Welcome to The Walt Disney Company Fiscal Full Year and Q4 2017 Earnings Conference Call. My name is Victoria, and I will be your operator for today's call. At this time, all participants are in a listen-only mode, and later we will conduct a question-and-answer session. Please note that this conference is being recorded. And I will now turn the call over to Lowell Singer, Senior VP of Investor Relations. Lowell, you may begin.

Good afternoon, and welcome to The Walt Disney Company's Fourth Quarter 2017 Earnings Call. Our press release was issued about 25 minutes ago and is available on our website at www.disney.com/investors. Today's call is also being webcast, and a copy of the webcast and a transcript will also be available on our website. Joining me for today's call are Bob Iger, Disney's Chairman and Chief Executive Officer; and Christine McCarthy, Senior Executive Vice President and Chief Financial Officer. Christine will lead off, followed by Bob and then we'll be happy to take your questions. So with that, let me turn the call over to the Christine to get started.

Thanks, Lowell, and good afternoon, everyone. Excluding certain items affecting comparability, earnings per share were $1.07 for the fourth quarter and $5.70 for the full year. Our fiscal 2017 results came in roughly in line with last year, which is consistent with the guidance we provided in early September, although they were adversely affected by three notable items; first, the impact of Hurricane Irma on our Parks business; second, the impact of canceling the animated film Gigantic; and third, the impact at BAMTech of a valuation adjustment to sports programming rights that were prepaid prior to the accusation. In aggregate, these three items reduced fourth quarter and full-year segment operating income by about $275 million or approximately $0.11 in earnings per share. At Parks and Resorts, operating income was up 7% in the quarter, due to an increase at our international operations, partially offset by lower operating income at our domestic operations. The impact of Hurricane Irma, which I'll discuss in more detail in a moment, adversely affected total segment operating income by 14 percentage points. Results at our international operations continued to improve, led by growth at Disneyland Paris and Shanghai Disney Resort. Disneyland Paris benefited from the resort's 25th anniversary celebration and a more favorable tourism environment, which drove higher attendance, guest spending and hotel occupancy. Shanghai Disney's operating income growth was due to higher attendance and, to a lesser extent, lower marketing costs compared to the fourth quarter last year. I'm pleased to note that Shanghai Disney Resort generated positive operating income during its first full fiscal year of operations, which comfortably surpassed our expectations of breakeven from its first year. At our domestic operations, operating income was 6% below prior year due to lower results at Walt Disney World, which were adversely impacted by Hurricane Irma,…

Thanks, Christine, and good afternoon, everyone. I'd like to take you through our priorities in fiscal 2018 to frame up the new year, starting with our direct-to-consumer initiatives. We believe creating a direct-to-consumer relationship is vital to the future of our media businesses, and it's our highest priority this year. Our decision to acquire control of BAMTech enables us to launch robust DTC offerings and immediately provides us the tools we need to stream video at scale, to acquire and retain customers, to greatly enhance our advertising opportunities on digital platforms, and to use consumer data to provide a better user experience while giving us the ability to grow revenue and increase the effectiveness of our digital marketing efforts. Our first DTC product will be our ESPN-branded sports service, which will be called ESPN+. Launching in the spring, the product will be accessible through a new and fully redesigned EPSN app, which will allow users to access sports scores and highlights, stream our channels on an authenticated basis and subscribe to ESPN+ for additional sports coverage, including thousands of live sporting events. This one app experience will be a one of a kind product, offering sports fans far more than they can get on any other app, website, or channel and immediately propelling ESPN in the new direction. We will demonstrate this app in early 2018 and also detail pricing and other elements to provide some perspective on the potential this represents to our company. Additionally, we're leveraging BAMTech to launch a Disney-branded DTC service in the latter part of 2019, streaming the latest Disney, Pixar, Marvel and Star Wars feature films in the first pay window. Our studio will also produce four or five future films a year exclusively for this service. We're also planning to produce a number…

Okay. Bob. Thanks. Everyone, just so you know, we have been having some slight technical issues on the call, I think with our host. So we have switched phones and if for some reason we get disconnected during the call we will dial back in. So with that, we are happy to take the first question.

Our first question comes from Michael Nathanson from MoffettNathanson. Please go ahead.

Thank you. I have just one for Bob and it's a two-parter. One is, because you didn't say – we're not going to talk about press speculation, you have a chance to actually address the stories this week in press. If you don't want to do that...

Michael, let me jump in. It's Lowell. I have some bad news and good news. The bad news is, as is our practice we are not going to take any questions on press speculation. But the good news is we'll give you another question.

Thank you, Lowell. It's very kind of you. So Bob, I figured...

Lowell should not say that.

Okay.

Go ahead.

So what's in your presentation a minute ago, you walked through your film strategy and that was essentially fixing Disney's film content. So this week, Kevin Mayer there was saying that Disney's turned their attention to looking at TV because that's where the challenges are. So I wonder, when you think about television, do you see the television challenge for you guys as having the right platform, the right model, or having the right content? So is there a content fix here that maybe needs to be done as you did in film?

Well, we think that the world today offers ample opportunity to monetize high quality, call it, in-demand television programming. I think that's been demonstrated by a number of entities out there today. And if you look at consumption, which admittedly is fragmented, it's actually quite significant in terms of people's interest in consuming TV. We've had over the last few years, we've had some disappointments on the ABC side, but we've been focused on turning that around. We're actually very pleased with the performance of The Good Doctor already and we have three dramas in mid-season that we're quite excite excited about as well including a Grey's Anatomy spinoff. So I think as we look at TV, we think yes some improvement would, from a quality perspective, would be helpful. But we also think we've got great opportunities. We also have strong production and creative capabilities both from the ABC production side, but also from the Disney television production side and from Marvel. And I mentioned in my earlier comments that we're in development on the Star Wars live action series as well. So our intention as a company is to take advantage of the opportunities that exist out there today for good television and to produce more of it.

Okay. Thanks.

Okay, Michael, thanks. Operator, next question please.

Our next question comes from Alexia Quadrani from JPMorgan. Please go ahead.

Thank you. I've got one for Bob, one for Christine if I may. Bob, I guess when you look at your film studio, specifically you've really outperformed at such a huge margin and the pipeline continues to look so robust. I guess, can more scale or acquisitions facilitate further growth? Or does it – is your plate really full enough given the successful studios and IP (23:03) you already have?

I appreciate the question. I think it's leading the witness a little bit as it relates to the subject that Michael brought up earlier. There's – I don't think that there's ever such a thing as having too much quality or too many strong franchises when it comes to films. We do not feel right now that we have a great need to add to the film slate that we have because as you cited we're doing just fine. It doesn't mean there isn't room for more, we just don't have a significant or urgent need for that. That said, we also as a company demonstrated an ability to leverage success in this area not just in our studio but across various other businesses, particularly Consumer Products and theme parks. And so we're always going be looking to adding to the number of film franchises that we produce and own.

Thank you. And then, Christine, I know it might be too early days, but I was wondering if there's any color you can provide on the investment spending associated with the 2019 direct-to-consumer launch. Any sort of early data you can give us in a way to frame how we should think about potential earnings adjustment going into that product launch.

Alexia, we have not yet finalized what the content spend is going to be and the cadence of it. But as Bob mentioned, we will be providing more information on that as it develops over the next few months.

Thank you very much.

Alexia, thank you. Operator, next question, please.

Our next question comes from Ben Swinburne from Morgan Stanley. Please go ahead. Benjamin Daniel Swinburne - Morgan Stanley & Co. LLC: Thank you. Bob, now that you've got the Altice deal done so your first renewal this cycle sort of behind you and at least for this quarter, the subscriber losses seem to have gotten less severe. How are you feeling about that business over the next couple of years? Is that a business that you think operating income should grow? Do you have that sort of confidence? I wonder if you could talk a little bit about the outlook for that business and how the OTT launch fits into it. And then, Christine, if I could just follow up on Alexia's question on the either foregone licensing or incremental programming, are we able to say at least for fiscal 2018 that we won't have a material impact from those two factors hitting earnings, since you didn't list them when you talked in your prepared remarks about sort of factors to be thinking about this year.

Ben, I won't say too much about the Altice deal. I know you asked about the business overall, but I will say that in that deal, we met or achieved both our pricing and our distribution objectives, which bodes very well for negotiations that we will be having in 2019 and beyond, actually 2018 and beyond rather, Verizon in 2018 and Charter and AT&T Direct beyond that and then Comcast beyond that. We're pleased with where we ended up. We're also pleased with trends that we're seeing on the OTT side where we've seen a nice pick-up in subs in the, basically, the new players in the market. And what we're really heartened by is the fact that some of them are spending a fair amount and have stepped up their marketing efforts aggressively. If you watched the World Series, you probably couldn't have missed the number of spots that were in almost every hour for I guess it was YouTube, new OTT service. That we think is great. It's also interesting that these OTT, the entrants in the OTT business are spending in live sports. They obviously believe that the sports fan is potentially a primary customer of new OTT services, and what we've seen as well is millennials seem to be particularly interested in these services. I think it's a combination of pricing and the user-friendly nature of these services. As we've said call after call, we've had some sub issues that we've been dealing with, but Christine's comment suggested that while we lost some subs in the quarter, the losses were not as deep as they have been in prior quarters. And we're not – we're heartened by that as well. But it is one quarter. The other thing I want to note that's interesting, this ties…

Ben, to answer your question on the 2018 spend, in my comments I mentioned the BAMTech investment that was going to impact Cable operating income by $130 million. That's BAMTech, but on the Disney D2C, we don't expect any significant items to impact spend in 2018. Benjamin Daniel Swinburne - Morgan Stanley & Co. LLC: That's helpful. Thank you, both.

Okay. Operator, next question please.

Our next question comes from Jessica Reif Cohen from Bank of America Merrill Lynch. Please go ahead.

Thanks. Maybe switching just a little bit, but just a little bit about addressable or targeted advertising. Is it still off-limits on the Disney DTC offer? And how do you think about the tipping point on addressability across all Disney advertising-related platforms? And then just, Christine, if we could just follow up on some of the CapEx questions, can you talk about the cadence at all beyond fiscal 2018? It was great to get the color for fiscal 2018, but given the number of projects, Toy Story lands, Star Wars lands, the cruise ships, Shanghai, can you just talk about like fiscal – beyond fiscal 2018, fiscal 2019 through 2022 or 2023, what the cadence might be?

Jessica, on the first question, we're going launch ESPN service in the spring. That obviously will be advertiser supported. BAMTech, as we said at your conference, and as I said in my remarks earlier, offers us some – far more, I should say, capabilities when it relates to, as it relates to addressable ads live – inserted live on a dynamic basis into live sporting events. And so we feel that that gives us a lot of capability that we haven't had before. Whether that extends, that capability extends to our other businesses in the non-direct to consumer, I'm not sure. We're currently not planning to sell ads on the Disney service, but that's just in development. There may be some interesting possibilities in terms of sponsorships versus inserted ads. But as of now, we're not planning to have the programming that airs in the OTT – sorry, the DTC service interrupted by commercials.

Jessica, on CapEx, you see for this year that we gave the comment that you can expect CapEx for 2018 to be about $1 billion above the 2017 level. And once again, a lot of that spend is going into the completion of the two Star Wars Lands and we're also completing Toy Story Land in Orlando and there's other initiatives that are in process around the globe. We've talked about the longer-term menu and I think at some of the meetings we've had, we've talked about the longer-term plans for our Parks and Resort business and developing out further on attractions and resorts. So I think it's fair to assume that we will continue to make investments in areas in which we see driving long-term value and long-term returns. So I would say this is a business that we feel very confident in and the business is working right now at a very high level and will continue to do so.

The other thing to add to that is when you look at the results of our international parks, Shanghai, as Christine cited, and the improvements we're seeing in Paris and the restructuring in Paris as well as Hong Kong and even Tokyo, we have ample opportunity to continue to invest and continue to expand those businesses. And with the franchises that we have and their popularity in these markets, the opportunity actually has increased significantly over the last few years.

Thank you.

Thank you, Jessica. Operator, next question please.

Our next question comes from Jason Bazinet from Citigroup. Please go ahead.

Just a question for Mr. Iger. Not really talking numbers but more philosophically, as you approach Disney DTC, have you decided sort of the cadence that you're going to approach this opportunity? In other words, you could go and sort of spend large and sort of say there's only going be one or two winners on the back end of this evolution and Disney's going be one of them. And the other way you could do it is just sort of spend consistent with the revenue that that new business generates. So it doesn't really contribute to earnings maybe over the next three to five years. Can you just describe how you're thinking about the cadence of your approach?

Sure. Before I do that, because there's been a lot written about whether this is aimed at being a Netflix killer, et cetera, and so on. By the way, they've been a good partner of ours. Our goal here is be a viable player in the direct-to-consumer space, space that we all know is a very, very compelling space to be in. We also believe that our brands and our franchises really matter, as we've seen through Netflix and all other platforms. And so that gives us an opportunity as well. We are working on the cadence that we will produce in sort of scheduled product in this OTT service. We've not determined fully what that will be, although we've laid out on a calendar basis a fair amount of specifics. We're still working to develop original movies and original TV shows and figure out what makes the most sense. Part of it has to do with when they will be available. But I'd say that we're – I don't want to say we're going to walk before we run because we're going to – as I've said earlier, we're going launch this thing pretty aggressively. But I think what you'll see is a ramp-up over time of production spending that will start with a product that we believe is representative of the great brands and franchises that we have between Marvell and Disney and Pixar and Star Wars and then grow from there.

Okay. Very helpful. Thank you.

Thank you, Jason. Operator, next question please.

Our next question comes from Todd Juenger from Sanford Bernstein. Please go ahead. Todd Michael Juenger - Sanford C. Bernstein & Co. LLC: Hi. Thanks. I can't help but ask my respective question on the entertainment OTT. I'm sorry. And then I have a quick one on Consumer Products as well. Actually, just picking up kind of right where you left off, Bob. I'm just very curious to know how you're thinking about the role of the Disney brand. Obviously, very important to the service and what that means in terms of the type of content you envision ultimately fits within that brand on the service. You've talked about a lot of Disney branded content specifically. And I heard you list obviously Marvel and Lucasfilm and Pixar. It begs the question, do you think about Freeform and ABC content is also fitting within Disney? And then even when you start thinking of content that you could license in or otherwise get a hold of outside of your company, can you imagine that fitting in the service? Or does this need to stay narrowly defined sort of as all about the Disney brand and what that means? Thanks. And then, quickly, just on Consumer Products just – we had – I just wonder how you think the Cars – Cars has been the stalwart of Consumer Products for so long. You've had a new release of a movie. Just wondered how the results lived up to your expectations on the Consumer Products side of that. And depending on your answer to that, any warnings or if you think about other franchises, particularly animation space, it lasted a long time in the new world of the consumer opportunity there. Just any warnings from that would be great. Thanks.

Okay. Todd, so this service will be Disney branded. In other words, it will be Disney named. We haven't determined what the name is yet, but it will be Disney named. The product we have in Europe is called DisneyLife, but we've not decided what this one will be yet. I think you have to think about it like you think about our theme parks, where they are Disney parks, but you go in and you see Marvel and Star Wars and Pixar for instance. So it's a collection – it will be a collection of just those brands. And if one of those series, whether it's from Marvel or Lucas, whatever has standards versus – nothing's going be hard – nothing's going to be our, but there are standards that don't necessarily fit completely with, I'll call it, the G or the G-rated Disney. There will be ample filtering opportunities for people using it, so if you just wanted your kids to see the Disney-only product that can easily be accomplished. We're not ruling out the possibility of licensing product from third parties for it provided the product fits with the Disney brand. As it relates to ABC and Freeform, we're going to continue to produce product for ABC and Freeform and our production capabilities for programming like that, we'll also look to sell product to third parties including Hulu. And it's also possible by the way that ABC productions could end up producing for the Disney-branded service as well. We've actually talked about that a bit. But we're going stick to Disney branded service and it will include Marvel, Pixar and Lucas brands within it, or Star Wars brands.

So, Todd, on your question on Consumer Products specifically related to Cars. Cars is still a very strong franchise for us. So even though Cars 3, the theatrical release of the movie underperformed and the performance of Consumer Products in this calendar year was a little bit lighter than we would have liked it to be, it's still one of our strongest franchises. And when we talk about some of the franchises that are over $1 billion annually, Cars is in there. And just another thing about 2018, for Consumer Products, we feel really, really good about the lineup we have going into this year. We have Star Wars Episode 8: The Last Jedi. We deferred revenue in the fourth quarter into the first quarter like we did with Episode 7 for that. We also have a Han Solo movie coming out named Solo in the spring quarters. And we've got four Marvel movies including Avengers in the spring. We also have Mickey's 90 birthday. You should mark your calendar for this. It's November 18 of 2018. But Mickey's 90th is something that the entire company's going to get behind and that should also be good for our Consumer Products business.

Todd, thank you. Operator, next question please.

Our next question comes from Steven Cahall from RBC. Please go ahead.

Thank you. Two for me. First, Bob, on direct-to-consumer, I was wondering if you have given thought to the pricing strategy. Netflix has certainly been rewarded for strong subscriber growth rather than necessarily revenue growth. So do you think you build more equity value by coming out with a product that's really inexpensive in the Disney-branded direct-to-consumer in order to maximize sub growth early on? And then, Christine, just on the buyback guidance, I think you did a little less than $9 billion in free cash flow this year. And you've got $1 billion step up in CapEx, so that's $8 billion in free cash flow before any cash flow growth next year at the operating line, so why the big step down in the buyback year-on-year? Are you just trying to be conservative and give yourself some wiggle room as you go through the year? Is it a view to the share price? Is it a view to build cash on the balance sheet? Any color there would be great. Thank you.

Steven, we've given a lot of thought to pricing both the ESPN and the Disney-branded service, and I can't get specific with you yet. We haven't actually officially determined it, but we said we will be forthcoming with you on this sometime after the first of the year. I can say that our plan on the Disney side is to price this substantially below where Netflix is. That is in part reflective of the fact that it will have substantially less volume. It'll have a lot of high quality because of the brands and the franchises that will be on it that we've talked about. But it'll simply launch with less volume, and the price will reflect that. It is our goal to attract as many subs as possible as starting out. We think we've got some interesting opportunities there given the affinity to Disney, whether it's with our Disney-branded credit cardholders, our annual pass holders, people who are members of D23, people who own Vacation Club units at Disney, people who visit our parks frequently. There's a gigantic potential Disney customer base out there that we're going to seek to attract with pricing that is commensurate with or that balances the quality of the brands and franchises that are in there, but also takes into account the volume. And that will give us an opportunity to grow in volume and to have the pricing over time reflect the added volume as this product ages.

Steve, on the buyback, that $6 billion is a number that as I mentioned is the average over the last five years, roughly the average over the last five years. As you saw both in 2017 and 2016, we came in at a higher level than what we originally started out the year at. So if you want to view that as a conservative approach, we are early in the year, and we'll make adjustments as we go through the year based on the business environment. But once again, we have increased the last couple of years from what we originally started out at.

Thank you.

Thanks, Steve. Operator, next question, please.

Our next question comes from Marci Ryvicker from Wells Fargo. Please go ahead.

Marci? Okay, operator let's move on. Oh, there you are. Now we got you, Marci.

Just a little more color on the sports write offs if that's what they were related to BAMTech. Was it a certain sport? Was this just technical just because there's so much sensitivity around sports rights right now? And then second question there was an article that came out at some point talking about maybe there's a time when ESPN may not participate or have NFL rates and maybe you are changing your distribution agreements to allow some sort of flexibility. Is there any...

Okay. We lost you Marci, is that (44:59)

We lost you.

The line is open the operator said.

Can you hear me?

We lost you but...

So we got the two questions, so NFL – the NFL was one, which we're not going to comment on. We've had a long, healthy relationship with the NFL. It's important product to ESPN, both the live games that we have on Monday night and all the shoulder programming that we do, some of it or much of it licensed directly from the NFL. And we're not going to comment on anything related to the future relationship or as it affects our distribution agreements.

So, on the BAMTech valuation adjustment, that was an adjustment to programming rights that were prepaid prior to the acquisition. And we're not going be specific on it, but it does relate just to one rights deal. And we looked at it based on current performance and the duration of the contract and we didn't think we had enough time to recover the payment so the contract was mark-to-market.

Thank you.

Okay, Marci. Thanks. Operator, next question please.

Our next question comes from Tim Nollen from Macquarie. Please go ahead. Tim Nollen - Macquarie Capital (USA), Inc.: Hi. Thanks. Bob, I'd like to follow up on your comments on the really strong pickup in ratings from the streaming viewership. I know there's a summit being convened later this month by one of your peers. I just wonder if you have comments to make on broader use of digital measurement in the TV ecosystem.

Well, I think, first of all, as I said earlier, it just was two weeks. And we like the trend, obviously, we have to give this more time. Frankly, we're not really surprised by it though because we've known for long time that out-of-home viewing of sports is significant. And the more granular or the more unimpeachable data we get on that the better because it just confirms what we all know. We all watch sports, whoever we are, all out of the home. It also confirms that sports on mobile platforms, which often is out of the home, is also growing in popularity. And this picks up a lot of that consumption. And the other thing it includes, it includes live sports viewership on new OTT entrants, on new OTT platforms. And there too, in part because of the interest in those platforms from millennials suggests that sports, live sports is very, very important to those platforms. And I think that's reflected in the fact every one of these services that launched has launched with the rights to distribute ESPN and to all of their customers because they know how vital it is. And as I said earlier, just the fact that these platforms are advertising in live sports suggests they're going after the sports viewer or the sports fan because they think that is high potential for them as a customer. So we feel good about what we're seeing. And while there's obviously been a lot of attention paid to ESPN and subs, et cetera, and so on, we've never lost our bullishness about ESPN. The brand is strong. The quality of their programming is strong. There are always opportunities to improve. We're just launching a new morning program, as a for instance. But we like where ESPN is these days and we believe that one of the best things that we've got going for ESPN is the new technology in the marketplace that's enabling people to watch sports on more user-friendly platforms and wherever they are. And if we can measure that and add to that the technology that we need to monetize advertising in more effective ways, that's a pretty good combination.

Tim, thank you. Operator, we have time for one more question.

Our next question comes from Barton Crockett from B. Riley. Please go ahead.

Okay. Thank you for taking the question. I was interested in looking at the bigger kind of impact of Hulu. So you've got some drag from your share of the losses in the earnings of Hulu, but you've also got a benefit from you were selling them programming to some degree. You're getting subs from them that pay you fees or some share of advertising. I was just wondering when you net it all together is this actually a net drag or largely mitigated or maybe a net positive if you look at the broader impact of Hulu?

Talking over time or to date because we know to date...

To-date, obviously over time you think it works, but just right now as you're kind of ramping up I think there's some mitigation of the expenses there with some of the benefits.

So, to date, the P&L impact of Hulu is positive to the company...

For the year.

Sorry, for the year. For fiscal 2017.

Right.

Is positive to the company because the investment that we made in it as it grows has been offset by the licensing fees that we've gotten for both our channels, but largely in 2017, because they didn't launch the service until late then the licensing of programming to the standard Hulu service. And it was also an improvement from 2016. So in other words, we had growth to the bottom line in Hulu from 2016 to 2017. Where our continued investment in Hulu is because we're confident in its ability to both grow in terms of its SVOD service, but also to grow as an OTT multichannel operator. And we've seen some nice numbers there. Still just the beginning and we're not going to get specific about what those are, but we got new management in Hulu as well. Randy Freer is now running it, and I know he's certainly bullish about it. And we continue to believe that long term Hulu is a significant – will be a significantly valuable investment for us. We also believe that we can grow our licensing to Hulu, talked earlier about television production, yet another opportunity for us.

Okay. That's fine. Thank you.

Thank you, Barton. And thanks, everyone for joining us today. Sorry about some of the technical glitches. Note that a reconciliation of non-GAAP measures that were referred to on this call to equivalent GAAP measures can be found on our Investor Relations website. Let me also remind you that certain statements on this call may constitute forward-looking statements under the securities laws. We make these statements on the basis of our views and assumptions regarding future events and business performance at the time we make them. And we do not undertake any obligations to update these statements. Forward-looking statements are subject to a number of risks and uncertainties and actual results may differ materially from those the results expressed or implied in light of a variety of factors including factors contained in our annual report on Form 10-K and then our other filings with the Securities and Exchange Commission. This concludes the call. Have a good afternoon, everyone.

Thank you, ladies and gentlemen. This concludes this call. Thank you for participating. You may now disconnect.