DIS
#Thanks, <UNK>ob, and good afternoon, everyone
Earnings per share for the third quarter, excluding certain items affecting comparability, were $1.58, down 2% compared to last year
As I mentioned during last quarter's earnings call, we expected a number of factors to adversely impact our third-quarter results, the largest of which was higher programming expenses at ESPN due to the first year of the new N<UNK>A contract
I'll discuss the impact of these factors in greater detail as I go through the individual segment results
Let's start with Parks and Resorts, where operating income was up 18% in the third quarter, driven by growth in our International operations
Results at our Domestic operations were comparable to Q3 last year
Third-quarter segment results benefited from the timing of the Easter holiday, which fell entirely in Q3 this year, compared to Q2 last year
We estimate the timing of Easter drove an $80 million benefit to operating income, and accounted for about 8 percentage points of the 18% growth in segment operating income
The growth in our International operations was due primarily to the absence of pre-opening expenses at Shanghai Disney Resort and improved results at Disneyland Paris
As <UNK>ob mentioned, we feel very good about how Shanghai Disney Resort has performed during its first full-year of operations, and we expect the resort to be modestly profitable for the fiscal year
At Disneyland Paris; the resort's 25th Anniversary celebration helped drive growth in guest spending and attendance
Late in the third quarter, we increased our ownership in Disneyland Paris to 100%
We are encouraged by the resort's third-quarter results, and, as <UNK>ob mentioned, we are making investments to drive future growth
In our Domestic business, higher guest spending and attendance drove 6% revenue growth
<UNK>ut the increase in revenue was offset by higher expenses to support higher volume and new attractions, including Pandora – The World of Avatar at Animal Kingdom, and Guardians of the Galaxy – Mission: <UNK>REAKOUT!, at Disney California Adventure, as well as costs associated with an 18-day dry-dock of the Disney Fantasy
Attendance at our Domestic parks was up 8% in the quarter, benefiting from the timing of the Easter holiday, which accounted for about 3 percentage points of that growth
Per capita spending in our Domestic parks was up 2%
At our Domestic hotels, per-room spending was up 8%, while occupancy was down 2 percentage points to 88%
If you adjust for rooms not available due to refurbishments, occupancy would be comparable to prior year
So far this quarter, Domestic resort reservations are pacing down 3% versus prior year, driven by reduced room inventory due to conversions and ongoing room refurbishments, while booked rates are up 6%
Segment operating margin was about 24% for the third quarter, up 120 basis points over Q3 last year
We estimate the favorable timing of Easter accounted for approximately 120 basis points of margin expansion in the quarter
At Studio Entertainment, operating income was lower in the quarter as growth in television distribution was more than offset by lower theatrical and home entertainment results
While our studio is having another phenomenal year with over $2.1 billion in operating income year-to-date, I'll remind you, last year, the studio delivered record profitability
The decline in theatrical distribution during the third quarter reflects the performance of key titles in Q3 last year, including Captain America: Civil War, The Jungle <UNK>ook, Finding Dory, and Alice Through the Looking Glass, compared to Guardians of the Galaxy Volume 2, Pirates of the Caribbean: Dead Men Tell No Tales, and Cars 3 in Q3 this year
Home entertainment results also faced a difficult comparison as they reflected the phenomenal sales of Star Wars: The Force Awakens in the quarter last year, compared to very strong sales of Rogue One: A Star Wars Story this year
At Media Networks, our Cable and <UNK>roadcasting businesses generated lower operating income in the third quarter, compared to last year
Cable results were driven by a decrease at ESPN where higher programming expense and lower advertising revenue more than offset growth in affiliate revenue
As we've discussed, ESPN is in the first year of its new N<UNK>A contract and about $400 million of the $600 million year-one cost step-up was incurred in Q3. Total Cable expense growth for the third quarter came in at 14%, about 2 percentage points better than the 16% we discussed on our last call
Ad revenue at ESPN was down 8% in the third quarter as higher rates were more than offset by a decrease in impressions
During the third quarter, ESPN had two fewer N<UNK>A finals games and three fewer conference playoff games compared to last year
We estimate this impact was roughly equivalent to the decline in ad revenue, compared to the prior year
So far this quarter, ESPN cash ad sales are pacing down, compared to prior year
Turning to <UNK>roadcasting, third quarter operating income reflected lower advertising revenue and higher programming costs, partially offset by higher affiliate revenue
Ad revenue at the A<UNK>C network was down 5% for the third quarter, as higher pricing was more than offset by a decrease in impressions
Quarter-to-date, primetime scatter pricing at the A<UNK>C network is running 11% above upfront levels
We continued to see nice growth in <UNK>roadcasting affiliate revenue, driven primarily by higher rates
Total Media Networks affiliate revenue was up 2% in the quarter due to growth at both Cable and <UNK>roadcasting
The increase in affiliate revenue was driven by about 7 points of growth due to higher rates, partially offset by approximately a 3.5 point decline due to a decrease in subscribers
I'll note that year-to-date, the impact of sub losses on the growth in affiliate revenue is less than 3 percentage points
At Consumer Products and Interactive Media, operating income was up 12% in the third quarter due primarily to an increase in our merchandise licensing business, which was driven by lower costs in the quarter, compared to last year
Operating income growth came in a little lower than we had planned, and while we still anticipate OI growth the second half of the fiscal year, we don't expect these results to be sufficient to drive growth at Consumer Products and Interactive Media for the full year
During the third quarter, we repurchased 22.3 million shares for $2.4 billion
Fiscal year-to-date, we've repurchased 64.3 million shares for approximately $6.8 billion, and we are on track to repurchase between $9 billion to $10 billion for the full year
And with that, I'll now turn the call back over to <UNK> for Q&A
That is a net number, <UNK>, and there were additional digital MVPDs this quarter that helped that number
Thanks, <UNK>
If you're talking about dilution as it relates to the acquisition of <UNK>AMTech, what we've said so far is that it will be modest for the next couple of years
We may get more specific on that when we come back at our year-end conference call in November, but, right now, we're just going to leave it as modestly dilutive
You've also asked about the investment that we'll be making in this new offering and how that would impact 2018. I think what you were asking is would it impact 2018 earnings, and the answer is there will be additional investment
We've not yet fully concluded what that is and the sequencing and timing of that spend
There'll also be content, as well as investment spending for technology, so the combination of those is something that we'll be prepared to speak with you more specifically later this year
Okay
I'll take the parks margin question
You are seeing nice margins
There has been consistent improvement on a quarterly basis
What you saw this quarter was the contribution of our International park operations kicking in, both Shanghai as well as Disneyland Paris
So, I think it's fair to assume that the management of the Parks segment is very committed to driving improvement in margin, and when you look at the investments we're making and the cadence with which we have of new attractions opening over the next couple of years, we expect those margins to stay strong and hopefully stay on the trajectory they're on now
