Ladies and gentlemen, thank you for standing by and welcome to The Walt Disney Company's Fiscal Full Year and Fourth Quarter 2019 Financial Results Conference Call. At this time, all participants’ lines are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. [Operator Instructions]. I would now like to hand the conference over to your speaker today. Mr. Lowell Singer, Senior Vice President of Investor Relations. Thank you. Please go ahead, sir.

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

Thanks, Lowell, and good afternoon, everyone. We're now just days away from launching Disney+, a combination of four years of planning, organizational transformation and a lot of hard work and we're excited to be on the verge of this new era. We're also pleased to have delivered a solid quarter which Christine will discuss shortly. Before she does, I want to share a few thoughts about our DTC business to give you a sense of the confidence we have in our strategy and to provide a few updates. As you know, we began this process with the acquisition of BAMTech which gave us the means to implement our DTC strategy, putting us into the market quickly and ensuring we have the technology to deliver a quality experience. Our first effort was ESPN+ which was immediate hit with sports fans when it launched last year and continues to deliver steady growth. I'm pleased to announce that as of today, ESPN+ has over 3.5 million paid subscribers, who are drawn towards unique and growing mix of original content like the legendary NFL PrimeTime with Chris Berman now exclusively on ESPN+, and exclusive live events including UFC, College Sports, domestic and international soccer, and Top Rank Boxing. The UFC 244 pay-per-view event last Saturday delivered one of the ESPN+’s largest live audiences to-date. Viewing patterns show ESPN+ appeals to a broad array of sports fans, those who want more of everything, as well as fans who are highly passionate about a specific sport, conference or team. We believe we have numerous interesting opportunities to expand ESPN+'s live and original program offerings and to steadily grow subscribers. As I've said, our acquisition of 21st Century Fox was largely driven by the value it brought to our overall DTC strategy, adding a number of critical…

Thanks, Bob, and good afternoon, everyone. Excluding certain items affecting comparability, earnings per share from continuing operations for the fourth quarter were $1.07. We are pleased with our results this quarter and how we closed out the fiscal year. Our core businesses delivered another solid year of financial performance, we continue to make meaningful progress in integrating the 21CF businesses, while making significant investments to drive future growth. Our studio had another great quarter and a phenomenal year. In the fourth quarter, operating income was up 79%, driven by growth in worldwide theatrical due to the performance of the Lion King, Toy Story 4 and Aladdin in the quarter compared to Incredibles 2, and Ant-Man and the Wasp last year. The increase in operating income was partially offset by about a $120 million loss at the 21CF Studio business, which was driven by the performance of Ad Astra, The Art of Racing in the Rain and Dark Phoenix. The loss from the 21CF Studio business was about $100 million higher than the loss we estimate the business generated in Q4 last year. At Parks, Experiences and Products, operating income was up 17% in the quarter driven by higher results at Consumer Products and at our domestic parks and experiences business. Consumer Products operating income was up 36% due to growth in merchandise licensing, as a result of strong revenue growth from sales of Frozen and Toy Story merchandise. At Parks, our strategy of managing yield to drive greater profitability and enhance the guest experience continues to pay off. Operating income at domestic parks and experiences was up 13% driven by growth at Disneyland on higher guest spending and an increase at Disney Vacation Club. Results at Walt Disney World were comparable to the prior-year, as increases in guest spending, occupied…

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

[Operator Instructions]. Our first question comes from Ben Swinburne with Morgan Stanley. Your line is now open.

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

Ben, when we think about those two businesses Marvel and Star Wars, we think about them as more than just films and film franchises, we look at them across multiple businesses and with different basically creative strategies in mind. So just as a, for instance, in both cases while they are continue -- it will continue to be films either in development or in production, there is a lot of activity on the television front. Star Wars has three television series, there are in varying forms of production and more in development for Disney+ and Marvel has many more so, while in the Star Wars case, Star Wars 9 which comes out this December will be the last of the Skywalker Saga, and we'll go into a hiatus for a few years before the next Star Wars feature there'll be a lot of creative activity in the interim. In Marvel's case, I'll call it in the post Avengers world, it doesn't mean there aren't films that are being made the characters from The Avengers back we have Black Widow coming out in fiscal '20, and Thor 4 movie in the works. And I could go on and on. We also are mining other characters and character like Eternals. So as we look at these businesses, they're film business and they're TV businesses, they are still big Consumer products drivers and more and more they have a greater presence of Parks and Resorts. And we feel really good about both the creative direction, but also the commercial direction.

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

Great, thank you.

Thank you, Ben. Operator, next question please.

Thank you. Our next question comes from Alexia Quadrani with JPMorgan. Your line is now open.

Hi, thank you so much. Just two questions on the streaming side, if I may. First, any color you can provide on the early sign ups and Disney+ for the large even just sort of general color, not necessarily numbers for -- I'm doubtful you might so early on. And then if you can talk about the advertising opportunity of some of your other streaming services, specifically Hulu, where you're seeing a really meaningful scale now and ESPN+, which also has seen such great growth, I think you've also recent increase the pre-roll ad loads there. I guess how meaningful can the advertising side become for you guys?

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

Thank you very much.

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

Thank you. Our next question comes from Michael Nathanson with MoffettNathanson. Your line is now open.

Thanks, Bob. A couple on Hulu. I guess I guess scripted comments today you referred to maybe as of Fox Searchlight product the movies is going to Hulu. I wondered, does that represent where all the movies come from this point on. Is that a strategic shift for Fox studio and the film side? And the second question is, you also in the comments I mentioned international Hulu -- internationally. So what's, is there an update on the Hulu international side based on those comments that you made before?

On the international side, we will have more to say after the first of the year where we're working through the formulation of the strategy in terms of what markets when, it's complicated in terms of our -- you need to make sure that we have the right product in all the markets that we launch in and to be locally relevant and locally compliance in terms of some of the rules and regulations. So I don't have much more to say there. Obviously, we have opportunities and we're going to pursue them. I mentioned Searchlight briefly in the call. Searchlight is actually developing some original content for Hulu. The Searchlight and the Fox movie studios has had an output deal with HBO that runs for a few more years. I think eventually is likely that the output would move to Hulu, but it's premature right now to speculate. What I mostly talked about in the call, as you know, Michael, is the fact that we're creating a huge FX presence on Hulu and what that means is that FX is producing original programming for will original exclusive programming and also moving FX library, some 40 series and over 1,600 episodes on Hulu, and we're making available current shows that air on FX available on Hulu within hours after the air, as we do with traditional network shows.

Thanks a lot.

Thanks, Michael. Operator, next question please.

Thank you. Our next question comes from Doug Mitchelson with Credit Suisse. Your line is now open.

Thanks so much. It obviously be funded now Bob what you picked for Disney+ subs in the office pool, but for something you might be willing to comment on, I'm curious on sports, you mentioned inevitability of change, the sports need to change. It's viewed live the bundle deliver sports well monetize it. Well, obviously you're pursuing ESPN+, so I'd love any learnings on ESPN+ and how it fits in the future, sports and what you think there? And Christine, I'm just curious for Disney+ disclosures. Are you going to give us U.S. sub separate from international in the future? And then I'm just curious on Fox execution, how that Fox Solution might scale during the year or -- it sort of improve linearly during the year or is it sort of a more of a step function improvement in fiscal '21? Thanks so much.

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

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

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

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

Thanks, Doug. Operator, next question please.

Thank you. Our next question comes from Jessica Reif Ehrlich with Bank of America Merrill Lynch. Your line is now open.

Hi, a couple of questions, on Disney+, I have one more question, can you talk about your plans and I'm sorry -- I can't speak today your plans for further third party distribution you haven't said anything about Pay-TV operators? And what are the key trade-offs with these third parties but is their billing, but you have access to the data of this -- will the subs come in through your apps. You have the data and then. And then on the parks, you called out in your press release lower attendance at Disneyland, which seems a little surprising our consumers waiting for the second attraction the second Star Wars attraction and your price increases in the past year have been on the high end of historic range. Can you talk about the outlook for pricing in the next year or two? Thanks.

I'll take the second part of your question first. Price increases at the parks, it really, we don't look at it just as increases. We look at it as an overall strategy that as Christine said in our comments is designed to basically grow yields or yield management. We're trying to basically increase the Park experienced by spreading demand out. And by making the products more affordable during periods of time that basically lower peak periods and obviously more expensive during peak periods to limit the number of people that go in. There was, we believe that there were some delayed visited there was some visitation to Galaxy's Edge both the Disney Land and it Disney World people waiting for the second, you take it attraction to open it opens in less than a month in Disney World and will open in January at Disneyland. So, we sense that there are people that are just waiting for the whole thing to be open, which is fine. The meantime those two lands have been far more successful than been reported they've had a significant lift on per caps and merchandise and food and beverage as a for instance, just to give you one crazy stat but Millennium Falcon attractions carried over 1.7 million people already since they've opened across both places. So -- and the guest experience guest satisfaction, very, very high and right availability retraction availability in the high 90s that basically means that it's very, very complex technological attraction is running really well. The first part of your question regarding Disney+, we're certainly absolutely will be made available in most traditional app selling locate stores or platforms. I don't have comment on access to consumer data if the MVPDs are distributing it or selling it. We do have access to some data obviously following both the law on some of the other platforms including Verizon as a, for instance, but I just don't have the answer to the question if it's sold on -- by MVPD. As you know, we did announced today that would deal with Amazon and they are added to a long list of other distributors including Apple and Samsung and Google and Microsoft and LG, and others.

Thank you.

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

Thank you. Our next question comes from John Hodulik with UBS. Your line is now open.

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

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

Just anything on the wholesale agreement?

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

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

Thank you. Our next question comes from Jason Bazinet with Citi. Your line is now open.

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

Well, the second part of your question, I don't think any of these are niche apps necessarily. And I think what we're trying to do as a company is not to look at the apps as entities unto themselves, but look at the apps as part of a broader production creativity distribution monetization play. What I mean by that is if you look at Disney or Disney+, you obviously films that are monetized and two windows. First, one of the theatrical window then what I'll call the home video window and then they move on to this SVOD platform and it's also, -- which is also a place monetizing the vast library. The same thing can be said for the television programming that we're creating, although a lot of it for Disney+ will be original or exclusive to Disney+, is nothing to be -- although there's nothing to keep us from then putting some of it on maybe a Disney Channel down the road, but we're not looking at any of these an isolated way I talk about Hulu. But I also talked about it in the context of ABC of FX and at Freeform; interestingly enough, if you look at current viewing patterns of some of our hit shows on ABC Grey's Anatomies, a good doctor would be two examples. There are ABC live they go through that Live Plus 3, Live Plus 7 or Live Plus 8 cycle, ultimately they end up on Hulu. By the end of the run of a show after one month, often these shows have tripled in terms of their consumption once they're made available on Hulu and that's only a month. It could be on Hulu for years to come. So again, I think the second part of your question, Jason, again,…

Okay. Thank you.

I do believe though that brands will matter as we've been saying as a company for a long time and if you're in a list of choice for sports and you have ESPN on as your name or other kind of product and says Disney or the other brands, I think that immediately rises to the top of the list in terms of consumers interest and because of the recognition factor and they trust, they have in these brands.

That makes sense. Thank you very much.

Thanks, Jason. Operator, next question please.

Thank you. Our next question comes from Dan Salmon with BMO Capital Markets. Your line is now open.

Great. Good afternoon, everyone. Bob, I recognize, obviously a lot of focus on the DTC business of late, but the media networks business also working through a number of major renewals. We'd love to maybe just hear a little bit of an update on your near-and medium term outlook for linear subscribers, both at the traditional sorts and the vMVPDs? And then maybe just more broadly, how just conversations with the MVPDs are evolving as your DTC story emerges? And then just a quick one for Christine, maybe just an update on your conversations with the agencies -- excuse me, the ratings agencies to be clear, how they're viewing your leverage and maybe the potential to resume a buyback at some point. Thanks.

Then before I answer your question, I just wanted to clarify two things. By number -- on the number of people or the carriers -- who have been carried on the Millennium Falcon attraction was way low usually I pride myself on being right with statistics; it's 5 million not 1.7 million. And secondly, we will have access to significant amount of user data when people use our apps that have been purchased through MVPD. To your question about MVPD renewals, I can say that we have reached a deal in principle with AT&T and we're in the process of papering that which is significant in terms of our progress. We've been candid and transparent about sub trends, as Christine mentioned updating that today. There has been sort of continued erosion in abated somewhat last year it's gone a bit now. We can't predict where that goes, we just feel that as a company, the MVPD platform is still very important to us and very valuable to us and I think quite viable as well I happen to believe long term that people will be interested in lesser channel -- less channels. It doesn't mean that they don't subscribe at all to multi-channel services. But I think the trend will be in the direction of fewer channels rather than as many or certainly more and that's where the app business could benefit because I think people will buy into the app side of it and maintain some channel relationship, but I don't know what the floor is and nor do I think, the floor is anything close to being side . But we're looking at again holistically across all of our businesses in the platforms with an eye toward the broadest monetization and consumption.

So, Dan, on the rating agencies, we do have an active dialog with the agencies, it's the combination of me, the IR team and our treasury team and we keep them very up to date on our plans as well as our performance. We have a schedule. We're going to see them a couple of times a year. We're planning on that shortly. We'll go back and see them but we -- I think people saw that we had a significant a bond offering in August, a $7 billion bond offering. So the ratings were affirmed at that time. Across all three agencies as mid-single A and if you look at our leverage at the end of this quarter, you can calculate it, it comes in around 2.7 on a gross and about a 0.3 turn less on a net basis. And although the agencies make some adjustments to those calculations, suffice it to say that even when they calculate, using their adjustments, the agencies are still well below 3 times.

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

Thank you. Our final question comes from comes from Steven Cahall with Wells Fargo. Your line is now open.

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

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

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

Okay. Thanks, Steven. I mean, thanks again everyone for joining us today. Please note that a reconciliation of non-GAAP measures that were referred to on this call to equivalent GAAP measures can be found on our Investor Relations website. In our remarks, we provided estimates of the performance of certain 21CF businesses in periods of the prior-year. These estimates are based on an analysis of 21CF records, but are nonetheless unaudited estimates and are not precise measures of historical results before the acquisition. Let me also remind you that certain statements on this call, including financial statements may constitute forward-looking statements under the securities laws. We make these statements on the basis of our views and assumptions regarding future events and business performance at the time we make them and we do not undertake any obligation to update these statements. Forward-looking statements are subject to a number of risks and uncertainties and actual results may differ materially from the results expressed or implied in light of a variety of factors, including factors contained in our annual report on Form 10-K, quarterly reports on Form 10-Q, and in our other filings with the Securities and Exchange Commission. This concludes today's call. Have a good evening, everyone. End of Q&A:

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.