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Segment Information
 9 Months Ended
Jun. 29, 2019
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 and Products;
•
Studio Entertainment; and
•
Direct-to-Consumer & International
The Parks, Experiences and 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.
21CF and Hulu results are consolidated and reported in our operating segments from the acquisition date through June 29, 2019. The acquired 21CF businesses are generally branded Fox, FX, Star and National Geographic.
DESCRIPTION OF BUSINESS
Media Networks
•
Significant operations:
◦
Disney, ESPN (80% ownership interest), FX, National Geographic (73% ownership interest) and Freeform branded domestic cable networks
◦
ABC branded broadcast television network and eight owned domestic television stations
◦
Television production and distribution
◦
National Geographic branded publishing business
◦
A 50% equity investment in A+E Television Networks (A+E), which operates a variety of cable networks 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 (“ratings-based ad sales”, which excludes advertising on digital platforms that is not ratings based), and the sale of ad 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); and 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 and Disney-branded travel businesses, 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 (excluding National Geographic, which is reported in Media Networks), comic books and games
•
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 (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 primarily consist 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, Pixar, Marvel, Lucasfilm, Fox 2000, Fox Searchlight Pictures, Twentieth Century Fox Animation 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 from the right to use our motion picture productions, revenue from 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, ESPN, Fox, Star, FX and National Geographic branded international television networks and channels (International Channels)
◦
Direct-to-consumer (DTC) businesses distributed digitally to internet-connected devices:
▪
Hulu and Hotstar streaming services, which aggregate acquired television and film entertainment content and produce original content. Prior to the acquisition of 21CF, Hulu was reported as an equity investment.
▪
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 2017), which provides streaming technology 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 27% 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:
◦
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 streaming and technology services
•
Significant expenses:
◦
Operating expenses consisting primarily of programming and production costs (including 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 and excludes impairments of certain equity investments and purchase accounting amortization of 21CF and Hulu assets (i.e. intangible assets and the fair value step-up for film and television costs) recognized in connection with the 21CF acquisition. 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, our networks streaming on our DTC services) 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
 
Nine Months Ended
 
June 29,
2019
 
June 30,
2018
 
June 29,
2019
 
June 30,
2018
Revenues:
 
 
 
 
 
 
 
Media Networks
$
6,713


$
5,534


$
18,317


$
16,597

Parks, Experiences and Products(1)
6,575


6,136


19,570


18,566

Studio Entertainment(1)
3,836


2,880


7,817


7,888

Direct-to-Consumer & International
3,858


827


5,921


2,589

Eliminations(2)
(737
)
 
(148
)
 
(1,155
)
 
(512
)
 
$
20,245

 
$
15,229

 
$
50,470

 
$
45,128

Segment operating income:
 
 
 
 
 
 
 
Media Networks
$
2,136

 
$
1,995

 
$
5,696

 
$
5,496

Parks, Experiences and Products(1)
1,719

 
1,655

 
5,377

 
4,918

Studio Entertainment(1)
792

 
701

 
1,607

 
2,400

Direct-to-Consumer & International
(553
)
 
(168
)
 
(1,074
)
 
(398
)
Eliminations(2)
(133
)
 
6

 
(174
)
 
(4
)
 
$
3,961

 
$
4,189

 
$
11,432

 
$
12,412

(1) 
Studio Entertainment revenues and operating income include an allocation of Parks, Experiences and 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 and Products revenues and operating income was $126 million and $119 million for the quarters ended June 29, 2019 and June 30, 2018, respectively, and $406 million and $426 million for the nine months ended June 29, 2019 and June 30, 2018, respectively.
(2) 
Intersegment content transactions are as follows:
 
Quarter Ended
 
Nine Months Ended
(in millions)
June 29,
2019
 
June 30,
2018
 
June 29,
2019
 
June 30,
2018
Revenues:
 
 
 
 
 
 
 
Studio Entertainment:
 
 
 
 
 
 
 
Content transactions with Media Networks
$
(41
)
 
$
(25
)
 
$
(75
)
 
$
(120
)
Content transactions with Direct-to-Consumer & International
(82
)
 
(8
)
 
(182
)
 
(24
)
Media Networks:
 
 
 
 
 
 
 
Content transactions with Direct-to-Consumer & International
(614
)
 
(115
)
 
(898
)
 
(368
)
 
$
(737
)
 
$
(148
)
 
$
(1,155
)
 
$
(512
)
 
 
 
 
 
 
 
 
Operating income:
 
 
 
 
 
 
 
Studio Entertainment:
 
 
 
 
 
 
 
Content transactions with Media Networks
$
(16
)
 
$
7

 
$
(11
)
 
$
(2
)
Content transactions with Direct-to-Consumer & International
(35
)
 
—

 
(79
)
 
—

Media Networks:
 
 
 
 
 
 
 
Content transactions with Direct-to-Consumer & International
(82
)
 
(1
)
 
(84
)
 
(2
)
Total
$
(133
)
 
$
6

 
$
(174
)
 
$
(4
)

Equity in the income/(loss) of investees is included in segment operating income as follows: 
 
Quarter Ended
 
Nine Months Ended
 
June 29,
2019
 
June 30,
2018
 
June 29,
2019
 
June 30,
2018
Media Networks
$
192

 
$
197

 
$
553

 
$
538

Parks, Experiences and Products
—

 
(5
)
 
(12
)
 
(19
)
Direct-to-Consumer & International
7

 
(119
)
 
(222
)
 
(397
)
Equity in the income of investees included in segment operating income
199

 
73

 
319

 
122

Impairment of equity investments
(185
)
 
—

 
(538
)
 
—

Amortization of 21CF intangible assets related to equity investees
(15
)
 
—

 
(15
)
 
—

Equity in the income / (loss) of investees, net
$
(1
)
 
$
73

 
$
(234
)
 
$
122


A reconciliation of segment operating income to income from continuing operations before income taxes is as follows:
 
Quarter Ended
 
Nine Months Ended
 
June 29,
2019
 
June 30,
2018
 
June 29,
2019
 
June 30,
2018
Segment operating income
$
3,961

 
$
4,189

 
$
11,432

 
$
12,412

Corporate and unallocated shared expenses
(238
)
 
(192
)
 
(678
)
 
(536
)
Restructuring and impairment charges
(207
)
 
—

 
(869
)
 
(28
)
Other income/(expense), net
(123
)
 
—

 
4,840

 
94

Interest expense, net
(411
)
 
(143
)
 
(617
)
 
(415
)
Amortization of 21CF and Hulu intangible assets and fair value step-up on film and television costs(1)
(779
)
 
—

 
(884
)
 
—

Impairment of equity investments(2)
(185
)
 
—

 
(538
)
 
—

Income from continuing operations before income taxes
$
2,018

 
$
3,854

 
$
12,686

 
$
11,527


(1) 
For the quarter ended June 29, 2019, amortization of intangible assets, step-up of film and television costs and intangibles related to 21CF equity investees were $490 million, $274 million and $15 million, respectively. For the nine-months ended June 29, 2019, amortization of intangible assets, step-up of film and television costs and intangibles related to 21CF equity investees were $562 million, $307 million and $15 million, respectively.
(2) 
Primarily reflects an impairment of an investment in a cable channel at A+E Television Networks.