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Executives

Lowell Singer - Senior Vice President, Investor Relations

Thomas O. Staggs - Senior Executive Vice President and Chief Financial Officer

Robert A. Iger - President and Chief Executive Officer

Analysts

Anthony Noto – Goldman Sachs

Jessica Reif-Cohen - Merrill Lynch

Doug Mitchelson - Deutsche Bank

Anthony DiClemente - Lehman Brothers

Imran Khan - J.P. Morgan

Heath Terry - Credit Suisse

Jonathan Jacoby - Banc of America Securities

Michael Morris - UBS

Jason Bazinet - Citigroup

Tuna Amobi - Standard & Poor’s

David Miller - F&H Capital

The Walt Disney Company (DIS) F4Q07 Earnings Call November 8, 2007 4:30 PM ET

Operator

Welcome to the fourth quarter 2007 Walt Disney Company earnings conference call. (Operator Instructions) I will now like to turn the presentation over to your host for today’s conference call, Mr. Lowell Singer, Senior Vice President of Investor Relations of the Walt Disney Company.

Lowell Singer

I want to welcome everyone to our fourth quarter 2007 call. Today’s call is being webcast and the webcast can be accessed on our Investor Relations website. The press release was issued a few minutes ago and is now available on the website, and we will also provide a replay of the call, as well as a MP3 file and an archived, written transcript of today’s remarks on the website.

We’re actually in New York for today’s call and here with me are Bob Iger, Disney’s President and Chief Executive Officer, and Tom Staggs, our Senior Executive Vice President and Chief Financial Officer. Bob is going to lead off; Tom will follow up with some comments and then we’ll open up the call to your questions. I hope you will stick around after the Q&A, because I am going to read through some very exciting changes to our safe harbor provision that I think you’ll really enjoy.

With that, I’ll turn it over to Bob.

Robert A. Iger

Good afternoon. I’m pleased to report that we’ve had another year of outstanding financial results. We posted record net income, record segment operating income and record earnings per share for our 2007 fiscal year, bolstered by a strong fourth quarter performance.

These results stem directly from our emphasis on the creation of high-quality content across all of our businesses, backed up by clear strategy for maximizing the value of that content across platforms and markets. Our performance over the last two years highlights the Disney difference; unique factors we believe can create sustainable shareholder value and which set us apart from our entertainment industry peers.

At Disney, we have strong, recognizable and relevant brands that help us to cut through an increasingly cluttered media landscape, getting us on train to new platforms and new geographical markets and giving us access to more consumers.

Disney, ABC and ESPN are each managed in a highly-integrated manner, allowing us to maximize the value of our hit creative properties and, in the case of Disney in particular, to extend them as franchises. We have at our disposal, unrivaled promotional power through our many distribution outlets.

This gives us a tremendous advantage in executing our core strategies of creating high-quality, creative content and experiences; of using technology to expand consumer access and reaching into promising, high-growth international markets. We believe it allows us to reduce risk and to manage through economic cycles with a higher degree of certainty than our peers.

Perhaps the most prominent example of the Disney difference at work is Disney Channel’s High School Musical, which has set global performance records across multiple categories, becoming ubiquitous on stage, screens, online, in-stores and even on ice, and having a positive financial impact across all of our divisions. The sequel, High School Musical 2 debuted in August to the largest ever audience for a cable broadcast, and to date, some 100 million viewers worldwide have tuned into the movie.

Then, there’s Hannah Montana, another bona fide cultural phenomenon, now the number one cable series for kids 6 to 14. Hannah has also yielded two number one records, a sold-out national concert tour and a winning merchandise line that encompasses everything from video games to Halloween costumes.

High School Musical and Hannah Montana speak to our tremendous ability to create and grow new franchises. Great Disney content can live on for generations. The platinum edition DVD release of our 18-year-old film Little Mermaid last year was a huge hit with consumers, selling 9 million copies worldwide, and setting up the arrival of the Broadway stage show which opens next month.

This past year brought many examples of how we’re building on and extending the lives of some of our favorite franchise properties, from the hit Disney Channel series for preschoolers, My Friends Tigger and Pooh, to DisneyFairies.com where kids have created nearly 3.3 million fairies of their own.

We will soon open Toy Story mania at Disney’s California Adventure and at Disney’s Hollywood Studios in Orlando, where families will get reacquainted with Woody, Buzz and the gang in a 3-D interactive environment. Fans of Pirates of the Caribbean can now test their wits against Jack Sparrow and his crew at our recently launched, massively multi-player Disney.com Virtual World.

Our studio posted its highest operating income in its history, while releasing substantially fewer movies than in recent years. Pirates of the Caribbean: At World’s End was the number one movie of the year globally and at nearly $1 billion in box office – the fifth highest grossing movie of all time. Ratatouille, the best reviewed movie of the year, has just passed $580 million in worldwide box office, breaking several European box office records and making it the third highest grossing Pixar movie. The studio also had solid comedy hits with Wild Hogs and The Game Plan.

DVD, Blu-ray and digital sales of Pirates and Ratatouille are rolling out now through the holiday season, and we are very enthusiastic about several up-coming films, including Enchanted, which opens on the 21st; our Christmas release, National Treasure: Book of Secrets, and for next year, the second installment of our Narnia series, Prince Caspian, and WALL•E, another Pixar tale with an unusual protagonist.

The addition of the Pixar team has helped us sustain a creative hot streak that’s had huge benefits across the company, as had the full incorporation of their great characters and stories in our franchise portfolio, particularly in our parks and resorts.

Our parks and resorts unit had yet another solid year, increasing attendance and benefiting from higher per capita spending. The Year of a Million Dreams campaign has resonated with our consumers; so much so, we are extending it for a second year. Walt Disney Imagineering is constantly incorporating new technologies in our attractions, such as the newly opened Finding Nemo Submarine Voyage at Disneyland.

We’re making a significant investment in success of the Disneyland Resort by expanding Disney’s California Adventure over the next several years, adding new family attractions, entertainment, and an entirely new land, Cars Land, which makes real the virtual world of our hit movie, and the source of one of our best-selling license merchandise lines.

We’re also launching several projects that give consumers the opportunity to enjoy high-quality Disney family experiences outside of our parks. We’re building two new spectacular cruise ships and developing a new resort at a stunning Hawaiian location. New Disney Vacation Club properties at that resort and at the Grand California Hotel at Disneyland Resort will build on the great success we’re having with that business and the trust consumers have in the Disney vacation brand.

We’re also very gratified by the performance of our broadcast and cable networks, at a time of sweeping change in the way consumers seek and enjoy their entertainment. I remarked earlier on the amazing success of the Disney Channel, but our emphasis on great content and innovative application of technology is allowing us to reach more people, more often, across the multiple digital platforms that now make up the ABC network and ESPN. This emphasis is critical as we compete for an audience which has unlimited entertainment options.

ABC’s fall season is off to a good start, with the network leading its rivals by a wide margin with young, upscale adults and benefiting from a strong scatter market. New shows Private Practice, Pushing Daisies, Dirty Sexy Money and Samantha Who? are bolstering our already solid lineup of primetime programming that includes Grey’s Anatomy, Desperate Housewives, Ugly Betty and Dancing with the Stars.

For the first six weeks of the fall season, we have five of the top seven rated new primetime shows, including the number one new drama and number one new comedy, both produced by ABC Studios. In fact, Samantha Who? is currently the season’s most-watched sitcom, new or returning.

In the years since ABC.com Player was launched, viewers have started around 160 million episodes, adding to 33 million downloads of our shows purchased on the iTunes store. These viewers are younger, more affluent and boast an impressive ad recall rate. By pairing our great content with these digital technologies we are creating a more direct connection with the consumer, delivering more targeted messages for advertisers, and collecting better information about who our consumers are and what they want.

ESPN, the number one worldwide brand in sports media, has been a pioneer in unlocking value by using digital technology to create new fan experiences. In fiscal 2007, ESPN again produced strong growth on the basis of the compelling cross-platform programming it creates, for everything from the NFL to NASCAR. ESPN continues to build its brand internationally, this past year acquiring key multi-media properties in sports like rugby and cricket, as well as the leading cable broadcaster of US sports in Europe.

Our push-the-harness digital technology on behalf of consumers took a giant leap forward earlier this year, when we launched the all-new Disney.com. Already the number one family website, Disney.com is reaching over 20 million monthly unique visitors and has become a great showcase for concerts, special events and immersive virtual worlds, filled with Disney characters and stories. Our acquisition of Club Penguin, a highly successful kids’ virtual world site, adds an exciting new dimension to Disney’s Internet efforts, and gives us a great new franchise to build upon.

It’s also worth mentioning that we are making solid progress in building our console gaming business – another promising creative engine for Disney. In fiscal 2007, we acquired several specialty games studios and shipped a record 20 million published and licensed games, with the focus shifting increasingly to what we create and develop ourselves. We are now the number one game-maker after Nintendo for its DS system, the most popular player among pre-teens.

Disney is also rapidly expanding its global reach; we’ve successfully penetrated some of the world’s most promising markets. In India, we now have three popular television channels, a growing consumer products operation and a green light to Hindi language animated films.

In China, where the media market remains restricted, we now have 4800 Disney retail corners, our flagship Hong Kong theme park and the hit TV show In Mickey Mouse Playhouse. In Russia, a combination of television program sales and live shows is bringing Disney into people’s lives like never before.

We believe great popular entertainment created locally is increasingly what audiences want; our first film made for the Chinese market, Secret of the Magic Gourd was broadly distributed during last summer’s school holidays and warmly received by audiences. We plan to invest $100 million in such locally-made films over the next 2 to 3 years.

We remain committed to financial discipline, investing in those areas where we can deliver superior returns. Our improved results have led to improved returns on invested capital, which are a clear reflection of our ability combine creative excellence with a sharp focus on the bottom line. We have an agile, experienced management team, an unparalleled portfolio of creative assets and a clear strategic vision for maximizing returns.

The Disney brand has never been stronger; it is clear from our 2007 results, from what we are hearing from consumers worldwide, and it is perhaps best illustrated by a strong portfolio of franchises that has delivered our recent growth and we expect will deliver growth for the years to come.

We thank you very much for your support, and with that, I will turn things over to Tom Staggs.

Thomas O. Staggs

Thank you for joining us on the call today.

We use three key financial metrics to assess our company’s overall performance and to gauge how well our strategic initiatives are translating into delivering value for our shareholders: earnings per share, return on invested capital, and free cash flow.

We’re pleased to report solid performance against all three measures again in fiscal 2007. As importantly, these results were driven by strong performance throughout the company, as we capitalized on creative successes across our many lines of business. Our media networks were the biggest driver of our growth, for both the full year and the fourth quarter, led once again by ESPN.

ESPN benefited in the fourth quarter from the timing of revenue deferral, as we recognized $188 million more in deferred revenues than we did in the prior year. In addition, ESPN’s ad sales were up 30% in Q4 versus the prior year, and we’re up double digits even if we exclude the benefit we received from the addition of NASCAR events to our schedule.

Disney Channel also continues to be a great success story for us. Disney Channel’s total day ratings for the key demos were up over 12% this year versus last, and in the fourth quarter, Disney Channel had the second highest quarterly primetime total viewer ratings ever across all cable networks. By the way the highest quarterly mark was set by ESPN in fiscal Q1 of this year.

Of course Disney Channel’s creative success helped drive growth in other businesses, like music and merchandising, and also fueled the expansion of the Channel and the Disney brand around the world. In broadcasting, ABC Studios hit shows drove demand across the platforms and syndication windows, helping broadcasting deliver fiscal year operating growth of 48%.

Broadcasting results were down somewhat in Q4 due to syndication sales of According to Jim and Scrubs in the fourth quarter of fiscal 2006, as well as the previous shut-down of the Disney MVNO and the absence of the ABC show Lost on DVD in Q4 of this year. For Lost fans out there, the third season DVD will be available on December 11th. Also in the fourth quarter, the strong ad market resulted in TPMs that were significant double-digits above upfront levels, which together with higher sold inventory largely offset the impact of softer ratings at the network.

As Bob mentioned, Studio Entertainment delivered record profit this year on the strength of Pirates of the Caribbean: Dead Man’s Chest and Cars on DVD. Over the last few years, we have reduced our overall investment in film, while focusing more on Disney-branded movies and the Studio’s success in 2007 helps demonstrate the benefits of that approach.

As we expected, Studio Entertainment operating income declined in the fourth quarter given the difficult comp created by the theatrical release of Pirates of the Caribbean: Dead Man’s Chest in the fourth quarter of 2006, and the roughly 20% decline in home video unit sales driven by a higher number of catalogue title sales in the fourth quarter of last year.

We’re also extremely pleased with the continued strong performance of our parks and resorts. For the full year operating profit was up 11%; segment margins improved by 60 basis points. The success of the Year of Million Dreams marketing initiative in our domestic parks helped them achieve record attendance in 2007. Disneyland Paris also generated record attendance, driven by new Pixar-based attractions and their 15th anniversary celebration.

In the fourth quarter, combined attendance at our domestic parks grew 5%, led by increases at Walt Disney World, which more than offset a modest decline at Disneyland versus the tough comps created by our 50th anniversary last year. Guest spending at our domestic resorts grew 2%, while Disney World occupancies were up roughly 7 percentage points to 90%, with Disneyland’s occupancy level coming in very close to Q4 of last year at 91%. Per room spending increased by 2% across our domestic resorts.

As we discussed, Hong Kong Disneyland has been less successful initially than we had hoped; however we continue to believe in the potential of this property and we anticipate additional investment in the park to help drive its success.

At consumer products, merchandise licensing continues to drive our performance as successful Disney releases and Disney Channel shows enable us to diversify and strengthen our product portfolio. Robust demand for Cars, Pirates, High School Musical and Hannah Montana products contributed to double-digit increases in earned royalties for the fourth quarter and for the year. We are pleased in the results for 2007 but as you would expect, our attention is focused on continuing that success.

Although we do not give earnings guidance I would like to touch on some of the factors that will likely influence our results in 2008.

Concerns over the economy and more specifically over travel and tourism and the ad market are considerations for many companies this year. While these factors can certainly impact our 2008 results, thus far, our businesses remain strong and we have not seen indication of a downturn.

At our domestic theme parks, rooms on the books and attendance-to-date for the first quarter fiscal 2008 are currently mid-single digit percentages ahead of last year.

At media networks, the advertising marketplace remains very healthy. ABC’s scatter pricing in the first quarter 2008 is running strong double-digit percentages ahead of upfront pricing. While some of that shrink in scatter pricing is driven by tightening supply, underlying demand in the marketplace is very strong.

Advertising in our cable networks is also solid, with ad sales coming up double-digits in the first quarter.

Now it’s premature to speculate on any financial impact from the Writer’s Guild strike; however, in the event of an extended walkout we would see the impact in television first. Those results would be impacted later, probably not until 2009. Of course, we will pursue opportunities to reduce costs in order to mitigate any impact from a prolonged work stoppage.

Studio Entertainment faces the toughest year-over-year comparisons in 2008 given the tremendous results in 2007. Key drivers in performance will include three first quarter home video releases, Pirates 3, Ratatouille, and High School Musical 2 and the four theatrical releases Bob mentioned earlier.

At consumer products, we continue to invest in our merchandise licensing capabilities as we believe there are further opportunities to grow across character franchises and product categories.

We’ve also been pleased with our video game results from both the creative and sales standpoint and we will further ramp up our investment in this business.

We incurred roughly $130 million in product development costs in 2007, and we expect to invest approximately $175 million in development spending in 2008. Our bigger game releases this year include titles based on Prince Caspian, High School Musical and Hannah Montana.

We expect to increase our investment in a number of strategic growth opportunities this year, including Disney Vacation Club, Disney online, Virtual World and other digital media initiatives, and in film and television programming, both domestically and in markets outside the US.

In 2008, we expect our overall capital expenditures to increase by approximately $250 to $350 million; most of the increase will be used to further develop our digital capabilities at Media Networks and Studio Entertainment, while the remainder will go toward investment in our parks and resorts, including some initial spending to expand and enhance California Adventure at the Disneyland Resort.

Our primary objective is to manage and invest for growth and shareholder value and our approach to allocating capital reflects that objective. Given our significant pre-cash flow over the past several years and our expectation of continued strong cash flow, we believe that maintaining a disciplined approach to reinvesting that capital is critical to maximizing value for shareholders.

Our first priority is to invest in existing businesses or new growth opportunities that can generate attractive return. We also expect that over the next 3 to 5 years we will find additional attractive acquisition opportunities that will more than likely be small to medium size. Obviously any acquisition would need to meet all of our financial and strategic criteria. Our Club Penguin acquisition last summer is an excellent example of just such an opportunity.

In addition to internal investment and acquisitions, we expect to continue to return cash to shareholders by both buybacks and dividends. During fiscal 2007, we repurchased over 200 million shares of Disney stock for approximately $6.9 billion, with just over 50 million of those shares purchased in the fourth quarter. Since we began our share buyback activities about 3 years ago, we have repurchased over $17 billion of our stock, while at the same time strengthening our financial position.

Bob spoke earlier about the Disney difference: we believe that this competitive advantage allows us to generate higher returns on successful branded content and that effect was evident in 2007. More importantly, we believe it positions us extremely well to deliver attractive earnings growth in the years ahead.

Consider the tremendous number of important and valuable branded franchises of the Company; franchises like High School Musical, Hannah Montana, the Disney princesses, Cars, Toy Story, Lion King, Pirates of the Caribbean, Fairies, and of course, Mickey Mouse and Winnie the Pooh.

High School Musical is a particularly good example: this franchise contributed more than $100 million to operating income in fiscal 2006 and fiscal 2007 combined. Even with the success of High School Musical 2 around the world, we expect to see an even bigger impact from the High School Musical franchise in 2008.

The growth in the combined contributions in all these franchises demonstrates the value of the Disney difference. Our key brands, most notably Disney and ESPN, and the high-quality content and experiences we create and distribute under them, provide us a base of business from which we can grow in our existing businesses, as well as through new platforms and technologies and across markets around the world.

With that, I’ll hand the call back to Lowell for Q&A.

Question-and-Answer Session

Lowell Singer

Thanks Tom. Operator, please open the lines; we are happy to take the first question.

Operator

Your first question comes from the line of Anthony Noto – Goldman Sachs.

Anthony Noto – Goldman Sachs

Tom, first question for you. Obviously the top line results for theme parks continue to be very strong but I think the margins were down on a year-over-year basis for the first time in a number of quarters, so I was wondering if you could talk a little bit about some of the details there.

And then Bob, obviously return on investment capital remains a key focus for the management team in driving the shareholder value. By my calculation, it is up to about 9.2% in ’07 and up about 3.9% in ’02. I think there’s a lot of skepticism that that can continue to increase. Where do you think that goes longer term? And are you compensated specifically on that number? Thank you.

Thomas O. Staggs

With regard to parks, the key thing to know is that the margin decline that you saw in the fourth quarter was driven solely off of the international parks activities. Some foreign exchange differences at Disneyland Paris but also the results at Hong Kong Disneyland. If you take a look at the domestic parks by themselves, we actually saw some margin expansion in the quarter as we will continue to try to work for going forward.

Robert A. Iger

On the ROIC question, first of all, it has been a significant component from a [inaudible] perspective in the determination of not just my compensation but the compensation of a number of top executives of the company, and every decision that we make in terms of CapEx spending we make with an eye toward delivering returns that we consider to be acceptable. And in fact as a goal, we are determined to improve our returns on capital, which we’ve been doing, as you noted, over the last number of years.

In terms of where it goes, I can only tell you that our targets in terms of the decisions we’ve made so far would have us delivering improved returns overall on our invested capital. Specifically on the so-called big ticket items, we made three key decisions in the last year about the theme parks, each one with an eye toward improved capital returns but each one for different reasons.

We continue to invest in our vacation club business where ROIC has been strong for quite a long time, and we believe we’ll be able to continue to maintain that strength.

On the cruise ship side, as all of you know, we’ve had double-digit returns on invested capital, our investment in the two new ships are designed to continue those strong returns, and we believe we’ll be able to, or we would not have made that decision. And then lastly, in California Adventure, let’s face it, we had a problem with California Adventure. It was not as successful and the returns on that investment were not as strong as we would like.

As we looked at this entire Disneyland resort and we considered the most recent success, we concluded that the only way we could grow that business would be to fix and expand California Adventure, and in doing so, we intend fully to improve capital returns but we are also using a critical asset, Pixar, to help do that. Everything that we have done in the parks that’s Pixar derivative has been enormously successful; the most recent, the sub ride at Disneyland. And so using Cars Land to anchor California Adventure is not only right creatively but we think it’s the best thing we can do to strengthen returns on invested capital.

Anthony Noto – Goldman Sachs

Great. Thank you.

Lowell Singer

Thanks, Anthony. Operator, we’ll take the next question.

Operator

The next question comes from the line of Jessica Reif with Merrill Lynch.

Jessica Reif-Cohen - Merrill Lynch

Thanks. Can you discuss the impact of the U.S. dollar? I guess of course your business, but in the theme parks, are you seeing -- I guess what are you seeing from the international visitor side and what are your expectations that the weak dollar will keep U.S. consumers closer to home and therefore in your parks?

And a completely separate question; music seems to be this little hidden gem for you guys. How big is it now?

Robert A. Iger

Tom, you can go over the numbers on the theme parks. I just want -- one comment on the currency issue and I think you touched upon exactly what we are seeing. I think people immediately conclude that because the dollar is weak, particularly against European currencies, notably the Euro and the Pound, that more Europeans will be coming to the parks. In fact, we’ve had some decent growth in international visitation but not up to the point that we saw back in the early part of this decade. So in other words, it hasn’t quite bounced back as far as it had been in 2000 in particular.

What we are seeing though is that even though Europe had a pretty good summer in terms of American tourism, by and large our tourists, the people who are visiting the Disney parks, are probably staying closer to home, meaning taking more domestic vacations than they may have been if the dollar was stronger against European currency. That sort of upper middle class which might have gone to -- might be going to international destinations under different currency circumstances is staying more put domestically.

Thomas O. Staggs

With regard to -- just looking at the attendance trends, the international attendance has been strong. We saw it strong in the fourth quarter. In fact, it was up low double-digit percentages versus the prior year.

Interestingly enough, domestic tourist attendance was also strong at Walt Disney World, and so it syncs up with what Bob was saying. So if you look at the dollar overall on our business, first of all the currency fluctuation doesn’t have a dramatic effect in any one year because of our hedging program, but over time, obviously, we can see some impact in terms of the difference in our businesses and the value of what we sell internationally. But that effect thus far has been modest.

Robert A. Iger

On your question regarding music, as you know, we don’t report music out separately. It’s part of the studio. Another reason it isn’t reported out separately is the way we are running the music business right now is really multi-platform in approach. We create music both through our record group but also on other platforms, notably the Disney Channel. And we are using this multi-platform approach to turn a business that not long ago was losing money into a business that has become highly profitable.

To put it in perspective, over $100 million in what we call operating income, and we believe it has the chance to be one of the most successful new music businesses in the music industry.

What I find interesting about that is that multi-platform approach, which was definitely a strategy of ours, is the exact same thing that we intend to apply to our video business. So where in music, you have the Disney Channel and Radio Disney and the music group and the studio and other platforms.

In our videogames business, we are doing the exact same thing. And so where a publishing company on the outside in the video games business, they may not have a cable channel or a movie company or even a record business, or a radio business. We have all of those -- and online is the other example -- and we intend to use them fully to do exactly what we did in the music business to our videogames business but on a much larger scale.

Lowell Singer

Thanks, Jessica.

Operator

Thank you very much. Ladies and gentlemen, your next question comes from the line of Michael Nathanson of Sanford Bernstein. Please proceed.

Michael Nathanson - Sanford Bernstein

Thanks. I have one for Bob and one for Tom. The question I have for Bob is historically, when you look back, how long in advance of people’s trips to the parks do they start booking those trips? I guess the question is when will today’s consumer plan their trip to go to your parks?

Robert A. Iger

That’s a good question, Michael. That window has narrowed over the years and while I don’t think we’ve seen a more narrowing, it’s gotten a lot narrower than it used to be. In other words, we don’t -- it’s sort of flattened out at this point. Visibility is more a few months in, maybe if you’re lucky you get out to a second quarter as opposed to the old six month/nine month cycle.

Tom talked a little bit about bookings in the first quarter being up over last year at our parks. I can tell you that bookings for the second quarter and the third quarter are up significantly. I have to say though that in the third quarter, you are not talking about that much booking because of the window issue that I talked about. So while we are up at this period, we are up now versus a similar period last year nicely in the third quarter, it’s still pretty early.

The second quarter is interesting because we are looking at substantial improvement and we find that’s interesting because of what’s going on in the economy and we might not be, by the way, as leading edge as we used to be in terms of -- or at it being an indicator. We might be more lagging than that, but so far we are not seeing an impact on everything that’s going on in the economy.

Gas price is an interesting one. I talked to the head of our international, our global parks today. We have a big, for instance, a big RV park at Orlando and I would think that they would be hit the hardest because it is pretty expensive to fill up a tank in one of those babies. And those parks have been completely full, and there’s demand on the RV parks going forward from a bookings perspective.

So it appears that even though there are definite issues in the economy, people are not giving up their family vacations, particularly to Disney destinations.

Michael Nathanson - Sanford Bernstein

Thanks, and then I have one for Tom, which is there’s been a lot of chatter about the make good status of broadcast TV, whether or not all make goods from the previous season have been completed, so can you talk a bit about where ABC stands on make goods from last year? And are you delivering the audiences this season that you expected from the start of the year?

Thomas O. Staggs

Yeah, we had some make good carryover from last year, so our Q4 -- calendar Q3 to this calendar Q4, our fiscal Q1. But as we look at it now, we feel very good about where we are in terms of the stewardship situation. I don’t expect to be in a difficult make good situation come the end of the quarter at this point.

And in terms of audience delivery, all the networks save one are down a little bit year over year but not dramatically so, and it’s within the stewardship levels that we anticipated going into the up-front.

So I would say that we are in reasonably good shape and certainly by being in good shape, we have the opportunity to take advantage of what is an extremely strong advertising market right now.

Lowell Singer

Thanks, Michael. Operator, we’ll take the next question.

Operator

Thank you very much, sir. Ladies and gentlemen, your next question comes from the line of Spencer Wang of Bear Stearns. Please go ahead.

Spencer Wang - Bear Stearns

Thanks. Just two quick question, the first is for Tom; your balance sheet, your leverage ratio is well under two times now. Outside of reinvesting the core businesses, would you consider accelerating the share buy-back?

And then the second question is can you just tell us what your expectations are for your pension and post-retirement medical cost assumptions for fiscal ’08? Thanks.

Thomas O. Staggs

Sure. With regard to the balance sheet, we’ve said in the past that we were targeting that single A minus, single A sort of rating level. I guess we’re at the strong end of that. I am not overly concerned about it having gotten too strong. But at the same time, we are also not looking to dramatically decrease our leverage from here.

So as I mentioned in the prepared remarks, you should expect the share repurchase to continue despite the fact that we think there are opportunities to invest for growth in our existing and new lines of business.

So I guess that’s my way of saying don’t look for a dramatic acceleration of the share buy-back program, but I think you can expect us to continue to buy back shares, given our expectations of strong cash flow going forward.

And then with regard to pension and post retirement medical, the change in that will not be a big driver in 2008. There will be a very modest reduction, I expect, in the expense of that due to a change in interest rates but again, not a big driver at all.

Spencer Wang - Bear Stearns

Thank you.

Lowell Singer

Thanks, Spencer. Operator, we’ll take the next question.

Operator

Thank you very much, sir. The next question comes from the line of Doug Mitchelson of Deutsche Bank. Please proceed.

Doug Mitchelson - Deutsche Bank

Thanks. Good afternoon. If I look across your branded properties, it seems to be the most under-monetized are the Pixar brands. I mean, everyone on this call knows Toy Story and Finding Nemo, Incredibles, Cars, now Ratatouille has been so successful internationally. But at one Pixar film per year, it seems Disney’s not in a position to fully monetize these properties.

Bob, I know you are intensely focused on brand monetization, so do you agree with that statement and when might we see a solution to that problem?

Robert A. Iger

I agree with you that there is definitely value both to the Pixar brand overall. When that name’s on a movie or a DVD as a for instance I think it has real value to consumers, but also specifically to those franchises. We are working hard at mining those franchises, both on the big screen and in other ways.

Toy Story is clearly an obvious one as it relates to the big screen and we are in production on Toy Story 3, that we feel really good about. We know the story already and are looking forward to that release a few years from now, 2010.

Cars has turned out to be a tremendous franchise for us. Interesting, over 85 million of those die cast cars have been sold to date. You can add another 4 million or 5 million above that when you add what’s been sold at our various Disney properties, and you get an incredible number. It’s one of the strongest toy franchises out there and in fact, the numbers went up in 2007 versus ’06, which is the year that it was release and we have high hopes for that in ’08 and beyond.

And so we are developing online a virtual world for Cars that we are quite excited about, and I don’t have anything further to say about other big screen development at Pixar beyond what we’ve announced, but it would clearly be considered a candidate for a sequel.

In terms of the others, there’s definitely opportunities but again, we are not just looking at big screen possibilities and sequels. We are looking at new means. Our very recent experience with Club Penguin suggests that you can engage people, notably kids, by immersing them in these online worlds pretty deeply and heavily and keep franchises alive in ways that are I think quite attractive long-term for the company.

So when we think Pixar, we definitely agree that there’s more to be mined but we are not going to mine the value in one way. It will be multiple ways.

Doug Mitchelson - Deutsche Bank

Thank you.

Lowell Singer

Thanks, Doug. Operator, we’ll take the next question.

Operator

Thank you very much, sir. The next question comes from the line of Anthony DiClemente of Lehman Brothers. Please proceed.

Anthony DiClemente - Lehman Brothers

Thank you. A question for Bob; Bob, relative to the other broadcast networks, it’s clear that ABC’s content is available on the fewest number of distribution channels and it might seem like the presence of Steve Jobs on your board may have an impact on your strategy on digital TV distribution, both on the pay-per-download side, where iTunes is your primary distributor, and on the free TV side, where it’s more of a closed architecture.

My question is would you agree with that assessment? What do you see as the key benefits of that closed architecture approach and do you think that the limited number of distribution channels for ABC is actually driving incrementally stronger demands for your TV content? Thanks.

Robert A. Iger

Well, we just did a deal recently with AOL which is a pretty significant platform in terms of distributing our product, and we are going to continue to take an expansive point of view in terms of where we distribute the product, meaning there will be more places than just iTunes, abc.com and AOL.

But we have pretty high standards in terms of the platforms that we put them on. What we found in a lot of the deals that had been made, when you take a look at the platform, whether it’s the positioning of your content or the quality of the user interface, we think it’s unlikely that value is going to be created there, and so what we are looking to do is actually create value with a high quality user interface, so that more consumers consume the shows. And also an environment that we feel is simply right for the programming that we create and not lumped in with the massive product that’s put on the Internet, branded and unbranded, high quality, low quality, in some cases no quality.

And again, we’ve had an interesting debate because we’ve massed a lot of our content online on abc.com with an eye toward essentially mining a little bit of brand value out of that platform and also using it to upsell the market other things that ABC is doing.

It’s also become a pretty good platform for advertisers that we can integrate well within our overall network sales effort. But I think long term, if we are going to drive greater circulation for those shows, we’ll have to put them on more platforms. But we don’t believe we need to put them on any platforms.

Anthony DiClemente - Lehman Brothers

Thank you.

Lowell Singer

Thanks, Anthony. Operator, next question, please.

Operator

Thank you very much, sir. Ladies and gentlemen, your next question comes from the line of Imran Khan of J.P. Morgan.

Imran Khan - J.P. Morgan

Thank you for taking my question. Two questions; number one, Tom, can you give us some swing factor to understand how should we think about the media networks cost structure growth next year?

Secondly, studio had a great year. As you said, your Disney branded strategy is working. How should we think about normalized margins for studio over the three years or so? Thank you.

Thomas O. Staggs

Swing factors at media networks, as you I think are pointing out, beyond the revenue side that I discussed earlier, of course, it’s the programming costs that are the primary swing factors.

I would expect that if you look at the network, you will see some increase in the average cost per primetime entertainment hour, that you would expect that because we have a number of returning hit shows. But where it really comes out will depend of course on the number of new shows that are successful, how long they run, et cetera and what would be put in place of any shows that don’t make it.

The programming costs also would be impacted potentially to the extent that the writers’ strike went for a long period of time, and there again we would look to respond in part by mitigating costs.

If you go beyond that, you’ve got the first complete year of NASCAR coverage at ESPN, which will of course impact their programming costs, and that’s the biggest driver there.

And then I alluded to it earlier, we are continuing to invest in original programming at the Disney Channel. We are doing that domestically and internationally. We are investing in programming at ABC Family as we continue to see good results there, but I would point out that ABC Family this year does not have Major League Baseball expensed against it where it did last year.

So on the whole, I think you will see a net greater investment in film and television. We think that investment overall is going to help driver longer term growth. And per the conversations we’ve had today and earlier, there’s a lot of focus on doing that under our key brands where we think we earn the strongest returns and have the best opportunity to leverage that programming across multiple platforms.

With regard to the studio and the studio margin, the studio [has had] a great year this year. I believe that they are positioned to deliver more consistent strong margins, like the strong margins they had this year, by virtue of the fact that their focused on the Disney brand, et cetera.

Margins in any given year could be impacted by the degree and the level to which we have hits. That’s the nature of the business. It’s somewhat hit-driven. The good news is that as businesses like music, as Bob discussed early, stage play, et cetera, grow within the studio, I think you could see more predictability and more stability to those margins. While we don’t target or disclose publicly a specific margin for the studio business, I think you will see consistently higher margins out of the studio in the coming years as opposed to if you look back at the last five.

Imran Khan - J.P. Morgan

Thank you. That’s helpful.

Operator

Thank you very much, sir. Ladies and gentlemen, your next question comes from the line of Heath Terry of Credit Suisse.

Heath Terry - Credit Suisse

Thank you. You mentioned the strength in international travel to the theme parks that you are seeing due to the weak dollar. Can you give us an idea of what kind of mix you are seeing now and how that compares with what you’ve seen in the past?

Thomas O. Staggs

If you look at the international attendance, that had been up around a little over 20% of the total attendance. It dropped down to something close to the mid-teens at the low point after 2001. Now it is closer to around 18% or so, so in terms of mix, it’s not quite back to where it was before and we think there might be room to continue to push that up, but it has recovered nicely in terms of percentages form where it had been just after 9/11.

Robert A. Iger

The other thing to note when we talk about international tourism, it’s not just about the currency. Traveling to the United States isn’t as easy as we believe it could or should be. In some markets, not EU markets, but in some there are huge visa complications, and in others there are infrastructure issues -- quality of airports, difficulty from a security perspective, some of that, of course, we understand and tolerate but it’s clear from some of the work that we’ve done, particularly in Europe, that Europeans view traveling to the United States as much more difficult than it used to be, and that I think has had an impact.

Lowell Singer

Thanks, Heath. Operator, we’ll take the next question, please.

Operator

Thank you. The next question comes from the line of Jonathan Jacoby of Banc of America Securities. Please proceed.

Jonathan Jacoby - Banc of America Securities

Good afternoon. Thanks for taking the questions. Just following up on the park visibility, and not to harp on this but when you look out two quarters, how much different in terms of -- because you keep saying the tightness. I’m just curious how much less visibility you have. And then in terms of advertising, are you seeing -- national is clearly strong, you spoke about the strong scatter markets in both cable and broadcast. But I’m wondering at your local TV stations, if you are seeing any different trends. Thanks.

Robert A. Iger

On the parks visibility question, it narrowed a couple of years ago -- actually, probably more than a couple, just post 9/11. And it hasn’t narrowed more since then, so we really -- we look at it. We have bookings a few quarters out but the significant bookings just in terms of volume are more like one quarter out. You are talking basically three to four months.

So when we talk about growth and bookings for our fiscal second quarter, we feel pretty good that the early indications suggest that it should be a decent quarter there. And we’ll talk about the third quarter, even though we are up nicely, we’re talking about relatively few rooms on the books at this point.

On the advertising front --

Thomas O. Staggs

Local TV stations are -- if you take a look at the fourth quarter, local TV stations ad revenues were down about 4%. Now, that’s more than explained by a difference in political advertising across our local TV stations, and so that number might look a little worse than perhaps the underlying market is from an overall demand standpoint.

We are seeing a similar phenomenon in the first quarter, pacings that right now are down in the neighborhood of 7%. Again, if you look at political advertising this year, and [this quarter] specifically, that handily explains that decline. I think political advertising for the year as a whole for us will be off modestly but it will be down in the first quarter and up slightly in the ensuring three quarters. That’s what I think -- it’s hard to read underneath but I think that’s what is really driving that --

Robert A. Iger

Let’s also remember we’re not talking about that much in terms of volume. We only have 10 TV stations. Our exposure as a company to advertising is roughly 23% of our revenue ’07 came from advertising, so relatively modest compared with some of our peers in terms of percentage of total revenue.

Jonathan Jacoby - Banc of America Securities

Thank you.

Lowell Singer

Thanks, Jonathan. Operator, next question, please.

Operator

Thank you very much, sir. The next question comes from the line of Michael Morris with UBS.

Michael Morris - UBS

Thank you. A couple of questions on the international sale of television programming, which you noted as a contributor in the third quarter. You didn’t mention this quarter. I’m wondering, is that something that we should consider just seasonal and a third quarter contributor, or do you see opportunity to have that smoothed out a bit more during the year? I’m trying to get a feel for the growth potential of that incrementally to what you are currently doing.

And then also, do you see opportunities to produce content, television content in local markets, similar to the way you mentioned films? Or is the best way to approach that by basically repurposing the domestically produced content? Thanks.

Thomas O. Staggs

With regard to international syndication sales, looking at that quarter to quarter is a little dangerous because the timing of the sales and the timing of the availability of the programming will impact the booking of the revenues from that. So for example, in this most recent quarter, in 2006 we had strong syndication sales, mostly domestic, from shows like According to Jim. This year we had less availability, and so you saw less revenue in that quarter.

We continue to see real strength in international syndication. We see real demand for the kinds of shows that we’ve been making and the strength of shows like Desperate Housewives, Grey’s, Lost, makes us think that that will continue to be an important driver, even though on a quarter to quarter basis, it might look a little bit lumpy.

If you look at it over time, they should be pretty strong, steady contributors, assuming we continue to refill that pipeline.

Robert A. Iger

On the question of investing in local production as we’ve done already on movies, we intend to do that in television as well. A lot of it will be done under the Disney brand and we have a number of instances where we are creating original television content for markets, although what we are finding is a lot of that has application back in the United States and in other markets.

We are also going it somewhat at ABC. There’s been some what we are calling reversioning, so we are actually shooting original episodes of Desperate Housewives in Latin American countries, as a for instance, with local actors in local languages, both southern Latin America, Argentina, northern Latin America in Mexico and also in Portuguese and Brazil.

Michael Morris - UBS

Thank you.

Lowell Singer

Thanks, Mike. Operator, next question.

Operator

Thank you very much, sir. The next question comes from the line of Jason Bazinet of Citigroup.

Jason Bazinet - Citigroup

Thanks so much. I guess if I rolled the clock back three or four years, I was [listening appropriately]. It seemed like a lot of the cable operators were begging for the media companies to help them put, to differentiate their product by putting a lot of your TV and theatrical product on VOD. And now we’ve sort of moved forward to this bizarre world where everyone has those DVRs on their TV and you’ve got this new ratings system and -- I guess my question as you step back and look where the industry is now, would you put the odds at low or medium or high that the floodgates open up and we rethink the way content is distributed to make VOD much more user friendly to sort of restore that affiliate balance the cable networks historically had?

Robert A. Iger

I think there is an opportunity to grow consumption, this programming, in many different ways. I think the answer I would give would be it is not going to come just from one direction. It is going to come from multiple directions, and VOD is going to be a contributor to that.

We are entering that world, walking before we run, in many cases, with both ABC and Disney branded programming, advertiser supported and on a pay-per-view basis -- movies included, by the way.

And I think that as systems improve from a user-friendlier, navigation perspective, consumption is likely to improve. But consumers -- one thing that we are learning more and more from the research that we’ve done with consumers is they want customization. They don’t want -- it’s no longer one size fits all. They don’t want a product just one way. They want it their way and their way is different from consumer to consumer, and that’s why we have taken a pretty open, and I think fairly modern point of view on this, because we are trying in multiple businesses to keep the consumer in mind, particularly younger consumers.

And that’s going to affect how people watch programming. It will not be as linear as it used to be, and if it’s not going to be, we still believe as a business investing in high quality branded programming, but we are going to have to offer it in a much more varied way than we did in the past.

Lowell Singer

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

Operator

Thank you very much, sir. The next question comes from the line of Tuna Amobi of Standard & Poor’s Equities.

Tuna Amobi - Standard & Poor’s

Thank you very much. Bob, there’s been some suggestion that with regard to the writers strike, given ABC’s strong mix of returning as well as new shows that ABC could actually be among the most vulnerable should this strike go on. And that some of these shows that you have now could be affected as early as December or January.

So in that context, can you perhaps update us on any contingency plans that you have to mitigate the risk of this strike beyond the cost reduction that Tom had spoken about?

And a question for Tom; on High School Musical, you’ve spoken about $200 million in operating income for the last two fiscal years. So looking ahead, how should we think about that franchise in terms of how that franchise could grow, given the theatrical release that you have coming up in late 2008, I believe? How do you account for the incremental contributions from High School Musical across the various segments? I believe it flows into studio and consumer and network. Can you give some sense of how -- where the bulk of the incremental revenues or contributions from that franchise are going to flow through your financials? Thank you.

Robert A. Iger

We don’t know how long this strike is going to last, so I can answer your question but a lot of it is contingent upon again length. If the writers stay out for a four week plus period of time, it will definitely have an impact on ABC’s schedule, because scripted shows, even though we have a number of shows that are currently on the schedule in the can, ultimately we are going to run out of those. We are fine through the November sweeps. We’ll probably end up -- we believe the strike could go longer, running a little bit more reruns in December or holiday programming than we may have and save some of the original programs for after the first of the year.

We also have a lot of scripted and reality shows in the can led by Lost, which has been in production and we weren’t intending to bring back until after the first of the year anyway, but we have a number of other ones and we have added to our program lineup some reality shows. And we also have a number of movie titles that we could turn to and news that we can also run.

We actually think that the network is well-prepared. Of course, our preference would be to keep the schedule intact, given the momentum that we have and given the success that we’ve had. We would hope that we’ll be able to find a way to settle this difference and settle the strike before there’s indelible damage done to the business or, by the way, to the community that we operate in.

This is a trickle-down effect that this has on more than just people directly associated with producing these shows. Southern California is going to feel it first and hard and I think that’s just a shame.

But we are definitely going to implement contingency plans from a programming perspective if the strike persists.

Thomas O. Staggs

With regard to High School Musical, as I mentioned earlier, we do expect to see 2008 to exceed what we saw in 2006 and 2007, so the growth in that franchise continues.

But just to give you a little more color on that, I would say that the primary drivers of the growth, our expectation is that it would be merchandise licensing, home video, and I also think that you’ll see a little bit more on the videogame, so it shows up in a number of different places. The home video contribution, by the way, shows at both the media networks and at the studio, because some of the profits are at the studio and some of the profits are at media networks, since the studio does the distribution.

Those are the primary drivers of the growth and where you’ll see the incremental impact.

Lowell Singer

Thanks, Tuna. Operator, we’ll have time for one more question.

Operator

Our final question comes from the line of David Miller of F&H Capital. Please proceed.

David Miller - F&H Capital

Good afternoon. Bob and Tom, if I could just get your opinion -- both of your perspectives on this question. Obviously you are familiar with what is going on with the Big Ten network and the current imbroglio with Time Warner Cable and some of the other cable MSOs. If the Big Ten network is successful in getting on to the analog tier, which I don’t know how they are going to do it, since there is no room, but that’s what they want and if they are successful in doing that, what does that do, if anything, to your ratings guarantees as it applies to the big ten football package that you have on ESPN? And would there theoretically be some siphoning off of viewership there over to the Big Ten network, or some of those football games, especially in the upper Midwest states? Thank you very much.

Robert A. Iger

ESPN is incredibly strong, both from a brand perspective and a programming perspective, and the deal it has with the big ten, which is long term in nature, affords them the right to cover primary games on their networks. So I really don’t think that there will be an impact if the Big Ten network gets more carriage.

I have to admit, I haven’t asked specifically of the ESPN sales guys or the research people, but George Bodenheimer and I talk a lot about the impact of these -- what I’ll call sports organization owned channels, and we spent a fair amount of time focused on just maintaining ESPN’s strength, both from a primary platform and a multi-platform, strengthening our marketing efforts, as well as our creative efforts. They’ve made a number of steps in terms of the production quality that is aimed at being even more competitive than they’ve been.

So reach more people more often with higher quality programming, better marketing -- I actually thing they’ll be fine.

I think it’s also important to point out that these leagues or sports organizations are paid significantly by not just ESPN but other networks carrying sports, and that essentially eliminates the risk from these organizations in terms of having to distribute their product and having to sell their product and having to produce their product. We are essentially paying them guarantees, so the risk is completely taken out of the equation.

I don’t think you are going to see a time anytime soon that these sports-owned channels eclipse the non-sports-owned channels, meaning the non-organization-owned channels, nor do I think you are going to see a time any time soon where there’s going to be a substantial impact on ratings.

Now, from time to time, there will be programming on that is more competitive. I note with great interest that the NFL Channel has a good game coming up, I’m a Green Bay Packer fan. I think they are playing the Dallas Cowboys. That’s a good game, I’m sure they will have an impact but it’s not airing against ESPN NFL Football night, fortunately.

Lowell Singer

Thanks, Dave. Thanks again, everyone, for joining us today. I want to 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 conference call may constitute forward-looking statements under the securities laws. It does get better, so stick with me. 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 obligation to update these statements.

Forward-looking statements are subject to a number of risks and uncertainties and actual results may differ materially from the results expressed or implied in, in light of a variety of factors including those factors contained in our annual report on Form 10-K and in our other filings with the Securities and Exchange Commission.

Fortunately for you, this does conclude today’s fourth quarter conference call.

Operator

Thank you very much, sir, and thank you, ladies and gentlemen, for your participation in today’s conference call. This concludes your presentation for today. You may now disconnect. Have a good day.

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