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Description of the Business and Segment Information
 12 Months Ended
Oct. 03, 2020
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). In October 2020, the Company announced a strategic reorganization of our media and entertainment businesses to accelerate the growth of our direct-to-consumer (DTC) strategy. The operations of the Media Networks, Studio Entertainment and DTCI segments were reorganized into four groups: three content groups (Studios, General Entertainment and Sports), which are focused on developing and producing content that will be used across all of our traditional and DTC platforms and a distribution group, which is focused on distribution and commercialization activities across these platforms and which has full accountability for media and entertainment operating results globally.
The terms “Company”, “we”, “our” and “us” 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.
Impact of COVID-19
During fiscal 2020 and continuing into fiscal 2021, the world has been, and continues to be, impacted by the novel coronavirus (COVID-19) pandemic. COVID-19 and measures to prevent its spread impacted our segments in a number of ways, most significantly at Parks, Experiences and Products where our theme parks were closed or operating at significantly reduced capacity for a significant portion of the year, cruise ship sailings and guided tours were suspended since late in the second quarter and retail stores were closed for a significant portion of the year. We also had an adverse impact on our merchandise licensing business. Our Studio Entertainment segment has delayed, or in some cases, shortened or cancelled, theatrical releases, and stage play performances have been suspended since late in the second quarter. We also had adverse impacts on advertising sales at Media Networks and Direct-to-Consumer & International. Since March 2020, we have experienced significant disruptions in the production and availability of content, including the shift of key live sports programming from our third quarter to the fourth quarter and into fiscal 2021 as well as the suspension of production of most film and television content since late in the second quarter, although some film and television production resumed in the fourth quarter.
The impact of these disruptions and the extent of their adverse impact on our financial and operating results will be dictated by the length of time that such disruptions continue, which will, in turn, depend on the currently unknowable duration and severity of the impacts of COVID-19, and among other things, the impact of governmental actions imposed in response to COVID-19 and individuals’ and companies’ risk tolerance regarding health matters going forward. As some of our businesses have reopened, we have incurred additional costs to address government regulations and the safety of our employees, talent and guests.
In fiscal 2020, the Company recorded goodwill and intangible asset impairments totaling $5.0 billion, in part due to the negative impact COVID-19 has had on the International Channels business (see Note 19).
Acquisition of TFCF
On March 20, 2019, the Company acquired Twenty-First Century Fox, Inc., a diversified global media and entertainment company, which was subsequently renamed TFCF Corporation (TFCF). 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 Twentieth Century Fox and Fox Searchlight, although these have been rebranded to Twentieth Century Studios and Searchlight Pictures, respectively.
As a result of the acquisition, the Company’s ownership in Hulu LLC (Hulu) increased from 30% to 60% (67% as of October 3, 2020 and September 28, 2019). The acquired TFCF operations and Hulu have been consolidated since the acquisition.
In order to obtain regulatory approval for the acquisition, the Company agreed to sell TFCF’s domestic regional sports networks (RSNs) (sold in August 2019 for approximately $11 billion) and sports media operations in Brazil and Mexico. In addition, the Company agreed to divest its interest in certain European cable channels that were controlled by A+E Television Networks (A+E) (sold in April 2019 for an amount that was not material). In the third quarter of fiscal 2020, the Company
received regulatory approval to retain the sports media operation in Brazil. The RSNs and sports media operation in Mexico, along with certain other businesses to be divested, are presented as discontinued operations in the Consolidated Statements of Operations. At October 3, 2020 and September 28, 2019, the assets and liabilities of the businesses held for sale are not material and are included in other assets and other liabilities in the Consolidated Balance Sheets. The sports media operation in Brazil was previously presented as discontinued operations, with its assets and liabilities considered held for sale, but is now reported as continuing operations in the current and prior periods. The impact on the previously reported Consolidated Statements of Operations, Consolidated Balance Sheets and Consolidated Statements of Cash Flows was not material.
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
•A 50% equity investment in 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 (48% 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, for use on merchandise, published materials and games
◦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 (including books, comic books and magazines)
•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, property taxes, utilities and fuel, 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 Studios, Marvel, Lucasfilm, Pixar, 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 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:
•Direct-to-consumer (DTC) video streaming services, which include Disney+ / Disney+Hotstar, ESPN+ and Hulu. Disney+ launched in November 2019 in the U.S. and 4 other countries and has expanded to select Western European countries in the Spring of 2020. In April, our Hotstar service in India was converted to Disney+Hotstar, and in June 2020, current subscribers of the Disney Deluxe service in Japan were converted to Disney+. In September 2020, Disney+ was launched in additional European countries and Disney+Hotstar was launched in Indonesia. In November 2020, Disney+ was launched in Latin America. The Company also plans to launch a general entertainment DTC video streaming service under the Star brand outside the U.S. in calendar year 2021
•Branded international television networks and channels, which include Disney, ESPN, Fox, National Geographic and Star (International Channels)
•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 was sold on July 2, 2020
◦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 Limited, which operates a direct-to-home satellite distribution platform in India
◦An approximate 24% effective ownership interest (14% fully diluted) in Vice Group Holding 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:
•Subscription fees - Fees charged to customers/subscribers for our DTC services
•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
•TV/SVOD distribution - Program sales, sub-licensing fees for sports programming rights and fees charged to customers to view our sports programming (“pay-per-view”) and Premier Access content
Significant expenses:
•Operating expenses consisting primarily of programming and production costs (including amortization of 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.
Intersegment content transactions are presented “gross” (i.e. the segment producing the content reports revenue and profit from intersegment 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 from another segment 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.
As it relates to film and television content that is produced by our Media Networks and Studio Entertainment segments that will be used on our DTC services, there are four broad categories of content:
•Content produced for exclusive DTC use, “Originals”;
•New Studio Entertainment theatrical releases following the theatrical and home entertainment windows, “Studio Pay 1”;
•New Media Networks episodic television series following their initial airing on our linear networks, “Media Pay 1”; and
•Content in all other windows, “Library”.
The intersegment transfer price, for purposes of segment financial reporting pursuant to ASC 280 Segment Reporting, is generally cost plus a margin for Originals and Media Pay 1 content and generally based on comparable transactions for Studio Pay 1 and Library content. Imputed title by title intersegment license fees that may be necessary for other purposes are established as required by those purposes.
Intersegment revenue is recognized upon availability of the content to the DTC service except with respect to Library content for which revenue is recognized ratably over the license period.
Our DTC services generally amortize intersegment content costs for Originals and Studio Pay 1 content on an accelerated basis and for Media Pay 1 and Library content on a straight line basis.
When the DTC amortization timing is different than the timing of revenue recognition at Studio Entertainment or Media Networks, the difference results in an operating income impact in the elimination segment, which nets to zero over the DTC amortization period.
The following tables provide select segment and regional financial information:
202020192018
Revenues
Media Networks$28,393  $24,827  $21,922  
Parks, Experiences and Products
Third parties17,038  26,786  25,257  
Intersegment(536) (561) (556) 
16,502  26,225  24,701  
Studio Entertainment
Third parties9,100  10,566  9,509  
Intersegment536  561  556  
9,636  11,127  10,065  
Direct-to-Consumer & International16,967  9,386  3,414  
Eliminations(1)
(6,110) (1,958) (668) 
Total consolidated revenues$65,388  $69,607  $59,434  
Segment operating income (loss)
Media Networks$9,022  $7,479  $7,338  
Parks, Experiences and Products(81) 6,758  6,095  
Studio Entertainment2,501  2,686  3,004  
Direct-to-Consumer & International(2,806) (1,835) (738) 
Eliminations(1)
(528) (241) (10) 
Total segment operating income(2)
$8,108  $14,847  $15,689  
Reconciliation of segment operating income to income from continuing operations before income taxes
Segment operating income$8,108  $14,847  $15,689  
Corporate and unallocated shared expenses(817) (987) (744) 
Restructuring and impairment charges(5,735) (1,183) (33) 
Other income, net1,038  4,357  601  
Interest expense, net(1,491) (978) (574) 
Amortization of TFCF and Hulu intangible assets and fair value step-up on film and television costs(3)
(2,846) (1,595) —  
Impairment of equity investments(4)
—  (538) (210) 
Income (loss) from continuing operations before income taxes$(1,743) $13,923  $14,729  
Capital expenditures
Media Networks
Cable Networks$61  $93  $96  
Broadcasting51  81  107  
Parks, Experiences and Products
Domestic2,145  3,294  3,223  
International759  852  677  
Studio Entertainment77  88  96  
Direct-to-Consumer & International594  258  107  
Corporate335  210  159  
Total capital expenditures$4,022  $4,876  $4,465  
202020192018
Depreciation expense
Media Networks$203  $191  $199  
Parks, Experiences and Products
Domestic1,634  1,474  1,449  
International694724768
Studio Entertainment877455
Direct-to-Consumer & International348  214  106  
Depreciation expense included in segment operating income
2,966  2,677  2,577  
Corporate174  167  181  
Total depreciation expense$3,140  $2,844  $2,758  
Amortization of intangible assets
Media Networks$4  $—  $—  
Parks, Experiences and Products109  108  110  
Studio Entertainment59  61  64  
Direct-to-Consumer & International112  111  79  
Amortization of intangible assets included in segment operating income
284  280  253  
TFCF and Hulu intangible assets1,921  1,043  —  
Total amortization of intangible assets$2,205  $1,323  $253  
October 3, 2020September 28, 2019
Identifiable assets(5)
Media Networks$62,220  $63,519  
Parks, Experiences and Products42,320  41,978  
Studio Entertainment32,811  34,323  
Direct-to-Consumer & International45,538  48,606  
Corporate(6)
19,691  6,025  
Eliminations(1,031) (467) 
Total consolidated assets$201,549  193,984  
202020192018
Revenues
Americas$51,992  $53,805  $46,877  
Europe7,333  8,006  7,026  
Asia Pacific6,063  7,796  5,531  
$65,388  $69,607  $59,434  
Segment operating income
Americas$5,819  $10,247  $11,898  
Europe1,273  2,433  1,922  
Asia Pacific1,016  2,167  1,869  
$8,108  $14,847  $15,689  
October 3, 2020September 28, 2019
Long-lived assets(7)
Americas$141,674  $138,674  
Europe7,672  10,793  
Asia Pacific12,235  12,703  
$161,581  $162,170  
(1)Intersegment content transactions are as follows:
202020192018
Revenues:
Studio Entertainment:
Content transactions with Media Networks$(188) $(106) $(169) 
Content transactions with Direct-to-Consumer & International
(2,108) (272) (28) 
Media Networks:
Content transactions with Direct-to-Consumer & International
(3,814) (1,580) (471) 
Total$(6,110) $(1,958) $(668) 
Operating Income:
Studio Entertainment:
Content transactions with Media Networks$3  $(19) $(8) 
Content transactions with Direct-to-Consumer & International
(158) (80) —  
Media Networks:
Content transactions with Direct-to-Consumer & International
(373) (142) (2) 
Total$(528) $(241) $(10) 
(2)Equity in the income (loss) of investees is as follows:
202020192018
Media Networks$737  $703  $711  
Parks, Experiences and Products
(19) (13) (23) 
Studio Entertainment(1) —  —  
Direct-to-Consumer & International(40) (240) (580) 
Equity in the income of investees included in segment operating income
677  450  108  
Impairment of equity investments
—  (538) (210) 
Amortization of TFCF intangible assets related to equity investees
(26) (15) —  
Equity in the income (loss) of investees$651  $(103) $(102) 
(3)For fiscal 2020, amortization of intangible assets, fair value step-up on film and television costs and intangibles related to TFCF equity investees were $1,921 million, $899 million and $26 million respectively. For fiscal 2019, amortization of intangible assets, fair value step-up on film and television costs and intangibles related to TFCF equity investees were $1,043 million, $537 million and $15 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:
October 3, 2020September 28, 2019
Media Networks$2,002  $2,018  
Parks, Experiences and Products3  3  
Studio Entertainment2  8  
Direct-to-Consumer & International570  821  
Corporate55  72  
$2,632  $2,922  
Intangible assets included in identifiable assets by segment are as follows:
October 3, 2020September 28, 2019
Media Networks$7,242  $7,861  
Parks, Experiences and Products3,066  3,177  
Studio Entertainment2,031  2,140  
Direct-to-Consumer & International6,814  9,962  
Corporate20  75  
$19,173  $23,215  
(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.