Walt Disney Aktie

This event may include forward-looking statements, which are statements that are not historical and are based on management's assumptions regarding the future and are subject to risks and uncertainties, including, among other factors, economic, geopolitical, operating and industry conditions, competition, execution risks, our future financial performance and legal and regulatory developments. Additional information concerning factors and risks that could cause results to differ from those in the forward-looking statements are set forth in the company's securities filings.

All right. I think with that, we are excited to get going. We are very, very excited to have Hugh Johnston here, CFO of Walt Disney Company. Thank you again for being here. And obviously, lots to talk about, especially after the official first earnings call with Josh taking over as CEO.

So just let's kind of start really big picture. With Josh taking over, maybe help us think about what you're most excited about looking ahead with the leadership change and how that allows Disney to maybe do things a little bit differently or even build upon what obviously Bob has accomplished over the past few years.

Yes. Happy to talk about that. Nice to be with you all. Anytime you change CEO, it's kind of an exciting time. And if you don't count our little thing from a couple of years ago, Bob basically was CEO for 20 years. So it's an even more substantial change in the company. That said, I think everybody is very, very energized around Josh coming in and taking over. Number one, he had -- he's been with the company for a long, long time anyway, has huge followership around the company. Number two, the fact that Dana Walden is also going to be here as well as Chief Creative Officer and President of the company. We had the good fortune of retaining 2 terrific executives and that oftentimes, when you have a CEO change, you don't get that.

If you sort of step back a little bit, the biggest thing that I think Josh is bringing so far, and again, we're basically -- what are we 7 ,8 weeks in at this point. So it's early days. But he's talking a lot and we're leaning into a lot, how do we accelerate the company, right? So how do we get the growth rates up, how do we energize the company to move faster and to deliver stronger results. And that's an exciting change.

Now that's not a massive pivot from where Bob was. But if. You think about where we were with Bob just a couple of years ago, he sort of laid down 4 planks of what he wanted to do. Number one, get creative going in the right direction because it had gotten a little off. Number 2 is build on ESPN. Number 3 was make DTC profitable and number 3 was turbocharge the parks. Well, if you look at where we are now, it's kind of we've checked all those boxes in a pretty substantial way. So I think what I'm most excited about with Josh, and you saw it in the 3 planks that he laid out, he really spent his entire career with Disney at the parks. And one of the things the parks has that the entertainment side up until the last couple of years didn't have is really a direct consumer relationship. Josh is used to dealing with fans, used to dealing with it, not through intermediaries, not through third parties, but on a one-on-one basis.

And as we start to pivot the -- not start, as we continue to pivot the company even more towards that direct consumer relationship, Josh has wonderful instincts in that regard. He understands the segmentation of our consumers. He understands what fans care about. So I think that connection directly to the fan is actually going to be a big deal broadly for us. And then even more specifically because of that intuition that he has as an experienced guy, the DTC service, Disney+ will benefit massively from his direct interaction with Disney fans over the course of the last couple of decades.

Okay. We look forward to seeing that. So when you think about the combination that's been laid out, creativity, quality and this global scale, when thinking about how the company leans in and you're talking about accelerating over the next couple of years, how does that best position Disney as far as this pivot goes when thinking about the next decade plus?

Yes. So I mean, if you look at all of those things, right, creativity is always going to be first. That's the essence of the Walt Disney Company. And I don't think of them as sort of being competing. I think of them as almost sequential in a way, right? The creativity is the value creation engine of the company. And then the other things that we do are basically amplifiers. So if you look at some of the things that we've done in terms of real creativity, whether it's as far back as Toy Story or more recently Zootopia 2 or more recently, The Bear, those are all examples of great creativity.

Then when you take that and add to it, the scale that we have and the quality that we deliver it sort of gets that flywheel going in a significant way. And that then plays into, okay, now we benefited ourselves theatrically. We benefit from the streaming service. We benefit in the parks. We benefit in consumer products. So it all sort of ties together very, very nicely once we get that creative going. So I couldn't be more excited about what it is that we're trying to do. And given the momentum that Bob left us with in terms of the creative side, I think we're going to be able to deliver really strong results for quite a while.

Okay. So something that all of us in the room would love a specific way to understand this. From your perspective, what is the best way to really unlock the value that we see and that we think is embedded in the Disney stock price today?

Yes. As much as you guys want it, I assure you. I want it more than any of you do for both financial and personal reasons. I think when you think about what it's going to take to unlock stock price, let me step back and say, what are the things that we're focused on as a management team, right? We're focused on long-term growth, right? Because we know long-term growth is really the ultimate value creator. We're focused on making sure that we deliver consistent performance because that's the kind of company we are, we should be able to deliver consistently not necessarily every -- perfectly every single quarter. Obviously, there's a little bit of variability to the performance. I've sort of often joked, I'd like to get the roller coasters out of the stock price and then just keep them in the parks. But there's always a little bit of variation given the movies and things like that, that we do.

We're focused on capital allocation and making sure that we're delivering the right types of returns on the way that we allocate capital. And if we do those things well, that basically makes this company the earnings compounder that I've been talking about since I've gotten here. And I think we do have the ability to do that to sort of focus on all of those 3 things. And with that, basically do a couple of things. One, make our vision and strategy, very clear to ourselves internally and then clear to you all externally off of that build financial plans that make sense, off of that give you all guidance that we commit to. And then after that, we work like hell to execute and make sure that we deliver that guidance.

That to me makes us the earnings compounder that, frankly, I think will deserve and earn a higher multiple over time. And that's really what we're trying to do is get that earnings compounding not just going because I think we've had it going but to just build that reliable track record in all of your minds. And with that, the multiple goes up. And I think the gap between what I think the company is worth right now and where we're trading at is going to close.

In that regard, one of the things that you all are aware of, and we announced again last week, is we're going to buy back at least $8 billion worth of stock, which is a pretty significant number in the context of our size company. That's because we have so much confidence that we're buying it at a very, very good price. That, in fact, it's actually an excellent investment for our investors taking that stock and buying it back.

So when you think about this future for Disney over the next 5-plus years, another question that we get a lot is what do we think about in terms of the portfolio size? Should we think about a similar level of assets, a scaled down, maybe more specific Disney branded type of portfolio or even potentially a larger portfolio? I know you guys have made significant acquisitions looking backwards. But as we think about the next few years ahead, what's the best way to frame that portfolio?

Yes. I don't know that thinking about it larger versus smaller is necessarily the right way to think about it. The thing that matters most to us is how integrated are the assets into that value creation model that we talk about, right? We're talking about One Disney. And One Disney is essentially what I laid out earlier, the notion of great creativity lead in terms of value creation, then leads to value monetization, whether it's on screens or whether it's in physical experiences, the assets that are tethered to that -- and by the way, I do think sports is tethered to that to be very, very clear. Those are the ones that are going to be most important to us, and that's where we're going to continue to grow and continue to invest in and build on assets that are not connected to that in a fairly discrete way. We're going to look very hard at it. And we have been doing that, and we'll continue to do it. But we're only going to make moves that are value creating at the end of the day. That's the real -- that's the line.

Okay. So let's shift to streaming. If you can help us understand what that long-term vision is for how the current streaming services can best compete for these global other streaming companies. Of course, Netflix, Amazon, we just had YouTube present. So when you think about the competitive set looking forward within streaming, where is Disney's position within that?

Yes. So obviously, the industry is continuing to evolve, and we have a lot of respect for what YouTube has built. We have a lot of respect for what Netflix has built. But we also think we have a unique set of capabilities and assets that will enable us to be successful. Number one, we have basically the largest collection of most emotionally resonant IP of anyone by far. It's not even close and those 2 companies that you just mentioned, they don't even really have that in a substantive way. Number two, we obviously have sports. And that -- obviously, that is something that the rest of the industry is trying to go towards or already there. And then number three, we have the physical experiences business, the parks business. And our ability to sort of monetize in that integrated way, I think, is an advantage for us.

So if you think about where Disney+ and Hulu are going they're going to be leveraging those particular capabilities. So obviously, we leverage the creativity that we bring. We're looking at sports in a more significant way. Are there opportunities for having one app for Disney? Yes, over time, we do think that that's out there. And with that, the parks will be integrated into all of that as well. To me, that's a significant competitive advantage that's awfully hard to replicate. And I think that's the way we're going to compete. And we should be able to compete successfully and win with that set of assets.

So I guess just building upon that, when we think about Disney+, you've talked about being the digital centerpiece of this whole future Disney company. So think about how does this accelerate the total company, if you want to say, total company revenues or even just specifically when we think about DTC revenues and profits, and you touched on bringing Disney+ to the in-park guest experience. Like how does that all factor in and play out?

Yes. I mean, if you sort of think about what we're doing by virtue of bringing fans together, and making it the digital centerpiece. It gives us the ability to touch our fans and to grow our fan base more and more, right? And by virtue of touching them more and more, it gives us the ability to basically to sell them more, to build that emotional connection more and to expand the Disney franchise more. And all of that ultimately translates into revenue growth. In addition to that, once you have your fans into your ecosystem and remember, this ecosystem to me, is not just about Disney assets because even right now, we carry more than just Disney assets in Disney+.

My expectation is it is a portal into all things entertainment over time, right? I think it will be bigger than just Disney in terms of bundling and the way that things come together. Building that relationship to me is something that will generate revenue. And in addition to that, it's more efficient to market to the fans once you have them in your app, and that will allow us to reduce marketing costs over time. So I think it's a combination of both.

Okay. So any more context maybe just as we think about this One Disney idea and platform and where it's all going, can you frame like what the overall TAM is for us? Or maybe even more specifically, when we think about entertainment SVOD, you guys have broken that out for us now, revenue and how that translates into the question that you always get, where the long-term margins go for this platform?

Yes. I mean I'm not going to put a public TAM out there today. So we're not going to make that news. As you might imagine, we -- from a strategy perspective, we do look at that, but I don't want to go to that place just yet. The way I do think about it, though, is all of those assets that we have, the ultimate goal is to drive engagement, right? And the more that we can do to connect with our broad audience of Disney fans will enable us to increase engagement over time. Now that engagement will come out of a combination of content, also in conjunction with that bundling, which obviously we know reduces churn and therefore, drives engagement and therefore, allows us to spend less marketing money as well as connect with our fans more significantly.

In addition to that, the technology side of things, we're working hard to improve the product. And with that improved product, we know that, that also drives engagement up, drives churn down. And that engagement to me, is the critical variable to actually drive long-term margins because when you have that level of engagement, it reduces your cost. But in addition to that, it allows us basically permission to price. So that's sort of how we're thinking about that.

That said, I don't want to be hamstrung. When -- back when I got here a couple of years ago, the business was losing $1 billion a year. And I was going around 5 weeks into the job and basically hearing from all of you, hey, Disney+, I mean, how does this thing even make sense? You're losing -- last year, you lost $4 billion. This year, you lost $1 billion. What are you guys going to do about that? And I said, look, we're trying to build a good business. The good business starts with double-digit margins, right? If it doesn't have that, what's the point of being in a business? So we got aligned as a team around that. We committed to it. And you saw last quarter, we actually delivered the double-digit margins, and we reiterated we'll do at least double digit for the current year. That said -- so to me, that is a good example of the guidance we commit, we execute, we delivered to you all what we said we were going to deliver.

That said, I also want to make sure we don't in any way intend to go backwards, but this is a business we want to manage for top line growth as well as manage for margins. It's strategically important to us. We think the opportunity exists. Certainly, international exists as an opportunity. As I said, our ultimate goal is to drive the profitability of the business. The margins will not go backwards, but I wouldn't necessarily sort of model out X or Y every year. I would think more about what's the bottom line growth going to be? And is it going to be led by top line. And if we're accomplishing that, then I kind of feel like we're doing the right things for that business and the right things for the company.

Okay. So you touched on this a little bit before, but when you think about the larger capital allocation story for the company, obviously, free cash flow generation plays a critical role within that. So when we think about how you prioritize reinvesting in content spending that you also just touched on to help accelerate the growth of streaming versus allowing those dollars to be reinvested through capital returns and others. So help us think about that balance and how you prioritize that content spending.

Yes. So we had talked about earlier in the year, $19 billion of cash flow from operations, right? We got very specific with that number. And we also said we should generate -- or we should spend about $9 billion in CapEx as a part of turbocharging the parks. So obviously, that leaves us with about $10 billion of CFO. We're basically in that place. In terms of content spending, last year we spent $23 billion. We've indicated to you all, we're going to spend about $24 billion this year. But we're also prioritizing and managing the mix more towards international because we see that as the most significant growth opportunity for the DTC business. The opportunity domestically is about driving engagement. The opportunity internationally is about clearly gaining more subs because we just have a significant opportunity there.

Our priority is going to be to do those things while at the same time, balancing that with the cash returns that we provide to shareholders. I mentioned the $8 billion in share repurchase this year. The dividend has also gone up pretty significantly. We pay a biannual dividend. And obviously, we feel that's super, super important. As a CFO, I always view that one as really important because CFOs who cut the dividend tend not to do well. So with that, I think we'll be able to balance out the cash return to shareholders at the same time, investing in international content without being disruptive to the cash return for shareholders.

Okay. A big piece of content spending overall is still clearly sports, and you've talked about the importance of ESPN already to the company. So when you think about your overall sports strategy and especially the linear network side of that business, can you talk about how that plays into the overall lens of the priorities that have been laid out in terms of that creativity, quality and global scale?

Yes. It's interesting because obviously, there's always a lot of talk about what's the future of ESPN and all of those things. If you sort of look at right now, what is the hottest and best thing in media, it's live sports, right? I mean live sports is about the only thing left that can aggregate mass audience and aggregate it real time. Almost everything else in entertainment, you choose when, you choose how much you want to watch. And as a result, it's sort of very chopped up. Live sports still -- you don't want to watch a game that you know the result of from 3 days ago. I mean some people do, but that's not typical, let's put it that way. So to me, live sports is just massively, massively valuable to us.

More importantly, it's massively valuable to advertisers because they want these big aggregated audiences, and they value that tremendously. And in addition to that, our competition knows it, right? And if you look at where competition is going, they're all trying to sort of nose their way further and further into live sports. So to me, that's probably the best indication that when you have this incredibly valuable asset and it's integral to your overall strategy, why would you be doing anything other than trying to build on it over time? And that's exactly what we've done with ESPN.

Interestingly enough, if you think about sort of the digital world of ESPN, ESPN digital and social had 197 million users last month. I mean it's a huge number. Even ESPN, the app had 28 million users. That's bigger than the next 8 biggest apps combined, right? That's how impactful ESPN is. Now what do we need to do with ESPN? We need to basically continue to improve and do a better job of integrating it into the overall streaming strategy because that's where we're going to create big, big value. That's why we launched ESPN DTC. And frankly, to me, that is the differentiator, one of the big differentiators we have. So that -- my expectation is we're going to continue to basically take what's the biggest brand, the world's biggest brand in sports and continue to build on it so that we can build this direct-to-consumer set of touch points that then are massively valuable to the Walt Disney Company from a lifetime value perspective across a whole variety of spectrums.

Okay. You touched on -- mentioned the valuable assets. So let's shift to parks. We think parks are clearly a central piece within this overall successful company. So when you think about the parks assets and delivering the live experience to the Disney fans that we talked about, especially in this screen-first virtual and growing AI world. Help us frame how you see the importance of those assets over the next few years as this develops.

Yes, it's interesting. And of course, everyone is sort of acutely focused on AI these days and sort of how it's going to change the world of screens. The interesting part to me in that is in a world where people are more and more focused on their screen. And to me, that's a great thing for the Walt Disney Company because obviously, we're a big player in screens and delivering entertainment through screens. But it actually amplifies the value of real shared physical in-person experiences as well, right? For the ability for a family to come together and emotionally connect, for a group of friends to come together and basically connect in terms of a set of physical experiences, that is becoming more and more valuable because people are spending less time day-to-day interacting with each other.

So those interaction moments, I think, are even more critically important than they are in the past. And that's what makes the parks business, I think, so much more valuable and the cruise business so much more valuable. And my expectation is, and that's why we're investing so much in it, we're going to be able to deliver terrific returns out of that set of assets over time because people do value that physical interaction. And frankly, our recent performance kind of proves the point that I'm making, right? I mean even in a world where the consumer broadly is a little bit choppy, we've seen very, very strong results in the parks.

So you've talked about the consumer. So let's go there. Just in terms of any changes in terms of U.S. revenue or profit growth. You touched on it on the earnings call, but factoring in all of these geopolitical uncertainty and especially the gas prices, it doesn't seem like you've seen any sort of indication yet, but how to think about that over the next couple of months?

Yes. No, I mean we honestly haven't seen it in the data at all. I mean we talked about that on the earnings call and continue to see the fact that consumers are clearly connecting to our offerings. How much of that is this K-shaped consumer that obviously, we tend to play more into in the parks, into one portion of the K-shape. How much of that is just once you commit to your family that you're -- and you tell the kids, you're going to Disney World, you're not going to back off that one without some severe repercussions. So people don't tend to do it. We're not immune to the macros, right? Everyone knows that. But -- and if gas were to go to $8 a gallon or something like that, that presumably that would have a lot of impacts. But right now, we're seeing nothing either in the data that we have looking backward or in the bookings that we're seeing going forward. So it's what gave us the confidence to deliver the guide that we did is we do feel good about where we are and where we're going.

So maybe just to follow up on that. International historically has been a big piece of the visitation, especially at Walt Disney World. So maybe just help us frame where we are in the life cycle of international since coming out of the pandemic and again, given some of the recent choppiness there.

Yes. So I think 2 questions there. One is about our international parks. And the international parks continue to do very well right now. Not seeing anything in the macros there either. In fact, the Paris Park is actually having a really good moment right now. We just added World of Frozen there, and we're basically filling the park. So when you have that type of expansion and you can fill the park, you feel very, very good about that. And that sort of gets to the point around when we leverage our IP and take that IP and build big new attractions, not little things. The little things are fine, too, but it's these big new things that actually tend to just really bring in the investment or bring in the consumers. And frankly, it builds their engagement even stronger to that particular set of IP.

So international parks is doing very, very well right now. International visitation to the U.S. parks, as we said on the call, we think we're basically through the overlap on that. So it's been in the numbers for 4 quarters. It's been rebased, and we're not seeing further deterioration. So from that perspective, we feel very, very good. In fact, if anything, outside of Canada, we're actually seeing things improving. So from that perspective, I certainly feel very positively about where we're getting with international visitation. And again, that's consistent with what we talked about in terms of the bookings and the go forward for the business and why we're feeling so optimistic.

Great. So you also touched on this a little bit before. But when think about that broad investment that was laid out in terms of the parks investment in CapEx that's needed or that you guys are looking to invest over the next 10 years, $60 billion on a global basis. So maybe just help us in the room here and understand the confidence level in this investment cycle, what you're seeing early because we're already a couple of years into this. And so how can we feel that the ROIC on this investment clearly has been very successful looking back over the past decade. So as we look forward, where is this growth going to come from?

Yes. And the good part is in the stage that we're at, we can talk about this from 2 perspectives. One was as we went into this investment cycle, we held ourselves to high standards in terms of the returns on all of these projects. And when I say high standards, I mean, when the CapEx for the individual project comes floating in, if it's not hitting certain hurdle rates and certain returns, we don't do it just because we declared a number, it doesn't mean people get to go spend the money. So from the standpoint of approach, the approach was we're going to have high standards on these incremental investments.

The second nice part about it is we're about 3 years into that. I think it was 3 years -- it will be 3 years in August. August of '23 was when that number was first put out there. So we're actually -- some of the projects are already delivering returns. And what we're seeing is good returns on the projects, which you have some level of visibility to because you get some data around individual attractions and cruise ships and things like that. But in addition to that, you can see the impact on the overall parks business. And the results there continue to be strong in terms of ROIC, in terms of margins. The growth in terms of revenue is continuing to be strong.

So if you look at it in aggregate, the performance is already proven in the numbers. It's my favorite kind of strategy, the one that we did 3 years ago when we could talk about how good it's turned out. So from that perspective, we feel like these initiatives are really good. And in a lot of ways, the best is yet to come in terms of the projects that we have coming in and the expectations we have for them.

So let's go there for a second. So in terms of these new attractions, and it seems like next year, it's really going to start to contribute more. So how do we think about that balance of attendance growth and the capacity that you're building out? And obviously, pricing is usually a big focus here. So when we think about Walt Disney World and Disneyland specifically, that balance between attendance growth and pricing?

Yes. So as I've said before, you will see some -- it's not going to be one or the other in over any 3- or 4-year time frame. It's going to be both. And necessarily, it needs to be both. The interesting part, and I would just offer this to you all as investors, there tends to be a lot of focus on attendance as a number. But the reality of it is when you have a big fixed asset like we do, we tend to actually use promotional activities to make sure that we're filling the park every day, right? So the capacity utilization on these parks is really, really high almost all the time because of the way that we can use, again, whether it's certain types of discounting or certain types of promotion.

So we don't necessarily -- without expansion, we don't necessarily have the ability to grow attendance massively because it's already filled up. Now we could jam more people into the park, but then the guest experience declines, and that's actually bad for the brand. So you don't want us to do that, and we don't think it's a good idea either. So then when we add capacity, without a doubt, it creates the opportunity. We're seeing that in Paris right now to basically allow more people into the park. Now the logical as good analyst, you would ask the logical next question is, oh, but does that mean the yield is going to go down? Well, that's not been our experience because when you put in a big new attraction, it actually -- you see a surge in demand for it as well. So we tend to fill those things up really, really quickly without having to discount.

And in fact, it actually offers some ability to charge more because essentially, you're offering something new that wasn't there before. I'm not going to get into specific guidance year-by-year, park by park, all that stuff. Frankly, I don't think it's all that useful to you. But the answer to sort of pull all the way back to your question is, yes, we have the ability to grow attendance as we expand capacity. I would expect to see both pricing and attendance growth over any 3- or 4-year time frame. But at the end of the day, I wouldn't overemphasize attendance as sort of a critical variable. I think we're going to do well with it. But to me, it is ultimately the combination of yield and attendance that matters the most. And how do you look at that, the old-fashioned metric, what's the revenue growth look like?

So taking all of that, the next natural question would be, as you build out the cruise ships, clearly, you're looking to fill them and get the best yield out of it, too. So the cruise line fleet is set to more than double to 13 ships by the early part of next decade. So maybe just help us frame that ramp in revenue and obviously, profits as each new ship is added and whether or not there is any cannibalization on the prior fleet?

Yes, it's interesting. First, to sort of step way back, just to kind of set expectations on what you just said. The easiest way to think about it is we're going to be adding about one ship per year between now and 2031. That's essentially the most simple way to think about this. With that, once we get through the preopening costs, which are meaningful, but already in our base because we're already opening one ship a year. Those ships basically start earning a return like that. Why do they do that? Because there really isn't much cannibalization. We mentioned on the earnings call, right now, our capacity utilization or our fill rate on the ships is just as high this year as it was last year despite all of the new capacity that we've added in.

One of the things that I think is beneficial to what we're doing right now is we're starting to put ships outside of our traditional ports. Obviously, the Adventure is in Singapore, and it's a massive ship. It's double the size of anything that we've done before. And we really -- we sold out a season of that ship in just a handful of days. I mean the demand outside the U.S. for Disney experiences, not just Disney Entertainment is huge. And with that, by virtue of bringing more ships into other areas of the world, we're doing 2 things. Number one, we're fulfilling that demand and driving revenue. Number two, we know that experiences like being on a cruise tend to bond people more.

So we're increasing their fandom. And with that, we're increasing the lifetime value of all of these consumers that we're pulling in. So put it all together, I mean, it's a superb strategy and one that I think is going to benefit the Walt Disney Company for a very, very long time to come. This is one that has got a long, long runway attached to it.

Okay. Good to hear. So as we start to wrap up, maybe taking you back, you joined Disney about, I think, 2.5 years ago now, spending many years at PepsiCo. So any lessons that you learned from the prior work that you really are applying to Disney after being here a couple of years and how that's positioning the company over the next, call it, 3 to 5 years?

Yes. I mean the biggest thing and the biggest commonality that I saw at PepsiCo, and I certainly see at Disney even more so is just the power of these types of long-standing global brands right? These brands have such a remarkable resonance with consumers. And if I thought the Pepsi brands were they resonated with consumers, Disney is sort of next level in terms of emotional attachment, people feeling so strongly about these brands and sticking with them through their lifetime. So that's sort of the continuity that I see. The difference between -- I won't talk about Pepsi, but the consumer products business is when you have a good brand, one of the things you have to do is innovate around that brand, right?

And in the consumer products space, the innovation tends to be somewhat incremental in nature, right, flavors and forms and things like that. The innovation at Disney is really inventing whole new storylines, right? It's a level of creativity that you just -- you don't really see elsewhere. And that ability to sort of innovate and bring those new stories to life has the benefit of expanding the brand as opposed to just letting the brand sit as it is. And in addition to that, because of the nature of our asset profile, that new creativity then plays its way through the entire value creation set of businesses or monetization set of businesses that we have that, frankly, is, I think, pretty unique. You don't really see that much elsewhere.

So it's funny when we talk about the various businesses inside of Disney, one of the things I'm fond of saying is we have businesses that are outstanding alone, but they're even better together. And that's kind of, to me, the ultimate way to think about Disney is outstanding alone, better together.

Okay. So anything that you want to leave us with in terms of what isn't fully appreciated. Hopefully, if you're back here again next year, what do you think investors are going to be most surprised about over the next, call it, 12 months?

I think it's just going to be the consistent earnings compounding. We're just going to continue to deliver that. And if you believe in that compounding, you believe in -- you probably look at the stock price and say, man, it's low relative to what it should be. So that's what I'd leave you with is I think the stock price is attractive, and we're betting $8 billion this year to -- on that. So I think there is a real opportunity here.

All right. With that, Hugh, Ben, Dan, thank you all for being here.

Thank you, Robert. Appreciate it.

The Walt Disney Company's performance this quarter reflects the power of disciplined execution in a dynamic and competitive environment. We demonstrated that creativity, strategic clarity and business transformation can work together to drive strong outcomes for consumers and sustained value for shareholders.

I'm Ben Swinburne, EVP of Investor Relations and Corporate Strategy at Disney. Today, I want to take a look at the drivers behind our performance, our strategy and the foundation we continue to build on for long-term value creation. Please note that this video may include forward-looking statements. See the company's securities filings for related risks.

Let's start with some high-level numbers. In the second quarter, we grew revenue by 7% to $25.2 billion and total segment operating income by 4% to $4.6 billion. Adjusted EPS increased by 8% to $1.57. We modestly exceeded previous guidance, driven primarily by stronger-than-expected revenue growth. Our creative and operational momentum drove strong quarterly results in Q2, and we continue to expect growth to accelerate in the second half of the fiscal year.

The foundation of our growth is a unified enterprise-wide strategy built on 3 pillars. First, our relentless investment in creative excellence. Our intellectual property is Disney's engine: creating stories, franchises and characters that power engagement across platforms.

That's why investments in hits like Zootopia 2, which has earned $1.9 billion at the global box office and has streamed over 1 billion hours, diverse global originals and new films from the existing worlds of Disney, Marvel, Pixar and Star Wars are so crucial as they extend from screens to parks to merchandise in a flywheel that few can replicate. Original IP like Hoppers earned critical and fan acclaim this year, while the Devil Wears Prada 2 and our upcoming slate demonstrate the enduring resonance of Disney's storytelling engine.

Second, expanding reach and deepening engagement globally. Our strategy is to build more touch points, digital and physical, wherever fans are. Disney+ and Hulu are scaling personalized experiences and international content with hits like Battle of Fates in Korea and Rivals in the U.K. And our parks and Disney Cruise Lines are extending the brand into new geographies in new and innovative ways.

Third, technology as a value multiplier. From AI powering dynamic recommendations and AdTech to streamlining operations and personalizing park experiences, we're investing in technology that drives efficiency and unlocks new monetization streams.

Disney+ and Hulu continue to advance, with user experience and content enhancements driving stronger retention and engagement. ESPN remains the worldwide leader in sports. It is also a center of innovation at The Walt Disney Company. And our ESPN App continues to resonate with fans with features like Multiview, Verts and a personalized SportsCenter for you.

We are investing meaningfully in technology. As with any advanced technology, we're committed to implementing AI in a way that keeps human creativity at the center of everything that we do, respecting both creators and the tremendous value of our own intellectual property.

Over time, we're working to evolve Disney+ into a digital centerpiece rather than a video repository. Think interactivity, integrated commerce, gaming and connections across every consumer Disney touch point. This unified approach, what we call One Disney, lets us leverage IP, data and talent across all businesses. From Zootopia resonating at the box office all the way to Shanghai Disneyland, our ability to cross-promote through games, merchandise and experiences allow us to compound value of every success. We're also leaning into a capital-light model to further expand internationally, including a new ship in Japan through an agreement with Oriental Land Company and a landmark theme park in Abu Dhabi through an agreement with Miral.

The value that our fans see in our offerings like a Disney vacation, our film and television shows, beloved characters and thrilling live sports and events support our financial results. And we're using technology as a powerful accelerant to improve the consumer experience across our business lines, drive operational efficiency and unlock new possibilities for creativity, growth and returns.

To wrap up, our creative engine continues to deliver. We're investing in the IP, experiences and technology that drive compounding cross-segment value, and we're doing it all with discipline and a keen focus on returns, both to consumers and shareholders. That's the story behind our Q2 results, and it's why we remain optimistic about what's ahead for Disney. Thanks for your time and your continued interest in The Walt Disney Company.

Our earnings release and Form 10-Q were issued earlier this morning and are available on our IR website. Our IR website includes a cautionary statement regarding the forward-looking statements. Today's webcast may include forward-looking statements that we make pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, including regarding the company's future business plans, prospects and financial performance are not historical in nature and are based on management's assumptions regarding the future and are subject to risks and uncertainties, including, among other factors, economic, geopolitical, operating and industry conditions and decisions and legal and regulatory developments.

Refer to our IR website, the earnings release and 10-Q issued today and the risks and uncertainties described in our Form 10-K and subsequent filings with the SEC for more information on risks that could cause results to differ. A reconciliation of certain non-GAAP measures referred to on this webcast to the most comparable GAAP measures is on our IR website.

Good morning. Welcome to the Walt Disney Company Fiscal Second Quarter Earnings Call. Thank you for joining us. I'm Ben Swinburne, Executive Vice President of Investor Relations and Corporate Strategy. With me today are Josh DAmaro, our Chief Executive Officer; and Hugh Johnston, our Chief Financial Officer. While we intend to keep our prepared remarks brief on future earnings calls. As this is Josh's first opportunity to speak to the investment community as CEO, we wanted to take the extra time for you to hear from him directly regarding his priorities for the company.

You will notice that we've adjusted our earnings materials to shift our focus more toward the Walt Disney Company as a whole rather than its individual segments. This is deliberate as we hope it helps explain why we believe the company is uniquely positioned, lays out our strategy and illustrates how our various business lines operate together. We also shifted to a shareholder letter this quarter, with the intent of including all the information we hope is helpful to the financial markets in one place. After Josh's remarks, we will take questions from the analyst community.

And with that, let me turn it over to Josh.

Thank you, Ben. I want to begin by saying just how honored I am to be leading the Walt Disney Company. This is one of the world's truly great companies built over more than a century through powerful storytelling, constant innovation and a singular ability to forge deep emotional connections with audiences all around the world.

I step into this role with genuine appreciation, a strong sense of responsibility and real optimism about what lies ahead. I also want to express my gratitude to Bob Iger. Bob led Disney with extraordinary vision. He led it with discipline and ambition. And because of that leadership, this company stands on a strong foundation with real momentum. I'm fortunate to be leading a company with exceptional assets, talented leaders and a well-defined strategic direction.

My immediate focus, it's clear. We will execute with discipline against the plans and commitments we've already communicated to the market, staying focused on the priorities that we believe will unlock value for our shareholders. First, investing in the breakthrough creative storytelling that sets Disney apart; second, strengthening our streaming business through product and technology innovation; third, fully capturing the power of live sports as we continue building ESPN's direct-to-consumer business; and fourth, delivering on our bold growth plans at Disney Experiences. At the same time, while we execute our current plan with focus on precision, we're actively laying the groundwork for Disney's next phase of growth. Disney is uniquely positioned in the entertainment industry. No other company reaches consumers to the same degree across both digital and physical environments. Our goal is to leverage that position to extend our reach, deepen engagement and generate greater value from our world-class intellectual property. To fully capture this opportunity, we'll embrace technology more aggressively and build a more connected consumer experience with Disney+ right at the center.

However, this morning, I want to stay focused on execution, how it's showing up in our results today and what it means as we head into the back half of the year. In the second quarter, we grew revenue and total segment operating income 7% and 4%, respectively, relative to the prior year and outperformed our guidance for the quarter. The outperformance was driven by stronger-than-expected revenue growth.

Let's turn to our operating results in the quarter starting with streaming. Our focus remains consistent, improve the consumer experience, deepen engagement and continue building a healthy and more durable growth business. We made meaningful progress during the quarter on the platform itself with product enhancements that improve the Disney+ user experience. We were pleased with our entertainment SVOD financial performance this quarter notably a sequential acceleration in revenue growth from 11% in Q1 of '26 to 13% in Q2.

Importantly, subscription revenue growth was driven by both rate and volume. Additionally, we saw double-digit advertising revenue growth compared to the prior year period. We are highly focused on churn, and we continue to see the integrated Disney+ and Hulu experience benefiting retention. Disney+ has meaningful opportunity for growth internationally, and we're focused on scaling outside the U.S. We are increasing our local content investments and early results that are encouraging. While more work remains, we're pleased with the progress we're making in both the consumer experience and underlying economics.

Our IP remains central to our long-term streaming success. And we continue to invest in the great storytelling franchises and talent that define Disney and fuel our film and television content. Highlights in the quarter that demonstrated this focus included returning Series High Potential and Paradise along with our new limited series Love Story: John F. Kennedy Jr. & Carolyn Bessette. And we, of course, see the potential of the strategy in films like Zootopia 2, which not only generated $1.9 billion in global box office, but the franchise has now surpassed 1 billion hours streamed on Disney+. .

During the quarter, we released Pixar's Hoppers to critical success. A strong reminder of Pixar's track record of creating meaningful original IP that resonates with audiences all around the world. We are thrilled with last weekend's opening of The Devil Wears Prada 2. And as we look ahead, we're excited about our upcoming film slate, including The Mandalorian & Grogu, Toy Story 5, the Live-Action Moana and Avengers Doomsday.

When you look at our upcoming slate of franchise films, each has potential to resonate with our fans well beyond its initial release, moving across platforms, experiences and products in a way that deepens engagement and extends reach over time. At Disney Experiences, we continue to demonstrate strength in the core business and make progress against our growth initiatives with strong revenue growth of 7% and segment operating income growth of 5% in the quarter. Both revenue and segment operating income were ahead of our prior expectations and represent second quarter records.

Over the past few quarters, the team has successfully navigated known attendance headwinds. We are now starting to lap these headwinds and expect attendance trends at our domestic parks to improve in Q3 when compared to the results we reported for Q2 today. Since our last call, Disney Cruise Line launched the Disney Adventure, our first ship homeported in Asia. And at Disneyland Paris, we opened World of Frozen as part of the reimagined Disney adventure world. These are meaningful milestones that extend the reach of our brands to new markets and new fans around the world. The strong demand that we're seeing for these attractions reinforces our confidence in the long-term opportunity across our portfolio of experiential assets, parks, cruise line and immersive experiences alike. We remain mindful of the near-term variability but are also well positioned to benefit from sustained consumer demand for live entertainment at a scale unique to Disney.

Speaking of the power of Live, ESPN continues to build toward a stronger direct-to-consumer future. Enhancements to the ESPN app, including Multiview, Verts and SportsCenter for You are making the offering increasingly compelling for fans. As we manage this business in transition, we remain focused on serving sports fans in a way that fully captures the value of ESPN and live sports within Disney's broader direct-to-consumer offering.

Looking at the first half of the fiscal year and our expectations for the second half, we're executing with focus, delivering against our stated commitments and investing in areas that we believe will drive long-term value.

As we look ahead, my strategic priority as a CEO build directly on that foundation. Let me summarize my long-term perspective briefly here. First, creative excellence, it will remain at the center of everything that we do. Disney's greatest competitive advantage. It's always been the quality of our storytelling and the enduring connection our brands have with audiences all around the world. Second, we have a real opportunity to deepen our direct relationship with our fans by creating more connected Disney experience across streaming, sports, games and experiences with Disney+ playing an increasingly central role.

Third, technology, it can be a powerful accelerant for Disney, improving the consumer experience across our business lines, driving operational efficiency and unlocking new possibilities for creativity, growth and returns.

To wrap up, our immediate priority is disciplined execution, but I'm equally energized about the opportunities ahead. Disney has iconic brands, extraordinary creative talent, powerful platforms and unmatched experiences. Our job is to execute with rigor to invest with confidence and connect those strengths in ways that create lasting value for consumers and shareholders alike.

With that, I'll turn it back over to Ben to begin our Q&A.

Thanks, Josh. We will now turn to questions from the analyst community. So our first question is from Sean Diffley from Morgan Stanley. This is for you, Josh, on strategic priorities. What are your 3 biggest priorities going forward? What are the biggest synergies between the businesses today? And any examples to Disney can leverage learnings across its businesses?

Okay. Great. Well, thanks, Sean. I guess, first and foremost, what I'm focused on is executing on the priorities that we've already communicated to the market. And I think this group knows these. In fact, I just hit them in my prepared marks -- prepared remarks. First, we're focused on creating best-in-class content. We're doing really well there. Second, we're strengthening our streaming businesses and driving top line growth and profitability as well. Third, we're continuing to take advantage of the growing power of live sports and build ESPN's direct-to-consumer business. And then, of course, we're turbocharging Disney experiences all across the globe. .

while we're focused on executing these priorities, we're also starting to lay the groundwork for the next phase of growth. And you're going to hear more about this over time, but maybe today, I'll just share some high-level thoughts on that. First, we're going to continue to build and fully leverage all of our IP. Of course, this starts with great storytelling. But the opportunity is going to be much broader than that. We'll invest in both existing franchises and new IP, so that means building on brands like like Toy Story, while also at the same time, creating new stories that connect with generations of fans across the globe. And the key here is fully harnessing that IP across the whole company. That's in film and streaming across our experiences and products and games so that each of our successes it compounds and value over time.

Then second, I think we have a real opportunity to deepen our direct relationships with our fans, and we can do this by creating a much more connected Disney experience, and we'll do that across streaming and sports. And games and experiences and we'll put Disney+ right at the middle, playing an increasingly central role.

And then third, technology. I think it can be a real powerful accelerant for Disney. I think it can improve the consumer experience across our businesses. It will certainly drive operational efficiency for us and then unlock brand-new possibilities for creativity, for growth and returns. And then when you step back and you put all that together, our next phase of growth, it will be centered on creative excellence. It will be a more connected fan experience, and we'll use technology as an accelerate. But I just want to be clear, as I said in the immediate term, I'm staying focused on delivering the priorities that we currently have the motion. But thanks for the question.

Great. Thank you, Sean. Thank you, Josh. We're going to now turn to 2 questions on our direct-to-consumer streaming strategy. First question is from Michael Ng from Goldman Sachs, probably for you, Josh. The success in the parks was built on driving per capita and attendance though high-touch immersive storytelling. As you take the helm of the company, how do you replicate this high LTV model within Disney+? Specifically, does Disney+ become less a video repository and more of an interactive hub, including merchandise park access and games integration?

Okay. Well, thanks, Michael. I guess I'll start. Lifetime value is something that we're focused on across the whole enterprise. And -- you start with our fan base. Disney has the world's most passionate and loyal fans. It's something -- if you go to our theme parks, you see it all the time. They're a high touch, high LTV business and our biggest fans, they come off it and they tend to be repeat visitors.

Now a large number of our park visitors, they're also Disney+ subscribers, but there are millions of Disney+ subscribers who aren't regular park visitors. And so this is where we're focused. Our parks -- they're essentially the physical center piece of the company. And similarly, we're building Disney+ to serve as the immersive interactive digital center piece of the company.

And in the long term, what you'll see is those pieces of the company become increasingly connected. And when we do this well, which we will, the lifetime value equation, it starts to change fundamentally. A fan who watches a Disney film, for example, or visits a park or plays a game and buys our merchandise, it's not just a subscriber. They're in a relationship with a company, one that spans years and can generate value across every part of our business. And that's the model that we're building toward right now.

Great. We're now going to take a question from David Karnovsky from JPMorgan. Again, I think for you, Josh. As you think about Disney+ domestically, what path do you see to organically grow engagement? How do you think about this in terms of your own content but also through making the platform a portal through which third parties can distribute programming?

Okay. A lot in there. Thanks, David, for the question. So I'm happy to talk about engagement. I think you asked domestically, but truly around the world. I'll start with maybe something that's obvious. It's a competitive streaming marketplace out there right now, but despite that, we saw an increase in engagement in the quarter. And then when we look ahead, our key drivers for engagement growth, they include content and product enhancements.

On the content side, we're obviously going to continue to deliver exceptional content, not just the popular franchise films, but across television and live sports and general entertainment and international local programming as well. On the product side, our team is really focused on improvements that reduce user friction that allow more intuitive discovery for our subscribers and help users decide what to watch and to decide sooner. So you think of it like a visual homepage, easier navigation, more personalized recommendations. There's a good example of this in our video and browse initiative. It launched in the United States back in January. And what it does is it lets subscribers preview content directly while still browsing. So they don't have to click in and out of titles.

So yes, our tech team is making some really nice strides here, always learning and iterating and doing a lot of experimentation. And then engagement, of course, is critical to reducing churn on the service. All of the opportunities that we have to drive value at this company, reducing churn, Disney+ might be the single most significant opportunity that we have. And so it's probably not surprising on pushing the entire organization to prioritize against that goal.

And then on third-party distribution, I guess that I'd position it as we're selective, but we're not closed off the right partnerships, whether it be on content or distribution, they have to strengthen the Disney+ experience and then deepen that fan relationship. And our bundling approach inside of Disney, I think it's a good example of how that works well. It drives lower churn, drives higher engagement than any of the services if they were just on their own. So we'll continue to evaluate those opportunities through that specific lens.

Okay. Next question is from Rich Greenfield at LightShed Partners. I think this is for you, Josh. You recently stated Disney+ will continue to evolve beyond the traditional streaming service to become the digital centerpiece of the company a portal that connects stories, experiences, games, films and more in entirely new ways. Rich's questions are he's curious what you mean by digital center piece? Does it imply a shift away from third-party licensing, distribution to drive engagement with Disney+. How do you think about the trade-offs of reach and exposure on third-party platforms versus keeping content exclusive to Disney streaming platforms? And then the last piece is how do you reconcile Disney+ as the digital center piece, we are Epic Games partnership that will place a Disney universe into Fortnite?

Okay. Great question. And it's -- I think, as I'm listening to that, it's really 3 questions. So I'm going to take them in turn here. So first, digital centerpiece means Disney+ becomes the primary relationship between Disney and its fans, the place where everything comes together, entertainment, sports, experiences, all of that convergence. So it's less about a product. It's more about how we're -- it's a strategic posture essentially.

On third-party licensing, we've always distinguished between franchise, IP and general entertainment. So franchise and brand IP stays on the platform and general entertainment, that library content can find audiences elsewhere, and that's -- it's been working pretty well for us financially.

And then on your question about Epic Games and its relation to our Disney ecosystem. I think -- so Disney+ is the hub, but the hub needs spokes. Epic gives us an interactive a gaming native environment to reach audiences that we don't currently own, and by the way, particularly younger audiences. So think of this as acquisition and engagement, feeding the centerpiece, not necessarily competing with it.

The road map runs from near-term streaming optimization and content investment through medium-term interactivity, things like vertical video, personalized ESPN, the Parks AI work all the way to a longer-term single point of contact with our fans that drives lifetime value across everything that we're doing. The through line here is going to be the same on that fan relationship. So thanks for the question, Rich. .

Okay. We're now going to move to 3 questions on Disney Experiences. So I think for Hugh, a question from Sean Diffley at Morgan Stanley. On core U.S. parks trends, can you unpack the international visitation and Epic-related headwinds that you are seeing and if they are sequentially better or worse over the last few quarters?

Right. Thanks for the question, Sean. Answering directly, we expect international visitation and Epic related headwinds to ease in the coming quarters as we begin to lap both of those impacts. Q2 experiences results came in ahead of our prior guidance despite the fact that these headwinds did have some impact in the quarter on segment OI, which was up 5%. And and attendance in domestic parks, which was down 1%. While Q2 were the full impact of those headwinds, excluding just the international visitation impact the domestic parks attendance would have grown.

Despite this, our revenue growth for the quarter was 7% in experiences and the lack of flow-through to operating income this quarter was driven primarily by preopening costs for World of Frozen and the adventure, which we won't be incurring obviously, in the second half of the year. We recognize that domestic attendance is an important metric for investors and we're focused on it as well. However, as you know, we're investing to grow our global footprint, including plans to expand the cruise line fleet from 8 currently to 13 ships by 2031. So tying our guest demand to our capital plans more directly, global guests, which aggregates domestic and international parks attendance along with passenger cruise days grew more than 2% in Q2. The good news is, as we look forward, we expect growth to improve in the back half, and our forward bookings are very encouraging as we look to the rest of the year.

Great. Another question. This is from Steven Cahall from Wells Fargo. Hugh, have you picked up any change in behavior at domestic or international parks due to the increased price of oil, gasoline, how are you managing around these risks? And at this point, do you anticipate any shift to your adjusted EPS growth guidance for fiscal '26 or fiscal '27 due to the macro factors?

Thanks, Steve. No, we haven't seen any change in consumer behavior from elevated gas prices thus far and are currently seeing a material impact on the remainder of the fiscal year based on forward bookings. Disney World bookings are pacing up strongly. And even with our 40% increase in cruise capacity, booked occupancy remains in line with the prior year. However, we're mindful of the macro uncertainty consumers are facing, and we're not immune to the impacts, including how a significant further rise in fuel prices from current levels could eventually lead to changes in consumer behavior. If that possibility were to occur, each business has levers in place to make adjustments in order to help offset those kinds of macro pressures. So as we communicated in our letter, we expect 12% growth adjusted EPS for fiscal '26 and double-digit growth of adjusted EPS for fiscal '27 both excluding the impact of the 53rd week.

Great. Maybe over to you, Josh, kind of last question on experiences. So looking for an update, this is from Rick Prentiss at Raymond James, looking for an update on capital expenditure investment program. What are you most excited about? What have you learned from the recent openings of the World of Frozen at Disneyland Paris? When can we expect the investments to drive inflection upward in attendance at the parks?

Okay. Great. Well, first, I'm excited about a lot. So thanks for the question, Rick. The capital investments that we're making to create these new experiences based on our most popular IP, they're obviously an important part of our strategy to continue growing our experiences business. And these investments, they're diversifying our portfolio and allowing us to reach a lot more Disney fans. I was at the opening of World of Frozen in Paris in March. And if you get an opportunity to go and see it, you can understand why the guest response has been so great. I mean it's completely transformed our second gate at Disneyland Paris.

And we have so much more of this coming around the world, and the investments are working hard for us. I'll say that well, we haven't officially announced opening dates for some of our other major attractions that are coming, we have more projects underway around the globe than at any time in our history. So we're being very ambitious and very exclusive on this front.

In '26, most of our forecasted CapEx and experiences includes the new ship and the ramp of major new expansions at Walt Disney World in Orlando, Disneyland and our Shanghai Disney Resort. And then when we think about the next decade, the majority of our CapEx is earmarked for investments that that are expanding our capacity. Our business has a solid track record of generating great returns and driving long-term earnings and cash flow growth. And each one -- this is important. Each one of these investments is individually justified and designed to entertain guests for literally generations to come.

I think it's worth noting that we also have a few exciting expansions underway using what we're calling a capital-light model. So we've got a new cruise ship with the oriented land company in Japan and a new theme park in Abu Dhabi with our partner, Miral.

And then finally, when we look forward, demand is healthy. We're expecting attendance at our domestic parks in Q3 compared to the prior year period to show improvement compared to the 1% decline that we had reported in Q2, and this will happen as headwinds related to international visitation stabilized, and we begin to lap the opening of Epic Universe.

Great. We have 2 questions now on the content front. I think Josh, this one's probably from you. This is from Jessica Reif Ehrlich from Bank of America. Josh, some of Disney's greatest growth years were driven by original IP from Disney Pixar and Marvel. Can you provide color on how you plan to supercharge your content division? What changes should we expect now that content is unified under Dana Walden? .

Okay. Thanks, Jessica. This morning, you heard me talk about how creativity is absolutely central to the execution of our strategy. And we're focused on investing in IP that really breaks through that builds those fan connections endure. And as you heard me say this morning, Zootopia is a prime example of this. We understand the importance of investing in existing franchises but then also taking creative risk to build brand-new ones. And I think the studio teams all over that, you take Hoppers as an example. So this is original IP from Pixar, great critical reception, and we're pleased with how fans have embraced the film and all the new characters that come along with it.

And just -- just think about this relative to original films. Pixar, the Pixar alone has released 8 original films since 2017 as it feels like Coco, Soul and Elemental. And when you step back and think about it, that's more than all of the other major non-Disney animation competitors combined during that same period. So in an industry that's changed so much since the pandemic area -- pandemic era, I should say, we've continued to make bets on original stories and characters. And I think the team is doing a really great job continuing to push here.

And then, Jessica, you asked about Dana Walden as well. As you know, we consolidated our creative engines and distribution under Disney Entertainment. And we did this to streamline operations to unlock synergies where we could and to accelerate decision-making and sharpen our strategic focus. And Dana is already moving on this. She I think, is uniquely suited to lead this new organization. She has a long track record of high-performing creative businesses. And under her leadership, we're starting to break down silos. We're prioritizing investment and maintain a quality audiences expect from the Disney. And a lot has already happened and what is it, 6 weeks, she's already made moves that signal what's ahead. We centralized television programming within Disney Entertainment DTC. So we're programming for Disney+ and Hulu, while being smart about window and content to linear so that we can expand reach and maximize monetization.

And we also integrated our Games business into Disney Entertainment. And this creates new opportunities to cross-promote franchises and use games to extend storytelling and ultimately develop new IP. So essentially, Dana is making sure that every decision we make in content from development all the way through how we distribute that it's optimized for the fan and for the long-term strength of our brands.

Okay. A question from Jason Bazinet at Citi. I think this is also for you, Josh. Does Disney believe there is a secular shift towards short form and user-generated content? And if so, how can Disney capitalize on this shift?

Okay. Thanks, Jason. The short answer is yes. It's something that we're seeing and we're actively leaning into. So short form and creative content, they've exploded in the past few years. And it's an area we're focused on because we have deeply committed fans who love our brands and our franchises and characters, and they want to engage with them in this new way. And this is specifically important when we think about Gen Alpha, obviously, the newest generation of Disney fans. So what we're doing is we're experimenting a short form content in a variety of ways. You saw it, maybe some of you saw it in our creators collection initiative, which brought Predator and Lilo & Stitch creator led videos to our streaming platforms. And we're going to continue to advance that work in the months ahead.

We're also really focused on making sure that our IP shows up in relevant ways across social platforms. Probably not surprisingly, our brands have an enormous following with people around the world, everything from short-form video to music videos, podcasts and the like. And then we're adjusting our own products to reflect the way consumers want to interact with our content. You probably saw that we recently introduced vertical video on Disney+. And we're still in early days here, but it's already driving deeper engagement. In fact, we did the same thing on our ESPN app and the early performance of the ESPN Verts, it's been really promising.

So I think across the board on on our platforms, on social and how we're building our products. We're trying to meet fans where they are in terms that makes sense to them. But it's a great question. Thanks, Jason.

Okay. Thank you. Question on the NFL for Hugh. The NFL appears intent on reopening -- excuse me, this is from David Karnovsky from JPMorgan. The NFL appears intent on reopening media rights deals, given Disney and ESPN have guaranteed programming through the 2030 season, how do you weigh the opportunity to engage with the league now versus sitting on your existing deal until the opt-outs?

Thanks, David. Our relationship with the NFL is as broad as deep as it's ever been, and we're excited looking ahead to the upcoming NFL season with the NFL network and with Red Zone linear now part of our distribution portfolio on top of Monday night football and broader NFL coverage.

To get to your question specifically, we haven't yet engaged with the league on early renewal conversations. Well, we're not dogmatic about the process, and we're always willing to have a conversation with the NFL in an effort to find new opportunities for growth. We expect to be in the business with the league for years to come, and we'll, of course, evaluate this deal as we would any deal with discipline and a focus on driving value for Disney shareholders. In that regard, we're really looking forward to our year of the Super Bowl and all that it can bring to both all fans and Disney shareholders in the coming year.

Okay. Our next topic. We have 2 questions on technology. This is from Robert Fishman from MoffettNathanson. This is directed at you, Josh. Given your second priority of embracing technology, should investors expect to see any differences in the way technology is already being used at the company and across your streaming services? Are there specific improvements or metrics like higher Disney+ engagement that we should use to judge success?

Okay. Great. Thanks, Robert. Yes, embracing emerging technologies is one of the 3 priorities that we laid out in our shareholder letter this morning. So it's something that every part of our company is squarely focused on. That focus is on both our internal operations as well as our customer-facing areas across each of our business segments. In terms of what will be visible to you, maybe a couple of examples. First, you'll see a greater level of interactive entertainment for Disney+ subscribers. Second, you'll see more personalized content feeds across all of our streaming services. And that personalization effort, it's already starting. It's something that I use all the time is a big sports fan is SportsCenter for You. I hope some of you are using it. You can kind of think of it like your own personalized SportsCenter, where each day you get automatically curated content related to the teams in sports that are most interesting to you with all the familiar ESPN anchor voice is narrowing it.

The goal with all of this is to drive higher engagement, obviously, which in turn supports greater retention, and then ultimately delivers on the bottom line for our shareholders.

And then we have a question also on technology from Laura Martin at Needham. Probably probably each of you may want to chime in here. Where is Disney integrating generative AI to lower costs and/or accelerate revenue growth today? And what's on the road map to keep growing AI benefits to Disney shareholders?

Okay. So Hugh, maybe we split this one up if you're good with that. Laura, as I touched on in the last question, we look at advanced technologies, including AI, is a meaningful long-term opportunity for us at Disney. At the same time, we're committed to implementing AI in a way that keeps human creativity at the center of everything that we do. And of course, respects creators and the tremendous value of our own intellectual property.

And when we think about AI specifically, there's a lot of opportunity here. I'll take 3 categories or so, and then Hugh, I'll hand it to you, and you can talk about some additional ones. First, we want Disney to remain a leader in the use of technology to enhance creativity. This is -- it's just part of our legacy going all the way back to when Walt was pioneering synchronized sound and Steamboat Willie, and moves all the way through to Pixar's advanced computer animation and then even recently in series like The Mandalorian on Disney+.

And when we do this right, will be a place where I think the best talent works because they'll have access to the deep dialogue of beloved characters with opportunities to tell new stories. And and even the potential to innovating content production using all the latest technology, including AI.

Now for our shareholders, we see AI as a potential driver of improved returns over time, which will -- it will include making the production process more efficient and increasing the volume of content that we actually put out.

In streaming specifically, we've got a lot of work going on to develop really like a hyper-personalized recommendation engine across Disney+ and ESPN. And then we're implementing AI to enhance our ad targeting capabilities, letting our partners develop and and execute truly dynamic brand messaging.

If I move over to the experiences side, we see a significant opportunity to make it easier for families to plan their trip to optimize all the time with us and to personalize their experience. Disney Vacation means a lot to our fans, and we're using AI to reduce the complexities around planning and booking a trip and trying to make that whole experience specifically tailored to what our guests want most. So a fair amount going on there, but Hugh...

I'll jump in on the last couple, sure. On workforce productivity, we're focused across several areas. One of the ones I find particularly interesting is an initiative to implement precision labor demand forecasting across our theme parks. We think that one has the potential to create a better guest experience, a better employment experience and also better cost management for the company. So we're very excited about that.

And then on enterprise operations, as is true with really many, many companies the pathways to both drive efficiency and reduce costs are really quite numerous across the enterprise. Last, Laura, you didn't specifically ask but we do see our experiences business as well positioned structurally in a world of rising AI-driven content. We think it may end up increasing even more the value consumers place on authentic real-life experiences to -- with those that they are close to like we deliver across the parks and resorts every day.

Great. Okay. We're going to now take 2 questions on the portfolio of assets at the Walt Disney Company. I think these are probably both for Hugh. So this is from Robert Fishman at MoffettNathanson. How do you view the importance of ESPN and linear networks through the lens of your priorities to create -- to drive creativity, quality and global scale at the company?

Yes, it's a great question, Robert, and obviously, one that we hear a lot. So I'm going to try to be as clear as I can in the answer on this. We do understand there is a lot of focus on linear and entertainment assets and ESPN. So I'll explain our view here. Let me start with linear entertainment cable networks and 3 points. First, these networks are better thought of as brands with studios that produce content like the Bayer or show gun and we monetize that content across multiple distribution platforms.

Separating those monetization platforms into discrete businesses is highly complex and in our view, unlikely to create incremental value for shareholders especially given where linear networks are valued in today's marketplace. Second, we're managing a monetization transition of these brands, and we are actually far down that migration path. We're generating more revenue at Disney Entertainment in streaming than in linear, more than double if we look at it in this most recent quarter.

So the linear earnings base is becoming smaller and smaller every quarter within our P&L. Finally, yes, linear revenues are declining, but Disney Entertainment as a segment is growing nicely. Our guidance continues for double-digit segment OI growth. This fiscal year, excluding the 53rd week. So with all the cord-cutting pressure, we're all aware of. Disney Entertainment is actually one of the faster-growing media businesses out there, and we're actually very, very proud of that.

Turning to sports in totality. We view ABC as strategically connected when we think about ESPN and sports in general. Sports is admittedly a separate discussion in that it is much earlier in its monetization transition, having just launched unlimited last year. However, when we look at the marketplace for streaming in our competitive set, Netflix, Prime video, YouTube, Paramount+, all of them are increasing their position in live sports. Sports rights are expensive and can be dilutive without scale but we have scale in our most important market, the U.S. and the biggest sports media brand in the world in ESPN.

We view sports as a key part of our programming strategy and ESPN as an important contributor to our distribution portfolio. For sure, we have to continue to work through this economic transition for ESPN while also better leveraging it for our overall business. As we do this, we will continue to deliver healthy consolidated earnings growth for shareholders.

More broadly, when it comes to capital allocation, we're always assessing and looking to maximize shareholder value of our portfolio. That is our responsibility to shareholders, and we will continue to do that in the future.

Okay. Great. Thank you, Hugh. Next, on the portfolio. Can you expand on the One Disney strength as it relates to your sports businesses and general entertainment assets. Specifically, how do those businesses fit into a Disney focused paradigm that is strong across both entertainment and experiences? Are there any elements of the company that you would consider noncore in the context of One Disney? And I apologize, this is for Mike Morris at Guggenheim.

Sure, Mike. We do see One Disney as an important priority for the company. It really is more than a strategic headline. It's about how we create, distribute, engage and monetize our stories and brands across the company in a way that increases the lifetime value of our consumers and drives compounding returns for our bottom line, and thus for our shareholders.

It's also about how we operate as a company, less a portfolio of assets and more a set of connected businesses that are focused on the fan, the consumer with an enterprise-wide lens store engagement and lifetime value.

Turning to what is more of a portfolio optimization question. As I mentioned earlier, the entertainment networks are better thought of as brands with studios that produce content that we distribute across our platforms with the intent to increase reach and engagement. And at ESPN, we have the biggest sports media brand in the world, as I mentioned earlier. That now includes even more NFL content. In fact, I think it's the most we've ever had from the NFL, which is being made accessible to consumers across all distribution platforms and devices.

And Mike, to your question on noncore assets, know that we're always evaluating the merits of our brands, org structure and business priorities to deliver long-term value for our shareholders. If there is a compelling case to consider strategic alternatives for any noncore assets, you can reasonably conclude that, a, we've already looked at it; and b, we'll continue to do so in the future as the marketplace and our businesses evolve.

And then moving to a question from Steven Cahall at Wells Fargo on efficiency. I think for you, Hugh. It appears that one of the early initiatives is to increase efficiency, including some recently announced workforce reductions. How big is the opportunity as you take a fresh look at the operations, where is the most room for improvement? And should we think about efficiency gains as falling to the bottom line or being reinvested into areas of growth like content technology spend?

Right. Thanks, Steve. These are always difficult exercises for the organization. But let me assure you, this management team is acutely focused on this. At a high level, however, we're working towards driving efficiency and rightsizing our organization for the state of the business today and where we want to go over time. And second, shifting more of our expense base into areas that we expect to drive growth. That's content and technology.

The most recent example you cited is a part of our push to unified enterprise marketing organization, and the recent staff reductions reflect a deliberate shift toward a more agile, technologically enabled and resilient workforce. We aren't going to size the opportunity or rank order the areas that we're focused on, in part because this is an ongoing exercise and a muscle we're building for the company.

We want to build a culture of efficiency, and we want to fund growth opportunities from within the existing expense base. Across the company, we're aligning structures, capabilities and talent to what the business needs next. We're simplifying where we can, while investing where it matters most, and we're using technology to fundamentally change how work gets done. We have been and will continue to look for these types of opportunities to redeploy capital, both financial and human, to areas we see driving the highest returns for shareholders.

Okay. With time for 2 more questions or 2 more analysts asking questions, and these are focused on our second quarter results that we just released in our outlook. So I think a few Hugh, worth hitting from David Karnovsky from JPMorgan, starting with -- on the sports OI guidance. So that is now mid-single digits, which includes the NFL network transaction. Can you help quantify if the change from the prior commentary of up low single digits, is that all NFL network? And any comment on what drove the stronger second quarter sports results versus our guidance?

Sure. As a reminder, the prior guidance of low single-digit increase was before the NFL transaction, as you probably know, but just in case. So yes, the primary change here is incorporating the NFL transaction. Regarding the quarter, sports OI in Q2 came in a little bit better than expected, simply because our revenues came in slightly ahead and programming fees slightly under, but really small variances to each.

Okay. And then David asked, is there any additional detail here you can give us around the 53rd week impact by segment?

Yes. It really impacts all of our segments to a degree. So we wouldn't want to be overly precise on that. But think about it as essentially 153 or a little less than 2% benefit on our full year revenues. Then we had some modest margin uplift given some of the fixed costs that are accrued over the course of the year. So a bit of an uplift, overall, it delivers about 4%.

Okay. And then lastly, on the park side, what drove the better-than-expected top line, which was up 6% relative to the guidance we provided? And any indicators that give you confidence on domestic attendance or international parks and the macro impact to consider?

Sure. The outperformance really came from core Park's revenue and it was broad-based. Admissions were stronger. Food and beverage, [ merch ], really everything came in a little bit stronger than expected. So revenue really came in nicely. Nothing unusual to call out other than a bit better on the top line than we thought earlier in the quarter. Right now, we're not seeing any macro weakness to point to, including at the international parts. We also obviously have the benefit of the Paris World of Frozen opening. So feel very, very good there.

Okay. Great. And then I think our last question is coming from John Hodulik from UBS. So John asked about the cadence of SVOD entertainment margins now that we've hit double digits here in the second quarter, Hugh.

Okay. Yes. Thanks for noticing, John. We're proud to hit double digits this quarter. Look, we're focused on driving top line growth. And you noticed in the letter, we're investing. So we want to keep growing this business profitably. We're focused on the long term and making sure we maximize what Disney+ can be for this company over time, as you heard Josh discuss at length today. We had previously talked earlier about accelerating revenue growth in that business. And we feel terrific about the fact that we have, in fact, been able to do so.

Great. That's all the time we have this morning. Thank you for your time. To close this out, I'm going to hand it over to Josh.

Thanks, Ben, and thanks, everyone, for your time this morning. We realized that we packed a lot of information into a new format, both on the call and in the letter, with this being my first earnings call as CEO, we felt that it was important to spend extra time laying out our strategy and then, of course, taking your questions. We also felt it was important to discuss our results with more of a unified approach rather than focusing on individual segments.

I'll conclude by saying that I look forward to engaging with the investment community and our shareholders in the future, including on our fiscal Q3 earnings call in August. Thanks for joining today, everybody.

This event may include forward-looking statements, which are statements that are not historical and are based on management's assumptions regarding the future and are subject to risks and uncertainties, including, among other factors, economic, geopolitical, operating and industry conditions, competition, execution risks, our future financial performance and legal and regulatory developments. Additional information concerning factors and risks that could cause results to differ from those in the forward-looking statements are set forth in the company's securities filings.

Okay. I think that's done. Now for my quick disclosure. For important disclosures, please see Morgan Stanley research disclosures at morganstanley.com/researchdisclosures. Really excited to welcome to this conference and the stage, Hugh Johnston, CFO of The Walt Disney Company and also my future boss. Hugh, thanks for being here.

Nice to be here, Ben. Be nice.

Absolutely. Absolutely. So this is the first conference Disney's has, I think, participated in investor conference anyway since the succession announcement was made. Josh begins, I think, his CEO tenure in a couple of weeks. What's your message to shareholders and investors as they sort of assess the decision to name Josh, CEO, Dana, Chief Creative Officer. Maybe you could talk a little bit also about the reaction inside the company.

Yes, happy to talk about that. A couple of things really that I think is relevant for this audience. Number one, the Board really went through an extremely thorough process as some of you may have seen because it was certainly reported all over the media. It probably went on for about 1.5 years. I would tell you they looked internally, externally, they really pushed hard on the candidates and I think came to a conclusion that, that is a terrific one. You have Josh, who's a terrific growth-oriented executive. You have Dana, who's a terrific growth-oriented executive on the creative side. And the fact that not only do we have Josh in place and looking forward to his leadership, but we have the entire team staying together is something that I think is a little bit unusual for corporate CEO successions. And frankly, inside the company, both of those leaders have tremendous followership and they work incredibly well together. So I think it's going to be a fantastic combination, and we'll have a lot of fresh eyes on what we do.

And what's been the reaction inside of Disney? Obviously, this is much anticipated internally as well.

Yes. People are excited. Because both people really do cut across businesses and they do have strong followership, not just within their own businesses, but more broadly, there's a lot of energy there in terms of people being excited about Josh, being excited about the fact that this process was also handled so smoothly. You all know some of the history of Disney and CEO successions going all the way back to Michael Ovitz. This couldn't have been more different than that. It was a really smooth, well-run process with minimal drama.

That's great. So the media industry broadly Hugh, and Disney specifically has gone through a lot of change over last decade. You come from outside of media. You obviously spent many years at Pepsi on the Board of companies in a whole bunch of different industries. How would you describe Disney's sort of business model and strategy?

Yes. It's interesting because I often hear from investors that Disney is very complicated, and it's hard to understand at times. And honestly, once you distill it down, I think it's actually -- the business model is pretty straightforward. Our goal very simply, first, our mission is to entertain the world, no surprise with all the IP we have and all the capability we have. Beyond that, what we really do is compete for people's entertainment time, right? We produce engaging entertainment, and then we compete to get more and more of their time. How do we do that? 2 very simple engines. Engine #1 is the creative engine. And you know we have tremendous IP in the film studios. We have tremendous IP in the TV studios.

And ESPN in a lot of ways has its own form of IP in terms of the fact that it produces sports in a different way, and it has that one thing that people just can't get enough of, which is sort of live unskippable entertainment. So to me, that's the creative engine that really drives the engagement. And then from that, we have monetization engines that, again, I would argue are pretty simple. We have B2B transactions, things like affiliate fees, license fees and advertising sales, of course. And then we have consumer transactions. which are very simply subscription fees, lodging and park tickets and cruise tickets. That's it. That's the entirety of the business model. So I tend to view it as much more straightforward. And I think a lot of times, people get caught up in the detail when you elevate it out of it, it's a relatively simple model.

In terms of strategy, what is it that we're trying to do? Our goal, as I said, is to engage and try to get more and more of consumers' entertainment time. How do we do that? We do that primarily by trying to create terrific entertainment that is engaging and gets more of their time. It pulls more people into our ecosystem. We then try to increase monetization. And then we try to go to new areas to bring more people into our ecosystem, particularly within our streaming ecosystem, both with entertainment that's created inside of Disney and outside of Disney. And that strategy is very effective in driving a lot of cash flow. And as a result of generating that, we have the opportunity to create a real earnings compounder that has many, many layers of competitive advantage and is a really, really durable company in terms of creating earnings growth. So I do tend to view it as very simple.

Yes. You mentioned streaming and obviously, technology plays a huge role in that. Big focus at this conference, all things AI. How are you thinking about what Gen AI can mean for Disney and its business when you think about the organization and how it goes about executing the strategy?

Yes. it's incredibly exciting for us from a variety of perspectives. Obviously, it's a game-changing technology in terms of the way people engage. But the way I think about it is 5 relatively straightforward platforms. Number one is video creation and production. And that's something that we're obviously digging into in a significant way and just created a significant relationship with OpenAI. Number two is guest management inside the parks, making that their experience better, more personalized, more entertaining. Number three is managing the large cast that we have running the parks. Number four is connecting better and more personally with consumers in the streaming service.

And then last is making our back-office people more effective and more efficient. So those 5 big platforms all have the potential to either drive a lot of revenue for the company or alternatively to reduce cost for the company, which gives us the opportunity to either deliver more earnings to the bottom line or to reinvest back in the company. In addition to that, the only other thing I would note is AI does offer the potential to make people more efficient in the way that they do their jobs and the way that they run their lives, which frees up more time for them to entertain themselves. So I also view it as a natural tailwind for our category, and it does offer an opportunity for extra growth in our category.

That's great. Before we dive into the businesses, Disney reported its first quarter -- fiscal first quarter relatively recently. You reiterated your full year guidance for adjusted earnings. you talk a little bit about how the year is tracking and your priorities for the remainder of 2026?

Yes. I mean we feel like we're off to a great start. Just as a reminder, the guidance that we gave was we would achieve double-digit EPS growth in 2026 and in 2027. And we have this weird nuance called the 53rd week, which comes up about every 6 years. It's adjusted for that. So it's a clean double-digit EPS growth for both of those years. If we then get into some of the specifics of the businesses, all of the businesses, I think, are performing very well right now. We feel great about where entertainment is, and we certainly have a good movie slate for the rest of the year. Sports is obviously doing tremendously well, and we feel terrific about the Parks and Cruises business. To get a little bit more specific, as we think about where entertainment is for Q2, and again, just as a reminder, we said that profits in Q2, operating income would be roughly level. We said we would deliver $500 million of SVOD operating income, which is up $200 million year-over-year.

And that's while we're investing in the business, both in technology as well as in content, particularly international content. We said that the Experiences business would grow revenue about 5%, so roughly 5%. And we said operating income would be up modestly for the quarter. The reason it's only up modestly with the 5% revenue growth is we have some onetime costs with launching ships and dry docks. So there's some timing elements to it. And then last but not least, we talked about sports as being really a Q4 story driven primarily by the timing of rights, in particular, the NBA and the WWE, which will be up 8% in Q3. So the profitability will be skewed more towards Q4. But overall, we feel like we've got a lot of momentum in the business and really do feel that we're making the right investments and the right moves to continue and sustain that growth for an extended period of time.

You mentioned the 53rd week. I know it's a unique aspect to Disney. I think it's only, as you said, every -- once every 6 years. Can you just remind us how that impacts kind of the phasing of earnings?

Yes. Interestingly, too, it is an unusual thing. And then we had it back at Pepsi as well. I thought I was going to get away from it, and I didn't get away from it, unfortunately. Anyway, the 53rd week on a full year basis is -- obviously, it's 152nd. So the impact is low single digits on a full year basis. It's all in Q4, obviously, that's where the extra week occurs. So a little bit more substantive in Q4. And from an operating income perspective, it has a bit more impact on operating income in the sports business as well as in the Experiences business, less so in the entertainment business.

Great. Why don't we talk a little bit more about streaming? Obviously, a huge focus in the market and at the company. So your SVOD assets today north of a $20 billion business. You're growing revenues double digits. Last time you reported subscribers, you had a business approaching 200 million subscriptions. That's real scale. But what's the growth opportunity from here? Like how do you size up the opportunity? And how do you go about getting it?

Yes. We do feel good about what we've built. If you take a big step back, the global television market is about $500 billion, and we only have about $20 billion of it. Now we feel great that we've built this $20 billion business for SVOD, but it's still only $20 billion out of the $500 billion. So we feel like there's an awful lot of opportunity left for us to go and get. Where specifically does that opportunity lie? Domestically, U.S. and Canada, the opportunity is much more about engagement. Household penetration is pretty high, but getting number of hours per week watched is the opportunity that we have. And the way we'll get after that is primarily through product improvements, and we'll talk a little bit more about that later. Internationally, the penetration is much lower. So we have a significant opportunity to achieve higher penetration internationally. But with that, it will require some investment. That investment won't be disruptive to the overall algorithm of the business, but it is something that we're going to do to ensure that we take advantage of that growth opportunity as well.

Does Disney -- on that last point on international, does the company have the kind of global infrastructure, kind of local presence you need to really execute well on international streaming?

Yes. We've really built it over the course of the last couple of years. We've got new teams in Europe. We've got new teams in LatAm. We actually have new teams in Canada. And we've really kind of built up the capability both in terms of getting content created, but then in addition to that, marketing that content and getting it produced such that we could really take advantage of the opportunity that we see internationally. Now we're not going to do that by just trying to sort of spend money all over the world. We're fairly focused on how we're looking to do that. In particular, I'll mention a couple of markets.

Japan and Korea, we expect to focus on, particularly with Japanese anime and with Korean dramas, where we've been very, very successful. Latin America, we'll be leaning heavily into reality, into sports TV and then, of course, the Telenovelas that are so popular down in Latin America. And then last but not least, in Europe, we'll be doing a fair amount in general entertainment, both scripted and unscripted, primarily focused on Western Europe. So put all of that together, what we're really doing is the Disney content actually plays very well as tentpoles internationally. So when we launch a big movie, we clearly get a surge in demand, but then you do get some churning out. By virtue of filling in with international content, we'll stop the gaps between the tentpoles such that we retain and we maintain the penetration that we've achieved with the tentpoles.

Right. So that's on the content side. Let's talk about product. That's another area you guys have highlighted as an investment focused in streaming. What's happening there? I know you have a new homepage for Disney+. What are some of the big product initiatives?

Yes. I mean, as you mentioned, the homepage and increased personalization is a huge opportunity for us. If you look at our history, we had Hulu, which was sort of its own independent entity and then we had Disney+, which was launched on BAMTech technology. We're really now bringing all of that together in a much more substantive and effective way. So by virtue of combining the watch histories, right, it makes the recommendation engines that much more powerful. We get to know consumers much more deeply. In addition to that, launching things like on Disney+, a vertical capability, which obviously unlocks mobile in a more significant way is an opportunity for us.

And in addition to that, we've really redone our ad tech stack in a way that allows us to target for advertisers much, much more effectively. And then beyond that, without getting into some of the specifics, we're certainly -- we look at Disney+ as not just a platform for Disney content. It certainly is that, but it's got the potential to do so much more as a platform more broadly for entertainment. So when I talk about us having the mission of trying to entertain the world, that's what I'm talking about is the ability to basically use it as the place where people go daily for entertainment.

Sticking with technology, we talked about AI before, but Disney made a pretty big announcement with OpenAI. I think that was last year, investing in the company, but a partnership with Sora. Maybe you could talk a little bit about your ambition there and sort of why that agreement makes sense for Disney.

Yes. I mean, for a variety of reasons. Obviously, what's happening in AI and the ability for people to generate their own content is super exciting for us. But there's a lot of demand for using our IP as they do those types of things. So the agreement we reached with Sora was we give them a limited number of characters. It's not the entire Disney portfolio of characters, but a limited amount of IP, which could then be featured as people produce video inside Sora. The other interesting part for us, though, is with that content, we can now incorporate those Sora videos into our Disney+ app. So there'll be a new feature that enables that.

By virtue of doing that, it allows us to get access to short form in a significant way and in a way that's authentically Disney. And in addition to that, that takes advantage of the vertical capability that we have because people do want to watch those things on mobile and they typically do it on their phone. So when you put it all together, it offers us the opportunity to engage consumers again in a different way and achieve that goal of driving number of hours per week watched up on the Disney+ side, which obviously has multiplier effects for the rest of the business.

That's great. Last thing I wanted to ask you on the streaming front. You have announced plans to bring Disney+ and Hulu together into a single app. This is not a small project, I'm sure, internally. How is the team planning on executing that in a way that's not disruptive to the customer and additive to the business?

Yes. In a couple of ways. One, obviously, we're going to overcommunicate to customers what's going on with that. That said, our view is we're going to make it so much of an enhanced experience for our customers that, in fact, they're going to want to be a part of this new Disney+ app. Now what does that mean? From the inside of the company, we're going to combine watch histories, combine a lot of the data. That enables us to create much more sharp recommendations in terms of things that you may like or things that you would want to watch. And we'll do that both with things that people have authenticated themselves for, but other things that they haven't subscribed for with the hope that we can also market and upsell to them. Our view of it is it will be a much, much friendlier app.

The homepage will be much more customized for the individual. And over time, we're hoping that people will sort of -- will be able to increase monetization per consumer by virtue of offering them features that they're interested in and they're interested in subscribing in as well. Now that said, if you're really someone who only wants one thing, you just want Disney+, you just want Hulu, you'll still have the opportunity to do that. But as you might imagine, with price points and with marketing, we're going to encourage people to bundle and take more and more of the content that's on Disney+. So we are really, really excited about it, and that's something that will be on our doorstep at year-end.

Great. Okay. Let's shift over to the film business, which plays a really significant role at Disney, much more than just simply box office results. How would you describe the company's film strategy? How does it connect to the broader mission or broader goal of growing earnings double digits?

Yes. If you go back to where we started on with the -- basically having the IP engine, the film studios are one of the keys to the IP engine, right, whether it's generating new creativity or whether it's building on some of the existing stories we have. And our goal is to do a balance of both. That value creation in the form of coming up with new highly engaging content is what lets the ecosystem really work well. In terms of specifics on the content, obviously, we've got a broad array of studios, some of the biggest brands in entertainment. And we've got a terrific creative team that's capable of leveraging those assets to create new and better and more refreshed and interesting stories. The other piece to keep in mind on that is once we do create a new piece of content, our ability to monetize it has never been greater, much more so than it might have been 5 or 10 years ago. I'll use an example to talk about that. Zootopia 2, the film, if you have kids, you're probably familiar with it. Zootopia 2 was a huge hit, global box office unto itself, $1.9 billion in global box office.

But on top of that, it was also the biggest foreign film in the history of China. And that was great because it obviously created a global market for us. But in addition to that, we've got a Zootopia land inside of Shanghai Disney. That Zootopia land literally, people were flocking to as we -- as the movie came out and people were so energized and excited about it. So that's yet another monetization opportunity. In addition to that, before the film even came out, we saw the original Zootopia get watched an awful lot on Disney+. So people kind of came back to the franchise and wanted to refresh themselves on the first Zootopia. And then with that, obviously, Zootopia 2 came on and that was watched quite frequently as well. And that gave us the opportunity to market the rest of Disney+ as well. And then on top of that, even consumer products and the other global parks were the beneficiaries of the film. So overall, the film studio is sort of a multiplier effect or a flywheel, so to speak, that generates an awful lot of revenue for the company.

I know you're the finance guy at Disney, but any top film recommendation, what's coming in rest of the year?

That's a little bit like asking who is your favorite kid. I'll say it this way, we have 4 big ones coming in the balance of the year. Moana Live Action, Mandalorian, The Devil Wears Prada 2 and Toy Story 5. I do think Mandalorian and Toy Story 5 are -- they look like they're going to be big hits. But the other 2, I think, are extremely promising films. So I'm excited about all of them, and I think they'll help us a lot in the balance of the year.

Great. Let's shift over to sports and ESPN. Sports remains as popular and culturally relevant sort of as ever. We saw that with the Olympics certainly recently. When Bob came back, he talked about transitioning ESPN to sort of a digital future. That sort of started. with the launch last year. How would you assess where ESPN is in that kind of technology evolution? And what is the role of this business in the overall Disney strategy?

Yes, it's interesting. Let's go digital first on that. If you sort of look at ESPN and the history of it, ESPN has always been sort of the digital source of sports information, right? It really is sort of the record where you go if you're looking for information on sports, more than any place else. To me, the direct-to-consumer product, which we launched last year, is just a logical extension of ESPN's sort of place in the sports ecosystem as being the place of record for all things sports. But in addition to that, if you sort of think about ESPN, we weren't going to do DTC simply by saying, okay, let's take what we put on linear television and now moving into a streaming ecosystem. We wanted it to be more substantial. We wanted to be more engaging. And I think we've actually pretty well accomplished that. So particularly for a younger sports consumer, they like to be engaged. They don't just sit and watch sports. They want to socialize around it. They want to bet on it. They want to engage in fantasy on it. They actually want to engage in e-commerce on it.

And that's exactly what we built with ESPN DTC was the ability to do all of those things. So I do feel like we've made very good progress on that front. And then in addition to that, created some specialty features that you could only find on mobile. In particular, I mentioned Verts for basically a vertical screen for Disney+. We launched that first on ESPN, and it's proven to be incredibly popular as people watch highlights. And if you are a sports fan, the one recommendation I do have for you on sports is watch what we have on there called SportsCenter for You. The more the ESPN app knows you, the more it will deliver a tailored SportsCenter, about 5 to 6 minutes that is literally your teams, and it will be the announcers that you recognize describing the action along with the analysts that we have. So it's a superb product. You couldn't do it without artificial intelligence. But by virtue of using AI, we literally have a SportsCenter for Ben and a SportsCenter for Hugh and Carlos and Christian and hopefully, all of you before the end of the day.

You guys recently closed your NFL agreement and the NFL is a big focus of investors right now given some of the comments they've made about their rights payments. Can you talk about what this agreement entails for Disney? How does being in business with the NFL even more help ESPN?

Yes. I mean, certainly, for one, the NFL is obviously one of the best sports properties in the world right now, right? I mean the level of enthusiasm, the level of engagement for NFL football is terrific. What we've done by virtue of getting closer to the NFL is a couple of things. Number one, we picked up a couple of valuable assets, which will actually make ESPN even more engaging. We've taken over the NFL network. And over time, you'll see NFL network content integrate its way into ESPN. So certainly very excited about that. Number two, we merged their fantasy football business with ESPN's fantasy football business. So we really will have kind of the mega fantasy football business, which obviously offers a lot of opportunity for engaging because if you're into fantasy football, that's something that you're doing pretty much on a daily basis. And then in addition to that, we also have the opportunity to market RedZone, which is a super popular product through linear channels. So it gives us, again, another opportunity to monetize the relationship that we created with the NFL.

On top of that, we created a commercial agreement with them, which entitled us to pick up some more games, also extended our agreement on the NFL draft, which obviously is coming up in a couple of months, and people are super enthusiastic about the NFL draft and just gives us the opportunity to work more and more with the NFL on coming up with creative ideas to sort of generate more growth for ESPN. So in terms of that agreement, it does a great job with allowing us to get even more deeply into what's obviously an incredibly popular sport. Beyond that, in terms of where does ESPN sit in the ecosystem for The Walt Disney Company, frankly, it's important unto itself. It's a great business. It has high engagement. But in addition to that, if you think about sports as being one of the things that you really just have to tune in because it's your team and the things that you like to watch, having that as a part of our streaming service is a competitive advantage that really no one can match. There's others who are dabbling in sports. No one's got the level of engagement that we do at ESPN.

Great. Why don't we talk about the Experiences portfolio and segment. I mean, in general, the market, I think, is quite optimistic on experiential assets. And certainly, this AI wobble we've seen over the last few months has made people gravitate even more towards real experiences. Talk a little bit about what makes Disney's Experiences segment unique within the broader experiential marketplace? And why putting $60 billion of capital into it is a good thing.

Yes. It's a significant investment. Only $30 billion incremental, though, just to be clear. No, the thing -- the reason I have confidence that the incremental capital going into the Experiences business is actually going to pay back successfully is 2 things. Number one, if I look at demand and capacity utilization, for our Experiences assets, whether it's cruise ships or whether it's parks. Capacity utilization is super high, and there's more demand than there generally is supply of the ability to go and tune into those, certainly at certain times of the year. So I know we can fill the capacity if we build it, so to speak. The second reason is the return profile, both of the entire Experiences business and the returns are quite high in that business.

And if I look at the return profile of the projects that we're initiating, that puts us in a place where I've got high, high confidence that this notion of turbocharging experiences is something that's going to pay back for not just years to come, but probably a couple of decades to come. In particular, there's just so much demand outside the U.S. for experiences. And then inside the U.S., as Ben just noted, people are seeking more in-person physical experiences. And there's really nothing like a Disney park or a Disney cruise ship. The scale of those operations, the characters and the IP, the quality of the service and execution, it's pretty well unmatched. So in terms of layers of advantage, I would argue that these have more layers of competitive advantage than almost anything that exists within -- the Walt Disney Company. So I'm super, super optimistic on where that can go.

We've seen nice growth in U.S. parks revenues and OI over the last several quarters, et cetera. But there's a lot of focus on attendance trends for sure. Can you talk about the drivers of the business in fiscal '26 and your overall growth expectations?

Yes. Certainly, right now, because of the nature of, frankly, the capacity situation we have, there's less opportunity for attendance growth because we're filling up the parks pretty well. That said, as we add more and more through '27 and into '28 and '29, I would expect some balance of price realization along with attendance growth is what's going to drive that business. Now one of the constraints that we've had this year, and we talked about it on our recent earnings call is international visitation to domestic parks has been a little bit softer than what we've previously experienced. But as a result of that, and that's been going on for a couple of quarters already, we've actually pivoted our marketing more to a domestic audience. And by virtue of doing that, we're doing a good job really filling up the park and finding other sources of demand. I do expect that will persist through '26. Beyond that, I'm hopeful that things will somewhat renormalize.

Great. In the minutes we have left here, let's talk about sort of capital allocation and how you guys are thinking about putting the balance sheet to work. What's kind of Disney's M&A philosophy? Where might you be willing to look to deploy capital inorganically?

Yes. We're very fortunate in that with the moves that Bob Iger made during his tenure as CEO, whether it was acquiring Pixar, Lucasfilms (sic) [ Lucasfilm ], Marvel and then the Fox acquisition, we were kind of in front of the curve in terms of generating a large collection of IP. And obviously, with some of the recent activity you've seen in our sector, other people are starting to do that now. for us, it started really going all the way back to about 2006, 2007. So we don't -- we like the portfolio. We like the hand that we have right now. We don't need to do any substantive M&A. It seems some of our competitors are signaling they do. We clearly don't need to do anything. We can leverage what we have and build it out. Now might we do some small tuck-in acquisitions or something to add a capability or an acquihire or something like that to add some talent. Yes, but we don't need to do substantive M&A. And by virtue of that, we can really focus ourselves not on integrating M&A, but just running the company and building the products and leveraging the IP better and better.

You guys announced plans last year to buy back a lot of stock. I think about $7 billion this year. How do you think about the right level of share repurchase? And capital?

I mean the way that we think about capital allocation in that regard is, obviously, we need to do the basics. So we need to service the debt, pay the dividend, all of those things. M&A, as I said, we don't feel like we need a lot that tuck-ins will not be very significant in size. It won't be disruptive to our overall capital allocation. And sort of what that -- and we like our debt levels where they are right now. We don't feel the need to change. We're at a highly rated debt level. So we don't feel the need to make a significant change there.

And as a result, with the cash generation the company is coming up with right now, $7 billion was just sort of what was left over. We don't want to build big cash balances. We don't feel the need to do it. So the $7 billion was sort of the outcome of that. And as we think forward, there's no reason to think that those numbers will change. We're going to continue to generate a lot of cash. Obviously, we will be in a position where we still don't want to pay down debt. We don't want to generate cash for the balance sheet. So my expectation is you're going to continue to see strong cash returns to shareholders.

That's great. Well, we got about a minute left. Hugh. Anything you want to wrap up with at this time when Disney is bringing on a brand-new CEO and...

Yes. It's funny. I actually just got off of Disney Cruise and had never been in a cruise before. And it was just my wife and me because our kids are older. But boy, what a fabulous experience that is. So what I would encourage you all to do is, number one, if you have kids, you have grandkids between the kids clubs and the entertainment and all of that, it's just a spectacular experience. You might want to also go to a park, subscribe to Disney+. And oh, by the way, if you think about it, buy some Disney stock, too. It's not a bad idea and a pretty good buy these days.

All right. That's a perfect way to wrap. Thank you, Hugh. Thanks, everybody.

Thank you. Thank you, guys.

Welcome to The Walt Disney Company First Quarter 2026 Financial Results Conference Call. My name is Lauren, and I will be your moderator today. [Operator Instructions]

Please note today's event is being recorded.

I would now like to turn the call over to Carlos Gomez, Executive Vice President, Treasurer and Head of Investor Relations. Please go ahead.

Good morning. It's my pleasure to welcome everyone to The Walt Disney Company's First Quarter 2026 Earnings Call. Our press release, Form 10-Q and management's posted prepared remarks were issued earlier this morning and are available on our website at www.disney.com/investors. Today's call is being webcast, and a replay and transcript will be made available on our website after the call.

Before we begin, please take note of our cautionary statement regarding forward-looking statements on our IR website. Today's call may include forward-looking statements that we make pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, including regarding the company's future business plans, prospects and financial performance are not historical in nature, and are based on management's assumptions regarding the future and are subject to risks and uncertainties, including, among other factors; economic, geopolitical, operating and industry conditions, competition, execution risks, the market for advertising, our future financial performance and legal and regulatory developments.

Refer to our Investor Relations website, the press release issued today, and the risks and uncertainties described in our Form 10-K, subsequent Form 10-Qs and other filings with the SEC for more information regarding factors and risks that could cause results to differ from those in the forward-looking statements. A reconciliation of certain non-GAAP measures referred to on this call to the most comparable GAAP measures can be found on our Investor Relations website.

Joining me this morning are Bob Iger, Disney's Chief Executive Officer; and Hugh Johnston, Senior Executive Vice President and Chief Financial Officer. Following introductory remarks from Bob, we will be happy to take your questions.

So with that, I will now turn the call over to Bob.

Thank you, Carlos, and good morning, everyone. We are pleased with the start of our fiscal year, and our achievements reflect the tremendous progress we've made. Beginning with our Entertainment segment, our film studios generated more than $6.5 billion at the global box office in calendar year 2025, making this our third biggest year ever, and they are our ninth year as #1 at the global box office over the past decade.

Avatar Fire and Ash became our latest release to cross the $1 billion threshold, joining Zootopia 2 and Lilo & Stitch, to mark $3 billion titles in 2025. Zootopia 2 also became Hollywood's highest grossing animated film ever and one of the top 10 highest grossing films of all time, earning more than $1.7 billion, and firmly establishing itself as a popular new franchise. This builds on a rich legacy of both creative and box office success for Disney. To date, $37 billion films have come from our studios, out of the 60 films that have hit this mark industry-wide. That's 4x more than any other studio.

Great storytelling generates value across our interconnected businesses with hits like Zootopia 2 lifting viewership of related titles on Disney+ and fueling global interest in our parks and consumer products. The film also became the highest grossing foreign film of all time in China, where the franchise is an important driver of attendance at Shanghai Disneyland, with our Zootopia theme land, one of the most popular areas of the park.

Looking ahead to our upcoming slate, we are excited about numerous titles coming to theaters this year, including The Devil Wears Prada 2, The Mandalorian & Grogu, Toy Story 5, the live action Moana, and Avengers Dooms Day.

Turning to streaming. Our performance in the quarter reflects the strength of our content and continued technology improvements. We're seeing encouraging results from our investment in local content as we continue our focus on international growth. We're also rolling out product enhancements to elevate the user experience on Disney+, and we're layering in additional ways to engage audiences by developing new vertical and short-form experiences, with plans to introduce a curated slate of story generated content on Disney+ following our recently announced licensing agreement with OpenAI.

We also took a major step forward with the launch of ESPN Unlimited. And while still early days, we're pleased with the adoption and engagement we've seen with the new app. ESPN is the industry leader in sports, offering fans the most compelling portfolio of live sports, studio shows and original content with multiple ways to watch. And in Q1, ESPN delivered outstanding ratings across our portfolio of live sports. Highlights include ESPN's most watched College Football regular season since 2011, with ABC achieving its best college football season since 2006. Monday Night Football delivered its second highest viewership in 20 years. And season to date, ESPN has delivered its third most watched NBA regular season ever.

We also just closed our transaction with the NFL to acquire NFL Network and other media assets, including the linear rights to the League's popular Red Zone channel, further bolstering ESPN's offering with an even richer content experience for football fans.

Turning to our Experiences segment. We had a solid start to the fiscal year with quarterly revenue exceeding $10 billion for the first time. We have expansion projects underway at every one of our theme parks, and next month, we're excited to welcome guests to the new world of Frozen at the completely reimagined Disney adventure world at Disneyland Paris. This milestone marks the beginning of a bold new era for Disneyland Paris, nearly doubling the size of the second park.

At Disney Cruise Line, we recently launched the Disney Destiny, which has received outstanding reviews from guests. We're also preparing for the launch of the Disney Adventure next month, which will be our first ship homeported in Asia, bringing immersive Disney storytelling to more people globally than ever before.

Overall, our results this quarter reflect our hard work and strategic investments across each of our priorities, and I'm incredibly proud of all that we've accomplished over the past 3 years to set Disney on the path continued growth, and have inspired and energized by the opportunities ahead for this wonderful company.

With that, we will be happy to take your questions.

Thanks, Bob. As we transition to Q&A, we ask that you please try to limit yourselves to one question in order to get to as many questions as possible today. And with that, operator, we're ready for the first question.

Our first question comes from Robert Fishman from MoffettNathanson.

Bob, you've made some significant IP deals for Disney over the years. I'm wondering as you watch from the sidelines, the value being ascribed to Warner Bros. and HBO. Does that change or impact any of your strategies to better monetize or unlock the value of all Disney's premium IP?

And then Hugh, if I can squeeze in a quick one. The absence of subscriber disclosure. Just wondering if you can help us better understand the drivers of SVOD's 13% subscription revenue growth? Any breakdown of U.S. international? Or how you expect subscription and advertising revenue to trend over the rest of the year?

Thanks, Robert. Look, if anything, the battle for control of Warner Bros. Discovery, I think should emphasize, or cause investors to appreciate the tremendous value of our assets, particularly our IP, includes obviously all of our brands and our franchises. And also, let's not forget ESPN.

The other thing I'm reminded of is the deal we did for Fox in many ways was ahead of its time. We knew that we would need more volume in terms of IP, and we did that deal -- actually announced in 2017, closed it at '19. And I also, as I look at it, I think it was extremely well priced, considering what's being offered for the Warner Brothers Discovery assets. We have a great hand as I look across, for instance, what our experiences business is currently building. I think more than anything, it illustrates the value of that IP beyond the big screen.

But you also have to look at what we've done on the big screen with $6 billion movies just in the last 2 years, and $37 billion movies over time. Those throw off a tremendous amount of value and very long-term value. As of -- just as, for instance, the lift on Disney+ that Zootopia 2 and Avatar Fire and Ash have created is enormous in terms of first streams and in terms of hours engagement. And I already talked about our parks, but we're opening Frozen Land in Paris in just a couple of months. We obviously have Star Wars presence. The Zootopia Land in Shanghai is enormous in terms of both its size and its value. The percentage of people that go to Shanghai Disneyland just to go to Zootopia Land, is very, very high.

So I think we have a great hand. I don't really feel that we have a need to buy more IP. We're just going to continue to create our own. And we've got an unbelievable bedrock of stories already told to grow from.

Okay. And then Robert, on the subscription side, revenue growth was driven by a couple of factors. First, of course, was pricing. Second, both North America and international growth. And third was bundling [ the duo, the trio ] and the MAX bundle is all doing well and driving both engagement and revenue realization.

Your next question comes from Steven Cahall from Wells Fargo.

So Hugh, last quarter, there was a lot of focus on the domestic park trends. It looks like you saw some improvement there, maybe even a bit of a snapback that attendance and per caps domestically. Could you give us any more color on how -- what Disney World did within there? I think you've spoken to some specific trends there more recently. And any commentary on the bookings pacing to the extent that you think that's a helpful indicator of where demand goes from here?

And then just on the guidance, a couple of detailed questions there. No mention of '27 adjusted EPS growth in the earnings release. Should we assume that's something that's still double digit, or something that you're going to revisit? And same question on CapEx.

Sure, Steve. A couple of notes on that. One, Walt Disney World had a very good quarter, obviously, benefited from the overlap of the hurricane. But in addition to that, saw strong attendance performance as well as strong pricing performance.

As far as bookings for the full year, bookings are up 5% for the full year, weighted more toward the back half. So certainly trending very positively in that regard. And then last, regarding '27 guidance. No update on that. You should assume that we're not changing any of that, or we would have an update. So no change there.

The next question comes from Jessica Reif Ehrlich from Bank of America.

So one for Bob and one operational. Bob, when you took over for -- you're coming towards the end, I should start with that, to the end of your [ reign ] as CEO. And when you took over from Michael Eisner, you quickly took many steps that had a huge impact on profit growth for years. And like just two examples. We're moving Monday night football from ABC to ESPN. So you had [indiscernible] revenue stream for the first time. And then making a piece [indiscernible] Steve Jobs, subsequently acquiring Pixar.

So as you prepare to hand over the [ reins ], do you see any areas of your successor can really kind of jump start that would really drive the business for the long term? And then, I guess, just on an operational level, you mentioned that you just closed your deal with NFL. How do you see the relationship and the business evolving with the NFL, including the likely early renewal, you guys may be a year later, not sure?

Well, Jessica, first of all, thank you for noting some of the steps that I took when I became CEO, that's a long time ago. And I'm certainly proud of those as I am proud of a lot of the other things that we did thereafter.

I think what is noteworthy is that when I came back 3 years ago, I had a tremendous amount that needed fixing. But anyone who runs a company also knows that it can't just be about fixing. It has to be about preparing a company for its future and really putting in place -- taking steps to create opportunities for growth. So while I don't want to really either sound -- get to nostalgic, or spend too much time on a possible transition, or the probable transition. The good news is that the company is in much better shape today than it was 3 years ago because we have done a lot of fixing. But we've also put in place a number of opportunities, including the investment across our Experiences business to essentially expand at every location that we do business and on the high seas.

I also believe that in the world that changes as much as it does that in some form or another trying to preserve the status quo was a mistake, and I'm certain that my successor will not do that. So they'll be handed, I think, a good hand in terms of the strength of the company, a number of opportunities to grow, and also the expectation that in a world that changes, you also have to continue to change and evolve as well.

Your second question regarding the NFL. We're really happy that we were able to close it when we did. That enables us to get started sooner than we actually had anticipated. And so the upcoming NFL season, which will end in the [indiscernible] first Super Bowl is a huge opportunity for ESPN, not only in terms of its ability to manage the NFL network and Red Zone, but also with more NFL inventory. And we know how valuable that is and how valuable it will be, particularly for ESPN streaming business.

I'm not going to comment at all about the future of ESPN's relationship with the NFL, except to say that the NFL has opt out in the current agreement in 2030. And I think it's just premature to speculate what might happen at that point.

The next question comes from Thomas [indiscernible] from Morgan Stanley.

Quick one on the streaming side. I wanted to ask about the progress on new bundle initiatives. I think you mentioned the pace of ESP and unlimited sign-ups. Are you seeing the uptake coming through maybe less on the bundled side versus the authenticated [ PTV ] side? And what's expected to drive that next leg of adoption?

And then if you could give us an update on the plans around the Hulu integration, and the key steps that you plan to take this year on that front, that would be helpful.

Thomas, look, we've made huge progress turning the streaming business into a profitable business. Developing the technology tools to improve both the user experience and to improve results, and also developing programming across the globe. And I think it sets the business up to lean into accelerated growth that you'll probably be hearing about more in the future.

The things you have to look at in terms of the components of growth are, one, continuing to deliver exceptional content, particularly on the international front. Two, advancing the technology improvements that I just cited. Three, answering your question, delivering a unified app experience. And then the fourth, we'll be introducing new features such as vertical videos, story-generated content, et cetera, which we've talked about.

So far, the integrated experience that we've already offered with Disney+ and Hulu has resulted in a reduction in churn. And that's the same is true for the bundle with ESPN, that the bundled subscribers churn out less. And we know that reducing churn is a critical component to improving the bottom line, or creating growth. And so we are hard at work on the technology front to create the one app experience, even though consumers will always be able to get -- buy Disney+ or Hulu on its own. But by and large, the we believe -- far -- the great majority of the consumers will buy both, and it will be a fully integrated experience. I would guess that, that would be coming sometime the end of the calendar year.

The next question comes from David Karnovsky from JPMorgan.

The OpenAI agreement, Bob, can you discuss how you plan to curate and deploy user-generated AI content across your platforms? Would this be entirely for vertical video? And then what would be your expectation for how a ramp in AI content might impact the downstream demand relationship for new programming, or archived from your franchises?

Well, good question. First of all, what the deal actually covers is a license agreement between ourselves and OpenAI to enable people to prompt Sora to create 30-second videos of about 250 of our characters that do not include human voice or face. And that's a 3-year agreement that we are getting paid for.

In addition, we will have the ability to use those videos, those [ Sora ] created videos, in a curated form on Disney+. We have, for a while, wanted to include, or add a feature on Disney+ as ESPN did, by the way, in its new offering, that is both user-generated, but more importantly, short form, ESPN is short form. Because we have obviously noticed the huge growth in short form and user-generated content on other platforms, such as YouTube.

So what this deal does is by giving us the ability to curate what has been basically created by [ Sora ] on to Disney+ is that jump starts our ability to have short-form video on Disney+. Additionally, it's our hope that we will use the Sora tools to enable subscribers of Disney+ to create short-form videos on our platform through Sora. And so it's all, I think, a positive step in terms of adding a feature that we believe will greatly enhance engagement.

The second part of your question about its impact on other programming the answers, I don't really see that it will have any impact at all. We view AI as having a number of, obviously, possible advantages or opportunities for the company. One is as a tool to help the creative process. So creativity, another is productivity, which is simply being more efficient. And the third, I'll call connectivity, which is creating basically a more intimate relationship with the consumer, enabling the consumer and enabling us with the consumer just to have a more engaged, more effective relationship.

Your next question comes from Kannan Venkateshwar from Barclays.

So Hugh, maybe one for you in terms of drag of -- on the streaming business. I mean, you've been investing in this business, both in terms of unifying the interface and as well as international content and so on. Would be good to understand how much of a drag this is? And to that extent, how much operating leverage could be extracted out of it as you go into next year and beyond?

And then, Bob, from your perspective, as you plan your transition, do you think the org structure is more or less in place in terms of leaders of different divisions, and how the company has operated on a day-to-day basis? Or is that something that's also part of the transition plan, to the extent you can share?

I'll take the second part and then I'll give it to you on the org structure. One of the things that I did when I came back 3 years ago was to reorganize the company. And the primary goal was to create more accountability on the streaming side. Our studio and our television organization basically spent the most money, obviously, generating content for streaming. And I felt strongly that those people that were investing the most needed to have much more skin in the game in terms of the impact of their spending on the bottom line. And so by putting streaming in the hands of [ Allen Burton ] and [ Dana Walden ], those that run our movie and TV business globally, [indiscernible] was a direct connection between their investments and ultimately, the bottom line of the streaming business.

3 years ago, that business, I think it lost about $1.5 billion in the last quarter before I came back and I think almost $4 billion last year. And you see the results this quarter and what we've managed to do in the last year where it's making more than $1 billion, and we're on a path to turn it into a far better business, that reorganization worked. I can't -- I'm not going to speak for my successor in terms of how the company will be organized, but I do believe strongly that it's very important that any organization that's created, is created with an eye to creating and maintaining accountability.

Okay. And I'll jump in on the streaming question. You're right in that we were certainly investing in the business at one point a few years ago, in fact, we were losing $1 billion a quarter. That number improved substantially. Bob laid out a goal for us, to return -- or to get streaming to profitability and then to get it to double-digit margins.

Recall last year, we got it to a 5% margin, and we stated we have a goal this year and guidance this year to achieve a 10% margin. In terms of the quarter, we delivered 12% revenue growth and about a little over 50% earnings growth. So from that perspective, we are driving a lot of operating leverage out of the business. And we would certainly expect to continue to drive operating leverage going forward, even while we invest in international content and invest in technology to make the product better. The balancing act, of course, is we want to continue to grow at a rapid rate, while driving operating leverage. We talked last call on -- about a goal of achieving double-digit revenue growth. And in fact, we did do that on the first quarter. And that's something we aspire to continue to do.

Your next question comes from Michael Morris from Guggenheim.

I wanted to ask first about the Entertainment segment and just maybe unpack the drivers a little bit of the second quarter guidance for comparable operating income. And then, of course, the full year getting to double digits, certainly with the acceleration in the back half. Can you just talk about what's different in 2Q, and then how that will change in the back half of the year for the guide?

And then on the Sports segment, if I could. The 4% decline from fewer subscribers is clearly a meaningful improvement from the 7% to 8% that you had in prior periods. Was that all driven by the launch of the ESPN streaming service? Or are you seeing any improvement in the bundled trend as well?

Sure. Happy to talk about both of those. The big difference in terms of entertainment and the quarters is really around the various product launches we have. On the network side, Q2, we have a couple of shows launching versus nothing to speak of last year. So from that standpoint, that's what's driving the change.

In the back half of the year, we have a really strong theatrical slate between Devil Wears Prada 2, Mandalorian & Grogu, and Toy Story 5, and live action Moana. So it's really that's driving the big differences. And of course, that slate is terrific both from an operating performance in the current year, but also with that new IP sets us up well for both consumer products and for the parks downstream.

So, let me just add that both Zootopia 2 and Avatar Fire and Ash will also be on the streaming service at some point between now and the end of the year. And I referenced this earlier, but first streams on Disney+ for the prior Zootopia and Avatar movies, approached a million first streams. And second, the number of hours consumed of the first Zootopia movie and the first and second Avatar movies is in the hundreds -- I think it's a couple -- almost a couple of hundred million new hours consumed. And so when you look at putting those two films on Disney+ between now and the end of the fiscal year, obviously, that's going to have significant value for the streaming service.

Your next question comes from John Hodulik from UBS.

Just a couple of quick ones. First, a follow-up on the Sora commentary. Bob, when do you envision the user-generated content showing up on the Disney+ platform? When can we expect to see that? And do you expect over time it to grow beyond the 30-second videos in the current agreement?

And then a follow-up for Hugh. The letter calls out lack of visibility on international visitation in the parks, I guess, despite the 5% increase in bookings. Just is that international visitation? Is that incremental to what we've been seeing? And then any color you can give us on bookings for the adventure would be great, too.

John, we're not being specific about Sora timing. We're working through all the technical details of that. I imagine it will be sometime in fiscal 2026. And for now, we're sticking to the 30 second limit on videos created down the road, not sure, but we're not really focused on that at this point.

Right. And in terms of international visitation, because international visitors do tend to stay in Disney hotels less, we do have a bit less visibility on that front. That said, we were able to read it from other indicators. And as a result of that, we pivoted our marketing and sales efforts, promotional as well as marketing efforts to a more domestic audience, and we're able to keep attendance rates high from that perspective.

The next question comes from Peter Supino from Wolfe Research.

On the subject of the Entertainment segment disclosure change. I wondered if you could help us understand how the new disclosure aligns better with how you think about that business' future? And how you think about managing it, what it allows you to do or communicate differently that makes your life and ours better?

Sure. Happy to talk about that. Look, the reality of it is we manage the entertainment business as a single entity. The notion of talking about linear network separate from streaming, separate from theatrical, I think really creates a lot of complexity that's just not reflective of the reality.

If you think about the networks versus streaming, really what that is, is a product of consumers choosing to pivot from one form of distribution channel through another form of distribution channel. So for us to kind of get into a lot of depth in terms of what's happening there, I don't think it's terribly informative to investors. And it's not reflective of the way that we create, or distribute content. We create content and we basically put it across all of our distribution channels. So I think it's just a level of nuance that may have been relevant in the past, but just isn't relevant anymore, and that's why we made the change.

Thanks, Peter. Operator, we have time for one last question.

The final question today comes from Jason Bazinet from Citi.

Just had a question for Mr. Iger. When you first became CEO, I remember investors would lament your parks business is the worst business in the portfolio. And now when I chat with investors, everyone says, oh, the majority of Disney is really the Parks business, 60-odd-percent EBIT.

My question is, you've got sort of two vectors going on. You are in the early stages of the streaming pivot. You're showing good progress there. But on the other hand, you've been committed to invest a lot of capital in the Experiences business. If you went out 5 years, 7 years, 10 years per your horizon, do you think the EBIT mix will be more balanced at Disney going forward? Or do you think it will still be an experience as driven company, in terms of the quantum of profits?

Yes. Thanks, Jason. Look, if you go all the way back to 2005 when I became CEO, the return on invested capital in the then Parks and Resorts business was not impressive and actually not acceptable. And -- we also had not that much building in progress, meaning there wasn't much expansion, but maybe for a good reason because the return on invested capital was so low.

As we added IP to our stable, including Pixar in '06 and Marvel in '09, and Lucasfilm Star Wars in '12 and ultimately, 20th Century Fox, we gained access to intellectual property that had real value in terms of parks and resorts and enabled us to lean into more capital spending because of the confidence level we had in improving returns on invested capital, due to the popularity of that IP. And when you look at the footprint of the business today, it's never been more broad or more diverse. And the projects that we have underway are going to make it even more so.

As I said, we're expanding in every place we operate. And additionally, having been in Abu Dhabi just 2 weeks ago, is reminded how great the potential is to build in that part of the world. Because not only is it strategically located to reach a huge population that have never visited our parks, but we built in one of the most modern and technologically advanced way. So as I look ahead, I actually am very, very bullish on that business and its ability to grow because of everything that I just cited.

In addition, though, because of what you said about the trajectory of our streaming business, and what we know is in the pipeline and our movie business, and also looking back just a few years, where our movie business was suffering from COVID, and the streaming business was, obviously, [ in ] not an acceptable place, it's clear that the future of both of those businesses, or let's call it our Entertainment business is also [ brighten ] is going to grow. So we have a healthy competition now in our company in terms of which of those two businesses is going to essentially prevail as the #1 driver of profitability for the company, but I'm confident that both have that ability, meaning both have the ability to grow nicely into the future, given all the investments that we've made and the trajectory that we're on.

Thanks, Jason, and thanks to everyone for your questions today. We wish you all a good rest of the day. Take care.

This concludes today's call. Thank you for joining, everyone. You may now disconnect your lines.

Thank you, and good morning, everyone. I'm Steven Cahall, media and cable analyst at our Wells Fargo TMT Summit, and we're fortunate to be joined by Hugh Johnston, the Walt Disney Company's Chief Financial Officer. Hugh, thank you for joining us.

Happy to be here.

There's a lot of debates that I want to get into this morning, but I thought just to start out, we could level set things. You reported the end of fiscal '25 last week, provided additional guidance for fiscal '26, including the double-digit EPS, excluding the 53rd week and the double-digit EPS growth for fiscal '27. So let's get your high-level expectations and key initiatives for the year ahead, and then we can dive into some of those debates.

Yes, happy to talk about that. First, as Steve noted, we reported what I would consider to be strong earnings for the fourth quarter and for the full year. Full year was up 19% on an EPS basis. And actually, the last 3 years, our CAGR on EPS has been 19%. So I've talked a little bit about being an earnings compounder, and that's really what we're trying to do is just continually pile on one strong year after another.

In terms of as we look to '26, the strategies that we're following, number one, we really do have quite a strong film slate. I feel good about that. Zootopia 2 is coming up, Avatar behind that, The Devil Wears Prada 2. There's a Moana movie. So lots of things happening on the film slate front, which is always good news for the Walt Disney Company.

In addition to that, we continue to drive our DTC business. We're obviously looking to grow that aspirationally at double digits, and I think there's reasons to believe that we can do that. And a couple of years ago, I talked about hitting double-digit margins in that business, and we will -- we're looking to do that in '26.

ESPN, obviously, the biggest thing going on there is our launch of the DTC product, which is off to a very, very good start. And then experiences, of course, we're continuing to invest in that business, and that business continues to perform very well. So put all of that together, it was clear to us that we could guide to double-digit EPS on an apples-to-apples basis. And in addition to that, deliver strong cash flow for the year, resulting in strong cash returns of a 50% increase in the dividend as well as a doubling of share repurchase to $7 billion.

So often I hear with Disney that it's the content that sort of drives the sentiment, but it's parks that drives the earnings. And I think maybe what's most topical after last week is just what the trends are in domestic parks attendance. They declined, I think, a little bit in the fiscal fourth quarter, but you did indicate you're seeing bookings up, I think 3% was the comment last week. So what can you tell us about the health of the consumer that you're seeing and just the overall story for demand for parks?

Yes. Our consumer, as you know, tends to be at the higher income deciles, and those consumers continue to do well. So we certainly broadly feel good about where the consumer is. Obviously, with the parks, we did have a strong year last year. We guided originally to 6% to 8% OI growth or earnings growth and delivered 8%. In fact, we hit $10 billion of operating income for the year, and it's the first time we've ever hit $10 billion.

So certainly feel very, very good about that. And the domestic parks, which is always a question people tend to focus on, also did well. Domestic grew earnings 8% for the year and 9% in the fourth quarter. So from an earnings perspective, we felt good.

In terms of attendance, last year, the domestic parks were down 1% on attendance. Now recall, there was a lot of concern going into the year based on the Epic park that was coming out in Orlando, we felt like we had it managed. And in fact, it came in within our expectations. We were down 1% on attendance for the year, but there was also a 1-point drag from a hurricane that occurred in the first quarter last year.

So net, we were basically flat on attendance. In the fourth quarter, really a very similar story. For domestic parks overall, we were down 2% and Walt Disney World was actually down 1%. So certainly, from an attendance standpoint, it really came in very much in line. And the thing you have to keep in mind with the parks is we tend domestically to run at pretty high capacity utilization.

So when we're adding new attractions, you'll see attendance jumps. But when we're not -- in a year where we're not adding something new, we're basically going to be about level. Over the long run, you'll see us, I think, balance attendance growth with pricing growth. But in any given year, it could be more geared towards one versus the other.

So in addition to attendance, per caps were actually quite good last year. We saw per caps domestically grow 5%. So certainly felt very, very good about that. And then from the standpoint of bookings, as you noted, in the first quarter, our expectation is for bookings to grow 3%.

Now bookings is an important metric from the perspective that it obviously gives us some insight into the future. But one thing that's important to realize is only about 40% of the people who attend our parks actually stay on one of our properties. So it's useful in terms of both per caps and attendance, but you can't just directly connect one to the other. That said, when we see bookings up as we did, we have right now at 3% and the full year is up as well, we're certainly feeling good about where parks is likely to go in '26.

Just to follow up on that. So with fiscal fourth quarter attendance down 2%, Disney World down 1%, but bookings pacing up 3%. Does it kind of imply just a continuation or maybe an improvement off the trend that you saw in the September quarter?

I think it's really probably a continuation more than anything else. Even as we think more broadly about the Experiences segment for the year, you know we have 2 cruise ships coming on and as a result of that, there's a lot of onetime costs in the first half of the year, which suggests the earnings is likely to be more back-end loaded than you would typically see.

And then just to go back to your comment on the higher income decile where you tend to index to on the consumer side. And you talked about the strong per cap spend you saw in the year. I think you've had this yield-based approach to managing your domestic parks over the last few years. And some of the work we've done suggests that's a lot of the reason those margins have been so strong. So can you speak a bit about the yield-based approach and what that means for how you manage the assets?

Yes. We do very much focus on how to basically generate incremental revenue, both at the ticket price level as well as food and beverage and merchandise and all the ancillary services that we offer like Lightning Lane and VIP tour guides and those types of things.

So the team has really gotten increasingly better at getting that yield up, particularly in years where we're not adding capacity in a particular park that's going to be the primary growth driver is all of that yield focus. In addition to that, we're actually investing in creating dynamic pricing. We're doing it in Paris right now. We've been doing it for about a year. It's off to a very good start, but we're really going to make sure we optimize it before we bring it into the domestic parks. So that's probably something that you won't see this year, but you may see in the subsequent years.

And is the kind of airline pricing model the best way to think about it?

I'd like to not think about it that way, to be honest with you. But yes, similar. We already do it in the hotels to some degree. So this is basically just bringing it in the parks, but done in a way that obviously doesn't create guest experience issues or consumer negative feedback and all of that. And frankly, so far in Paris, we haven't seen any.

And then when it comes to adding capacity, cruise is certainly the area where we're seeing that most pronounced. Can you talk about the expansion of the cruise operations and how to think about what that can mean for profit growth at Experian?

Yes. So in the near term, we're adding 2 ships. One is coming on November 22, and then the second one is coming on in March. And obviously, there's some onetime costs associated with those as well as some dry dock costs that we've got coming into the first half of this year. But it will absolutely be an important growth driver for us. But cruise is not the only growth driver.

We're investing in the parks broadly. This coming year, there'll be a frozen addition to our Paris business. And then getting beyond '26, Walt Disney World will see 2 cars-based attractions. Animal Kingdom will have an Indiana Jones as well as an Encanto attraction added to it. Shanghai will see a Spider-Man attraction added to it as well. And then there'll be a Lion King themed area in Paris as well.

So we really are investing broadly to drive the parks business because as I talk about this notion of being an earnings compounder, we need to put that CapEx in, in order to drive that double-digit earnings growth that we're seeking to maintain.

And you didn't mention Abu Dhabi in that list of projects, but I know that one is a little longer term, but certainly significant. And I think the term at the Investor Day a couple of years ago was turbocharging for the parks with maybe this is the biggest single piece of it. So maybe a bit on Abu Dhabi and then what else you're working on to expand the international footprint.

Yes. So Abu Dhabi obviously represents a massive opportunity for us. And we have a partner that's really putting up the capital on it. So from a deal structure standpoint, we like the approach. The important thing about Abu Dhabi is if you sort of just plot out the world, the one place in the world where we didn't have a major presence was sort of that particular geographic region, which taps into India, taps into Eastern Europe, taps into Africa.

So it gives us an opportunity to access really a couple of billion people that it was hard to get to a Disney experience for. So couldn't be more excited about the opportunity there. It's going to take some years. Obviously, these parks are massive, massive projects that take some time to put together.

It will very likely be the most technologically advanced park that we have once we do get it up and running. And we're super excited about that. In addition to that, as I mentioned before, we're investing in attractions across all of the parks. And then on top of that, the cruise ship business is really a spectacular business for us, earns nice returns.

The guest experience scores are by far the highest of any place in the Walt Disney Company. It does wonderful things for the brand. People that go on cruises, they tend to be repeat customers over and over and over again. So we certainly feel great about that. And our market share in cruises is relatively low. We're a premium player, but we really do have an opportunity to go much, much further with cruises.

And in particular, it's the opportunity to tap a lot of international markets that otherwise wouldn't be as easy for people to get into. And the beauty of a cruise ship is if you -- you drop it into a market and if it doesn't work well, you can basically move a boat someplace else and drop it into another market.

So we'll be up to by 2031, I think it's 13 ships. So we've got lots more capacity coming there. And the good news is we tend to fill it very, very quickly. With the 2 cruise ships that we're adding right now, you normally think with that much capacity coming on, your capacity utilization rates would go down. Right now, the capacity utilization is holding steady. So even with the incremental capacity, we're filling it up very, very quickly.

I think of experience as the biggest profit center of the company and also kind of the biggest share of where Disney sits in the consumer wallet. But switching gears to DTC, I think about that is where kind of the competition for engagement in time, sort of your top of the funnel with all your content in one place and Disney+ and the expansion into other things.

So I would love to also level set how you're thinking about the DTC strategy as it's evolving. I think the guide for the year is double-digit top line growth, the 10% SVOD margin. And I think you said you expect the margin to improve in chunks, not bps over time. So...

So that's exactly the way we're thinking about it. If you think about the journey that we've been on with DTC, if go back when the product was launched, and it's only a handful of years ago that it was launched, the goal was first to achieve scale as quickly as we could. And we did do that.

We produced an enormous amount of content and in addition to that, priced it very aggressively. And we did achieve scale. So our recent numbers show that we're at about 195 million subscribers globally right now. That said, there's still opportunity to expand on that sub base. As we think about the strategy, our strategy is really to offer breadth in terms of the product offering.

Some of our competitors are very deep in general entertainment. They have very, very deep libraries. We obviously, in making our own IP, have a tremendously deep library as well. But in addition to general entertainment, we have all family entertainment, we have news, we have sports. And there's opportunities to do other things with the service down the road.

If you think about the potential for commerce on the site, if you think about the potential for gaming at some point on the site, there's an opportunity to do things in a much broader way to become sort of the everyday thing that consumers use when they wake up in the morning, they tap into Disney+ and then they stay with us all day. And when they want to interact in any way with the Walt Disney Company, this becomes the portal for that.

So we certainly feel good about the IP that we have. We feel good about the breadth that we can offer. And the DTC business, my expectation is we'll continue to grow in margin in chunks. And in addition to that, as I've said, we're looking to get that top line growth up around the double-digit level because, frankly, it's a business that has enough growth opportunity that we should be able to do that.

In terms of margin improvement in the future, the way I think about it is we need to be thinking in percentage points, not basis points. And that's over as I think over the next 3 or 4 or 5 years, that's the trajectory that we're trying to put the business on.

And is the revenue growth the biggest driver to the chunky margin expansion? Or are there additional margin?

No, I think it's revenue, but it's also to the degree that we can drive engagement up that actually allows us to improve retention to the degree that engagement and retention are high, marketing is a place where we can actually look to reduce our spending relative to where we are right now.

In addition to that, SG&A is an opportunity for us as we put the 2 services together into one, there'll be some SG&A opportunities. They're not massive, but they're not insignificant either. Where we will invest is in technology as well as local content internationally.

But in terms of those investments, I don't expect the growth in those expense items to exceed the revenue growth rate. So we'll still get P&L leverage out of that as well. But certain areas, I think, are going to be reduced. Others will be increased, but at a rate of growth less than revenue.

And how do we think about just the app convergence over time? Disney+ is the native kind of Disney experience. Hulu came through an acquisition process, so less sort of a clean sheet and now we're starting to see those be more tightly integrated. So how do you think about that strategy? And importantly, what does it mean for the margins and the profits of the segment?

Yes. So the way I think about sort of the unified app experience is, first and foremost, it's really for the consumer. Right now, it's a little bit hard for the consumer. Disney+ is there. We've got the Hulu tile on right now. But a lot of people still kind of -- their habit is to go through Hulu or their habit is to go through ESPN.

The idea is ultimately make it super easy for the consumer. If I want news, if I want sports, any of those entertainment options, Disney+ is the portal in which you go in. What does that mean? I think it means that the ease of use will drive increased engagement. So we certainly would feel very positively about that. It will increase retention and reduce churn. And in addition to that, as we take it internationally even more assertively over time, I think it offers us the opportunity to add international subs in a substantive way because it does scale the business in effect and as a result, makes the offering much clearer for consumers.

What's the gating factor to that operational integration? Just customer experience?

More than anything, we just need to get the technology. It's getting the product right. So -- and we've been investing in that. And Adam Smith, who came over to us from Google has actually done a terrific job building out the product, but it is literally building a product.

So we're doing it the way you would do technology products traditionally. You put something out there and then you just steadily improve it over time. And that's really what that team is doing, and they're working double time to get it done.

Let's talk about content for a little bit. So it's interesting the path we've gone through on content spend in the media industry. And I remember, I think it was in 2021, kind of the peak content guide, which was over $30 billion. That was pre-strikes kind of post-COVID, maybe the peak of the gold rush.

I think this year, the guidance is for around $24 billion. So excluding sports, how do you just think about the right mix of total content spend, how you spread that across the studios since it is really the lifeblood of Disney?

Yes. So if you take our $24 billion, which is up about $1 billion year-over-year, it splits about half sports and then half the entertainment side of the business. And I think that mix is likely to hold reasonably well. If anything, entertainment may grow a little bit faster than sports.

As we think about where the growth will likely be in content, more than anything, I think you'll see us investing in local content that is very specific to certain markets. We've got a strategy around expanding internationally with individual markets that we find attractive, and we think we have the right to grow.

And if you think about it, we have rights to succeed from the perspective of Disney content, which travels globally and is well received, but we need to supplement that with local content to ensure that we keep engagement high and we keep retention high.

So the strategy is very much to do that. In terms of where we were a few years ago at the $30 billion, really, I think almost everyone was, in a lot of ways, overproducing at that time. And we've talked about the fact that we were -- and frankly, we weren't happy with some of the quality because we were pushing so hard to produce content.

I think we've got it dialed in pretty well right now. I think you'll see content expense continue to grow, but it will grow at a rate that's substantially slower than the revenue of the DTC business.

Just to go deeper on that, kind of dialed in on quality. I mean, Disney has such iconic studios with Disney, Pixar, Marvel, Lucas. How do you think about allocating capital even between those? Andor was probably my favorite show of the year so far, but each of those studios is kind of at a different point in its lifecycle.

Yes, it's an interesting question. Obviously, we go in with a point of view and strategically, we're touching different market segments. So we're obviously evaluating those market segments and allocating based on where we think the growth may be. But there's also an element to it of where are the best ideas coming from.

So as an old CFO, one of the things I've often said is money does not attract ideas and ideas attract money. So in a lot of ways with the storytelling we do, it's really where the best ideas come from and the judgment of our operating executives in the entertainment business to allocate the capital based on where they think we're likely to have the highest level of success.

And just lastly, on content. You have a big piece of content coming at the end of the year with Avatar. Just wondering if you've seen it yet.

I've seen pieces of it. I haven't seen the entire piece. It is absolutely spectacular. It also costs a lot of money to make, but it is absolutely spectacular. So we're certainly optimistic about the movie from the standpoint of being a repeat of what you've seen Jim Cameron do in the past. But as I said, those movies aren't -- they're not cheap.

At sports, so this is probably the most transitional year that ESPN has had maybe in a couple of decades, certainly in the last decade with the launch of the streaming app. It seems like it's off to a strong start. Can you talk about just how it's performed versus expectations and also the engagement trends that you're seeing in terms of some of that traction?

Yes. So it really is off to a very strong start. We're quite pleased with it. First, from the standpoint of the product itself because this is an enormous product launch for a brand that's obviously a superb brand. So really, when you do these things, first and foremost, you just want to make sure that you don't screw it up. You actually launch the product successfully and you don't have a lot of technical issues and things like that. And thankfully, we didn't see any of those things.

Second, in terms of the product features that we've put in, whether it's SportsCenter for you. And by the way, if you're a sportsman, in the app, on verts inside of the app, lower right-hand corner, check out SportsCenter for you. I wake up every morning. It's tailored to my teams. It's AI-driven, and it really gives me about a 5- or 6-minute snapshot of what happened last night.

If you love sports, I think it's an absolutely fantastic piece of product. But it's not just the SportsCenter for you piece. There is also game catch-ups. There are other highlights that are embedded inside. Really MultiView is another piece where you can actually sort of watch multiple games simultaneously or multiple versions of ESPN simultaneously.

So the product is really a significant advancement. It's not just taking ESPN's content and putting it on digital. It's adding lots of value. And then, of course, we have other things on in terms of fantasy, in terms of betting, in terms of merchandise opportunities. So it really is very much a digital product that's much more interactive than sort of watching through the traditional way that people have watched sports.

So product-wise, I feel very, very good about it. In terms of the numbers, they're off to a very, very good start as well. Importantly, about -- we're obviously interested in bundling as a part of this. And 80% of the people who are subscribing at retail are subscribing with a bundle.

So that obviously benefits ESPN, but it also benefits the rest of our DTC business and will drive engagement as well as retention. And then in terms of the people who are authenticating through their MVPDs or the vMVPDs, we're getting a pretty high rate pretty quickly of people authenticating and playing with the app and wanting to watch their sports through the app. So overall, very, very happy with the start.

So do you think about the revenue opportunity here as incremental in terms of the data you're seeing that these are largely incremental subs or incremental engagement? Do you think it's preventing the decline of linear? Or what does the early data show you about cannibalization of linear versus incrementality?

Yes. It's so early that it's hard to read. The objective we have here is to reach the sportsman how they want to be reached, so if they want to come in through an MVPD or a vMVPD, great. They can authenticate and they can engage with us that way.

If they want to have a direct but full access to ESPN, ESPN Unlimited is a terrific way to engage with us. And if they want more limited access, ESPN Select is a less expensive option and is also a terrific way to engage with us.

In terms of incrementality, it's a little early to say that. I think, though, over time, because now with this direct relationship with the consumer, we'll have the opportunity to monetize those relationships in newer and different ways. And we're obviously thinking about a lot of ideas on how we do that. So I'm optimistic it will be incremental to us over time.

And I think you said 80% are in the bundle. So is that a Trio bundle?

That's a Trio bundle.

Something like it. And what does that mean for just sports and DTC as a more combined?

Yes. I mean we know, generally speaking, bundling works really, really well, whether it's bundling that we've been doing inside of the DTC service before we launched ESPN. ESPN is just another value add inside of the bundle. So we are extremely optimistic about the level of retention that we're likely to get out of it, and we can already see the engagement numbers move up when people are in the bundle.

Just lastly on sports. So I think the NFL deal is pretty notable. I think you're the largest purchaser of NFL content. I think that they're your largest piece of content within the sports portfolio. And now we have this 10% stake in ESPN coming, which is the first time we've seen take ownership. So what does that deal mean for the company? What does it mean for the sports business longer term?

Yes. We think it's obviously a very positive thing, which is why we work so hard to get a good deal done for both parties. The NFL, obviously, is incredibly popular and has phenomenal followership and fandom.

In terms of the deal itself, there are a couple of elements to it, which we think will be really terrific for us. Number one, once the deal closes, we will take over the NFL network and all of the content that comes with the NFL network. And that's true both for the network itself, but also to bring the network into ESPN.

So opportunities to move content around that way. In addition to that, we'll be putting our 2 fantasy businesses together, which obviously offers us the opportunity to scale that. And in addition to that, to invest even more in services that will, I think, be very appealing to fantasy football fans.

And then in addition to that, it gives us the opportunity to distribute market and distribute RedZone which is obviously a super, super popular product. And I think from that perspective, we'll basically be able to create more relationships with fans using RedZone as a vehicle.

Separate from that, we do have a commercial agreement as well, and the commercial agreement gives us more games. So obviously, that's terrific. We now have more NFL games on ESPN than we've ever had in the almost 50-year history of ESPN.

And then from a financial perspective, when it closes, and that's probably about a year or a year and change or so, the deal will be about $0.05 accretive at the outset. So financially, feel great about it, strategically feel great about it. We think it's just another tailwind for ESPN.

And then finishing up our chat, just on capital allocation and free cash flow. So fiscal '26, $10 billion, including the CapEx guidance of $9 billion, but you have a lot of cash tax movement in fiscal '26, which I think implies underlying is an extremely strong growth year on the cash side. It's a question I've received from folks over the last week. So I would love for you to unpack the strength in the cash flow guidance.

Yes. So it obviously begins with strong earnings growth. So double-digit earnings growth, creates a significant amount of additional cash. In addition to that, we are getting some tax benefit as most other companies are. And as a result, we're able to drive significant cash flow growth across the company.

I do feel very optimistic about where we are from a cash flow perspective, and we're looking to continue to drive cash flow growth in the coming years. Disney really is a company that's capable of being a cash machine. And my expectation is that's exactly what we will be.

Cash machine. We can turn that into then capital allocation priorities. So $7 billion buyback, I think, is the guidance for this year, which is 2x give or take last year and the 50% dividend raise, which I think raised a lot of eyebrows. So would love for you to speak about those 2 things and also the context of additional investments. You did Epic Games last year. You took in the rest of Hulu. So maybe you can put all of that into context for us here.

Yes, happy to. I mean as we think about capital allocation, very simply, obviously, our first priority is to ensure that we're investing in the business to make sure that the business continues to thrive and grow and basically enable that earnings compounding that I was talking about earlier.

In addition to that, obviously, we're focused on paying and increasing the dividend over time, and in addition to that, to the degree that we see small opportunities for tuck-in acquisitions and things like that, that's something that we've always done. Epic is a good example of that. But even after all that, because we're generating such strong cash flow, we certainly feel good about our debt levels at the level they're at right now.

We're not -- we're a single A. We're not looking to go any higher than that. And we certainly don't want to sit on excess cash. So I think you'll see us continue to drive strong share repurchase into the future because we do have the ability to do it. And frankly, we do find that to be a good use of cash.

I'm a media analyst, first and foremost. Lately, I feel like I'm an M&A analyst second, and it's changing by the week. I think you got the question last week as to how Disney looks at kind of strategic mergers and acquisitions. Given that there is some real-time news flow around that, I would love for you to just make a final comment as well.

Yes, happy to talk about that as well. Look, part of my job and our job is to look at everything. So of course, we're going to look at everything. But that said, we're very, very happy with where the portfolio is right now.

A lot of the things that people are talking about doing with other media companies, Bob Iger and the team did at Disney a number of years ago, whether it was Pixar or Lucasfilms or the Fox acquisition. So we don't think we need to add additional IP into our portfolio.

And more broadly, we really don't see the need for major M&A. We're really very happy with the portfolio as it exists right now. So I guess we'll sort of watch what happens with everyone else, but we feel good about where we are.

Great. Hugh, I want to thank you for taking the time with us today.

All right. Thank you, Steve. Appreciate it. Thank you all.

Good day.and welcome to The Walt Disney Company Fourth Quarter 2025 Financial Results Conference Call. [Operator Instructions]

Please note that today's event is being recorded. I would now like to turn the conference over to Carlos Gomez, Executive Vice President, Treasurer and Head of Investor Relations. Please go ahead.

Good morning. It's my pleasure to welcome everyone to the Walt Disney Company's Fourth Quarter 2025 Earnings Call. Our press release, Form 10-K and management posted prepared remarks were issued earlier this morning and are available on our website at www.disney.com/investors. Today's call is being webcast, and a replay and transcript will be made available on our website after the call.

Before we begin, please take note of our cautionary statements regarding forward-looking statements on our Investor Relations website. Today's call may include forward-looking statements that we make pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, including regarding the company's future business plans, prospects and financial performance are not historical in nature and are based on management's assumptions regarding the future and are subject to risks and uncertainties, including, among other factors; economic, geopolitical, operating and industry conditions, competition, execution risks, the market for advertising, our future financial performance and legal and regulatory developments.

Refer to our Investor Relations website. The press release issued today and the risks and uncertainties described in our Form 10-K, subsequent Form 10-Qs and other filings with the SEC for more information concerning factors and risks that could cause results to differ from those in the forward-looking statements. A reconciliation of certain non-GAAP measures referred to on this call to the most comparable GAAP measures can be found on our Investor Relations website. Joining me this morning are Bob Iger, Disney's Chief Executive Officer; and Hugh Johnston, Senior Executive Vice President and Chief Financial Officer. Following introductory remarks from Bob, we will be happy to take your questions.

So with that, I will now turn the call over to Bob.

Thank you, Carlos, and good morning, everyone. This was another year of great progress as we strengthened the company by leveraging the value of our creative and brand assets and continue to make meaningful progress in our direct-to-consumer businesses, resulting in strong earnings growth for the company. Adjusted EPS for fiscal 2025 was up 19% from fiscal 2024. And over the past 3 fiscal years, we have delivered a 19% compound annual growth rate in adjusted EPS. Our strategy and portfolio of complementary businesses, coupled with a strong balance sheet, enable us to continue to grow adjusted EPS and free cash flow over time. For fiscal 2026, we expect to deliver double-digit adjusted EPS growth compared to the prior year. The expected growth in earnings and cash flow enable us to continue investing in our businesses and to increase our return of capital to shareholders. We are targeting $7 billion in share repurchases in 2026, double the $3.5 billion we repurchased in fiscal 2025. Also pleased to announce that the Board has declared a cash dividend of $1.50 per share, a 50% increase over $1 paid to shareholders in fiscal 2025.

Before we take your questions, I'd like to touch on a few highlights from the quarter. First, our film studios. The summer's box office once again demonstrated the global and cross-generational appeal of our storytelling and IP. To date, Disney's live action Lilo & Stitch remains the highest grossing Hollywood film at the global box office this calendar year, and its success has extended across our interconnected businesses and consumer touch points. The film achieved 14.3 million views during its first 5 days on Disney+, becoming the second biggest Disney live action premier on the platform ever. Retail sales for Stitch from our Consumer Products business also continues to grow, eclipsing $4 billion in fiscal 2025. The popularity of this global phenomenon underscores the franchise's enduring strength and the effectiveness of our strategy to invest in popular stories and characters. Over the past 2 years, our studios have delivered 4 global franchise hits that have earned more than $1 billion each. While no other Hollywood studio has achieved a single one during the same period.

Additionally, with the strong opening of Predator: Badlands, the biggest opening in the franchise's nearly 40-year history, the Walt Disney Studios has now crossed the $4 billion mark at the global box office for the fourth consecutive year. Heading into the holiday season, we're excited to bring audiences Zootopia 2 and Avatar: Fire and Ash. Looking ahead, next year's slate includes numerous highly anticipated titles, such as the Devil Wears Prada 2, the Mandalorian and Grogu, Toy Story 5, the live action Moana and Avengers Dooms Day. We saw a strong viewership of our television content in Q4, fueled by series such as Alien Earth, FX's biggest premier ever on Disney+ and Hulu, Season 2 of High Potential, the #1 original broadcast series across all platforms among adults 18 to 49. The Korean global hit Tempest and Season 34 of ABC's Dancing with the Stars, which made history as the only fall show to increase its overall audience for 6 straight weeks following a season premiere. Something that's never been achieved by any show since Nielsen began electronic measurement in 1991.

And we have more highly anticipated titles to come over the next few months including new seasons of Paradise, the Secret Lives of Modern Wives, Percy Jackson the Olympians, American Idol and the revival of the comedy Scrubs. We're also excited to bring viewers Taylor Swift's End of the Era Docuseries, as well as the concert film Taylor Swift, the Eros tour, the final show. In our Entertainment segment, our streaming business had another quarter of profit growth with operating income up 39% in Q4. For the full year, we hit $1.3 billion in operating income, up $1.2 billion from last year and $300 million ahead of our original guidance. That is a significant achievement when you consider that just 3 years ago, our DTC business was running a $4 billion operating loss. As we continue to build DTC into a core growth engine, we're rolling out a more unified app experience to better serve our consumers and unlock new value. In October, Hulu became our global general entertainment brand, and we continue to work to consolidate all of our entertainment content domestically within a single app, which will simplify the user experience highlight the full value of our bundles and unlock global marketing efforts. We're also expanding our international reach by investing strategically in our own originals and working with local studios to license content that brings more high-quality local storytelling to the platform. We're taking a disciplined approach to the markets we are prioritizing, and we have confidence in our long-term strategy.

Turning to Sports. We ushered in a new era with the launch of ESPN's full direct-to-consumer service and enhanced the ESPN app, making ESPN's full suite of networks and services available directly for the first time. We're thrilled by the response from fans so far, especially to the upgraded ESPN app, which now includes features such as MultiView, Sports Center for you catch up to live and tools like live game stats, bedding, fantasy sports and commerce integration. Viewership of our industry-leading portfolio of live sports also remains robust with ratings across ESPN networks, including ESPN on ABC, finishing the quarter up 25% over the prior year quarter. In our Experiences segment, we delivered record operating income for both Q4 and the full year with operating income up 13% for the fourth quarter compared to the prior year and up 8% for the full year. We're looking forward to 2 new cruise ships joining our fleet in the coming months. The Disney Destiny, which sets sail next week and the Disney Adventure, which will become our first ship homeported in Asia when it launches in March. This will bring our fleet to a total of 8 cruise ships.

And in the spring, we're excited to open a World of Frozen at Disneyland Paris. With expansion projects underway at every 1 of our theme parks five additional cruise ships scheduled for launch beyond fiscal '26 and a new theme park planned for Abu Dhabi, the strategic investments we are making now will help ensure our offerings remain best-in-class and appeal to audiences worldwide well into the future. Overall, this quarter caps another strong fiscal year for the company. We continue to execute across our strategic priorities as we build for the future deliver the very best in entertainment and create value to shareholders.

And with that, Hugh and I will be happy to take your questions.

Thanks, Bob. As we transition to Q&A, we ask that you please try to limit yourselves to 1 question in order to help get to as many analysts as possible today. And with that, Rocco, we are ready to take the first question.

Our first question today comes from Ben Swinburne at Morgan Stanley.

Thank you. Good morning. Bob, I think we've been talking about ESPN going direct-to-consumer for, I don't know, it feels like a decade or so now. And you've got the product in the market. I know it's not been a ton of time, but I'm wondering if you could share a little bit about what you've learned so far in terms of adoption, engagement anything interesting in terms of what kind of packages people are attracted to? And really the question is, does this product kind of change the outlook in any meaningful way for the business as you look out over the longer term? And I just want to ask you on the cash from operations guidance that you provided, With the $1.7 billion cash tax swing, if I sort of adjust for that, I'm getting kind of underlying growth of well over 20%. So is there anything else we should be thinking about? Maybe it's the One Big Beautiful Bill, tax benefits or anything else in the cash outlook that suggests such a strong cash flow year in 2026. .

Ben, I'll take the first part of your question. The ESPN launch has been a real success for a number of reasons. First of all, what we said about to do was to attract basically new users people who had either been subscribers to the multichannel linear bundle or people who had not but wanted to engage more with ESPN and we've done extremely well in that regard, signing up essentially new users. The other thing we wanted to do is we wanted to give people who wanted to stay in the multichannel linear bundle, a chance to use the app and to engage with us more deeply because the app is so many more features than the linear channels do. And the authentication rate of people who are already subscribers has been very, very encouraging. Third, we ended up signing up a substantial number of subscribers to the -- what we call the ultra product, or the Ultimate ESPN product, which is essentially mostly attracting cord nevers, people who want to engage with sports, but maybe they don't want to engage as deeply as those that get linear channels and those that have subscribed to the main app. So it's been very successful in that regard. .

We're encouraged that people have found all the new features and are using them, particularly the sports center for you and what we call Verts, which is essentially just vertical sports highlights. And the algorithm seems to be working as well. I know it's working for me where if you watch certain videos on ESPN and particularly if you click like, then your feed is populated by sports news and sports highlights that you are more interested in. So I guess in almost every way you look at it, it is working, it's also working for advertisers because obviously, there's real value in the data that we provide advertisers on the direct-to-consumer platform. And so we're attracting both more advertising and new advertisers to the service. And we look ahead, we believe that we've created a product that is very, very consumer friendly, very advertiser-friendly and actually works both for the traditional distribution ecosystem and for what I'll call the DTC ecosystem, if there is such a thing. So we're very, very encouraged. I think it's a very positive step for the future of ESPN because while nothing necessarily provides future proof concepts or circumstances for a business that is constantly changing, but this certainly is a step in the direction of solidifying ESPN's future going forward.

The last thing that I'll say is the great thing about the app is the incredible variety of sports that you can access on it. So where the linear channels provide obviously, live sports and studio programming, more along the lines of the traditional sports television. The new app uses a chance to engage with thousands and thousands more sports events over the year. And I think that's not only a sports fans delight. But I think overall, it's about as consumer-friendly as it gets.

Okay, Ben. Yes, and I'll take the question on cash flow. You're right. If you adjust for tax, we're up about 28% year-over-year. Because of the timing on tax payments, the reported number is closer to 7%, driven by a couple of things. #1, obviously, OI growth is quite strong. #2, we've been investing for a couple of years, and we've now sort of leveled off in terms of those levels of investment. That's something that we think you can look forward to in the out years, continued strong free cash flow growth from Disney, which obviously gives us a lot of flexibility in terms of the ability to return cash to shareholders, which was evidenced today by the doubling in the share repurchase and the 50% increase in the dividend. So we feel very good about the free cash flow growth going forward.

Next question, Carlos. Before we take the next question, Carlos, I just want to add something to the question that Ben Swinburne asked about ESPN. One of the things that we're also very encouraged by is the fact that of the subscribers that have signed up to the new app a substantial number of them, about 80% have signed up to what we call the trio bundle, which includes Disney+ and Hulu.

Our next question comes from Steven Cahall with Wells Fargo.

So just on content. You had a pretty strong last couple of years in general entertainment. Bob, you talked about some of the things like Alien Earth, FX that have done really well. As we look into this year for the studio, I mean it's big slate with Avatar and Moana, you're off to a little bit stronger or a softer start, I think, implied in the guide for the first quarter. So I was wondering if you could just talk a little bit about what kind of growth you think you can do at the studio this year or over the next couple of years? And then, Hugh, just a tactical one. Given the ongoing carriage dispute with UP, have you provisioned anything in the EPS guidance for a sustained blackout? Or is the economic impact actually more minimal because you think those folks would resubscribe elsewhere, including maybe the ESPN app.

Hugh, I'll take the first part of the question, Steven, thank you. We're very encouraged by the studio slate that is coming up. We have a premier of Zootopia 2 tonight. That is our Thanksgiving release. And then we finished the calendar year with Avatar: Fire and Ash. Obviously, we have very high hopes for that. If you look at the slate for the rest of the year, it's about as strong as it's been in a while, maybe stronger than it's been in a while, including the Mandalorian, Toy Story 5, live action Moana and then we're going to finish the calendar year with Avengers DoomsDay. So we are very bullish on the slide ahead. As we look at the slate well into '27 and into '28, we feel that we've got similar strength to the strength that I just described for fiscal and calendar year '26.

Obviously, not every film works. We know that. We've been around long enough to understand that. But if you look back at the year and you look at the fact that we've already crossed substantial global box office level. We feel that we had some real strength, $2 billion films in the fiscal year, the biggest film of the year fiscal 2025 and calendar 2025 to date, which was Lilo & Stitch, which also had tremendous, tremendous consumption when it went on the platform. So we feel good about the direction of the studio, both the current slate that's coming up and what it looks like in the future. .

Right. And Steven, just to add to Bob's comments. In terms of Q1, that's more about what we're overlapping rather than the slate for the year itself, Just the timing of the overlap, particularly with Avatar coming at the very end of Q1 is what's driving the guide that we shared with you all. As it relates to the discussions with YouTube, Obviously, I'm not going to comment much on ongoing negotiations that are live right now. The only thing I would say is, in terms of our guidance, we built a hedge into that with the expectation that these discussions could go for a little while. In terms of the dollar impacts, Keep in mind, there's 2 pieces to it. There's the piece that we're not getting paid for and then the piece that we're picking up by virtue of subscribers moving elsewhere. So -- but beyond that, I don't want to comment because it is a live negotiation right now.

Next question comes from Robert Fishman at MoffetNathanson.

Bob, as we think about Disney+ as a portal to all things Disney, can you talk about the future road map and how subscribers will be able to use Disney+ as a super app for not only Hulu and ESPN that you start to talk about, but also engage with your parks and other assets. And then Hugh, do you see a path ahead for sustained double-digit DTC revenue growth through a combination of subscriber engagement and advertising increases.

Thanks, Robert. First of all, regarding Disney+, we're in the midst of rolling out the biggest and the most significant changes from a product perspective, from a technology perspective, since we launched the service in 2019. And we're really encouraged because it's enabling greater personalization, resulting in a product that's just more dynamic, more engaging and it basically is working. And as I mentioned in my remarks, we've turned Hulu into a global general entertainment brand, which we think is going to create more awareness and basically create closer alignment with our U.S. product. So as we look ahead, these things are obviously all designed to create a one-app experience. But we also see, particularly with the deployment of AI, the opportunity to use Disney as you suggested, as a portal to all things, Disney, there's clearly an opportunity for commerce. There's an opportunity to use it as an engagement engine for people who want to go to our theme parks, want to stay at our hotels and want to enjoy our cruises, our cruise ships.

And obviously, there's a huge opportunity for games and the investment that we made and the agreement that we reached with Epic Games, while that will largely be on their platform gives us an opportunity to integrate a number of game like features into Disney+. The other thing that we're really excited about that AI is going to give us the ability to do is to provide users of Disney with a much more engaged experience, including the ability for them to create user-generated content and to consume user-generated content, mostly short form from others. So a lot going on. We're pleased that the progress that we've already made from a technology perspective. We've made some great hires by the way, in the last year in that regard, including Adam Smith, who's also brought in some real talent and the opportunity here, we think, is enormous in terms of increasing our engagement with Disney fans across the world.

Okay. And Robert, regarding your question on DTC, a couple of comments. Number one, obviously, we guided you to the double-digit margins as we've been talking about in the past and as was expected coming into the year. Number two, in no way are we going to get there through cost cutting. The way we're going to get there is through revenue growth and driving operating leverage through the business. We didn't give a specific revenue guide, but our objective and our aspiration is very much to be growing the top line of that business by double digits as we did on an apples-to-apples basis that's what we're looking to do going forward is to grow the top line double digits. And again, as a reminder, and as we've discussed in the past, getting beyond '26, we're certainly looking to gain margin in chunks, not in basis points as we think beyond '26 and into the future. We think this is a terrific business that's really going to be super strategic for the Walt Disney Company and is going to be a growth driver for us for many years to come.

Our next question today comes from Jessica Reif Ehrlich with Bank of America Securities.

I got a couple of things. One, you've grown content via both building and buying. And clearly, if we're going to see M&A and media in the coming year with a lot of moving pieces across the industry, some being just some companies being broken up. So I'm just wondering, do you see any role for Disney? And if not, any concern that you'll see a stronger competitor coming out of all of this? And then secondly, on advertising, could you maybe go a little bit under the covers. There are a lot of things going on in CTC and linear, both entertainment and sports. Could you give us some color on your outlook for fiscal '26?

Go ahead, Bob.

Sorry. Go ahead.

So Jessica, on M&A, a couple of things. Number one, obviously, we don't comment on M&A specifically. That said, with what's happening in the industry right now, Bob and the team really built the IP portfolio that we have over the last decade, whether it was the Fox acquisition or Lucas or Pixar So we actually feel like we've got a great portfolio, and we don't need to do anything. From that perspective, I think we'll let this play out. In terms of other competitors, we'll see how the various moves play out. But we like the hand that we have right now. So I wouldn't expect us to participate in making any significant moves. As it relates to the advertising side, what you saw for the year for us last year was advertising grew 5%. Sports was particularly strong. DTC obviously has had supply coming into the market. That said, we did see CPMs improve at Disney over the last 2 quarters. So we feel like that's trending in the right direction. And then from a linear perspective, obviously, that's driven by what happens with subscribers. Going forward, we do expect advertising growth going into "26 as well. despite the fact that we're overlapping political advertising in the first quarter of '26. So.

Our next question comes from Michael Morris at Guggenheim.

I wanted to ask you first on the Experiences business. Can you talk a little bit more about the drivers of the segment into fiscal '26, in the context of that high single-digit operating income growth that you guided to? So how are demand currently trending? And how much of the guided growth comes from revenue as opposed to margin expansion in the coming year? And if I could ask 1 on the sports side. You talked about some of the content-driven cost pressure in the second and third quarters of the year. I would assume that comes from the NBA investment. Can you talk a bit about how the NBA investment is positive for you and will drive your growth over time?

Okay. Yes. Happy to jump in on both of those. In terms of the Experiences business and drivers for '26. Obviously, we've made big investments in cruise and we're expecting cruise to be a meaningful contributor to growth of experiences during the course of the year, particularly in the second half as we get past the launch costs and some of the dry docks that we have in the first half of the year. Number two, obviously, we're always going to have a combination of some pricing and some attendance growth. So certainly feel positive about that. And then obviously, with the slate that we have coming on the film side, consumer products ought to be a meaningful contributor as well. As far as sports goes from the perspective of the NBA because of the timing of the rights cost, it does create a little bit of bumpiness during the course of the year. Again, the latter half is where we'll really see material growth in ESPN. And then in terms of NBA being a contributor, the NBA is obviously a phenomenal property. We were fortunate enough to get out in front of that and create an attractive deal both for the NBA and for ourselves. It obviously, like a lot of other live sports attracts audience. And in the case of the NBA like the NFL, attracts scale audience. which obviously is super attractive to advertisers and therefore is strategically beneficial to us as well.

If I could follow up. Can you share anything about what you're seeing on the demand side currently domestically for the parks in terms of advanced bookings or per caps?

Yes, yes. Sorry, I forgot to answer that portion of your question. Bookings are up 3% in the first quarter. So we feel good about that, and they're also up for the year. So feel good about where demand is ramping.

And our next question comes from Kannan Venkateshwar with Barclays.

Bob, any interest from you on becoming a broader bundler of streaming. You already have ESPN and Disney+ and Hulu bundle. And of course, you also have the FOX One. And it feels like there's an opportunity here for Disney to maybe emerge as a new form of bundler, which nobody in the industry appears to have attempted yet. So any thoughts on that would be great. And then just to understand the impact of ESPN bundling on Disney+ and Hulu a little bit better. Anything you can share with respect to maybe the churn benefits or any kind of subscriber acquisition cost tailwinds that you saw in the quarter? What do you expect going forward potentially from that?

So I'll answer both parts of your question. First of all, as it relates specifically to ESPN bundling, what we found is that subscribers that bundle, either the bundle Disney+ and Hulu or subscribers that bundle Disney+, Hulu and ESPN are healthier subscribers in the sense that the churn rates are lower than the subscriber that only subscribe to 1 app. So I mentioned earlier the fact that about 80% of all the subscribers to the new ESPN service are actually buying the Trio or the triple bundle. That's a very positive sign for us. in terms of lowering churn into the future. We've also found that bundling with others, for instance, we've been bundling with MAX in the United States, also has a lower -- an effect of lowering churn. And we've expressed the desire to do more bundling with other companies and have been in discussions on and off with other companies about doing just that. So typically, the opportunity to bundle definitely exit and to bundle more exists. And we also have proven that it works both for us in terms of our subscribers and also for the subscribers that we attract for the bundling entity. If you were to ask the folks at Warner Bros. Discovery about the impact of the MAX bundle on them, they would tell you that they've signed up a substantial number of subscribers thanks to the bundle with us.

Our next question today comes from John Hodulik with UBS.

A quick follow-up on the parks business and then a question on cruises. It looks like domestic parks attendance was a little light in the fourth quarter. Hugh, is that driven by sort of competition, macro? Or are there any other factors that may have accounted for that? And then, on the cruise side, just comment on overall demand for the crude business. And if you could you remind us how do the margins improve as compared to overall margins in the parks business? And what should be the impact on that segment as that business grows as fast as it's slated to over the next several years?

In terms of the demand, demand was -- I wouldn't characterize it as light. It basically came in, in line with our expectations. We've talked about Epic in the past, in particular, is something that we knew was going to be a factor in domestic parks and in fact, was very much in line with our expectations. If anything, it seems to be, in fact, impacting the rest of the competition down in Florida, more that it's impacting us. From a consumer perspective, we certainly feel good about it. In terms of demand for cruise, very, very strong despite the fact that we've added as much capacity as we have. Our utilization rates are in line with what we've seen in the past. So we're filling all of that capacity as quickly as we can add it. Regarding margins, we don't really talk about specifics on cruise margins. That's not a disclosed item. But obviously, it's a very attractive business. we're capable of pricing at a good level. The guest satisfaction scores are higher than basically anything else in the company. So the margins in that business, as you would imagine, are quite attractive.

Our next question today comes from Kutgun Maral with Evercore ISI.

Two, if I could. First on direct-to-consumer. I was hoping you could share some of the puts and takes on the cost side in 2026, especially as you continue to invest in technology and programming. But I didn't know if there is some maybe cost savings associated with integrating the tech stack, for example, that we should be mindful of. And then Hugh, just a housekeeping one, if I could, around the 53rd week thank you for providing a clean guidance for the year on an underlying basis. With that, can you help quantify the impact of the extra week to this year? And as we look to fiscal would the expectation be that you could grow EPS double digits again, even without adjusting for the 53rd week comp.

Yes. First on DTC. It's really consistent with what we've talked about in the past. So we expect to grow revenue at an attractive rate. As I mentioned earlier in the call, our aspiration is to be double digits in that business. In terms of then the line items underneath, we'll obviously continue to invest at a reasonable level in content, leaning a bit more towards the international side as we identify opportunities in specific markets to grow the international business where we have a big opportunity. In addition to that, we'll be investing in product. So the technology area will get some level of investment as well. And obviously, as we put the 2 businesses together, there's opportunities to do a bit of savings on SG&A. That said, I would expect P&L leverage. In other words, expenses growing less quickly than revenue across all of those items, which is how we drive the margin growth that we would expect to see. In terms of the 53rd week, again, I would expect us to figure out as we get to Q4, what the 53rd week is worth. And then as we determine that as we have in the past 2 times, we've had the 53rd week, we would share something on that with investors, and we'd look to grow double digits off of that.

Operator, we have time for 1 more question.

And our final question today comes from David Karnovsky with JPMorgan.

Bob, you noted generative AI earlier, but it sounded primarily as a use case within your apps, and I'm wondering how you view the opportunity or risk to license out content or IP to some of the emerging video creation platforms? And then just relatedly, as it pertains to production costs over time, what role do you see for generative AI to drive cost efficiencies in the business.

Good question. We've been in some interesting conversations with some of the AI companies, and I would characterize some of them as quite productive conversations as well. seeking to not only protect value of our IP and of our creative engines but also to seek opportunities for us to use their technology to create more engagement with consumers. And we feel encouraged by some of the discussions that we're having. It's obviously imperative for us to protect our IP using -- or with this new technology. And we've been pretty engaged on that subject with a number of entities and hopeful that ultimately, we'll be able to reach some agreement or the industry or the company has on its own with some of these entities that would, in fact, reflect our need to protect the IP. We also -- as we look ahead, we see opportunities in terms of efficiency and effectiveness by deploying AI, not just in the production process, but really across our company as we engage with our cast members and our employees, but also our guests and our customers.

There are opportunities, as Hugh talked about earlier, about what I'll call the office and creating efficiency there. There are great opportunities in terms of our collection of data and our mining of data. And I'd say above all else, there's phenomenal opportunities to deploy AI across our direct-to-consumer platforms. both to provide tools that make the platforms more dynamic and more sticky with consumers, but also to give consumers the opportunity to create on our platforms. I also -- before we end the call, Carlos, I just want to say 1 thing because I know there was reference to where we are with YouTube. And I just want to end the call because we've been so engaged in this over the last few weeks, by kind of giving an overall summary of just where things stand.

First of all, obviously, we care deeply about our consumer. And our priority has always been to remain on their service without interruption to close a deal on a timely basis so that interruption does not occur. The deal that we have proposed is equal to or better than what other large distributors have already agreed to. So we're not trying to really break any new ground. And while we've been working tirelessly to close this deal and restore our to the platform, it's also imperative that we make sure that we agree to a deal that reflects the value that we deliver, which both YouTube, by the way, and Alphabet, have told us is greater than the value of any other provider. So we're not trying to break new ground. The offer that's on the table is commensurate with deals that we've already struck with actually distributors that are larger than they are. We're trying really hard, as I said, working tirelessly to close this deal, and we're hopeful that we'll be able to do so on a timely enough basis to at least give consumers the opportunity to access our content over their platform.

Thanks, Bob, and thanks to everyone for your questions. We wish you all a good day.

Thank you. That concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.

We could not be more excited to have Jimmy Pitaro, Chairman of ESPN, join us today.

And Jimmy, there has never in a busier time in sports with more distribution platforms, escalating media rights, emerging sports and more ways to engage. Since you took over ESPN in 2018, the sports world is a very different place. How is your vision of ESPN changed through the years?

I'd start by saying our mission remains the same. So our mission is to be of service, to serve the sports fan anytime, anywhere. As an extension of that, we identified 4 key priorities, when I started about 7.5 years ago. Direct-to-consumer, audience expansion, quality storytelling and programming and innovation. And so if you fast forward to today, and you walk the halls of any of our offices, they will be able to recite those 4 business priorities for you.

All that being said, we are watching the trends, of course. We are paying attention to how sports fans are engaging. And over the past several years, we've seen cord cutting, if anything, accelerate. And so we made the decision a couple of years ago to go full in direct-to-consumer. And so 2 weeks ago, 2 things happened. We made our 12 networks available direct-to-consumer. It's over 47,000 live events. So for the first time ever in our 46-year history, you were you are able to buy ESPN directly.

Part 2 is a significantly enhanced ESPN app. So when we decided to go full direct to consumer. At the same time, we decided we were not going to just flip the switch. We were going to, at the same time, make an enhanced app available to sports fans. And so that happened a couple of weeks ago.

At the same time, we've been very clear about our continued focus on the traditional ecosystem, so the pay TV environment. And the way we describe it is it's a hybrid approach. We are running parallel paths. We are all in on direct-to-consumer, but we continue to see the value in that traditional pay TV environment, not just for our business but also for the sports fan. There's a lot of fragmentation. There's a lot of confusion in the sports industry right now, and that is minimized in the pay TV environment. You have most of your sports content there.

So when we did make the decision to go full direct-to-consumer at the same time, we decided that we were going to make all of the features and functionality of the enhanced app available to a pay TV subscriber. And that was our way of saying internally and externally, we are going to continue to add value to the pay TV environment, while at the same time, making our 12 networks available direct-to-consumer.

Great. So let's talk a lot of questions on ESPN DTC. So you launched a service for $29.99 a month. Just start at the top, like what would you define as success for this product? Or how would you define success?

Like I said, we are still in the pay TV environment, and we are still adding value to that environment. And so when we think about our business, we think holistically. We don't focus on any 1 individual platform.

Ultimately, whether you subscribe to ESPN through MVPD or digital MVPD or you access us directly, our strategy, our goal is to drive the sports fan to the ESPN app, which is the preeminent sports destination or to Disney+ because if you're a subscriber to ESPN direct, you will get access to all of your ESPN content within the Disney+ environment.

So the answer to your question, Jessica, really is engagement within those 2 apps. That is something that we are hyper-focused on. How effective are we in terms of driving the sports fan, again, to the preeminent sports destination, which I'm sure you want to talk about more or to a more holistic entertainment experience, maybe even for a casual sports fan where you're getting all the content within Disney and Hulu, that is also a priority for us.

Can you describe some of the features, just say on not a holistic one, and then we'll come to the bigger picture. But could you describe some of the new features in this the ESPN direct-to-consumer product that differentiates the experience for sports fans?

Absolutely. I'm going to start with personalization. So at a high level, when I think about what we did with the enhanced app and what we continue to do, there's 2 buckets. There's personalization and interactivity.

Going back to personalization. We've been leading at ESPN in the digital space for decades, and we've been leading in personalization. You can go to the ESPN app even before we launched or enhance the app, you could favorite a league, favorite a team, favorite a player. We then took all that explicit data and personalized, we also personalized based on an implicit information that we had, with content were you consuming.

So we've prided ourselves and right content to the right user at the right time. We decided when we were going to go direct-to-consumer that we were really going to lean into personalization. And one of our jewel assets, you all know this is SportsCenter. And so we decided, look, I'm a sports fan. I'm a huge sports fan for many -- for decades, I've wanted a SportsCenter dedicated to me. I am a Yankees, Giants, Knicks, Rangers, Notre Dame.

And so when I watch and fire up SportsCenter, that's what I want. I want to see my team's highlights first if they played. And maybe I also want to see their rivals, the highlights from the rival teams. And so that's what you have now. We call it SportsCenter for you, is fully personalized, driven by AI, and we couldn't be more excited about it.

That, for the most part today, lives within a new tab of the ESPN app that we call Verts, which is short for vertical short-form video. I mentioned before, one of our priorities is audience expansion. That means many things but it especially means appealing to a younger generation. We all know younger people are consuming vertical video, short-form video, swipeable video. So we have now -- if you fire up the ESPN app, I won't be offended if you do it right now. If you fire it up at the bottom, you'll see a new tab called Verts, you tap on that.

And it's essentially a TikTok like, an Instagram reels like feed of short-form video. In that environment is a tab for SportsCenter for you. So those are 2 things that we are incredibly excited about, personalized SportsCenter and then Verts, short-form video.

In addition to that, we have Multiview. So this is especially compelling now with the U.S. Open going on. You fire up the app, you can tap on 4-screen experience and watch 4 events at the same time. That is on the connected television today. We, of course, are thinking about how we could expand that to other devices, but it's a fantastic experience on the connected television.

We have a product called StreamCenter, where if you're on your couch and you fire up your smart television, fire up the ESPN app within that environment, you open your phone, you can connect your ESPN app on your phone to the ESPN app on your connected television.

So what that means is then you can control what's on your television with your phone with the ESPN app, you will also get much more information. So contextual relevance, if you're watching a football game, you'll get all this. As you scroll down within the ESPN app on your phone, you'll get in-depth stats, you'll get betting information, et cetera. So that's StreamCenter.

Probably most important is what we call internally the squeeze back experience. So again, sticking with the living room, the connected television experience, if you're watching a game, you have the opportunity to tap on an icon and squeeze the video player back. When you do that, you'll see 5 tabs for many of our games. The first tab is stats. And stats, of course, are relevant to what you're watching, what game you're watching, real time. Then you'll have fantasy, if you have a fantasy team, you'll see your fantasy lineup right there.

The next tab is bet you'll be able to place a bet through ESPN BET. The bet will be relevant to the game. If you have already placed a bet, that bet will show up there. There is key plays which is essentially catch up to live. If you fire up a game and its Yankee game and it's the fourth inning, you'll have the opportunity to watch the key plays, which will bring you to the live game.

And then last is commerce. Again, contextual relevance, you're watching the Yankees. You can buy the Yankees Jersey. That's through a partnership with Fanatics, where we have a co-branded environment that we are very excited about. So I can go on and on, but those are some of the things that we went with when we launched a couple of...

I mean you said engagement is, obviously, like any sports fan or even a semi-like casual sports fan would be -- it just seems you're going to keep people on the app.

Well, we say all the time at ESPN that to really be effective, you have to be a sports fan. And so the features that we launched a couple of weeks ago are coming from hard-core sports fans. Like these are things that we all wanted.

By the way, Jessica, I just want to emphasize, first inning, like we are just getting started here. I've said this repeatedly, but it bears repeating. We -- this is not a movie launch. At Disney, we're really good at opening movies. That's not what this is. Like we launched a couple of weeks ago. We're very proud of the product and the features, but this is a marathon. And our road map is very -- our product road map is very robust.

How do you think about the go-to-market strategy and evaluate options to offer this as a stand-alone product versus bundling the Disney+ and Hulu, as you already mentioned, or bundling even with third parties like Fox, which you've already announced?

Yes. So a couple of things on that. First off, we're really excited about the Disney bundle. From a value perspective, you get all of the ESPN across all of Disney across all of Hulu for $29.99. And so if you subscribe now, you'll lock that in for a year. And so we feel great about that offering.

In addition, you probably all saw several weeks ago, we announced several different deals with the NFL. One of which well, they're all incredibly important, but the...

We'll get to the NFL, if you want to save that or...

Do you want to dive in on that now? Or should I...

We can wait a second [indiscernible] a whole list of things as well. I mean there's a lot.

All right. Keep going...

No. So but -- I mean because you have -- obviously, there's so many ways to offer this to consumers and get them in. But just one last thing, and then we could just...

Let me just finish on that -- before we go to -- so what I was getting to is the NFL bundle, right? So because you were asking me about bundle. So one of the things that we did announce is a bundle with NFL+ Premium. And so the marketing for that actually launches today.

And so for $39.99, you will get all of ESPN+, NFL+ Premium, which includes RedZone, which we're really excited about. So as a sports fan, that is a cost-effective way to access not just all of ESPN but RedZone. And then the last thing I'd say, Jessica, is the Fox bundle. We're going to launch that on October 2. And so that's a pretty compelling offering as well at $39.99.

Right. I don't want to put words in your mouth, but is that the last of the bundles that you expect to offer or...

I don't know, like the -- if it makes business sense, we will, of course, have the conversation. That's all we have announced thus far. But we're -- look, just to back up, we pride ourselves on being the starting point being the front door for sports fans. And so we want to provide access and we take a lot of pride in that. And so if it makes sense for us, it makes sense for the business, if it makes sense for the sports fan, we're going to pursue it.

I mean, I would just imagine that if you're a sports network or you have sports properties, you want to be aligned with the ESPN because it's a powerful combinations.

Well, thank you. I would say there is power in our 4 letters. Our 4 letters stand for something. We do regular research at ESPN. And I don't think it's any surprise that for hard-core sports fans like myself, we continue to resonate. But what does make us very proud is the fact that we've been able to protect our brand with the core fan, someone like me and also expand and make it relevant to younger people. So what we see from younger people is we're the most trusted sports brand, we're the most innovative sports brand, younger people see us as a digital-first brand, which is amazing.

They see us as the leader in streaming. This is prelaunch of ESPN direct-to-consumer where we only had ESPN+ in market, they still saw us as the leader in streaming. We're the #1 media brand in the world on TikTok. So there is power in our brand in our 4 letters.

I mean you mentioned the offer with Disney+ and Hulu. I mean, basically, you're either getting Disney+ and Hulu for free for a year, are you getting ESPN DTC free a year. So it's a good really incredible way to get people in the door.

I know you're not giving sub numbers, but don't you think that would have an impact on sub growth on 1 or the other? Like you're not reporting subs anymore isn't really...

Correct. Correct. We're not reporting subs. Look, like I said, we are going to evaluate ourselves primarily on engagement. But with more engagement, Jessica, of course, we expect that, that will drive revenue and OI. We do report ESPN separately now. You know that. And so in addition to engagement, we're going to continue to focus on top line and bottom line.

So another thing you mentioned we'll get to this, but you mentioned younger audiences who are obviously your future consumers and their viewing habits are different.

Can you describe how younger audiences like you mentioned short-form content. Are there other things that drive their fandom?

Yes, it's become almost cliche to say this, but authenticity. We've signed up a bunch of influencers that we believe are going to resonate with them, influencers that are going to be creating content specifically for that Verts destination that I mentioned before.

Look, just to back up again here. Years ago -- many years ago, we decided that we were going to invest in social. We decided as a leadership team at ESPN that we needed to be open, and we need to be present on third-party social platforms, which was a tough decision, right, in a world where you have finite resources, there's an argument to be made that those resources should be invested in owned and operated properties.

We ultimately debated that and aligned on this idea of being where the fan is, especially the younger fan. i.e., third-party social platforms. And so we've done a great job at creating content, not just taking clips of first take and putting them on social platforms. We do some of that, and they land well. But more important is the fact that we are both creating content natively for those platforms, and we're identifying content on the web or online that we think represents our brand and including that.

But again, that's where younger people are. And so we have to be there. And so going back to research, what we see is that the more we invest in social, the more those fans -- the more time those fans are spending with ESPN's owned and operated properties. So strategy is working. It's helping to grow our brand with younger people but it's also helping to grow our business because those people are spending more time with owned and operated.

Right. So as the way content is consumed has fragmented, it's created confusion for sports fans. Nobody -- I mean you know it's on ESPN, but really, it's hard to sometimes define which game is where you've spoken to before about how ESPN is poised to help simplify how fans engage with sports. So with that as a backdrop, how do you view the experience evolving over the next several years?

Yes. That's a great question. We all -- I'm sure we've all experienced the frustrations. I think if you're -- well, you could pick a league. For the most part, you're going to have to go to more than 1 provider. I don't want to pick on any one league, but it's challenging with the fragmentation.

Now going back to my point before about us being the front door, the starting point, a place of record. When something happens in the sports industry, people tune in to ESPN. In that vein, we decided that we needed to solve for this or at least be part of the solution.

And so I don't know, about a year ago, we launched a new product called Where to Watch. And so that's an icon that lives across our digital pages on both dot-com and the app. And you tap on it and you search for your team and we'll tell you what time the game is on and where it's on. And that includes when the game is on one of our competitor platforms.

And again, somewhat polarizing internally, wait a second, time out, do we want to actually send our users to competitive platforms? And full disclosure, there were people at ESPN that felt like we should not. Fortunately, I got to make the call. And so we went ahead and did it. And I felt like going back to our brand and our mission of serving the sports fan, this was directly connected to our mission. And I ultimately believe that the rising tide will pay dividends for us, meaning you deliver for the sports fan, you deliver the information that they're looking for. They're going to come back.

So that is one of the ways that we are trying to solve for this fragmentation issue. That being said, we can't have it all. No matter what we cannot have all of the sports rights, it wouldn't make sense for our business. And so we are looking at other opportunities like we talked about in terms of bundles. We feel like that's a compelling marketplace opportunity to bundle with someone like Fox and offer a discounted price.

Sports advertising is the most premium of advertising. You now offer the potential of a personalized sports app that can provide hyper level targeting. What this enabled you to do from an ad monetization standpoint that you previously couldn't?

Well, look, I'd start with the fact that advertisers now have access to more inventory and more fans through our enhanced app and our direct-to-consumer offering.

Within the ESPN app, and within the games within our app, we will pass through ads from linear television, and we will also dynamically serve ads. In terms of the latter category, when you do that, and you know this, Jessica, you have the ability to, number one, target specific audiences, and just as importantly, you have the ability to measure performance and provide that data back to your client, your partner, your advertiser.

And so when someone places an ad with ESPN, when an enterprise places an ad, we can then monitor web and app activity. We can monitor search activity, we can monitor purchase activity and again, see the effectiveness of that ad and measure it specifically. And that significant -- that's a significant value. So again, targeting and measuring is a game changer.

I mean, if I'm Rita Ferro. She has to be [ in-house ]. Like is there a way to think about how much -- how this opens ESPN different advertising, a different pool of advertising?

Yes. Again, through the expanded reach, the expanded platform and the targeting and the measurement, I would also say I probably buried the lead here.

We have an award-winning tech stack, ad tech stack...

At Disney.

At Disney, correct. We were just recognized by Digiday as the best ad platform. And ESPN is now on it. So you can now buy holistically across ESPN Disney+ and Hulu on top of that because ESPN is now on it, we can benefit because smaller advertisers can now go ahead and buy through automation, right? And manage their own campaigns. And that's something historically, we have not been...

You're opening the door to self-serve..

Exactly right.

Targeting. It's like another world.

Exactly right.

Okay. must be an accounting nightmare, but I'm glad you report. But anyway, let's move on to NFL. So you recently announced a deal to sell a 10% stake of ESPN to the NFL and with that, you also get rights to 3 extra games each year alongside some repositioning of where the games are broadcast. So obviously, this will deepen your relationship with the NFL. But what else should investors take away from the new relationship?

Yes. Look, there were several deals. The first 1 was an equity deal. The NFL taking a 10% stake in ESPN in exchange, once the deal closes, we will be acquiring the NFL Network, the games, the studio programming, part of their films library will live within NFL network.

Our plan is to -- again, when the deal closes, the plan would be to include NFL Network within ESPN direct-to-consumer. It will be another 1 of our marquee -- marquee networks. Number 2 was RedZone. Again, sticking with the 10% equity transaction, we are acquiring the linear rights to RedZone and all of their affiliate contracts. In addition to that, we will be acquiring the RedZone brand. So there's opportunity to potentially expand RedZone, which is an amazing product, an amazing brand, potentially expanding into other sports, other leagues.

And number 3, fantasy. We're acquiring their fantasy business, and we will become the official fantasy game of the NFL. Fantasy is a huge part of our DNA at ESPN. It's a growth business we couldn't be more excited about it from an advertising and sponsorship perspective.

So to be the official game of the NFL when this deal closes is fantastic. So that was -- at a high level, that's part 1. Part 2 was, yes, additional games that we are licensing, which we believe will -- we all know how valuable NFL games are. Part 3 is an agreement with the league to include their content in our features and functionality to include their content on platforms like Disney+ and to bundle with NFL+ Premium so that our fans get access to RedZone.

And then the fourth component was NFL draft. So we helped create the NFL draft with the league in so many people, hundreds and hundreds, if not thousands of employees at ESPN take pride in what we've done to help grow the NFL draft. And it was really important to us that we extend that deal, and we were able to reach a separate agreement, but we were able to reach agreement with the league on that.

You just said so much. I mean, just -- I don't know like which part to expand on, but the things that you're doing with RedZone, like how do -- there are a lot of things in there besides fantasy, like what does this do like for your overall audience? Does this -- well, you answer.

Yes. Well, look, again, we love RedZone. I have kids, I see how they're engaging to a younger audience. It's a fantastic product. It's a very modern product.

Just to be clear, the NFL will continue to operate RedZone. We are acquiring the linear rights to RedZone in those contracts. The NFL will still own NFL RedZone, it will be included in NFL+ Premium. It's their product. In terms of the brand, yes, I see a ton of opportunity here. I don't have anything to report right now.

And again, we won't have the RedZone brand until the deal closes. But we've already started to think about how we could potentially expand it. So it's a great asset.

Right. And it seems like your point of this is just the beginning of...

Correct. First inning.

And do you see a deal of this type being replicated with other sports leagues or other partners? Or is this just a unique onetime event?

It's a unique deal at a unique moment in time. I think I don't want to speak for the NFL, but I believe that they have seen what we can do on the studio side.

I think they have a lot of trust and faith in us in terms of continuing to operate NFL Network consistent to how it's been operated in the past. And so yes, look, I think that there is there's a ton of excitement there on the NFL Network side, whether we would ever try to replicate this, Jessica, I would say to have to make business sense. Like, again, I hate to say the same thing, but we're always interested in ways to advance the business and just as importantly, ways to serve the sports fan. And so if someone comes to us and presents a compelling opportunity, we're, of course, going to listen.

And then there's been a lot of discussion about NFL expanding internationally. Do you have anything to do with that? Or this is all domestic?

NFL expanding internationally, you said?

Yes. So is this for you, like is there -- do you participate in any of that? Or can you participate in any of those?

You're talking about them having more games internationally?

I mean, I guess.

Yes. I mean, look, we have a package of games once this closes, once the NFL Network deal closes, we will be acquiring 3 additional games. And so the there's that component, but there's also -- it's going to be fascinating to see what the NFL does with their opt out. I think you know this, but in 2029, they have an opt out. And a year later, they have an opt out with us. So we'll see how that plays out.

They could, I suppose, put together -- and again, this is just what I've read. I've not talked to the league about this, but I've read that there's potential for them to put together another international package. From our perspective, we're always interested in growing our business. So if something like that if they were to put together an international package, we would, of course, be interested in having the conversation.

Another dimension, okay. So you've been fairly active in recent months restructuring your sports rights. So you've added more NFL games, which we just discussed, you've renewed your NBA package. You picked up WWE, but you gave up UFC, MLB and apparently Formula One.

How do you evaluate which sports are corded ESPN and the ROI on incremental rights dollars spent? Which is substantial.

Yes, on baseball, I just want to clarify 1 thing. We opted out of our agreement. There was a mutual opt out. We exercised the out. But we are fast forward to today, we are in conversations with the league and those conversations have been healthy. They've been positive. So I just wanted to clarify that.

Yes, UFC went with Paramount, you saw that. Look, we -- just to back up, Jessica, we know we can't have everything. It's just not feasible for our business. And we operate with a ton of discipline here. A few things I would call out. First off, I really like our position in the marketplace, okay, when it comes to rights. And if you look at our megaphone, how we promote sports 24/7, 365 days a year. Who else does that? No one. And I don't believe anyone will anytime soon. No one can really replicate what we've created here.

On top of that, when you look at the power of the Walt Disney Company and the fact that we can bring ABC to the table, the broadcast, the fact that we can bring Disney+ and Hulu and theme parks promotion. When you look at that in its totality, we have a huge advantage over our competitors. So I very much like our hand when we sit down and negotiate with leagues. So that's part 1.

Part 2 is there's not a lot left to acquire, right? Most things are spoken for, yes, baseball still has to decide. I expect that, that -- those deals will close relatively soon. But beyond that, most things are spoken for over the next 5, 7, 10 years. On top of that, I would say even for the stuff that's not spoken for, and potentially big tech stepping up. What we've seen is a couple of things there. Number one, big tech is operating with the same discipline that we are. They have to show growth, okay? They also have many different components of their business. So if you're a league and you sit down with big tech, you have to ask yourself, how committed are they to sports or said a different way, how distracted are they going to be, whereas when we sit down with ESPN, this is what they do. They breathe this 24/7.

So again, I think we're in good shape from that perspective. And then the last point I'd make here is that even when big tech goes out and makes the acquisition like Thursday Night Football, rising tide, right? Like Amazon has been able to bring more fans into the game of football into the NFL, younger fans we believe that, that's beneficial for ESPN and Monday night football.

All right. But do you think your rights portfolio is safe -- are there gaps that you'd like to feel like you've alluded to MLB. What about MLB local?

Yes. So a couple of things. Best rights portfolio we've ever had. And our 46-year anniversary is fast approaching, it's like in 3 days. And we're united in that this is the best set of rights that we have ever had at ESPN.

That said, we're never satisfied. We're always going to look for rights that make sense and rights that we think can drive our business. But again, Jessica, I'm not sure how much there is to acquire over the next few years. We've made really smart acquisitions over the past decade. We've also -- as you know, we've walked away from things that did not pencil for us that did not make sense for our business.

Right. With rising sports price costs and increasing competition for those rights, what is your view on the trajectory of sports rights going forward?

Yes. Look, I think, look, you've seen significant increases over the past several years. I don't have a crystal ball. I don't know how sustainable this type of growth is.

Again, you're seeing big tech operate with discipline, which I think even a few years ago, a lot of people did not expect. I think a lot of people expected the big tech players to spend more aggressively, bid more aggressively than they have. But I'm not sure how we're going to continue to see significant increases when there's not a lot on the marketplace.

Right. I mean but well, as you know, like UFC went for it. Like basically doubled, which...

Yes, that was a great deal for TKO. Yes.

What role do you think ESPN plays in building sports franchises like we've recently seen with women's basketball?

I think women's basketball is a great example. Like we have been invested in women's sports for decades. Again, I mentioned the draft before being a big part of our DNA. I always say women's sports, not just basketball, women's sports in general, are a big part of our DNA. And this long predates me at ESPN. We've taken a ton of pride in how we've invested in and grown women's sports.

I think, yes, it does start with basketball, both WNBA and college basketball, we're seeing records being set in both, but it extends beyond that. I think you have to look at softball. I think you have to look at volleyball, gymnastics, all of that is up and to the right. And it's at least in part because of our coverage.

We are dedicating more platforms like broadcast like ABC, like Disney+, not just ESPN, we are dedicating better windows, more high-profile windows to women's boards. We're doing things like creating a WNBA fantasy game. No one is making the investments. No one has made the investments in women's sports that we've made and no one fast forward to today is making the investments that we're making in women's sports.

And so when we did the NBA deal last year, a big part of that and a big part of our focus was not just renewing on the NBA side but also on the WNBA side. And we're very pleased that we were able to get that done. But I would expect that you will continue to see women's sports up into the right, not just because of us, now so many others are making the investments which is great for everyone.

Right. I can't be being 2 minutes left to my last question. Obviously, if this comes, we can see how much ESPN has done and how exciting some of these developments are. With all of this happening, what are you most excited about as you look forward to the next couple of years?

The product road map, like at heart, I'm a product guy. I love giving -- I'm driving our poor product and tech team crazy, but I love giving feedback. I love building out a road map, I love making recommendations on enhancements to the fan experience. Again, I'm a sports fan. And so I'd start with that. I would also say I'm excited about getting the NFL deal closed and taking on NFL Network.

We're all very excited about that. And as an extension of that, we have our first Super Bowl with ESPN coming up in February of 2027. And so I am especially excited to see this is actually full circle. I'm especially excited to see the power of the Walt Disney company at play there. And we're already seeing the entire company rally around this event, executives outside of ESPN that are hyper focused on making sure that this event is a success. And there's no one better than the Walt Disney Company to execute here.

Have they decided if they have time?

I don't even know if they've decided -- I read this morning that the commissioner did not dismiss the idea of Taylor Swift.

So I don't know if that's true or not. But no, we have not yet decided on the halftime show.

That's where I'll be watching.

That's where you'll be watching? Okay. Well, you'll you be watching.

Of course, everybody will. Anyway, thank you so much. Thank you.

Thank you, Jessica. Appreciate it. Thank you all.

Good day, and welcome to the Walt Disney Company Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please also note, today's event is being recorded. I would now like to turn the conference over to Carlos Gomez, Executive Vice President, Treasurer and Head of Investor Relations. Please go ahead.

Good morning. It's my pleasure to welcome everyone to The Walt Disney Company's Third Quarter 2025 Earnings Call. Our press release, Form 10-Q and management's posted prepared remarks were issued earlier this morning and are available on our website at www.disney.com/investors. Today's call is being webcast, and a replay and transcript will be made available on our website after the call.

Before we begin, please take note of our cautionary statement regarding forward-looking statements on our IR website. Today's call may include forward-looking statements that we make pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, including regarding the company's future business plans, prospects and financial performance are not historical in nature and are based on management's assumptions regarding the future and are subject to risks and uncertainties, including, among other factors, economic, geopolitical, operating and industry conditions, competition, execution risks, the market for advertising, our future financial performance and legal and regulatory developments.

Refer to our IR website, the press release issued today and the risks and uncertainties described in our Form 10-K, Form 10-Q and other filings with the SEC for more information concerning factors and risks that could cause results to differ from those in the forward-looking statements. A reconciliation of certain non-GAAP measures referred to on this call to the most comparable GAAP measures can be found on our IR website.

Joining me this morning are Bob Iger, Disney's Chief Executive Officer; and Hugh Johnston, Senior Executive Vice President and Chief Financial Officer. Following introductory remarks from Bob, we will be happy to take your questions.

So with that, I will now turn the call over to Bob.

Thank you, Carlos, and good morning, everyone. Before we take your questions, I'd like to share some updates related to our strategic priorities, including a few exciting announcements. At a time of great change for our industry when a number of companies are contracting, we are operating from a position of strength and building across our company with a continued focus on quality and innovation. We are building on the creative success at our film studios, resulting in the continued emergence of popular new franchises at a level that is unparalleled in the industry. We are building on Disney's value proposition in streaming by combining Hulu into Disney+ to create a unified app experience featuring branded and general entertainment, news and sports, resulting in a one-of-a-kind entertainment destination for subscribers.

We are building ESPN into the preeminent digital sports platform with our highly anticipated direct-to-consumer sports offering launching on August 21 and our just announced plans with the NFL that will expand ESPN's programming and content offerings for fans. We're building on our best-in-class Parks and Experiences businesses with more expansions underway around the world than at any other time in our history.

I'd like to dive deeper into the steps we're taking to drive growth for our company, beginning with our film studios. Our renewed momentum continued in Q3, adding to our popular brands and franchises and further demonstrating their ability to generate ongoing long-term value across our businesses. The live-action Lilo & Stitch recently crossed the $1 billion mark at the worldwide box office, making it Hollywood's first film to reach that milestone this year and Disney's fourth billion-dollar film in just over a year. Lilo & Stitch is on track to become the company's second largest consumer products merchandise franchise this year behind only Mickey Mouse with more than 70% revenue growth compared to last year. Meanwhile, Marvel's The Fantastic Four: First Steps opened to rave reviews 2 weeks ago, successfully launching this important franchise into the Marvel Cinematic Universe. And later in the calendar year, we will release more highly anticipated titles, including Zootopia 2 and Avatar: Fire and Ash.

Turning to our streaming business. Today, we are announcing a major step forward in strengthening our streaming offering by fully integrating Hulu into Disney+. This will create an impressive package of entertainment pairing the highest caliber brands and franchises, great general entertainment, kids programming, news and industry-leading live sports content, all in a single app. By creating a differentiated streaming offering, we will be providing subscribers tremendous choice, convenience, quality and enhanced personalization, while at the same time, continuing to grow profitability and margins in our entertainment streaming business through expected higher engagement, lower churn, operational efficiencies and greater advertising revenue potential.

As we detailed in our shareholder letter, Hulu will now become our global general entertainment brand. And in the fall, it will replace the Star tile on Disney+ internationally. Over the coming months, we will be implementing improvements within the Disney+ app, including exciting new features and a more personalized homepage, all of which will culminate with the unified Disney+ and Hulu streaming app experience that will be available to consumers next year.

The other key component of our streaming strategy is sports. And on August 21, we will launch ESPN's direct-to-consumer offering, making ESPN's full suite of networks and services directly available to fans for the first time. The enhanced ESPN app will be a sports fans dream with key new features planned for launch such as multiview, enhanced personalization, integration of stats, betting, fantasy sports and commerce and a personalized sports center. And fans with subscriptions to the Disney+, Hulu and ESPN bundle will be able to watch ESPN content directly inside Disney+.

In addition, yesterday, ESPN and the NFL announced plans for ESPN to acquire NFL Network and certain other media assets owned and controlled by the NFL. In exchange, the NFL will receive a 10% equity stake in ESPN. This announcement paves the way for the world's leading sports media brand and America's most popular sport to deliver an even more compelling experience for NFL fans in a way that only ESPN and Disney can.

Separately, ESPN and the NFL reached an agreement, which includes expanded NFL highlight rights within multiple fan engagement platforms and more interactive features for ESPN's DTC offering and the ESPN app, including betting and fantasy. ESPN will also gain the ability to sell and bundle NFL+ Premium, which includes NFL RedZone to ESPN DTC subscribers, along with rights to additional nonexclusive preseason NFL games for its DTC offering, both starting in the 2025 season. And an additional agreement extends ESPN's NFL Draft rights with the ability to stream ESPN and ABC's draft coverage on ESPN DTC, Hulu and Disney+. We're also excited to announce that ESPN will be the exclusive home for WWE Premium Live Events, further expanding ESPN's rights portfolio, and we look forward to sharing more soon.

Looking to our Experiences segment, expansion projects are underway across every one of our theme parks globally from a new World of Frozen land opening at Disneyland Paris in 2026 to the Villains and Cars-themed areas at Magic Kingdom to a Monsters, Inc. area at Disney's Hollywood Studios to an Avatar-themed destination at Disney California Adventure in addition to a new theme park coming to Abu Dhabi. And Disney Cruise Line continues to grow as we prepare for the launch of 2 new ships later this year, the Disney Destiny and the Disney Adventure, our largest ship ever and the first to be docked in Asia, bringing our fleet to a total of 8 cruise ships operating around the globe.

Taken in their totality, our efforts across the entire company reinforce that Disney operates in a league of its own with a robust portfolio of growth businesses that work seamlessly together to generate value, supported by a deep library of beloved IP and enabled with cutting-edge technology. With ambitious plans ahead for all of our businesses, we're not done building, and we remain optimistic about the company's trajectory.

And with that, Hugh and I would be happy to take your questions.

Thanks, Bob. As we transition to Q&A. we ask that you please try to limit yourselves to one question in order to help us get to as many questions today as possible. And with that, operator, we are ready for the first question.

[Operator Instructions] Our first question today comes from Ben Swinburne with Morgan Stanley.

A lot of news to digest this morning. Bob, I guess I'd love to hear a little more on the NFL relationship. Clearly, strategically aligning with that league is good for ESPN. I think that's pretty obvious. But you gave up 10% of the network from a value point of view. How does this agreement and the content you're getting help Jimmy grow that business faster? Can you talk a little bit about how you see this playing out in terms of revenue growth, subscriber growth and the benefits you think it means to the business? And I just wanted to check with Hugh, is the '26 guidance that you've given in the past still intact, so double-digit EPS growth and low single-digit growth OI at sports, given all the stuff we learned today?

Ben, there are a number of aspects of these deals, and I say plural because there are 2 -- they are separate deals, one to license content and another to basically cover the asset exchange. Let me start with the fact that the result of these agreements will give ESPN more games, more NFL games than they've ever had before. Basically, there will be 28 windows for NFL games, which is an increase over what we've had before. Previously, there were 22. That obviously is of major significance in terms of both ESPN, but also in terms of the audience. We're basically giving ESPN -- we're giving NFL fans more opportunities to watch NFL games than they've ever had before.

Because of the acquisition of the NFL Network, not only will we continue to distribute it from a linear perspective, but it will be fully essentially included in or ingested within the ESPN direct-to-consumer app. So those games, the 7 games that are on -- will be on the NFL Network will all be part of ESPN's direct-to-consumer offering. I think that's obviously where the major value will come. But in addition to that, there is a number of other elements, we're calling features and functionality that will improve the quality of the experience and actually grow the quality of experience of the fan on the ESPN app. And that includes smooth integration with fantasy, with betting and a combination of our fantasy businesses, by the way, with stats, with the ability to basically personalize sports center with NFL highlights, I could go on and on a commerce opportunity off of the ESPN app to buy NFL merchandise.

All of it added up, obviously, gives ESPN the opportunity to go forward with a more compelling app. But I should also note that from an economic perspective, even with this exchange of assets and the fact that the NFL obviously will be paid a dividend from ESPN's earnings, it will be accretive in the first year that after it closes. And I think that's significant. So that the revenue that we will derive from distributing the NFL Network and from distributing other NFL properties will obviously increase our revenue and increase our operating income for the ESPN business. That does not even factor in a potentially lower churn rate for the ESPN app once we go to market and once the NFL games are all included. And obviously, there's advertising value as well.

I probably could go on and on because -- but there are many different elements to this, but it's extremely exciting. I've talked about it being one of the most important steps ESPN has taken really since they went from half a season to a full season of the NFL back in 1987.

Yes. Ben, it's Hugh. Just as a reminder, we try to stay pretty disciplined about doing guidance for the following year on the fourth quarter call. The one thing I would say is given we have the NFL deal and the WWE deal, if we had something of substance in terms of a change to that, we'd be sharing that with you right now. The fact that we're not sharing with that should tell you that we don't see it as materially different. And as Bob noted, we feel great about the NFL deal. It likely won't close until the end of next calendar year, but it will be about $0.05 accretive before purchase accounting. So we certainly feel good about the financials of the deal.

Our next question comes from Robert Fishman at MoffettNathanson.

Bob, can you talk more about how you can accelerate DTC growth by fully integrating Hulu into Disney+ and the related subscriber and advertising revenue opportunities? Just curious also, what does that mean for the future of Hulu as a stand-alone app? And then for Hugh, if I can, just again, back to the guidance, the strong DTC profitability and raised full year guidance that we saw there, any updated thinking to your double-digit margin target there on DTC, especially with the opportunity to take out costs at Hulu now?

I think the way to look at the combination is to start with the consumer. You're going to end up with a far better consumer experience when those apps are combined by combining all of the program assets of both apps, both card apps and obviously, with an improved consumer experience comes the ability to lower churn, which is obviously something that we're very, very focused on and committed to doing. We obviously will deliver efficiencies when these are together. They'll be on one tech stack as, for instance, one tech platform. We already sell the advertising together, but this will give our sales organization a chance to package them far more effectively than they have before.

I imagine down the road, it may give us some price elasticity as well that we haven't had before. And it also provides us with a tremendous bundling experience because when you have the one app that has a significant amount of all of the Disney and the other Disney-branded programming with the general entertainment programming bundled, for instance, with the ESPN direct-to-consumer app, I think you end up with a proposition from not only a consumer perspective, but also from our perspective that's far better than what we've had before.

Yes. And Robert, no update on the guidance versus what we've talked about in the past. As I said, we'll talk about '26 guidance on the Q4 call, but no update on DTC at this point.

Our next question comes from Michael Morris at Guggenheim.

So, I know you don't want to talk about '26 yet, but I have to ask, on the Experiences side, your guide for the fourth quarter implies that you'll be exiting the year at a high in terms of operating income growth. So as we look to fiscal '26, can you give us any preview on how to think about any puts or takes with respect to the rate of growth next year that might be informed by the fourth quarter guide?

And then secondly, on the stand-alone ESPN app, I think there's a perception and a fear that when you launch an app like this, it's sort of all or nothing with respect to how people sign up. But clearly, you're going to make it available to your pay TV partners as well. So I'm curious if you can talk about your expectations for engagement with the app from people who come from outside the ecosystem like cord cutters versus those inside and how it benefits you to have people who pay for pay TV to also engage with the app.

Okay. Let me talk about the '26. It will -- I'm sure, shock you, Michael, that I'm going to defer on talking about '26 until the Q4 call. The only thing I would remind you is we are launching a couple of ships at the tail end of this year and into next year. So we'll have the cost associated with launch on those in the earlier part of the year, which obviously impacts the line of business. Regarding engagement generally with the deals and the ESPN app, look, we think it's all going to be additive. And as a reminder, our goal with ESPN is to basically reach sports fans as they choose to be reached. So if they choose to be reached through the ESPN app, great. If they choose to be reached through the Disney+ Hulu app, great. If they choose to be reached through cable, great. Our goal is to engage them where they are.

And let me just add to that. If you don't mind, we're asked a lot about linear versus streaming. We're at a point, given the way we're operating our businesses where we don't really look at being in the linear business and the streaming business, we're in the television business. And what we're doing is we're giving our customers or our viewers a chance to watch our programming really, as Hugh just said, wherever they want. If you're watching ABC primetime shows on the linear channel for great through a multi-television provider, fantastic. Or if you want to go to streaming and watch it on the Disney+ and Hulu app, that's fine as well. The same is true for National Geographic, for FX, for the Disney Channel. And that will also be true for ESPN.

Now I will say that the features and functionality of the ESPN app will have more on them or in the app than obviously any linear channel can provide. It will really be a sports fans dream in terms of everything they'll be able to do and watch on that channel. There will also be a far greater volume of sports covered on the ESPN app than is covered on their linear channels. But we are, generally speaking, as a company now operating these businesses completely as one, and that gives us an opportunity to not only run them more efficiently, but to aggregate sub fees and advertising revenue across a very, very broad range of television distribution platforms.

And our next question comes from Steven Cahall with Wells Fargo.

So first on Experiences, I think fiscal year-to-date OI is up about 7%, and you raised the guidance to 8%. Hugh, I think on CNBC this morning, you were talking about the strong domestic per caps, which accelerated nicely in the quarter. So could you give us a little color as to what you're seeing in both domestic parks and cruises that's driving some of that acceleration into the fiscal fourth quarter? It sounds like things there are pretty good, but there's always a little bit of economic uncertainty.

And then a different fiscal '26 question that maybe you can address. So you have some new sports rights coming on. How do we think about overall cash content spend next year? My guess is sports are going to be going up with things like WWE. And then, of course, content is the lifeblood of the company. So any good way to think about content spend as we look out for the next 12 months or so?

Yes. A couple of things. In terms of Experiences, obviously, we really have a terrific portfolio of Experiences businesses. As I mentioned this morning, Walt Disney World just had a record Q3 revenue number as we emerge from last quarter. So we certainly feel great about that. In addition to that, the Disneyland Paris business, we expect to do very well. As a reminder, we have some easier overlaps due to the Olympics last year. But in addition to those laps, the business is performing strongly. China, as we've noted on past calls, is a little bit challenged, not so much from an attendance perspective, but from a per caps perspective as there's some stress with the China consumer.

And then in addition to that, the cruise ships are doing extremely well right now. Forward bookings look great, and we're running at very high occupancies in terms of the cruise ships. In terms of thinking about bookings for Experiences for the fourth quarter, right now, they're up about 6%. So we certainly feel positively about that as well. As regards to cash content spend for '26, I know you're going to be shocked at this, but I'm going to defer on talking about that until the Q4 call.

Our next question comes from Jessica Ehrlich with Bank of America.

One follow-up on Experiences and then maybe move on to content. So on Experiences, I know everyone is trying to get some guidance for next year, but you do have a ship launching in Singapore, a large ship. Can you talk about how you see the impact on that moving to another region, another side of the world and how you think about the impact of that ship on pretty much all of Disney's businesses? And then on content, you've given positive commentary, but the guide indicates very tough fourth quarter. Can you talk a little bit about the ins and outs of what you see in content in the year ahead?

Regarding the ship in Singapore, launching out of Singapore, Jessica, that's the biggest ship that we've ever built. And to give some perspective, our big ships today sail with about 4,000 passengers each. This will sail with about 7,000 passengers. We've said in previous calls that sales when we went to the market and started selling trips on this ship were extremely robust, sold out very, very quickly over, I think, the first 2 quarters of operation. This will give us an opportunity to basically sell or float the Disney brand in all of its glory into a region that we think has huge Disney brand affinity and it creates a huge opportunity for us. It's a floating essentially ambassador for the Disney brand because if you've been on any one of our ships, particularly the new ones, we effectively use our IP built into the entire experience. And so I think this is -- will create a great opportunity for us in Asia, but particularly in Southeast Asia.

Jessica, yes, and regarding your question on content, I assume you're asking generally about CSLO and entertainment in Q4. The thing I would remind you of is we will be overlapping Inside Out 2 from last year, which is obviously a tough comp. But all of that is considered in the guide that we gave you of $585 million for the overall company for the year.

Our next question comes from David Karnovsky with JPMorgan.

I wanted to follow up on your comments regarding theatrical franchises. Disney has had great success recently with sequels and reboots. I'm interested, though, in how you think about launching new IP into today's exhibition market. Is it a fair comment that that's a tougher proposition than in the past? And then separately for Hugh, it might be early, but can you discuss or even quantify potential tax benefits at Disney from the Big Beautiful Bill and return of 100% bonus depreciation?

Thank you, David. We continue to be focused on creating new IP. Obviously, that's of great value to us long term. But we also know that the popularity of our older IP remains significant and the opportunities to either produce sequels or to basically bring them forward in a more modern way as we've done or convert what was previously animation to live action like we're doing with Moana in 2026. It's just a great opportunity for the company and supports our franchise. So I wouldn't say that we've got a priority one way or the other. Our priority is to put out great movies that ultimately resonate with consumers. And the more we can find and develop original property, the better, of course.

We are developing original property under the 20th Century Fox banner and under the Searchlight banner. And look, you could even argue that Marvel continues to mine its library of characters for original property, even though, for instance, there have been Fantastic Four movies before. We kind of consider the one that we did an original property in many respects because we're introducing those characters to people who were not familiar with them at all.

Yes, I got that. And regarding tax, I assume you're asking about the impact of OB3. Basically, from a book tax perspective, it won't have any material impact on the company. From a cash perspective, it will be a positive to us. And again, we'll talk about that more on the Q4 call, but we do expect a positive cash tax impact, which obviously benefits us from a cash flow perspective.

Our next question comes from John Hodulik with UBS.

Maybe just following up on the ESPN launch. Given the attractive pricing for the service from an ESPN DTC bundle standpoint, can the launch of the ESPN platform accelerate growth on the D2C side, either from a subscriber standpoint or from an engagement standpoint?

The answer is absolutely. We won't predict exactly how much. But for $29.99, you can get Disney+, Hulu and ESPN, which is an incredible, incredible bargain for the consumer. And we would hope that, that will enable us to grow our sub base. Additionally, with ESPN and all of its programming bundled with Hulu and Disney+, we fully expect that engagement will increase as well, which we know is one of the key ways that you can reduce churn. So we're very excited about those prospects. The other thing we haven't even touched upon is that with the NFL deal, we have the ability to bundle NFL+ Premium service, which includes RedZone digitally, and we'll bundle that with the trio bundle of Disney+, Hulu and ESPN and with ESPN, and that's also an opportunity to lower churn, increase engagement across the -- basically the apps that we'll be selling.

And our next question today comes from Kutgun Maral with Evercore ISI.

I had a follow-up on the Cruise Line, I mean not just the Disney Adventure, but more broadly about the business where you've laid out a transformational road map with the fleet set to double over the coming years. It feels like we're nearing a major inflection point, particularly with the Treasure launched last December and both the Destiny and Adventure coming online later this calendar year. As we work through trying to better understand the financial implications, can you help frame the opportunity ahead? Do -- I'm not trying to tease out 2026 guidance, and I understand that it might be too early to give specifics and that there are still unknowns around pricing, maybe cannibalization and margins.

And I'm not sure if we should look at the current fleet's economics per ship or maybe state room and apply them to what you have coming ahead. But the point is more that even with conservative assumptions, the potential operating income contributions look quite meaningful. So I would appreciate any views you could share.

Hugh, I'll let you handle the economic side of that question. Let me just point out a few, I think, salient points regarding the expansion of the cruise ship line. First of all, we've discovered that many of the people who sail on our current ships have such a great experience that they are the first to want to sail on our new ships. So interestingly enough, what we're getting is, in effect, repeat visitation onto new ships. And when we're building a bigger base of consumers, it's also one of the best experiences that we offer across our Experiences business. So that's one way to look at it.

The other way to look at it, which I referenced with regard to Singapore, is that there are many destinations in the world that we haven't visited. And this gives us an opportunity to not only bring our brand to those destinations, but to attract customers from those regions who may want to sail in their region. And so by expanding, we feel we expand the business in terms of our access to people around the world. And we also give people who have sailed on our current ships an opportunity to sail again, but with a different experience because they're on a new ship.

Right. And from a financial perspective, the best way to think about it, I think, really is in the multiyear guidance that we gave you back last fall for the Experiences business. Obviously, we don't break out cruise ships, but we did contemplate all of the builds that we had coming on as a part of providing that guidance. The thing I can tell you in addition to that is, and as Bob noted, our cruise ships continue to be incredibly well received. As we sit here today, we're already basically half booked out for all of next year, and the newer ships are even higher in that regard. So we feel terrific from the perspective consumer receptivity to our new offerings.

Our next question today comes from Peter Supino with Wolfe Research.

I wondered if you could comment on engagement trends regarding of your existing subscribers on Disney+ and Hulu, and how your current DTC strategies could contribute to those trends? And then a related longer-term question, not a 2026 guidance question. Your DTC segment reported 6% operating margins. As DTC surpasses your 10% margin objective, is there an opportunity to accelerate DTC content spending for the sake of market share over the long run?

Well, I'll take the first part. Maybe I'll take the second, too. When we combine -- when we gave people an opportunity to have a more seamless experience between Disney+ and Hulu, we saw engagement increasing. And we would hope that when we take this next step, which is basically full integration that, that engagement will go up even more. In addition to that, we've implemented a number of technological improvements that are designed to increase engagement. And we're really pleased with what we're seeing already, but we also know that it's still a work in progress, and we have a lot more work to do. For instance, just the strength of our recommendation engine. We're also experimenting like crazy, where we're basically trying different elements out on consumers and getting data back from them in order to figure out what works the best. That includes basically the homepage experience and basically what they see when they open up an app.

In addition, we've added streams, which was a technological advancement. There are some great streams you can watch, I think, 30-some -- [ 35 ] seasons or whatever it is of The Simpsons on one stream as a for instance, that's also something that increases engagement. There's an ABC news stream that you can watch. So there's some news on all the time on the service. So what we're basically doing is by one, combining them, we hope to increase engagement more. Two, with all the technological advances, we're increase -- we will increase engagement more.

In addition to that, as it relates to content spend, I'd say that from a domestic perspective, you shouldn't expect that we need to increase the spend on content significantly. Where we believe we should be investing is to grow our international businesses. So one, we're going to brand the general entertainment from Star to Hulu across the world, for instance. Two, these technological advancements will obviously help in markets where our engagement has not been as high as they need to be. Three, we probably will invest in very selected markets internationally where we really feel there's a potential to grow our bottom line, to grow subs, to grow advertising revenue and to grow our bottom line.

Yes. And the only thing I'll add to Bob's comments are -- look, our objective with this business is to maximize OI over time through a growth-oriented strategy, not through cost management, although we'll manage cost effectively, but through growing this business, we have a significant opportunity in the U.S. to grow through higher engagement. And internationally, we have a significant penetration opportunity. As we grow engagement and reduce churn in the U.S., that presents opportunities from a marketing spend perspective some of which can be basically reinvested into international content. And our intent is to do that through a rifle-shot approach with specific markets. So we intend to be deep rather than broad in terms of the way that we do that in a number of markets around the world.

As a result of that, I would tell you, we certainly don't intend to stop at 10% margin. We think there's still lots of margin opportunity once we hit double digits, but we're going to do it through a growth-oriented strategy, not through a cost-oriented strategy.

Our next question today comes from Mike Ng with Goldman Sachs.

I just have one on domestic theme park trends. The per caps in the quarter were up 8% year-over-year. I think that was the best growth in over 2 years. I was just wondering if you could talk about whether the per cap growth was impacted by the mix of attendance between local, out-of-state, international? And were there any divergent attendance trends between those cohorts of domestic park patrons just given the noise around competitive park openings and international visitation to the United States?

Yes. Mike, in terms of the mix of visitors, that's obviously one of the factors that plays into per caps. That said, the ones that you mentioned specifically, international, nothing material going on there. It's always going to be a mix of sort of local versus visitors from elsewhere. And there isn't a particularly material trend that's worth trying to model or worth trying to note. Overall, we feel good certainly about the per caps.

But frankly, we feel good about the attendance as well. In light of the fact that there's a competitive offering in the marketplace, the fact that attendance came in as well as it did is something that we feel terrific about. So overall, as we've talked about in the past, the intent is to grow through both increased attendance and increased per caps in a balanced way, and I expect that's what we're going to continue to do.

And our final question today comes from Kannan Venkateshwar with Barclays.

Bob, with respect to the sports offering, in terms of your go-to-market strategy, what we see right now, how close is that to the potential end state? And is there an opportunity maybe to tier the product now that you have products like RedZone, for instance, as a pay-per-view offering or a separate tier or even bundling with others like FOX launching their own sports offering, for instance, is that an opportunity for you to bundle other sports offerings in the market and consolidate streaming more broadly?

Yes. We believe there may be opportunities for us to bundle other company sports offerings. We've actually had some discussions with some other companies on doing just that. Nothing to report on that. But, obviously, we're not only interested in growing engagement and growing our own subs, but we're interested in serving consumers better as well. And the more sports can be offered in one destination for the consumer or ease of -- if we can improve the ease of use for consumers, ease of finding things because as a devoted sports fan, I often have to work to try to find where -- what platform sports are on. If we can help that -- if we can help consumers in that regard, we're certainly going to try.

Okay. Thanks, everyone, for the questions. We want to thank you again for joining us this morning and wish everyone a good rest of the day.

Thank you. This concludes the conference call. You may now disconnect your lines.