The Walt Disney Company (DIS) Q4 2011 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Fourth Quarter and Fiscal 2011 Walt Disney Earnings Conference Call. [Operator Instructions] And now I'd like to turn the conference over to Mr. Lowell Singer, Senior Vice President of Investor Relations. Please proceed.

Okay. Thanks, everyone. Good afternoon, and welcome to the Walt Disney Company's Fourth Quarter 2011 Earnings Call. Our press release was issued about 45 minutes ago. It is available on our website at www.disney.com/investors. Today's call is also being webcast, and that webcast will be available on our website as will a replay and a transcript of the call. 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 will lead off followed by Jay and then we'll be happy, of course, to take your questions. And with that, let me turn it over to Bob, and we'll get started.

Thanks, Lowell, and good afternoon. We're proud to report Disney posted record revenue, net income and earnings per share for the 2011 fiscal year. Our net income grew by 21% over a year ago on a 7% increase in revenue, and our earnings per share adjusted for comparability were up 23% for the year. I'm also very pleased with our fourth quarter results, which were driven by Media Networks and Parks and Resorts, with net income up 30% and revenue up 7%. Our EPS for the quarter, adjusted for comparability, grew 31% to $0.59. Our fiscal 2011 results validate our strategic priorities and demonstrate we can grow our earnings in the near term while continuing to invest for long-term shareholder value. Given the challenging economic environment this year, I'm particularly proud of our excellent management team, which has consistently delivered on our strategy, creating high-quality content, expanding our platforms and growing our iconic brands and assets worldwide. Disney's collection of strong brands is unparalleled in the media and entertainment space in the U.S. And in 2011, we made significant progress in expanding our footprint in 3 large rapidly developing markets, Russia, China and India. Less than 2 weeks ago, we announced the launch of a free-to-air Disney Channel in Russia that will reach 40 million households and 75% of the country's viewers with signature Disney programming and original Russian content. With a portfolio of 100 Disney Channels around the world, up from 19 a decade ago, Disney Channel serves as an anchor for our growth and is a preeminent brand builder. We're extremely excited about this opportunity in Russia. In China, work has begun on Shanghai Disney Resort, a 963-acre site that will include Shanghai Disneyland, 2 themed hotels and a large retail dining and entertainment venue. The Shanghai Resort is a key component of our growth strategy in China. And in India, we are in the process of acquiring the 50% equity that we don't own in UTV, one of the country's premier media and entertainment companies. Combined with UTV, we will be the leading film studio, producing both UTV and Disney-branded films, and we'll increase the number of cable and satellite channels we own from 3 to 9. The combined UTV and Disney assets will allow us to significantly grow our businesses in India. We've made significant investments in Parks and Resorts in the last 5 years and many are coming online. Toy Story Playland just opened a great guest reaction in Paris, and we're excited about its opening in Hong Kong next week. Next year, the highly anticipated Cars Land at Disney's California Adventure and Little Mermaid at Disney World's expanded Fantasyland will be completed. Following the success of the Disney Dream earlier this year, we will launch the Disney Fantasy in Spring 2012 and our Imagineers and James Cameron are already at work on the design of our first Avatar-themed land at Walt Disney World's Animal Kingdom. Our long-term investments in Parks and Resorts are aimed at strong returns on capital as well as strengthening and growing our product in markets we already operate in and expanding our presence globally. Nothing illustrates our ability to create enduring quality family entertainment better than the rerelease of the Lion King in 3D. Nearly 20 years after its original premiere, it has grossed about $150 million in box office worldwide and was the #1 selling Blu-ray Disc its first week of release. Over the next 2 years, we will release 4 additional award-winning animated films in 3D, Beauty and the Beast, Little Mermaid, Monsters, Inc. and Finding Nemo, and introduce a whole new generation of families to these hallmark theatrical events. In fiscal 2011, Pirates of the Caribbean: On Stranger Tides, the fourth film in our extremely successful franchise, earned more than $1 billion in global box office, 1 of only 10 films to have done so. And we're in early development for another Pirates sequel. Cars continues to be a great franchise for us and in addition to grossing $559 million in global box office, Cars 2 continues to drive very strong performance in our Consumer Product business. Which we expect to continue into the holiday season. It has surpassed both Star Wars and Toy Story in retail sales of movie themed merchandise. Marvel's Thor and Captain America were among the top 10 non-sequel releases of the year and we are pleased with the performance of both films and the true benefits of our Marvel acquisition should be quite visible in 2012. First, in May, Thor and Captain America will join Iron Man, The Hulk and Black Widow in Marvel's The Avengers, the first Marvel film to be marketed and distributed by Disney. The Avengers shows great promise with a record 10 million downloads on iTunes when the trailer debuted, and it is well on its way to being our next great franchise. Then in July, Sony Pictures will release The Amazing Spiderman. We're excited about the film and expect it will drive significant benefits for Spiderman consumer products. To that end, we recently completed a transaction with Sony Pictures to simplify our relationship. And in the deal, we purchased Sony Pictures' participation in Spiderman merchandising, while at the same time, Sony Pictures purchased from us our participation in Spiderman films. This transaction will allow us to control and fully benefit from all Spiderman merchandising activity, while Sony will continue to produce and distribute Spiderman films. We won't be specific about the economics of this 2-way transaction, but we expect it will drive attractive returns for Disney. Our upcoming slate of films is rich in variety and potential. On Thanksgiving weekend, The Muppets will hit theaters in what we believe will rebuild another beloved franchise. Dreamworks' War Horse, a Steven Spielberg directed epic, will be in theaters in December. Early next year, we're looking forward to our live action adventure film, John Carter, directed by Andrew Stanton of Finding Nemo and WALL-E. And as I already mentioned, The Avengers will premiere in May. And opening in June is the highly anticipated Disney-Pixar's Brave, featuring a spirited Scottish girl on a comic medieval adventure. In November 2012, we will release Wreck-It Ralph, the Disney animation feature set in a multidimensional world of video games. Turning to Cable Net, ESPN posted a record number of viewers for the fourth consecutive year and remains the leading destination for sports. ESPN.com has captured 70% of fans on mobile sports sites, and in September, ESPN.com set a record for its most unique users ever of 52 million. ESPN was able to grow its viewership and expand its content offerings to subscribers while showing discipline and acquiring sports rights. Our recently signed long-term agreements reached for the NFL, Pac-12 and Wimbledon ensure ESPN will continue to offer the broadest array of sports coverage for fans to access wherever they watch sports. In fiscal 2011, Disney Channel and ABC Family posted record viewership for their targeted audiences. Disney Channel is now #1 across broadcast and cable, among kids and tweens for total day and prime time. Our Phineas and Ferb TV Movie is the #1 scripted telecast on broadcast and cable for that demographic and the #1 scripted cable show in total viewers. The Phineas and Ferb series and movie are also delivering record viewership internationally, and a feature film is planned for release in 2013. Phineas and Ferb is well on its way to becoming a successful franchise for the company. ABC Family had its fifth consecutive year of growth in this key demographic of 12 to 34 year-olds, up more than 9% in fiscal 2011. ABC Family was home to 3 of the top scripted shows on basic cable this summer, including Switched At Birth, which was the top-rated new cable show among millennial viewers. At ABC Primetime, we're seeing some very promising signs. ABC has 2 of the top 3 new dramas among 18 to 49 year-olds and the top 2 drama debuts with ABC owned Once Upon A Time and Revenge. Our Wednesday night block is posting its second consecutive year of double-digit percentage growth among total viewers in adults 18 to 49 with the ongoing success of Modern Family, the new strength of the middle and encouraging results from the new show, Suburgatory. ABC's new hit dramas coupled with our comedy lineup will form the foundation for rebuilt and revitalized schedule in the coming seasons. As we prepare to relaunch disney.com next fall, we're excited about the deal we recently announced to produce co-branded family-friendly video experiences for disney.com and YouTube that we believe will grow our brand presence online and drive new traffic. In our Game segment, we've diversified our strategy and are seeing success with both social and mobile games. Where's My Water? reached the top of the paid apps chart for 3 weeks this fall and Gardens of Time was recently named top online social game by its industry peers. And we'll be launching several new Disney-branded Facebook games incorporating Disney IP in 2012. Lastly, all of our Movie and TV businesses is supported by a strong global licensing group in a solid platform in the Disney stores. In addition to these businesses, consumer products is a driving publishing business domestically and internationally and is launching a number of titles for mobile devices and is creating a broad digital strategy. This was a great year financially and strategically for the company, and we're very excited about 2012 with our upcoming film slate, momentum at ABC Primetime, continued growth at ESPN, the opening of multiple park attractions and the progress we're making to deliver profitability across our digital businesses. We're confident our strategic focus on great content, innovative uses of technology and global brand and asset growth will position us to deliver long-term shareholder value. And with that, I will turn it over to Jay Rasulo. Jay?

Thank you, Bob, and good afternoon, everyone. We are pleased with our fourth quarter results topping off a very good year for the company. We reported record revenue, net income and earnings per share in fiscal 2011. I'm going to take a few minutes to discuss the fourth quarter in more detail and then highlight some specific fiscal 2012 items. In Q4, Media Networks was the largest contributor to our performance, driven by growth in operating income at Cable Networks, more specifically by growth at Worldwide Disney Channel and ESPN and an increase in equity income. Growth at the Worldwide Disney Channel was the result of increased revenue from the sale of Disney Channel programming, higher affiliate revenue and increased ad revenue internationally. At ESPN, higher affiliate and advertising revenue were partially offset by higher programming costs associated with contractual rate increases for college football and the NFL. Advertising revenue at ESPN was up 4% during the quarter but up 7% adjusting for the impact of last year's Men's World Cup. This growth is on top of a 19% increase ESPN delivered in Q4 last year. And if you look at the full year, ESPN ad revenue grew 18% in fiscal 2011, and that's following a double-digit increase in fiscal 2010. The growth in equity income resulted from an increase at A&E Lifetime due to the absence of programming write-offs incurred last year. During the quarter, ESPN signed a new long-term agreement with the NFL. This deal extends our Monday Night Football rights through the 2021 season and provides us with 500 hours of incremental programming per year, which we began airing this season. Extending our NFL partnership further strengthens our sports content portfolio, which continues to make ESPN the #1 destination for sports fans as well as cable television's most valuable network. At Broadcasting, Q4 operating income was higher as a result of lower programming write-offs as well as higher ad revenue at the ABC Television Network. At our own TV stations, ad revenue was down 11%, but excluding political advertising and the recently sold, Flint and Toledo stations, ad revenue was up low single digits. At the ABC Network, quarter-to-date scatter pricing is 25% above upfront levels. ESPN ad sales are pacing up single digits, and ABC Family ad sales are pacing up more than 10%. Given the strength of political spending last year, Q1 TV station ad sales are pacing down. Excluding political, TV station ad sales are pacing up. We are very pleased with our results at Parks and Resorts in the quarter. Operating income was up 33% as a result of higher guest spending at our domestic parks and higher passenger cruise days, partially offset by increased costs. Total segment margins for Q4 were up 220 basis points versus last year and domestic Parks and Resorts margins were up more than that. For the full year, total segment margins were up 90 basis points. For the quarter, domestic attendance was up 1% and per capita spending was up 9% on higher ticket prices, food and beverage and merchandise spending. Average per room spending at our domestic hotels was up 9%, while occupancy was down 2 percentage points to 81%. The increase in per room spending was driven by higher pricing and a reduction of promotional room nights. These results reflect our strategy of continuing to increase pricing to normal levels. So far this quarter, domestic hotel reservations are pacing in line with prior year levels, while book rates are up low single digits. I'll note from this point forward, current year domestic reservations will include Aulani hotel rooms, the impact of which is de minimis in Q1 bookings. Results at our international resorts were higher due to increased attendance and guest spending at Hong Kong Disneyland and higher guest spending at Disneyland Paris. We are also encouraged by the pace of recovery at the Tokyo Disney Resort, where our royalties from Tokyo were modestly higher this quarter compared to prior year. At Studio Entertainment, operating income was up for the quarter as a result of lower film cost write-downs and higher domestic theatrical revenues despite lower results in our International, Theatrical and Worldwide Home Video businesses. Domestic theatrical results were up in the quarter as a result of Cars 2 and the release of The Lion King 3D as well as lower prerelease marketing expense compared to last year. Although Cars 2 performed well globally in the quarter, it faced a difficult international box office comparison with the incredibly successful Toy Story 3. Home Entertainment results were down due to lower unit sales of key titles domestically and lower catalog sales internationally. At Consumer Products, operating income was up for the quarter, driven by a higher licensing revenue due to sales of Cars merchandise and higher revenue from Marvel properties. On a comparable basis, earned licensing revenue was up 2%. At the Interactive Media segment, operating losses decreased from the prior year due to lower marketing and product development costs in our Console Game business, partially offset by lower results in our social games. Keep in mind that results -- social games reflect a full quarter of operations of Playdom compared to the prior year, which only included 1 month of operations. I'd now like to turn to fiscal 2012 and provide some color on a few of our businesses that should help with timing and comparability issues for the coming year. In fiscal 2012, ESPN will once again air 4 BCS games and the Rose Bowl, all of which will take place during fiscal Q2. Last year, 2 of these games, the Rose and Fiesta Bowls, add during fiscal Q1. Our new ACC contract, which began in September of this year, will continue to impact comparisons in fiscal Q1 and Q2, which encompass most of the college football and basketball seasons. Our new exclusive coverage of Wimbledon will begin during the second half of the fiscal year, while our new contract with the Pac-12 conference will begin in fiscal Q4. We remain hopeful that there will be a quick resolution to the NBA situation. However, our broad portfolio of rights will enable us to effectively program ESPN without the NBA. We have plans in place to replace the majority of live NBA programming hours with coverage of other sports, including college basketball, so the absence of the NBA will not affect our ability to achieve our full year programming commitments. Since many NBA advertisers want to reach male demos, we'll expect a good portion of NBA ad dollars will be reexpressed to other ESPN properties, including college basketball. We expect any reduction in our NBA-related revenue would be more than offset by a reduction in rights costs. I'd also like to take a moment to address our affiliate contracts with multichannel operators, a subject we've been asked about many times in the past few months. We believe the strength of our cable networks and own television stations positions us well for a series of upcoming negotiations. Our recent agreements with Time Warner Cable, Verizon and Bright House Networks are long-term comprehensive and create value for both Disney and our partners. We expect these deals to serve as templates for upcoming negotiations. Given the timing in our existing contracts, we expect to negotiate new agreements for our Cable Networks and owned TV stations, covering an incremental 75% of multichannel households by the end of calendar 2014. Now let me turn to Parks and Resorts. The Disney Fantasy will launch at the very end of our fiscal Q2, and thus, the ship will not generate meaningful revenue during the second quarter. This coming summer, we will open Cars Land, the corner of our -- cornerstone of our expansion at the Disney California Adventure. These projects are part of our continued investment in growth initiatives that we expect will contribute incremental operating income once they are fully ramped up. However, we expect in fiscal 2012 our growth initiatives will contribute $500 million in both incremental revenue and expense. Having said that, we still expect Parks and Resorts margins to expand during 2012. At Interactive Media, we expect the impact of purchase accounting from the Playdom acquisition to decrease from $110 million in fiscal 2011 to approximately $50 million in fiscal 2012 with the majority recognized in the first half of the year. We expect consolidated CapEx to be approximately $500 million higher than in fiscal year '11 with our work on the Shanghai Disney Resort being the largest driver of this increase. We expect pension and postretirement medical expenses to increase by $50 million in fiscal 2012. If you recall, in May, we announced changes in our salary pension plan that will reduce our expense over the next 5 years by $350 million to $400 million or approximately $75 million per year versus our previous plan. We still expect to realize these savings in fiscal 2012. However, changes in other key assumptions, including a 50 basis point reduction in the discount rate, more than offset these savings in fiscal 2012. We continue to increase the pace of our share repurchase -- continued to increase the pace of our share repurchase during the fourth quarter by buying back 58 million shares for about $2 billion, bringing our total share repurchase for fiscal year to 134.7 million shares or approximately $5 billion. During the first fiscal -- first quarter of our new fiscal year, we have repurchased 12.7 million shares for about $420 million. 2011 was a great year for our company. We delivered strong operating results, expanded operating margins, continued to invest in our core businesses and extended the reach of our brands outside of the U.S. We are very well-positioned to drive growth and returns for our shareholders in fiscal 2012 and in the years to come. With that, I'll turn the call over to Lowell for questions.

Okay. Operator, we're ready for the first question.

[Operator Instructions] And our first question comes from the line of Michael Nathanson with Nomura.

I have a couple. One is just housekeeping to start with. Jay, I'm just curious how is your affiliate fee growth this quarter. Can you tell us that so we don't have to wait for the K to come out?

Affiliate growth in the quarter was at -- for -- so the total Cable Networks was 8%.

Okay. And then let me ask you one on Parks and one, Bob, on Sports. On Parks, this year, they just ended -- has been really volatile on margin by quarter. I know there's been a lot going on. We talked about that in other calls, but when you look at this quarter and the factors that drove the margins this well, what were those factors? And what's kind of repeatable going forward?

In terms of the Parks margins?

Yes.

I'm sorry, I missed the beginning of your question, Michael.

Well. The question is, like, if you look at the volatility in Park margins this year, right, this was a really strong quarter. Margins and the flow-through is really high. So when you look at this quarter, what happened this quarter on margins that got you the operating leverage? And are those conditions sustainable?

Yes, well, there are 2 major contributors to increased margins. Of course, when I reviewed the per caps, a lot of that was due to RNA pricing and higher ticket prices, which, needless to say, don't have a little -- a lot of interference flowing to the bottom line. We also, as we've been telling you, have been -- had a very, very strong response to our new cruise ship. It is booking at great rates. It is contributing very well to our revenue, and both of those have, I would say, were the key drivers to our margin improvement in the quarter.

Okay. And then one for Bob on Sports. You mentioned being disciplined in buying sports rights. We've seen in the past month or 2 some pretty expensive deals for rights that maybe are not primary. So how do you balance your need to keep on acquiring key sports rights with your desire to drive returns for the company and for the shareholders? So how do you think about what you need to buy and what you don't need to buy?

Well, we look at each package as available individually with an eye toward literally what kind of value we think it's going to drive, whether its going to support the brand, what kind of volume are we talking about in terms of number of hours, what will the ratings be, can we convert to advertising and how can we better serve our customers, which are both the multichannel distributors, and ultimately, end-users, the viewers. The NFL is a good example. There's no question that was an expensive deal. And as I was saying, using the word discipline, I was thinking about the cost of -- to us of extending that deal. But what we saw when we did that was, first of all, long-term deal that takes us to 2021. That's tremendous certainty. We know we have certainty in terms of quality of the product and the games and the interest in those from our viewers and our distributors and advertisers, by the way. And we have the ability to program more than 500 more hours of NFL programming kind of annualized. So when we added all of that up and we looked at the growth trajectory of those rights fess, we concluded that if there's anything that creates value for ESPN, it's the NFL. And so we apply similar logic, the college football and college basketball package that we bought represent quality programming, huge local interest in those. You know if you've gone to a college that has a decent sports team how loyal you tend to be as a viewer, to that team, those teams, again, long-term deals. And the other thing that we've got gained in a lot of these deals is multi-platform capabilities. So it grows our customer engagement, and that's a big deal. The growth of ESPN.com, which I cited in my earnings comments, the use of smart mobile devices, in some cases, international rights, these are all very, very valuable. Those that we -- those sports that we did not get interestingly enough, the World Cup and the Olympics, while there's no question, they're high-quality. They don't occur every year. They occur for a short period of time. And we didn't believe that we could justify the kind of rights that ultimately others pay for it because it didn't really meet the standards based on the cost those rights were going to amount to, to us that we've adhered to for these other packages.

Our next question comes from the line of Spencer Wang with Credit Suisse. Spencer Wang - Crédit Suisse AG, Research Division: I just have a 2 part question on just the macroeconomic backdrop. Jay, I was wondering if you could just talk a little bit about the booking window. Have you seen any changes there just given the macroeconomic backdrop? And if you could speak specifically to international visitation just given the volatility in the euro. And then, Bob, if you could just update us what you're seeing kind of realtime in the scatter market both for broadcast and cable, that'd be great.

Okay. Let me start, Spencer. On the booking window, we -- something we watch pretty carefully, I told you 2 quarters ago that we saw a little elongation of that from 13 weeks to 14 weeks. This quarter, it remained pretty steady at about that 14 weeks between when the rooms are booked or when the vacation is booked and when the guests show up. So not a lot of movement there in this quarter. On the other question you had about international visitation, the fourth quarter happened to be a particularly strong quarter for international visitation. I have told you that for many quarters or many years. For our business as a whole, we're looking around 20% of our business, a lot of that driven at Walt Disney World. Walt Disney World was at the high end of the range that we see between 17%, 18% and 22%, 23%. Walt Disney World really over-performed in the quarter internationally. And it made the year sort of fall pretty solidly in that 20% -- 18% to 22% range. So surprisingly, to some extent as was implied in your question, but we are still seeing very strong international attendance.

Yes, we don't get that much attendance from Europe really, but it was strong during fiscal '11. We've seen a slight slowdown from the U.K. this quarter. But by and large, overall, our international attendance this quarter is up, I think, just under 10% from a year ago. Now we're are also being helped by growth in attendance from Asia and from Brazil, so there's a good kind of global balance. And while we're certainly watching what's going on in Europe very carefully, the fact of the matter is that there are other markets that have grown nicely, and that's obviously a good thing for us. On the scatter side, I want to reiterate the fact that advertising for us was about 19% of our total revenue. It doesn't mean it's unimportant, but I just want to put it in perspective. On the ABC front, scatter pricing has been very strong this quarter, I think Jay mentioned in the mid-20% range, 26% over the upfront. But it has slowed slightly these last few weeks. That said, the option pick ups for January, February and March are running slightly above where we thought we would be, and when we look at the mix of inventory that we have left, including in some very appealing new programs that I mentioned, Once Upon a Time, Suburgatory and Revenge to name a few, we feel good about the inventory that we have left and our demographics are strong. We've been quite strong in women 18 to 49 as a for instance. So I'd say a little slowing in the last few weeks, up nicely over the upfront this quarter, and we'll wait and see. On the ESPN front, they have difficult comps from a year ago as was the case in the quarter that we just announced. They ended up up 18% for the year, which is a tremendous number. They have got a great product to sell. They have a male demographic that's clearly in demand, and they also wrote a lot of business in the upfront. Scatter becomes less of an issue for them.

Our next question comes from the line of Jessica Reif-Cohen with Bank of America Merrill Lynch.

I guess a question for Bob and one to Jay. Bob, you announced the beginning of the succession plan, and I was wondering if you could discuss how you're thinking about your priorities for the balance of your tenure. Is there anything that you'd really like to accomplish other than the path you set the company on? Are there any businesses that you think Disney should be in that it isn't in now?

Yes, the strategic priorities that I articulated back in '05 when I got the job remain very much in place, starts with making great product. Interestingly enough, that's even more interesting and more compelling today than it was back then because the world is offering us even more opportunities to leverage great product, either because of new technology or compelling growth in emerging markets. And that's the real value proposition for us. I want nothing more for this company than to make great product. And I'd say if I had to go and mind over the remainder of my tenure, which isn't as brief as, I think, people suggests, it's to improve the quality of our output. Technology is a huge, huge strategic priority for us. I talked about it when I talk about content. Let's use it to distribute more effectively and to monetize better. It should also be used to make our product better as well. And we certainly see that when it comes to filmed entertainment, but obviously, in our theme parks. And then on the international front, we announced 3 big deals this past year. They're in my remarks, in China, India and Russia. It is imperative for this company to plant a number of seeds in the emerging world. When you look at the -- into the remainder of this decade or the next decade, growth from emerging markets is going to outpace growth in the developed world, and that's the first time that's happened in 200 years. So that's very important, sticking to our knitting and doing more of it.

And then I just wanted to follow up on Spencer's question. We know that historically, international visitors tend to stay longer and spend more, but are you seeing anything from domestic visitors, anything different in consumer behavior at the theme parks in terms of length of stay or spending patterns?

No. Once folks book their vacation, Jessica, they pretty much are behaving as they have in the past. I'd say that not shockingly, if you look at the growth in our merchandise sales, it's a little bit slower in the mix than the growth in our RNA and our Food and Beverage sales, mostly because of some great programming on the Food and Beverage side that has kept that variable growing. But in general, we see our guests behaving pretty much as they have in the past. And as you can see in aggregate, their spending is increasing at a pretty heavy level. If you look -- step back and look at the overall mix, I would say that our Group business, while it has made leaps and bounds, growth back since the downturn. It's still only about 90% of where it was before we came into the downturn. I think there's a little more opportunity for us there because it's very strong countercyclical programming for us. But in general, the goal is to get folks back at the resort at our normalized levels of pricing throughout the year. And pretty much once they're there, they behave as they always did.

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

I guess we'll do 2 questions as well. Jay, just curious if you could give us a good ballpark CapEx baseline if you excluded sort of building a new stuff for those investors trying to get, figure out what a normalized free cash flow level might look like since you've now given us a pretty good idea of the full CapEx. If we unload it and just look at baseline, what would that be? And then, Bob, you're experimenting about as much as anybody with digital distribution business models between Hulu and Netflix and YouTube and building a disney.com content portal. I just -- is there anything that you've learned over the last year that you can share with us that's influencing your strategy about digital distribution, whether it's in terms of updated thoughts on cannibalization with traditional usage, health of pay-TV ecosystem longer-term, what the best online business model might look like? Any comments would be helpful.

Let me start with your CapEx question. And this is one that we -- I get asked often, and I'll try to give you some perspective on it. Five years ago or so, we used to be pretty demonstrative about $1 billion number being sort of a -- an ongoing level without special projects added to it. You have to remember, though, that in those 5 years, in the capital projects that we've put in the ground, which each have their own growth strategy, each is filling in different parts of the portfolio, when they're back on board, they all need sort of ongoing FF&E and maintenance capital to keep them going. So I would say that, that that billion dollar number is low. But certainly, we've been pretty clear about the levels we're spending in fiscal '11 and '12 being at the other end of the spectrum, being very high because of the addition of the 2 cruise ships, the Aulani Hotel, the work we're doing at DCA, all the work we're doing at Walt Disney World has really kind of created a bubble for us that is not our long-term plan. I think that you will hear about longer-term projects, Shanghai, we talked a little bit about as a contributor to 2012 capital expenditures, and that will sort of ramp up over time. Remember that only 43% of that capital is ours. So even though it's a big contributor, the Chinese government contributes 57% of that and we back that cash out of a financing -- a lower financing line in our P&L. So I can't give you exact specificity on our ongoing capital level, but let's say it will be higher than $1 billion but much lower than the $2.5 billion to $3 billion we've been at.

I don't know if I can really give you too many specifics about whether there's anything that we've seen that is -- stands out or is particularly compelling except to say that we thought the technology was going to create opportunities for consumers to consume our content in new ways and in doing so enable us to monetize in new ways. That's certainly coming true with deals like the one we mentioned for Netflix and Amazon and the conversations that we're having with a variety of entities, the number of apps that have been downloaded, the use of ESPN.com, the over 230 million likes on Facebook, the YouTube deal, you name it. It's a very interesting time for content owners, and there is a growing list of platforms that are eager to enter into deals for us to enable them to redistribute our content to support their investment in their technology platform. And I think we're only seeing the beginning of the beginning of that. I'd say if anything that I think is profound or interesting is that -- is how well some of the traditional media platforms have held up. Five years ago, we would've been talking about just how devastating the impact of the DVR would have been on the Advertising business. So we're finding that with roughly 42% penetration of DVRs in the United States and people who have DVRs watching substantially more TV, that the actual increase in ratings in DVR households is pretty interesting. And now that we can sell on a C3 basis, maybe ultimately, we'll be able to sell even on a C7 basis. That's all monetizable. It's not all detrimental to our business model. If anything you could argue, it's actually enhancing it.

Our next question comes from the line of Alexia Quadrani with JPMorgan. Alexia S. Quadrani - JP Morgan Chase & Co, Research Division: Just 2, 1 on the studio, then 1 on TV. First, on the studio side, looking into 2012, the revenues may be a little bit soft just given the number of releases lined up. Can you talk about how we should think about the cost in this business in this time of the year? Can you keep costs down sort of keeping margins intact? And still, on that topic, you've had such big success with your 3D rerelease of the Lion King. How much more profitable are these type of movies? And with you plans for more of these rereleases in 2012, can we see a bit of a margin left there?

I'm glad you asked a question about margins. We don't measure revenue that closely in the Movie business because we're more interested in profitability, and we'd rather make fewer more profitable movies than more less profitable movies, obviously. We like our year ahead beginning with The Muppets, which has a huge amount of momentum right now. And obviously, The Avengers will factor in big time for us as a franchise for the company and as a real new Marvel tempo. And then we've got a good Pixar title in Brave and John Carter, which should be a big movie for us in March. We've done a good job at the studio of continuing to be vigilant about the cost structure of that business, particularly as things change in that business. I don't believe that we're necessarily at the end in that regard. We'll continue to monitor that business very carefully. We're trying to bring some production costs down, but we're doing so in part by basically balancing the mix of the movies that we have, making a few tempo films and investing aggressively in those, The Avengers is a good example of that, I mentioned Pirates earlier, but also making movies that are substantially lower in cost. The Muppets is actually a good example of that. It's a movie that's going to cost less than $50 million to produce, and I like the balance. In terms of the Lion King and whether we can turn to the library to continue to drive profitability, I mentioned in my remarks, we've named 4 titles that we're bringing out in similar form, Beauty and the Beast, Little Mermaid, Nemo and Monsters. They're all different circumstances than Lion King was. Lion King had never been released on Blu-ray, for instance, and it was a 17-year-old title and was a movie that appealed to just about all demographics. I think the films that we're bringing out are extremely appealing films as well. I'm not sure any one of them is exactly a Lion King in terms of the circumstances, but we think they'll all enhance the bottom line, in a couple of cases, enhance basically the brands Disney and Pixar. Alexia S. Quadrani - JP Morgan Chase & Co, Research Division: And then just quickly, on the TV side, any color you can provide on how we should think about retrans in 2012?

We're talking about retrans in terms of long-term, getting into details about when we'll actually be concluding deals, we've included some, but we've not said how many we believe we'll enter into in 2012 and when retrans would kick in. But you're going to see, as was started in 2011, a steady trajectory of growth.

Our next question comes from the line of Alan Gould with Evercore Partners.

Following up on Doug's digital question, what inning do you think we're in in terms of these digital licensing deals? And could you give us any sense of how much the company generates across the company, cable, broadcast and studio, how much revenue you're generating a year from the digital deals?

I was going to say it's still the preseason, but we're getting -- but things count and we are getting paid nicely. The sale of shows to Netflix, which were primarily Disney Channel shows, I think, is only one of several drivers of what our operating income was in the quarter. So while it's nice revenue, it's still relatively modest when compared with the revenue that we derive from subscription fees and advertising. The broadcast side, I think what you're seeing is you're seeing a new form of syndication popping up that didn't exist a few years ago, and that's obviously a good thing. And by the way, I really do think we're at the beginning of the beginning. You're going to see a lot more entrants into the marketplace for varying forms of SVOD or Internet-provided or mobile device provided filmed entertainment. And so I think, I don't know, to put it in perspective, it's going to continue to grow as a percentage of our income, but I don't believe that it will reach a significant percentage of our income, meaning approach, maybe 50% for many years to come. And that's largely because I think the health of the standard businesses of the traditional side of the business looks positive from a long-term perspective.

In aggregate, what did it kick in last year, $100 million, $200 million of revenue?

We're not being specific about it. Total digital revenue for the company is over $1 billion, but that includes a lot more than just, what I'll call, off-network sales. So on a $40 billion and almost $41 billion in revenue, it's still relatively modest. Interestingly enough, what we see growing nicely as well is online commerce, e-commerce. And we've seen huge growth there in Disney merchandise online. So when you look at, what I'll call, growth from digital platforms, it's not just in the Netflixs and the Amazons of this world. It's growth in general in terms of how we sell our product.

Does that include the line booking of travel reservations at the Parks?

No, it does not.

Which is well over $1 billion.

Yes, that would more than double the revenue we read from digital commerce.

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

I just have a question for Mr. Iger. When I just look at the headlines or in the newspaper regarding sort of unemployment rates and under -- people underwater in their mortgages and the amount of sovereign debt, all of that seems to have pushed your multiple down to a pretty low level, and it's pushed the Fed funds rate to a very low level. Your after-tax cost of debt is probably 3%, and yet, almost like clockwork, when the recession began in '09, you began to allocate sort of incremental dollars towards expansion as opposed to a more aggressive equity shrink. And I just wonder, is this a decision you made before the recession started? And are you convinced that this is the best use of the marginal dollar of your capital as opposed to taking advantage of the low rates and the low multiple?

Yes, our attention in terms of our capital expenditures has always been on long -- delivering long-term value. And decisions like the decisions to invest in our Theme Park business are certainly made for the long term, either to expand our presence in the markets that we're in or to bring us into new markets, like a new cruise ship can do or a theme park in Hong Kong or a theme park in Shanghai. We don't look at what's going on that year. We believe in the long-term fundamentals of our business and our ability to drive pretty good returns on invested capital.

And so do you anticipate any change in terms of more returns of capital? Or you think we'll be on this path for a while?

Well, I think we've been pretty clear about our capital expenditures, particularly in the Theme Park business, which we know is where we spent most of our capital. We've not been specific about how we will allocate capital as our capital expenditures on the Theme Park business moderate.

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

Back in February, you talked about your desire to get the Interactive Media business to breakeven by, I think, fiscal '13. I just wondered if, in the 9 months since then, if anything, has happened in sort of the mobile and social gaming spaces that has led you to alter that plan. And how do you feel about -- you talked about wanting to launch Disney-branded properties, so how do you feel about the need to increase the pace of your output at your Interactive Media segment?

Our plan to deliver profitability to our Digital for, what we call, DIMG or Digital Interactive Media Group businesses in 2013 remains on track. The 2012 will be a big step in that direction. We've seen some very nice revenue growth in that regard in a variety of those businesses. The YouTube deal is another step in that direction, and we are sticking with the plan, which is to have a profitable digital business in '13. Was there another part of that question that I missed? I'm sorry.

Just asking, I think you released, for instance, 2 games on Facebook this year. And I'm just wondering, you talked about your desire to launch Disney-branded games. Do you think you need to launch more games than you did in this year?

Well, we purposely dialed back the games that we were launching in 2011 for a variety of different reasons: one, monitoring developments in that social game space; two, really reflecting on the technological infrastructure of our business and wanting to make sure that it was sound; and three, focusing on the intellectual property that we were ultimately going to mine in that space. We have plans to launch somewhere in the neighborhood of 8 social games over the next 12 months. Some are derived directly from company-branded IP, Disney and Marvel and some are based solely on original IP. And this 2012 will be a big step in the direction of us using the assets that we bought when we acquired Playdom, and ultimately, driving toward profitability in 2013.

Our next question comes from the line of Tuna Amobi with Standard & Poor's. Tuna N. Amobi - S&P Equity Research: I have one question for Bob and one for Jay. So, Bob, on the theme parks, I know that heading to the recession that you were kind of rebalancing the mix of your hotels toward the value segment, and I'm not sure what you think at this time about what the optimum mix might be given the fact that it appears from what we're hearing, that the luxury end of the market has been actually holding up better than the value on any number of metrics, whether it's REVPAR or rates or occupancy. I'm not sure what you're seeing there and what you think about the optimal mix of those hotels at this point in the economic cycle.

Well, in 2011, when we finished 2011, about 40% of our rooms fit into what we call the value category, about 30% in moderate and under 30% in deluxe. Interestingly enough, in 10 years ago, it was about 1/3, 1/3, 1/3, so we've grown in the value segment, we reduced slightly in the deluxe. By the way, reduced slightly, essentially, it means it's due to the fact that we simply built more value. And I actually believe, if you look at the last 10 years, that's proved to be a great strategy because we made our product far more accessible to more people. And it has enabled us to not only grow attendance but take market share, grow market share, which was obviously very important, because as we move people from off-property, value-priced hotels to on-property value-priced hotels, we captured a much greater percentage of their vacation spend namely in food and merchandise and obviously on the hotel side. We are actually going to be opening another very large value-priced hotel, but we're also developing a luxury-priced hotel with Four Seasons, that's relatively modest in size and it's going to open, I think, in 3 years. I actually think that our strategy has worked very well. We look at our bookings on the luxury side, and we obviously feel good about that. But we've driven a huge amount of traffic in the value direction, and I think that is -- really served us well. Tuna N. Amobi - S&P Equity Research: And for Jay, thanks for providing clarity on the ESPN NBA situation, although that kind of seems to fly in the face of conventional wisdom that ESPN might actually be the most vulnerable if the lockout should drag on. And I know you said that the rights cost reduction would more than offset any impact there. So I guess the question is, are you expecting any kind of carryover impact if the lockout should drag on? One way or the other, do you expect that to have any kind of prolonged impact? And is it fair to then think about this as kind of operating income neutral? Or would you actually look to perhaps benefit kind of in some way from this from a financial standpoint?

Well, the comment I made applies both to a short-term loss of games, which we're in now, or for a loss of the entire season. In fact, we believe that there is demand for the categories that are strong advertisers on ESPN and whether or not the NBA is being broadcast on ESPN and, obviously, broadcast elsewhere. Those dollars are going to continue to seek that same male demographic that is going to find its way to sports. And the most logical place for them to find their way will be probably not shockingly to college basketball as a substitute and whatever else we have in our huge portfolio of live sporting events that can be broadcast in those NBA game slots. So we expect that those advertising dollars will actually -- the decrease will actually be quite de minimis. But moreover, they will -- if there is some loss, we think that, that loss will be more than offset with not recognizing the rights fees for the NBA for that season. We, by the way, on balance would still prefer to have the NBA season and carry through with our original plan of programming those games. But I do not believe that it will affect us to the negative financially if the season, in fact, does not end up happening. And in terms of future, I can't imagine. I don't think it's ever good for a sports league to find themselves in this situation, but I think the same argument holds for future years that we have a lock on this demographic with advertisers. They love to advertise on ESPN. We deliver the ratings, our portfolio is incredibly strong broadly and no reason to believe that we would see a long-term impact of this particular season of the NBA being locked out. But thanks for the question.

Our next question comes from the line of Tony Wible with Janney.

I was hoping you could comment on the digital opportunities with new windows. You have this syndication SVOD window, but are there other windows that you see that are out there in either film or TV? And also, on UltraViolet, is there any change in sticking with KeyChest? Or would you look to support UltraViolet?

We're continuing to explore the interoperability opportunities, and that includes continuing to look for ways that we can rollout KeyChest effectively. We still believe that the consumer will be better served if, when they buy a digital file, they have an opportunity to access it or play it on multiple platforms, that that's a good thing for the industry. But there are no developments in that regard. The first question was digital opportunities in windowing. I think it's safe to assume that the advent of more and more technology is going to result in more windows. We're already seeing some of that. But I don't want to be specific about which windows, I think, are going to develop first or which ones we're going to take advantage of. But what we're seeing in general in the world in more profound ways than we ever experienced is essentially a giant pop up digital media store. Not being -- that means that, particularly, with smart mobile devices, like the iPad, that suddenly the world is rich in opportunities for content providers to put their content in the hands of people anytime, anywhere. And the anytime, I guess, speaks to the windows, not just when people watch them on their own time, but when we make them available.

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. Let me also remind you that certain statements on this call 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 and in our other filings with the Securities and Exchange Commission. This concludes today's call. Have a good afternoon, everyone.