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Description of the Business and Segment Information
 12 Months Ended
Sep. 28, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Description of the Business and Segment Information
Description of the Business and Segment Information
The Walt Disney Company, together with the subsidiaries through which businesses are conducted (the Company), is a diversified worldwide entertainment company with operations in the following business segments: Media Networks; Parks, Experiences and Products; Studio Entertainment; and Direct-to-Consumer & International (DTCI).
The terms “Company,” “we,” “us,” and “our” are used in this report to refer collectively to the parent company and the subsidiaries through which various businesses are conducted. The term “TWDC” is used to refer to the parent company.
On March 20, 2019, the Company acquired the outstanding capital stock of Twenty-First Century Fox, Inc., which was subsequently renamed TFCF Corporation, a diversified global media and entertainment company. Prior to the acquisition, TFCF and a newly-formed subsidiary of TFCF (New Fox) entered into a separation agreement, pursuant to which TFCF transferred to New Fox a portfolio of TFCF’s news, sports and broadcast businesses and certain other assets. TFCF retained all of the assets and liabilities not transferred to New Fox, the most significant of which were the Twentieth Century Fox film and television studios, certain cable networks (primarily FX and National Geographic), TFCF’s international television businesses (including Star) and TFCF’s 30% interest in Hulu LLC (Hulu). Under the terms of the agreement governing the acquisition, the Company will generally phase-out Fox brands by 2024, but has perpetual rights to certain Fox brands, including the Twentieth Century Fox and Fox Searchlight brands.
As a result of the TFCF acquisition, the Company’s ownership interest in Hulu LLC (Hulu) increased to 60% and the Company started consolidating the results of Hulu. In May 2019, the Company increased its ownership interest in Hulu to 67%, with NBC Universal (NBCU) owning the remaining 33%. Also in May 2019, the Company entered into a put/call agreement with NBCU that provided the Company with full operational control of Hulu. In order to obtain regulatory approval for the acquisition of TFCF, the Company agreed to sell TFCF’s regional sports networks (RSN) and sports media operations in Brazil and Mexico. The sale of the RSNs was completed in August 2019. The income and cash flows of the RSNs and sports media operations in Brazil and Mexico are reported as discontinued operations.
See Note 4 for additional information on these transactions.
DESCRIPTION OF THE BUSINESS
Media Networks
Significant operations:
•
Disney, ESPN, Freeform, FX and National Geographic branded domestic cable networks
•
ABC branded broadcast television network and eight owned domestic television stations
•
Television production and distribution
•
National Geographic magazines
•
A 50% equity investment in A+E Television Networks (A+E)
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 advertising time/space on our domestic networks and related platforms (“ratings-based ad sales”, which excludes advertising on digital platforms that is not ratings-based) and the sale of advertising 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 is reported by DTCI.
•
TV/SVOD distribution - Licensing fees and other revenues from the right to use our television programs and productions and revenue from 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 and Products
Significant operations:
•
Parks & Experiences:
◦
Theme parks and resorts, which include: Walt Disney World Resort in Florida; Disneyland Resort in California; Disneyland Paris; Hong Kong Disneyland Resort (47% ownership interest); Shanghai Disney Resort (43% ownership interest), 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, National Geographic Expeditions (73% ownership interest), Adventures by Disney 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, comic books and magazines (except National Geographic, which is reported in Media Networks)
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 and other 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
•
Parks licensing and other - Revenues from sponsorships and co-branding opportunities and real estate rent and sales. In addition, we earn royalties on Tokyo Disney Resort revenues.
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, Twentieth Century Fox, Marvel, Lucasfilm, Pixar, Fox Searchlight Pictures and Blue Sky Studios banners
•
Development, production and licensing of live entertainment events on Broadway and around the world (stage plays)
•
Music production and distribution
•
Post-production services, which include visual and audio effects through Industrial Light & Magic and Skywalker Sound
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 from the right to use our motion picture productions, revenue from content transactions with other Company segments, ticket sales from stage plays, fees from licensing our intellectual properties for use in live entertainment productions, revenue from licensing our music and revenue from post-production services
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:
•
Branded international television channels, which include Disney, ESPN, Fox, National Geographic and Star (International Channels)
•
Direct-to-consumer (DTC) streaming services, which include Disney+, ESPN+, Hotstar and Hulu. Disney+ launched in November 2019 in the U.S. and 4 other countries and further launches planned throughout 2020 and 2021.
•
Other digital content distribution platforms and services including branded apps and websites, the Disney Movie Club and Disney Digital Network and streaming technology support services
•
Equity investments:
◦
A 50% ownership interest in Endemol Shine Group, which is a multi-platform content provider with creative operations across the world’s major markets
◦
A 20% ownership interest (49% economic interest) in Seven TV, which operates an advertising-supported, free-to-air Disney Channel in Russia
◦
A 30% effective ownership interest in Tata Sky, which owns and operates a direct-to-home satellite distribution platform in India
◦
An approximate 20% effective ownership interest 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:
•
Advertising - Sales of advertising time/space on our International Channels and sales of non-ratings-based advertising time/space on digital media platforms (“addressable ad sales”) across the Company. 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.
•
Affiliate fees - Fees charged to MVPDs for the right to deliver our International Channels to their customers
•
Subscription fees - Fees charged to customers/subscribers for our DTC services
Significant expenses:
•
Operating expenses consisting primarily of programming and production costs (including amortization of 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, net other income, net interest expense, income taxes and noncontrolling interests. Segment operating income includes equity in the income of investees and excludes impairments of certain equity investments and purchase accounting amortization for TFCF and Hulu assets (i.e. intangible assets and the fair value step-up for film and television costs) recognized in connection with the TFCF acquisition. Corporate and unallocated shared expenses principally consist of corporate functions, executive management and certain unallocated administrative support functions.
Segment operating results include allocations of certain costs, including information technology, pension, legal and other shared services costs, which are allocated based on metrics designed to correlate with consumption. These allocations are agreed-upon amounts between the businesses and may differ from amounts that would be negotiated in arm’s length transactions.
Intersegment content transactions 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). Generally, timing of revenue recognition is similar to the reporting of third-party transactions, except that intersegment sales of library content are generally recognized over time. Other intersegment transactions are reported “Net” (i.e. revenue between segments is recorded as a reduction of costs). Studio Entertainment revenues and operating income include an allocation of Parks, Experiences and Products revenues, which is meant to reflect royalties on revenue generated by Parks, Experiences and Products on merchandise based on intellectual property from Studio Entertainment films.
The following tables provide select segment and regional financial information:
 
2019
 
2018
 
2017
Revenues
 
 
 
 
 
Media Networks
$
24,827

 
$
21,922

 
$
21,299

Parks, Experiences and Products
 
 
 
 
 
Third parties
26,786

 
25,257

 
23,516

Intersegment
(561
)
 
(556
)
 
(492
)
 
26,225

 
24,701

 
23,024

Studio Entertainment
 
 
 
 
 
Third parties
10,566

 
9,509

 
7,860

Intersegment
561

 
556

 
492

 
11,127

 
10,065

 
8,352

 
 
 
 
 
 
Direct-to-Consumer & International
9,349

 
3,414

 
3,075

Eliminations(1)
(1,958
)
 
(668
)
 
(613
)
Total consolidated revenues
$
69,570

 
$
59,434

 
$
55,137

Segment operating income / (loss)
 
 
 
 
 
Media Networks
$
7,479

 
$
7,338

 
$
7,196

Parks, Experiences and Products
6,758

 
6,095

 
5,487

Studio Entertainment
2,686

 
3,004

 
2,363

Direct-to-Consumer & International
(1,814
)
 
(738
)
 
(284
)
Eliminations(1)
(241
)
 
(10
)
 
13

Total segment operating income(2)
$
14,868

 
$
15,689

 
$
14,775

Reconciliation of segment operating income to income from continuing operations before income taxes
 
 
 
 
 
Segment operating income
$
14,868

 
$
15,689

 
$
14,775

Corporate and unallocated shared expenses
(987
)
 
(744
)
 
(582
)
Restructuring and impairment charges
(1,183
)
 
(33
)
 
(98
)
Other income, net
4,357

 
601

 
78

Interest expense, net
(978
)
 
(574
)
 
(385
)
Amortization of TFCF and Hulu intangible assets and fair value step-up on film and television costs(3)
(1,595
)
 
—

 
—

Impairment of equity investments(4)
(538
)
 
(210
)
 
—

Income from continuing operations before income taxes
$
13,944

 
$
14,729

 
$
13,788

Capital expenditures
 
 
 
 
 
Media Networks
 
 
 
 
 
Cable Networks
$
93

 
$
96

 
$
64

Broadcasting
81

 
107

 
67

Parks, Experiences and Products
 
 
 
 
 
Domestic
3,294

 
3,223

 
2,392

International
852

 
677

 
827

Studio Entertainment
88

 
96

 
85

Direct-to-Consumer & International
258

 
107

 
30

Corporate
210

 
159

 
158

Total capital expenditures
$
4,876

 
$
4,465

 
$
3,623


 
2019
 
2018
 
2017
Depreciation expense
 
 
 
 
 
Media Networks
$
191

 
$
199

 
$
206

Parks, Experiences and Products
 
 
 
 
 
Domestic
1,474

 
1,449

 
1,371

International
724

 
768

 
679

Studio Entertainment
74

 
55

 
50

Direct-to-Consumer & International
207

 
106

 
74

Depreciation expense included in segment operating income
2,670

 
2,577

 
2,380

Corporate
167

 
181

 
206

Total depreciation expense
$
2,837

 
$
2,758

 
$
2,586

Amortization of intangible assets
 
 
 
 
 
Media Networks
$
—

 
$
—

 
$
—

Parks, Experiences and Products
108

 
110

 
111

Studio Entertainment
61

 
64

 
65

Direct-to-Consumer & International
111

 
79

 
20

Amortization of intangible assets included in segment operating income
280

 
253

 
196

TFCF and Hulu intangible assets
1,043

 
—

 
—

Total amortization of intangible assets
$
1,323

 
$
253

 
$
196

 
 
 
 
 
 
 
September 28, 2019
 
September 29, 2018
 
 
Identifiable assets(5)
 
 
 
 
 
Media Networks
$
63,519

 
$
30,205

 
 
Parks, Experiences and Products
41,923

 
39,171

 
 
Studio Entertainment
34,268

 
17,291

 
 
Direct-to-Consumer & International
48,606

 
7,257

 
 
Corporate(6)
6,135

 
4,977

 
 
Eliminations
(467
)
 
(303
)
 
 
Total consolidated assets
$
193,984

 
$
98,598

 
 
 
 
 
 
 
 
 
2019
 
2018
 
2017
Revenues
 
 
 
 
 
United States and Canada
$
50,555

 
$
45,038

 
$
41,881

Europe
8,006

 
7,026

 
6,541

Asia Pacific
7,796

 
5,531

 
5,075

Latin America and Other
3,213

 
1,839

 
1,640

 
$
69,570

 
$
59,434

 
$
55,137

Segment operating income
 
 
 
 
 
United States and Canada
$
10,031

 
$
11,396

 
$
10,962

Europe
2,433

 
1,922

 
1,812

Asia Pacific
2,167

 
1,869

 
1,626

Latin America and Other
237

 
502

 
375

 
$
14,868

 
$
15,689


$
14,775

 
September 28, 2019
 
September 29, 2018
Long-lived assets(7)
 
 
 
United States and Canada
$
134,869

 
$
65,245

Europe
10,793

 
6,275

Asia Pacific
12,703

 
7,775

Latin America and Other
3,805

 
131

 
$
162,170

 
$
79,426


(1) 
Intersegment content transaction are as follows: 
 
2019
 
2018
 
2017
Revenues:
 
 
 
 
 
Studio Entertainment:
 
 
 
 
 
Content transactions with Media Networks
$
(106
)
 
$
(169
)
 
$
(137
)
Content transactions with Direct-to-Consumer & International
(272
)
 
(28
)
 
(22
)
Media Networks:
 
 
 
 
 
Content transactions with Direct-to-Consumer & International
(1,580
)
 
(471
)
 
(454
)
Total
$
(1,958
)
 
$
(668
)
 
$
(613
)
 
 
 
 
 
 
Operating Income:
 
 
 
 
 
Studio Entertainment:
 
 
 
 
 
Content transactions with Media Networks
$
(19
)
 
$
(8
)
 
$
15

Content transactions with Direct-to-Consumer & International
(80
)
 
—

 
—

Media Networks:
 
 
 
 
 
Content transactions with Direct-to-Consumer & International
(142
)
 
(2
)
 
(2
)
Total
$
(241
)
 
$
(10
)
 
$
13



(2) 
Equity in the income/(loss) of investees included in segment operating income is as follows:
 
2019
 
2018
 
2017
Media Networks
$
703

 
$
711

 
$
766

Parks, Experiences and Products
(13
)
 
(23
)
 
(25
)
Direct-to-Consumer & International
(240
)
 
(580
)
 
(421
)
Equity in the income of investees included in segment operating income
450

 
108

 
320

Impairment of equity investments
(538
)
 
(210
)
 
—

Amortization of TFCF intangible assets related to equity investees
(15
)
 
—

 
—

Equity in the income (loss) of investees, net
$
(103
)
 
$
(102
)
 
$
320


(3) 
For fiscal 2019, amortization of intangible assets and fair value step-up on film and television costs were $1,043 million and $552 million, respectively.
(4) 
Impairment of equity investments for fiscal 2019 primarily reflects the impairments of Vice Group Holding, Inc. and of an investment in a cable channel at A+E Television Networks ($353 million and $170 million, respectively). Impairment of equity investments for fiscal 2018 reflects impairments of Vice Group Holding, Inc. and Villages Nature ($157 million and $53 million, respectively).
(5) 
Equity method investments included in identifiable assets by segment are as follows:
 
September 28, 2019
 
September 29, 2018
Media Networks
$
2,018

 
$
2,430

Parks, Experiences and Products
3

 
1

Studio Entertainment
8

 
1

Direct-to-Consumer & International
821

 
320

Corporate
72

 
16

 
$
2,922

 
$
2,768

Intangible assets included in identifiable assets by segment are as follows:
 
September 28, 2019
 
September 29, 2018
Media Networks
$
7,861

 
$
1,546

Parks, Experiences and Products
3,122

 
3,167

Studio Entertainment
2,085

 
1,479

Direct-to-Consumer & International
9,962

 
490

Corporate
185

 
130

 
$
23,215

 
$
6,812

(6) 
Primarily fixed assets and cash and cash equivalents.
(7) 
Long-lived assets are total assets less: current assets, long-term receivables, deferred taxes, financial investments and the fair value of derivative instruments.