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Revenues
 9 Months Ended
Jun. 29, 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 that 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 ($0.1 billion at June 29, 2019) and the reclassification of refundable customer advances (previously reported as deferred revenues) to other accrued liabilities ($1.0 billion at June 29, 2019).
The cumulative effect of adoption at September 29, 2018 and the impact at June 29, 2019 (had we not applied the new revenue guidance) on the Condensed Consolidated Balance Sheet is as follows:
 
September 29, 2018
 
June 29, 2019
 
Fiscal 2018 Ending Balances as Reported
 
Effect of Adoption
 
Q1 2019 Opening Balances
 
Balances Assuming
Historical Accounting
 
Impact of New Revenue guidance
 
Q3 2019 Ending Balances as Reported
Assets
 
 
 
 
 
 
 
 
 
 
 
Receivables - current/non-current
$
11,262

 
$
(241
)
 
$
11,021

 
$
18,450

 
$
(157
)
 
$
18,293

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

 
48

 
9,250

 
27,031

 
47

 
27,078

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
Accounts payable and other accrued liabilities
9,479

 
1,039

 
10,518

 
16,488

 
1,159

 
17,647

Deferred revenue and other
4,591

 
(1,082
)
 
3,509

 
5,888

 
(1,158
)
 
4,730

Deferred income taxes
3,109

 
(34
)
 
3,075

 
10,429

 
(25
)
 
10,404

 
 
 
 
 
 
 
 
 
 
 
 
Equity
52,832

 
(116
)
 
52,716

 
96,444

 
(88
)
 
96,356


The impact on the Condensed Consolidated Statement of Income for the quarter and nine months ended June 29, 2019, due to the adoption of the new revenue guidance is as follows:
 
Quarter Ended June 29, 2019
 
Nine Months Ended June 29, 2019
 
Results Assuming
Historical Accounting
 
Impact of New Revenue guidance
 
Reported
 
Results Assuming
Historical Accounting
 
Impact of New Revenue guidance
 
Reported
Revenues
$
20,250

 
$
(5
)
 
$
20,245

 
$
50,260

 
$
210

 
$
50,470

Cost and Expenses
(17,437
)
 
(48
)
 
(17,485
)
 
(40,730
)
 
(174
)
 
(40,904
)
Income Taxes
(407
)
 
12

 
(395
)
 
(2,679
)
 
(8
)
 
(2,687
)
Net Income
2,023

 
(41
)
 
1,982

 
10,351

 
28

 
10,379


The most significant impacts were at the Studio Entertainment, Parks, Experiences and Products and Media Networks segments. For the quarter ended June 29, 2019, Parks, Experiences and Products was impacted by the deferral of revenues related to sales of vacation club properties and Media Networks was impacted by a change in the timing of revenue recognition on contracts with minimum guarantees.
For the nine months ended June 29, 2019, Studio Entertainment was impacted by a change in the timing of revenue recognition related to film content licensing agreements with multiple availability windows. Parks, Experiences and Products was impacted by the deferral of revenues related to sales of vacation club properties and a change in the timing of revenue recognition on contracts with minimum guarantees. Media Networks was 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 sales of ad time/space. 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 June 29, 2019
 
Media
Networks
 
Parks, Experiences and Products
 
Studio
Entertainment
 
Direct-to-Consumer & International
 
Eliminations
 
Consolidated
Affiliate fees
$
3,564

 
$
—

 
$
—

 
$
993

 
$
(108
)
 
$
4,449

Advertising
1,874

 
—

 
—

 
1,489

 
—

 
3,363

Theme park admissions
—

 
1,956

 
—

 
—

 
—

 
1,956

Resort and vacations
—

 
1,610

 
—

 
—

 
—

 
1,610

Retail and wholesale sales of merchandise, food and beverage
—

 
1,877

 
—

 
—

 
—

 
1,877

TV/SVOD distribution licensing
1,150

 
—

 
746

 
218

 
(629
)
 
1,485

Theatrical distribution licensing
—

 
—

 
2,240

 
—

 
—

 
2,240

Merchandise licensing
—

 
631

 
126

 
12

 
—

 
769

Home entertainment
—

 
—

 
432

 
24

 
—

 
456

Other
125

 
501

 
292

 
1,122

 
—

 
2,040

Total revenues
$
6,713

 
$
6,575

 
$
3,836

 
$
3,858

 
$
(737
)
 
$
20,245

 
Quarter Ended June 30, 2018(1)
 
Media
Networks
 
Parks, Experiences and Products
 
Studio
Entertainment
 
Direct-to-Consumer & International
 
Eliminations
 
Consolidated
Affiliate fees
$
2,981

 
$
—

 
$
—

 
$
351

 
$
—

 
$
3,332

Advertising
1,677

 
1

 
—

 
310

 
—

 
1,988

Theme park admissions
—

 
1,834

 
—

 
—

 
—

 
1,834

Resort and vacations
—

 
1,530

 
—

 
—

 
—

 
1,530

Retail and wholesale sales of merchandise, food and beverage
—

 
1,800

 
—

 
—

 
—

 
1,800

TV/SVOD distribution licensing
822

 
—

 
560

 
22

 
(148
)
 
1,256

Theatrical distribution licensing
—

 
—

 
1,505

 
—

 
—

 
1,505

Merchandise licensing
—

 
560

 
116

 
18

 
—

 
694

Home entertainment
—

 
—

 
388

 
29

 
—

 
417

Other
54

 
411

 
311

 
97

 
—

 
873

Total revenues
$
5,534

 
$
6,136

 
$
2,880

 
$
827

 
$
(148
)
 
$
15,229

(1) 
Amounts reflect our historical accounting prior to the adoption of the new revenue guidance.
 
Nine Months Ended June 29, 2019
 
Media
Networks
 
Parks, Experiences and Products
 
Studio
Entertainment
 
Direct-to-Consumer & International
 
Eliminations
 
Consolidated
Affiliate fees
$
9,873

 
$
—

 
$
—

 
$
1,728

 
$
(120
)
 
$
11,481

Advertising
5,521

 
3

 
—

 
2,360

 
—

 
7,884

Theme park admissions
—

 
5,657

 
—

 
—

 
—

 
5,657

Resort and vacations
—

 
4,644

 
—

 
—

 
—

 
4,644

Retail and wholesale sales of merchandise, food and beverage
—

 
5,767

 
—

 
—

 
—

 
5,767

TV/SVOD distribution licensing
2,617

 
—

 
2,069

 
275

 
(1,035
)
 
3,926

Theatrical distribution licensing
—

 
—

 
3,365

 
—

 
—

 
3,365

Merchandise licensing
—

 
2,009

 
406

 
40

 
—

 
2,455

Home entertainment
—

 
—

 
1,127

 
73

 
—

 
1,200

Other
306

 
1,490

 
850

 
1,445

 
—

 
4,091

Total revenues
$
18,317

 
$
19,570

 
$
7,817

 
$
5,921

 
$
(1,155
)
 
$
50,470

 
Nine Months Ended June 30, 2018(1)
 
Media
Networks
 
Parks, Experiences and Products
 
Studio
Entertainment
 
Direct-to-Consumer & International
 
Eliminations
 
Consolidated
Affiliate fees
$
8,891

 
$
—

 
$
—

 
$
1,043

 
$
—

 
$
9,934

Advertising
5,283

 
5

 
—

 
1,022

 
—

 
6,310

Theme park admissions
—

 
5,356

 
—

 
—

 
—

 
5,356

Resort and vacations
—

 
4,454

 
—

 
—

 
—

 
4,454

Retail and wholesale sales of merchandise, food and beverage
—

 
5,566

 
—

 
—

 
—

 
5,566

TV/SVOD distribution licensing
2,205

 
—

 
1,698

 
73

 
(512
)
 
3,464

Theatrical distribution licensing
—

 
—

 
3,630

 
—

 
—

 
3,630

Merchandise licensing
—

 
1,963

 
426

 
54

 
—

 
2,443

Home entertainment
—

 
—

 
1,220

 
80

 
—

 
1,300

Other
218

 
1,222

 
914

 
317

 
—

 
2,671

Total revenues
$
16,597

 
$
18,566

 
$
7,888

 
$
2,589

 
$
(512
)
 
$
45,128

(1) 
Amounts reflect 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 June 29, 2019
 
Media
Networks
 
Parks, Experiences and Products
 
Studio
Entertainment
 
Direct-to-Consumer & International
 
Eliminations
 
Consolidated
United States and Canada
$
6,338

 
$
4,911

 
$
1,728

 
$
1,533

 
$
(601
)
 
$
13,909

Europe
295

 
776

 
889

 
473

 
(80
)
 
2,353

Asia Pacific
63

 
837

 
874

 
1,187

 
(56
)
 
2,905

Latin America
17

 
51

 
345

 
665

 
—

 
1,078

Total revenues
$
6,713

 
$
6,575

 
$
3,836

 
$
3,858

 
$
(737
)
 
$
20,245

 
Nine months ended June 29, 2019
 
Media
Networks
 
Parks, Experiences and Products
 
Studio
Entertainment
 
Direct-to-Consumer & International
 
Eliminations
 
Consolidated
United States and Canada
$
17,464

 
$
14,742

 
$
3,840

 
$
2,078

 
$
(970
)
 
$
37,154

Europe
585

 
2,261

 
1,878

 
846

 
(118
)
 
5,452

Asia Pacific
195

 
2,399

 
1,548

 
1,566

 
(67
)
 
5,641

Latin America
73

 
168

 
551

 
1,431

 
—

 
2,223

Total revenues
$
18,317

 
$
19,570

 
$
7,817

 
$
5,921

 
$
(1,155
)
 
$
50,470


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 June 29, 2019, $0.6 billion was recognized related to performance obligations satisfied prior to March 31, 2019. For the nine months ended June 29, 2019, $0.9 billion was recognized related to performance obligations satisfied prior to September 30, 2018.
As of June 29, 2019, revenue for unsatisfied performance obligations expected to be recognized in the future is $16 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 $2 billion in the remainder of fiscal 2019, $6 billion in fiscal 2020, $4 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 is 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:
 
June 29,
2019
 
September 30,
2018
Contract assets
$
99

 
$
89

Accounts Receivable
 
 
 
Current
14,414

 
8,553

Non-current
2,008

 
1,640

Allowance for doubtful accounts
(265
)
 
(226
)
Deferred revenues
 
 
 
Current
4,135

 
2,926

Non-current
581

 
609


Contract assets relate to certain multi-season TV/SVOD licensing contracts. Activity for the quarter and nine months ended June 29, 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 nine months ended June 29, 2019 was primarily due to the receipt of additional prepaid park admissions, non-refundable travel deposits and advances on certain licensing arrangements, as well as the acquisition of 21CF and consolidation of Hulu (see Note 4) on March 20, 2019. The acquisition of 21CF and consolidation of Hulu increased deferred revenues by $0.7 billion, of which $0.4 billion was recognized during the quarter ended June 29, 2019. For the quarter and nine months ended June 29, 2019, the Company recognized revenues of $0.3 billion and $2.5 billion, respectively, primarily related to theme park admissions and vacation packages included in the deferred revenue balance at September 30, 2018.