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Revenues
 6 Months Ended
Mar. 30, 2019
Revenue from Contract with Customer [Abstract]  
Revenue from Contract with Customer Revenues
At the beginning of fiscal 2019, the Company adopted Financial Accounting Standards Board (FASB) guidance, which replaced the existing accounting guidance for revenue recognition with a single comprehensive five-step model (“new revenue guidance”). The core principle is to recognize revenue upon the transfer of control of goods or services to customers at an amount that reflects the consideration expected to be received. We adopted the new revenue guidance using the modified retrospective method; therefore, results for reporting periods beginning after September 30, 2018 are presented under the new revenue guidance, while prior period amounts have not been adjusted and continue to be reported in accordance with our historical accounting. Upon adoption we recorded a net reduction of $116 million to opening retained earnings in the first quarter of fiscal 2019.
The most significant changes to the Company’s revenue recognition policies resulting from the adoption of the new revenue guidance are as follows:
•
For television and film content licensing agreements with multiple availability windows with the same licensee, the Company now defers more revenue to future windows than under the previous accounting guidance.
•
For licenses of character images, brands and trademarks with minimum guaranteed license fees, the excess of the minimum guaranteed amount over actual amounts earned based on a percentage of the licensee’s underlying sales (“shortfall”) is now recognized straight-line over the remaining license period once an expected shortfall is probable. Previously, shortfalls were recognized at the end of the contract period.
•
For licenses that include multiple television and film titles with a minimum guaranteed license fee across all titles that earns out against the aggregate fees based on the licensee’s underlying sales, the Company now allocates the minimum guaranteed license fee to each title at contract inception and recognizes the allocated license fee as revenue when the title is made available to the customer. License fees earned by titles in excess of their allocated amount are deferred until the minimum guaranteed license fee across all titles is exceeded. Once the minimum guaranteed license fee across all titles is exceeded, license fees are recognized as earned based on the licensee’s underlying sales. Previously, license fees were recognized as earned based on the licensee’s underlying sales with any shortfalls recognized at the end of the contract period.
•
For renewals or extensions of license agreements for television and film content, revenues are now recognized when the licensed content becomes available under the renewal or extension. Previously, revenues were recognized when the agreement was renewed or extended.
The adoption of the new revenue guidance resulted in certain reclassifications on the Condensed Consolidated Balance Sheet. The primary changes are the reclassification of sales returns reserves (previously reported as a reduction of receivables) to other accrued liabilities ($133 million at March 30, 2019) and the reclassification of refundable customer advances (previously reported as deferred revenues) to other accrued liabilities ($1.0 billion at March 30, 2019).
The cumulative effect of adoption at September 29, 2018 and the impact at March 30, 2019 (had we not applied the new revenue guidance) on the Condensed Consolidated Balance Sheet is as follows:
 
September 29, 2018
 
March 30, 2019
 
Fiscal 2018 Ending Balances as Reported
 
Effect of Adoption
 
Q1 2019 Opening Balances
 
Balances Assuming
Historical Accounting
 
Impact of New Revenue guidance
 
Q2 2019 Ending Balances as Reported
Assets
 
 
 
 
 
 
 
 
 
 
 
Receivables - current/non-current
$
11,262

 
$
(241
)
 
$
11,021

 
16,735

 
$
(130
)
 
$
16,605

Film and television costs and advances - current/non-current
9,202

 
48

 
9,250

 
29,737

 
24

 
29,761

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
Accounts payable and other accrued liabilities
9,479

 
1,039

 
10,518

 
19,369

 
1,134

 
20,503

Deferred revenue and other
4,591

 
(1,082
)
 
3,509

 
5,446

 
(1,165
)
 
4,281

Deferred income taxes
3,109

 
(34
)
 
3,075

 
11,236

 
(28
)
 
11,208

 
 
 
 
 
 
 
 
 
 
 
 
Equity
52,832

 
(116
)
 
52,716

 
104,387

 
(48
)
 
104,339


The impact on the Condensed Consolidated Statement of Income for the quarter and six months ended March 30, 2019, due to the adoption of the new revenue guidance is as follows:
 
Quarter Ended March 30, 2019
 
Six Months Ended March 30, 2019
 
Results Assuming
Historical Accounting
 
Impact of New Revenue guidance
 
Reported
 
Results Assuming
Historical Accounting
 
Impact of New Revenue guidance
 
Reported
Revenues
$
14,901

 
$
21

 
$
14,922

 
$
30,010

 
$
215

 
$
30,225

Cost and Expenses
(11,483
)
 
(48
)
 
(11,531
)
 
(23,289
)
 
(127
)
 
(23,416
)
Income Taxes
(1,653
)
 
6

 
(1,647
)
 
(2,272
)
 
(20
)
 
(2,292
)
Consolidated Net Income
5,632

 
(21
)
 
5,611

 
8,329

 
68

 
8,397


The most significant impacts were at the Studio Entertainment, Parks, Experiences and Products and Media Networks segments. Studio Entertainment was impacted by a change in the timing of revenue recognition related to film content licensing agreements with multiple availability windows, and the Parks, Experiences and Products and Media Networks segments were impacted by a change in the timing of revenue recognition on contracts with minimum guarantees.
Summary of Significant Revenue Recognition Accounting Policies
The Company generates revenue from the sale of both services and products. Revenue is recognized when control of the services or products is transferred to the customer. The amount of revenue recognized reflects the consideration the Company expects to receive in exchange for the services or products.
The Company has three broad categories of service revenues: licenses of rights to use our intellectual property, sales to guests at our Parks and Experiences businesses and advertising. The Company’s primary product revenues include the sale of food, beverage and merchandise at our parks, resorts and retail stores and the sale of film and television productions in physical formats (DVD and Blu-ray).
The new revenue guidance defines two types of licenses of intellectual property (“IP”): IP that has “standalone functionality,” which is called functional IP, and all other IP, which is called symbolic IP. Revenue related to the license of functional IP is generally recognized upon delivery (availability) of the IP to the customer. The substantial majority of the Company’s film and television content distribution activities at the Media Networks, Studio Entertainment and DTCI segments is considered licensing of functional IP. Revenue related to the license of symbolic IP is generally recognized over the term of the license. The Company’s primary revenue stream derived from symbolic IP is the licensing of trade names, characters, visual and literary properties at the Parks, Experiences and Products segment.
More detailed information about the revenue recognition policies for our key revenues is as follows:
•
Affiliate fees - Fees charged to affiliates (i.e., MVPDs or television stations) for the right to deliver our television network programming on a continuous basis to their customers are recognized as the programming is provided based on contractually specified per subscriber rates and the actual number of the affiliate’s customers receiving the programming.
For affiliate contracts with fixed license fees, the fees are recognized ratably over the contract term.
If an affiliate contract includes a minimum guaranteed license fee, the guaranteed license fee is recognized ratably over the guaranteed period and any fees earned in excess of the guarantee are recognized as earned once the minimum guarantee has been exceeded.
Affiliate agreements may also include a license to use the network programming for on demand viewing. As the fees charged under these contracts are generally based on a contractually specified per subscriber rate for the number of underlying subscribers of the affiliate, revenues are recognized as earned.
•
Subscription fees - Fees charged to customers/subscribers for our streaming services are recognized ratably over the term of the subscription.
•
Advertising - Sales of advertising time/space on our television networks, digital platforms and television stations are recognized as revenue, net of agency commissions, when commercials are aired. For contracts that contain a guaranteed number of impressions, revenues are recognized based on impressions delivered. When the guaranteed number of impressions is not met (“ratings shortfall”), revenues are not recognized for the ratings shortfall until the additional impressions are delivered.
•
Theme park admissions - Sales of theme park tickets are recognized when the tickets are used. Sales of annual passes are recognized ratably over the period for which the pass is available for use.
•
Resorts and vacations - Sales of hotel room nights and cruise vacations and rentals of vacation club properties are recognized as the services are provided to the guest. Sales of vacation club properties are recognized when title to the property transfers to the customer.
•
Merchandise, food and beverage - Sales of merchandise, food and beverages at our theme parks and resorts, cruise ships and Disney Stores are recognized at the time of sale. Sales from our branded internet shopping sites and to wholesalers are recognized upon delivery. We estimate returns and customer incentives based upon historical return experience, current economic trends and projections of consumer demand for our products.
•
TV/SVOD distribution licensing - Fixed license fees charged for the right to use our television and motion picture productions are recognized as revenue when the content is available for use by the licensee. License fees based on the underlying sales of the licensee are recognized as revenue as earned based on the contractual royalty rate applied to the licensee sales.
For TV/SVOD licenses that include multiple titles with a fixed license fee across all titles, each title is considered a separate performance obligation. The fixed license fee is allocated to each title at contract inception and the allocated license fee is recognized as revenue when the title is available for use by the licensee.
When the license contains a minimum guaranteed license fee across all titles, the license fees earned by titles in excess of their allocated amount are deferred until the minimum guaranteed license fee across all titles is exceeded. Once the minimum guaranteed license fee is exceeded, revenue is recognized as earned based on the licensee’s underlying sales.
TV/SVOD distribution contracts may limit the licensee’s use of a title to certain defined periods of time during the contract term. In these instances, each period of availability is generally considered a separate performance obligation. For these contracts, the fixed license fee is allocated to each period of availability at contract inception based on relative standalone selling price using management’s best estimate. Revenue is recognized at the start of each availability period when the content is made available for use by the licensee.
When the term of an existing agreement is renewed or extended, revenues are recognized when the licensed content becomes available under the renewal or extension.
•
Theatrical distribution licensing - Fees charged for licensing of our motion pictures to theatrical distributors are recognized as revenue based on the contractual royalty rate applied to the distributor’s underlying sales from exhibition of the film.
•
Merchandise licensing - Fees charged for the use of our trade names and characters in connection with the sale of a licensee’s products are recognized as revenue as earned based on the contractual royalty rate applied to the licensee’s underlying product sales. For licenses with minimum guaranteed license fees, the excess of the minimum guaranteed amount over actual royalties earned (shortfall) is recognized straight-line over the remaining license period once an expected shortfall is probable.
•
Home entertainment - Sales of our motion pictures to retailers and distributors in physical formats (DVD and Blu-ray) are recognized as revenue on the later of the delivery date or the date that the product can be sold by retailers. We reduce home entertainment revenues for estimated future returns of merchandise and sales incentives based upon historical return experience, current economic trends and projections of consumer demand for our products. Sales of our motion pictures in electronic formats are recognized as revenue when the product is available for use by the consumer.
•
Taxes - Taxes collected from customers and remitted to governmental authorities are excluded from revenue.
•
Shipping and handling - Fees collected from customers for shipping and handling are recorded as revenue and the related shipping expenses are recorded in cost of products upon delivery of the product to the consumer.
The following table presents our revenues by segment and major source:
 
Quarter Ended March 30, 2019
 
Media
Networks
 
Parks, Experiences and Products
 
Studio
Entertainment
 
Direct-to-Consumer & International
 
21CF
 
Eliminations
 
Consolidated
Affiliate fees
$
3,177

 
$
—

 
$
—

 
$
335

 
$
134

 
$
(12
)
 
$
3,634

Advertising
1,596

 
1

 
—

 
357

 
118

 
—

 
2,072

Theme park admissions
—

 
1,768

 
—

 
—

 
—

 
—

 
1,768

Resort and vacations
—

 
1,502

 
—

 
—

 
—

 
—

 
1,502

Retail and wholesale sales of merchandise, food and beverage
—

 
1,768

 
—

 
—

 
—

 
—

 
1,768

TV/SVOD distribution licensing
678

 
—

 
709

 
24

 
91

 
(222
)
 
1,280

Theatrical distribution licensing
—

 
—

 
745

 
—

 
7

 
—

 
752

Merchandise licensing
—

 
635

 
126

 
12

 
—

 
—

 
773

Home entertainment
—

 
—

 
263

 
21

 
10

 
—

 
294

Other
74

 
495

 
291

 
206

 
13

 
—

 
1,079

Total revenues
$
5,525

 
$
6,169

 
$
2,134

 
$
955

 
$
373

 
$
(234
)
 
$
14,922

 
Quarter Ended March 31, 2018(1)
 
Media
Networks
 
Parks, Experiences and Products
 
Studio
Entertainment
 
Direct-to-Consumer & International
 
21CF
 
Eliminations
 
Consolidated
Affiliate fees
$
3,043

 
$
—

 
$
—

 
$
354

 
$
—

 
$
—

 
$
3,397

Advertising
1,643

 
2

 
—

 
301

 
—

 
—

 
1,946

Theme park admissions
—

 
1,690

 
—

 
—

 
—

 
—

 
1,690

Resort and vacations
—

 
1,461

 
—

 
—

 
—

 
—

 
1,461

Retail and wholesale sales of merchandise, food and beverage
—

 
1,707

 
—

 
—

 
—

 
—

 
1,707

TV/SVOD distribution licensing
761

 
—

 
619

 
28

 
—

 
(193
)
 
1,215

Theatrical distribution licensing
—

 
—

 
956

 
—

 
—

 
—

 
956

Merchandise licensing
—

 
625

 
139

 
19

 
—

 
—

 
783

Home entertainment
—

 
—

 
471

 
24

 
—

 
—

 
495

Other
61

 
418

 
314

 
105

 
—

 
—

 
898

Total revenues
$
5,508

 
$
5,903

 
$
2,499

 
$
831

 
$
—

 
$
(193
)
 
$
14,548

(1) 
Amounts presented are based on our historical accounting prior to the adoption of the new revenue guidance.
 
Six Months Ended March 30, 2019
 
Media
Networks
 
Parks, Experiences and Products
 
Studio
Entertainment
 
Direct-to-Consumer & International
 
21CF
 
Eliminations
 
Consolidated
Affiliate fees
$
6,252

 
$
—

 
$
—

 
$
658

 
$
134

 
$
(12
)
 
$
7,032

Advertising
3,619

 
3

 
—

 
774

 
118

 
—

 
4,514

Theme park admissions
—

 
3,701

 
—

 
—

 
—

 
—

 
3,701

Resort and vacations
—

 
3,033

 
—

 
—

 
—

 
—

 
3,033

Retail and wholesale sales of merchandise, food and beverage
—

 
3,890

 
—

 
—

 
—

 
—

 
3,890

TV/SVOD distribution licensing
1,400

 
—

 
1,314

 
58

 
91

 
(406
)
 
2,457

Theatrical distribution licensing
—

 
—

 
1,118

 
—

 
7

 
—

 
1,125

Merchandise licensing
—

 
1,376

 
280

 
27

 
—

 
—

 
1,683

Home entertainment
—

 
—

 
688

 
49

 
10

 
—

 
747

Other
175

 
990

 
558

 
307

 
13

 
—

 
2,043

Total revenues
$
11,446

 
$
12,993

 
$
3,958

 
$
1,873

 
$
373

 
$
(418
)
 
$
30,225

 
Six Months Ended March 31, 2018(1)
 
Media
Networks
 
Parks, Experiences and Products
 
Studio
Entertainment
 
Direct-to-Consumer & International
 
21CF
 
Eliminations
 
Consolidated
Affiliate fees
$
5,910

 
$
—

 
$
—

 
$
692

 
$
—

 
$
—

 
$
6,602

Advertising
3,606

 
4

 
—

 
712

 
—

 
—

 
4,322

Theme park admissions
—

 
3,522

 
—

 
—

 
—

 
—

 
3,522

Resort and vacations
—

 
2,924

 
—

 
—

 
—

 
—

 
2,924

Retail and wholesale sales of merchandise, food and beverage
—

 
3,766

 
—

 
—

 
—

 
—

 
3,766

TV/SVOD distribution licensing
1,385

 
—

 
1,138

 
53

 
—

 
(364
)
 
2,212

Theatrical distribution licensing
—

 
—

 
2,125

 
—

 
—

 
—

 
2,125

Merchandise licensing
—

 
1,401

 
310

 
37

 
—

 
—

 
1,748

Home entertainment
—

 
—

 
832

 
54

 
—

 
—

 
886

Other
162

 
813

 
603

 
214

 
—

 
—

 
1,792

Total revenues
$
11,063

 
$
12,430

 
$
5,008

 
$
1,762

 
$
—

 
$
(364
)
 
$
29,899

(1) 
Amounts presented are based on our historical accounting prior to the adoption of the new revenue guidance.
The following table presents our revenues by segment and primary geographical markets:
 
Quarter Ended March 30, 2019
 
Media
Networks
 
Parks, Experiences and Products
 
Studio
Entertainment
 
Direct-to-Consumer & International
 
21CF
 
Eliminations
 
Consolidated
United States and Canada
$
5,307

 
$
4,700

 
$
1,066

 
$
294

 
$
149

 
$
(208
)
 
$
11,308

Europe
167

 
631

 
550

 
147

 
68

 
(22
)
 
1,541

Asia Pacific
47

 
789

 
393

 
135

 
121

 
(4
)
 
1,481

Latin America
4

 
49

 
125

 
379

 
35

 
—

 
592

Total revenues
$
5,525

 
$
6,169

 
$
2,134

 
$
955

 
$
373

 
$
(234
)
 
$
14,922

 
Six months ended March 30, 2019
 
Media
Networks
 
Parks, Experiences and Products
 
Studio
Entertainment
 
Direct-to-Consumer & International
 
21CF
 
Eliminations
 
Consolidated
United States and Canada
$
10,995

 
$
9,841

 
$
2,104

 
$
519

 
$
149

 
$
(372
)
 
$
23,236

Europe
309

 
1,486

 
963

 
336

 
68

 
(37
)
 
3,125

Asia Pacific
110

 
1,550

 
679

 
269

 
121

 
(9
)
 
2,720

Latin America
32

 
116

 
212

 
749

 
35

 
—

 
1,144

Total revenues
$
11,446

 
$
12,993

 
$
3,958

 
$
1,873

 
$
373

 
$
(418
)
 
$
30,225


Revenues recognized in the current period from performance obligations satisfied (or partially satisfied) in previous reporting periods primarily relate to revenues earned on theatrical and TV/SVOD distribution licensee sales on titles made available to the licensee in previous reporting periods. For the quarter ended March 30, 2019, $431 million was recognized related to performance obligations satisfied prior to December 30, 2018. For the six months ended March 30, 2019, $476 million was recognized related to performance obligations satisfied prior to September 30, 2018.
As of March 30, 2019, revenue for unsatisfied performance obligations expected to be recognized in the future is $17.6 billion, which primarily relates to content to be delivered in the future under existing agreements with television station affiliates and TV/SVOD licensees. Of this amount, we expect to recognize approximately $3.7 billion in the remainder of fiscal 2019, $5.4 billion in fiscal 2020, $3.5 billion in fiscal 2021 and $5 billion thereafter. These amounts include only fixed consideration or minimum guarantees and do not include amounts related to (i) contracts with an original expected term of one year or less (such as most advertising contracts) or (ii) licenses of IP that are solely based on the sales of the licensee.
Payment terms vary by the type and location of our customers and the products or services offered. For certain products or services and customer types, we require payment before the products or services are provided to the customer; in other cases, after appropriate credit evaluations, payment is due in arrears. Advertising contracts, which are generally short term, are billed monthly with payments generally due within 30 days. Payments due under affiliate arrangements are calculated monthly and are generally due within 30 days of month end. Home entertainment terms generally include payment within 60 to 90 days of availability date to the customer. Licensing payment terms vary by contract but are generally collected in advance or over the license term. The Company has accounts receivable with original maturities greater than one year related to the sale of film and television program rights and vacation club properties (see Note 13). These receivables are discounted to present value at an appropriate discount rate at contract inception, and the related revenues are recognized at the discounted amount.
When the timing of the Company’s revenue recognition is different from the timing of customer payments, the Company recognizes either a contract asset (customer payment is subsequent to revenue recognition and subject to the Company satisfying additional performance obligations) or deferred revenue (customer payment precedes the Company satisfying the performance obligations). Consideration due under contracts with payment in arrears are recognized as accounts receivable. Deferred revenues are recognized as (or when) the Company performs under the contract. Contract assets, accounts receivable and deferred revenues from contracts with customers are as follows:
 
March 30,
2019
 
September 30,
2018
Contract assets
$
110

 
$
89

Accounts Receivable
 
 
 
Current
13,565

 
8,553

Non-current
2,318

 
1,640

Allowance for doubtful accounts
(263
)
 
(226
)
Deferred revenues
 
 
 
Current
3,950

 
2,926

Non-current
572

 
609


Contract assets relate to certain multi-season TV/SVOD licensing contracts. Activity for the quarter and six months ended March 30, 2019 related to contract assets and the allowance for doubtful accounts was not material.
Deferred revenue primarily relates to non-refundable consideration received in advance for (i) licensing contracts, theme park annual passes, theme park tickets and vacation packages and (ii) the deferral of advertising revenues due to ratings shortfalls. The increase in the deferred revenue balance for the six months ended March 30, 2019 was primarily due to the
receipt of additional prepaid park admissions, non-refundable travel deposits and advances on certain licensing arrangements, and the acquisition of 21CF (see Note 4) on March 20, 2019 which increased deferred revenues by $0.6 billion. For the quarter and six months ended March 30, 2019, the Company recognized revenues of $0.7 billion and $2.3 billion, respectively, primarily related to theme park admissions and vacation packages included in the deferred revenue balance at September 30, 2018.