迪士尼 (DIS) 2018 Q2 法說會逐字稿

Hello, and welcome to the Second Quarter 2018 Walt Disney Company Earnings Conference Call.

My name is Michelle, and I will be your operator for today's conference.

(Operator Instructions) Please note that today's conference is being recorded.

I will now turn the call over to Mr. Lowell Singer, Senior Vice President of Investor Relations.

Sir, you may begin.

Good afternoon, and welcome to The Walt Disney Company's Second Quarter 2018 Earnings Call.

Our press release was issued about 25 minutes ago and is available on our website at www.disney.com/investors.

Today's call is also being webcast, and a copy of the webcast and a transcript will be available on our website.

Joining me for today's call are: Bob Iger, Disney's Chairman and Chief Executive Officer; and Christine McCarthy, Senior Executive Vice President and Chief Financial Officer.

Bob will lead of, followed by Christine, and then, of course, we'll be happy to take your questions.

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

Thanks, Lowell, and good afternoon, everyone.

We're very pleased with our results in Q2, especially in our Parks and Resorts and Studio businesses.

Our Parks continue to drive growth through operational excellence and by effectively leveraging our extraordinary content.

As an example, I just got back from opening our new Toy Story Land in Shanghai Disneyland, and I'm happy to report that our first major addition to the park was met with strong reviews and great excitement.

We're thrilled with the reaction and enthusiasm generated by the new land bodes well for future expansion.

Toy Story Land also opens in Orlando next month.

Star Wars: Galaxy's Edge will open in both Disneyland and Disney World by the end of calendar 2019, and there's a lot more expansion underway in our Parks and Resorts around the world.

Turning to our Studio.

It's hard to come up with enough superlatives to adequately express the tremendous work that team is doing.

It's clear from the recent results as well as from the slate ahead that our Studio has and will continue to raise the bar in terms of both creative and commercial success.

The incredible performance of Marvel's Black Panther is just one of many examples.

This groundbreaking movie opened to huge claim and record-breaking box office, instantly becoming a cultural phenomenon, inspiring people of all ages and breaking down age old industry myths.

With more than $1.3 billion in box office to-date, Black Panther makes a very loud statement about the importance of risk-taking and the value of inclusion.

We're proud of this movie on so many levels.

It speaks values about great innovative storytelling, the power of new perspectives and unbridled creativity.

We followed the phenomenal success of Black Panther with another Marvel masterpiece, Avengers: Infinity War, which broke domestic and global records to become the largest movie opening in history.

With this latest success, our studio has delivered 9 of the top 10 biggest domestic box office openings of all time, all of them released in the last 6 years.

Infinity War crossed $1 billion of the box office faster than any film ever released, with worldwide box office of $1.2 billion to-date before it is even opened in China.

Judging from strong ticket pre-sales and anticipation I saw during my recent visit, Chinese audiences are eager to see this movie, too.

There are now 19 movies in the Marvel cinematic universe with a combined box office of more than $16 billion and an average box office of $845 million per film.

The MCU is, by far, the most lucrative box office franchise of all time, creating an incredible pipeline of proven branded IP that drives significant opportunity across our entire organization.

The rest of our Studio slate is just as impressive, starting with Solo: A Star Wars Story, which is generating a lot of interest and strong buzz ahead of its Memorial Day weekend opening.

We'll follow that by releasing a dozen big movies over the next 18 months, including Incredibles 2, Ant-Man and the Wasp, Ralph Breaks the Internet, Mary Poppins Returns, Captain Marvel, Dumbo, Avengers 4, Aladdin, Toy Story 4, The Lion King, Frozen 2 and Star Wars Episode IX.

Looking at this collection gives you a real sense of what's in store when we launched our Disney branded direct-to-consumer service in late 2019.

We're creating a truly unique value proposition for consumers, a service focused on quality over quantity, featuring film and television products from our foremost collection of family-oriented brands.

Our content strategy includes a rich mix of beloved classics, recent releases and new content being created exclusively for the new platform by Disney, Pixar, Marvel and Lucasfilm.

We'll share more details in the coming months, including the robust slate of original movies, series and other content currently being developed.

The deeper we delve into the possibilities of this platform, the more excited we are by its potential to drive value and we're more confident than ever that we're creating an exceptional expert entertainment experience that consumers will find very appealing.

On the sports front, we're very encouraged by the reaction to our ESPN Plus service, which launched just about a month ago.

The reviews have been strong and the response of sports fans has been enthusiastic.

And the new deal we announced this morning will add a rich slate of UFC content to the mix, including live events and original content creating exclusively for ESPN Plus.

As we've said before, our incomparable collection of strong brands recognized and respected the world over puts us in great position to lead the way when it comes to building the direct relationships with consumers that will define the future of media.

Our recent reorganization reflects our determination to effectively capitalize on a rapidly changing landscape increasingly defined by transformative technology and evolving consumer expectations.

Our Studio and Media Networks are content engines for the entire company, and we're maximizing their value by combining the management of our direct-to-consumer distribution platforms, technology and international operations to deliver the entertainment and sports content that people around the world want most, with far more choice, personalization and convenience than ever before.

We're also merging Consumer Products and Parks and Resorts together, combining strategy and resources to create extraordinary experiences and products that bring our stories and characters to life for consumers inside our parks, at home and beyond.

We believe this new structure positions our businesses for the future, creating a more effective global framework to serve consumers worldwide, promote growth and maximize shareholder value.

It brings our operations into even closer alignment with our long-term strategy, creating high quality content, innovative use of technology and global expansion, including robust direct-to-consumer distribution.

If you recall when we announced the Fox deal, we noted that it would serve these same strategic priorities.

And for this reason, we are confident the assets we're in the process of acquiring easily fit within our new structure once the deal is approved.

We're still deep in the regulatory process so I can't share any more information or engage in further speculation about the deal, except to say that we strongly believe in the value of those assets as part of our ongoing strategy to create growth in a very dynamic global marketplace.

I'm going to turn the call over to Christine to discuss details of our Q2 results, and then we'll be happy to take your questions.

Christine?

Thanks, Bob, and good afternoon, everyone.

We are pleased to report another quarter of outstanding financial performance.

Excluding certain items affecting comparability, earnings per share for the second fiscal quarter were up 23% to $1.84.

Our results this quarter reflects strength in our Parks and Resorts and Studio Entertainment segments.

At Parks and Resorts, revenues increased 13% and operating income was up 27%, driven by growth at our domestic and international Parks and Resorts.

I'll note that second quarter results reflect the benefit of 1 week of the Easter holiday period, whereas, the 2-week holiday period fell entirely in the third quarter last year.

We estimate the timing of Easter drove a $47 million benefit to operating income.

This benefit was partially offset by the adverse impact of a 14-day dry dock of the Disney Magic, which reduced Disney Cruise Line's operating income by about $20 million.

The segment delivered another quarter of stellar results with revenue and operating income setting new Q2 records even after taking into account the net impact of these 2 items.

Higher operating income at our domestic Parks and Resorts was primarily due to higher guest spending and attendance, partially offset by higher costs.

Per capita spending was up 6% on higher admissions, food and beverage and merchandise spending.

Per room spending at our domestic hotels was up 12% and occupancy was up about 2 percentage points to 90%.

Attendance at our domestic parks was up 5% in the quarter and reflects about a 2 percentage point benefit from the timing of the Easter holiday.

So far this quarter, domestic resort reservations are pacing down 4% compared to prior year, reflecting reduced room inventory due to conversions and ongoing room refurbishment and the impact of only 1 week of the Easter holiday period in the third quarter compared to 2 weeks last year.

Booked rates are pacing up 8%.

At our international Parks and Resorts, growth in operating income was due to increases at Disneyland Paris and Hong Kong Disneyland Resort.

At Disneyland Paris, the resort's 25th anniversary celebration continued to drive higher guest spending, attendance and hotel occupancy.

Growth at Hong Kong Disneyland Resort was due to increases in occupied room nights and attendance.

At Shanghai Disney Resort, unfavorable weather early in the quarter resulted in lower attendance, which drove a decrease in operating income compared to prior year.

However, we saw a nice recovery starting in March and expect this positive trend to continue given the recent launch of Toy Story Land.

Total segment operating income margin was up 220 basis points compared to Q2 last year.

Our studio had another phenomenal quarter.

Operating income was up 29% to $847 million, setting a new second quarter record.

Growth in operating income was due to increases in our Theatrical and home entertainment businesses and growth in TV/SVOD distribution.

We had expected Q2 theatrical results to face a comparability challenge given the performance of Beauty and the Beast and the carry over performance of Rogue One and Moana during the second quarter last year.

However, as Bob discussed, we couldn't be more pleased with the performance of Black Panther, which surpassed our expectations and drove a meaningful increase in our worldwide theatrical results.

Turning to Media Networks.

Operating income decreased in the second quarter due to lower equity income and a decline at cable.

Equity income was lower in the quarter due to higher losses at Hulu, partially offset by higher income from our investment in A+

E. The higher losses at Hulu were primarily driven by a continued investment in programming and marketing, partially offset by higher subscription and advertising revenue.

Cable operating income was lower in the quarter due to losses at BAMTech, and to a lesser extent, lower results at Freeform and ESPN.

I'll remind you that BAMTech's results last year were reflected in equity in the income of investees but are now reported as part of our cable results due to our acquisition of a controlling stake last year.

The operating loss of BAMTech for the second quarter reflects ongoing investment in its technology platform, including cost associated with ESPN Plus.

We now expect BAMTech's results to have an adverse impact on Media Networks' fiscal 2018 operating income of $180 million compared to the prior year.

This is $50 million worse than our previous estimate due primarily to increased investment in ESPN Plus.

I'll also note that about $100 million of the full year impact is expected during the third quarter.

At ESPN, higher programming expenses more than offset growth in affiliate and advertising revenues.

The increase in programming spend was driven by the timing of both the College Football Playoff semifinal bowl game and the start of the Major League Baseball season and contractual rate increases for other college sports and MBA programming.

Like last year, ESPN aired 3 of the New Year's Six bowl games during the second quarter.

However, the mix of games included the 2 semifinal games in Q2 this year, whereas, the semifinal games aired in the first quarter last year.

Ad revenue at ESPN was up 3% in the quarter due to higher rates, which benefited from the timing of the College Football Playoff semifinal bowl games.

We estimate the shift of the 2 semifinal bowl games into Q2 this year had a positive impact of about 5 percentage points on ad revenue growth in the second quarter.

So far this quarter, ESPN's cash ad sales are pacing down 1% compared to prior year.

Broadcasting results were comparable to Q2 last year as growth in affiliate revenue was offset by a decrease in advertising revenue, lower income from program sales and higher network programming and marketing expenses.

The decrease in advertising revenue was due to fewer network impressions, partially offset by higher rates.

Lower income from program sales primarily reflects higher sales of How to Get Away with Murder in Q2 last year compared to this year.

Quarter-to-date, primetime scatter pricing at the ABC Network is running 27% above upfront levels.

Total Media Network's affiliate revenue was up 5% in the quarter due to growth at both cable and broadcasting.

Higher affiliate revenue was driven by 7 points of growth due to higher rates, partially offset by about a 3-point decline due to a decrease in subscribers.

While the impact of subscriber declines on affiliate revenue growth still rounds to 3 points, I'll note that this is the third consecutive quarter we've seen modest deceleration in the rate of net subscriber declines.

And finally, Consumer Product and Interactive Media results were lower in the quarter as higher licensing income was more than offset by lower comparable store sales in our retail business and an unfavorable foreign exchange impact.

During second quarter, we repurchased 12.2 million shares for $1.3 billion.

And year-to-date, we repurchased 31.3 million shares for approximately $3.2 billion.

And with that, I'll now turn the call over to Lowell, and we'd be more than happy to take your questions.

Thanks, Christine.

Operator, we're ready for the first question.

(Operator Instructions) The first question in the queue comes from Ben Swinburne from Morgan Stanley.

I have 2 questions, one on the Parks business and one on your digital strategy.

When you look at the recent results, Bob, over the last few years, the Parks have been growing operating income at, I think, a pretty healthy double-digit clip.

Can you talk about the runway ahead for that business, whether it's sort of pricing power, capacity at the hotels.

You mentioned -- or Christine mentioned 90% occupancy.

The ability to drive additional operating leverage.

I think your margins are -- I think, they're at all-time highs.

When you look out over the next 3 to 4 years, assuming the economy is okay, can you just talk about the drivers of continued growth at the levels we've gotten accustomed to?

And on the digital front, I don't know if you can answer this, but I thought I'd take a stab.

You announced your digital pivot last year ahead of the Fox announcement.

So maybe you could talk about how essential or not Fox and its associated global assets are to your digital strategy as you look out over time?

Sure.

Thanks, Ben.

On the first question, we think that there's ample room for expansion.

It will come from multiple directions.

One, I mean, expense, I'm talking about growth, obviously, the bottom line.

One will come from expansion.

As you know, we are building out all of our parks, including the Toy Story Land that's about to open in Florida, the one that just opened in Shanghai, the cruise ships, the 2 Star Wars Lands, multiple hotels around the world, new lands in places like Paris and Tokyo and I could go on.

So that's one.

Two, we believe, that the use of our IP, which is part of a lot of this expansion, creates growth, and that's, of course, the more popular our IP is, the more in demand it is at our parks.

Another opportunity is in pricing.

As we build out these experiences in terms of scope and scale, but also as we make them better experiences using technology to do things like book attractions in advance, et cetera, we believe that gives us pricing leverage that comes from simply delivering a better experience.

And the last is that business has been great at running under very, very efficient circumstances.

And while we're not going to promise continued margin expansion, we certainly believe that, that opportunity exists.

So we feel, overall, great about the future of this business, particularly, by the way, as we get to build out some of the newer parks, Shanghai being probably the best example of that.

On the second question, we announced, as you suggested, the 2 new digital products, the ESPN Plus product and the Disney product well in advance of the Fox acquisition.

So neither one is dependent upon that acquisition.

Both are capable of taking advantage of some of the assets we'll be buying as part of that acquisition.

On the sports front, the regional sports networks and then on the Disney front, we think there's some great opportunities for Nat Geo and some of the other Fox properties to be part of the Disney family direct-to-consumer proposition, but that largely is going to be anchored by Disney, Marvel, Pixar and Star Wars, so not dependent at all on the assets that we're buying from Fox.

Of course, we end up in this acquisition owning 60% of Hulu, and it is our intention to continue to fuel Hulu with more original programming.

And much of that original programming will come from the assets of both Disney and Fox.

Think FX as one example, Searchlight is another, us using some of the other Fox's intellectual property.

But I'd say when we announced a year ago, we were not talking about Hulu, we were talking about these 2 new properties.

And again, neither is dependent upon, but stands to benefit from the Fox acquisition.

The next question in the queue comes from Jessica Reif from Bank of America.

Two questions.

On ESPN Plus, I know it's early days, but can you talk about any learnings you've had so far regarding consumer behavior or the technology?

You've added original content today you announced today, do you think you need more?

And how that would apply to the Disney DTC?

And then we're going into upfront actually next week, can you talk about your views of how the market's shaping up?

And given the changes in the overall environment, how do you think the sales process will change?

The first part, we are not going to give you statistics, except -- on ESPN Plus, except to say that so far, so good.

A number of people have signed up, obviously, for the trial and our conversion rates have been good so far.

Most importantly, the technology is working, the user interface is considered good, the fan reaction has been quite strong.

We're going to continue to improve it.

There's always opportunity to get better, and that's what we'll do.

But basically, I give it a so far, so good.

I watched -- not on a WiFi connection, but I watched the other day a live Yankee game, basically while I was sitting in my car, and was -- the quality was fantastic.

And I found that as I've customized it with my favorite teams, et cetera and so on, that it's serving me and my sports interest quite well and I assume that's the case with our consumers.

We did announce today the acquisition of the UFC events starting in 2019 for 5 years.

That's a start.

We intend to continue to invest in buying product that is original, whether that is specific for the app, both live sports and non-live sports.

We've also moved some product over there and put some library products over there, and we think that there's a lot of opportunity for us to continue to fuel that experience with product you don't get to see on the linear network.

Just, for instance, we've launched the equivalent of a short SportsCenter that Scott Van Pelt is doing that will be available on a daily basis.

So there's a lot of opportunity, and we're going to continue to invest.

On the Disney front, we're in right now the process of creating a lot of original content.

We're launching in late 2019.

That's to wait for some of our movie output to become available once the Netflix deal expires and also to give us an opportunity to ramp up some of the original content that we're creating for it.

And we've said a few times we're going to get more specific about that as we get closer, but we're producing right now content for -- original content that is Pixar-branded, Marvel-branded, Star Wars-branded and Disney-branded, and we are feeling quite good about the direction that we're headed there.

In the Disney case, we're looking for quality over quantity.

We're not looking for essentially massive amounts of content, we're looking for high quality content utilizing those brands and the franchisee and characters that fall under those brands.

Right now, I feel good about both.

On the upfront, Jessica, we feel really good about where we are with both the ABC properties as well as the television group, the Disney television group as well as the ESPN as we enter those.

Right now, where we see the season to-date, we've got good ratings momentum with a couple of new shows, American Idol as well as Roseanne, and we feel really good about the other shows that we'll be presenting next week.

One of the things that is different, is about a year ago, we consolidated the ad buying or the ad selling through our Disney ABC Television Group.

So this is the first upfront that they're up and running as a single sales entity.

So we think that's also going to help our upfront sales.

The next question comes from Michael Nathanson from MoffettNathanson.

Bob, I have 2 for you.

The first one is, I wanted to hear a bit about the reorg you, guys, put through in March, where you shifted advertising, content sales, international to 1 division.

And what are we trying to gain by doing that?

And then secondly, when we think about what you've done in China in putting a park there to kind of build awareness for the Disney brand.

As you move to more of a global OTT strategy, would you ever consider building parks in other parts of the world as kind of a brand beacon for just the overall interest in Disney's products?

I'll answer the second part first.

We think that there's opportunity to expand in China, and there may also be opportunities in other parts of the world.

We are constantly engaging in conversations with people from different markets who would love us to put the Disneyland in their market.

We're going to take a look at some of them because of the population base that lives in those markets and consider all the factors that we typically have to consider, which are things like economic and political stability, spendable income, other infrastructure issues, you name it.

But I'd say that there's -- in that -- an inevitably to us of building parks in other countries, but it doesn't necessarily mean that we're going to build something anytime very soon.

But we're going to look.

On the first question, when we were considering the best way to integrate the Fox assets, we asked ourselves how best to organize the company.

And one of the things that we looked at was how some of the new entrants in the marketplace are organized.

And you typically find Netflix is a good example.

They have global platforms that their content is basically distributed on.

And that includes a global means of managing customers, data management, billing, customer acquisition, customer retention, you name it, essentially, one technology.

And I then thought, but if we were to -- if all these assets were to come together today from Day 1 in effect -- on Day 1 without any of the legacy organizational issues, how would you best organize them?

And it became clear that we could be organized not only in a more efficient way, but in a more modern way to take into account how our businesses have been transformed by technology.

And that led to a decision to reorganize now well ahead of the Fox acquisition because, if it made sense, once we buy Fox, it seem to make sense even before that.

So what we basically did is we have 3 primary content divisions.

One, I'll call Media Networks or television; another one will be sports, ESPN; and the third is the Studio, the Fox assets would plug into all 3 of those.

Then, there was a division that was mostly focused on physical goods and experiences where there were some obvious synergies and overlap in inefficiencies, really, between Consumer Products and Parks and Resorts.

And then we looked at creating essentially a global platform or distribution business that would include technology and would ultimately leverage the technologies that exist across the globe and across our current businesses but then factor in the technologies that exist in the assets that we are acquiring.

And it seemed to make sense that international become part of that, part because as part of the acquisition, there are 2 big platforms, Sky and Star, that are part of that.

And so if this acquisition happens, it seemed to make sense that the international assets and, I'll call, the global platform assets are in one business.

And so there's just a lot of efficiencies in managing the way we take all this IP to customers around the world, it's our intention to create a great user experience and an efficient way, not only of our moving the content to people, but an effective way of monetizing it.

And the -- it really dovetails with exactly why we're interested in these assets, which is to continue as a company to invest and to create great products and experiences around the world, to invest in great technology, to make it more modern, more innovative in terms of how customers interface with it and diversify the company internationally.

Next question comes from Alexia from JPMorgan.

On the Studio side, Avengers has been such a huge home run.

I guess, is there any opportunity for another content cycles on the conclusion of the series after the next film?

Or maybe just any color you can provide in general on your confidence this incredible Marvel success can continue.

Well, we've got -- right now, the Marvel films that we have announced is we have Ant-Man and the Wasp coming up, and then we have Captain Marvel, and then we have the fourth installment of Avengers, which will be May of 2019.

We have -- we meet on a regular basis with our Marvel team, and we plotted out Marvel movies that will take us well into the next decade.

We're confident that with the 7,000-some-odd characters that's a part of the Marvel Universe, that there's plenty stories and characters to mine from and have some great ideas.

I'm guessing that we will try our hand at what I'll call a new franchise beyond Avengers, but it doesn't necessarily mean that you won't see more Avengers down the road.

We just haven't made any announcements about that.

The goal, of course, was for the fourth Avengers series to have a significant conclusion.

But given the popularity of the characters and given the popularity of the franchise, I don't think people should conclude that there'll never be another Avengers movie.

But there's certainly a lot more that we can -- a lot more stories to tell, a lot more characters to populate those stories with.

Hey, and Alexia, I'm going to add just a comment on Avengers.

I think the outstanding performance is nothing short of stellar.

But there is one difference in this movie versus some of the others, I'll just point to the most recent one, Black Panther, and that's the size of the cast.

When you think about -- if you've seen it, you've seen a couple of dozen Avengers in the movie.

So because of the size of the cast involved and the cost of the movie and all the special effects, the scale, the magnitude, while this film is going to be very profitable, it may not be at the same return level of some of the other films just because of the sheer scale of it.

And I guess just jumping on that point when you talk about the size of the cast.

How should we think about maybe the CP opportunity given the success and you do have such a -- so many characters in the movie?

On that CP -- for Consumer Products, this was 1 of 4 Marvel releases this year, along with Thor, Black Panther and as Bob mentioned, the upcoming Ant-Man, but this is the largest property from a Consumer Products perspective, so we do expect this to perform well for the balance of the year.

The next question comes from Marci Ryvicker from Wells Fargo.

I have 2 questions.

The first, can you talk about your marketing strategy around the launch of ESPN Plus?

I know there's been a lot of concern in the market about upfront cost for both ESPN Plus and for the Disney DTC app.

So anything we can glean on at least marketing around that?

And then secondly, can you remind us how big Toy Story Land Shanghai is relative to the Shanghai Park and maybe your expectations for what this can do either drive attendance or have people stay longer?

The marketing strategy for ESPN Plus is relatively modest in nature.

We have primarily resorted to using time and marketing opportunity on the ESPN platforms, including the channels, the magazine, the websites and the existing app.

ESPN digital is the most popular sports digital product out there.

It dwarves some of the competition, and that gave us ample opportunity to promote, basically, what is a new app experience.

So the marketing costs are modest.

There's some investment and additional programming prior to launch, but we made more investment with the announcement of UFC.

That doesn't come until 2019, and we're going to continue to invest in product to make ESPN Plus a real digital sports marketplace.

We're not going to give the specifics about the size of the Toy Story Land, but it marked a substantial increase or in expansion of that park, building a new land.

It's not as large, by the way, as the Toy Story Land that we're opening this summer in Orlando, but having been there last week, it's sizable in nature, it's got some great attractions, retail and dining experiences.

And it makes -- I'll call, it makes a dent in terms of the scale of the park.

But we have ample opportunity to grow Shanghai Disneyland beyond what we've already built.

Next question comes from Todd Juenger with Sanford Bernstein.

One on advertising, and one on content.

Probably, I guess, for Christine maybe, thank you, as always, for the pacing number on ESPN.

I was hoping maybe you'd be willing just to decompose that just a little bit in rough terms for us.

I mean, especially with the NBA seeming so strong in both audience and looks like more games this year, one would think that, that would be a strong positive contributor to year-over-year growth.

The pacing is, I think, you said minus 1., makes you wonder how -- what the downs are, and one thinks of SportsCenter and all the hours particularly related to that.

So I'm not looking for specifics here, but if you could help maybe dimensionalize the positive and negative contributors, that would be awesome.

Bob, I'll try and make this faster.

On the content for the entertainment direct-to-consumer strategy, you've talked many times in this call about the original content that you have in your minds, and you're going to share with us, I know, over the coming months.

You didn't talk much about the library content, both at Disney or at Fox as currently contemplated.

What are your current thoughts, if you don't mind sharing them, on the importance and the role of that library content, especially TV product, in your entertainment service, especially relative to the revenue it generates in traditional syndication?

And do you think it's okay to be in both places, or is it important to be exclusive to your service and when and where that makes sense?

Okay, Todd, I'll take the advertising question first for ESPN.

In my comments, I did mention that quarter-to-date, it was pacing down 1%.

That was rounded up to 1%.

So where we are with the NBA Finals with the teams that are remaining and what we anticipate being the conference -- Eastern conference final, we feel really good about the prospects of advertising performing well in the balance of this quarter.

On the content side, we are fully committed, I want to emphasize the use of the word fully, to not only bringing this product out to market, but making sure it’s a success long term.

Long term is the operative word -- or the operative words to use here, because in order for this to be successful long term, it has to become the destination to watch Disney, Marvel, Star Wars and Pixar product.

And that means, ultimately, weaning ourselves of product being available any other place, except for the current linear channels that are in the marketplace.

So this will become the destination globally for our movie library and our television library.

And we certainly hope to augment the product with some of the product we will be buying with the Twenty-First Century Fox acquisition, Nat Geo comes to mind as a perfect opportunity for we'll be a more family-oriented app.

But we are committed to this working, and that will mean both making product that is original for this app, but also migrating all of our other product that exist on many other platforms that are distributed and monetized by third parties available on an exclusive basis through this app.

The next question in the queue comes from Steven Cahall from Royal Bank of Canada.

Two for me.

Bob, one for you and then one for Christine.

Bob, I was just wondering if you could maybe reiterate how you view the strategic fit of Sky in the overall portfolio.

To some of us, Sky maybe always looked like it was a little different than the rest of what you were buying with Fox and now that things have changed there with the counteroffer on Sky, I was just wondering if you could help us put that all into the context of your strategy.

And then Christine, you had a really strong quarter for free cash flow.

I think pension might have helped, and your buyback cadence has been running a little lower.

We're probably still in line with guidance so just any update you might give us on what the buyback might look like this year.

Look, we are buying the 39% of Sky that is part of Twenty-First Century Fox's assets, and we know they are attempting to buy the remaining 61% that, should they be successful, we would step into their shoes and own the whole thing.

We value Sky, obviously.

We're certainly impressed by the talent that is there and the quality of the product.

Actually, we're particularly impressed with the quality of their -- the customer experience, the user experience and the customer service they provide, and that's certainly something that Disney can appreciate given our record of providing high-quality customer service.

I'm not going to, in any way, quantify what the strategic fit is, except to say that in today's world, a platform that can bring product to consumers in very, very user-friendly and effective ways and then to monetize this in the process is something that we believe is attractive.

And we're not going to provide anything -- any update on your other question, we've got -- I don't think we've got -- we're not going to address that.

No.

You're absolutely right that free cash flow is very strong.

But what we've said is that we would buy 10 billion by the time that the Fox transaction closed.

But as it relates to this year, we've got no change to make at this time.

The next question in the queue comes from Kannan from Barclays.

Just a couple from me.

First is in terms of the investments in OTT, just wanted to figure out how much of the cost is already in the system, especially when it comes to things like technology now that ESPN Plus is live?

And how much remains to be done?

And then Bob, from your perspective, when you look at a product like ESPN Plus, can that at some point become an aggregator itself in the sense that you could put together a bundle of sports networks and provide it through ESPN Plus instead of just having content that you own?

Yes, Kannan.

On the first question, the technology, when we acquired BAMTech, that provided us with the technology that we needed to launch ESPN Plus.

And so the cost associated with that -- and we were quite transparent when we announced the deal, the cost associated with that -- and Christine actually commented about them in, again, her earnings call, are already baked into this from a technology perspective.

And then on the second part of the question, we -- our goal here is to create a sports marketplace on ESPN Plus, and that will include a number of sports that we've already licensed and sports that we are in the process of licensing, including the deal that we announced today as well as the -- some of the sports that we would be acquiring as part of the Twenty-First Century Fox acquisition and then, there are opportunities to license beyond what we've already done.

Yes, Kannan.

Just to put some numbers around the technology investment, and these are -- this is BAMTech total, but a lot of this is for their technology platforms.

Back in November, we told you that it would have an impact on 2018 of about $130 million.

And we have said that, that will now be $50 million more.

So the estimate for the full year was $180 million, and $100 million of that will be next quarter, but a lot of that is technology investment among other expenses related to BAMTech.

Thanks, again, everyone for joining us today.

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

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This concludes today's call.

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