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Segment Information
 3 Months Ended
Dec. 29, 2018
Segment Information Description of Business and Segment Information
Our operating segments report separate financial information, which is evaluated regularly by the Chief Executive Officer in order to decide how to allocate resources and to assess performance.
Effective in fiscal 2019, the Company started reporting its results in the following operating segments:
•
Media Networks;
•
Parks, Experiences & Consumer Products;
•
Studio Entertainment; and
•
Direct-to-Consumer & International
The Parks, Experiences & Consumer Products segment reflects the combination of the former Parks & Resorts and Consumer Products & Interactive Media segments. Certain businesses that were previously reported in Media Networks, Studio Entertainment and Consumer Products & Interactive Media are now reported in Direct-to-Consumer & International (DTCI). Fiscal 2018 segment operating results have been recast to align with the fiscal 2019 presentation.
DESCRIPTION OF BUSINESS
Media Networks
•
Significant operations:
◦
Disney, ESPN and Freeform branded domestic cable networks
◦
ABC branded broadcast television network and eight owned domestic television stations
◦
Television programming, production and distribution
◦
A 50% equity investment in A+E Television Networks (A+E), which operates a variety of cable channels including A&E, HISTORY and Lifetime
•
Significant revenues:
◦
Affiliate fees - Fees charged to multi-channel video programming distributors (i.e. cable, satellite, telecommunications and digital over-the-top (e.g. Hulu, YouTube TV) service providers) (“MVPDs”) and to television stations affiliated with the ABC Network for the right to deliver our programming to their customers
◦
Advertising - Sales of ad time/space on our domestic networks and related platforms, except non-ratings-based advertising on digital platforms (“ratings-based ad sales”), and the sale of time on our domestic television stations. Ratings-based ad sales are generally determined using viewership measured with Nielsen ratings. Non-ratings-based advertising on digital platforms will be reported by DTCI as discussed in the DTCI section
◦
TV/SVOD distribution - Licensing fees and other revenues for the right to use our television programs and productions and content transactions with other Company segments (“program sales”)
•
Significant expenses:
◦
Operating expenses consisting primarily of programming and production costs, participations and residuals expense, technical support costs, operating labor, and distribution costs
◦
Selling, general and administrative costs
◦
Depreciation and amortization
Parks, Experiences & Consumer Products
•
Significant operations:
◦
Parks & Experiences:
▪
Theme parks and resorts, which include: Walt Disney World Resort in Florida; Disneyland Resort in California; Disneyland Paris; and 47% and 43% interests in Hong Kong Disneyland Resort and Shanghai Disney Resort, respectively, all of which are consolidated in our results. Additionally, the Company licenses our intellectual property to a third party to operate Tokyo Disney Resort
▪
Disney Cruise Line, Disney Vacation Club and Aulani, a Disney Resort & Spa in Hawaii
◦
Consumer Products:
▪
Licensing of our trade names, characters, visual, literary and other intellectual properties to various manufacturers, game developers, publishers and retailers throughout the world
▪
Sale of branded merchandise through retail, online and wholesale businesses, and development and publishing of books, magazines, comic books and games. As of the end of fiscal 2018, the Company had substantially exited the vertical games development business
•
Significant revenues:
◦
Theme park admissions - Sales of tickets for admission to our theme parks
◦
Parks & Experiences merchandise, food and beverage - Sales of merchandise, food and beverages at our theme parks and resorts and cruise ships
◦
Resorts and vacations - Sales of room nights at hotels, sales of cruise vacations and sales and rentals of vacation club properties
◦
Merchandise licensing and retail
▪
Merchandise licensing - Royalties from intellectual property licensing
▪
Retail - Sales of merchandise at The Disney Stores and through branded internet shopping sites, as well as, to wholesalers (including sales of published materials and games)
◦
Parks licensing and other - Revenues from sponsorships and co-branding opportunities, real estate rent and sales, and royalties from Tokyo Disney Resort
•
Significant expenses:
◦
Operating expenses consisting primarily of operating labor, costs of goods sold, infrastructure costs, supplies, commissions and entertainment offerings. Infrastructure costs include information systems expense, repairs and maintenance, utilities and fuel, property taxes, retail occupancy costs, insurance, and transportation
◦
Selling, general and administrative costs
◦
Depreciation and amortization
Studio Entertainment
•
Significant operations:
◦
Motion picture production and distribution under the Walt Disney Pictures, Pixar, Marvel, Lucasfilm and Touchstone banners
◦
Development, production and licensing of live entertainment events on Broadway and around the world (“Stage plays”)
•
Significant revenues:
◦
Theatrical distribution - Rentals from licensing our motion pictures to theaters
◦
Home entertainment - Sale of our motion pictures to retailers and distributors in physical (DVD and Blu-ray) and electronic formats
◦
TV/SVOD distribution and other - Licensing fees and other revenue for the right to use our motion picture productions, content transactions with other Company segments, ticket sales from stage plays and fees from licensing our intellectual properties for use in live entertainment productions
•
Significant expenses:
◦
Operating expenses consisting primarily of amortization of production, participations and residuals costs, distribution costs and costs of sales
◦
Selling, general and administrative costs
◦
Depreciation and amortization
Direct-to-Consumer & International
•
Significant operations:
◦
Disney and ESPN branded international television networks and channels (“International Channels”)
◦
Direct-to-consumer (DTC) businesses:
▪
ESPN+ streaming service, which was launched in April 2018
▪
Disney+ streaming service, which we plan to launch in late 2019
◦
Other Company branded digital content distribution platforms and services
◦
BAMTech LLC (BAMTech) (owned 75% by the Company since September 25, 2017), which provides streaming technology services
◦
Equity investments:
▪
A 30% interest in Hulu, which aggregates acquired television and film entertainment content and original content produced by Hulu and distributes it digitally to internet-connected devices
▪
A 21% effective ownership in Vice Group Holdings, Inc. (Vice), which is a media company that targets millennial audiences. Vice operates Viceland, which is owned 50% by Vice and 50% by A+E
•
Significant revenues:
◦
Affiliate fees - Fees charged to MVPDs for the right to deliver our International Channels to their customers
◦
Advertising - Sales of ad time/space on our International Channels. Sales of non-ratings based ad time/space on digital platforms (“addressable ad sales”). In general, addressable ad sales are delivered using technology that allows for dynamic insertion of advertisements into video content, which can be targeted to specific viewer groups
◦
Subscription fees and other - Fees charged to customers/subscribers for our DTC streaming and other services and fees charged for streaming technology services
•
Significant expenses:
◦
Operating expenses consisting primarily of programming and production costs (including programming, production and branded digital content obtained from other Company segments), technical support costs, operating labor and distribution costs
◦
Selling, general and administrative costs
◦
Depreciation and amortization
SEGMENT INFORMATION
Segment operating results reflect earnings before corporate and unallocated shared expenses, restructuring and impairment charges, other income, interest expense, income taxes and noncontrolling interests. Segment operating income includes equity in the income of investees. Corporate and unallocated shared expenses principally consist of corporate functions, executive management and certain unallocated administrative support functions.
Intersegment content transactions (e.g. feature films aired on the ABC Television Network) are presented “gross” (i.e. the segment producing the content reports revenue and profit from intersegment transactions in a manner similar to the reporting of third-party transactions, and the required eliminations are reported on a separate “Eliminations” line when presenting a summary of our segment results). Previously, these transactions were reported “net”, and the intersegment revenue was eliminated in the results of the segment producing the content. Fiscal 2018 intersegment content transactions have been recast to align with the fiscal 2019 presentation.
Segment revenues and segment operating income are as follows:
 
Quarter Ended
 
December 29,
2018
 
December 30,
2017
Revenues (1):
 
 
 
Media Networks
$
5,921


$
5,555

Parks, Experiences & Consumer Products
6,824


6,527

Studio Entertainment
1,824


2,509

Direct-to-Consumer & International
918


931

Eliminations(2)
(184
)
 
(171
)
 
$
15,303

 
$
15,351

Segment operating income (1):
 
 
 
Media Networks
$
1,330

 
$
1,243

Parks, Experiences & Consumer Products
2,152

 
1,954

Studio Entertainment
309

 
825

Direct-to-Consumer & International
(136
)
 
(42
)
Eliminations
—

 
6

 
$
3,655

 
$
3,986

(1) 
Studio Entertainment revenues and operating income include an allocation of Parks, Experiences & Consumer Products revenues, which is meant to reflect royalties on sales of merchandise based on film properties. The increase to Studio Entertainment revenues and operating income and corresponding decrease to Parks, Experiences & Consumer Products revenues and operating income was $154 million and $171 million for the quarters ended December 29, 2018 and December 30, 2017, respectively.
(2) 
Intersegment content transactions are as follows:
 
Quarter Ended
(in millions)
December 29,
2018
 
December 30,
2017
Revenues
 
 
 
Studio Entertainment:
 
 
 
Content transactions with Media Networks
$
(21
)
 
$
(31
)
Content transactions with Direct-to-Consumer & International
(18
)
 
(8
)
Media Networks:
 
 
 
Content transactions with Direct-to-Consumer & International
(145
)
 
(132
)
Total revenues
$
(184
)
 
$
(171
)

Equity in the income/(loss) of investees is included in segment operating income as follows: 
 
Quarter Ended
 
December 29,
2018
 
December 30,
2017
Media Networks
$
179

 
$
159

Parks, Experiences & Consumer Products
(12
)
 
(7
)
Direct-to-Consumer & International
(91
)
 
(109
)
Equity in the income / (loss) of investees
$
76

 
$
43


A reconciliation of segment operating income to income before income taxes is as follows:
 
Quarter Ended
 
December 29,
2018
 
December 30,
2017
Segment operating income
$
3,655

 
$
3,986

Corporate and unallocated shared expenses
(161
)
 
(150
)
Restructuring and impairment charges
—

 
(15
)
Other income
—

 
53

Interest expense, net
(63
)
 
(129
)
Income before income taxes
$
3,431

 
$
3,745