is certainly fragile.

So, I don't know that you need to take too much out of this, but I think that that number, the fact that we're only 1% down in bookings at this time is very encouraging, because as you know, in prior quarters at this time we've been close to 10% down in bookings versus where we were a year ago, with essentially a lower discount.

So, we're in the market now with a discount that's definitely lower than it was a year ago, backing out that week, we're only 1% down.

That suggests an improvement.

There are, though, as you know and as Jay said, additional costs for basically new projects that are coming online or that are in development.

On the Hawaii front, we did start selling Hawaii in the third quarter, the numbers from a revenue perspective are virtually non-existent.

And so they will be in the fourth quarter and we're selling Hawaii both domestically and outside of Japan where we established a sales center at Tokyo Disneyland and we're reasonably encouraged with the reaction so far to that property.

Thanks.

Thank you, Rich.

Operator, next question, please.

Our next question comes from the line of Imran Khan with JPMorgan.

Go ahead.

Yes, hi.

Thank you very much for taking my questions.

Two questions.

First, Bob, when you acquired Marvel you talked about different synergies opportunities like growing your international sales business.

Can you comment, looking back last quarter, is the Marvel acquisition going on plan or what are some of the key trends you're seeing?

And secondly, you were making quite a few investments in the digital media space in the social game which makes a lot of sense.

Was trying to get a sense what's in terms of the profitability of this segment, roughly $700 million interactive media business, what kind of revenue you need to get to profitability and can you get there organically or do you have to make more acquisitions?

Thank you.

On the Marvel front, we are very encouraged by the acquisition, both the business opportunities and the people opportunities.

We've been working our way through on the international front, a change in our approach to the licensing away from third party agents and bringing the licensing in-house and that's been an ongoing process.

There's been some real progress when it comes to developing television properties and you'll see those results on Disney XD in roughly, I think, a year where there will be one show coming online and then ultimately we'll add to that.

We're doing a fair amount of work on the publishing front, not in the comic book area, but in the basically non-comic book publishing, feel good about that.

We're developing a console game.

There's been a deal made between Marvel and Playdom for a social game based on Marvel characters.

So, there's a lot of activity in the space and we feel great about it.

We feel that those assets are strong and have huge potential.

Thor and Captain America, both in production, come out next May and next July, and then a year later Avengers hits and we feel really encouraged by what we've seen already on the creative front there.

So all good news.

On the games front, we believe fully in the space, obviously, given our investments, and we believe that overall games will be profitable for us and particularly social games will be profitable and we're not giving you a time line as to when we'll achieve that.

Got it.

Thank you very much.

Thanks, Imran.

Operator, next question, please.

Our next question comes from the line of David Miller with Caris & Company.

Go ahead.

Yes, hi.

A question for Jay and a question for Bob.

Jay, I just want to make sure on the revenue deferral issue, vis-a-vis ESPN, was that all driven by the NBA finals and the World Cup?

Was there any sort of baseball in there or tennis or anything like that?

If you could clarify that, that would be great.

Bob, just a couple strategic questions.

You've got to love the irony between you and Steve Jobs.

Here's Steve Jobs, sort of the largest Disney shareholder, I think the largest Disney shareholder as a result of the Pixar acquisition and obviously incentivized to see Disney do well and at the same time, his iPad could be the killer app which gets folks to finally cut the cord, which threatens the life blood of ESPN which relies obviously, heavily on cable affiliate fees.

Do you talk about that at all and what's your rebuttal to the premise of that question?

Thanks very much.

Well, I'll go first, Jay, all right?

Sure.

Steve and I talk about a lot of things as it relates to digital media and while we don't agree on everything, we certainly are in agreement on the fact that devices like the iPad, not only are game changers, but they probably offer us more opportunity than they threaten us.

And our strategy for putting product on the iPad is to do so in a way that respects and values the, obviously, successful and extraordinarily profitable multi-channel business that we're in, and I realize this leads to the TV everywhere question, so I might as well bring it up.

Our belief on that is that we need to do a few things.

One, we need to serve the consumer with new ways to access our product.

Basically make ourselves more convenient, more accessible, and be mindful of a strong price to value relationship.

While at the same time protecting, which is very, very important, a business that has enabled us to really grow our Company and our shareholder value, not just through ESPN, but Disney Channel, ABC Family and soon through retransmission consent, our broadcasting assets.

And we basically feel that there is a way for there to be peaceful coexistence, or coexistence I should say, I don't know whether it will necessarily be peaceful.

What ABC has done with its iPad app, for instance, we think gives its customers an ability to access ABC shows that they may have missed on network or maybe they didn't get a chance to DVR it, but we actually like the product because it gives us an opportunity to basically expand our eye balls and monetize in a broader way.

To what extent it cannibalizes the initial business, we're not 100% certain, but our gut is it's relatively negligible and that people still watch most of their TV on what I'll call big screen, connected experiences.

David, relative to the ESPN affiliate fee deferral, your question is a little bit like which person on the elevator made the overload buzzer go off.

There's a lot of different things that contribute to the number of hours you end up having in the quarter, whether it's extra innings in baseball games, whether it's -- obviously World Cup was part of our plan, so I really can't say it was World Cup because then I would have known last quarter that it was coming up.

But I also want to tell you that these are binary covenants, one hour over out of 1,700 or 1,500 or 1,300 causes you to recognize the revenue and I can tell you that on the recognition in a couple of the covenants, it was within 10 hours of being a zero or a one and turned out in a couple of cases to be a one which is the higher recognition.

Thank you so much.

Thanks.

Operator, we have time for one more question.

Our next question comes from the line of Doug Creutz with Cowen and Company.

Go ahead.

Thanks.

I was wondering in the context of the Playdom acquisition, if I compare that to Marvel and Pixar where you were clearly getting some world class intellectual property, here it seems to me that you had an option, as well as the one you chose to potentially license your intellectual property to one of many companies operating in that space.

I was wondering if you could go through your strategic rationale for buying rather than licensing for social gaming.

Thanks.

We actually were pursuing some licensing opportunities with ESPN and Marvel, and as we looked closely at the growth in that space, we felt that it's growth that we should participate in essentially as an owner distributor, rather than just as a licensor, that the upside was enormous and the cost to enter the space in terms of the cost to make games was relatively limited, unlike the console business where it's substantially more expensive.

I realize that there's a cost associated with this because there was an acquisition, but there we feel that over time it will be quite shareholder friendly and will be accretive to the owners of the Walt Disney Company.

Again, we look at licensing versus buying or basically self publishing in a lot different directions and while the licensing business is obviously one that's important to us, consumer products is a great example of that, this is one case where we felt that bringing that great talent at Playdom into the Company and using that expertise to expand the Company's awareness of, knowledge of, and business in social games in particular, social networking and digital media had real value.

Okay.

Thanks, Bob.

Thank you, Doug and thanks again everyone for joining us today.

Note that a reconciliation of our non-GAAP measures that were referred to on this call to equivalent GAAP measures can be found on our Investor Relations website.

Let me also remind you that certain statements on this call may constitute forward-looking statements under the securities laws.

To make these statements on the basis of our views and assumptions regarding future events and business performance at the time we make them and we do not undertake any obligation to update these statements.

Forward-looking statements are subject to a number of risks and uncertainties and actual results may differ materially from the results expressed or implied in light of a variety of factors, including factors contained in our annual report on Form 10-K, and in our other filings with the Securities and Exchange Commission.

This concludes today's third quarter call.

Have a great day, everyone.

Ladies and gentlemen, thank you for your participation in today's conference.

That does conclude the presentation.

You may disconnect.

Have a wonderful day.