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Description of the Business and Segment Information
 3 Months Ended 12 Months Ended
Dec. 29, 2018
Sep. 29, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]    
Description of the Business and 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
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 & Consumer Products; Studio Entertainment; and Direct-to-Consumer & International.
DESCRIPTION OF THE BUSINESS
Media Networks Segment
The Company operates cable programming businesses branded ESPN, Disney and Freeform, broadcast businesses, which include the ABC TV Network and eight owned television stations, and radio businesses. The ABC TV network has affiliated stations providing coverage to consumers throughout the U.S. The Company also produces original live-action and animated television programming, which may be sold in network, first-run syndication and other television markets worldwide, to subscription video-on-demand services (including content transactions with other Company segments) and in home entertainment formats (such as DVD, Blu-ray and electric home video license). The Company has interests in media businesses reported in the Media Networks segment that are accounted for under the equity method including A+E Television Networks LLC (A+E) and CTV Specialty Television, Inc. (CTV). Media Networks also programs certain of the Company’s branded internet sites and apps.
Parks, Experiences & Consumer Products Segment
The Company owns and operates the Walt Disney World Resort in Florida and the Disneyland Resort in California. The Walt Disney World Resort includes four theme parks (the Magic Kingdom, Epcot, Disney’s Hollywood Studios and Disney’s Animal Kingdom); 18 resort hotels; vacation club properties; a retail, dining and entertainment complex (Disney Springs); a sports complex; conference centers; campgrounds; water parks; and other recreational facilities. The Disneyland Resort includes two theme parks (Disneyland and Disney California Adventure), three resort hotels and a retail, dining and entertainment complex (Downtown Disney). Internationally, the Company owns and operates Disneyland Paris, which includes two theme parks (Disneyland Park and Walt Disney Studios Park); seven themed resort hotels; two convention centers; a retail, dining and entertainment complex (Disney Village); a 27-hole golf facility; and a 50% interest in Villages Nature, a European eco-tourism resort. The Company manages and has a 47% ownership interest in Hong Kong Disneyland Resort, which includes one theme park and three themed resort hotels. The Company has a 43% ownership interest in Shanghai Disney Resort, which includes one theme park; two themed resort hotels; a retail, dining and entertainment complex (Disneytown); and an outdoor recreational area. The Company also has a 70% ownership interest in the management company of Shanghai Disney Resort. The Company earns royalties on revenues generated by the Tokyo Disney Resort, which includes two theme parks (Tokyo Disneyland and Tokyo DisneySea) and four Disney-branded hotels and is owned and operated by an unrelated Japanese corporation. The Company develops, manages and markets vacation club ownership interests through the Disney Vacation Club; operates the Disney Cruise Line; the Adventures by Disney guided group vacations business; and Aulani, a hotel and vacation club resort in Hawaii. The Company’s Walt Disney Imagineering unit designs and develops theme park concepts and attractions as well as resort properties. The Company licenses its trade names, characters, visual, literary and other intellectual properties to various manufacturers, game developers, publishers and retailers throughout the world. The Company also sells branded merchandise through retail, online and wholesale businesses, and develops and publishes books, magazines, comic books and games. As of the end of fiscal 2018, the Company had substantially exited the vertical games development business.
Studio Entertainment Segment
The Company produces and acquires live-action and animated motion pictures for worldwide distribution in the theatrical, home entertainment and television markets and to subscription video on demand services. The Company distributes these products through its own distribution and marketing companies in the U.S. and both directly and through independent companies and joint ventures in foreign markets. Our primary banners are Walt Disney Pictures, Pixar, Marvel, Lucasfilm and Touchstone. The Studio Entertainment segment also provides content to other Company segments. The Company also produces stage plays and musical recordings, licenses and produces live entertainment events and provides visual and audio effects and other post-production services.

Direct-to-Consumer & International Segment
The Company operates Disney and ESPN branded television networks and channels outside of the U.S. and operates the Company’s direct-to-consumer streaming services. In April 2018, the Company launched ESPN+, a direct-to-consumer streaming service providing multi-sports content. The Company expects to launch Disney+, which will offer a range of Disney, Pixar, Marvel and Lucasfilm content, in late 2019. The Company also operates Disney Movie Club, which sells DVD/Blu-rays
directly to U.S. and Canadian consumers, and provides streaming technology services to third parties. The Company has interests in media businesses reported in the Direct-to-Consumer & International segment that are accounted for under the equity method including Hulu LLC (Hulu), Vice Group Holding, Inc. (Vice) and Seven TV.
SEGMENT INFORMATION
Segment operating results reflect earnings before corporate and unallocated shared expenses, restructuring and impairment charges, other expense, 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.
The following segment 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 (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). Other intersegment transactions are reported “Net” (i.e. revenue between segments is recorded as a reduction of costs) except that Studio Entertainment revenues and operating income include an allocation of Parks, Experiences & Consumer Products revenues, which is meant to reflect royalties on revenue generated by Parks, Experiences & Consumer Products on merchandise based on intellectual property from Studio Entertainment films.
 
2018
 
2017
 
2016
Revenues
 
 
 
 
 
Media Networks
$
21,922

 
$
21,299

 
$
21,326

Parks, Experiences & Consumer Products
 
 
 
 
 
Third parties
25,257

 
23,516

 
22,998

Intersegment
(556
)
 
(492
)
 
(740
)
 
24,701

 
23,024

 
22,258

Studio Entertainment
 
 
 
 
 
Third parties
9,509

 
7,860

 
8,629

Intersegment
556

 
492

 
740

 
10,065

 
8,352

 
9,369

Direct-to-Consumer & International
3,414

 
3,075

 
3,306

Eliminations(1)
(668
)
 
(613
)
 
(627
)
 


 


 


Total consolidated revenues
$
59,434

 
$
55,137

 
$
55,632

Segment operating income
 
 
 
 
 
Media Networks
$
7,338

 
$
7,196

 
$
7,804

Parks, Experiences & Consumer Products
6,095

 
5,487

 
5,198

Studio Entertainment
3,004

 
2,363

 
2,767

Direct-to-Consumer & International
(738
)
 
(284
)
 
(38
)
Eliminations(1)
(10
)
 
13

 
(10
)
Total segment operating income(2)
$
15,689

 
$
14,775

 
$
15,721

 
2018
 
2017
 
2016
Reconciliation of segment operating income to income before income taxes
 
 
 
 
 
Segment operating income
$
15,689

 
$
14,775

 
$
15,721

Corporate and unallocated shared expenses
(744
)
 
(582
)
 
(640
)
Restructuring and impairment charges
(33
)
 
(98
)
 
(156
)
Other income, net
601

 
78

 
—

Interest expense, net
(574
)
 
(385
)
 
(260
)
Vice Gain(2)
—

 
—

 
332

Infinity Charge(3)
—

 
—

 
(129
)
Impairment of equity investments(2)
(210
)
 
—

 
—

Income before income taxes
$
14,729

 
$
13,788

 
$
14,868

Capital expenditures
 
 
 
 
 
Media Networks
 
 
 
 
 
Cable Networks
$
96

 
$
64

 
$
81

Broadcasting
107

 
67

 
73

Parks, Experiences & Consumer Products
 
 
 
 
 
Domestic
3,223

 
2,392

 
2,215

International
677

 
827

 
2,053

Studio Entertainment
96

 
85

 
86

Direct-to-Consumer & International
107

 
30

 
65

Corporate
159

 
158

 
200

Total capital expenditures
$
4,465

 
$
3,623

 
$
4,773

Depreciation expense
 
 
 
 
 
Media Networks
$
199

 
$
206

 
$
217

Parks, Experiences & Consumer Products
 
 
 
 
 
Domestic
1,449

 
1,371

 
1,314

International
768

 
679

 
468

Studio Entertainment
55

 
50

 
46

Direct-to-Consumer & International
106

 
74

 
61

Corporate
181

 
206

 
214

Total depreciation expense
$
2,758

 
$
2,586

 
$
2,320

Amortization of intangible assets
 
 
 
 
 
Media Networks
$
—

 
$
—

 
$
2

Parks, Experiences & Consumer Products
110

 
111

 
107

Studio Entertainment
64

 
65

 
74

Direct-to-Consumer & International
79

 
20

 
24

Total amortization of intangible assets
$
253

 
$
196

 
$
207


 
2018
 
2017
 
2016
Identifiable assets(4)
 
 
 
 
 
Media Networks
$
14,216

 
$
13,660

 
 
Parks, Experiences & Consumer Products
34,684

 
33,755

 
 
Studio Entertainment
10,197

 
9,672

 
 
Direct-to-Consumer & International
3,558

 
4,083

 
 
Corporate(5)
4,977

 
3,475

 
 
Eliminations
(303
)
 
(282
)
 
 
Goodwill(6)
31,269

 
31,426

 
 
Total consolidated assets
$
98,598

 
$
95,789

 
 
Supplemental revenue data
 
 
 
 
 
Affiliate fees
$
13,279

 
$
12,659

 
$
12,259

Advertising
7,904

 
8,237

 
8,649

Retail merchandise, food and beverage
6,923

 
6,433

 
6,116

Theme park admissions
7,183

 
6,502

 
5,900

Revenues
 
 
 
 
 
United States and Canada
$
45,038

 
$
41,881

 
$
42,616

Europe
7,026

 
6,541

 
6,714

Asia Pacific
5,531

 
5,075

 
4,582

Latin America and Other
1,839

 
1,640

 
1,720

 
$
59,434

 
$
55,137

 
$
55,632

Segment operating income
 
 
 
 
 
United States and Canada
$
11,396

 
$
10,962

 
$
12,139

Europe
1,922

 
1,812

 
1,815

Asia Pacific
1,869

 
1,626

 
1,324

Latin America and Other
502

 
375

 
443

 
$
15,689

 
$
14,775


$
15,721

Long-lived assets(7)
 
 
 
 
 
United States and Canada
$
65,245

 
$
61,215

 
 
Europe
6,275

 
8,208

 
 
Asia Pacific
7,775

 
8,196

 
 
Latin America and Other
131

 
155

 
 
 
$
79,426

 
$
77,774

 
 
(1) 
Intersegment content transaction are as follows: 
 
2018
 
2017
 
2016
Revenues
 
 
 
 
 
Studio Entertainment:
 
 
 
 
 
Content transactions with Media Networks
$
(169
)
 
$
(137
)
 
$
(159
)
Content transactions with Direct-to-Consumer & International
(28
)
 
(22
)
 
(11
)
Media Networks:
 
 
 
 
 
Content transactions with Direct-to-Consumer & International
(471
)
 
(454
)
 
(457
)
Total
$
(668
)
 
$
(613
)
 
$
(627
)
 
 
 
 
 
 
Operating Income
 
 
 
 
 
Studio Entertainment:
 
 
 
 
 
Content transactions with Media Networks
$
(8
)
 
$
15

 
$
(10
)
Media Networks:
 
 
 
 
 
Content transactions with Direct-to-Consumer & International
(2
)
 
(2
)
 
—

Total
$
(10
)
 
$
13

 
$
(10
)

(2) 
Equity in the income of investees included in segment operating income is as follows:
 
2018
 
2017
 
2016
Media Networks
$
711

 
$
766

 
$
779

Parks, Experiences and Consumer Products
(23
)
 
(25
)
 
(3
)
Direct-to-Consumer & International
(580
)
 
(421
)
 
(182
)
Equity in the income of investees included in segment operating income
108

 
320

 
594

Impairment of equity investments:
 
 
 
 
 
Vice
(157
)
 
—

 
—

Villages Nature
(53
)
 
—

 
—

Vice Gain
—

 
—

 
332

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

 
$
926


During fiscal 2018, the Company recorded impairments of Vice and Villages Nature equity method investments. During fiscal 2016, the Company recognized its share of a net gain recorded by A+E, a joint venture owned 50% by the Company, in connection with A+E’s acquisition of an interest in Vice (Vice Gain). These items were recorded in “Equity in the income (loss) of investees, net” in the Consolidated Statement of Income but were not included in segment operating income.
(3) 
In fiscal 2016, the Company discontinued its Infinity console game business, which is reported in the Parks, Experiences & Consumer Products segment, and recorded a charge (Infinity Charge) primarily to write down inventory. The charge also included severance and other asset impairments. The charge was reported in “Cost of products” in the Consolidated Statement of Income.
(4) 
Equity method investments included in identifiable assets by segment are as follows:
 
2018
 
2017
Media Networks
$
2,430

 
$
2,505

Parks, Experiences & Consumer Products
1

 
70

Studio Entertainment
1

 
1

Direct-to-Consumer & International
320

 
493

Corporate
16

 
18

 
$
2,768

 
$
3,087


Intangible assets included in identifiable assets by segment are as follows:
 
2018
 
2017
Media Networks
$
1,546

 
$
1,547

Parks, Experiences & Consumer Products
3,167

 
3,277

Studio Entertainment
1,479

 
1,543

Direct-to-Consumer & International
490

 
498

Corporate
130

 
130

 
$
6,812

 
$
6,995


(5) 
Primarily fixed assets and cash and cash equivalents.
(6) 
See Note 3 for goodwill by segment.
(7) 
Long-lived assets are total assets less the following: current assets, long-term receivables, deferred taxes, financial investments and derivatives.