Q2 2020 Earnings Call

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Ladies and gentlemen, today's conference was scheduled to begin shortly please continue to standby. Thank you for your patience.

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Ladies and gentlemen, today's conferences scheduled to begin shortly please continue to standby. Thank you for your patience.

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Ladies and gentlemen, thank you for standing by and welcome to the Walt Disney companies fiscal 2022nd quarter Financial results Conference call.

But it's time, all participants ones or no listen only mode. After the speakers presentation, there will be a question and answer session.

Ask a question during the session, you'll need or per store one on your telephone.

Please be advised with today's conference is being recorded.

If you require any further systems. Please for a star zero Oh now like to hand, the conference over to your speaker today, Mr Little singer.

Senior Vice President of US relations. Thank you. Please go ahead Sir.

Good afternoon, and welcome sort of Walt Disney companies second quarter 2020 earnings call.

Or press release was issued about 25 minutes ago. When it's available on our website W.W.W. dot isn't he dot com for reflection registers.

Today's call is also being webcast and the web cast on the transcript will also be available on our website.

We hope you are all staying safe and we realize that most of you are joining us today from your homes and given Los Angeles County seat for at home order, we're hosting today's call remotely.

So joining me from their homes are Bob Iger, Disney's Chairman box shape, Disney's Chief Executive Officer, and Christine Mccarthy Senior Executive Vice President and Chief Financial Officer.

Following comments from Bob Iger, Bob <unk>, and Christine will be happy to take some questions. So without let me turn the call over to Bob Iger. She got started.

Thanks, low and good afternoon, everyone.

Obviously much has changed in the world since our last earnings call and the challenges, we're now facing or precedent it.

So many other companies and industries. The pandemic has hit us whores and both bothering Christine walk you through the specifics.

However, as someone who's been around for Awhile and led this company through some really tough days over the last 15 years, including economic downturns natural disasters and other unforeseen events.

Absolute confidence in our ability to get through this challenging period and recover successfully.

Walt Disney Company has demonstrated repeatedly over it's nearly 100 year history that it is exceptionally resilient and I believe this time would be no different.

Wizard this crisis with a strong hand, and exceptional management team now led by Bob Schieffer.

And as we said in February when Bob was announced as C.E.O.

He and I continue to work in partnership in support of the company's objectives and to ensure a smooth and successful transition.

As you would expect when dealing with a challenge of this magnitude the entire team is working closely together taking in all hands on Dec approach to address the difficult issues facing.

Of course, one key to our resilience is the strength of our brands and the strong emotional connection people have to that.

<unk> Pixar Marvel A.B.C.E.S.P. and Star Wars.

<unk> recent studies have shown we've maintained that connection with consumers throughout this crisis.

We also have a tremendous collection of assets and beyond that what we create there's never been more necessary or more important than right now <unk>.

In fact, it's quite possible what we create is appreciated now more than ever because people will find comfort and inspiration in our messages of hope and optimism.

This is the same reason, we believe people we will resume familiar activities. Once this crisis ends.

They miss doing the things they enjoy things that make them feel happy and connected with family and friends.

Whether it's going to movie theaters to see our films were visiting our theme parks around the world watching lives sports on E.S.P.N.

People want good news they want to experience joy and the feeling of togetherness and for all these reasons, we will continue to tell stories that uplift and enrich People's lives.

Well much of our operations are shut down we've been fortunate to keep parts of our creative pipeline active.

Including a number of writing and development projects well also continuing post production of work for a media networks are studios in Disney plus.

I've been working with our creative teams across the company and I am extremely excited about what's in store.

I have no doubt, we'll get through this but it will take some time.

Before I turn it over to Bob and Christine to talk about the quarter and the strategy going forward as answer your questions I want to take a moment to express my sincere gratitude for all of the medical professionals across our country, we're fighting valiantly to save lives and to everyone, helping to flatten the curve by.

Being the advice of health officials and others.

It's all making a difference on behalf of Bob and myself I also want to take this opportunity to think all of our employees around the world who continue to show incredible ingenuity commitment patience and understanding during these trying times.

Even in the face of the diversity their dedication to our company and our mission is on wavering and we couldn't be more proud of them and was that oh handed over to Bob.

Thanks, Bob and good afternoon, everyone I hope, you're all doing well and staying safe.

When I stepped into this new job, two and a half months ago.

None of us could have imagined the suffering and sacrifice that we're now seeing around the world.

This devastating pandemic is like nothing most of us have ever experienced in our lifetime.

Had a profound impact on millions of lives physically.

Psychologically.

Financially, causing tremendous hardship and loss.

And just about everyone has been affected in one way or another either personally or through someone they know a friend or family member neighbor or calling.

Fortunately I missed the adversity.

We see the best of humanity demonstrated to to inspiring accent compassion and selflessness.

From the courageous healthcare workers caring for people on the front lines in hospitals across the country for first responders and others, providing essential services throughout communities.

Or grateful for deeply appreciative of their efforts.

Here is the as Bob mentioned were also grateful to our own employs starting with our local and National A.B.C. news teams, providing critical in factual information around the clock.

E.S.P.M. team, providing compelling programming and the absence of life sports.

Our global security personnel and key staff, who are safeguarding and maintaining our parks in resource, they're doing a phenomenal job and we could not be more proud of them.

As you know Disney like many other companies has experienced widespread disruption.

In mid March we closed our domestic parks in hotels indefinitely.

Suspended our cruise line.

Halted film and T.V. productions, and shattered our retail stores.

And while these where necessary steps to ensure the safety and wellbeing of our guest and employs.

Our businesses had been hugely impacted.

And the second fiscal quarter, adjusted E.P.S. sell to 60 cents a share from $1.61 a year earlier.

Primarily due to the suspended operations I just outlined.

Christine we'll talk more in depth about our results for the quarter and the ongoing financial impact of coded magazine.

Before she does I want to share a few thoughts and disruption we're seeing across her company as well as our confidence in our ability to weather the storm.

Well, it's too early to predict when we'll be able to begin resuming all of our operations. We are evaluating a number of different scenarios to ensure a cautious.

Sensible and deliberate approach to the eventual reopening of our parks.

As you know our parks have been closed around the world Shanghai in Hong Kong since January.

Tokyo since February.

And our US Impairs park since mid March.

The approach we take May include implementation of guess capacity and density control measures as well as health and prevention procedures that comply with state and federal guidelines.

We are seeing encouraging signs in a gradual return to some semblance of normalcy in China.

And in light of the lifting of certain restrictions in recent weeks and the successful reopening of our park adjacent retail and food and beverage area does the town.

We and our government partners Shanghai Shandy group.

Plan to open Shanghai Disneyland on May 11th.

We will take a phased approach with limits on attendance using an advanced reservation an entry system.

Control guess tends to be using social distancing and strict government required health and prevention procedures.

These include the use of masks temperature screenings and other contact tracing <unk> early detection systems.

Moving the media networks E.S.P.N. has truly stepped up in the absence of life's course, finding new and innovative ways to deliver compelling content.

Fans want.

This included releasing two months early.

Highly anticipated 10 Park Al Q. series on Michael Jordan into Chicago Bulls, the last dance.

Series, which continues to amaze seventies is the most viewing E.S.P.N. documentary However, and currently ranks as the number one program in America amongst all key mail demos since sports halted.

And also took what has historically been and engaging life event entered into a virtual one with the NFL draft. This resulted in a bigger audience than ever before with a record 55 million plus viewers over the three day event.

The draft was it particularly impressive technological feat driven by more than 600 remote camera feeds from homes across the U.S.

When you look at the impact of these two events E.S.P. and April Prime time audience was up 11% persons last year. Among adults 18 to 49 in fact get rank to the top cable network. Among this key demographic.

Forward. He has pin is going to be rolling out three new films as part of its award winning 30 for 30 series.

We're also going to era virtual 2020 Espys on June 21st.

Additionally, E.S.P.N., we'll be bringing back several more of its markese studio programs beginning the week of May 11th this will expand their lives and quick turnaround studio programming to 11 straight hours each weekday.

Sports will come back strong and when they do we believe he S.P.N. is best positioned to benefit with more offerings that anyone else.

And if it's a gradual process were sports for term for a period without spectators. In the stands we can count on E.S.P.N. to bring the same level of innovation that we saw with the NFL draft and continue to deliver a great experience for sports fans.

On the studios side were incredibly excited butter upcoming Slater films, However, which theaters closed and our production shut down due to Kobe 19, we've had to reschedule a number of release dates for 10 point movies.

These include Disney's Milan for July 24th.

Marvels Black widow for November 6th.

Pixar Soul on November 20th and 20th centuries, pre Guy said for December 11th.

As many of you already know Artemis fowl originally slated for a theatrical run will debut exclusively and Disney plus starting in June 12th.

As we said accompanies top priority and our key to our growth is our direct to consumer business.

And I'm pleased to say that the response to Disney plus in particular has exceeded even our highest expectations. We have been thrilled with the performance of the service since our initial launched in November and we continue to expand into other markets.

In late March as planned and despite coping 19, we had an incredibly successful launch at Disney plus in Western Europe, followed by a highly successful launch in India.

He announced in early April that in just five months, we had surpassed 50 million subscribers globally, a significant milestone for us we've been quite pleased with the gross that we've seen in the four weeks since then and there's more to come.

Disney plus we'll begin rolling out in Japan in June followed by the Nordics.

Belgium, Luxembourg, and Portugal in September and Latin America will follow towards the end of the year.

It's robust collection of librarian original content available on Disney plus continues to grow.

Including with Disney's frozen too and picks ours on word which were released early as a special offering for families as a shelter at home.

Yesterday's SBO de <unk> episode nine the rise of Skywalker.

And the new behind the scenes documentary about the making of one of Disney plus is most successful series the Mandel, Oregon, along with the fall premiere of National Geographics original series the right stuff based on the book by Tom Wolfe about Masters project Mercury.

This quarter Ooh solve a successful launch of the effects on who.

Nearly 45% of who's subscribers has accessed library current and original content from the F.X. Network service.

Also who was strong original series continue to perform extremely well as evidenced by the critically acclaimed hit series little fires everywhere amongst others.

Who had 32 million total subscribers at the end of cute too.

Where normally proud of what we've accomplished today and we're optimistic for the future.

As I said earlier, our businesses have experience considerable disruption as a result of the cobin 19 pandemic is forced us to implement a variety of measures to manage the short and long term financial impact on our company.

The first was a substantial reduction in senior executive compensation companywide, which will remain in fact until we see a substantive economic recovery.

We were fortunate for the first five weeks to be able to pay full salaries to those employees were unable to perform their duties.

However, with no way to project when this crisis will and we made a very difficult decision to begin furloughs on April 19th.

Unlike lay offs for low process allows impacted workers to remain as did the employees, while continuing to receive their full health care benefits paid for by the company.

We are fully committed to getting our employees back to work as quickly as the current situation in Laos.

While these were not easy decisions I do believe they have been the right ones given the unprecedented challenges that we're faced with.

Now before I turn it over to Christine Let me just reiterate what Bob sex and that is Disney is an exceptionally resilient company.

With the great management team and thousands of talented and dedicated employees.

We continue to deliver the exceptional brands franchises and storytelling that consumers around the world have demonstrated a tremendous affinity for and we are confident that we will emerge from this crisis in a strong position.

With that alternate over Christine to talk more about the quarter and then we'll be happy to answer your questions.

Thanks, Bob and good afternoon, everyone. He's are truly unprecedented times and the coping 19 pandemic has affected our company and a number of significant ways from a financial standpoint, we estimate the adverse impact of coated 19 related disruption on our second quarter operating income with as much as.

$1.4 billion with the majority of that impact at our parks experiences and products segment.

As a result, excluding certain items affecting comparability earnings per share from continuing operations for the second quarter for 60 cents.

Box shape. It highlighted a number of steps we have already taken to mitigate the impact of the pandemic on our financial performance.

We have also been very focused on strengthening our liquidity position to make sure we have adequate resources to fund our operations during this crisis.

Balance sheet and liquidity remains strong.

Those who have followed the company over the years no that we have historically taken a pregnant approach to managing our balance sheet and liquidity. So despite the current business challenges. We believe we start from the position of relative strength.

We took proactive and decisive steps during the quarter to further enhance our liquidity position like issuing $6 billion have turned that which contributed to a cashing cash equivalent its balance of $14.3 billion and the quarter and a week. After the quarter ended we issued another $925 million.

Term debt.

Last month, we closed on the new $5 billion 364 day Bank facility, which combined with our existing credit facilities of 12, and a quarter billion dollars provides us with total credit facility capacity of 17, and a quarter million dollar.

Oh, no that the 12 and a quarter billion dollar credit facilities also served to back stop our commercial paper program.

We are evaluating a wide range of scenarios with respect to the potential ongoing impact of the coping 19 pandemic on our businesses well prudently managing cashed out flows and overall, we feel competent and our ability to managed through the crisis.

We continue to actively evaluate additional allegations strategies to position our company to emerge from this crisis with the financial flexibility necessary to get back on a growth path.

From a cash flow standpoint, the board has made the decision to forgo payment or the semi annual dividends for the first half of the fiscal year, which would have been payable in July.

This is preserved about $1.6 billion in cash assuming we had held the dividend constant at 88 cents per share.

We also identified opportunities to reduce our capital spending and we now expect total cat that for fiscal twentytwenty to be about $900 million lower than our prior guidance for $400 million below prior year, driven primarily by paused construction and refurbishment.

Work due to the temporary closing of our parks.

While it is still too early to consider more specific implications for capital spending and physical 2021, we remain confident in our investment decisions and the resiliency of our businesses.

Prior to the disruptions caused by the covert 19 pandemic with the exception of Hong Kong Disneyland the rest of our parks in experiences businesses or trending well ahead of prior year.

As we had previously disclosed Hong Kong Disneyland faced challenges you to significant declined and visitation from China and other parts of Asia.

Attendance at our domestic parks was down 11% in the second quarter.

Oh remind you that the Disneyland resort clothes on March 14th and Walt Disney World close March 16th.

We estimate the closure of our domestic parks had an adverse impact on attendance growth of approximately 18 percentage points.

Per capita guess spending during the period the parks were open what's up 13% on higher admissions merchandise and food and beverage spending.

Per room spending at our domestic hotels was up 6% and occupancy was down 16 points, 77%, which reflects 813% decline and occupied Rem nights.

We estimate the closure of our domestic hotels had an adverse impact on occupied running nights of approximately 15 points.

As a result of the unprecedented disruptions to our businesses to to operating income at parks experiences a products was significantly lower compared to to to last year.

We estimate the disruption to our parks experiences and products businesses adversely impacted hew to operating income by approximately $1 billion.

As we look ahead, while we've announced plans to reopen Shanghai Disney Resort, there is limited visibility into the timing of reopening and the conditions under which we can reopen the rest of our parks and resorts cruise ships and Disney stores. However, we believe the strength of our brand.

And our unwavering commitment to the guest experience are valuable assets that will serve us and our guess well once we reopen.

That's studio Entertainment operating income of the lower in the corridor, that's higher T.V.S. baud distribution results at our legacy film studio or more than off step by higher film impairments.

Lower worldwide theatrical distribution results at our legacy film studio and a decline in our stage play business due to the impact of public 19.

Worldwide theatrical results in the quarter were adversely impacted by higher bad debt reserves for receivables do from exhibitors.

And by lower revenue due to the close your theaters around the world in aggregate the performance of T. titles in the quarter, which included frozen too.

Star Wars, the rights of Skywalker, an onboard with comparable the key theatrical titles in Q. to last year, which included Captain Marvel Mary Poppins returns and Dumbo.

We feel the performance of onward was particularly impacted by the covert 19 pandemic given its release date relative to win theaters began to close.

Higher legacy T.V. Espod results were driven by content sales Disney plus including the Lion King Boy story for frozen two and a Latin partially offset by a decrease in sales to third parties.

The 21, C.F. studio business with a positive contributor in the quarter, that's higher operating income from T.V.S. five distribution more than offset an operating loss at worldwide theatrical in general and administrative costs.

Turning to media networks.

Operating income up in the second quarter due to higher results that broadcasting as cable operating income was roughly comparable to queue to last year.

At broadcasting the increase in operating income was due to the consolidation of 21, C.F., largely reflecting program sales and to a lesser extent an increase in our legacy broadcasting operations <unk>.

The increase at our legacy operations was due to higher affiliate revenue.

Lower programming and production costs, partially offset by lower program sales from A.B.C. Studios and higher network marketing costs.

But decrease in network programming and production costs was due to a timing benefit from new accounting guidance, partially offset by more hours of higher costs specials and a contractual rate increase for the Academy awards in the current quarter.

More detail on the new accounting Guidances contained in the 10, q. filing, but I'll note that while the new accounting guidance resulted in lower programming and production expense during the first half of the fiscal year, we expect programming and production expenses to be higher in the second half of the year as capitalized.

Costs are advertised.

Lower A.B.C. studios programs sales reflect the prior year sale of Jessica Jones, and how to get away with murder in Q. to last year.

Total broadcasting AD revenue was 3% higher in the quarter driven by consolidation of 21, C.F. and higher political advertising at our own stations AD revenue at the A.B.C. network was comparable to to to last year.

Table results reflect the consolidation of the 21 C.F. cable businesses, largely offset by a decrease at E.S.P.N. where growth in affiliate revenue was more than offset by higher programming and production costs and lower advertising revenue.

Hi, you're programming and production costs at E.S.P.N. or primarily driven by contractual rate increases for the college football playoffs, and college basketball and costs associated with the launch of the A.C.C. network.

Total E.S.P.N. advertising revenue was down approximately 8% in the second quarter, that's higher rates were more than to have stepped by lower average viewership.

Total viewership was negatively impacted by the cancellation of lives sporting events in the latter part of the quarter, primarily N.B.A. College basketball Championship week.

So far this quarter E.S.P.N. domestic linear cash AD sales or pacing significantly below this time last year, reflecting the current challenges in the marketplace due to the lack of lives sports inventory coupled with limited advertiser demand. However, we had seen a couple a bright spots.

So far this quarter with record viewership for the first six episodes of the last dance our highest rated original documentary of all time.

Additionally, the N.F.L. draft was the most watched ever reaching more than 55 million viewers over the three day event.

And average audience growth of 58% on E.S.P.N. versus last year.

Performance of these two event suggests there was a meaningful pent up demand from fans for compelling sports programming and E.S.P.N. continues to be well positioned to capitalize on this demand.

Total media networks affiliate revenues up 16% and reflects a consolidation of 21 C.F. and growth at both cable and broadcasting the increase in affiliate revenue was driven by 13 points of growth from the acquisition of 21, C.F. and seven points from higher rates partially.

Offset by a three point decline due to a decrease in subscribers, which benefitted by about two and a half points to to launch at the A.C.C. network.

At our direct to consumer International segment operating losses for $427 million higher in the quarter driven by costs incurred to support the ongoing launch of Disney plus around the world and the consolidation of who love.

Disney plus launched and the number of European markets during the quarter, which contributed to a total paid subscriber base of 33.5 million at the end of the quarter.

Yeah, we are very pleased with the success of our real loud in Western Europe in India, including the execution of previously announce deals with some European platforms to distribute the service to all paid subscribers uncertain up there widely distributed peers.

And in India to convert our preexisting subscription based Hotstar service to Disney plus Hotstar.

As we announced on April 8th during the third quarter, we exceeded 15 million Disney plus paid subscribers.

More information about those launches is available in our form 10 q.

Because we executed a number of launches between quarter end and today, we have decided to bring these numbers current.

Dove may 4th we estimate we had approximately 54.5 million Disney plus subscribers, reflecting a subscriber mix generally similar to our mix at April 8th.

Segment result, also reflect the consolidation of an operating lots of who and a benefit from the consolidation of the 21 C.S. International cable businesses.

Results that are direct to consumer businesses had an adverse impact on the year over year change in segment operating income of about $500 million, which came in a little better than the guidance, we provided last quarter.

We expect our direct to consumer an international segment to generate about $1.1 billion, an operating losses for the third quarter.

And we expect that continued investment in our D.T.C. services in particular Disney plus.

Drive an adverse impact on the year for your change an operating income of our D.T.C. businesses of approximately $420 million.

Revenue eliminations increased $1.2 billion and profit eliminations increased $211 million compared to queue to last year, driven primarily by higher interest segment content sales from studio in media networks to D.P.C. I.

And finally, the 21 C.F. businesses, we acquired excluding 21, C.S. staking, who Lou and net intersegment eliminations contributed approximately $460 million in segment operating income in the second quarter.

Consolidating who was operating losses and netting out intersegment eliminations resulted in a positive contribution to total segment operating income of about $200 million.

We estimate the acquisition of 21, C.S. and the impact of taking full operational control, who had a deluded impact on our Q2 E.P.S. before purchase accounting, although it was less diluted than we expected.

This is obviously, a very fluid situation and given the lack of visibility around when some businesses will reopen fully or partially and the conditions under which they reopened we don't intend to provide specific guidance around our expectations for the remainder of the year.

These are uncertain times, and our people and businesses are being impacted insignificant ways.

Despite these near term challenges, we remain optimistic about the long term prospects for our company.

And with that I'll turn the call over to low and we would be happy to take your questions.

Things Christine.

As we transition to the <unk>, let me note, but since we are not physically together. This afternoon I'm going to do my best moderate by directing your questions to the appropriate executive and with that operator, we're ready for the first question.

As a reminder to ask a question you will need a priest store one on your telephone to withdraw your question press the pound key to stand by well, we compiled a q. and a roster.

Our first question comes from <unk> with Morgan Stanley Caroline is now open.

Thank you [noise].

Two questions.

You know the first on the parks.

Completely understand the lack of his ability but is there any way you can help us think about.

Sort of the cash burn on that business I'm, assuming you're close you know food or this is this quarter or even a monthly number just some way to kind of dimensionalize the impact.

On the on the income statement as because you've moved through this a unprecedented situation around the parks would be very helpful.

And then I was curious you know you guys are you're you're probably going to be approaching the the low end of your 2024 guidance on direct to consumer subscribers potentially by the end of a this quarter based on on the growth are saying, but certainly over the next couple of quarters.

Been that fast your Ram and what's happening with people staying at home and screaming more I'm just wondering if that's impacting your plans around investing in the business or if and if you think you'll reach profitability sooner.

Originally laid out.

Thanks, Thanks for your thoughts.

Okay. Thanks, I'm Gonna turn those over to Christine chance for the first and start with the second.

Okay. Thank hi done how are you hope you're doing while on your family's well. Thank you. Let me let me answered the question on parks as best I can as you know we're dealing with the situation that's very fluid and things are changing so the results that you saw four.

For the second quarter reflect approximately two ish weeks of our domestic parks being closed because we closed Disney land on the 14th the world on the 16th and then you had the Asian Parks closed Shanghai closed fully in January on the.

25th Hong Kong closed on the 26, Tokyo, which is a royalty revenue stream that we get that closed on the 29th so the billion dollars that was attributable to the parks business and products for the court or just for that second quarter about.

Billy and you could roughly think of it that the two weeks domestic is a little over half and then you have.

The Asian, or the international parks and cruise, which are the balance. So when you think about Hong Kong, we already had issues that related to their own domestic issues. So we had already telegraph that there would be some softness in Hong Kong and then disclosure at the park just accelerated the losses.

They are in Shanghai had been doing quite well up until the moment that we closed and I'm going to ask Bob shape, because he has any other thoughts that he would like to add to that.

No. It's just that we were doing everything we can to mitigate the impact of the cash for a.

While we're obviously in the situation and we're trying to be as responsible as possible goals short term in terms of you know operating expenses and labor, but also longer term in terms of how we allocate capital.

And then I don't know Bob's you want to start on the second question around Disney plus and then Christine if you want anything feel free.

Yeah.

Sure. We're obviously thrilled with the progress of Disney plus and how we've been able to increase the base. There. We're not really prepared to have data or guidance and certainly wouldn't give andy projections in terms of when we would reach profitability, but we know the in terms of the actual investment in Disney plus that.

New programming hit new programming like the Mandel Lorien, certainly drives that business and so I think you know we'll continue to make the plan to investments into Disney plus we always have with new and exciting programming to drive the subscription rates and retention.

And then I would just add that we are still launching in new markets. So while we have had a really good start to Disney plus we still think it's early and we'll update when it's appropriate.

Okay. Thank you.

And thank you operator next question please.

Thank you are next question comes from let's see a court drawn with J.P. Morgan you're allowed to smoke.

Oh, Thank you very much I have problems honey and say Wow.

Just a cute too quick questions. One <unk> and then a second question just falling upon your comments on that harks I Wonder if you could tell us or speak generally about what capacity.

Cannot great at the park profitably.

See you know when you do open which I now is is very personally can't quite that might mountains domestic hoping was trying to get a sense of what sort of past you think kids could still sort of get you to break even know profitability and then my second question. It's just on on the studios type of business.

<unk> Oh, maybe scattered to be released late July I guess are you comfortable that we think that maybe about well I'd like to be minimal capacity at the theaters you know I guess overall, how much of a consideration Oh second smash compete opening to your decision to forget that we start releasing Phelps as climate.

Alright, Alexia things for the questions Bob tricks like alternate overdue.

Alright, Hello looks the in terms of how we look at our park Reopenings and what hurtle, we need to meet to have that makes sense, we actually look at it as a positive contribution to old overhead and profit in other words, it's not about you know.

Break even point for profitability necessarily but just making a positive contribution at the net contribution levels of so you know what we're what we're thinking is that while every site is completely different that's the approach that we're going to take it can frankly, we would not reopen any park unless we can make at least.

Positive contribution to that overhead and operating profit level.

In terms of the second question in terms of the studio and you know what type of audiences will Milan see when it when it opens up we're going to get a pretty good idea of that because there is a competitive movie that opens up one week before our our film does and at that point, we're hoping that you know there's some returned to assemble subnormal terms.

Of a number of screens that are opening a number of showtime's for the those movies. So our fingers are crossed obviously, that's you know our first big move the the gate, but again between some balance of you know limited number of seats in theaters as social distancing is practiced by the exhibitors.

Combined with what's going to be an incredible pent up demand I <unk> will shortly find out and maybe we'll find out the week before was competitor movie.

Thank you.

Alexia Thanks for the questions. Operator next question. Please.

Thank you are next question cause some dog mitchelson with credit Suisse. Your line is nope.

Oh, thanks, so much two questions as well in a clarification following along the lines of Ben's question, given the crisis has accelerated a shift toward streaming around the world any change in your plan to pursue who international watches next year I could understand reasons to accelerate I could understand that the other the control for the costs of wash.

Who could also you know have you considering delay about the.

Go inside.

When do you think large scale production of like marble films can start back up in terms of principal photography.

<unk> any comments on windows, there's a lot of bugs. These days on launch into you know premium B.O.D. window to try to replace some of the theatrical rubbing it that might be lost the quicker application.

Shanghai reopening the mouth or just for employees were for employees and <unk>. Thank you very much.

Okay drugs tanks, I'm gonna turn those over to Bob shape Buck.

Okay in terms of our interest in Hullo internationally, given everything that's happened you said you can make an argument either way frankly, we long-term are still bullish about who international right now, though given the cash situation and the sort of uncertainty runner overall business. We've got no plans immediately to.

Make any investment in that business internationally, but that again as a short term only because of the Kobe situation that we're that we're sort of faced with and you second question was again.

Production large scale production, Oh large scale production and when will the yeah large get on terms of large scale production, we're going to go through the same process with our productions as we do want to see parks in terms of absolutely guarantee you know guaranteeing that we're going to be responsible in terms of how we put both our own employ.

And other filmmakers that are partners with us as they do these production. So we've got no projections of exactly when we could do that but will be very responsible or in terms of you know mastering. The same type of procedures that we would hope to implement into our parks when we sort of.

Proceed.

<unk> premium B.O.D. window to try to offset any of the sort of implications around restricted restrictions on the actual you don't see in the coming months.

Yeah. So we very much believe in the value of the C.I. trickle experience overall to launch blockbuster movies. As you know we had 70 billion dollar films and calendar year 19, but we also realize that either because of changing and evolving consumer dynamics or because of certain situations like coded we may.

Have to make some changes to that overall strategy, just because theaters aren't open or aren't open to the extent than anybody needs to be financially viable. So we're going to evaluate each one of our movies on a case by case situation. As we are doing right now during this corona virus situation. I think you know that artemus fall is moving over to just be plus.

Than the demographics of appeal that film, which was not originally the plan and but all or other temple movies have been rescheduled theatrically for later in the year. So we very much believed in the power of that watch platform for a big movies.

But you really <unk> guess Andorra employees entering high.

In terms of Shanghai, it's gonna be mass for gas and employees right. The only characters, we'll not where amounts are the phase characters and they'll be at a distance from crowds like.

Thank you.

Drugs. Thank you operator next question please.

Thank you or next question comes from just cut Rice Airless would think America Securities. Your line is now open.

Thank you.

That is okay two questions.

Oh, <unk> speak up a little bit please sure.

The first question is how are you thinking about longer term changes in your business model as a result of this crisis and.

However, you think about that whether it's sports how much you will bid or or how many contracts you need or Conversely is this an opportunity versus competitors cutbacks reciting the business et cetera, and second question is can you reminded us what percent.

Crisis cruise ships were in terms of revenue and operating income.

Since it seems like the last business that will come back can you cancel the orders to be are pending ships that are being adults.

So I'll turn Oh turn the business model question over to a box shape picked up and then I think he and Christine can address the the cruise question.

Okay in terms of you know the future future right and you know the business models, we think that life sports remain incredibly valuable to us and we continue to have an interest in life sports rights given the unique slate of assets that we own.

With E.S.P.N.E.S.P. and plus the B.B.C. and you know we're going to do that though as we always have done in a very disappointed matter you know existing consumer trends play a real big part on how we think about the value was sports rights as they make the transition from linear over to digital and I think it really is.

It's a bit premature to give any specific details on you know what the strategy is other than we're obviously highly interested in those and we think we wanted to make the evolution along with the consumer as they go from linear to digital.

In terms of the cap X. question, obviously, we had a lot a really big plans in the park. So we still continued had big plans those good ideas before coven are gonna be really good ideas after and as Christine send her opening remarks. There are certain you know trimmings that we're doing here and there to be responsible.

From a financial standpoint, but we have such great intellectual property in our from Imagineers over at R.C. Barks. What are the majority of our capital goes have done such a tremendous job of planning out future experiences for I guess that we're just going to go ahead and take a slightly finer tooth comb. If you will through those expenditures.

But essentially a plan on you know investing behind those businesses like we always have and in terms of the cruise ship business. We agree that that will probably be the last of our travel oriented businesses to come back on line interestingly enough long term all of our data in our research shows.

Our gas will be just as interested in cruising with us long term obviously not in the next few months, but old much more resilient than any of the competitive businesses because of that love for Disney and assurance that they feel that they trust our business to act in a responsible way too you know help to the extent.

Possible protect them against you know some of the what was that have played the industry since Kobe this yet.

Christine do you want to just talk about the you know cruise a component about segment.

Sure Jessica you know, we we don't break down our individual businesses within the segment, but so for the percent revenue and operating income given the size of our global parks business. It. It that includes the cruise business and now it includes consumer price.

<unk>, it's a relatively small percentage of operating income and revenue, but that being said and this just builds on some of the things. Bob said you know this is a business that is.

One of our highest rated businesses in terms of get satisfaction and it also had to very high content to repeat the experience. So a lotta people who go on one tend to go back for multiple cruises. So it's also a business when we look at it from an hour lied perspective are Oh I see <unk>.

Active it's it's a very nice returning business, creating value long term for shareholders.

Yeah.

Jessica Thanks for the questions. Operator next question. Please.

Staying queue or next question comes from Michael Natanson with Moffettnathanson. Your line is now.

Thanks, I have to one is I wonder for Bob <unk>, How do you staff the parks in anticipation of an opening what signals do you look for.

What drives your optimization is it is it the number of.

You know basically be experience you want to have measure up to a pocketful opening so any type of signals any type of history, you have to staff up anticipation of an opening that's one and into for Christine in bed and ask them bands question. You were helpful and giving US you know the impact recorded but then you guys furloughed employees.

You know in April so how we're going to answer change you know furloughed employee world. So how how much of the cosby's becomes variable <unk>. So that was my question.

Okay. Thank you for the questions Bob cheaper if you want to start with the first one.

Yeah in terms of the signals, we look for park opening our hypothesis is because of pent up demand that if we open up is something less than 50 per cent of our standard capacity that we're probably not going to have a troubled filling that so whatever level, we stayed that out whether it's 10%, 25% or 50 per cent.

Open you know typical crowds, that's what we'll be able to be able to have that are par. Therefore will staff. Accordingly to you know that type of level whatever that level will be eventually in terms of <unk>, you know optimization and sort of how we'll have approach that obviously.

The labor is a huge component of our costs space and so that will slide with the with the attendance and that's why I said when we're looking at you know the decisions for what that level would be inside the parks in what we're gonna be targeting for it's really looked at as a contribution to net contribution and profit as opposed to see that we're gonna.

You know sort of cover the entire or not therefore that gives us the ability to make our decisions on a variable basis and keep as much of that cost structure variables possible. Obviously, we'll practice a yield strategy overall, just like we always house.

Uh-huh and Christine do you want to take the second question.

Sure Hi, Michael.

You're working on the furloughed employees. So they the impact that we saw on our parks.

Full segment for the for Q2 included fully paying everybody. We continued to do that until in early April when we did for low company wide over 100000 employees, but most of those employees were in the park segment by you know just sheer numbers.

So well they are furloughed, we are still paying their portion of their medical benefits. So they're not out of pocket for any of their benefits. We thought that was very very important to to do.

And we when we think about our costs two for the parks you know we think about it is three levels. There's the fix component, which is depreciation taxes property taxes and insurance the big chunk of that depreciation isn't noncash items. The other two obviously our cash items. Then you have you know the variable costs.

The cost of good good sold and that's where you do have significant flexibility pretty early on on the time curve and then there's another chunk of costs, where we would put in labor and that is what we called semi fixed in their fixed in the short term just looking at how long it took to do what we had to do.

To to for a low employees. Once again, we're not we wouldn't have done it until we had a more information that indicated that the parks would be closed.

For not just a couple of weeks, but we're now I'm in two months.

And it also include then we have more variable costs in that semi fixed and that includes the labor also S.G.N.A. So we've been taking measures there to eliminate whatever cost we can and other operating expenses. So the furloughed employees will benefit you three.

But we've also done things in the S.G.N.A. area that we believe are appropriate given the the the current state of being closed.

Okay. Thanks for the questions. Operator next question. Please.

Thing Q. Our next question comes from stealing cable with Wells Fargo. Your line is now.

Yeah. Thank you just wanted to follow up on parks question and talk a little bit about how you're thinking about contingency plans and sort of brand safety I imagine if you open that far below attendants have you talked about you would have a lot of pent up demand that then you kinda got to decide who gets to come in and what the screen measures are when it seems like a whole kind doors.

I'm just wondering about your willingness to sorta weightings are that the date versus waiting for a a vaccine and then second on who kind of modest sequential growth in the life product, but are who was up a lot can you help us think about how much of that was the pricing versus the AD darker or the subscription versus <unk> and how are you thinking about driving both subs.

And our crew on that product going forward. Thank you, Okay, Bob Cherry pick we'll take the first question about parks and then I'll ask Christina take but who would question.

Okay in terms of sort of contingency plans going forward one of the ways that we're going to deal with this situation in Shanghai and that's no promise that we'll deal with that the same way domestically, but is through data tickets. So that you don't have a whole bunch of people.

Showing up at your gaze and then finding out that yeah. We we started limit by nine A.M. and then they go back just appointed so we're very conscious of that particular oversubscription. If you will relative to demand that we're going to happen. So we'll handle that through either dated ticketing or something very similar.

And on the who are who Steve I think you're really looking at the life T.V., our food that was up 29% year over year and that was because we took a price increase in the quarter and and that's reflected in that 29% increase.

Roughly $15 per sub on the Espod product and actually declined a little bit year over year, but the the one thing I would mention there is there's some seasonality to advertising on Hulu and coming out of the holiday period, which is our first quarter. That's what is reflected in the s. spot.

<unk>.

Yeah. Thanks, Steve Operator next question please.

Thank you are next question custom Jason Bayes net with city your line of snow.

I just had two questions from the queue. One was your decision to continue to pay the sports rights owners, even though there aren't sports that you could just elaborate on that and how long that could endure if sports don't come back soon and then the second one is on the dividend.

Can you just provide a little bit a color in terms of how you were thinking you know what are the major swing factors in terms of not potentially pain.

But I'm beyond just the one dividend, but you've decided not to pay thanks.

Thank you, Jason I will ask Christine should take both of those questions. So.

Hang on sports rights and dividend.

Hi, Jason and I'm impressed that you're already into the 10 q.

On the cash payments paying to the league's we're not going to get into discussing the specifics our various agreements, but what I can tell you is that we are working very very closely with the leagues in the conference partners and we're looking forward to the return of life events and.

And we're just there are an active discussions with them now so I'll just leave it at that.

And on the dividend you know really these are always very very tough decisions, but we are we made a decision for this quarter. We don't have a crystal ball that allows us to see into the future for how long. This disruption is going to keep our businesses.

Closed partially or fully so we'll we'll address the dividend again in the next six months.

Okay very helpful. Thank you.

Streets and things for the questions. Operator next question. Please.

Thank you or next question costs from John Oh, do it with you B.S. airline to smell open.

Hey, great. Thanks, maybe too quick follow ups on the park in the and then a second question first can you tell us what the capacity limitations are on the shutting I Park. When you guys open up our next week number two anything you can tell us about U.S. parks attendance in terms of what percentage.

Of of typical attend do you say say in 2019 drove.

Versus flu trying to get a sensor for how how many other bits, there's our our local versus from say at the state and then second question is is anything you could tell if I'm sort of AD revenue trends in in in April or or the firing back that'd be great. Thanks. Okay. Thank you John Bob do you want to take the.

Parks questions and then Christian and you want to take the trends question.

Sure you got it in terms of Shanghai Disney resorted, our capacity tends to be 80000, a day. The government is putting a limit on that roughly they wants to be at about 30% of that so it's 24000, a day, we're going to actually open up a far below that just.

To have our training wheels on with our new procedures and processes to make sure. We don't have any lines backing up either as guess enter into the park or as they Wade through the park. So we're going to approach it very very slowly, but after a few weeks will actually be up to what the government's guideline is and that that point.

There could be some lifting of even those restrictions of the 30% so there's or the metrics. There in terms of U.S. Park attendees. It really depends on which park you're talking about obviously, the Anaheim park half as much more of a drive in market and lot less folks that stay overnight <unk> stay overnight where.

Orlando has a big predominance of folks that actually families that actually fly into go visit there. So but we have a fairly robust annual pass program and both parks and a big drive in market as well, but it's significantly different in terms of the overnight guests and those that might fly.

In Orlando.

Yeah.

Hi, John and to a into your question on AD revenue. Obviously the did this whole <unk> 19 pandemic. It has had a significant impact on our AD sales I think that's fair to say for anyone in the advertising business on one side of the other and it's really do for us due to the lack of law.

Sporting events and the pulled back from advertisers in categories that are most impacted so we've seen declines in demand from industries like movie Studios restaurants travel tore his retail domestic auto those are all the things that have we're seeing pull.

<unk>, but on the other hand, we've seen some advertisers opportunistically, increasing their spend and some of those industry groups or things like financial services Tech Telecom, you know the D.T.C. or streaming services and also consumer package good.

<unk> Oh all of that the net impact is aid <unk>, what we are expecting as a significant decline in AD sales and we'll see it more at E.S.P.N. because of the lack of lives sporting events, then we will at the broadcast network.

Okay. Thanks Crystal.

John Thank you operator, I think we'll take one more question today.

Thank you our final question custom John Genetics with Wolf Research airline is now open.

Thank you may be one quick one you spoke to live sports and the hope that was talked to see sports come back over the next couple of months.

Depending on timing there could be I guess, a lot hitting and the fourth quarter.

And at the same time, they might not be a lot of script to programming for prime time. So can you talk about your ability to maybe error some of the content that what traditionally be on E.S.P.N. on A.B.C. and how are you thinking about the fall or winter season in terms of programming. The maybe Christine a quick one as a pop the job and you got to send it kind of order of magnitude in terms of maybe <unk>.

Relative to non sports.

On advertising.

Hey, John Thanks for the questions and welcome back <unk>. The first one and then we'll turn it over to Christine.

I think you far executives over at E.S.P.N.S.A.B.C. have shown anything over the last two months. It's the fact that they could be nimble wouldn't be very creative and being nimble. So in terms of being able to toggle between one outlet in another weather's between A.B.C.D.S.P.N.R.E.S.P.N. to.

A B.C. or E.S.P.N.B.E.S.P.M. plus as you know we've made quite a number of changes given to changes in the environment and I suspect that we would be able to do that same toggling going forward into the future depending on what happens in terms of what sports come back how they come back and look at everything essentially through the lens.

Of our guest in our consumers and how they once you enjoy how they can enjoy I also point out to the fact that the N.F.L. draft was such an unbelievable success for us and that is a perfect example of being nimble we had over three nights over 50 million households, which is obviously a huge increase and I think.

That speaks volumes to the effect that are are are cast in our executives over those networks do a phenomenal job and being able to adjust on the fly.

Hi, John in on your question about the order of magnitude of sports versus non sports for AD sales declines as as you may remember, we combined our AD sales into one unit.

Back in 2018, and we are now we have one group who sells across the median network segments. So we haven't really and we don't really intend to break out sports versus non sports. However, I. It is fair to say that sports.

E.S.P.N. is being more significantly impacted and that is you can do the math round that with your expectations, but there's definitely more AD sales decline year over year hitting E.S.P.N.

Alright. Thank you very much okay. Thank god. Thank you John Thanks for the questions and thanks again, everyone for joining us today.

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

Also later today, we will post to R.I.R. website, a document that includes more information about our treatment of interest segment content transactions.

Dinner remarks, we provided estimates of the performance of certain 21 C.F. assets in periods of the prior year.

[noise]. These estimates are based on an analysis of 21 C.F. Records are nonetheless, unaudited estimates are not precise measures of historical results before the acquisition.

Let me also reminds you that certain statements on this call, including financial estimates were statements about our plans expectations were beliefs may constitute forward looking statements under the securities laws.

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

Looking statements are subject to a number of risks and uncertainties natural results may differ materially from the results expressed or implied in light of a variety of factors, including factors contain general annual report on form 10, K. quarterly reports on form 10, Q. and in our other filings with the Securities and Exchange Commission.

Once again, please stay safe everyone. Thanks for joining us today and this concludes today's call.

Ladies and gentlemen, just concludes today's conference call.

You for participating you may now disconnect.

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