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Executives

Jay Rasulo - Senior EVP & CFO

Analysts

The Walt Disney Company (DIS) Nomura Annual U.S. Media & Telecom Summit Conference Call May 30, 2013 12:30 PM ET

Unidentified Analyst

Okay, let's get started. I want to thank Disney for coming, I really appreciate it. Next speaker Jay Rasulo Senior Executive Vice President and CFO of Disney Company; he has traveled to get here, really appreciate you here Jay; we look forward to talking to you. And the ground rules again would be we have cards for Q&A; pass them to the middle, about 20 minutes ago, pick them up and ask a few. So please send cards up a little bit later. So thanks so much. Okay. Jay, thank you and thank you all.

Jay Rasulo

You are welcome [Michael], happy to be here.

Question-and-Answer Session

Unidentified Analyst

Thanks. So a while back we started to hear the phrase the Disney Difference use by company to describe the uniqueness of your assets and your strategies. Now I would say the Disney Difference can be extended to your approach to building businesses and capital usage, let's use this time together to learn more about the impact of those allocation decisions. I want to start with Media Networks which is a business that contributed 60% of your operating income. You spend the past few years building a moat in words, acquiring key sports rights, adding new applications around ESPN. Are you worried that either of the competition by new entrants were changing regulatory environment or slowing pay TV growth will ultimately hurt the profitability of pay franchise?

Jay Rasulo

Wow, we can probably do the whole 45 minutes on that whole question, but first of all let me tell you that I appreciate your talking about the Disney Difference. It is something that we talk about a lot and I want to spend a couple of minutes on talking about that, but before I get in to that, I want to get, something out of the way that is specific about Q3 and it kind of refers back to the earnings call that we did a couple of weeks ago where I talked about some comparability items and they were a little bit complicated. So I think it's worth repeating and may be giving some clarifications to the couple of items, because when we look across the estimates out there on the Street, I don't think that maybe either I wasn’t clear or they weren’t properly reflected.

First of all, I want to start with the studio. So, obviously we're thrilled with the outcome of Iron Man 3; it is well on its way to doing $1.2 billion. That’s we think it will wind up in box office, which normally everybody would say that’s terrific, but remember, a year ago in Q3, just about in the same timing in terms of release, we released Avengers and Avengers third largest box office movie in history did $1.5 billion in the box office. I also talk very explicitly about the fact that we will be marketing a film we are very excited about Lone Ranger. All of the – a big portion of the marketing of that film will fall in Q3, but the release on July 3rd is a Q4 event, so we will be having that marketing out there and the combined impact of those two things is going to be about a $150 million decrease in OI for the Studio in Q3 compared to prior year. So I just wanted to be, I talked about all of that on the call, but I just want to be a little more explicit.

On the Media Networks side, I am just going to repeat that ESPN is going to recognize $73 million less in net deferred revenue in the quarter. And has to do with the covenants and timing of our different deals; that is a pure timing effect and lastly on the parks I mentioned, these things, but again I want to be a little more explicit, in terms of the Easter Holiday, which fell in the previous year in Q3, it is a one week less of the Easter Holiday will be in Q3 and also we are now lapping a full year of the Disney Fantasy, we are now, it was sailing for the full quarter last year and this year and the combined effect of those things is about $65 billion on the parks numbers. So I just want to get that out of the way, I know you want to talk about loftier things, but I want to get those items out there and be sure that we were as clear as we could be about those items.

So talking about the Disney Difference and our investment strategy, I think our strategy has been very consistent and one of the things I love about working with Disney, with the management team, with Bob, is that we don't invest around business cycles, we have an investment strategy, I think it's clear we create and buy outstanding IP that we think has deep and long legs. We have a big ecosystem under which we can capitalize on that. And it creates, we think a very different kind of company compared to those that we’re generally compared to and I will say that if you take an example, so let’s say both happen to come through acquisitions, but Pixar is now so long ago as an acquisition, it’s kind of a part of the corpus of the company, but if you take the Cars franchise, of course the films have done outstandingly well, we don’t have to talk too much about the impact that’s had on our consumer products business, obviously it plays right into a long term play pattern with boys and die cast Cars Land giving them sort of names, faces and personalities is obviously been a huge boon to our consumer products business.

But then you can’t forget that a lot of the success of Disney’s California Adventure and the relaunch there was really on the back of that great franchise. Cars, was the temple behind the relaunch of Disney’s California Adventure and it’s just blown out. So we look at franchises in those very powerful ways how they can affect the rest of the company. If you look at Marvel and the Avengers, here is a film again that in its own right, I mentioned already did $1.5 billion in worldwide box office. But at the same time, it’s had kind of a lifting compounding effect and you have to see the result of Iron Man 3 and what that’s done in the box office which is more than the previous two films combined as in some way having been effected by the success of that franchise, that we built around Avengers, obviously that reflects itself in consumer products, we’ve now announced that in September our show called Shield is going to be released by ABC, we were talking outside that was the other show that there was I told you there was so much buzz about. There is just an enormous amount of buzz around this franchise and this is when it’s working at its best. This is how we like to allocate our capital whether it’s an internally developed franchise or brand or concept that we do that with or whether it’s through acquisition. We really like to think about the allocation of our capital across that kind of strategy.

So coming back to Media Networks you mentioned ESPN and the sense of the mode and of course when we talk about the mode, when we talk about capital allocation there, largely we are talking about the acquisition of the right portfolio of sports rights. And we feel, I got to say that ESPN is one of if not the most predictable business for us in terms of its consistency, in terms of our confidence in what it can deliver to the company and you know that is not because okay, it is the number one sports brands, got 33 years of history and it’s not just because of that and because sports fans tells us over and over, it has to do with the actual structure of how we invested, very long term sports rights deals, we pretty much know what our hand is going to be there for 8 to 15 years depending on the league, the conference of sport, but also you know 70% of our affiliate deals done with the similar timeframe 8 to 10 years.

So we really do know in large, of course there is the advertising portion which is little 30% plus of the revenue, but a lot of where we are in that business is pretty well secured and pretty well locked in our mind. And when we look at the competitive environment there and we always get [FOX1] other competitors. Look what we think is that there may well be a very fierce battle for a distinct number two in that business.

People are going to spend a lot of money, they are going to step up to a bid on lot of rights and they are going to wind up the distinct number two. So I feel, we feel pretty confident about our hand there, we feel very good about the business. Let me be clear. We're not complacent. We look at every thing that comes up. You've seen some recent deals that we've done, in tennis arena. We continue to look at things that around the edges, or in the main, you know, continue to give us that hand that allow us to speak with the confidence; I am speaking about this morning.

And in terms of use of the multi-platform, in terms of having a broad array to continue to be the most popular brand for advertisers, most popular brand for fans we're not complacent about that. We constantly relaunch. You’ve heard about our Digital Center 2 up in Bristol under which our studio shows are going to have completely new and exciting look and feel. We're not sitting back and resting on our laurels but we do feel incredibly secured and confident about our position.

Unidentified Analyst

How about insider question, what you can't control is the regulatory environment. How do you assess the regulatory environment as any changes coming potentially?

Jay Rasulo

Well, of course, from time to time and you know behind your question of the regulatory environment is the whole question of a la carte that you know from time to time goes up. Look I don't think there has been any serious thoughtful analysis that suggests that an a la carte world is actually better for consumers. We have a strong belief that in an a la carte world consumers will wind up paying more for less available content on television and that if you look at the extended basic content and the quality of the production that goes in to it, not only sports production and the viewing of sports but all the other production values that have shown up on cable networks, it's still, we think is a wonderful value.

If you look at ESPN subscribers over the last two years, there has not been a net change in the subscribers to ESPN. So we feel like, yeah from time to time, there is going to be some rabble rousing about this concept of and it kind of ends up being focused on sports. But we still believe that the values there for consumers and that they will continue to rationale thinking will prevail in that believe system.

Unidentified Analyst

Okay. So let’s talk a bit about you mentioned before a key component of the rights packagers lately have been multichannel rights. How those monetization, those rights turned out, first in terms of affiliate dollars, now you are done 30% of your deals? So how does that get constructed in (inaudible) conversion?

Jay Rasulo

Well, we used to, we have been from years and years, we have been talking about this idea that ESPN had some time ago called best available screen for fans. We certainly know that over 99%, or nearly 99% of sports is watch live. That sports fans want access wherever they are on whatever device they have near them, around them, or can look over somebody shoulder at and we have always saw to have a very broad multi-platform offering and we continue to enhance that.

When the tablet technology and the diffusion technology came out such that we could produce something like watch ESPN, which is now in 55 million, there are 55 million households who have availability to watch ESPN and when we talk about a big complex deal like our deal with Comcast and say there are 70 services that were sold to Comcast, obviously we don't have that many channels. So a lot of those are different means of distribution of the same content and so we have gotten that out there. I think it's been, it's well known, it's well accepted and of course it was reflected in the deals.

We set all along that this notion of getting, making television programming available to consumers was a value that we were going to get remunerated for that and we waited longer than others to get out there with until there was a monetization model that could work . And when our affiliate deals came up for renewal, obviously it was something that the affiliates were very eager to have and pay for in the new deals that we did. But we also have the opportunity to stream advertising to those things and separate streams of advertising that are addressable.

Now there is a bit of an issue with measurement today, there isn’t really third party measurement on the Tablet on watch ESPN, by the way we’ve done this to watch Disney channel and watch ABC as was announced a couple of weeks ago at the upfront. But we know since these are addressable mobile units and we know exactly what we’re setting, we have the day and advertisers are paying for the ability to get those ads in front of consumers. We’re hopeful that down the road, there will be a typical third party calculation and recognition and it will impact ratings today, it doesn’t impact ratings. We do believe that the tablet watching is mostly incremental and isn’t hurting our ratings but nor are we getting credit in the ratings for the viewing on the tablets. But we do have a means by which we can sell that and tell advertisers what they’re getting.

Unidentified Analyst

Can you give us any update on how much time is, what time you used you are just saying on watch this (inaudible) anything you can share on minutes a day and hour like how many…

Jay Rasulo

We don’t have that detail. As I said, I think we’re at the point where we pretty much believe that it’s incremental, but I can’t give you the details. I’m sure our TV people have some sense of it, but not for public distribution.

Unidentified Analyst

Okay. And then you mentioned third party measurement what's the timeline from where you stand for third party measurement to kick in is there anything you're looking at the same?

Jay Rasulo

Well, there's the couple of pilot programs out there, that we're were looking at with Nielsen, others are also working on it, we're hopeful that it will be sooner rather than later but I don't have any good fix on when will that will be literally out there like we have for others.

Unidentified Analyst

Okay, I wanted to give you chance to comment probably about there's a report in journal that perhaps is (Inaudible) some multiple usage and I think you guys said that's unlikely is how you wanted to say that?

Jay Rasulo

Yeah, its extremely -- this is extremely unlikely and there's nothing to announce and there's nothing imminent that will be announced and I'm just not saying today there's -- look we have a constant dialogue with our distributors, we're in close partnership with them across many things, there are many ideas that are batted back and forth between us and them, this was probably one of them I don't think you should spend another minute thinking about it.

Unidentified Analyst

Okay, done, okay, so let me take this question. How do you assess because if we look at the acquisitions of sports programming rights, how do you assess to return these program decisions will be, so how do you figure out what to buy and would you walk away from any rights auctions or passing rights that you don't really need and you have in past or how does that work into your thinking?

Jay Rasulo

Well, I think the easiest way to describe how we look at this is really we look at it as you know additions and subtractions to a portfolio, we look -- there's it's very hard when you're talking them out as I mentioned nearly 70% of your revenue coming from the affiliate revenue that isn't really dependent on whether you get the rights for U.S. open tennis tournament or not you know as to what the pure economics of any specific decision might be but we do look at as I said we have the good fix on what our affiliate fees are going to look like down the road, we have a good fix on what we can invest in totality around programming and then we make assessments as to the power of each different property that comes up and how we will enhance our hand and enhance our portfolio, et cetera, et cetera, both from first and foremost from a fan perspective. You know, secondly from a competitive perspective, thirdly from a advertising appeal perspective and we really kind of look at it that way.

Look we're going to show up for everything. To repeat what I said, we are not complacent about the (Inaudible). We will show up for everything but understand and there's been many examples now that there are things that just get bid up to the point where we certainly can't see a return on it and sometimes question how anybody could see a return on the kinds of numbers, if you look at NCAA final four, who wouldn't want that property in the sports business. But at some point, yeah, I know who wouldn't. Somebody who's not willing to pay would earn for.

You know, the Olympics, hockey, I mean there are things that we've looked at, we've looked hard, we'd love to have but we know that within the budget, we know we can spend in totality and what we've got already. They won't, they'll break the budget and they won't incrementally add enough to pay back. So it's complex but it's not unfortunately as arithmetic as maybe you'd like to hear me say, so let me turn in some arithmetic answers.

Unidentified Analyst

Okay. Okay, so we always look at the single biggest revenue driver. I don't know why, affiliate fees, it seems to me has been an important part of the Disney statement.

Jay Rasulo

Yeah, and we look at it too.

Unidentified Analyst

Yeah, exactly. And the most recent quarter, we saw affiliate fee grow close to 10% excluding all the deferrals. So given this was the first quarter of many new deals kicking in, can you help us think about affiliate fee growth over the next couple of years?

Jay Rasulo

Sure. So I said back on our call that we were looking at for the rest of this year, I think you asked the question. We were looking at affiliate revenue growth between the high single-digits and low double-digits for the rest of the year. And you know I don't really like giving range like that but the truth is that in that range there's a couple of unknowns there is, what's going to happen with subscribers and there are the pending deals that re-ups that are still out there not knowing exactly when they are going to fall. I can tell you now that it's very unlikely that a new deal is going to happen in the third quarter, so we're probably going to end up in the low end of that range that I gave on the call for Q3.

But in terms of looking our beyond that, I don't want to be too predictive, but as I have said we are pretty happy with what we already know from the 70% of deals we have done and what we know the underlying sports rights cost would be over the period.

Unidentified Analyst

Just give, a point clarification, how do you feel there philosophy about new deals with big first year step-ups dropping down which was the previous regimes deals versus the more consistent level of price increase over

Jay Rasulo

Well, I don't want to get -- a) every deal is different; b), I don't want to get into details about any of the deals, but again when we say, where did you re-up ESPN for so we think about ESPN one, but there is the Dos there's the other, there's other channels, they all are in different and then when you think of our of entirety of our cable offering the Disney channel, Disney Junior, the XD, ABC Family, they are all at different points of their life cycle. And some have history where they were launched at a rate that we thought was actually below their value and below market and you get those, because you step those up. So there is a lot of goes into what the eight or 10 years in affiliate fees look like and I don't want to give you a one size fits all that hey our strategy is to raise it then have it go flat. It's not quite that simple.

Unidentified Analyst

Okay. Now going back to something you said by your visibility on this business came by works, Bob on a call last year stated the long term margins was interesting that you guys first time I've heard this on that for a while was long terms margins are going to expand (inaudible) over life of the deals you're doing. But giving the step up in sports rights, since that point in time.

Jay Rasulo

Yeah.

Unidentified Analyst

And if you'll just say now I have done. Do you still believe that vision Bob had over a long term margin expansion within the (inaudible) group is sustainable?

Jay Rasulo

Well, look first of all we don't give guidance on margins and there's a reason for that, we don't run our business on margins, it's not how knowing the lumpiness that goes into the running of our cable networks you know, new deals, and all the stuff we've been talking about. We don't tend to look at quarter by quarter margins and so on and forth. I will say that with everything we know, we see ESPN as a growth business. And we still believe that it will continue to grow the specifics of how we get there, I don't want to get into. But I think that, what Bob meant is that we see ESPN as a growth business that he's confident of that, he was asked a question that happened to be about margins. I think what he was the news he was delivering was that ESPN is a growth business.

Unidentified Analyst

Okay. Let's switch over to another growth area which is international. So can you talk about driving growth internationally cable networks, and you wanted to separate Disney from ESPN.

Jay Rasulo

Yeah, well let me start with ESPN and kind of wrap up on that, because I think you've asked every question there is possible to ask about ESPN. But so, look we -- all of you know that we have moved out of the UK, we've unraveled our joint venture with Sky in Asia and Southeast Asian India and it looks like kind of retraction of our international strategy for ESPN; I would say that it’s a repositioning of our international strategy at the ESPN. We continue to be very bullish about our growth prospects in Latin America for ESPN, that business is doing great; our Canadian business is doing well, our business in Australia and New Zealand is doing well, and I wouldn’t say that we offer ever out of the sports business in either Asia or India, just under the format we were in, you know it was a situation with two partners that started to see sort of a divergence in their interest in the region and we decided to go our own way.

So look I think that ESPN on the large in the intermediate term is fundamentally a North American business as far as you guys are concern, but we continue to push on ESPN around the world where ever we think we can have the successful business model. That was not the case under this circumstance we were in the UK, so we decided to pull out of that. But more importantly, in terms of the cable business, the Disney channels international expansion is almost the exact opposite story, we are extremely bullish, we now have 106 Disney channels in I think a 147 countries. We are absolutely sure that the Disney channel is the leading edge of bringing the Disney brand to most places around the world.

The explosion of mobile access to consumers in markets where it took forever to get wired from a cable perspective, we think presents incredible opportunity for our programming and we will continue to push that and as one of our key business strategies either under the sort of traditional cable distribution system or free to air and we’ve opened the lot of free to air channels in Russia, Turkey, we’ve moved to free-to-air in Spain, South Korea. We continue to realize that the Disney channel is the bearer of our brand around the world. You know, of course, once we have a theme park in a region, that becomes a shared equity, but we know that’s a great way for us to enter a lot of markets, so we continue to be bullish on it and like the business model that goes with it.

Unidentified Analyst

We're out of ESPN questions for you. So I may ask you about the real estate cost, but let me ask you about parks and resorts business that you know a lot about. We've now essentially completed all the major projects started on (inaudible) as Chairman, way back then. Can you help us think about which projects are outperforming your initial plans, so let’s start with that?

Jay Rasulo

Well, you know, we've been pretty vocal about Disney’s California Adventure and the expansion there and I don't know, there are so many measures against what you can try to, so many metrics against which you can try to measure the success of something like that and you know it is an eight plus on every single metric, in terms of the quality of the product, the buzz it's created, the distribution of guests in that property, which was one of the underlying strategies, we had a very uneven distribution where most people spend most of their time at Disneyland and Disney’s California Adventure was empty which was causing capacity issues at Disneyland and holding back our attendance all south.

Now about half of the folks go to one, half of the folks go to the other. It's almost a dream come true. You've seen the trends quarter-after-quarter in terms of what it’s done to the attendance there. How it's allowed us to price behind it. So that project has fulfilled, is on the trajectory of everything we would hoped for. Cruise Line, you know, now with the Dream and the Fantasy out there full all the time, getting incredible premium rates, great guest ratings, clearly that was a capacity need that need has been met by the demand that we thought was out there and we are very happy about it and so far early days, but in the Magic Kingdom down in Florida, great reviews against what is the single most demanded event at a Disney park, which our character meet and greets many of those being princess character meet and greets. It is fulfilling a real need there.

So if you look at those new projects in totality they are actually accretive in fiscal ’13; the flip side is that, that increasing our eyes being offset by the investment we are still doing in My Magic Plus, which probably launched before the end of this year, it's I don't know, I won’t say totality, but largely be launched by the end of this year, fiscal year and we have very high hopes for the early read is good, but right now it's still a drag on our earnings; in totality we expect in ‘14 that all of those new initiatives will be accretive.

Unidentified Analyst

(Inaudible) earnings from start-up costs at Shanghai, so there is a bit of cost pressure?

Jay Rasulo

Yeah. But more in this and towards the end of this fiscal year from My Magic Plus, although Shanghai is definitely got expenses associated with that investment anyway.

Unidentified Analyst

I think I have made a living keeping track of all the projects at the parks and one of the questions we always get it and I will ask you is if you split all the new projects and initiatives, okay, do you expect to surpass the old peak margin in the years ahead?

Jay Rasulo

That is a favourite question. So the nice thing about that question is the total lack of specificity about old and peak, but that’s okay; I don't want to go back a 100 years and back to the days where we weren’t consolidating our foreign operations, we weren’t pushing down incentive comp, pension cost where they are so on and so forth. So if we don’t go back too far, and we go back like I don’t know, 10 years, five to seven years, let’s say 10 years. If you back out a lot of stuff that’s been going on that we were just talking about, we are basically at where we were in terms of the peak margins. And I have been saying, when I was in my old job and I have been saying on behalf of the new team and Thomas been saying on his own, there is nothing to keep us structurally from achieving those margins in what was the base business.

Now at some point, the base business looks radically different, but I will tell you that as we see all of these new initiatives not only being accretive to OI, but accretive to margins, the new normal we should wind up better than we are when those things are all running in their steady stay. But if you tear away today, I think all of the stuff like that we didn’t have in the first half of the 2000s; we’re basically already there on the base business in terms of where the margins are now. I think we still got to be frank a little way to go in terms of economic recovery; not sure a 100% back yet. So we’re bullish, we’re bullish on the business say; I mean we were very, very happy with the way the business is evolving.

Unidentified Analyst

And get more consumer confidence as it feels like (inaudible)

Jay Rasulo

Yeah, yeah exactly.

Unidentified Analyst

Let me talk you about Shanghai, it’s the biggest, it’s now your biggest opportunity in front of you on the park side. Can you just update on the all the developments going and how we should think about the longer term financial opportunity relative to (inaudible) Euro?

Jay Rasulo

Well, just stayed at 50,000 feet. We look at Shanghai and capacity is there and the market is there in terms of land, available middle class people, growth of the middle class market, for Shanghai to be our second largest [sea] part destination of the world. Now there is long way between today and it’s surpassing very successful businesses, more aspects of our business in California, in Tokyo and Paris etcetera. But if you look at the fundamentals and you look at the capacity in terms of the deal that we have done with the Chinese government in terms of access the land and infrastructure access for both people, utilities etcetera to that site, it certainly has the potential to be big.

Work constructions started couple of months, all infrastructure is well underway and we feel pretty good about where we are creatively, we haven't made a whole lot of announcements, we’re in advance about what the creative content will be. But I think if you look at our history here and if you go way back and you look at Disney Land Paris, I think we over anticipated particularly in hotel capacity what could be deliver on opening day to that park, one could argue at Hong Kong the pendulum swung in the other direction, we undersized it for expectations behind what the Disney Park is.

I think that in Shanghai we are going to hit the nail on the head, we're going to be just where we want to be when we open with already an understanding between the partners and certainly internally at Disney that this could be a place that needs to ramp up very quickly in terms of capacity and we feel very strongly that with our partners we’ve come to a great blend between things that is authentically Disney and everybody wants no matter where in the world it is they want something that they recognize is authentically Disney, but distinct in the Chinese aspects of it so. We kind of coined the phrase. authentically Disney, distinctly Chinese and I think that’s going to take us a long way.

Unidentified Analyst

And as we learn from Hong Kong.

Jay Rasulo

Yeah, over time, more and more sales of Hong Kong packages and visitation came from the mainland. So we’ve learned a lot about selling practices, about the structure of agents. The travel agent business, how to sell in mainland China and that’s going to give us huge advantage for the opening of Shanghai, even though we believe that it's fundamentally a separate market. It is still a mainland Chinese market and we feel like we gained a lot of experience since the opening of Hong Kong, which by the way, its expansion has done remarkably well. We opened a couple of weeks ago the last phase of that three land expansion that we did in Hong Kong and the place is on fire, it's just doing great. So I think that we're well prepared for Shanghai.

Unidentified Analyst

Okay, let me take you to studio for a bit. With the tremendous success of Avengers last year and now Iron Man 3, the 1.2 billion number, how does the return profile now look on the Marvel deal because when we see the deal, it's incredibly hard to measure it in a short cycle.

Jay Rasulo

Yeah. We have to acquire Marvel. So going in there was all this untapped IP. You heard it from us. You know, it was written up broadly, it’s 7,000, 8,000 characters, really untapped but just beneath that was also the sense that as a company of the size that Marvel was at that time, they simply did not have access to the worldwide markets, the way Disney does and you know they were using reps around the world, anybody who is in the licensing business knows you pay out 25% your revenue to be rep by companies around the world. And we knew we can sweep all that away on virtually on day one and give that business over to Disney people that were already in the market to sell.

We also knew that combining it with a sale of Disney licenses in regions around the world that we were more powerful together as Disney and than we were than Marvel could be on a free standing basis and that was sort of the early days. But we looked out and said this isn’t about taking a bunch of characters and trying to do better licensing deals.

This is about using the entire Disney ecosystem, the machine that Disney has for distributing content around the world against what were largely nascent properties as Spider man was doing well already, Iron Man had the inkling that it could do well, but by and large most of the Marvel characters and properties were pretty nascent. And we set our sights specifically on Avengers. With a strategy that we’re releasing what's called an Origin film for Thor, for Origin film for Captain America, who would eventually show up in the Avengers, of course Iron Man was already out there and then we end up introducing a few more characters into a hope was already out there that we would ultimately grow this thing.

So when we release the Avengers we did put the power of the Walt Disney Company behind that and I think for two years, we were incredibly patient and got asked lots of time the question you just asked me, about well what's going wrong Marvel and how is the integration going so on and so forth? Wouldn’t we knew all along that we were setting ourselves up for this huge event that we believed would have as I mentioned earlier compounding effects on all the future films for those characters and be in its own rights something that we seek a [little bit] and so on and so forth.

So anyway, the plans turned out exactly as we had hoped. We’re firing on all cylinders. We’ve now got television production both on the animation side and shield as I said. We’re looking at theme park application of Marvel. We use the IP and the digital space. It is just everything we had hoped for that acquisitions happening. So we feel great about the returns there, it is the, it is at least of our worries and we just hope and are starting to prepare for doing the same thing for Lucasfilm.

Unidentified Analyst

I’ll take you there. So that was a surprise, Lucasfilm acquisition and you just mentioned although Marvel things that you’ve been able to do. So like Marvel, do we need to wait and evaluate the returns of the box office or things you can do right now that can drive returns on Lucasfilm?

Jay Rasulo

Well, look, clearly we are as a company very focused on 2015 and the release of the next, the first film with the next Star Wars trilogy, but we are not sitting back on our laurels waiting for everything to happen. So if I kind of take through and then maybe there is some of this would be a little bit vague, but if I take through what is going on. So Lucas had the same situation with reps around the world outside of the U.S. and we’ve already sort of issued notice that we’ll take that in house.

We have already started to strategize and in fact taking on to the field with some pretty important licensing deals to us, sort of the combined force, Star Wars, Marvel and Disney and sort of presented that as a single unified idea and share the best offs across different ways of thinking about our contracts, we've announced that -- we've got that first film in 2015 and at the time of acquisition said we would come back with a Star Wars film every two years but subsequently have announced that we will do sort of origin stories or stories within the story and of the Star Wars world the years in between, so now we'll be coming out with the film every year that will be wrapped up in the Star Wars mythology.

We've also launched Star Wars Rebels as an animated television concept and we continue to really push the envelope on what can happen and while we're working on this will be a highly anticipated film release in 2015. So lots of stuff is happening a little below the surface by the way, lots of stuff was happening on the Marvel acquisition before the release of Avengers as well but we clearly know that this will be a big event for us and we'll be fully prepared to take advantage of it.

Unidentified Analyst

And is there a philosophical questions here, Disney has moved away with Marvel, Pixar, Lucas, from building it on buyable IP, to becoming a portfolio company that can successfully monetize other people's IP is that of statement about the ease or the challenge in building franchises going forward?

Jay Rasulo

No, I don't know so, you know if you -- you have to say that with Tangled and Wreck it Ralph Disney animation is really back hitting all Cylinders, those were two amazingly successful franchises, the first of which Tangled has already largely worked its way through the ecosystem, Wreck it Ralph, just beginning to work its way through ecosystem and if you look at the Disney channel, Disney channel now number one among kids programming, you know, franchises like Doc McStuffins and Jake and the Never Land Pirates, I mean these are incredibly powerful classical Disney franchises that you know, as you said, you and I are old and we don't have three and five years olds running around the house.

Unidentified Analyst

My son is about 19 year old.

Jay Rasulo

Three, five years but if you did have a three and five year old running around your house, you'd know all about Doc McStuffins and Jake and the Never Land Pirates. So I don't want to say that even though Marvel has a concept so huge. Star Wars is a concept so huge, you know, casts a very big shadow it doesn't mean that we're out of the IP creation business. It is, the IP creation is a DNA of Disney. There's an incredible expectation behind the Disney brand for what that means and it's not the same as Marvel and it's not the same as Star Wars and we continue to feed that pipeline.

We've got Monsters University coming out very soon. I think you're going to see that Pixar has kind of slid in to what people think of as Disney. It's been part of the company long enough to be that and then we've got Frozen coming out, our next animated release and you know, I think the IP that we're creating within the company, has just as much impact on some of the franchise we haven't talked about, like Princess, you know, Cars, Toy Story, as those things that we acquired.

Unidentified Analyst

Okay, let me take you through

Jay Rasulo

Sure.

Unidentified Analyst

Some of our questions here, one of the re-trends or the hot topic broadcast network, how quickly should we expect the ramp of re-trends to a $1 billion after you hit your target which was stated $400 million, $500 million so. When was the next level look like?

Jay Rasulo

You know, we've got, I'm not going to give any predictions about that. We've got we put our $450 million to $500 million number out there by 2015. We've got a long term deals that obviously have escalations part but I'm not going to into the details about.

Unidentified Analyst

Well, I remember from the moment when you put that (inaudible) out or the fees getting better than when you firstly imagined?

Jay Rasulo

Consistent with what we've put out.

Unidentified Analyst

Okay. As far not authenticated can you share your thinking on selling as far your first pay window for a films plus ABC.com and (Inaudible) strategy with non-authentic access given how important affiliate fees are so the strategy of allowing some of your better content to go to places that are not authenticated?

Jay Rasulo

Look, there's -- a content creator, from a pure economics basis or pure economist perspective we'd love to have more people out there looking for your content and the success your business strategy is how nimble you can be in making the right decision both from a short term economic perspective and long term structural perspective in the exploitation of your IP.

I've reviewed many, many times with all of you the principals under which we like to think about non-authenticated use of our IP, obviously we're huge beneficiaries of the authenticated ecosystem and we continue to value it and want to continue to strengthen it and I think we do that in every deal that we do and the bells and whistles that come with the multi-platform strategy we're using. But let's face it there are big dollars out there to be had for those who are finding a sort of opportunity in the non-authenticated world to provide a service that clearly is being demanded and as a content provider we want to take advantage of that and have been.

So I don't want to be too predictive about what our next deal will be, but we've talked to lots of people and I think as our job is to continue to create content that five people show up and want to do a deal to use including our authenticated world partners.

Unidentified Analyst

Okay. Couple on parks one is do you have increased confidence looking at parks that U.S. consumers is getting healthier and is there any kind of if you're just seeing to park level?

Jay Rasulo

Look, we cannot give you, I mean you get of course our reported numbers; we try to give you trends looking out every quarter at what we're seeing. We've seen, I don't, I guess by way of the fact that we're couple of weeks down the road, I'm updating what we said on our Q3 numbers, but we're seeing the same trends across the board that we saw, when we announced our Q2 results in terms of our bookings pacing, or for capital spending and so on and so forth.

So, I'd have to say that for every quarter that you continue to see improved results in that business, you have to say that the consumer is getting healthier. What I say stepping back from the observations of our own business that there's something indicating that all the clouds have separated in the world is a sunny place, I don't think so, I don't think we have enough information to know that.

Unidentified Analyst

Okay. A couple of on capital returned, one in light of many of your companies in your peer group taking steps to get smaller through asset sales and spin-offs. Can you help us think about how Disney views an EGP and all the businesses they are in now?

Jay Rasulo

Look, I think that we -- when we step back and we look at our businesses, we think that each and everyone supports the notion that we started with an hour ago about the Disney difference and what gives us the opportunity to distribute great content to just about every way it can be consumed. And some of those are through great partnerships and some of those are direct like theme parks in the network and I would say that where we don't see, we don't have any holes in our assets in our ecosystem that I feel like we need to buy something to fill it and nor on the flip side or we desperate to get rid of something because it's just a terrible fit now, other things that are more consistent with the Disney ecosystem then other say yes, there are something that are more consistent but we feel like living up to your fundamentally what we are a family entertainment company, a content creator and we're pretty happy with the mix of assets we have today.

Unidentified Analyst

Okay, one question on RFID, or so the question is, now it's technical is -- any additional details that you can share both financial or technical or update timing of role out for the projects, so what we are doing you'll be start to seeing it?

Jay Rasulo

Yeah, well, we have done a lot of pilots down there if you been down to Walt Disney world over the last two or three months you may well have been walking around wearing your wrist band we've done all the hotel room keys have been converted to our RFID and I think that the team just wants to live up to our reputation of being perfect when they launched this thing, it's a big undertaking and I think it has amazing, amazing value to consumers whether its in the pre planning and whether its carrying those plans around with you, whether its having the access to your planned itinerary via advance fast passes being able to make transactions in a seamless quick easy way being able to be exposed to opportunities because we know where you are and when you show up at the places if you so desire to opt in and I think opens up the world of opportunity go for consumers enjoyment of our property and our ability to retain loyal customers, increase the frequency of their visits, perhaps bring some people in who have been turned away by, frankly turned away by our success, number of people who are down at Walt Disney World or Disney Land on any given day as well as up-selling opportunities. So I think it's a huge win for consumers. I think it's a big win for us. As I said, I think by the end of this fiscal year, you are going to feel like it's rolled out but there are aspects of it that we will continue to be enhanced over time.

Unidentified Analyst

Fell like both from the cost not but also -- from opportunity part.

Jay Rasulo

Yeah. I think the revenue opportunities, and you know, remember that what we said on our last earnings call in some detail was that a lot of the revenue opportunity is literally increasing the volume of people and the amount of time that they spend with us. There will be other bells and whistles that tear in to that and maybe not all those will be available by the end of the this fiscal year but will be over time.

Unidentified Analyst

Okay, last question I think left because it's about sports and ESPN is you know, given the increasing value of sports rights, why not buy more teams in local markets and maybe begin to local market business in terms of local RSN business versus the national business?

Jay Rasulo

You know, we've done a lot of -- you know obviously, lot of chatter about RSNs and you know, the incredible numbers that have been attributed and associated with their services. You know, we've really had the chance to think strategically about what we are and what they are and we like to believe at ESPN that we are a network for sports fans. RSN's are generally a network for, call it whatever, Dodger fans, Yankee fans and we like our positioning as being just sort of number one brand in sports for sports fans and if I am interested in sports, I am going to turn on ESPN as opposed to if I am interested in the Chicago Cubs; I am going to turn on XYZ. So I don't see as moving into that business, I think we're happy with the definitions the business as we see it and we're good at it. And fans and advertisers and our MVPD partners tell us that every year. In 13 consecutive years we've been the number one value of network. I feel like we know the business we're in, we'll stick to it, okay.

And with that, thank you so much.

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