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Description of the Business and Segment Information
 12 Months Ended
Oct. 02, 2021
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 Disney Media and Entertainment Distribution (DMED) and Disney Parks, Experiences and Products (DPEP) segments (see additional information below on the recast of fiscal 2020 and 2019 segment information as a result of the media and entertainment reorganization). 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). As a result of the acquisition, the Company’s ownership in Hulu LLC (Hulu) increased from 30% to 60% (currently 67%). The acquired TFCF operations and Hulu have been consolidated since the acquisition (See Note 4).
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
Since early 2020, the world has been, and continues to be, impacted by the novel coronavirus (COVID-19) and its variants. COVID-19 and measures to prevent its spread has impacted our segments in a number of ways, most significantly at the DPEP segment where our theme parks were closed and cruise ship sailings and guided tours were suspended. These operations resumed, generally at reduced capacity, at various points since May 2020. We have delayed, or in some cases, shortened or cancelled theatrical releases, and stage play performances were suspended as of March 2020. Stage play operations resumed, generally at reduced capacity, in the first quarter of fiscal 2021. Theaters have been subject to capacity limitations and shifting government mandates or guidance regarding COVID-19. We experienced significant disruptions in the production and availability of content, including the delay of key live sports programming during fiscal 2020 and fiscal 2021, as well as the suspension of most film and television production in March 2020. Although film and television production generally resumed beginning in the fourth quarter of 2020, we continue to see disruption of production activities depending on local circumstances. Fewer theatrical releases and production delays have limited the availability of film content to be sold in distribution windows subsequent to the theatrical release.
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 its variants, 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. We have incurred and will continue to incur additional costs to address government regulations and the safety of our employees, guests and talent.
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).
DESCRIPTION OF THE BUSINESS
Disney Media and Entertainment Distribution
The DMED segment encompasses the Company’s global film and episodic television content production and distribution
activities. Content is distributed by a single organization across three significant lines of business: Linear Networks, Direct-to-Consumer and Content Sales/Licensing and is generally created by three production/content licensing groups: Studios, General Entertainment and Sports. The distribution organization has full accountability for the financial results of the entire media and entertainment business.
The operations of DMED’s significant lines of business are as follows:
•Linear Networks
◦Domestic Channels: ABC Television Network and eight owned ABC television stations (Broadcasting), and Disney, ESPN (80% interest), Freeform, FX and National Geographic (73% interest) branded domestic television networks (Cable)
◦International Channels: Disney, ESPN, Fox, National Geographic and Star branded television networks outside the U.S.
◦A 50% equity investment in A+E Television Networks (A+E), which operates a variety of cable channels including A&E, HISTORY and Lifetime
•Direct-to-Consumer
◦Disney+, Disney+ Hotstar, ESPN+ (68% effective interest), Hulu and Star+ direct-to-consumer (DTC) streaming services
•Content Sales/Licensing
◦Sale of film and television content to third-party television and subscription video-on-demand (TV/SVOD) services
◦Theatrical distribution
◦Home entertainment distribution (DVD, Blu-ray discs and electronic home video licenses)
◦Music distribution
◦Staging and licensing of live entertainment events on Broadway and around the world (Stage Plays)
DMED also includes the following activities that are reported with Content Sales/Licensing:
•Post-production services by Industrial Light & Magic and Skywalker Sound
•A 30% ownership interest in Tata Sky Limited, which operates a direct-to-home satellite distribution platform in India
The significant revenues of DMED are as follows:
•Affiliate fees - Fees charged by our Linear Networks to multi-channel video programming distributors (i.e. cable, satellite, telecommunications and digital over-the-top (e.g. YouTube TV) service providers) (MVPDs) and 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 Linear Networks and Direct-to-Consumer
•Subscription fees - Fees charged to customers/subscribers for our DTC streaming services
•TV/SVOD distribution - Licensing fees and other revenue for the right to use our film and television productions and revenue from fees charged to customers to view our sports programming (“pay-per-view”) and streaming access to films that are also playing in theaters (“Premier Access”). TV/SVOD distribution revenue is primarily reported in Content Sales/Licensing, except for pay-per-view and Premier Access revenue, which is reported in Direct-to-Consumer
•Theatrical distribution - Rentals from licensing our film productions to theaters
•Home entertainment - Sale of our film and television content to retailers and distributors in home video formats
•Other content sales/licensing revenue - Revenues from licensing our music, ticket sales from stage play performances and fees from licensing our intellectual properties (“IP”) for use in stage plays
•Other revenue - Fees from sub-licensing of sports programming rights (reported in Linear Networks) and post-production services (reported with Content Sales/Licensing)
The significant expenses of DMED are as follows:
•Operating expenses consist primarily of programming and production costs, technical support costs, operating labor, distribution costs and costs of sales. Programming and production costs include amortization of acquired licensed programming rights (including sports rights), amortization of capitalized production costs (including participations and residuals) and production costs related to live programming such as news and sports. Programming and production costs are generally allocated across the DMED businesses based on the estimated relative value of the distribution windows. These costs are largely incurred across three content creation groups, as follows:
◦Studios - Primarily capitalized production costs related to feature films produced under the Walt Disney Pictures, Twentieth Century Studios, Marvel, Lucasfilm, Pixar and Searchlight Pictures banners
◦General Entertainment - Primarily acquisition of rights to and internal production of episodic television programs and news content. Internal content is generally produced by the following television studios: ABC Signature; 20th Television; Disney Television Animation, FX Productions and various studios for which we commission productions for our branded channels and DTC streaming services
◦Sports - Primarily acquisition of professional and college sports programming rights and related production costs
•Selling, general and administrative costs
•Depreciation and amortization
Disney Parks, Experiences and Products
The operations of DPEP’s significant lines of business are as follows:
•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 IP 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 IP 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 DMED)
The significant revenues of DPEP are as follows:
•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 licensing our IP for use on consumer goods
◦Retail - Sales of merchandise at The Disney Store and through internet shopping sites generally branded shopDisney, 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
The significant expenses of DPEP are as follows:
•Operating expenses consist 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
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.
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 acquisition accounting amortization of TFCF Corporation (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 in fiscal 2019 (TFCF and Hulu acquisition amortization). 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.
In fiscal 2021, we changed the presentation of segment operating results as discussed below and have recast our fiscal 2020 and fiscal 2019 segment operating results to align with the fiscal 2021 presentation.
Media and Entertainment Reorganization
In October 2020, the Company reorganized its media and entertainment operations, which had been previously reported in three segments: Media Networks, Studio Entertainment and Direct-to-Consumer & International. As a result of the reorganization, the operations of the media and entertainment businesses are reported as one segment, DMED.
Intersegment Transfer Pricing
Under our previous segment structure, in certain instances production and distribution activities were in different segments. In these situations, for segment financial accounting purposes, the producer segment would recognize revenue based on an intersegment transfer price that included a “mark-up”. These transactions were reported “gross” (i.e. the segment producing the content reported revenue and the mark-up from intersegment transactions, and the required eliminations were reported on a separate “Eliminations” line when presenting a summary of our segment results). Under our new segment structure, the operating results of the production and distribution activities are reported in the same segment, and the fully loaded production cost is allocated across the distribution platforms which are utilizing the content.
Elimination of Consumer Products Revenue Share
Under our legacy segment financial reporting, the Studio Entertainment segment received a revenue share related to the consumer products business, which is included in the DPEP segment. Under the new reporting structure, DMED does not receive a revenue share from DPEP related to the consumer products business.
Segment revenues and segment operating income are as follows:
202120202019
Revenues
Disney Media and Entertainment Distribution$50,866  $48,350  $42,821  
Disney Parks, Experiences and Products16,552  17,038  26,786  
Total consolidated revenues$67,418  $65,388  $69,607  
Segment operating income
Disney Media and Entertainment Distribution$7,295  $7,653  $7,528  
Disney Parks, Experiences and Products471  455  7,319  
Total segment operating income(1)
$7,766  $8,108  $14,847  
(1)Equity in the income (loss) of investees is included in segment operating income as follows:
202120202019
Disney Media and Entertainment Distribution$795  $696  $463  
Disney Parks, Experiences and Products(19) (19) (13) 
Equity in the income of investees included in segment operating income776  677  450  
Impairment of equity investments—  —  (538) 
Amortization of TFCF intangible assets related to equity investees
(15) (26) (15) 
Equity in the income (loss) of investees$761  $651  $(103) 
A reconciliation of segment operating income to income from continuing operations before income taxes is as follows:
202120202019
Segment operating income$7,766  $8,108  $14,847  
Corporate and unallocated shared expenses(928) (817) (987) 
Restructuring and impairment charges(654) (5,735) (1,183) 
Other income, net201  1,038  4,357  
Interest expense, net(1,406) (1,491) (978) 
TFCF and Hulu acquisition amortization(1)
(2,418) (2,846) (1,595) 
Impairment of equity investments(2)
—  —  (538) 
Income (loss) from continuing operations before income taxes$2,561  $(1,743) $13,923  
(1)For fiscal 2021, amortization of intangible assets, fair value step-up on film and television costs and intangibles related to TFCF equity investees were $1,757 million, $646 million and $15 million, respectively. 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.
(2)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).
Capital expenditures, depreciation expense and amortization expense are as follows:
Capital expenditures202120202019
Disney Media and Entertainment Distribution$862  $783  $520  
Disney Parks, Experiences and Products
Domestic1,597  2,145  3,294  
International675  759  852  
Corporate444  335  210  
Total capital expenditures$3,578  $4,022  $4,876  
Depreciation expense
Disney Media and Entertainment Distribution$613  $638  $479  
Disney Parks, Experiences and Products
Domestic1,551  1,634  1,474  
International718  694  724  
Amounts included in segment operating income2,269  2,328  2,198  
Corporate186  174  167  
Total depreciation expense$3,068  $3,140  $2,844  
Amortization of intangible assets
Disney Media and Entertainment Distribution$178  $175  $172  
Disney Parks, Experiences and Products108  109  108  
Amounts included in segment operating income286  284  280  
TFCF and Hulu1,757  1,921  1,043  
Total amortization of intangible assets$2,043  $2,205  $1,323  
Identifiable assets(1) are as follows:
October 2, 2021October 3, 2020
Disney Media and Entertainment Distribution$144,675  $139,538  
Disney Parks, Experiences and Products41,763  42,320  
Corporate(2)
17,171  19,691  
Total consolidated assets$203,609  201,549  
(1)Equity method investments included in identifiable assets by segment are as follows:
October 2, 2021October 3, 2020
Disney Media and Entertainment Distribution$2,578  $2,574  
Disney Parks, Experiences and Products2  3  
Corporate58  55  
$2,638  $2,632  
Intangible assets, which include character/franchise intangibles, copyrights, trademarks, MVPD agreements and FCC licenses (see Note 14), included in identifiable assets by segment are as follows:
October 2, 2021October 3, 2020
Disney Media and Entertainment Distribution$14,143  $16,087  
Disney Parks, Experiences and Products2,952  3,066  
Corporate20  20  
$17,115  $19,173  
(2)Primarily fixed assets and cash and cash equivalents.
The following table presents our revenues and segment operating income by geographical markets:
202120202019
Revenues
Americas$54,157  $51,992  $53,805  
Europe6,690  7,333  8,006  
Asia Pacific6,571  6,063  7,796  
$67,418  $65,388  $69,607  
Segment operating income
Americas$6,314  $5,819  $10,247  
Europe800  1,273  2,433  
Asia Pacific652  1,016  2,167  
$7,766  $8,108  $14,847  
Long-lived assets(1) by geographical markets are as follows:
October 2, 2021October 3, 2020
Americas$144,788  $141,674  
Europe8,215  7,672  
Asia Pacific12,012  12,235  
$165,015  $161,581  
(1)Long-lived assets are total assets less: current assets, long-term receivables, deferred taxes, financial investments and the fair value of derivative instruments.