Walt Disney Stock

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Great. Well, hello, everybody. Welcome to the Disney fireside chat at the Goldman Sachs Communacopia and Technology Conference. My name is Mike Ng, and I cover Disney and media cable telco here at the firm. And I have the privilege of introducing Hugh Johnston, who's the Chief Financial Officer at Disney. First and foremost, thank you so much for being here, Hugh. It's an absolute pleasure.

Thank you. Nice to be here with you all.

Great. To kick things off, I was just wondering if you could walk through the overarching strategic priorities driving Disney's momentum this year and into next. What are some of the key strategic shifts that we may see with Josh's appointment as CEO? It seems like there's a greater focus on embracing technology and operating collaboratively under One Disney. So would just love to hear your thoughts about all that.

Yes. Happy to talk about that. And thank you for highlighting the momentum. We do feel like we have very good momentum in the business right now. When Josh took over as CEO, and it's been less than 6 months at this point, so still relatively early on, he articulated 3 things that were going to be priorities for the company. Number one was continuing to and further investing in IP. As you know, that's the core competitive advantage of Disney, and that's what enables us to reinvent ourselves and drive growth and compound earnings on a continual basis.

Toy Story is a great example of that. Toy Story 5 was obviously a very successful movie. But in addition to that, it drove strong performance in terms of consumer products. We had our highest growth rate in CP in 20 years. In addition to that, very successful on the streaming service. And obviously, refreshing that story is beneficial to us in the parks and cruises where that IP appears fairly often. The second focus or priority for Josh and the organization is embracing technology. And we're not doing that just to embrace technology.

We're doing that to increase our ability to create new products and to increase monetization of all that great IP that we have as a company. So certainly leaning into that, I think, makes a ton of sense. And in a world of AI, even more so. And then the last focal point Josh brought in was really trying to reach out and both expand our relationship with existing consumers and acquire new consumers over time. And the focal point there is this notion of a One Disney model.

In a lot of ways, Disney was sort of broken up into various businesses, and they all tended to communicate with consumers somewhat independently. We're trying to sort of create that single relationship with consumers. And by virtue of doing that, we think we can reduce the friction that we have in terms of engaging consumers and over time, be able to monetize that more and more effectively. So overall priorities are very clear. The organization has embraced them tremendously, and I think they're going to deliver enhanced results for us over time.

Great. I mean one thing that the company teased at last quarter's earnings call was just this long-term vision of Disney+, right, something that's going to encompass not only video, but also gaming and merchandise and other experiences, and we would get a flavor of what that looked like in the spring of 2027. I was just wondering if you could give us a little bit of a sneak peek into what we should expect.

Well, maybe just a little bit of one. If you think about Disney+, we tend to think about it in 2 ways. Number one, we want to create essentially the best streaming service out there in terms of product, in terms of consumer engagement. That is sort of the core proposition of Disney+. But in addition to that, we really want to bring our services to consumers under the Disney+ banner and create essentially an integrated ecosystem where we can touch consumers in a variety of ways, almost creating a membership-like ecosystem for our fans.

Now what might that look like? Certainly, it's the normal things like film and TV and video. But in addition to that, you could easily see things like consumer products, you could see parks and cruises on there. You could see interacting with our talent, interacting with our IP in a more substantial way and even potentially gaming at some point in the future.

So the goal there is to increase the frequency of use of Disney+ because we know when people increase their frequency of use, they tend to churn less, the retention is higher, and we get better outcomes. So more to come on that, both in the spring of 2027. But in addition to that, it's a digital product. We're going to be enhancing it, I would say, forever.

Great. One other element of DTC that Disney has been making a lot of progress in has been the integration of Hulu into Disney+. As you look towards this next phase, what consumer-facing advertising, personalization and back-end technology enhancements remain to be completed? And how should investors evaluate the impact of this integration on the KPIs that we all care about engagement, churn reduction, bundle adoption and that sort of thing?

Yes. So if you think about what we're trying to do essentially with all of these improvements, it's to drive engagement and to reduce churn and to increase the fandom. And we have, based on the moves we've made over the last year, 1.5 years, made good progress on that. We've seen an impact in terms of churn reduction. A couple of the things that are sort of either in the near term or have already been accomplished. Number one is profile linking. We had Hulu profiles. We had Disney profiles. We've now created that one-fan, one-account ecosystem.

In addition to that, the things you'll likely see are live TV on the Disney+ app, which we know drives engagement in a more substantive way, and those members tend to churn less. In addition to that, we have Hulu add-ons and bundles and things like that. That will also be further integrated into Disney+. If you sort of look at medium term, what is it we're really trying to do? It's really 2 things. One, making the recommendation engine sharper and better so that you get more of the content that you want to get because we know there is a limited amount of time from when a consumer opens your app until they actually will decide not to pursue it because they don't see anything interesting.

And in addition to that, really the user experience. So adding things like a cleaner UI, in addition to that, things like verts, so people can watch on mobile more easily. So those are the types of things that you're going to see on it. In terms of what should investors be watching for, it really is the basics of streaming. It's churn, it's retention, which we know increases lifetime value. And at the end of the day, the real metric is enhanced revenue growth.

Great. Disney+ seems like it's making a lot of progress into becoming what could be a daily app for a lot of consumers. And one of the potential drivers could be this TikTok partnership that was announced. So maybe you could just expand a little bit about that, talk about the strategy. Is this something that drives the top of funnel? Does it present an advertising opportunity? How do you think about the TikTok partnership...?

Yes. We're excited about the TikTok partnership for a variety of reasons. Number one, it really introduces a different type of consumer into Disney+, tends to be a little bit younger, wants to interact more as opposed to being a passive watcher. And by virtue of with the TikTok relationship, being able to interact with our IP, that really engages the younger audience in a significant way. In addition to that, as you pointed out, it does present to us a top-of-the-funnel opportunity because we are drawing in new consumers into it.

In addition to that, somewhat underrated, but we're pretty excited about, we will actually create a Creator Ambassador Program and really no other company can do that the way Disney is doing it right now, and build closer and closer relationships with those creators. And then last but not least, TikTok, as you know, is very much a vertical format. By virtue of doing that, Disney+ vertically on mobile is relatively small, but this will create the opportunity, we think, to penetrate mobile in a much more significant way and then allow consumers to discover other aspects of what we have on Disney+ on mobile. So we think it's an engagement opportunity for sure.

Great. And if we could tie it back to the financials, there's been a lot of focus on the trajectory of SVOD margins. So could you talk a little bit about the margin outlook beyond subscriber growth and pricing? What are some of the other operational levers that the company can pull? And then maybe you can also just loop in some of the comments the company has made around investing more in local content, and how that may impact SVOD margins, if at all?

Yes. So to do that, you almost have to step back to where we were just a couple of years ago, we were losing a couple of billion dollars a year on Disney+. And that was the time where there was heavy investment going on. And we sort of set out back toward the end of '23 a goal that said, look, we want to get to double-digit margins in this business because if you're losing a lot of money investing in the business, there's not necessarily a lot of point in doing that. The returns just aren't there. So we felt like we needed to demonstrate that we could get to double-digit margins.

And in fact, we have gotten to that. The last quarter, in fact, we had 13% margins, and we'll certainly finish the year with double-digit margins. So I think we've kind of crossed that threshold and proven to the investment community as well as to ourselves, this is a business worth investing in. Now from this point, the opportunity that we see is the opportunity to grow the business faster. And we think we have the right capabilities. We think we've invested in product. We do need to invest more in content. International is a big opportunity for us because our penetration is substantially lower than the leader in that regard.

And what we're going to focus on is driving revenue growth and driving absolute OI dollar growth rather than just be focused on margins. Margins are important. We're not looking to go backwards in a material way or go below double digits or anything along those lines. But we're going to focus more on driving growth because achieving higher OI dollars, I think, is a more important variable than achieving a margin percentage. So as we do that, we think we'll increase the value of the business, and we think it will create a more exciting proposition for investors.

Great. One strategic pivot that was mentioned on last quarter's call was just the adoption of a free offering for Disney+ and FAST channels, free ad-supported TV, has certainly become a growing category for the industry at large. So could you just talk a little bit about the role of FAST within the Disney portfolio and how you introduce a free tier without diluting what's a very premium brand?

Yes. So FAST is another example of we've talked about trying to reach new consumers and broaden our consumer base. There's obviously a subset of consumers that are more price sensitive. And by virtue of introducing a free channel, it offers us an opportunity to bring those people in essentially more people going into the top of the funnel. It's got a couple of other benefits as well, though. If you look at our advertising, unlike most of the AVOD competitors that we have, we pretty well sell out our advertising.

So we actually need more inventory and a FAST channel would offer us the opportunity to bring more inventory into our ecosystem. So we're certainly excited about that. It also represents an opportunity if someone is thinking about churning out to keep them in the ecosystem by downgrading and offering us the opportunity later to sell and upgrade them back into Disney+, the primary.

Now I have heard a little bit of concern about cannibalization. If you look at ESPN, essentially, we've done that for years, managing a free app and then basically selling people up over time, whether it was into Select or now into Unlimited. So from that perspective, I think we've got pretty good skills at doing that. And I would expect us because the FAST channel can evolve over time, if we see it cannibalizing or we see it's creating an issue, we can adjust the content to make sure that it doesn't do that.

So we're going to be agile on it. It's early days on this, but it's certainly something that we're excited about. And I think it's going to be a terrific addition to the portfolio.

Great. That's a great segue to just ask about the broader streaming ad environment. Last quarter, the company called out a little bit of a softer U.S. SVOD ad environment because of supply dynamics, right, a lot of supply hitting the market. Could you just elaborate a little bit on what's happening on the supply and demand side in U.S. SVOD? And are there any ad verticals that are doing better or worse that you would call out?

Yes. It's an interesting dynamic right now. As you noted, there is more supply coming into the SVOD environment. And obviously, that has an impact on price. And we saw that a little bit in terms of our pricing. And we expect that a little bit of softness to continue in Q4. That's something we had articulated already on our earnings call. In a lot of ways, it is an interesting dynamic, though, because on the one hand, you have a relatively high amount of supply on the SVOD side. On the other hand, live sports is just on fire. I mean people just can't get enough of it and our advertisers can't get enough of it.

So we've sort of got this dynamic where we're managing both of those. Overall, the ad environment is healthy for us. It's just different channels are reacting differently at this point. In terms of the individual sort of subcategories of advertisers, technology and AI, as you would expect, are doing very, very well right now. Political, it is a political season. So certainly doing well from that perspective.

Health care is certainly doing well right now. On the other side, CPG, generally because of the inflation those companies are facing, a little bit softer; restaurants because of discretionary spending, a little bit softer; and then the telcos this year were sort of interesting. They really focus their spend on a couple of big tentpole events, specifically World Cup and the Olympics. So that generally is a little bit soft because the money all sort of went to 1 or 2 places.

Great. Super interesting. I wanted to revisit just some of the discussion around content investment and local content investment. How do you evaluate the capital efficiency and the ROI for doing more localized international programming versus perhaps investing more in global franchise tentpoles that could resonate around the world?

I mean as you might expect, we're super rigorous around how we make these investments. The one place that we do see an opportunity to invest in content is in TV streaming because that actually provides better continuity and it tends to lower churn and increase engagement just because of the length and sort of the time line over which TV series tend to get dropped. So we do expect to do more in that, specifically international as an opportunity. As I mentioned, the penetration is a significant opportunity for us.

And in international, the dynamic is kind of interesting. When we have a tentpole release, our international business pops in a fairly significant way. But people stay for the movie, they watch some of the earlier sequels and then they tend to churn out until there is a new release and then they come back in again. What we're really trying to do with this investment in international content is essentially fill the valleys between the tentpoles and to be able to sort of keep that engagement over time. Now we'll do that with international TV shows. We'll do it to some degree internationally with sports as well because that's another way to keep people in the franchise.

The way that we tend to think about it is you need one objector in the household. So it could be mom, dad, kids, somebody in the household, maybe grandma, but someone in the household objects and then you don't get the churn. If you remember a few years ago, we talked about the fact that we weren't ready to invest in international content because we didn't feel like the product was ready, particularly the recommendation engines. So if we invested in content, we were worried about people churning out because they weren't seeing enough recommendations that were interesting to them. That's where we've made a significant pivot, and we do feel like the product is very much ready. So it's worthwhile investing in right now.

And we're very optimistic about it. We're going to be smart about it. We're picking markets. We're picking types of local content. We'll do it through licensing. We'll do it through producing our own. So we're going to take a variety of approaches. And then as we see the ROIs, we'll learn and we'll continue to focus the investment in a way that will actually work. Now the one thing to keep in mind is the international content is a relatively small piece of our overall spend right now. And I would expect it to go up by a lot on a percentage basis, but it won't be disruptive to the overall algorithm of the business.

In terms of the big tentpoles right now, we really feel like we're spending enough in terms of the films in particular. And a few years ago, Disney had some challenges in that regard by overproducing. And frankly, the outcomes weren't great. So we won't repeat that. We feel like we're in about the right spot with that. It's this targeted area where we feel like there's going to be a very good return. And we've got some early evidence on it in terms of shows in the U.K., in terms of shows in Korea that are returning really nicely right now. So we're very optimistic about that.

Great. That's very clear. And on the topic of content and films, at D23, I think that was a few weeks ago, we got a lot more visibility into the film slate over the next few years, and I'll just rattle this off, right, just calendar '27, it's Avengers: Doomsday, Starfighter, The Bluey Movie, Frozen 3. And then beyond calendar '27, right, we have titles like Coco 2, Tangled Live Action, Zootopia 3, Lilo & Stitch 2, X-Men, a new Ice Age and list kind of goes on and on.

So maybe you could just put that film slate into perspective for investors and talk a little bit about how we should think about the upcoming film slate in the next couple of years, how that might help the Disney flywheel from a CP and SVOD perspective perhaps?

Yes. So we're excited about where we are in that regard. Avengers: Doomsday, we think is going to be an absolutely terrific launch that's coming in December. In fact, we're 3 months out from the movie, and we already have $50 million of presales literally 3 months out. So there is a ton of thirst and excitement within that fan base to see another Avengers movie. We do have Bluey coming as well, and people are certainly excited about that. As we pivot towards '28, we do have Incredibles 3, Frozen 3.

So from that perspective, I think we're looking at a pretty solid slate as well as another Avengers movie in 2028. So the slate overall looks strong. This year has also been strong in a lot of ways. Things like Zootopia was certainly a big hit. The Devil Wears Prada was a big hit. And obviously, Toy Story was a very large hit. So we think we're in a good spot, and that will obviously play into the flywheel more broadly.

Great. Shifting gears to experiences. Maybe we can start with U.S. theme parks. Domestic attendance grew 3% year-over-year last quarter, which was a nice improvement from what we saw in the quarter before. Looking into fiscal fourth quarter and into next year, what are your expectations around domestic attendance? Could you maybe talk about some of the U.S. attendance cohorts, in-state, out-of-state, international visitation? Any difference that you see in terms of those customer cohorts?

Yes, happy to talk about that. As you mentioned, we saw terrific growth in Q3. Overall attendance was up 3%. So certainly feeling very good about where that came in. In terms of the cohorts, I think the fact that international attendance in domestic parks was off a little bit, although it was certainly better than Q2 and better than a couple of the previous quarters. It's a challenge, but at the same time, we've really pivoted our marketing and pivoted our promotional activity to a domestic audience. And that played out very well, not just in terms of attendance, but also played out very well in terms of per cap. So we certainly feel good about that.

In terms of what else can be learned out of Q3, I think the biggest one is the market, I believe, tends to think that our business is more cyclical and less sturdy than it is. And I'd point to our performance versus competition as a data point. I think there was a belief going into Q3 earnings that, in fact, we were going to be challenged in Orlando. And in fact, the numbers were quite the opposite. They were rather strong. And that's a lot about our IP. It's a lot about our unique offering that Disney World and Disney broadly is, it's just a very, very different offering than perhaps some of the others.

The second is, as we've invested in capacity in the parks, that's a real enabler to growth. And it's something that we're going to continue to do, as you all know, with the significant investment program that we've had in place for a couple of years. We're really seeing the attendance benefits of that. And those benefits are going to keep accruing quarter after quarter and year after year as we continue to make those investments.

Great. And just on those capacity investments at D23, we also learned a lot about some of the new theme park attractions that will be coming over the next few years, Tropical Americas in Animal Kingdom for 2027, Monstropolis in Hollywood also in '27. So could you talk a little bit about the theme park attractions that are opening up in the next couple of years and how we should think about whether that's an attendance uplift or an attendance driver as they open?

Yes. It's both attendance and per caps. And just to give you a sense as to -- I mean we literally have so much activity going on rather than try to memorize it, I sort of brought my long list of things, and it's 2-sided. You mentioned Tropical Americas. Indiana Jones is coming in as well. Further down the line, we have an Avengers Campus that's coming in. In addition to that, we've got a cruise ship, the Disney Believe is coming in. Hollywood Studios Monstropolis is coming in. So -- and this is literally -- I just read about 1/3 of this page. The amount of activity we have going on in the parks is really, really very significant.

And as a result of doing that, we do get 2 benefits. One benefit is it just expands capacity, and that capacity is something that we need for our business. But the second one is it allows consumers to actually get more value, right? And that's the most important thing because at times, there are questions around are we pricing too much. The reality of it is we price when we deliver more value. I'm fond of the expression, price is what you pay, value is what you get.

The fact is, by virtue of making these investments, we're giving the consumer more value. We're literally talking about hours and hours and hours of rides and entertainment and other shows. And by virtue of delivering that value, our guest satisfaction scores continue to be very high in terms of our ability not to take raw ticket price, but to actually enable us to offer more and more premium experiences that drives per cap.

Great. And I would love for you to expand a little bit on the discussion around per caps. It's been very resilient. I think that there are always concerns around whether or not there's been too much per cap growth for too long. But maybe you can talk a little bit about how much is actually underlying ticket price increases versus, as you pointed out, value-added a la carte offerings like Lightning Lanes or VIP experiences or new attractions...?

Yes. It's something that we're acutely sensitive to because we want to make sure we continue to bring young families, in particular, into the parks and develop that Disney love, right? It starts with video, but then it turns into sort of experiential. And we want to make sure young families, which obviously tend to have less money initially and then over time, their incomes and their wealth tends to build. So we're super sensitive to the fact that particularly in the value times of the year, we keep those ticket prices relatively low so that we can actually encourage those young families to come in.

Now over time, as they have more financial flexibility to do things, we do things like Lightning Lanes and VIP tours and sort of higher-end restaurants and those types of things. That's where a lot of the per cap comes from. Conflating ticket prices and per cap is really not an accurate statement.

If you look at the ticket price inflation, it's been much lower. A lot of the per cap growth has been driven by sort of mix and other opportunities to monetize. And again, I go back to our guest experience scores tend to be really, really high, and they're not deteriorating. And the reason they're not is people feel like they're getting enough value or increasing value for the amount of money they're spending for their particular selection of a Disney experience.

Great. Just rounding out the experiences conversation, we haven't touched too much on the Cruises, Disney Cruise Line. So there's been quite a bit of fleet expansion. Maybe you can talk a little bit about how important Disney Cruises are to the long-term growth of the segment. As new vessel capacity comes online, what forward bookings metrics or guest experience scores are you looking at to make sure that you're -- there's enough demand to absorb all that growth?

Yes. I mean the starting point really is that we can't fill all the demand that we have right now. And the biggest evidence I'd point to is we've launched a couple of ships in recent years, and those ships continue to sell out and our capacity utilization continues at a high level despite adding about 50% more guest rooms over the course of the last couple of years. We really focus on 3 things. First and foremost is guest satisfaction. If we're not doing that, then we're really not running the business properly. And the guest satisfaction continues to be very strong.

Second is capacity utilization. We want to make sure we're filling rooms. It's the type of business where you not only want to fill rooms, but you want to bring new guests in who've never actually cruised before because that enhances the breadth of the franchise. And the third factor is yield. So -- and we're doing very well on all of those fronts. So cruises are, without a doubt, an important part of the Experiences growth.

But all the things I just mentioned in terms of the parks as well, we expect to grow both in parks attendance as well as cruise attendance. In fact, as we think about where we're likely going to be going forward, there's probably a reasonable balance. It will vary in any given year, but over multiple years, reasonable balance between per cap growth and attendance growth or volume growth, so to speak.

Great. And if I could squeeze in one on sports. Could you just provide an update around the momentum and engagement trends that you're seeing at ESPN direct-to-consumer? And then perhaps you could also just touch on the live sports portfolio and whether you think that you need any meaningful additions or...

Yes. So as I mentioned, sports is doing incredibly well right now. And ESPN clearly is the leader in sports. I mean the ESPN mission is serving sports fans anytime, anywhere. And that's exactly what we've been doing. In terms of the DTC product, it's very much within our expectations. And it's coming from a variety of areas.

Some of it are just direct subscriptions. Some is consumers subscribing to the Trio bundle. So they're actually getting Disney+ and Hulu as well. Some is coming from entitlement through pay-TV subscriptions. And candidly, we're relatively indifferent as to where those subscribers come from, from a financial perspective. We're just looking for the engagement.

In terms of sports rights, we're actually pretty well locked up through 2029 or 2030. So we've got the base load of what we need. We've got creative deals with the NBA, the NFL, MLB. So we certainly feel good about that. At the same time, we've had a lot of discipline, things like F1 and the wrestling. We've been pretty disciplined with those in terms of saying, you know what, it's gotten too expensive. This is not for us, and we're going to pivot and move elsewhere on it. So I think you'll continue to see us do that and manage ESPN in a way that is both fiscally disciplined, but also allows that business to continue to grow.

Great. I wanted to ask about financial guidance. The company has guidance for 12% underlying EPS growth for this year and then another year of double-digit underlying growth in fiscal '27. Would you just share a little bit about what drives your confidence in sustaining this double-digit EPS trajectory? And anything that you would call out at the segment level that are key drivers?

Yes. I mean our growth is really driven by 2 things. Number one is Experiences and specifically streaming within Experiences. And we certainly feel very, very good about that.

And number two is Entertainment.

Entertainment...

Yes, I said Entertainment -- I think our number two is Experiences. So those 2 are about 85% of our earnings. And those 2 are growing very strongly based on the investments that we're making on the experience side, all the investments that I just articulated. On the streaming side, the investments that we're making in churn reduction in product and technology and in content. So we certainly feel very, very optimistic about both of those things.

And it's funny. Sometimes I think investors think we're a complicated company. But in a lot of ways, we're a very simple story. I mean it literally is streaming as a part of entertainment and streaming driving growth in entertainment. And then on the experiences side, it's the capital investments that we're making to drive growth there, both in attendance and per cap.

It truly is a content flywheel tying all that together. Maybe in the last couple of minutes to wrap up our session today, Disney has undergone an incredible operational turnaround over the past several years, restoring and pursuing DTC profitability, expanding theme park and cruise capacity, re-architecting live sports rights and distribution. As you look out over the next 1 to 2 years, maybe you can just share a little bit about top strategic and financial priorities as CFO.

Yes. I mean, look, we want to continue to deliver double-digit earnings performance, I honestly believe that this is an earnings compounder type of company based on all the characteristics that it has. What do we need to do in order to do that? We need to continue to drive revenue growth and perhaps even accelerate revenue growth over time. And the investments that we're looking to make, we believe we'll do that. At the same time, we also know that we need to deliver to investors, both in the short term and the long term.

And we -- as we mentioned on our most recent earnings call, we think we have opportunities to manage our cost structure more tightly and take those cost savings and redeploy them into these investment growth opportunities. So my priorities are basically to enable that virtuous circle of reducing cost, reinvestment in the business, driving growth, creating operating leverage and then reducing cost again. And to the degree that we can continue to do that, leveraging both our cost management as well as artificial intelligence, I think you're going to see us be an earnings compounder for many, many, many years to come.

Wonderful. Hugh, thank you so much for participating at our conference, and it's been a privilege to have you on stage here.

Thanks, Michael. Appreciate that. Thank you all.

Our earnings release and Form 10-Q were issued earlier this morning and are available on our IR website. Our IR website includes a cautionary statement regarding forward-looking statements. Today's webcast may include forward-looking statements that we make pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements, including regarding the company's future business plans, prospects and financial performance are not historical in nature and are based on management's assumptions regarding the future and are subject to risks and uncertainties, including, among other factors; economic, geopolitical, operating and industry conditions, legal and regulatory developments and the company's decisions. refer to our IR website, the earnings release and 10-Q issued today and the risks and uncertainties described in our Form 10-K and subsequent filings with the SEC for more information on risks that could cause results to differ.

A reconciliation of certain non-GAAP measures referred to in this webcast to the most comparable GAAP measures is on the IR website.

Good morning, everyone, and welcome to Walt Disney's Fiscal Third Quarter Earnings Call. Thank you for joining us. I'm Ben Swinburne, Executive Vice President of Investor Relations and Corporate Strategy. With me today are Josh D’Amaro, our Chief Executive Officer; and Hugh Johnston, our Chief Financial Officer. We will begin today's call with prepared remarks from Josh. After Josh's remarks, we will take analyst questions. And with that, let me turn it over to Josh.

Thanks, Ben, and good morning, everyone. This was an excellent quarter for us. And our Q3 results and reiterated full year outlook show we're operating from a real position of strength. Total segment operating income came in ahead of our prior guidance, up 21% with total company revenue growth of 7%. And Disney experiences delivered record fiscal Q3 revenue and segment OI. Our core platforms, Disney Experiences, Disney+ and ESPN grew guests, users and audiences, respectively, versus the prior year quarter.

We are executing well across our businesses and delivering on the back half acceleration commitments we made to investors. And despite the continued macroeconomic uncertainty, we're on track to finish the year strong.

During my first 5 months as CEO, I've been focused on ensuring that we execute as one company around a unified strategy. And what we're seeing this quarter is proof that coordinating our franchises, sharing data and technology and building seamless fan experiences works. Disney's fundamental advantage is the depth of our fan relationships, and that translates directly to durable financial returns.

Today, we find ourselves in an environment where consumers have more options than ever for their time. And yet our results show they keep choosing to spend their time with Disney. This success reflects our continued execution across our 3 strategic priorities: first, investing in creative excellence and world-class IP; second, leveraging technology to accelerate growth and drive returns; and third, deepening our direct relationships with fans by creating a more connected Disney experience.

Anchoring these strategic priorities is our One Disney operating model, which will allow us to fully capture the value of our portfolio for both fans and shareholders. I'd like to highlight a few examples from the quarter that demonstrate how the strength of our consumer connections and the power of our IP are expanding our reach and our relevance.

First, we grew our global guests 4% year-over-year. with particular strength at Walt Disney World, while also benefiting from additional capacity at Disney Cruise Line. Forward bookings at Walt Disney World and Disney Cruise Line remain healthy.

Second, the strength of our franchise IP was evident in the financial and cultural impact of Toy Story 5, which recently surpassed $1 billion at the global box office.

And third, the unique passion of sports fandom drove over 100% growth in NBA finals and NHL post-season viewership across ESPN and ABC versus the prior season, making this the most viewed fiscal Q3 across ESPN, ESPN2 and ESPN on ABC since 2016.

Let's dive deeper into our Q3 performance and our full year outlook. Starting with Disney experiences. We're proud of the growth that we've had this year, and we're investing to sustain that growth and over the lifetime of these projects delivered double-digit returns. As always, we're being disciplined in our capital allocation with a focus on expanding our capacity around the world and driving incremental demand.

The pipeline includes major attractions at every site, including Villans land in Orlando and the Avengers Campus expansion in Anaheim, amongst others in the U.S. and our previously announced cruise ship expansion. At our studios, the blockbuster success of the latest Toy Story installment shows exactly why Disney is different from the competition and how our stories translate into recurring earnings power.

The 5 Toy Story films have delivered over $4 billion in global box office and over 2 billion hours streamed on Disney+. Across all retailers, Toy Story generates more than $1 billion in annual global retail sales and reaches fans across every Disney Park in cruise ship, including 4 immersive lands, 19 attractions and 2 hotels. Now that's the Disney flywheel in action.

One powerful and enduring story told across theaters, streaming, retail and physical experiences. That integration creates a structure no one else has been able to replicate. Even when our franchise films don't meet our box office expectations as with the Mandalorian and Grogu in the live action Moana, our investments in these core properties fuel other parts of our company.

The Mandalorian and Grogu drove healthy growth in retail sales for the Star Wars franchise and drew guests to the updated Millennium Falcon attraction at Disneyland and Walt Disney World and led to significant engagement in gaming as well. And the live action Moana is expected to be a strong title on Disney+, building on the success of the original film, which is one of the most streamed movies of all time.

Our ability to outperform our prior consolidated fiscal Q3 guidance and reiterate our full year outlook despite the mixed box office performance demonstrates the strength of our diversified entertainment model. Of course, I'd be remiss not to acknowledge and congratulate everyone on this past weekend's record-breaking opening for Spiderman. Congratulations to Sony, Kevin Feige and the Marvel Studios team, it's an unbelievable result.

And it's one more example that audiences will turn out in force for great theatrical experiences. 65 years after his debut, Spider-Man remains one of the most popular characters through consumer products, parks and streaming. And this weekend, it's a great reminder of just how much strength this franchise still has and it goes without saying that the success of Spider-Man bodes well for our upcoming and highly anticipated Avengers Doomsday film.

The appeal of our IP across multiple consumer touch points is central to our strategy and Disney+ is the digital centerpiece for that. We're the only entertainment company with global scale in both the physical and digital worlds. During the quarter, we passed an important milestone in app unification allowing Hulu standalone and bundle subscribers to link profiles and manage subscriptions on Disney+.

We delivered a 13% SVOD operating margin in fiscal Q3 and and we remain on track for double-digit margins in fiscal '26, excluding the 53rd week impact. Now we still have work to do scaling Disney+ outside the U.S., and we're focused on driving growth and returns over the long term in under-monetized markets.

Our strategy is clear. Leverage regional relationships and bring local content on to Disney+ at scale, and that's how we'll grow internationally. Disney's long-term streaming strategy rests on 2 pillars, make the core streaming experience the best in the marketplace and connect our businesses into a single digital ecosystem.

Beyond our films and series, Disney+ will continue to evolve, bringing together games, merchandise and other experiences while offering increased personalization, exclusivity and benefits for subscribers. All of this is designed to deepen engagement improve the value proposition, lower churn and most importantly, increase lifetime fan value. We expect to introduce elements of this expanded ecosystem beginning in spring of 2027.

Disney+ provides the global reach to develop new fans and the consumer data to drive personalization, which are both core to our long-term strategy. That same strategy also extends to sports, where ESPN gives us another powerful way to deepen our relationship with fans. We've all witnessed the unparalleled power of live sports over the past few months.

The NBA finals between the Champion New York Knicks and San Antonio Spurs were the highest-rated NBA finals in 28 years. And ESPN generated its most watched first half of the calendar year since 2012. As we evolve Disney+, we'll continue to bring select premium sports events to the platform to both strengthen the service and drive upsell to the Trio bundle, our highest LTV product.

At the same time, the ESPN remains the primary destination for daily sports content. Live sports aren't just a viewership play. They're a fan engagement and ecosystem play. When a sports fan engages with ESPN, Disney+ or our parks, their lifetime value increases. Underpinning all of this work is our deep commitment to embracing emerging technology.

Our company was founded on the convergence of creativity and breakthrough technology and continuing that tradition is a priority for me and this leadership team. That's why we're leveraging AI to bring the most innovative tools to our storytellers. As I've said before, AI isn't simply about efficiency. It's about enhancing a creative process that will always be human-centered, artist-driven and creator led.

AI lets us work faster and smarter, particularly in areas of pre and post production. Our teams can personalize content and experiences for fans around the world at scale. And we're doing all of this while keeping human creativity at the center. AI amplifies what our storytellers can do. It doesn't replace them. This efficiency matters financially too. When our teams work smarter, we can serve more people across our parks and digital platforms and do it more cost effectively. That frees up capital to reinvest aggressively in what drives long-term value, new content, and next-generation guest experiences as well as technology infrastructure that keeps Disney at the forefront of entertainment.

To sum it all up, there is clarity of purpose inside this company right now. We know what Disney is, storyteller with an unmatched ability to reach fans across every format and every geography. We know how technology amplifies that power. And we know that when we operate in an integrated fashion with speed, discipline and efficiency, we can create long-term shareholder value.

With that in mind, let me turn the call back to Ben for analyst Q&A.

We're going to start our analyst questions on the Experiences segment. This is a question from Robert Fishman from MoffettNathanson. Now a few years into the $60 billion 10-year Parks CapEx investment cycle, can you provide an update on future revenue growth and long-term margin upside from expanding parks capacity plus the growing cruise ship fleet. How do you balance pricing versus volume growth for parks looking out over the next couple of years? Probably makes sense for you to take this Josh.

Yes, I'll take that. Okay. Well, thanks, Robert. These are great questions, particularly in light of the results that we just reported today and the solid returns that we're seeing in our business. And it probably makes sense just to start right there with Q3 a pretty clear demonstration of our ability to drive growth and we did this through investment in new initiatives. And of course, it's on the heels of our base business, which remains really strong.

It was another record revenue quarter for the Experiences segment. revenue was $10 billion. It's 10% above where we were in Q3 last year. And I know there was a fair amount of speculation about the strength of our domestic parks. Well, clearly, they were strong.

Outside the parks, we also saw expansion at Disney Cruise Line. We had the Disney Destiny and the Disney adventure performing quite well. in Paris, over at Disneyland Paris, we expanded with the opening of World of Frozen, and that's been really well received by our guests. And then consumer products business, it also benefited from our theatrical slate.

And then just from an OI and a margin perspective, the Experiences segment, again, delivered Q3 records, which was -- it was fueled by the strong revenue growth and then on top of this, and this is really important, we delivered 4% global guest growth, and we had 3% attendance growth at our domestic parks. And on top of that, spending was up. We saw 4% growth in per cap spending at our domestic parks.

It's important, I think, to highlight that we're performing significantly better than our competition. And in doing that, delivering strong volume and per cap spending results and to remind everyone, we're achieving this even during a period where there's a fair amount of macro uncertainty.

So I guess when you think about it, the takeaway here it's pretty clear the consistent investments that we've made over time, combined with the fact that the experience Disney provides to its fans, it's truly differentiated and highly valued. And I think that should give you in the broader investment community confidence that we can -- we'll continue to grow over the years to come, especially as we continue to invest in our global capacity.

Now in terms of future returns, having previously led this segment, I can also say that our capital investments, all of them, they grow through very, very rigorous evaluations and are supported by clear and well-defined return expectations. So looking forward, while we haven't provided a longer-term revenue or margin outlook for the segment, we did just this morning guide to the high end of our prior high single-digit OI growth for fiscal year '26. And that excludes the 53rd week. And this performance will be driven by the overall strength of our portfolio.

So Robert, back to your specific question, we expect to balance both volume and yield, particularly as we're expanding through our capital plan, so that ultimately, we can serve more fans and make the experience, whether that's on land or on even more desirable. So I hope that's helpful.

Great. Another question on our capital plan and returns from Laura Martin at Needham. Hugh, I think, probably for you, when we think of return on invested capital on the Parks capital investment, are the ROICs on the early years CapEx higher than the later years. That is, are there declining returns as didn't spend more money? The idea is the earliest spending is low-hanging fruit.

Got it. Thanks for the question, Laura. As Josh said, we greenlight projects that really are driven by 2 things. Number one, attractive returns on the project; and number two, they bring value to the guest experience.

Our return on invested capital experiences has increased meaningfully over time, and we do expect strong returns into the future. You're right in observing that we are seeing the impact of those projects quickly with the Q3 global guest increasing at 4%, segment margin increasing for the quarter. So we certainly are seeing a positive impact. But you shouldn't expect to see the returns on projects deteriorate over time. In fact, what drives the timing of those projects is much more around the operational needs that we have and the capacity of shipyards and things like that, more than it is just jamming all of the attractive return projects upfront.

So we did try to help you all in the shareholder letter and the link we provided to give you a little bit more sense of the sequencing of the projects that are out there on the horizon. But we feel good about the returns of these projects well into the future.

Thank, Hugh. Question from Rich Greenfield at LightShed Partners. You've rolled out several new discount programs at U.S. parks recently. There's an after 2:00 p.m. pricing at Walt Disney World, Anaheim resident pricing at Disneyland and a new evening access option. Are these designed to offset continued weakness in international visitation? Do they signal any increased concerns about attendance trends? I give that one to you, Josh.

Okay. Thanks, Rich. Well, it actually seems like this is a pretty timely question, given our performance in Q3 and hopefully, the results in the answer that I'll give here can provide some comfort or at least some context that -- when you see promotions in the market, it's really -- it's not something to be concerned about or it shouldn't be a measure or gauge the health of our business.

We've been deploying promotional offers regularly. And what they're really about is going after a targeted market segment to drive incremental value and ultimately make sure that we're making the best use of our assets and all of the capacity that we have available to us. Now each of these programs, it's -- they're designed to reach a specific guest and that could be a value consumer, maybe we're going after a local resident, it might be a guest who's looking for some flexibility in how and when they visit.

And this is really consistent with how our commercial strategy has evolved and been refined over time basically to deliver more curated and targeted offerings. Just a minute ago, I had mentioned that Q3 global guest increased 4% above Q3 25 and that our domestic parks attendance was up 3% in Q3. And the strength was supported in large part by our sophisticated commercial tools. And inside of those tools are targeted discounts.

And I think it's pretty clear that with 4% per cap growth, we're certainly not discounting our way to volume growth. Now Rich, you asked about our domestic parks specifically, and we did see strong domestic tourists and local resident growth and that growth helped offset continued international attendance softness, although we've seen some moderation in that regard.

Okay. Our last question on the experiences side, from Barton Crockett at Rosenblatt Securities. Hugh, maybe you take this one. How is the variability in fuel costs and the volatility of conflict in the Middle East impacting Disney? Is there any impact on parks attendance, margin, the new Abu Dhabi Park development?

Okay. Great. Thanks, Barton. I guess that's about a 4-point question. So let me try to break it down a little bit for you. Look, first of all, at this time, you've seen it in the numbers, demand is strong across domestic parks and cruises. Consumer products also had a terrific quarter, benefiting from the IP strength we have.

Looking forward, the forward bookings of Walt Disney World are up nicely and the cruise line bookings also look very healthy as we look out through our book of business. That said, we're certainly not immune to the macros and in particular, fuel obviously touches the entire economy. As an example, we have seen a weaker consumer in Asia, in our parks in Shanghai and Hong Kong in Q3, and that's continuing in Q4.

The good news is we do have a global portfolio. And as you saw in the announcement and heard from Josh, we now expect the Experiences segment to deliver a growth at the high end of the previously provided high single-digit growth guidance for the fiscal year, excluding the 53rd week. As it relates to Abu Dhabi, look, that new part is being designed with a long-term view. These are multiyear projects to put in place. And obviously, once we put them in place, they last decades and decades.

We continue to believe in the strategic rationale behind the project, and we are fully committed to seeing that project through. On the topic of fuel, specifically through the hedging program and the fuel efficiency initiatives that we have at the cruise line, we're really seeing very little impact from the fluctuations in the price of oil during the current year.

And then last but not least, while we're on these types of topics, tariffs. We had about $100 million of tariff refunds in the quarter at Disney Experiences, which hit segment OI with no impact on revenue. There'll be a smaller benefit if one at all in Q4. And the full year impact will really be immaterial because the costs associated with those tariffs were actually in the first half of 26%. So really nets to some -- basically nothing for the year.

Okay. Great. Now we're going to turn to questions on M&A, strategic priorities and capital allocation. I'll start with a question from Mike Morris at Guggenheim. Fiscal 2016 plans include at least $8 billion of share repurchases and approximately $24 billion of content spend, how do you weigh the pace of the buyback against continued investment in content and experiences, capacity expansion?

At what free cash flow or leverage threshold, does the buyback pace step up and should investors expect the current authorization to be fully deployed within fiscal '26. Obviously, we had an update on the buyback front in the letter this morning. So Hugh, why don't you take that one?

Great. Thanks for the question, Mike. As you well know, our company generates a lot of free cash flow, and we do have a very strong balance sheet. And we're not really looking to build cash, and we're not looking to delever the balance sheet meaningfully from here. We like where we sit in terms of leverage right now.

So the goal as a company is to both drive growth and to drive capital return to shareholders. And we actually have the capacity to do both. As we think about our capital allocation priorities, number 1 is always going to be investing back in the business to drive growth, and we're doing that, were to charging the experiences growth with our $9 billion of fiscal '26 CapEx. And you can see the results on that in terms of the accelerated growth we're seeing in that business.

We also plan to grow content spending from the current levels over time. We've talked about international, in particular, as being an opportunity where we think we can make a difference. On content, we're on track to spend $24 billion across the company this year. That's up modestly year-over-year.

And then as we think about shareholder returns in that aspect of capital allocation, I'd certainly highlight 2 things. Number 1 is the semiannual dividend, which we've obviously been increasing. And number two, in terms of the share repurchase program, recall, we originally guided to about $7 billion in fiscal '26 and now we're up to at least $9 billion.

And the reason we're doing that is largely to utilize the cash that had been set aside previously for the open AI deal and now from the expected proceeds from the A&E transaction, which was announced overnight.

One thing I'll add, Mike. As Josh said, we're highly focused on operating with speed and agility and improving productivity and efficiency across the company so we can invest in accelerating growth. I will tell you that this work is ongoing as we look at meaningful reductions to cost including labor and SG&A, and we'll update you on progress as we move forward.

Okay. Great. Josh, another question from Robert Fishman. I'll ask this to you. So with more strategic corporate actions taking place following Fox's Roku acquisition and Comcast announcing an NBCU spin-out, can you share updated thoughts on how Disney's portfolio of assets is positioned to compete against this changing media landscape?

And do these moves by your peers, impact your bundling strategies with FOX One and ESPN Unlimited or even potentially Peacock.

Okay. All right. Great. Well, thanks, Robert. There's a lot going on in the space, so I figured this question it might come up. I guess we'll start with the fact that each of the situations in your specific question is actually specific to the companies involved -- and for us at Disney, I feel good about the fact that we're running our own playbook here, and it's working for us.

In order for us to compete successfully in a media landscape that's changing so fast, we're clear on what we need to do, and that's invest in our core competitive advantages. And you're seeing that in our investments in content and streaming and in experiences.

Our approach, and I've said this before, is to leverage our owned IP and own that direct consumer relationship through all of our platforms, whether that's Disney+ or Hulu, ESPN and even the parks for that matter. And I think that approach positions us to best monetize across Disney, across the entire ecosystem. We just fundamentally believe that owning that relationship, it gives us the data. It gives us the the consumer insight, the pricing control to keep improving the value proposition over time.

But Robert, what your question highlights is that the streaming industry it's consolidating through M&A and through a growing number of partnerships. And there's no individual deal that's really deterministic. I don't think of the industry outcome. And we don't see Comcast restructuring or Fox's acquisition of Roku is moves that will change our own strategic path. In fact, the way that I see it is there's actually opportunity in these developments.

A more consolidated industry is really a better investment backdrop. And we have a long history of partnering and streaming, and we believe that we can just keep building on that. And of course, we're going to look at every distribution opportunity on its merits.

And we'll always assess whether it's consistent with our strategy of owning the consumer relationship, we're unique and where I'd point you, if you want the real differentiator, it's -- it's our ability to segment the marketplace through bundling in a way that I don't think our competitors can really do, at least domestically, when we look at customers who have been with us for a similar length of time, retention improves the further up that ladder, they go from a single product up to a dual bundle to the Trio bundle. And I think we're in a good position. We have a good hand to play and I like where we sit.

Question from Kannan Venkateshwar with Barclays. You reaffirmed double-digit adjusted EPS growth from -- for fiscal '26 and fiscal '27 and the flywheel narrative is that content feeds both parks and streaming, with a couple of high-profile titles underperforming, how much of that reaffirmed earnings growth is dependent on content-driven downstream value versus the more capacity-driven pieces, things like experiences, building out crews. -- and the direct-to-consumer margin ramp. Hugh, do you want to take that one?

Sure. And thanks for the question, Kannan. Look, theatrical performance is important to us, of course, and we certainly aspire to deliver consistent financial results for our films. But the nature of the film industry is such that it is more of a portfolio game.

The good news for us is our diversified business helps us basically cover the volatility that comes out of the film business. The results today, I think, in a lot of ways, illustrate that the growth drivers for the company right now are experiences in streaming, right? Underpinning those growth drivers are clearly the IP, but the theatrical window in a lot of ways is it's just 1 data point. And the real value of that IP is the cumulative benefit of decades long storytelling and our ability to take that IP and play it into the entirety of the Disney flywheel.

Now I'm going to move some questions on our direct-to-consumer strategy, first from David Karnovsky at JPMorgan. Josh, I'll ask this one to you. Can you update on where things stand with the Disney+ and Hulu integration and what consumer-facing or back-end enhancements are outstanding.

And David's follow-up is Hulu through add-ons like HBO Max and Starz serves as a platform for other entertainment services? Do you foresee a similar role for Disney+?

Great. Okay. Thanks, David. It's actually a timely question given the key milestones that we reach between Disney+ and Hulu in the quarter, in this most recent quarter. So now Hulu subscribers can link their profiles and watch history on Disney+, we're also getting much more personalized and unified experience. There's still work to be done on unifying the tech stacks between the legacy stand-alone services as well as on integrating what have historically been disparate data sets.

And by the end of this calendar year, subscribers, they'll be able to see live TV and add-ons in addition to new features rolling out. I think you've maybe seen this one of our more recent features is [ vets]. It will be strengthened by the new deal that we have with TikTok, which will bring more curated feeds and fan-created content right on to Disney+. So I'm pretty excited about that.

And David, yes, you're right that Hulu is an efficient platform for other entertainment services, some that have been part of the Hulu value proposition to partners and consumers for years now. And we do think that Disney+ can be an aggregator of third-party services and that we can do this both through bundles and add-ons.

And with Disney+, this is an opportunity on a global basis as well. I mean given number one, our history in current Hulu add-on offerings and number two, our DTC scale. We're one of a very short list that's well positioned for aggregation. I'd flag in particularly the Disney+ Hulu HBO Max bundle. This is a very popular bundle and it works well for both us and Warner Bros. discovery. And it's very sticky.

The churn on the bundle is significantly lower than our Hulu or Disney+ stand-alone products. when we look at similar 10-year cohorts. So I feel good about where we are from an integration standpoint. And feel like these opportunities for bundling will be out there for us and will certainly help us from a churn and engagement perspective. So thanks for the question, David.

Okay. From Peter Supino at Wolf, maybe Hugh want to take this one. You've called ESP and a strategic asset. When will ESPN direct-to-consumer have enough subscribers to materially boost traffic to Disney+?

Yes. Thanks for the question, Peter. First and foremost, it's worth highlighting that sports segment today is growing when you look at the guidance that we have for the year, which excludes the 53rd week. Now when we think about ESPN, we tend to think about 2 things. Number one is we want to be the place where the consumer comes for sports, right? We talk about ESPN meeting the sports fan anytime, anywhere. And in doing so, what we do is we focus on ESPN's contribution to the overall business and healthy consolidated earnings growth that we expect to deliver to shareholders.

Now how material will sports be to viewership on Disney+ you really have to think about it from a consumer segmentation perspective, okay? The Trio bundle, including ESPN unlimited or the traditional MVPD subscription are the best options for big sports fans like me and Josh and Ben.

Go Red Sox.

So our strategy on Disney+ is to bring additional sports content to Disney+ users and to drive additional upsell into Disney+, Hulu and the ESPN unlimited bundle you can expect us to lean in, in all of these areas. We have the most trusted brand in sports with the most comprehensive rights portfolio, and we are operating from an absolute position of strength with the ESPN.

Hugo, there's always next season-- that is next year. All right. A question from Steven Cahall from Wells Fargo. I think Josh should take this one. Disney has achieved scale in direct-to-consumer revenues, but scaling margins has been harder, plus growing engagement is a challenge against competitors that have far more content volume. What do you need to see at direct-to-consumer to reinforce that streaming is the best strategy? Alternatively, how do you think about going back to a content licensing model. So Disney can be more streamlined to focus on creativity and experiences.

Okay. Thanks, Steve. By the way, we appreciated your thoughtful note on the subject a few weeks back. Let me try to address the streaming versus licensing question. I'll do that head on, and then I'll talk about what we're looking for to validate our view.

First, there shouldn't be much of a debate about whether streaming can be a highly attractive business with fairly recurring and predictable revenue growth as well as the high incremental margins that we're looking for Netflix is shown that, that's possible.

Now we've been at it globally for just about 6 years now. And if you were to compare where we are today at our revenue scale, compared to where Netflix was at a similar revenue scale. We actually -- we look quite similar in terms of margins. But your question isn't really about streaming as a business, but more whether Disney can continue scaling.

And listen, I believe the answer is absolutely yes. Beyond our confidence in the financial model, we strongly believe that a large global user base is strategic to ensuring that we're able to drive longer-term growth, especially as new technology cycles emerge like AI and -- the consumer touch points that our streaming platforms provide. They give us a global user base to communicate with.

And importantly, a critical first-party data set that will enable personalization and continued product innovation and it establishes a foundation that we can build new revenue streams on top of over time. And this is only possible through a direct-to-consumer relationship inside a wholly controlled and branded environment.

As we look to make Disney+ the -- I've said this before, the digital centerpiece of our relationships with fans, we're just playing a different game. It's an opportunity that's unique to us. The shift to a purely licensing model, it could sacrifice all of that strategic value. Content licensing is, by nature, it's a lumpy business. It's subject to supply and demand dynamics in the marketplace at a given time. I mean it's not to say that there isn't a role for content licensing.

We do license some content to third parties today. But exiting direct-to-consumer for licensing exclusively would likely lead to both inferior strategic and financial positions for our company and our shareholders.

The last part of your question, what do we need to see to validate that our strategy is working. The nature of technology, as we spoke about last quarter, is that many small and incremental improvements. They're going to compound over time. And we're focused on that approach. It requires some patients, which we acknowledge it can be challenging. But here are 3 observations that hopefully will give you a sense of what we're tracking and why we feel encouraged.

Internationally, those subscribers that watch our international originals, they churn far less than those that don't. Our Trio bundle, including Disney+, Hulu and ESPN unlimited in the U.S. It's the lowest churn base that we have when we look at similar 10-year cohorts.

And finally, we're seeing broader engagement benefits when we can tie directly back to product improvements over the past year. So there's a lot of good going on there. I know this is a long answer, but hopefully, it helps address your question.

Okay. Great. Hugh, anything to add to that?

Okay. Terrific. Nice said on.

Yes. Last question on the streaming front. The industry is investing -- sorry, this is from Michael Ling at Goldman Sachs. The industry is investing against free streaming products at an accelerated pace, again, calling out Fox and Roku announced transaction. When you talk about the merits of fast channels and whether Disney would consider doing more of that as a top of funnel for Disney+ paid or as a stand-alone product. Josh, you want to take that one?

Yes. I got it. So thanks, Michael. Yes, we're exploring a free product for consumers, one that will allow us to accomplish several goals and hopefully do that efficiently. First, we see it as a way to expand our reach to a customer segment that's more price-sensitive and expanding our reach, as we've talked about before, one of our strategic priorities.

Second, unlike a lot of our AVOD competitors were we're fairly well sold, meaning more inventory would actually help us accelerate our ad revenue growth.

And then finally, as you mentioned in your question, a free offering could help us drive top-of-funnel Disney+ subscriber growth. So nothing specific to announce today, but definitely something that we're considering.

Okay. It's a good actually segue to an advertising question next from Jessica Reif Ehrlich at BofA. Hugh, you want to take this? You have what appears to be an extremely strong hand in advertising for the coming year given your sports portfolio, the Super Bowl, political, et cetera, across your platforms. Can you provide color on tone, trends, the upfront, et cetera?

Yes, absolutely. Thanks for the advertising question, Jessica. Look, overall, we're pleased with the upfront results, really driven by the unmatched live events calendar that we have, including the Super Bowl, the college football national championship, the Grammys, the Oscars, we really have a tremendous calendar coming up.

In terms of a couple of numbers, total volume commitments were up double digits versus last year. sports volumes were up low teens, and we are very, very pleased to announce that we have sold out the Super Bowl inventory. Now overall, the current tone I would have is to characterize -- the market is healthy in sports, which obviously plays to our strength heading into the fall. But at the same time, competitive in streaming, especially given the growth of supply in the marketplace. -- that supply, of course, is creating some pricing pressure for us and for others, what you saw in our SVOD and sales growth rate this quarter.

Across international, especially in EMEA, we're seeing real demand for Disney as we expand our ad tier and we optimize the sell-through in our growth markets. From a categories perspective, as is typically the case, it's a bit of a mix. We're seeing good momentum in health care in financial services and in the political categories, while telecom and restaurants and CPG are displaying some softness, as you would expect with the consumer environment is there.

Our next topic is on AI and technology. This is from Sean Diffley at Morgan Stanley. How is AI being used in filmmaking at Disney today? How can we think about cost savings across different film types -- or is it more of a velocity accelerator and creativity unleash. Josh, would you give that one to you?

Yes, I'll take that one. So thanks, Sean. Yes, I mean, you're spot on. We are -- we're using AI strategically across not only our studios, but across the whole enterprise. And we're doing that to gain efficiency, to to be faster to accelerate velocity and unleash creativity inside of Disney. And we look at our studios as technology leaders in content production. And this goes back -- like this goes back to Walt over a century ago. We've -- we've always pushed the cutting edge of innovation in our storytelling.

We've done this at ILM, Industrial Light of Magic, it Pixar, Disney Research Studios, Walt Disney Imagineering. And basically, we're building upon years of machine learning by now innovating with the AI tools. And with AI, it's it's, of course, not just about efficiency. We use it first and foremost to enhance the creative process. That creative process, by the way, will always be human-centered, -- it will always be artist-driven and creator led.

We've cultivated the world's richest portfolio of IP and production experience across now a century of filmmaking. And this gives us a huge advantage over our peers that I don't think there's any other entrant that could come in and quickly replicate. So I'll call out a few important examples across our business, start with our studio.

We're leveraging AI across core technical processes throughout our production pipeline. -- to increase our ability to get films to market in a speedier fashion, it's letting us expand the number of titles that we can offer in 3D basically, making more of our films available in premium formats, which as we know are highly demanded, letting us bring visual effects to more shots where it would have been previously difficult or maybe even not economically viable and less us accelerate processes like rendering and things like denoising, which is reducing the time it takes to complete shots.

In our streaming business, AI is helping us improve personalization on Disney+, and it allows us to further enhance our recommendation engine. And this is really important. Our technology, advertising and marketing teams, they're also exploring Gen AI-powered creative and they've implemented ad delivery in this format.

ESPN, I think, is doing a really nice job. They've done a lot in this space. And they have 3 goals that map to their AI workflows for fan engagement, including the recently launched Sports Center for you. If you haven't tried that, you should. It's fantastic. They're looking at revenue growth, including brand-new ad formats.

And obviously, productivity as well across initiatives like live captioning and highlight clipping, which they're doing a great job of. And then on the experiences side, we clearly understand how much a Disney vacation means to our fans. And we're using AI to reduce some of the complexities that come along with planning and booking a trip to one of our parks.

While making that whole experience specifically tailored to what our guests want. So there's a lot going on in this space, and our teams are going to continue to push across the company. It's a pretty exciting time for us.

Okay. Next question is from Bryan Kraft at Deutsche Bank. Again, I think Josh probably for you. You've discussed making Disney a more agile and technology-enabled organization and have been investing in technology. Where have you seen success thus far? And where do you see the most upside from further investment in tech?

Okay. Thanks, Brian. It's actually a pretty good follow-up to the prior question on AI because we do think more broadly about the overall impact of technology and innovation can have across all of our workflows and across all of our earnings base. One area that's an enterprise-wide priority for me and our whole team is data unification.

Large companies with with multiple businesses, especially ones that have been built over time through a series of acquisitions. They often end up with disparate data sets that sometimes don't talk to each other, and we're putting real resources behind fixing that. So essentially, we're unifying our consumer data across the entire company, so that we can serve our fans better and then drive lifetime value.

There are very few companies in the world with the breadth and richness of data that Disney has across parks and streaming and studios and consumer products, almost nobody else can connect to fans experience the way that we can and unifying that data. It actually lets us use it.

We're also investing pretty aggressively in technology that creates better experiences for our guests in our parks and our cruise ships. Our research and development labs are developing next-generation robotics that can interact with guests in personal and emotional ways, not just in functional ways. And in Imagineering, our teams are using AI tools that let our imagineers design more ambitious, more exciting experiences for fans around the world, and they're doing it a lot faster than they could do it before.

That same discipline, it's showing up, as I've talked about in our studios. We're using technology to drive efficiency throughout the production process so that we can direct more of our resources to what actually matters, and that's as the quality of our storytelling. So I guess, if you put it simply, we're focused on becoming a more effective, more agile, more innovative company in everything that we do at Disney and and technology is the connective tissue that makes all of that possible.

All right. We're going to take some questions from some of the news this morning on our TikTok announcement. Couple of questions, one from Jessica Reif Ehrlich, one from Sean Diffley. I think the punchline is essentially how do we define success? How does this agreement sort of fit into our strategy overall at Disney.

Yes, this is a big announcement for us this morning and an important one as well. TikTok is is a platform where millions and millions of creators are coming to discover new IP to create new content. And we know specifically with Disney, we have -- some of our biggest fans are creating their own stories, they're discovering new content. They're sharing their love of the brand. And it's important for us is the Disney company to be out there with the fans, making sure that they're seeing us, they're engaging with us.

And at the same time, we're now going to have the ability to port some of the best content from TikTok over into Disney+. You've heard us talk about vets in the past. And this is going to be an opportunity now to have that native tick to contact come over to Disney+. And so our biggest fans on Disney+ will now be able to engage regularly and essentially, what that does is it creates a more complete experience on Disney+, and it's a stickier app, people stay around for longer.

And obviously, that benefits our whole ecosystem than people discovering more of our content and participating more with the Disney Company. So this is a -- it's a pretty big deal for us and very much in line with our long-term strategies on streaming.

Great. And then a couple on the Parks results. Sean Diffley from Morgan Stanley, thanks us for the additional disclosure on cruise launches. You're welcome, Sean, how much visibility and confidence do you have in those time lines? Maybe I'll throw that one to you, Hugh.

Yes. Sean, thanks for the question. We are actually highly, highly confident in those time lines. the ships that will be coming in from here forward are ships that are very consistent with the way we have traditionally built ships sort of from scratch ourselves.

We had the slot, the manufacturer of the shipbuilder is highly reliable in terms of building them out. So from that perspective, we certainly feel extremely confident that we will hit the time lines.

Great. And then a question from Robert Fishman at MoffatNathanson also on Parks. Can you frame how much of Walt Disney World growth is from your organic investments versus a snapback from the initial attendance headwinds from Epic opening last year.

Looking ahead with all your new experiences coming in the portfolio, how can that continue to -- can that continue to deliver double-digit returns. We talked about returns already, but maybe you guys could just talk about the sort of underlying drivers in the business that we're seeing versus kind of easy comps?

Yes. No, happy to talk about that. And Robert, you may recall last year when there was a lot of concern about this, we were not terribly concerned about it. And we had put out some forecast. And frankly, our forecast, we're extremely accurate on that front in terms of the impact of the Epic park. So credit to the parks team for doing that so effectively.

The consequence of that, of course, is right now, it's almost entirely driven by our own organic actions. The investments that we're making in the business, the marketing executions, all of what we're doing to drive attendance growth. in particular, in the domestic market. So we certainly feel very, very good about that.

All right. We have a question from [ Batya Levi ] at UBS. Experience is OI now expected to come in at the high end of our high single-digit growth guidance for the year, excluding the 53rd week, Batya is asking, is this just the tariff refunds in terms of the higher guidance or core outperformance? Hugh, you want to take that?

Yes. Thanks for the question, Batya. No, in fact, tariffs really have nothing to do everything that's happened in tariffs, the tariffs we paid were in the first 2 quarters of this year. And the refund was in the third quarter, we -- if there's anything in the fourth quarter, we expect it to be immaterial.

So for the full year, essentially tariffs have 0 impact. Instead, what's driving the performance is actually a terrific execution by the Parks team. Both from the perspective of the domestic parks and certainly, Paris is doing well as well. So and the cruise ships, of course, are driving strong growth. We feel great about the attendance growth. We feel great about the per caps were receiving and we think we're competing effectively in the marketplace, and that's why we're doing so well.

Okay. That was our last question to close out the call and hand it back to Josh.

Well, thanks, Ben, and thank you all for the time this morning. I think you can see in our results and here in our answers to your questions that we believe we are uniquely positioned in the global entertainment industry. We have clear growth drivers and experiences in streaming and unmatched breadth and depth of IP.

In an increasingly fragmented attention economy, consumers are choosing to spend their time with us across our core platforms. experiences, Disney+ and ESPN.

Finally, we're delivering on the financial commitments that we've made to the market. We look forward to continuing to engage with the investment community and our shareholders, including on our fiscal Q4 earnings call scheduled for November. Thanks, everyone.

This event may include forward-looking statements, which are statements that are not historical and are based on management's assumptions regarding the future and are subject to risks and uncertainties, including, among other factors, economic, geopolitical, operating and industry conditions, competition, execution risks, our future financial performance and legal and regulatory developments. Additional information concerning factors and risks that could cause results to differ from those in the forward-looking statements are set forth in the company's securities filings.

All right. I think with that, we are excited to get going. We are very, very excited to have Hugh Johnston here, CFO of Walt Disney Company. Thank you again for being here. And obviously, lots to talk about, especially after the official first earnings call with Josh taking over as CEO.

So just let's kind of start really big picture. With Josh taking over, maybe help us think about what you're most excited about looking ahead with the leadership change and how that allows Disney to maybe do things a little bit differently or even build upon what obviously Bob has accomplished over the past few years.

Yes. Happy to talk about that. Nice to be with you all. Anytime you change CEO, it's kind of an exciting time. And if you don't count our little thing from a couple of years ago, Bob basically was CEO for 20 years. So it's an even more substantial change in the company. That said, I think everybody is very, very energized around Josh coming in and taking over. Number one, he had -- he's been with the company for a long, long time anyway, has huge followership around the company. Number two, the fact that Dana Walden is also going to be here as well as Chief Creative Officer and President of the company. We had the good fortune of retaining 2 terrific executives and that oftentimes, when you have a CEO change, you don't get that.

If you sort of step back a little bit, the biggest thing that I think Josh is bringing so far, and again, we're basically -- what are we 7 ,8 weeks in at this point. So it's early days. But he's talking a lot and we're leaning into a lot, how do we accelerate the company, right? So how do we get the growth rates up, how do we energize the company to move faster and to deliver stronger results. And that's an exciting change.

Now that's not a massive pivot from where Bob was. But if. You think about where we were with Bob just a couple of years ago, he sort of laid down 4 planks of what he wanted to do. Number one, get creative going in the right direction because it had gotten a little off. Number 2 is build on ESPN. Number 3 was make DTC profitable and number 3 was turbocharge the parks. Well, if you look at where we are now, it's kind of we've checked all those boxes in a pretty substantial way. So I think what I'm most excited about with Josh, and you saw it in the 3 planks that he laid out, he really spent his entire career with Disney at the parks. And one of the things the parks has that the entertainment side up until the last couple of years didn't have is really a direct consumer relationship. Josh is used to dealing with fans, used to dealing with it, not through intermediaries, not through third parties, but on a one-on-one basis.

And as we start to pivot the -- not start, as we continue to pivot the company even more towards that direct consumer relationship, Josh has wonderful instincts in that regard. He understands the segmentation of our consumers. He understands what fans care about. So I think that connection directly to the fan is actually going to be a big deal broadly for us. And then even more specifically because of that intuition that he has as an experienced guy, the DTC service, Disney+ will benefit massively from his direct interaction with Disney fans over the course of the last couple of decades.

Okay. We look forward to seeing that. So when you think about the combination that's been laid out, creativity, quality and this global scale, when thinking about how the company leans in and you're talking about accelerating over the next couple of years, how does that best position Disney as far as this pivot goes when thinking about the next decade plus?

Yes. So I mean, if you look at all of those things, right, creativity is always going to be first. That's the essence of the Walt Disney Company. And I don't think of them as sort of being competing. I think of them as almost sequential in a way, right? The creativity is the value creation engine of the company. And then the other things that we do are basically amplifiers. So if you look at some of the things that we've done in terms of real creativity, whether it's as far back as Toy Story or more recently Zootopia 2 or more recently, The Bear, those are all examples of great creativity.

Then when you take that and add to it, the scale that we have and the quality that we deliver it sort of gets that flywheel going in a significant way. And that then plays into, okay, now we benefited ourselves theatrically. We benefit from the streaming service. We benefit in the parks. We benefit in consumer products. So it all sort of ties together very, very nicely once we get that creative going. So I couldn't be more excited about what it is that we're trying to do. And given the momentum that Bob left us with in terms of the creative side, I think we're going to be able to deliver really strong results for quite a while.

Okay. So something that all of us in the room would love a specific way to understand this. From your perspective, what is the best way to really unlock the value that we see and that we think is embedded in the Disney stock price today?

Yes. As much as you guys want it, I assure you. I want it more than any of you do for both financial and personal reasons. I think when you think about what it's going to take to unlock stock price, let me step back and say, what are the things that we're focused on as a management team, right? We're focused on long-term growth, right? Because we know long-term growth is really the ultimate value creator. We're focused on making sure that we deliver consistent performance because that's the kind of company we are, we should be able to deliver consistently not necessarily every -- perfectly every single quarter. Obviously, there's a little bit of variability to the performance. I've sort of often joked, I'd like to get the roller coasters out of the stock price and then just keep them in the parks. But there's always a little bit of variation given the movies and things like that, that we do.

We're focused on capital allocation and making sure that we're delivering the right types of returns on the way that we allocate capital. And if we do those things well, that basically makes this company the earnings compounder that I've been talking about since I've gotten here. And I think we do have the ability to do that to sort of focus on all of those 3 things. And with that, basically do a couple of things. One, make our vision and strategy, very clear to ourselves internally and then clear to you all externally off of that build financial plans that make sense, off of that give you all guidance that we commit to. And then after that, we work like hell to execute and make sure that we deliver that guidance.

That to me makes us the earnings compounder that, frankly, I think will deserve and earn a higher multiple over time. And that's really what we're trying to do is get that earnings compounding not just going because I think we've had it going but to just build that reliable track record in all of your minds. And with that, the multiple goes up. And I think the gap between what I think the company is worth right now and where we're trading at is going to close.

In that regard, one of the things that you all are aware of, and we announced again last week, is we're going to buy back at least $8 billion worth of stock, which is a pretty significant number in the context of our size company. That's because we have so much confidence that we're buying it at a very, very good price. That, in fact, it's actually an excellent investment for our investors taking that stock and buying it back.

So when you think about this future for Disney over the next 5-plus years, another question that we get a lot is what do we think about in terms of the portfolio size? Should we think about a similar level of assets, a scaled down, maybe more specific Disney branded type of portfolio or even potentially a larger portfolio? I know you guys have made significant acquisitions looking backwards. But as we think about the next few years ahead, what's the best way to frame that portfolio?

Yes. I don't know that thinking about it larger versus smaller is necessarily the right way to think about it. The thing that matters most to us is how integrated are the assets into that value creation model that we talk about, right? We're talking about One Disney. And One Disney is essentially what I laid out earlier, the notion of great creativity lead in terms of value creation, then leads to value monetization, whether it's on screens or whether it's in physical experiences, the assets that are tethered to that -- and by the way, I do think sports is tethered to that to be very, very clear. Those are the ones that are going to be most important to us, and that's where we're going to continue to grow and continue to invest in and build on assets that are not connected to that in a fairly discrete way. We're going to look very hard at it. And we have been doing that, and we'll continue to do it. But we're only going to make moves that are value creating at the end of the day. That's the real -- that's the line.

Okay. So let's shift to streaming. If you can help us understand what that long-term vision is for how the current streaming services can best compete for these global other streaming companies. Of course, Netflix, Amazon, we just had YouTube present. So when you think about the competitive set looking forward within streaming, where is Disney's position within that?

Yes. So obviously, the industry is continuing to evolve, and we have a lot of respect for what YouTube has built. We have a lot of respect for what Netflix has built. But we also think we have a unique set of capabilities and assets that will enable us to be successful. Number one, we have basically the largest collection of most emotionally resonant IP of anyone by far. It's not even close and those 2 companies that you just mentioned, they don't even really have that in a substantive way. Number two, we obviously have sports. And that -- obviously, that is something that the rest of the industry is trying to go towards or already there. And then number three, we have the physical experiences business, the parks business. And our ability to sort of monetize in that integrated way, I think, is an advantage for us.

So if you think about where Disney+ and Hulu are going they're going to be leveraging those particular capabilities. So obviously, we leverage the creativity that we bring. We're looking at sports in a more significant way. Are there opportunities for having one app for Disney? Yes, over time, we do think that that's out there. And with that, the parks will be integrated into all of that as well. To me, that's a significant competitive advantage that's awfully hard to replicate. And I think that's the way we're going to compete. And we should be able to compete successfully and win with that set of assets.

So I guess just building upon that, when we think about Disney+, you've talked about being the digital centerpiece of this whole future Disney company. So think about how does this accelerate the total company, if you want to say, total company revenues or even just specifically when we think about DTC revenues and profits, and you touched on bringing Disney+ to the in-park guest experience. Like how does that all factor in and play out?

Yes. I mean, if you sort of think about what we're doing by virtue of bringing fans together, and making it the digital centerpiece. It gives us the ability to touch our fans and to grow our fan base more and more, right? And by virtue of touching them more and more, it gives us the ability to basically to sell them more, to build that emotional connection more and to expand the Disney franchise more. And all of that ultimately translates into revenue growth. In addition to that, once you have your fans into your ecosystem and remember, this ecosystem to me, is not just about Disney assets because even right now, we carry more than just Disney assets in Disney+.

My expectation is it is a portal into all things entertainment over time, right? I think it will be bigger than just Disney in terms of bundling and the way that things come together. Building that relationship to me is something that will generate revenue. And in addition to that, it's more efficient to market to the fans once you have them in your app, and that will allow us to reduce marketing costs over time. So I think it's a combination of both.

Okay. So any more context maybe just as we think about this One Disney idea and platform and where it's all going, can you frame like what the overall TAM is for us? Or maybe even more specifically, when we think about entertainment SVOD, you guys have broken that out for us now, revenue and how that translates into the question that you always get, where the long-term margins go for this platform?

Yes. I mean I'm not going to put a public TAM out there today. So we're not going to make that news. As you might imagine, we -- from a strategy perspective, we do look at that, but I don't want to go to that place just yet. The way I do think about it, though, is all of those assets that we have, the ultimate goal is to drive engagement, right? And the more that we can do to connect with our broad audience of Disney fans will enable us to increase engagement over time. Now that engagement will come out of a combination of content, also in conjunction with that bundling, which obviously we know reduces churn and therefore, drives engagement and therefore, allows us to spend less marketing money as well as connect with our fans more significantly.

In addition to that, the technology side of things, we're working hard to improve the product. And with that improved product, we know that, that also drives engagement up, drives churn down. And that engagement to me, is the critical variable to actually drive long-term margins because when you have that level of engagement, it reduces your cost. But in addition to that, it allows us basically permission to price. So that's sort of how we're thinking about that.

That said, I don't want to be hamstrung. When -- back when I got here a couple of years ago, the business was losing $1 billion a year. And I was going around 5 weeks into the job and basically hearing from all of you, hey, Disney+, I mean, how does this thing even make sense? You're losing -- last year, you lost $4 billion. This year, you lost $1 billion. What are you guys going to do about that? And I said, look, we're trying to build a good business. The good business starts with double-digit margins, right? If it doesn't have that, what's the point of being in a business? So we got aligned as a team around that. We committed to it. And you saw last quarter, we actually delivered the double-digit margins, and we reiterated we'll do at least double digit for the current year. That said -- so to me, that is a good example of the guidance we commit, we execute, we delivered to you all what we said we were going to deliver.

That said, I also want to make sure we don't in any way intend to go backwards, but this is a business we want to manage for top line growth as well as manage for margins. It's strategically important to us. We think the opportunity exists. Certainly, international exists as an opportunity. As I said, our ultimate goal is to drive the profitability of the business. The margins will not go backwards, but I wouldn't necessarily sort of model out X or Y every year. I would think more about what's the bottom line growth going to be? And is it going to be led by top line. And if we're accomplishing that, then I kind of feel like we're doing the right things for that business and the right things for the company.

Okay. So you touched on this a little bit before, but when you think about the larger capital allocation story for the company, obviously, free cash flow generation plays a critical role within that. So when we think about how you prioritize reinvesting in content spending that you also just touched on to help accelerate the growth of streaming versus allowing those dollars to be reinvested through capital returns and others. So help us think about that balance and how you prioritize that content spending.

Yes. So we had talked about earlier in the year, $19 billion of cash flow from operations, right? We got very specific with that number. And we also said we should generate -- or we should spend about $9 billion in CapEx as a part of turbocharging the parks. So obviously, that leaves us with about $10 billion of CFO. We're basically in that place. In terms of content spending, last year we spent $23 billion. We've indicated to you all, we're going to spend about $24 billion this year. But we're also prioritizing and managing the mix more towards international because we see that as the most significant growth opportunity for the DTC business. The opportunity domestically is about driving engagement. The opportunity internationally is about clearly gaining more subs because we just have a significant opportunity there.

Our priority is going to be to do those things while at the same time, balancing that with the cash returns that we provide to shareholders. I mentioned the $8 billion in share repurchase this year. The dividend has also gone up pretty significantly. We pay a biannual dividend. And obviously, we feel that's super, super important. As a CFO, I always view that one as really important because CFOs who cut the dividend tend not to do well. So with that, I think we'll be able to balance out the cash return to shareholders at the same time, investing in international content without being disruptive to the cash return for shareholders.

Okay. A big piece of content spending overall is still clearly sports, and you've talked about the importance of ESPN already to the company. So when you think about your overall sports strategy and especially the linear network side of that business, can you talk about how that plays into the overall lens of the priorities that have been laid out in terms of that creativity, quality and global scale?

Yes. It's interesting because obviously, there's always a lot of talk about what's the future of ESPN and all of those things. If you sort of look at right now, what is the hottest and best thing in media, it's live sports, right? I mean live sports is about the only thing left that can aggregate mass audience and aggregate it real time. Almost everything else in entertainment, you choose when, you choose how much you want to watch. And as a result, it's sort of very chopped up. Live sports still -- you don't want to watch a game that you know the result of from 3 days ago. I mean some people do, but that's not typical, let's put it that way. So to me, live sports is just massively, massively valuable to us.

More importantly, it's massively valuable to advertisers because they want these big aggregated audiences, and they value that tremendously. And in addition to that, our competition knows it, right? And if you look at where competition is going, they're all trying to sort of nose their way further and further into live sports. So to me, that's probably the best indication that when you have this incredibly valuable asset and it's integral to your overall strategy, why would you be doing anything other than trying to build on it over time? And that's exactly what we've done with ESPN.

Interestingly enough, if you think about sort of the digital world of ESPN, ESPN digital and social had 197 million users last month. I mean it's a huge number. Even ESPN, the app had 28 million users. That's bigger than the next 8 biggest apps combined, right? That's how impactful ESPN is. Now what do we need to do with ESPN? We need to basically continue to improve and do a better job of integrating it into the overall streaming strategy because that's where we're going to create big, big value. That's why we launched ESPN DTC. And frankly, to me, that is the differentiator, one of the big differentiators we have. So that -- my expectation is we're going to continue to basically take what's the biggest brand, the world's biggest brand in sports and continue to build on it so that we can build this direct-to-consumer set of touch points that then are massively valuable to the Walt Disney Company from a lifetime value perspective across a whole variety of spectrums.

Okay. You touched on -- mentioned the valuable assets. So let's shift to parks. We think parks are clearly a central piece within this overall successful company. So when you think about the parks assets and delivering the live experience to the Disney fans that we talked about, especially in this screen-first virtual and growing AI world. Help us frame how you see the importance of those assets over the next few years as this develops.

Yes, it's interesting. And of course, everyone is sort of acutely focused on AI these days and sort of how it's going to change the world of screens. The interesting part to me in that is in a world where people are more and more focused on their screen. And to me, that's a great thing for the Walt Disney Company because obviously, we're a big player in screens and delivering entertainment through screens. But it actually amplifies the value of real shared physical in-person experiences as well, right? For the ability for a family to come together and emotionally connect, for a group of friends to come together and basically connect in terms of a set of physical experiences, that is becoming more and more valuable because people are spending less time day-to-day interacting with each other.

So those interaction moments, I think, are even more critically important than they are in the past. And that's what makes the parks business, I think, so much more valuable and the cruise business so much more valuable. And my expectation is, and that's why we're investing so much in it, we're going to be able to deliver terrific returns out of that set of assets over time because people do value that physical interaction. And frankly, our recent performance kind of proves the point that I'm making, right? I mean even in a world where the consumer broadly is a little bit choppy, we've seen very, very strong results in the parks.

So you've talked about the consumer. So let's go there. Just in terms of any changes in terms of U.S. revenue or profit growth. You touched on it on the earnings call, but factoring in all of these geopolitical uncertainty and especially the gas prices, it doesn't seem like you've seen any sort of indication yet, but how to think about that over the next couple of months?

Yes. No, I mean we honestly haven't seen it in the data at all. I mean we talked about that on the earnings call and continue to see the fact that consumers are clearly connecting to our offerings. How much of that is this K-shaped consumer that obviously, we tend to play more into in the parks, into one portion of the K-shape. How much of that is just once you commit to your family that you're -- and you tell the kids, you're going to Disney World, you're not going to back off that one without some severe repercussions. So people don't tend to do it. We're not immune to the macros, right? Everyone knows that. But -- and if gas were to go to $8 a gallon or something like that, that presumably that would have a lot of impacts. But right now, we're seeing nothing either in the data that we have looking backward or in the bookings that we're seeing going forward. So it's what gave us the confidence to deliver the guide that we did is we do feel good about where we are and where we're going.

So maybe just to follow up on that. International historically has been a big piece of the visitation, especially at Walt Disney World. So maybe just help us frame where we are in the life cycle of international since coming out of the pandemic and again, given some of the recent choppiness there.

Yes. So I think 2 questions there. One is about our international parks. And the international parks continue to do very well right now. Not seeing anything in the macros there either. In fact, the Paris Park is actually having a really good moment right now. We just added World of Frozen there, and we're basically filling the park. So when you have that type of expansion and you can fill the park, you feel very, very good about that. And that sort of gets to the point around when we leverage our IP and take that IP and build big new attractions, not little things. The little things are fine, too, but it's these big new things that actually tend to just really bring in the investment or bring in the consumers. And frankly, it builds their engagement even stronger to that particular set of IP.

So international parks is doing very, very well right now. International visitation to the U.S. parks, as we said on the call, we think we're basically through the overlap on that. So it's been in the numbers for 4 quarters. It's been rebased, and we're not seeing further deterioration. So from that perspective, we feel very, very good. In fact, if anything, outside of Canada, we're actually seeing things improving. So from that perspective, I certainly feel very positively about where we're getting with international visitation. And again, that's consistent with what we talked about in terms of the bookings and the go forward for the business and why we're feeling so optimistic.

Great. So you also touched on this a little bit before. But when think about that broad investment that was laid out in terms of the parks investment in CapEx that's needed or that you guys are looking to invest over the next 10 years, $60 billion on a global basis. So maybe just help us in the room here and understand the confidence level in this investment cycle, what you're seeing early because we're already a couple of years into this. And so how can we feel that the ROIC on this investment clearly has been very successful looking back over the past decade. So as we look forward, where is this growth going to come from?

Yes. And the good part is in the stage that we're at, we can talk about this from 2 perspectives. One was as we went into this investment cycle, we held ourselves to high standards in terms of the returns on all of these projects. And when I say high standards, I mean, when the CapEx for the individual project comes floating in, if it's not hitting certain hurdle rates and certain returns, we don't do it just because we declared a number, it doesn't mean people get to go spend the money. So from the standpoint of approach, the approach was we're going to have high standards on these incremental investments.

The second nice part about it is we're about 3 years into that. I think it was 3 years -- it will be 3 years in August. August of '23 was when that number was first put out there. So we're actually -- some of the projects are already delivering returns. And what we're seeing is good returns on the projects, which you have some level of visibility to because you get some data around individual attractions and cruise ships and things like that. But in addition to that, you can see the impact on the overall parks business. And the results there continue to be strong in terms of ROIC, in terms of margins. The growth in terms of revenue is continuing to be strong.

So if you look at it in aggregate, the performance is already proven in the numbers. It's my favorite kind of strategy, the one that we did 3 years ago when we could talk about how good it's turned out. So from that perspective, we feel like these initiatives are really good. And in a lot of ways, the best is yet to come in terms of the projects that we have coming in and the expectations we have for them.

So let's go there for a second. So in terms of these new attractions, and it seems like next year, it's really going to start to contribute more. So how do we think about that balance of attendance growth and the capacity that you're building out? And obviously, pricing is usually a big focus here. So when we think about Walt Disney World and Disneyland specifically, that balance between attendance growth and pricing?

Yes. So as I've said before, you will see some -- it's not going to be one or the other in over any 3- or 4-year time frame. It's going to be both. And necessarily, it needs to be both. The interesting part, and I would just offer this to you all as investors, there tends to be a lot of focus on attendance as a number. But the reality of it is when you have a big fixed asset like we do, we tend to actually use promotional activities to make sure that we're filling the park every day, right? So the capacity utilization on these parks is really, really high almost all the time because of the way that we can use, again, whether it's certain types of discounting or certain types of promotion.

So we don't necessarily -- without expansion, we don't necessarily have the ability to grow attendance massively because it's already filled up. Now we could jam more people into the park, but then the guest experience declines, and that's actually bad for the brand. So you don't want us to do that, and we don't think it's a good idea either. So then when we add capacity, without a doubt, it creates the opportunity. We're seeing that in Paris right now to basically allow more people into the park. Now the logical as good analyst, you would ask the logical next question is, oh, but does that mean the yield is going to go down? Well, that's not been our experience because when you put in a big new attraction, it actually -- you see a surge in demand for it as well. So we tend to fill those things up really, really quickly without having to discount.

And in fact, it actually offers some ability to charge more because essentially, you're offering something new that wasn't there before. I'm not going to get into specific guidance year-by-year, park by park, all that stuff. Frankly, I don't think it's all that useful to you. But the answer to sort of pull all the way back to your question is, yes, we have the ability to grow attendance as we expand capacity. I would expect to see both pricing and attendance growth over any 3- or 4-year time frame. But at the end of the day, I wouldn't overemphasize attendance as sort of a critical variable. I think we're going to do well with it. But to me, it is ultimately the combination of yield and attendance that matters the most. And how do you look at that, the old-fashioned metric, what's the revenue growth look like?

So taking all of that, the next natural question would be, as you build out the cruise ships, clearly, you're looking to fill them and get the best yield out of it, too. So the cruise line fleet is set to more than double to 13 ships by the early part of next decade. So maybe just help us frame that ramp in revenue and obviously, profits as each new ship is added and whether or not there is any cannibalization on the prior fleet?

Yes, it's interesting. First, to sort of step way back, just to kind of set expectations on what you just said. The easiest way to think about it is we're going to be adding about one ship per year between now and 2031. That's essentially the most simple way to think about this. With that, once we get through the preopening costs, which are meaningful, but already in our base because we're already opening one ship a year. Those ships basically start earning a return like that. Why do they do that? Because there really isn't much cannibalization. We mentioned on the earnings call, right now, our capacity utilization or our fill rate on the ships is just as high this year as it was last year despite all of the new capacity that we've added in.

One of the things that I think is beneficial to what we're doing right now is we're starting to put ships outside of our traditional ports. Obviously, the Adventure is in Singapore, and it's a massive ship. It's double the size of anything that we've done before. And we really -- we sold out a season of that ship in just a handful of days. I mean the demand outside the U.S. for Disney experiences, not just Disney Entertainment is huge. And with that, by virtue of bringing more ships into other areas of the world, we're doing 2 things. Number one, we're fulfilling that demand and driving revenue. Number two, we know that experiences like being on a cruise tend to bond people more.

So we're increasing their fandom. And with that, we're increasing the lifetime value of all of these consumers that we're pulling in. So put it all together, I mean, it's a superb strategy and one that I think is going to benefit the Walt Disney Company for a very, very long time to come. This is one that has got a long, long runway attached to it.

Okay. Good to hear. So as we start to wrap up, maybe taking you back, you joined Disney about, I think, 2.5 years ago now, spending many years at PepsiCo. So any lessons that you learned from the prior work that you really are applying to Disney after being here a couple of years and how that's positioning the company over the next, call it, 3 to 5 years?

Yes. I mean the biggest thing and the biggest commonality that I saw at PepsiCo, and I certainly see at Disney even more so is just the power of these types of long-standing global brands right? These brands have such a remarkable resonance with consumers. And if I thought the Pepsi brands were they resonated with consumers, Disney is sort of next level in terms of emotional attachment, people feeling so strongly about these brands and sticking with them through their lifetime. So that's sort of the continuity that I see. The difference between -- I won't talk about Pepsi, but the consumer products business is when you have a good brand, one of the things you have to do is innovate around that brand, right?

And in the consumer products space, the innovation tends to be somewhat incremental in nature, right, flavors and forms and things like that. The innovation at Disney is really inventing whole new storylines, right? It's a level of creativity that you just -- you don't really see elsewhere. And that ability to sort of innovate and bring those new stories to life has the benefit of expanding the brand as opposed to just letting the brand sit as it is. And in addition to that, because of the nature of our asset profile, that new creativity then plays its way through the entire value creation set of businesses or monetization set of businesses that we have that, frankly, is, I think, pretty unique. You don't really see that much elsewhere.

So it's funny when we talk about the various businesses inside of Disney, one of the things I'm fond of saying is we have businesses that are outstanding alone, but they're even better together. And that's kind of, to me, the ultimate way to think about Disney is outstanding alone, better together.

Okay. So anything that you want to leave us with in terms of what isn't fully appreciated. Hopefully, if you're back here again next year, what do you think investors are going to be most surprised about over the next, call it, 12 months?

I think it's just going to be the consistent earnings compounding. We're just going to continue to deliver that. And if you believe in that compounding, you believe in -- you probably look at the stock price and say, man, it's low relative to what it should be. So that's what I'd leave you with is I think the stock price is attractive, and we're betting $8 billion this year to -- on that. So I think there is a real opportunity here.

All right. With that, Hugh, Ben, Dan, thank you all for being here.

Thank you, Robert. Appreciate it.

The Walt Disney Company's performance this quarter reflects the power of disciplined execution in a dynamic and competitive environment. We demonstrated that creativity, strategic clarity and business transformation can work together to drive strong outcomes for consumers and sustained value for shareholders.

I'm Ben Swinburne, EVP of Investor Relations and Corporate Strategy at Disney. Today, I want to take a look at the drivers behind our performance, our strategy and the foundation we continue to build on for long-term value creation. Please note that this video may include forward-looking statements. See the company's securities filings for related risks.

Let's start with some high-level numbers. In the second quarter, we grew revenue by 7% to $25.2 billion and total segment operating income by 4% to $4.6 billion. Adjusted EPS increased by 8% to $1.57. We modestly exceeded previous guidance, driven primarily by stronger-than-expected revenue growth. Our creative and operational momentum drove strong quarterly results in Q2, and we continue to expect growth to accelerate in the second half of the fiscal year.

The foundation of our growth is a unified enterprise-wide strategy built on 3 pillars. First, our relentless investment in creative excellence. Our intellectual property is Disney's engine: creating stories, franchises and characters that power engagement across platforms.

That's why investments in hits like Zootopia 2, which has earned $1.9 billion at the global box office and has streamed over 1 billion hours, diverse global originals and new films from the existing worlds of Disney, Marvel, Pixar and Star Wars are so crucial as they extend from screens to parks to merchandise in a flywheel that few can replicate. Original IP like Hoppers earned critical and fan acclaim this year, while the Devil Wears Prada 2 and our upcoming slate demonstrate the enduring resonance of Disney's storytelling engine.

Second, expanding reach and deepening engagement globally. Our strategy is to build more touch points, digital and physical, wherever fans are. Disney+ and Hulu are scaling personalized experiences and international content with hits like Battle of Fates in Korea and Rivals in the U.K. And our parks and Disney Cruise Lines are extending the brand into new geographies in new and innovative ways.

Third, technology as a value multiplier. From AI powering dynamic recommendations and AdTech to streamlining operations and personalizing park experiences, we're investing in technology that drives efficiency and unlocks new monetization streams.

Disney+ and Hulu continue to advance, with user experience and content enhancements driving stronger retention and engagement. ESPN remains the worldwide leader in sports. It is also a center of innovation at The Walt Disney Company. And our ESPN App continues to resonate with fans with features like Multiview, Verts and a personalized SportsCenter for you.

We are investing meaningfully in technology. As with any advanced technology, we're committed to implementing AI in a way that keeps human creativity at the center of everything that we do, respecting both creators and the tremendous value of our own intellectual property.

Over time, we're working to evolve Disney+ into a digital centerpiece rather than a video repository. Think interactivity, integrated commerce, gaming and connections across every consumer Disney touch point. This unified approach, what we call One Disney, lets us leverage IP, data and talent across all businesses. From Zootopia resonating at the box office all the way to Shanghai Disneyland, our ability to cross-promote through games, merchandise and experiences allow us to compound value of every success. We're also leaning into a capital-light model to further expand internationally, including a new ship in Japan through an agreement with Oriental Land Company and a landmark theme park in Abu Dhabi through an agreement with Miral.

The value that our fans see in our offerings like a Disney vacation, our film and television shows, beloved characters and thrilling live sports and events support our financial results. And we're using technology as a powerful accelerant to improve the consumer experience across our business lines, drive operational efficiency and unlock new possibilities for creativity, growth and returns.

To wrap up, our creative engine continues to deliver. We're investing in the IP, experiences and technology that drive compounding cross-segment value, and we're doing it all with discipline and a keen focus on returns, both to consumers and shareholders. That's the story behind our Q2 results, and it's why we remain optimistic about what's ahead for Disney. Thanks for your time and your continued interest in The Walt Disney Company.

Our earnings release and Form 10-Q were issued earlier this morning and are available on our IR website. Our IR website includes a cautionary statement regarding the forward-looking statements. Today's webcast may include forward-looking statements that we make pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, including regarding the company's future business plans, prospects and financial performance are not historical in nature and are based on management's assumptions regarding the future and are subject to risks and uncertainties, including, among other factors, economic, geopolitical, operating and industry conditions and decisions and legal and regulatory developments.

Refer to our IR website, the earnings release and 10-Q issued today and the risks and uncertainties described in our Form 10-K and subsequent filings with the SEC for more information on risks that could cause results to differ. A reconciliation of certain non-GAAP measures referred to on this webcast to the most comparable GAAP measures is on our IR website.

Good morning. Welcome to the Walt Disney Company Fiscal Second Quarter Earnings Call. Thank you for joining us. I'm Ben Swinburne, Executive Vice President of Investor Relations and Corporate Strategy. With me today are Josh DAmaro, our Chief Executive Officer; and Hugh Johnston, our Chief Financial Officer. While we intend to keep our prepared remarks brief on future earnings calls. As this is Josh's first opportunity to speak to the investment community as CEO, we wanted to take the extra time for you to hear from him directly regarding his priorities for the company.

You will notice that we've adjusted our earnings materials to shift our focus more toward the Walt Disney Company as a whole rather than its individual segments. This is deliberate as we hope it helps explain why we believe the company is uniquely positioned, lays out our strategy and illustrates how our various business lines operate together. We also shifted to a shareholder letter this quarter, with the intent of including all the information we hope is helpful to the financial markets in one place. After Josh's remarks, we will take questions from the analyst community.

And with that, let me turn it over to Josh.

Thank you, Ben. I want to begin by saying just how honored I am to be leading the Walt Disney Company. This is one of the world's truly great companies built over more than a century through powerful storytelling, constant innovation and a singular ability to forge deep emotional connections with audiences all around the world.

I step into this role with genuine appreciation, a strong sense of responsibility and real optimism about what lies ahead. I also want to express my gratitude to Bob Iger. Bob led Disney with extraordinary vision. He led it with discipline and ambition. And because of that leadership, this company stands on a strong foundation with real momentum. I'm fortunate to be leading a company with exceptional assets, talented leaders and a well-defined strategic direction.

My immediate focus, it's clear. We will execute with discipline against the plans and commitments we've already communicated to the market, staying focused on the priorities that we believe will unlock value for our shareholders. First, investing in the breakthrough creative storytelling that sets Disney apart; second, strengthening our streaming business through product and technology innovation; third, fully capturing the power of live sports as we continue building ESPN's direct-to-consumer business; and fourth, delivering on our bold growth plans at Disney Experiences. At the same time, while we execute our current plan with focus on precision, we're actively laying the groundwork for Disney's next phase of growth. Disney is uniquely positioned in the entertainment industry. No other company reaches consumers to the same degree across both digital and physical environments. Our goal is to leverage that position to extend our reach, deepen engagement and generate greater value from our world-class intellectual property. To fully capture this opportunity, we'll embrace technology more aggressively and build a more connected consumer experience with Disney+ right at the center.

However, this morning, I want to stay focused on execution, how it's showing up in our results today and what it means as we head into the back half of the year. In the second quarter, we grew revenue and total segment operating income 7% and 4%, respectively, relative to the prior year and outperformed our guidance for the quarter. The outperformance was driven by stronger-than-expected revenue growth.

Let's turn to our operating results in the quarter starting with streaming. Our focus remains consistent, improve the consumer experience, deepen engagement and continue building a healthy and more durable growth business. We made meaningful progress during the quarter on the platform itself with product enhancements that improve the Disney+ user experience. We were pleased with our entertainment SVOD financial performance this quarter notably a sequential acceleration in revenue growth from 11% in Q1 of '26 to 13% in Q2.

Importantly, subscription revenue growth was driven by both rate and volume. Additionally, we saw double-digit advertising revenue growth compared to the prior year period. We are highly focused on churn, and we continue to see the integrated Disney+ and Hulu experience benefiting retention. Disney+ has meaningful opportunity for growth internationally, and we're focused on scaling outside the U.S. We are increasing our local content investments and early results that are encouraging. While more work remains, we're pleased with the progress we're making in both the consumer experience and underlying economics.

Our IP remains central to our long-term streaming success. And we continue to invest in the great storytelling franchises and talent that define Disney and fuel our film and television content. Highlights in the quarter that demonstrated this focus included returning Series High Potential and Paradise along with our new limited series Love Story: John F. Kennedy Jr. & Carolyn Bessette. And we, of course, see the potential of the strategy in films like Zootopia 2, which not only generated $1.9 billion in global box office, but the franchise has now surpassed 1 billion hours streamed on Disney+. .

During the quarter, we released Pixar's Hoppers to critical success. A strong reminder of Pixar's track record of creating meaningful original IP that resonates with audiences all around the world. We are thrilled with last weekend's opening of The Devil Wears Prada 2. And as we look ahead, we're excited about our upcoming film slate, including The Mandalorian & Grogu, Toy Story 5, the Live-Action Moana and Avengers Doomsday.

When you look at our upcoming slate of franchise films, each has potential to resonate with our fans well beyond its initial release, moving across platforms, experiences and products in a way that deepens engagement and extends reach over time. At Disney Experiences, we continue to demonstrate strength in the core business and make progress against our growth initiatives with strong revenue growth of 7% and segment operating income growth of 5% in the quarter. Both revenue and segment operating income were ahead of our prior expectations and represent second quarter records.

Over the past few quarters, the team has successfully navigated known attendance headwinds. We are now starting to lap these headwinds and expect attendance trends at our domestic parks to improve in Q3 when compared to the results we reported for Q2 today. Since our last call, Disney Cruise Line launched the Disney Adventure, our first ship homeported in Asia. And at Disneyland Paris, we opened World of Frozen as part of the reimagined Disney adventure world. These are meaningful milestones that extend the reach of our brands to new markets and new fans around the world. The strong demand that we're seeing for these attractions reinforces our confidence in the long-term opportunity across our portfolio of experiential assets, parks, cruise line and immersive experiences alike. We remain mindful of the near-term variability but are also well positioned to benefit from sustained consumer demand for live entertainment at a scale unique to Disney.

Speaking of the power of Live, ESPN continues to build toward a stronger direct-to-consumer future. Enhancements to the ESPN app, including Multiview, Verts and SportsCenter for You are making the offering increasingly compelling for fans. As we manage this business in transition, we remain focused on serving sports fans in a way that fully captures the value of ESPN and live sports within Disney's broader direct-to-consumer offering.

Looking at the first half of the fiscal year and our expectations for the second half, we're executing with focus, delivering against our stated commitments and investing in areas that we believe will drive long-term value.

As we look ahead, my strategic priority as a CEO build directly on that foundation. Let me summarize my long-term perspective briefly here. First, creative excellence, it will remain at the center of everything that we do. Disney's greatest competitive advantage. It's always been the quality of our storytelling and the enduring connection our brands have with audiences all around the world. Second, we have a real opportunity to deepen our direct relationship with our fans by creating more connected Disney experience across streaming, sports, games and experiences with Disney+ playing an increasingly central role.

Third, technology, it can be a powerful accelerant for Disney, improving the consumer experience across our business lines, driving operational efficiency and unlocking new possibilities for creativity, growth and returns.

To wrap up, our immediate priority is disciplined execution, but I'm equally energized about the opportunities ahead. Disney has iconic brands, extraordinary creative talent, powerful platforms and unmatched experiences. Our job is to execute with rigor to invest with confidence and connect those strengths in ways that create lasting value for consumers and shareholders alike.

With that, I'll turn it back over to Ben to begin our Q&A.

Thanks, Josh. We will now turn to questions from the analyst community. So our first question is from Sean Diffley from Morgan Stanley. This is for you, Josh, on strategic priorities. What are your 3 biggest priorities going forward? What are the biggest synergies between the businesses today? And any examples to Disney can leverage learnings across its businesses?

Okay. Great. Well, thanks, Sean. I guess, first and foremost, what I'm focused on is executing on the priorities that we've already communicated to the market. And I think this group knows these. In fact, I just hit them in my prepared marks -- prepared remarks. First, we're focused on creating best-in-class content. We're doing really well there. Second, we're strengthening our streaming businesses and driving top line growth and profitability as well. Third, we're continuing to take advantage of the growing power of live sports and build ESPN's direct-to-consumer business. And then, of course, we're turbocharging Disney experiences all across the globe. .

while we're focused on executing these priorities, we're also starting to lay the groundwork for the next phase of growth. And you're going to hear more about this over time, but maybe today, I'll just share some high-level thoughts on that. First, we're going to continue to build and fully leverage all of our IP. Of course, this starts with great storytelling. But the opportunity is going to be much broader than that. We'll invest in both existing franchises and new IP, so that means building on brands like like Toy Story, while also at the same time, creating new stories that connect with generations of fans across the globe. And the key here is fully harnessing that IP across the whole company. That's in film and streaming across our experiences and products and games so that each of our successes it compounds and value over time.

Then second, I think we have a real opportunity to deepen our direct relationships with our fans, and we can do this by creating a much more connected Disney experience, and we'll do that across streaming and sports. And games and experiences and we'll put Disney+ right at the middle, playing an increasingly central role.

And then third, technology. I think it can be a real powerful accelerant for Disney. I think it can improve the consumer experience across our businesses. It will certainly drive operational efficiency for us and then unlock brand-new possibilities for creativity, for growth and returns. And then when you step back and you put all that together, our next phase of growth, it will be centered on creative excellence. It will be a more connected fan experience, and we'll use technology as an accelerate. But I just want to be clear, as I said in the immediate term, I'm staying focused on delivering the priorities that we currently have the motion. But thanks for the question.

Great. Thank you, Sean. Thank you, Josh. We're going to now turn to 2 questions on our direct-to-consumer streaming strategy. First question is from Michael Ng from Goldman Sachs, probably for you, Josh. The success in the parks was built on driving per capita and attendance though high-touch immersive storytelling. As you take the helm of the company, how do you replicate this high LTV model within Disney+? Specifically, does Disney+ become less a video repository and more of an interactive hub, including merchandise park access and games integration?

Okay. Well, thanks, Michael. I guess I'll start. Lifetime value is something that we're focused on across the whole enterprise. And -- you start with our fan base. Disney has the world's most passionate and loyal fans. It's something -- if you go to our theme parks, you see it all the time. They're a high touch, high LTV business and our biggest fans, they come off it and they tend to be repeat visitors.

Now a large number of our park visitors, they're also Disney+ subscribers, but there are millions of Disney+ subscribers who aren't regular park visitors. And so this is where we're focused. Our parks -- they're essentially the physical center piece of the company. And similarly, we're building Disney+ to serve as the immersive interactive digital center piece of the company.

And in the long term, what you'll see is those pieces of the company become increasingly connected. And when we do this well, which we will, the lifetime value equation, it starts to change fundamentally. A fan who watches a Disney film, for example, or visits a park or plays a game and buys our merchandise, it's not just a subscriber. They're in a relationship with a company, one that spans years and can generate value across every part of our business. And that's the model that we're building toward right now.

Great. We're now going to take a question from David Karnovsky from JPMorgan. Again, I think for you, Josh. As you think about Disney+ domestically, what path do you see to organically grow engagement? How do you think about this in terms of your own content but also through making the platform a portal through which third parties can distribute programming?

Okay. A lot in there. Thanks, David, for the question. So I'm happy to talk about engagement. I think you asked domestically, but truly around the world. I'll start with maybe something that's obvious. It's a competitive streaming marketplace out there right now, but despite that, we saw an increase in engagement in the quarter. And then when we look ahead, our key drivers for engagement growth, they include content and product enhancements.

On the content side, we're obviously going to continue to deliver exceptional content, not just the popular franchise films, but across television and live sports and general entertainment and international local programming as well. On the product side, our team is really focused on improvements that reduce user friction that allow more intuitive discovery for our subscribers and help users decide what to watch and to decide sooner. So you think of it like a visual homepage, easier navigation, more personalized recommendations. There's a good example of this in our video and browse initiative. It launched in the United States back in January. And what it does is it lets subscribers preview content directly while still browsing. So they don't have to click in and out of titles.

So yes, our tech team is making some really nice strides here, always learning and iterating and doing a lot of experimentation. And then engagement, of course, is critical to reducing churn on the service. All of the opportunities that we have to drive value at this company, reducing churn, Disney+ might be the single most significant opportunity that we have. And so it's probably not surprising on pushing the entire organization to prioritize against that goal.

And then on third-party distribution, I guess that I'd position it as we're selective, but we're not closed off the right partnerships, whether it be on content or distribution, they have to strengthen the Disney+ experience and then deepen that fan relationship. And our bundling approach inside of Disney, I think it's a good example of how that works well. It drives lower churn, drives higher engagement than any of the services if they were just on their own. So we'll continue to evaluate those opportunities through that specific lens.

Okay. Next question is from Rich Greenfield at LightShed Partners. I think this is for you, Josh. You recently stated Disney+ will continue to evolve beyond the traditional streaming service to become the digital centerpiece of the company a portal that connects stories, experiences, games, films and more in entirely new ways. Rich's questions are he's curious what you mean by digital center piece? Does it imply a shift away from third-party licensing, distribution to drive engagement with Disney+. How do you think about the trade-offs of reach and exposure on third-party platforms versus keeping content exclusive to Disney streaming platforms? And then the last piece is how do you reconcile Disney+ as the digital center piece, we are Epic Games partnership that will place a Disney universe into Fortnite?

Okay. Great question. And it's -- I think, as I'm listening to that, it's really 3 questions. So I'm going to take them in turn here. So first, digital centerpiece means Disney+ becomes the primary relationship between Disney and its fans, the place where everything comes together, entertainment, sports, experiences, all of that convergence. So it's less about a product. It's more about how we're -- it's a strategic posture essentially.

On third-party licensing, we've always distinguished between franchise, IP and general entertainment. So franchise and brand IP stays on the platform and general entertainment, that library content can find audiences elsewhere, and that's -- it's been working pretty well for us financially.

And then on your question about Epic Games and its relation to our Disney ecosystem. I think -- so Disney+ is the hub, but the hub needs spokes. Epic gives us an interactive a gaming native environment to reach audiences that we don't currently own, and by the way, particularly younger audiences. So think of this as acquisition and engagement, feeding the centerpiece, not necessarily competing with it.

The road map runs from near-term streaming optimization and content investment through medium-term interactivity, things like vertical video, personalized ESPN, the Parks AI work all the way to a longer-term single point of contact with our fans that drives lifetime value across everything that we're doing. The through line here is going to be the same on that fan relationship. So thanks for the question, Rich. .

Okay. We're now going to move to 3 questions on Disney Experiences. So I think for Hugh, a question from Sean Diffley at Morgan Stanley. On core U.S. parks trends, can you unpack the international visitation and Epic-related headwinds that you are seeing and if they are sequentially better or worse over the last few quarters?

Right. Thanks for the question, Sean. Answering directly, we expect international visitation and Epic related headwinds to ease in the coming quarters as we begin to lap both of those impacts. Q2 experiences results came in ahead of our prior guidance despite the fact that these headwinds did have some impact in the quarter on segment OI, which was up 5%. And and attendance in domestic parks, which was down 1%. While Q2 were the full impact of those headwinds, excluding just the international visitation impact the domestic parks attendance would have grown.

Despite this, our revenue growth for the quarter was 7% in experiences and the lack of flow-through to operating income this quarter was driven primarily by preopening costs for World of Frozen and the adventure, which we won't be incurring obviously, in the second half of the year. We recognize that domestic attendance is an important metric for investors and we're focused on it as well. However, as you know, we're investing to grow our global footprint, including plans to expand the cruise line fleet from 8 currently to 13 ships by 2031. So tying our guest demand to our capital plans more directly, global guests, which aggregates domestic and international parks attendance along with passenger cruise days grew more than 2% in Q2. The good news is, as we look forward, we expect growth to improve in the back half, and our forward bookings are very encouraging as we look to the rest of the year.

Great. Another question. This is from Steven Cahall from Wells Fargo. Hugh, have you picked up any change in behavior at domestic or international parks due to the increased price of oil, gasoline, how are you managing around these risks? And at this point, do you anticipate any shift to your adjusted EPS growth guidance for fiscal '26 or fiscal '27 due to the macro factors?

Thanks, Steve. No, we haven't seen any change in consumer behavior from elevated gas prices thus far and are currently seeing a material impact on the remainder of the fiscal year based on forward bookings. Disney World bookings are pacing up strongly. And even with our 40% increase in cruise capacity, booked occupancy remains in line with the prior year. However, we're mindful of the macro uncertainty consumers are facing, and we're not immune to the impacts, including how a significant further rise in fuel prices from current levels could eventually lead to changes in consumer behavior. If that possibility were to occur, each business has levers in place to make adjustments in order to help offset those kinds of macro pressures. So as we communicated in our letter, we expect 12% growth adjusted EPS for fiscal '26 and double-digit growth of adjusted EPS for fiscal '27 both excluding the impact of the 53rd week.

Great. Maybe over to you, Josh, kind of last question on experiences. So looking for an update, this is from Rick Prentiss at Raymond James, looking for an update on capital expenditure investment program. What are you most excited about? What have you learned from the recent openings of the World of Frozen at Disneyland Paris? When can we expect the investments to drive inflection upward in attendance at the parks?

Okay. Great. Well, first, I'm excited about a lot. So thanks for the question, Rick. The capital investments that we're making to create these new experiences based on our most popular IP, they're obviously an important part of our strategy to continue growing our experiences business. And these investments, they're diversifying our portfolio and allowing us to reach a lot more Disney fans. I was at the opening of World of Frozen in Paris in March. And if you get an opportunity to go and see it, you can understand why the guest response has been so great. I mean it's completely transformed our second gate at Disneyland Paris.

And we have so much more of this coming around the world, and the investments are working hard for us. I'll say that well, we haven't officially announced opening dates for some of our other major attractions that are coming, we have more projects underway around the globe than at any time in our history. So we're being very ambitious and very exclusive on this front.

In '26, most of our forecasted CapEx and experiences includes the new ship and the ramp of major new expansions at Walt Disney World in Orlando, Disneyland and our Shanghai Disney Resort. And then when we think about the next decade, the majority of our CapEx is earmarked for investments that that are expanding our capacity. Our business has a solid track record of generating great returns and driving long-term earnings and cash flow growth. And each one -- this is important. Each one of these investments is individually justified and designed to entertain guests for literally generations to come.

I think it's worth noting that we also have a few exciting expansions underway using what we're calling a capital-light model. So we've got a new cruise ship with the oriented land company in Japan and a new theme park in Abu Dhabi with our partner, Miral.

And then finally, when we look forward, demand is healthy. We're expecting attendance at our domestic parks in Q3 compared to the prior year period to show improvement compared to the 1% decline that we had reported in Q2, and this will happen as headwinds related to international visitation stabilized, and we begin to lap the opening of Epic Universe.

Great. We have 2 questions now on the content front. I think Josh, this one's probably from you. This is from Jessica Reif Ehrlich from Bank of America. Josh, some of Disney's greatest growth years were driven by original IP from Disney Pixar and Marvel. Can you provide color on how you plan to supercharge your content division? What changes should we expect now that content is unified under Dana Walden? .

Okay. Thanks, Jessica. This morning, you heard me talk about how creativity is absolutely central to the execution of our strategy. And we're focused on investing in IP that really breaks through that builds those fan connections endure. And as you heard me say this morning, Zootopia is a prime example of this. We understand the importance of investing in existing franchises but then also taking creative risk to build brand-new ones. And I think the studio teams all over that, you take Hoppers as an example. So this is original IP from Pixar, great critical reception, and we're pleased with how fans have embraced the film and all the new characters that come along with it.

And just -- just think about this relative to original films. Pixar, the Pixar alone has released 8 original films since 2017 as it feels like Coco, Soul and Elemental. And when you step back and think about it, that's more than all of the other major non-Disney animation competitors combined during that same period. So in an industry that's changed so much since the pandemic area -- pandemic era, I should say, we've continued to make bets on original stories and characters. And I think the team is doing a really great job continuing to push here.

And then, Jessica, you asked about Dana Walden as well. As you know, we consolidated our creative engines and distribution under Disney Entertainment. And we did this to streamline operations to unlock synergies where we could and to accelerate decision-making and sharpen our strategic focus. And Dana is already moving on this. She I think, is uniquely suited to lead this new organization. She has a long track record of high-performing creative businesses. And under her leadership, we're starting to break down silos. We're prioritizing investment and maintain a quality audiences expect from the Disney. And a lot has already happened and what is it, 6 weeks, she's already made moves that signal what's ahead. We centralized television programming within Disney Entertainment DTC. So we're programming for Disney+ and Hulu, while being smart about window and content to linear so that we can expand reach and maximize monetization.

And we also integrated our Games business into Disney Entertainment. And this creates new opportunities to cross-promote franchises and use games to extend storytelling and ultimately develop new IP. So essentially, Dana is making sure that every decision we make in content from development all the way through how we distribute that it's optimized for the fan and for the long-term strength of our brands.

Okay. A question from Jason Bazinet at Citi. I think this is also for you, Josh. Does Disney believe there is a secular shift towards short form and user-generated content? And if so, how can Disney capitalize on this shift?

Okay. Thanks, Jason. The short answer is yes. It's something that we're seeing and we're actively leaning into. So short form and creative content, they've exploded in the past few years. And it's an area we're focused on because we have deeply committed fans who love our brands and our franchises and characters, and they want to engage with them in this new way. And this is specifically important when we think about Gen Alpha, obviously, the newest generation of Disney fans. So what we're doing is we're experimenting a short form content in a variety of ways. You saw it, maybe some of you saw it in our creators collection initiative, which brought Predator and Lilo & Stitch creator led videos to our streaming platforms. And we're going to continue to advance that work in the months ahead.

We're also really focused on making sure that our IP shows up in relevant ways across social platforms. Probably not surprisingly, our brands have an enormous following with people around the world, everything from short-form video to music videos, podcasts and the like. And then we're adjusting our own products to reflect the way consumers want to interact with our content. You probably saw that we recently introduced vertical video on Disney+. And we're still in early days here, but it's already driving deeper engagement. In fact, we did the same thing on our ESPN app and the early performance of the ESPN Verts, it's been really promising.

So I think across the board on on our platforms, on social and how we're building our products. We're trying to meet fans where they are in terms that makes sense to them. But it's a great question. Thanks, Jason.

Okay. Thank you. Question on the NFL for Hugh. The NFL appears intent on reopening -- excuse me, this is from David Karnovsky from JPMorgan. The NFL appears intent on reopening media rights deals, given Disney and ESPN have guaranteed programming through the 2030 season, how do you weigh the opportunity to engage with the league now versus sitting on your existing deal until the opt-outs?

Thanks, David. Our relationship with the NFL is as broad as deep as it's ever been, and we're excited looking ahead to the upcoming NFL season with the NFL network and with Red Zone linear now part of our distribution portfolio on top of Monday night football and broader NFL coverage.

To get to your question specifically, we haven't yet engaged with the league on early renewal conversations. Well, we're not dogmatic about the process, and we're always willing to have a conversation with the NFL in an effort to find new opportunities for growth. We expect to be in the business with the league for years to come, and we'll, of course, evaluate this deal as we would any deal with discipline and a focus on driving value for Disney shareholders. In that regard, we're really looking forward to our year of the Super Bowl and all that it can bring to both all fans and Disney shareholders in the coming year.

Okay. Our next topic. We have 2 questions on technology. This is from Robert Fishman from MoffettNathanson. This is directed at you, Josh. Given your second priority of embracing technology, should investors expect to see any differences in the way technology is already being used at the company and across your streaming services? Are there specific improvements or metrics like higher Disney+ engagement that we should use to judge success?

Okay. Great. Thanks, Robert. Yes, embracing emerging technologies is one of the 3 priorities that we laid out in our shareholder letter this morning. So it's something that every part of our company is squarely focused on. That focus is on both our internal operations as well as our customer-facing areas across each of our business segments. In terms of what will be visible to you, maybe a couple of examples. First, you'll see a greater level of interactive entertainment for Disney+ subscribers. Second, you'll see more personalized content feeds across all of our streaming services. And that personalization effort, it's already starting. It's something that I use all the time is a big sports fan is SportsCenter for You. I hope some of you are using it. You can kind of think of it like your own personalized SportsCenter, where each day you get automatically curated content related to the teams in sports that are most interesting to you with all the familiar ESPN anchor voice is narrowing it.

The goal with all of this is to drive higher engagement, obviously, which in turn supports greater retention, and then ultimately delivers on the bottom line for our shareholders.

And then we have a question also on technology from Laura Martin at Needham. Probably probably each of you may want to chime in here. Where is Disney integrating generative AI to lower costs and/or accelerate revenue growth today? And what's on the road map to keep growing AI benefits to Disney shareholders?

Okay. So Hugh, maybe we split this one up if you're good with that. Laura, as I touched on in the last question, we look at advanced technologies, including AI, is a meaningful long-term opportunity for us at Disney. At the same time, we're committed to implementing AI in a way that keeps human creativity at the center of everything that we do. And of course, respects creators and the tremendous value of our own intellectual property.

And when we think about AI specifically, there's a lot of opportunity here. I'll take 3 categories or so, and then Hugh, I'll hand it to you, and you can talk about some additional ones. First, we want Disney to remain a leader in the use of technology to enhance creativity. This is -- it's just part of our legacy going all the way back to when Walt was pioneering synchronized sound and Steamboat Willie, and moves all the way through to Pixar's advanced computer animation and then even recently in series like The Mandalorian on Disney+.

And when we do this right, will be a place where I think the best talent works because they'll have access to the deep dialogue of beloved characters with opportunities to tell new stories. And and even the potential to innovating content production using all the latest technology, including AI.

Now for our shareholders, we see AI as a potential driver of improved returns over time, which will -- it will include making the production process more efficient and increasing the volume of content that we actually put out.

In streaming specifically, we've got a lot of work going on to develop really like a hyper-personalized recommendation engine across Disney+ and ESPN. And then we're implementing AI to enhance our ad targeting capabilities, letting our partners develop and and execute truly dynamic brand messaging.

If I move over to the experiences side, we see a significant opportunity to make it easier for families to plan their trip to optimize all the time with us and to personalize their experience. Disney Vacation means a lot to our fans, and we're using AI to reduce the complexities around planning and booking a trip and trying to make that whole experience specifically tailored to what our guests want most. So a fair amount going on there, but Hugh...

I'll jump in on the last couple, sure. On workforce productivity, we're focused across several areas. One of the ones I find particularly interesting is an initiative to implement precision labor demand forecasting across our theme parks. We think that one has the potential to create a better guest experience, a better employment experience and also better cost management for the company. So we're very excited about that.

And then on enterprise operations, as is true with really many, many companies the pathways to both drive efficiency and reduce costs are really quite numerous across the enterprise. Last, Laura, you didn't specifically ask but we do see our experiences business as well positioned structurally in a world of rising AI-driven content. We think it may end up increasing even more the value consumers place on authentic real-life experiences to -- with those that they are close to like we deliver across the parks and resorts every day.

Great. Okay. We're going to now take 2 questions on the portfolio of assets at the Walt Disney Company. I think these are probably both for Hugh. So this is from Robert Fishman at MoffettNathanson. How do you view the importance of ESPN and linear networks through the lens of your priorities to create -- to drive creativity, quality and global scale at the company?

Yes, it's a great question, Robert, and obviously, one that we hear a lot. So I'm going to try to be as clear as I can in the answer on this. We do understand there is a lot of focus on linear and entertainment assets and ESPN. So I'll explain our view here. Let me start with linear entertainment cable networks and 3 points. First, these networks are better thought of as brands with studios that produce content like the Bayer or show gun and we monetize that content across multiple distribution platforms.

Separating those monetization platforms into discrete businesses is highly complex and in our view, unlikely to create incremental value for shareholders especially given where linear networks are valued in today's marketplace. Second, we're managing a monetization transition of these brands, and we are actually far down that migration path. We're generating more revenue at Disney Entertainment in streaming than in linear, more than double if we look at it in this most recent quarter.

So the linear earnings base is becoming smaller and smaller every quarter within our P&L. Finally, yes, linear revenues are declining, but Disney Entertainment as a segment is growing nicely. Our guidance continues for double-digit segment OI growth. This fiscal year, excluding the 53rd week. So with all the cord-cutting pressure, we're all aware of. Disney Entertainment is actually one of the faster-growing media businesses out there, and we're actually very, very proud of that.

Turning to sports in totality. We view ABC as strategically connected when we think about ESPN and sports in general. Sports is admittedly a separate discussion in that it is much earlier in its monetization transition, having just launched unlimited last year. However, when we look at the marketplace for streaming in our competitive set, Netflix, Prime video, YouTube, Paramount+, all of them are increasing their position in live sports. Sports rights are expensive and can be dilutive without scale but we have scale in our most important market, the U.S. and the biggest sports media brand in the world in ESPN.

We view sports as a key part of our programming strategy and ESPN as an important contributor to our distribution portfolio. For sure, we have to continue to work through this economic transition for ESPN while also better leveraging it for our overall business. As we do this, we will continue to deliver healthy consolidated earnings growth for shareholders.

More broadly, when it comes to capital allocation, we're always assessing and looking to maximize shareholder value of our portfolio. That is our responsibility to shareholders, and we will continue to do that in the future.

Okay. Great. Thank you, Hugh. Next, on the portfolio. Can you expand on the One Disney strength as it relates to your sports businesses and general entertainment assets. Specifically, how do those businesses fit into a Disney focused paradigm that is strong across both entertainment and experiences? Are there any elements of the company that you would consider noncore in the context of One Disney? And I apologize, this is for Mike Morris at Guggenheim.

Sure, Mike. We do see One Disney as an important priority for the company. It really is more than a strategic headline. It's about how we create, distribute, engage and monetize our stories and brands across the company in a way that increases the lifetime value of our consumers and drives compounding returns for our bottom line, and thus for our shareholders.

It's also about how we operate as a company, less a portfolio of assets and more a set of connected businesses that are focused on the fan, the consumer with an enterprise-wide lens store engagement and lifetime value.

Turning to what is more of a portfolio optimization question. As I mentioned earlier, the entertainment networks are better thought of as brands with studios that produce content that we distribute across our platforms with the intent to increase reach and engagement. And at ESPN, we have the biggest sports media brand in the world, as I mentioned earlier. That now includes even more NFL content. In fact, I think it's the most we've ever had from the NFL, which is being made accessible to consumers across all distribution platforms and devices.

And Mike, to your question on noncore assets, know that we're always evaluating the merits of our brands, org structure and business priorities to deliver long-term value for our shareholders. If there is a compelling case to consider strategic alternatives for any noncore assets, you can reasonably conclude that, a, we've already looked at it; and b, we'll continue to do so in the future as the marketplace and our businesses evolve.

And then moving to a question from Steven Cahall at Wells Fargo on efficiency. I think for you, Hugh. It appears that one of the early initiatives is to increase efficiency, including some recently announced workforce reductions. How big is the opportunity as you take a fresh look at the operations, where is the most room for improvement? And should we think about efficiency gains as falling to the bottom line or being reinvested into areas of growth like content technology spend?

Right. Thanks, Steve. These are always difficult exercises for the organization. But let me assure you, this management team is acutely focused on this. At a high level, however, we're working towards driving efficiency and rightsizing our organization for the state of the business today and where we want to go over time. And second, shifting more of our expense base into areas that we expect to drive growth. That's content and technology.

The most recent example you cited is a part of our push to unified enterprise marketing organization, and the recent staff reductions reflect a deliberate shift toward a more agile, technologically enabled and resilient workforce. We aren't going to size the opportunity or rank order the areas that we're focused on, in part because this is an ongoing exercise and a muscle we're building for the company.

We want to build a culture of efficiency, and we want to fund growth opportunities from within the existing expense base. Across the company, we're aligning structures, capabilities and talent to what the business needs next. We're simplifying where we can, while investing where it matters most, and we're using technology to fundamentally change how work gets done. We have been and will continue to look for these types of opportunities to redeploy capital, both financial and human, to areas we see driving the highest returns for shareholders.

Okay. With time for 2 more questions or 2 more analysts asking questions, and these are focused on our second quarter results that we just released in our outlook. So I think a few Hugh, worth hitting from David Karnovsky from JPMorgan, starting with -- on the sports OI guidance. So that is now mid-single digits, which includes the NFL network transaction. Can you help quantify if the change from the prior commentary of up low single digits, is that all NFL network? And any comment on what drove the stronger second quarter sports results versus our guidance?

Sure. As a reminder, the prior guidance of low single-digit increase was before the NFL transaction, as you probably know, but just in case. So yes, the primary change here is incorporating the NFL transaction. Regarding the quarter, sports OI in Q2 came in a little bit better than expected, simply because our revenues came in slightly ahead and programming fees slightly under, but really small variances to each.

Okay. And then David asked, is there any additional detail here you can give us around the 53rd week impact by segment?

Yes. It really impacts all of our segments to a degree. So we wouldn't want to be overly precise on that. But think about it as essentially 153 or a little less than 2% benefit on our full year revenues. Then we had some modest margin uplift given some of the fixed costs that are accrued over the course of the year. So a bit of an uplift, overall, it delivers about 4%.

Okay. And then lastly, on the park side, what drove the better-than-expected top line, which was up 6% relative to the guidance we provided? And any indicators that give you confidence on domestic attendance or international parks and the macro impact to consider?

Sure. The outperformance really came from core Park's revenue and it was broad-based. Admissions were stronger. Food and beverage, [ merch ], really everything came in a little bit stronger than expected. So revenue really came in nicely. Nothing unusual to call out other than a bit better on the top line than we thought earlier in the quarter. Right now, we're not seeing any macro weakness to point to, including at the international parts. We also obviously have the benefit of the Paris World of Frozen opening. So feel very, very good there.

Okay. Great. And then I think our last question is coming from John Hodulik from UBS. So John asked about the cadence of SVOD entertainment margins now that we've hit double digits here in the second quarter, Hugh.

Okay. Yes. Thanks for noticing, John. We're proud to hit double digits this quarter. Look, we're focused on driving top line growth. And you noticed in the letter, we're investing. So we want to keep growing this business profitably. We're focused on the long term and making sure we maximize what Disney+ can be for this company over time, as you heard Josh discuss at length today. We had previously talked earlier about accelerating revenue growth in that business. And we feel terrific about the fact that we have, in fact, been able to do so.

Great. That's all the time we have this morning. Thank you for your time. To close this out, I'm going to hand it over to Josh.

Thanks, Ben, and thanks, everyone, for your time this morning. We realized that we packed a lot of information into a new format, both on the call and in the letter, with this being my first earnings call as CEO, we felt that it was important to spend extra time laying out our strategy and then, of course, taking your questions. We also felt it was important to discuss our results with more of a unified approach rather than focusing on individual segments.

I'll conclude by saying that I look forward to engaging with the investment community and our shareholders in the future, including on our fiscal Q3 earnings call in August. Thanks for joining today, everybody.

This event may include forward-looking statements, which are statements that are not historical and are based on management's assumptions regarding the future and are subject to risks and uncertainties, including, among other factors, economic, geopolitical, operating and industry conditions, competition, execution risks, our future financial performance and legal and regulatory developments. Additional information concerning factors and risks that could cause results to differ from those in the forward-looking statements are set forth in the company's securities filings.

Okay. I think that's done. Now for my quick disclosure. For important disclosures, please see Morgan Stanley research disclosures at morganstanley.com/researchdisclosures. Really excited to welcome to this conference and the stage, Hugh Johnston, CFO of The Walt Disney Company and also my future boss. Hugh, thanks for being here.

Nice to be here, Ben. Be nice.

Absolutely. Absolutely. So this is the first conference Disney's has, I think, participated in investor conference anyway since the succession announcement was made. Josh begins, I think, his CEO tenure in a couple of weeks. What's your message to shareholders and investors as they sort of assess the decision to name Josh, CEO, Dana, Chief Creative Officer. Maybe you could talk a little bit also about the reaction inside the company.

Yes, happy to talk about that. A couple of things really that I think is relevant for this audience. Number one, the Board really went through an extremely thorough process as some of you may have seen because it was certainly reported all over the media. It probably went on for about 1.5 years. I would tell you they looked internally, externally, they really pushed hard on the candidates and I think came to a conclusion that, that is a terrific one. You have Josh, who's a terrific growth-oriented executive. You have Dana, who's a terrific growth-oriented executive on the creative side. And the fact that not only do we have Josh in place and looking forward to his leadership, but we have the entire team staying together is something that I think is a little bit unusual for corporate CEO successions. And frankly, inside the company, both of those leaders have tremendous followership and they work incredibly well together. So I think it's going to be a fantastic combination, and we'll have a lot of fresh eyes on what we do.

And what's been the reaction inside of Disney? Obviously, this is much anticipated internally as well.

Yes. People are excited. Because both people really do cut across businesses and they do have strong followership, not just within their own businesses, but more broadly, there's a lot of energy there in terms of people being excited about Josh, being excited about the fact that this process was also handled so smoothly. You all know some of the history of Disney and CEO successions going all the way back to Michael Ovitz. This couldn't have been more different than that. It was a really smooth, well-run process with minimal drama.

That's great. So the media industry broadly Hugh, and Disney specifically has gone through a lot of change over last decade. You come from outside of media. You obviously spent many years at Pepsi on the Board of companies in a whole bunch of different industries. How would you describe Disney's sort of business model and strategy?

Yes. It's interesting because I often hear from investors that Disney is very complicated, and it's hard to understand at times. And honestly, once you distill it down, I think it's actually -- the business model is pretty straightforward. Our goal very simply, first, our mission is to entertain the world, no surprise with all the IP we have and all the capability we have. Beyond that, what we really do is compete for people's entertainment time, right? We produce engaging entertainment, and then we compete to get more and more of their time. How do we do that? 2 very simple engines. Engine #1 is the creative engine. And you know we have tremendous IP in the film studios. We have tremendous IP in the TV studios.

And ESPN in a lot of ways has its own form of IP in terms of the fact that it produces sports in a different way, and it has that one thing that people just can't get enough of, which is sort of live unskippable entertainment. So to me, that's the creative engine that really drives the engagement. And then from that, we have monetization engines that, again, I would argue are pretty simple. We have B2B transactions, things like affiliate fees, license fees and advertising sales, of course. And then we have consumer transactions. which are very simply subscription fees, lodging and park tickets and cruise tickets. That's it. That's the entirety of the business model. So I tend to view it as much more straightforward. And I think a lot of times, people get caught up in the detail when you elevate it out of it, it's a relatively simple model.

In terms of strategy, what is it that we're trying to do? Our goal, as I said, is to engage and try to get more and more of consumers' entertainment time. How do we do that? We do that primarily by trying to create terrific entertainment that is engaging and gets more of their time. It pulls more people into our ecosystem. We then try to increase monetization. And then we try to go to new areas to bring more people into our ecosystem, particularly within our streaming ecosystem, both with entertainment that's created inside of Disney and outside of Disney. And that strategy is very effective in driving a lot of cash flow. And as a result of generating that, we have the opportunity to create a real earnings compounder that has many, many layers of competitive advantage and is a really, really durable company in terms of creating earnings growth. So I do tend to view it as very simple.

Yes. You mentioned streaming and obviously, technology plays a huge role in that. Big focus at this conference, all things AI. How are you thinking about what Gen AI can mean for Disney and its business when you think about the organization and how it goes about executing the strategy?

Yes. it's incredibly exciting for us from a variety of perspectives. Obviously, it's a game-changing technology in terms of the way people engage. But the way I think about it is 5 relatively straightforward platforms. Number one is video creation and production. And that's something that we're obviously digging into in a significant way and just created a significant relationship with OpenAI. Number two is guest management inside the parks, making that their experience better, more personalized, more entertaining. Number three is managing the large cast that we have running the parks. Number four is connecting better and more personally with consumers in the streaming service.

And then last is making our back-office people more effective and more efficient. So those 5 big platforms all have the potential to either drive a lot of revenue for the company or alternatively to reduce cost for the company, which gives us the opportunity to either deliver more earnings to the bottom line or to reinvest back in the company. In addition to that, the only other thing I would note is AI does offer the potential to make people more efficient in the way that they do their jobs and the way that they run their lives, which frees up more time for them to entertain themselves. So I also view it as a natural tailwind for our category, and it does offer an opportunity for extra growth in our category.

That's great. Before we dive into the businesses, Disney reported its first quarter -- fiscal first quarter relatively recently. You reiterated your full year guidance for adjusted earnings. you talk a little bit about how the year is tracking and your priorities for the remainder of 2026?

Yes. I mean we feel like we're off to a great start. Just as a reminder, the guidance that we gave was we would achieve double-digit EPS growth in 2026 and in 2027. And we have this weird nuance called the 53rd week, which comes up about every 6 years. It's adjusted for that. So it's a clean double-digit EPS growth for both of those years. If we then get into some of the specifics of the businesses, all of the businesses, I think, are performing very well right now. We feel great about where entertainment is, and we certainly have a good movie slate for the rest of the year. Sports is obviously doing tremendously well, and we feel terrific about the Parks and Cruises business. To get a little bit more specific, as we think about where entertainment is for Q2, and again, just as a reminder, we said that profits in Q2, operating income would be roughly level. We said we would deliver $500 million of SVOD operating income, which is up $200 million year-over-year.

And that's while we're investing in the business, both in technology as well as in content, particularly international content. We said that the Experiences business would grow revenue about 5%, so roughly 5%. And we said operating income would be up modestly for the quarter. The reason it's only up modestly with the 5% revenue growth is we have some onetime costs with launching ships and dry docks. So there's some timing elements to it. And then last but not least, we talked about sports as being really a Q4 story driven primarily by the timing of rights, in particular, the NBA and the WWE, which will be up 8% in Q3. So the profitability will be skewed more towards Q4. But overall, we feel like we've got a lot of momentum in the business and really do feel that we're making the right investments and the right moves to continue and sustain that growth for an extended period of time.

You mentioned the 53rd week. I know it's a unique aspect to Disney. I think it's only, as you said, every -- once every 6 years. Can you just remind us how that impacts kind of the phasing of earnings?

Yes. Interestingly, too, it is an unusual thing. And then we had it back at Pepsi as well. I thought I was going to get away from it, and I didn't get away from it, unfortunately. Anyway, the 53rd week on a full year basis is -- obviously, it's 152nd. So the impact is low single digits on a full year basis. It's all in Q4, obviously, that's where the extra week occurs. So a little bit more substantive in Q4. And from an operating income perspective, it has a bit more impact on operating income in the sports business as well as in the Experiences business, less so in the entertainment business.

Great. Why don't we talk a little bit more about streaming? Obviously, a huge focus in the market and at the company. So your SVOD assets today north of a $20 billion business. You're growing revenues double digits. Last time you reported subscribers, you had a business approaching 200 million subscriptions. That's real scale. But what's the growth opportunity from here? Like how do you size up the opportunity? And how do you go about getting it?

Yes. We do feel good about what we've built. If you take a big step back, the global television market is about $500 billion, and we only have about $20 billion of it. Now we feel great that we've built this $20 billion business for SVOD, but it's still only $20 billion out of the $500 billion. So we feel like there's an awful lot of opportunity left for us to go and get. Where specifically does that opportunity lie? Domestically, U.S. and Canada, the opportunity is much more about engagement. Household penetration is pretty high, but getting number of hours per week watched is the opportunity that we have. And the way we'll get after that is primarily through product improvements, and we'll talk a little bit more about that later. Internationally, the penetration is much lower. So we have a significant opportunity to achieve higher penetration internationally. But with that, it will require some investment. That investment won't be disruptive to the overall algorithm of the business, but it is something that we're going to do to ensure that we take advantage of that growth opportunity as well.

Does Disney -- on that last point on international, does the company have the kind of global infrastructure, kind of local presence you need to really execute well on international streaming?

Yes. We've really built it over the course of the last couple of years. We've got new teams in Europe. We've got new teams in LatAm. We actually have new teams in Canada. And we've really kind of built up the capability both in terms of getting content created, but then in addition to that, marketing that content and getting it produced such that we could really take advantage of the opportunity that we see internationally. Now we're not going to do that by just trying to sort of spend money all over the world. We're fairly focused on how we're looking to do that. In particular, I'll mention a couple of markets.

Japan and Korea, we expect to focus on, particularly with Japanese anime and with Korean dramas, where we've been very, very successful. Latin America, we'll be leaning heavily into reality, into sports TV and then, of course, the Telenovelas that are so popular down in Latin America. And then last but not least, in Europe, we'll be doing a fair amount in general entertainment, both scripted and unscripted, primarily focused on Western Europe. So put all of that together, what we're really doing is the Disney content actually plays very well as tentpoles internationally. So when we launch a big movie, we clearly get a surge in demand, but then you do get some churning out. By virtue of filling in with international content, we'll stop the gaps between the tentpoles such that we retain and we maintain the penetration that we've achieved with the tentpoles.

Right. So that's on the content side. Let's talk about product. That's another area you guys have highlighted as an investment focused in streaming. What's happening there? I know you have a new homepage for Disney+. What are some of the big product initiatives?

Yes. I mean, as you mentioned, the homepage and increased personalization is a huge opportunity for us. If you look at our history, we had Hulu, which was sort of its own independent entity and then we had Disney+, which was launched on BAMTech technology. We're really now bringing all of that together in a much more substantive and effective way. So by virtue of combining the watch histories, right, it makes the recommendation engines that much more powerful. We get to know consumers much more deeply. In addition to that, launching things like on Disney+, a vertical capability, which obviously unlocks mobile in a more significant way is an opportunity for us.

And in addition to that, we've really redone our ad tech stack in a way that allows us to target for advertisers much, much more effectively. And then beyond that, without getting into some of the specifics, we're certainly -- we look at Disney+ as not just a platform for Disney content. It certainly is that, but it's got the potential to do so much more as a platform more broadly for entertainment. So when I talk about us having the mission of trying to entertain the world, that's what I'm talking about is the ability to basically use it as the place where people go daily for entertainment.

Sticking with technology, we talked about AI before, but Disney made a pretty big announcement with OpenAI. I think that was last year, investing in the company, but a partnership with Sora. Maybe you could talk a little bit about your ambition there and sort of why that agreement makes sense for Disney.

Yes. I mean, for a variety of reasons. Obviously, what's happening in AI and the ability for people to generate their own content is super exciting for us. But there's a lot of demand for using our IP as they do those types of things. So the agreement we reached with Sora was we give them a limited number of characters. It's not the entire Disney portfolio of characters, but a limited amount of IP, which could then be featured as people produce video inside Sora. The other interesting part for us, though, is with that content, we can now incorporate those Sora videos into our Disney+ app. So there'll be a new feature that enables that.

By virtue of doing that, it allows us to get access to short form in a significant way and in a way that's authentically Disney. And in addition to that, that takes advantage of the vertical capability that we have because people do want to watch those things on mobile and they typically do it on their phone. So when you put it all together, it offers us the opportunity to engage consumers again in a different way and achieve that goal of driving number of hours per week watched up on the Disney+ side, which obviously has multiplier effects for the rest of the business.

That's great. Last thing I wanted to ask you on the streaming front. You have announced plans to bring Disney+ and Hulu together into a single app. This is not a small project, I'm sure, internally. How is the team planning on executing that in a way that's not disruptive to the customer and additive to the business?

Yes. In a couple of ways. One, obviously, we're going to overcommunicate to customers what's going on with that. That said, our view is we're going to make it so much of an enhanced experience for our customers that, in fact, they're going to want to be a part of this new Disney+ app. Now what does that mean? From the inside of the company, we're going to combine watch histories, combine a lot of the data. That enables us to create much more sharp recommendations in terms of things that you may like or things that you would want to watch. And we'll do that both with things that people have authenticated themselves for, but other things that they haven't subscribed for with the hope that we can also market and upsell to them. Our view of it is it will be a much, much friendlier app.

The homepage will be much more customized for the individual. And over time, we're hoping that people will sort of -- will be able to increase monetization per consumer by virtue of offering them features that they're interested in and they're interested in subscribing in as well. Now that said, if you're really someone who only wants one thing, you just want Disney+, you just want Hulu, you'll still have the opportunity to do that. But as you might imagine, with price points and with marketing, we're going to encourage people to bundle and take more and more of the content that's on Disney+. So we are really, really excited about it, and that's something that will be on our doorstep at year-end.

Great. Okay. Let's shift over to the film business, which plays a really significant role at Disney, much more than just simply box office results. How would you describe the company's film strategy? How does it connect to the broader mission or broader goal of growing earnings double digits?

Yes. If you go back to where we started on with the -- basically having the IP engine, the film studios are one of the keys to the IP engine, right, whether it's generating new creativity or whether it's building on some of the existing stories we have. And our goal is to do a balance of both. That value creation in the form of coming up with new highly engaging content is what lets the ecosystem really work well. In terms of specifics on the content, obviously, we've got a broad array of studios, some of the biggest brands in entertainment. And we've got a terrific creative team that's capable of leveraging those assets to create new and better and more refreshed and interesting stories. The other piece to keep in mind on that is once we do create a new piece of content, our ability to monetize it has never been greater, much more so than it might have been 5 or 10 years ago. I'll use an example to talk about that. Zootopia 2, the film, if you have kids, you're probably familiar with it. Zootopia 2 was a huge hit, global box office unto itself, $1.9 billion in global box office.

But on top of that, it was also the biggest foreign film in the history of China. And that was great because it obviously created a global market for us. But in addition to that, we've got a Zootopia land inside of Shanghai Disney. That Zootopia land literally, people were flocking to as we -- as the movie came out and people were so energized and excited about it. So that's yet another monetization opportunity. In addition to that, before the film even came out, we saw the original Zootopia get watched an awful lot on Disney+. So people kind of came back to the franchise and wanted to refresh themselves on the first Zootopia. And then with that, obviously, Zootopia 2 came on and that was watched quite frequently as well. And that gave us the opportunity to market the rest of Disney+ as well. And then on top of that, even consumer products and the other global parks were the beneficiaries of the film. So overall, the film studio is sort of a multiplier effect or a flywheel, so to speak, that generates an awful lot of revenue for the company.

I know you're the finance guy at Disney, but any top film recommendation, what's coming in rest of the year?

That's a little bit like asking who is your favorite kid. I'll say it this way, we have 4 big ones coming in the balance of the year. Moana Live Action, Mandalorian, The Devil Wears Prada 2 and Toy Story 5. I do think Mandalorian and Toy Story 5 are -- they look like they're going to be big hits. But the other 2, I think, are extremely promising films. So I'm excited about all of them, and I think they'll help us a lot in the balance of the year.

Great. Let's shift over to sports and ESPN. Sports remains as popular and culturally relevant sort of as ever. We saw that with the Olympics certainly recently. When Bob came back, he talked about transitioning ESPN to sort of a digital future. That sort of started. with the launch last year. How would you assess where ESPN is in that kind of technology evolution? And what is the role of this business in the overall Disney strategy?

Yes, it's interesting. Let's go digital first on that. If you sort of look at ESPN and the history of it, ESPN has always been sort of the digital source of sports information, right? It really is sort of the record where you go if you're looking for information on sports, more than any place else. To me, the direct-to-consumer product, which we launched last year, is just a logical extension of ESPN's sort of place in the sports ecosystem as being the place of record for all things sports. But in addition to that, if you sort of think about ESPN, we weren't going to do DTC simply by saying, okay, let's take what we put on linear television and now moving into a streaming ecosystem. We wanted it to be more substantial. We wanted to be more engaging. And I think we've actually pretty well accomplished that. So particularly for a younger sports consumer, they like to be engaged. They don't just sit and watch sports. They want to socialize around it. They want to bet on it. They want to engage in fantasy on it. They actually want to engage in e-commerce on it.

And that's exactly what we built with ESPN DTC was the ability to do all of those things. So I do feel like we've made very good progress on that front. And then in addition to that, created some specialty features that you could only find on mobile. In particular, I mentioned Verts for basically a vertical screen for Disney+. We launched that first on ESPN, and it's proven to be incredibly popular as people watch highlights. And if you are a sports fan, the one recommendation I do have for you on sports is watch what we have on there called SportsCenter for You. The more the ESPN app knows you, the more it will deliver a tailored SportsCenter, about 5 to 6 minutes that is literally your teams, and it will be the announcers that you recognize describing the action along with the analysts that we have. So it's a superb product. You couldn't do it without artificial intelligence. But by virtue of using AI, we literally have a SportsCenter for Ben and a SportsCenter for Hugh and Carlos and Christian and hopefully, all of you before the end of the day.

You guys recently closed your NFL agreement and the NFL is a big focus of investors right now given some of the comments they've made about their rights payments. Can you talk about what this agreement entails for Disney? How does being in business with the NFL even more help ESPN?

Yes. I mean, certainly, for one, the NFL is obviously one of the best sports properties in the world right now, right? I mean the level of enthusiasm, the level of engagement for NFL football is terrific. What we've done by virtue of getting closer to the NFL is a couple of things. Number one, we picked up a couple of valuable assets, which will actually make ESPN even more engaging. We've taken over the NFL network. And over time, you'll see NFL network content integrate its way into ESPN. So certainly very excited about that. Number two, we merged their fantasy football business with ESPN's fantasy football business. So we really will have kind of the mega fantasy football business, which obviously offers a lot of opportunity for engaging because if you're into fantasy football, that's something that you're doing pretty much on a daily basis. And then in addition to that, we also have the opportunity to market RedZone, which is a super popular product through linear channels. So it gives us, again, another opportunity to monetize the relationship that we created with the NFL.

On top of that, we created a commercial agreement with them, which entitled us to pick up some more games, also extended our agreement on the NFL draft, which obviously is coming up in a couple of months, and people are super enthusiastic about the NFL draft and just gives us the opportunity to work more and more with the NFL on coming up with creative ideas to sort of generate more growth for ESPN. So in terms of that agreement, it does a great job with allowing us to get even more deeply into what's obviously an incredibly popular sport. Beyond that, in terms of where does ESPN sit in the ecosystem for The Walt Disney Company, frankly, it's important unto itself. It's a great business. It has high engagement. But in addition to that, if you think about sports as being one of the things that you really just have to tune in because it's your team and the things that you like to watch, having that as a part of our streaming service is a competitive advantage that really no one can match. There's others who are dabbling in sports. No one's got the level of engagement that we do at ESPN.

Great. Why don't we talk about the Experiences portfolio and segment. I mean, in general, the market, I think, is quite optimistic on experiential assets. And certainly, this AI wobble we've seen over the last few months has made people gravitate even more towards real experiences. Talk a little bit about what makes Disney's Experiences segment unique within the broader experiential marketplace? And why putting $60 billion of capital into it is a good thing.

Yes. It's a significant investment. Only $30 billion incremental, though, just to be clear. No, the thing -- the reason I have confidence that the incremental capital going into the Experiences business is actually going to pay back successfully is 2 things. Number one, if I look at demand and capacity utilization, for our Experiences assets, whether it's cruise ships or whether it's parks. Capacity utilization is super high, and there's more demand than there generally is supply of the ability to go and tune into those, certainly at certain times of the year. So I know we can fill the capacity if we build it, so to speak. The second reason is the return profile, both of the entire Experiences business and the returns are quite high in that business.

And if I look at the return profile of the projects that we're initiating, that puts us in a place where I've got high, high confidence that this notion of turbocharging experiences is something that's going to pay back for not just years to come, but probably a couple of decades to come. In particular, there's just so much demand outside the U.S. for experiences. And then inside the U.S., as Ben just noted, people are seeking more in-person physical experiences. And there's really nothing like a Disney park or a Disney cruise ship. The scale of those operations, the characters and the IP, the quality of the service and execution, it's pretty well unmatched. So in terms of layers of advantage, I would argue that these have more layers of competitive advantage than almost anything that exists within -- the Walt Disney Company. So I'm super, super optimistic on where that can go.

We've seen nice growth in U.S. parks revenues and OI over the last several quarters, et cetera. But there's a lot of focus on attendance trends for sure. Can you talk about the drivers of the business in fiscal '26 and your overall growth expectations?

Yes. Certainly, right now, because of the nature of, frankly, the capacity situation we have, there's less opportunity for attendance growth because we're filling up the parks pretty well. That said, as we add more and more through '27 and into '28 and '29, I would expect some balance of price realization along with attendance growth is what's going to drive that business. Now one of the constraints that we've had this year, and we talked about it on our recent earnings call is international visitation to domestic parks has been a little bit softer than what we've previously experienced. But as a result of that, and that's been going on for a couple of quarters already, we've actually pivoted our marketing more to a domestic audience. And by virtue of doing that, we're doing a good job really filling up the park and finding other sources of demand. I do expect that will persist through '26. Beyond that, I'm hopeful that things will somewhat renormalize.

Great. In the minutes we have left here, let's talk about sort of capital allocation and how you guys are thinking about putting the balance sheet to work. What's kind of Disney's M&A philosophy? Where might you be willing to look to deploy capital inorganically?

Yes. We're very fortunate in that with the moves that Bob Iger made during his tenure as CEO, whether it was acquiring Pixar, Lucasfilms (sic) [ Lucasfilm ], Marvel and then the Fox acquisition, we were kind of in front of the curve in terms of generating a large collection of IP. And obviously, with some of the recent activity you've seen in our sector, other people are starting to do that now. for us, it started really going all the way back to about 2006, 2007. So we don't -- we like the portfolio. We like the hand that we have right now. We don't need to do any substantive M&A. It seems some of our competitors are signaling they do. We clearly don't need to do anything. We can leverage what we have and build it out. Now might we do some small tuck-in acquisitions or something to add a capability or an acquihire or something like that to add some talent. Yes, but we don't need to do substantive M&A. And by virtue of that, we can really focus ourselves not on integrating M&A, but just running the company and building the products and leveraging the IP better and better.

You guys announced plans last year to buy back a lot of stock. I think about $7 billion this year. How do you think about the right level of share repurchase? And capital?

I mean the way that we think about capital allocation in that regard is, obviously, we need to do the basics. So we need to service the debt, pay the dividend, all of those things. M&A, as I said, we don't feel like we need a lot that tuck-ins will not be very significant in size. It won't be disruptive to our overall capital allocation. And sort of what that -- and we like our debt levels where they are right now. We don't feel the need to change. We're at a highly rated debt level. So we don't feel the need to make a significant change there.

And as a result, with the cash generation the company is coming up with right now, $7 billion was just sort of what was left over. We don't want to build big cash balances. We don't feel the need to do it. So the $7 billion was sort of the outcome of that. And as we think forward, there's no reason to think that those numbers will change. We're going to continue to generate a lot of cash. Obviously, we will be in a position where we still don't want to pay down debt. We don't want to generate cash for the balance sheet. So my expectation is you're going to continue to see strong cash returns to shareholders.

That's great. Well, we got about a minute left. Hugh. Anything you want to wrap up with at this time when Disney is bringing on a brand-new CEO and...

Yes. It's funny. I actually just got off of Disney Cruise and had never been in a cruise before. And it was just my wife and me because our kids are older. But boy, what a fabulous experience that is. So what I would encourage you all to do is, number one, if you have kids, you have grandkids between the kids clubs and the entertainment and all of that, it's just a spectacular experience. You might want to also go to a park, subscribe to Disney+. And oh, by the way, if you think about it, buy some Disney stock, too. It's not a bad idea and a pretty good buy these days.

All right. That's a perfect way to wrap. Thank you, Hugh. Thanks, everybody.

Thank you. Thank you, guys.

Welcome to The Walt Disney Company First Quarter 2026 Financial Results Conference Call. My name is Lauren, and I will be your moderator today. [Operator Instructions]

Please note today's event is being recorded.

I would now like to turn the call over to Carlos Gomez, Executive Vice President, Treasurer and Head of Investor Relations. Please go ahead.

Good morning. It's my pleasure to welcome everyone to The Walt Disney Company's First Quarter 2026 Earnings Call. Our press release, Form 10-Q and management's posted prepared remarks were issued earlier this morning and are available on our website at www.disney.com/investors. Today's call is being webcast, and a replay and transcript will be made available on our website after the call.

Before we begin, please take note of our cautionary statement regarding forward-looking statements on our IR website. Today's call may include forward-looking statements that we make pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, including regarding the company's future business plans, prospects and financial performance are not historical in nature, and are based on management's assumptions regarding the future and are subject to risks and uncertainties, including, among other factors; economic, geopolitical, operating and industry conditions, competition, execution risks, the market for advertising, our future financial performance and legal and regulatory developments.

Refer to our Investor Relations website, the press release issued today, and the risks and uncertainties described in our Form 10-K, subsequent Form 10-Qs and other filings with the SEC for more information regarding factors and risks that could cause results to differ from those in the forward-looking statements. A reconciliation of certain non-GAAP measures referred to on this call to the most comparable GAAP measures can be found on our Investor Relations website.

Joining me this morning are Bob Iger, Disney's Chief Executive Officer; and Hugh Johnston, Senior Executive Vice President and Chief Financial Officer. Following introductory remarks from Bob, we will be happy to take your questions.

So with that, I will now turn the call over to Bob.

Thank you, Carlos, and good morning, everyone. We are pleased with the start of our fiscal year, and our achievements reflect the tremendous progress we've made. Beginning with our Entertainment segment, our film studios generated more than $6.5 billion at the global box office in calendar year 2025, making this our third biggest year ever, and they are our ninth year as #1 at the global box office over the past decade.

Avatar Fire and Ash became our latest release to cross the $1 billion threshold, joining Zootopia 2 and Lilo & Stitch, to mark $3 billion titles in 2025. Zootopia 2 also became Hollywood's highest grossing animated film ever and one of the top 10 highest grossing films of all time, earning more than $1.7 billion, and firmly establishing itself as a popular new franchise. This builds on a rich legacy of both creative and box office success for Disney. To date, $37 billion films have come from our studios, out of the 60 films that have hit this mark industry-wide. That's 4x more than any other studio.

Great storytelling generates value across our interconnected businesses with hits like Zootopia 2 lifting viewership of related titles on Disney+ and fueling global interest in our parks and consumer products. The film also became the highest grossing foreign film of all time in China, where the franchise is an important driver of attendance at Shanghai Disneyland, with our Zootopia theme land, one of the most popular areas of the park.

Looking ahead to our upcoming slate, we are excited about numerous titles coming to theaters this year, including The Devil Wears Prada 2, The Mandalorian & Grogu, Toy Story 5, the live action Moana, and Avengers Dooms Day.

Turning to streaming. Our performance in the quarter reflects the strength of our content and continued technology improvements. We're seeing encouraging results from our investment in local content as we continue our focus on international growth. We're also rolling out product enhancements to elevate the user experience on Disney+, and we're layering in additional ways to engage audiences by developing new vertical and short-form experiences, with plans to introduce a curated slate of story generated content on Disney+ following our recently announced licensing agreement with OpenAI.

We also took a major step forward with the launch of ESPN Unlimited. And while still early days, we're pleased with the adoption and engagement we've seen with the new app. ESPN is the industry leader in sports, offering fans the most compelling portfolio of live sports, studio shows and original content with multiple ways to watch. And in Q1, ESPN delivered outstanding ratings across our portfolio of live sports. Highlights include ESPN's most watched College Football regular season since 2011, with ABC achieving its best college football season since 2006. Monday Night Football delivered its second highest viewership in 20 years. And season to date, ESPN has delivered its third most watched NBA regular season ever.

We also just closed our transaction with the NFL to acquire NFL Network and other media assets, including the linear rights to the League's popular Red Zone channel, further bolstering ESPN's offering with an even richer content experience for football fans.

Turning to our Experiences segment. We had a solid start to the fiscal year with quarterly revenue exceeding $10 billion for the first time. We have expansion projects underway at every one of our theme parks, and next month, we're excited to welcome guests to the new world of Frozen at the completely reimagined Disney adventure world at Disneyland Paris. This milestone marks the beginning of a bold new era for Disneyland Paris, nearly doubling the size of the second park.

At Disney Cruise Line, we recently launched the Disney Destiny, which has received outstanding reviews from guests. We're also preparing for the launch of the Disney Adventure next month, which will be our first ship homeported in Asia, bringing immersive Disney storytelling to more people globally than ever before.

Overall, our results this quarter reflect our hard work and strategic investments across each of our priorities, and I'm incredibly proud of all that we've accomplished over the past 3 years to set Disney on the path continued growth, and have inspired and energized by the opportunities ahead for this wonderful company.

With that, we will be happy to take your questions.

Thanks, Bob. As we transition to Q&A, we ask that you please try to limit yourselves to one question in order to get to as many questions as possible today. And with that, operator, we're ready for the first question.

Our first question comes from Robert Fishman from MoffettNathanson.

Bob, you've made some significant IP deals for Disney over the years. I'm wondering as you watch from the sidelines, the value being ascribed to Warner Bros. and HBO. Does that change or impact any of your strategies to better monetize or unlock the value of all Disney's premium IP?

And then Hugh, if I can squeeze in a quick one. The absence of subscriber disclosure. Just wondering if you can help us better understand the drivers of SVOD's 13% subscription revenue growth? Any breakdown of U.S. international? Or how you expect subscription and advertising revenue to trend over the rest of the year?

Thanks, Robert. Look, if anything, the battle for control of Warner Bros. Discovery, I think should emphasize, or cause investors to appreciate the tremendous value of our assets, particularly our IP, includes obviously all of our brands and our franchises. And also, let's not forget ESPN.

The other thing I'm reminded of is the deal we did for Fox in many ways was ahead of its time. We knew that we would need more volume in terms of IP, and we did that deal -- actually announced in 2017, closed it at '19. And I also, as I look at it, I think it was extremely well priced, considering what's being offered for the Warner Brothers Discovery assets. We have a great hand as I look across, for instance, what our experiences business is currently building. I think more than anything, it illustrates the value of that IP beyond the big screen.

But you also have to look at what we've done on the big screen with $6 billion movies just in the last 2 years, and $37 billion movies over time. Those throw off a tremendous amount of value and very long-term value. As of -- just as, for instance, the lift on Disney+ that Zootopia 2 and Avatar Fire and Ash have created is enormous in terms of first streams and in terms of hours engagement. And I already talked about our parks, but we're opening Frozen Land in Paris in just a couple of months. We obviously have Star Wars presence. The Zootopia Land in Shanghai is enormous in terms of both its size and its value. The percentage of people that go to Shanghai Disneyland just to go to Zootopia Land, is very, very high.

So I think we have a great hand. I don't really feel that we have a need to buy more IP. We're just going to continue to create our own. And we've got an unbelievable bedrock of stories already told to grow from.

Okay. And then Robert, on the subscription side, revenue growth was driven by a couple of factors. First, of course, was pricing. Second, both North America and international growth. And third was bundling [ the duo, the trio ] and the MAX bundle is all doing well and driving both engagement and revenue realization.

Your next question comes from Steven Cahall from Wells Fargo.

So Hugh, last quarter, there was a lot of focus on the domestic park trends. It looks like you saw some improvement there, maybe even a bit of a snapback that attendance and per caps domestically. Could you give us any more color on how -- what Disney World did within there? I think you've spoken to some specific trends there more recently. And any commentary on the bookings pacing to the extent that you think that's a helpful indicator of where demand goes from here?

And then just on the guidance, a couple of detailed questions there. No mention of '27 adjusted EPS growth in the earnings release. Should we assume that's something that's still double digit, or something that you're going to revisit? And same question on CapEx.

Sure, Steve. A couple of notes on that. One, Walt Disney World had a very good quarter, obviously, benefited from the overlap of the hurricane. But in addition to that, saw strong attendance performance as well as strong pricing performance.

As far as bookings for the full year, bookings are up 5% for the full year, weighted more toward the back half. So certainly trending very positively in that regard. And then last, regarding '27 guidance. No update on that. You should assume that we're not changing any of that, or we would have an update. So no change there.

The next question comes from Jessica Reif Ehrlich from Bank of America.

So one for Bob and one operational. Bob, when you took over for -- you're coming towards the end, I should start with that, to the end of your [ reign ] as CEO. And when you took over from Michael Eisner, you quickly took many steps that had a huge impact on profit growth for years. And like just two examples. We're moving Monday night football from ABC to ESPN. So you had [indiscernible] revenue stream for the first time. And then making a piece [indiscernible] Steve Jobs, subsequently acquiring Pixar.

So as you prepare to hand over the [ reins ], do you see any areas of your successor can really kind of jump start that would really drive the business for the long term? And then, I guess, just on an operational level, you mentioned that you just closed your deal with NFL. How do you see the relationship and the business evolving with the NFL, including the likely early renewal, you guys may be a year later, not sure?

Well, Jessica, first of all, thank you for noting some of the steps that I took when I became CEO, that's a long time ago. And I'm certainly proud of those as I am proud of a lot of the other things that we did thereafter.

I think what is noteworthy is that when I came back 3 years ago, I had a tremendous amount that needed fixing. But anyone who runs a company also knows that it can't just be about fixing. It has to be about preparing a company for its future and really putting in place -- taking steps to create opportunities for growth. So while I don't want to really either sound -- get to nostalgic, or spend too much time on a possible transition, or the probable transition. The good news is that the company is in much better shape today than it was 3 years ago because we have done a lot of fixing. But we've also put in place a number of opportunities, including the investment across our Experiences business to essentially expand at every location that we do business and on the high seas.

I also believe that in the world that changes as much as it does that in some form or another trying to preserve the status quo was a mistake, and I'm certain that my successor will not do that. So they'll be handed, I think, a good hand in terms of the strength of the company, a number of opportunities to grow, and also the expectation that in a world that changes, you also have to continue to change and evolve as well.

Your second question regarding the NFL. We're really happy that we were able to close it when we did. That enables us to get started sooner than we actually had anticipated. And so the upcoming NFL season, which will end in the [indiscernible] first Super Bowl is a huge opportunity for ESPN, not only in terms of its ability to manage the NFL network and Red Zone, but also with more NFL inventory. And we know how valuable that is and how valuable it will be, particularly for ESPN streaming business.

I'm not going to comment at all about the future of ESPN's relationship with the NFL, except to say that the NFL has opt out in the current agreement in 2030. And I think it's just premature to speculate what might happen at that point.

The next question comes from Thomas [indiscernible] from Morgan Stanley.

Quick one on the streaming side. I wanted to ask about the progress on new bundle initiatives. I think you mentioned the pace of ESP and unlimited sign-ups. Are you seeing the uptake coming through maybe less on the bundled side versus the authenticated [ PTV ] side? And what's expected to drive that next leg of adoption?

And then if you could give us an update on the plans around the Hulu integration, and the key steps that you plan to take this year on that front, that would be helpful.

Thomas, look, we've made huge progress turning the streaming business into a profitable business. Developing the technology tools to improve both the user experience and to improve results, and also developing programming across the globe. And I think it sets the business up to lean into accelerated growth that you'll probably be hearing about more in the future.

The things you have to look at in terms of the components of growth are, one, continuing to deliver exceptional content, particularly on the international front. Two, advancing the technology improvements that I just cited. Three, answering your question, delivering a unified app experience. And then the fourth, we'll be introducing new features such as vertical videos, story-generated content, et cetera, which we've talked about.

So far, the integrated experience that we've already offered with Disney+ and Hulu has resulted in a reduction in churn. And that's the same is true for the bundle with ESPN, that the bundled subscribers churn out less. And we know that reducing churn is a critical component to improving the bottom line, or creating growth. And so we are hard at work on the technology front to create the one app experience, even though consumers will always be able to get -- buy Disney+ or Hulu on its own. But by and large, the we believe -- far -- the great majority of the consumers will buy both, and it will be a fully integrated experience. I would guess that, that would be coming sometime the end of the calendar year.

The next question comes from David Karnovsky from JPMorgan.

The OpenAI agreement, Bob, can you discuss how you plan to curate and deploy user-generated AI content across your platforms? Would this be entirely for vertical video? And then what would be your expectation for how a ramp in AI content might impact the downstream demand relationship for new programming, or archived from your franchises?

Well, good question. First of all, what the deal actually covers is a license agreement between ourselves and OpenAI to enable people to prompt Sora to create 30-second videos of about 250 of our characters that do not include human voice or face. And that's a 3-year agreement that we are getting paid for.

In addition, we will have the ability to use those videos, those [ Sora ] created videos, in a curated form on Disney+. We have, for a while, wanted to include, or add a feature on Disney+ as ESPN did, by the way, in its new offering, that is both user-generated, but more importantly, short form, ESPN is short form. Because we have obviously noticed the huge growth in short form and user-generated content on other platforms, such as YouTube.

So what this deal does is by giving us the ability to curate what has been basically created by [ Sora ] on to Disney+ is that jump starts our ability to have short-form video on Disney+. Additionally, it's our hope that we will use the Sora tools to enable subscribers of Disney+ to create short-form videos on our platform through Sora. And so it's all, I think, a positive step in terms of adding a feature that we believe will greatly enhance engagement.

The second part of your question about its impact on other programming the answers, I don't really see that it will have any impact at all. We view AI as having a number of, obviously, possible advantages or opportunities for the company. One is as a tool to help the creative process. So creativity, another is productivity, which is simply being more efficient. And the third, I'll call connectivity, which is creating basically a more intimate relationship with the consumer, enabling the consumer and enabling us with the consumer just to have a more engaged, more effective relationship.

Your next question comes from Kannan Venkateshwar from Barclays.

So Hugh, maybe one for you in terms of drag of -- on the streaming business. I mean, you've been investing in this business, both in terms of unifying the interface and as well as international content and so on. Would be good to understand how much of a drag this is? And to that extent, how much operating leverage could be extracted out of it as you go into next year and beyond?

And then, Bob, from your perspective, as you plan your transition, do you think the org structure is more or less in place in terms of leaders of different divisions, and how the company has operated on a day-to-day basis? Or is that something that's also part of the transition plan, to the extent you can share?

I'll take the second part and then I'll give it to you on the org structure. One of the things that I did when I came back 3 years ago was to reorganize the company. And the primary goal was to create more accountability on the streaming side. Our studio and our television organization basically spent the most money, obviously, generating content for streaming. And I felt strongly that those people that were investing the most needed to have much more skin in the game in terms of the impact of their spending on the bottom line. And so by putting streaming in the hands of [ Allen Burton ] and [ Dana Walden ], those that run our movie and TV business globally, [indiscernible] was a direct connection between their investments and ultimately, the bottom line of the streaming business.

3 years ago, that business, I think it lost about $1.5 billion in the last quarter before I came back and I think almost $4 billion last year. And you see the results this quarter and what we've managed to do in the last year where it's making more than $1 billion, and we're on a path to turn it into a far better business, that reorganization worked. I can't -- I'm not going to speak for my successor in terms of how the company will be organized, but I do believe strongly that it's very important that any organization that's created, is created with an eye to creating and maintaining accountability.

Okay. And I'll jump in on the streaming question. You're right in that we were certainly investing in the business at one point a few years ago, in fact, we were losing $1 billion a quarter. That number improved substantially. Bob laid out a goal for us, to return -- or to get streaming to profitability and then to get it to double-digit margins.

Recall last year, we got it to a 5% margin, and we stated we have a goal this year and guidance this year to achieve a 10% margin. In terms of the quarter, we delivered 12% revenue growth and about a little over 50% earnings growth. So from that perspective, we are driving a lot of operating leverage out of the business. And we would certainly expect to continue to drive operating leverage going forward, even while we invest in international content and invest in technology to make the product better. The balancing act, of course, is we want to continue to grow at a rapid rate, while driving operating leverage. We talked last call on -- about a goal of achieving double-digit revenue growth. And in fact, we did do that on the first quarter. And that's something we aspire to continue to do.

Your next question comes from Michael Morris from Guggenheim.

I wanted to ask first about the Entertainment segment and just maybe unpack the drivers a little bit of the second quarter guidance for comparable operating income. And then, of course, the full year getting to double digits, certainly with the acceleration in the back half. Can you just talk about what's different in 2Q, and then how that will change in the back half of the year for the guide?

And then on the Sports segment, if I could. The 4% decline from fewer subscribers is clearly a meaningful improvement from the 7% to 8% that you had in prior periods. Was that all driven by the launch of the ESPN streaming service? Or are you seeing any improvement in the bundled trend as well?

Sure. Happy to talk about both of those. The big difference in terms of entertainment and the quarters is really around the various product launches we have. On the network side, Q2, we have a couple of shows launching versus nothing to speak of last year. So from that standpoint, that's what's driving the change.

In the back half of the year, we have a really strong theatrical slate between Devil Wears Prada 2, Mandalorian & Grogu, and Toy Story 5, and live action Moana. So it's really that's driving the big differences. And of course, that slate is terrific both from an operating performance in the current year, but also with that new IP sets us up well for both consumer products and for the parks downstream.

So, let me just add that both Zootopia 2 and Avatar Fire and Ash will also be on the streaming service at some point between now and the end of the year. And I referenced this earlier, but first streams on Disney+ for the prior Zootopia and Avatar movies, approached a million first streams. And second, the number of hours consumed of the first Zootopia movie and the first and second Avatar movies is in the hundreds -- I think it's a couple -- almost a couple of hundred million new hours consumed. And so when you look at putting those two films on Disney+ between now and the end of the fiscal year, obviously, that's going to have significant value for the streaming service.

Your next question comes from John Hodulik from UBS.

Just a couple of quick ones. First, a follow-up on the Sora commentary. Bob, when do you envision the user-generated content showing up on the Disney+ platform? When can we expect to see that? And do you expect over time it to grow beyond the 30-second videos in the current agreement?

And then a follow-up for Hugh. The letter calls out lack of visibility on international visitation in the parks, I guess, despite the 5% increase in bookings. Just is that international visitation? Is that incremental to what we've been seeing? And then any color you can give us on bookings for the adventure would be great, too.

John, we're not being specific about Sora timing. We're working through all the technical details of that. I imagine it will be sometime in fiscal 2026. And for now, we're sticking to the 30 second limit on videos created down the road, not sure, but we're not really focused on that at this point.

Right. And in terms of international visitation, because international visitors do tend to stay in Disney hotels less, we do have a bit less visibility on that front. That said, we were able to read it from other indicators. And as a result of that, we pivoted our marketing and sales efforts, promotional as well as marketing efforts to a more domestic audience, and we're able to keep attendance rates high from that perspective.

The next question comes from Peter Supino from Wolfe Research.

On the subject of the Entertainment segment disclosure change. I wondered if you could help us understand how the new disclosure aligns better with how you think about that business' future? And how you think about managing it, what it allows you to do or communicate differently that makes your life and ours better?

Sure. Happy to talk about that. Look, the reality of it is we manage the entertainment business as a single entity. The notion of talking about linear network separate from streaming, separate from theatrical, I think really creates a lot of complexity that's just not reflective of the reality.

If you think about the networks versus streaming, really what that is, is a product of consumers choosing to pivot from one form of distribution channel through another form of distribution channel. So for us to kind of get into a lot of depth in terms of what's happening there, I don't think it's terribly informative to investors. And it's not reflective of the way that we create, or distribute content. We create content and we basically put it across all of our distribution channels. So I think it's just a level of nuance that may have been relevant in the past, but just isn't relevant anymore, and that's why we made the change.

Thanks, Peter. Operator, we have time for one last question.

The final question today comes from Jason Bazinet from Citi.

Just had a question for Mr. Iger. When you first became CEO, I remember investors would lament your parks business is the worst business in the portfolio. And now when I chat with investors, everyone says, oh, the majority of Disney is really the Parks business, 60-odd-percent EBIT.

My question is, you've got sort of two vectors going on. You are in the early stages of the streaming pivot. You're showing good progress there. But on the other hand, you've been committed to invest a lot of capital in the Experiences business. If you went out 5 years, 7 years, 10 years per your horizon, do you think the EBIT mix will be more balanced at Disney going forward? Or do you think it will still be an experience as driven company, in terms of the quantum of profits?

Yes. Thanks, Jason. Look, if you go all the way back to 2005 when I became CEO, the return on invested capital in the then Parks and Resorts business was not impressive and actually not acceptable. And -- we also had not that much building in progress, meaning there wasn't much expansion, but maybe for a good reason because the return on invested capital was so low.

As we added IP to our stable, including Pixar in '06 and Marvel in '09, and Lucasfilm Star Wars in '12 and ultimately, 20th Century Fox, we gained access to intellectual property that had real value in terms of parks and resorts and enabled us to lean into more capital spending because of the confidence level we had in improving returns on invested capital, due to the popularity of that IP. And when you look at the footprint of the business today, it's never been more broad or more diverse. And the projects that we have underway are going to make it even more so.

As I said, we're expanding in every place we operate. And additionally, having been in Abu Dhabi just 2 weeks ago, is reminded how great the potential is to build in that part of the world. Because not only is it strategically located to reach a huge population that have never visited our parks, but we built in one of the most modern and technologically advanced way. So as I look ahead, I actually am very, very bullish on that business and its ability to grow because of everything that I just cited.

In addition, though, because of what you said about the trajectory of our streaming business, and what we know is in the pipeline and our movie business, and also looking back just a few years, where our movie business was suffering from COVID, and the streaming business was, obviously, [ in ] not an acceptable place, it's clear that the future of both of those businesses, or let's call it our Entertainment business is also [ brighten ] is going to grow. So we have a healthy competition now in our company in terms of which of those two businesses is going to essentially prevail as the #1 driver of profitability for the company, but I'm confident that both have that ability, meaning both have the ability to grow nicely into the future, given all the investments that we've made and the trajectory that we're on.

Thanks, Jason, and thanks to everyone for your questions today. We wish you all a good rest of the day. Take care.

This concludes today's call. Thank you for joining, everyone. You may now disconnect your lines.

Thank you, and good morning, everyone. I'm Steven Cahall, media and cable analyst at our Wells Fargo TMT Summit, and we're fortunate to be joined by Hugh Johnston, the Walt Disney Company's Chief Financial Officer. Hugh, thank you for joining us.

Happy to be here.

There's a lot of debates that I want to get into this morning, but I thought just to start out, we could level set things. You reported the end of fiscal '25 last week, provided additional guidance for fiscal '26, including the double-digit EPS, excluding the 53rd week and the double-digit EPS growth for fiscal '27. So let's get your high-level expectations and key initiatives for the year ahead, and then we can dive into some of those debates.

Yes, happy to talk about that. First, as Steve noted, we reported what I would consider to be strong earnings for the fourth quarter and for the full year. Full year was up 19% on an EPS basis. And actually, the last 3 years, our CAGR on EPS has been 19%. So I've talked a little bit about being an earnings compounder, and that's really what we're trying to do is just continually pile on one strong year after another.

In terms of as we look to '26, the strategies that we're following, number one, we really do have quite a strong film slate. I feel good about that. Zootopia 2 is coming up, Avatar behind that, The Devil Wears Prada 2. There's a Moana movie. So lots of things happening on the film slate front, which is always good news for the Walt Disney Company.

In addition to that, we continue to drive our DTC business. We're obviously looking to grow that aspirationally at double digits, and I think there's reasons to believe that we can do that. And a couple of years ago, I talked about hitting double-digit margins in that business, and we will -- we're looking to do that in '26.

ESPN, obviously, the biggest thing going on there is our launch of the DTC product, which is off to a very, very good start. And then experiences, of course, we're continuing to invest in that business, and that business continues to perform very well. So put all of that together, it was clear to us that we could guide to double-digit EPS on an apples-to-apples basis. And in addition to that, deliver strong cash flow for the year, resulting in strong cash returns of a 50% increase in the dividend as well as a doubling of share repurchase to $7 billion.

So often I hear with Disney that it's the content that sort of drives the sentiment, but it's parks that drives the earnings. And I think maybe what's most topical after last week is just what the trends are in domestic parks attendance. They declined, I think, a little bit in the fiscal fourth quarter, but you did indicate you're seeing bookings up, I think 3% was the comment last week. So what can you tell us about the health of the consumer that you're seeing and just the overall story for demand for parks?

Yes. Our consumer, as you know, tends to be at the higher income deciles, and those consumers continue to do well. So we certainly broadly feel good about where the consumer is. Obviously, with the parks, we did have a strong year last year. We guided originally to 6% to 8% OI growth or earnings growth and delivered 8%. In fact, we hit $10 billion of operating income for the year, and it's the first time we've ever hit $10 billion.

So certainly feel very, very good about that. And the domestic parks, which is always a question people tend to focus on, also did well. Domestic grew earnings 8% for the year and 9% in the fourth quarter. So from an earnings perspective, we felt good.

In terms of attendance, last year, the domestic parks were down 1% on attendance. Now recall, there was a lot of concern going into the year based on the Epic park that was coming out in Orlando, we felt like we had it managed. And in fact, it came in within our expectations. We were down 1% on attendance for the year, but there was also a 1-point drag from a hurricane that occurred in the first quarter last year.

So net, we were basically flat on attendance. In the fourth quarter, really a very similar story. For domestic parks overall, we were down 2% and Walt Disney World was actually down 1%. So certainly, from an attendance standpoint, it really came in very much in line. And the thing you have to keep in mind with the parks is we tend domestically to run at pretty high capacity utilization.

So when we're adding new attractions, you'll see attendance jumps. But when we're not -- in a year where we're not adding something new, we're basically going to be about level. Over the long run, you'll see us, I think, balance attendance growth with pricing growth. But in any given year, it could be more geared towards one versus the other.

So in addition to attendance, per caps were actually quite good last year. We saw per caps domestically grow 5%. So certainly felt very, very good about that. And then from the standpoint of bookings, as you noted, in the first quarter, our expectation is for bookings to grow 3%.

Now bookings is an important metric from the perspective that it obviously gives us some insight into the future. But one thing that's important to realize is only about 40% of the people who attend our parks actually stay on one of our properties. So it's useful in terms of both per caps and attendance, but you can't just directly connect one to the other. That said, when we see bookings up as we did, we have right now at 3% and the full year is up as well, we're certainly feeling good about where parks is likely to go in '26.

Just to follow up on that. So with fiscal fourth quarter attendance down 2%, Disney World down 1%, but bookings pacing up 3%. Does it kind of imply just a continuation or maybe an improvement off the trend that you saw in the September quarter?

I think it's really probably a continuation more than anything else. Even as we think more broadly about the Experiences segment for the year, you know we have 2 cruise ships coming on and as a result of that, there's a lot of onetime costs in the first half of the year, which suggests the earnings is likely to be more back-end loaded than you would typically see.

And then just to go back to your comment on the higher income decile where you tend to index to on the consumer side. And you talked about the strong per cap spend you saw in the year. I think you've had this yield-based approach to managing your domestic parks over the last few years. And some of the work we've done suggests that's a lot of the reason those margins have been so strong. So can you speak a bit about the yield-based approach and what that means for how you manage the assets?

Yes. We do very much focus on how to basically generate incremental revenue, both at the ticket price level as well as food and beverage and merchandise and all the ancillary services that we offer like Lightning Lane and VIP tour guides and those types of things.

So the team has really gotten increasingly better at getting that yield up, particularly in years where we're not adding capacity in a particular park that's going to be the primary growth driver is all of that yield focus. In addition to that, we're actually investing in creating dynamic pricing. We're doing it in Paris right now. We've been doing it for about a year. It's off to a very good start, but we're really going to make sure we optimize it before we bring it into the domestic parks. So that's probably something that you won't see this year, but you may see in the subsequent years.

And is the kind of airline pricing model the best way to think about it?

I'd like to not think about it that way, to be honest with you. But yes, similar. We already do it in the hotels to some degree. So this is basically just bringing it in the parks, but done in a way that obviously doesn't create guest experience issues or consumer negative feedback and all of that. And frankly, so far in Paris, we haven't seen any.

And then when it comes to adding capacity, cruise is certainly the area where we're seeing that most pronounced. Can you talk about the expansion of the cruise operations and how to think about what that can mean for profit growth at Experian?

Yes. So in the near term, we're adding 2 ships. One is coming on November 22, and then the second one is coming on in March. And obviously, there's some onetime costs associated with those as well as some dry dock costs that we've got coming into the first half of this year. But it will absolutely be an important growth driver for us. But cruise is not the only growth driver.

We're investing in the parks broadly. This coming year, there'll be a frozen addition to our Paris business. And then getting beyond '26, Walt Disney World will see 2 cars-based attractions. Animal Kingdom will have an Indiana Jones as well as an Encanto attraction added to it. Shanghai will see a Spider-Man attraction added to it as well. And then there'll be a Lion King themed area in Paris as well.

So we really are investing broadly to drive the parks business because as I talk about this notion of being an earnings compounder, we need to put that CapEx in, in order to drive that double-digit earnings growth that we're seeking to maintain.

And you didn't mention Abu Dhabi in that list of projects, but I know that one is a little longer term, but certainly significant. And I think the term at the Investor Day a couple of years ago was turbocharging for the parks with maybe this is the biggest single piece of it. So maybe a bit on Abu Dhabi and then what else you're working on to expand the international footprint.

Yes. So Abu Dhabi obviously represents a massive opportunity for us. And we have a partner that's really putting up the capital on it. So from a deal structure standpoint, we like the approach. The important thing about Abu Dhabi is if you sort of just plot out the world, the one place in the world where we didn't have a major presence was sort of that particular geographic region, which taps into India, taps into Eastern Europe, taps into Africa.

So it gives us an opportunity to access really a couple of billion people that it was hard to get to a Disney experience for. So couldn't be more excited about the opportunity there. It's going to take some years. Obviously, these parks are massive, massive projects that take some time to put together.

It will very likely be the most technologically advanced park that we have once we do get it up and running. And we're super excited about that. In addition to that, as I mentioned before, we're investing in attractions across all of the parks. And then on top of that, the cruise ship business is really a spectacular business for us, earns nice returns.

The guest experience scores are by far the highest of any place in the Walt Disney Company. It does wonderful things for the brand. People that go on cruises, they tend to be repeat customers over and over and over again. So we certainly feel great about that. And our market share in cruises is relatively low. We're a premium player, but we really do have an opportunity to go much, much further with cruises.

And in particular, it's the opportunity to tap a lot of international markets that otherwise wouldn't be as easy for people to get into. And the beauty of a cruise ship is if you -- you drop it into a market and if it doesn't work well, you can basically move a boat someplace else and drop it into another market.

So we'll be up to by 2031, I think it's 13 ships. So we've got lots more capacity coming there. And the good news is we tend to fill it very, very quickly. With the 2 cruise ships that we're adding right now, you normally think with that much capacity coming on, your capacity utilization rates would go down. Right now, the capacity utilization is holding steady. So even with the incremental capacity, we're filling it up very, very quickly.

I think of experience as the biggest profit center of the company and also kind of the biggest share of where Disney sits in the consumer wallet. But switching gears to DTC, I think about that is where kind of the competition for engagement in time, sort of your top of the funnel with all your content in one place and Disney+ and the expansion into other things.

So I would love to also level set how you're thinking about the DTC strategy as it's evolving. I think the guide for the year is double-digit top line growth, the 10% SVOD margin. And I think you said you expect the margin to improve in chunks, not bps over time. So...

So that's exactly the way we're thinking about it. If you think about the journey that we've been on with DTC, if go back when the product was launched, and it's only a handful of years ago that it was launched, the goal was first to achieve scale as quickly as we could. And we did do that.

We produced an enormous amount of content and in addition to that, priced it very aggressively. And we did achieve scale. So our recent numbers show that we're at about 195 million subscribers globally right now. That said, there's still opportunity to expand on that sub base. As we think about the strategy, our strategy is really to offer breadth in terms of the product offering.

Some of our competitors are very deep in general entertainment. They have very, very deep libraries. We obviously, in making our own IP, have a tremendously deep library as well. But in addition to general entertainment, we have all family entertainment, we have news, we have sports. And there's opportunities to do other things with the service down the road.

If you think about the potential for commerce on the site, if you think about the potential for gaming at some point on the site, there's an opportunity to do things in a much broader way to become sort of the everyday thing that consumers use when they wake up in the morning, they tap into Disney+ and then they stay with us all day. And when they want to interact in any way with the Walt Disney Company, this becomes the portal for that.

So we certainly feel good about the IP that we have. We feel good about the breadth that we can offer. And the DTC business, my expectation is we'll continue to grow in margin in chunks. And in addition to that, as I've said, we're looking to get that top line growth up around the double-digit level because, frankly, it's a business that has enough growth opportunity that we should be able to do that.

In terms of margin improvement in the future, the way I think about it is we need to be thinking in percentage points, not basis points. And that's over as I think over the next 3 or 4 or 5 years, that's the trajectory that we're trying to put the business on.

And is the revenue growth the biggest driver to the chunky margin expansion? Or are there additional margin?

No, I think it's revenue, but it's also to the degree that we can drive engagement up that actually allows us to improve retention to the degree that engagement and retention are high, marketing is a place where we can actually look to reduce our spending relative to where we are right now.

In addition to that, SG&A is an opportunity for us as we put the 2 services together into one, there'll be some SG&A opportunities. They're not massive, but they're not insignificant either. Where we will invest is in technology as well as local content internationally.

But in terms of those investments, I don't expect the growth in those expense items to exceed the revenue growth rate. So we'll still get P&L leverage out of that as well. But certain areas, I think, are going to be reduced. Others will be increased, but at a rate of growth less than revenue.

And how do we think about just the app convergence over time? Disney+ is the native kind of Disney experience. Hulu came through an acquisition process, so less sort of a clean sheet and now we're starting to see those be more tightly integrated. So how do you think about that strategy? And importantly, what does it mean for the margins and the profits of the segment?

Yes. So the way I think about sort of the unified app experience is, first and foremost, it's really for the consumer. Right now, it's a little bit hard for the consumer. Disney+ is there. We've got the Hulu tile on right now. But a lot of people still kind of -- their habit is to go through Hulu or their habit is to go through ESPN.

The idea is ultimately make it super easy for the consumer. If I want news, if I want sports, any of those entertainment options, Disney+ is the portal in which you go in. What does that mean? I think it means that the ease of use will drive increased engagement. So we certainly would feel very positively about that. It will increase retention and reduce churn. And in addition to that, as we take it internationally even more assertively over time, I think it offers us the opportunity to add international subs in a substantive way because it does scale the business in effect and as a result, makes the offering much clearer for consumers.

What's the gating factor to that operational integration? Just customer experience?

More than anything, we just need to get the technology. It's getting the product right. So -- and we've been investing in that. And Adam Smith, who came over to us from Google has actually done a terrific job building out the product, but it is literally building a product.

So we're doing it the way you would do technology products traditionally. You put something out there and then you just steadily improve it over time. And that's really what that team is doing, and they're working double time to get it done.

Let's talk about content for a little bit. So it's interesting the path we've gone through on content spend in the media industry. And I remember, I think it was in 2021, kind of the peak content guide, which was over $30 billion. That was pre-strikes kind of post-COVID, maybe the peak of the gold rush.

I think this year, the guidance is for around $24 billion. So excluding sports, how do you just think about the right mix of total content spend, how you spread that across the studios since it is really the lifeblood of Disney?

Yes. So if you take our $24 billion, which is up about $1 billion year-over-year, it splits about half sports and then half the entertainment side of the business. And I think that mix is likely to hold reasonably well. If anything, entertainment may grow a little bit faster than sports.

As we think about where the growth will likely be in content, more than anything, I think you'll see us investing in local content that is very specific to certain markets. We've got a strategy around expanding internationally with individual markets that we find attractive, and we think we have the right to grow.

And if you think about it, we have rights to succeed from the perspective of Disney content, which travels globally and is well received, but we need to supplement that with local content to ensure that we keep engagement high and we keep retention high.

So the strategy is very much to do that. In terms of where we were a few years ago at the $30 billion, really, I think almost everyone was, in a lot of ways, overproducing at that time. And we've talked about the fact that we were -- and frankly, we weren't happy with some of the quality because we were pushing so hard to produce content.

I think we've got it dialed in pretty well right now. I think you'll see content expense continue to grow, but it will grow at a rate that's substantially slower than the revenue of the DTC business.

Just to go deeper on that, kind of dialed in on quality. I mean, Disney has such iconic studios with Disney, Pixar, Marvel, Lucas. How do you think about allocating capital even between those? Andor was probably my favorite show of the year so far, but each of those studios is kind of at a different point in its lifecycle.

Yes, it's an interesting question. Obviously, we go in with a point of view and strategically, we're touching different market segments. So we're obviously evaluating those market segments and allocating based on where we think the growth may be. But there's also an element to it of where are the best ideas coming from.

So as an old CFO, one of the things I've often said is money does not attract ideas and ideas attract money. So in a lot of ways with the storytelling we do, it's really where the best ideas come from and the judgment of our operating executives in the entertainment business to allocate the capital based on where they think we're likely to have the highest level of success.

And just lastly, on content. You have a big piece of content coming at the end of the year with Avatar. Just wondering if you've seen it yet.

I've seen pieces of it. I haven't seen the entire piece. It is absolutely spectacular. It also costs a lot of money to make, but it is absolutely spectacular. So we're certainly optimistic about the movie from the standpoint of being a repeat of what you've seen Jim Cameron do in the past. But as I said, those movies aren't -- they're not cheap.

At sports, so this is probably the most transitional year that ESPN has had maybe in a couple of decades, certainly in the last decade with the launch of the streaming app. It seems like it's off to a strong start. Can you talk about just how it's performed versus expectations and also the engagement trends that you're seeing in terms of some of that traction?

Yes. So it really is off to a very strong start. We're quite pleased with it. First, from the standpoint of the product itself because this is an enormous product launch for a brand that's obviously a superb brand. So really, when you do these things, first and foremost, you just want to make sure that you don't screw it up. You actually launch the product successfully and you don't have a lot of technical issues and things like that. And thankfully, we didn't see any of those things.

Second, in terms of the product features that we've put in, whether it's SportsCenter for you. And by the way, if you're a sportsman, in the app, on verts inside of the app, lower right-hand corner, check out SportsCenter for you. I wake up every morning. It's tailored to my teams. It's AI-driven, and it really gives me about a 5- or 6-minute snapshot of what happened last night.

If you love sports, I think it's an absolutely fantastic piece of product. But it's not just the SportsCenter for you piece. There is also game catch-ups. There are other highlights that are embedded inside. Really MultiView is another piece where you can actually sort of watch multiple games simultaneously or multiple versions of ESPN simultaneously.

So the product is really a significant advancement. It's not just taking ESPN's content and putting it on digital. It's adding lots of value. And then, of course, we have other things on in terms of fantasy, in terms of betting, in terms of merchandise opportunities. So it really is very much a digital product that's much more interactive than sort of watching through the traditional way that people have watched sports.

So product-wise, I feel very, very good about it. In terms of the numbers, they're off to a very, very good start as well. Importantly, about -- we're obviously interested in bundling as a part of this. And 80% of the people who are subscribing at retail are subscribing with a bundle.

So that obviously benefits ESPN, but it also benefits the rest of our DTC business and will drive engagement as well as retention. And then in terms of the people who are authenticating through their MVPDs or the vMVPDs, we're getting a pretty high rate pretty quickly of people authenticating and playing with the app and wanting to watch their sports through the app. So overall, very, very happy with the start.

So do you think about the revenue opportunity here as incremental in terms of the data you're seeing that these are largely incremental subs or incremental engagement? Do you think it's preventing the decline of linear? Or what does the early data show you about cannibalization of linear versus incrementality?

Yes. It's so early that it's hard to read. The objective we have here is to reach the sportsman how they want to be reached, so if they want to come in through an MVPD or a vMVPD, great. They can authenticate and they can engage with us that way.

If they want to have a direct but full access to ESPN, ESPN Unlimited is a terrific way to engage with us. And if they want more limited access, ESPN Select is a less expensive option and is also a terrific way to engage with us.

In terms of incrementality, it's a little early to say that. I think, though, over time, because now with this direct relationship with the consumer, we'll have the opportunity to monetize those relationships in newer and different ways. And we're obviously thinking about a lot of ideas on how we do that. So I'm optimistic it will be incremental to us over time.

And I think you said 80% are in the bundle. So is that a Trio bundle?

That's a Trio bundle.

Something like it. And what does that mean for just sports and DTC as a more combined?

Yes. I mean we know, generally speaking, bundling works really, really well, whether it's bundling that we've been doing inside of the DTC service before we launched ESPN. ESPN is just another value add inside of the bundle. So we are extremely optimistic about the level of retention that we're likely to get out of it, and we can already see the engagement numbers move up when people are in the bundle.

Just lastly on sports. So I think the NFL deal is pretty notable. I think you're the largest purchaser of NFL content. I think that they're your largest piece of content within the sports portfolio. And now we have this 10% stake in ESPN coming, which is the first time we've seen take ownership. So what does that deal mean for the company? What does it mean for the sports business longer term?

Yes. We think it's obviously a very positive thing, which is why we work so hard to get a good deal done for both parties. The NFL, obviously, is incredibly popular and has phenomenal followership and fandom.

In terms of the deal itself, there are a couple of elements to it, which we think will be really terrific for us. Number one, once the deal closes, we will take over the NFL network and all of the content that comes with the NFL network. And that's true both for the network itself, but also to bring the network into ESPN.

So opportunities to move content around that way. In addition to that, we'll be putting our 2 fantasy businesses together, which obviously offers us the opportunity to scale that. And in addition to that, to invest even more in services that will, I think, be very appealing to fantasy football fans.

And then in addition to that, it gives us the opportunity to distribute market and distribute RedZone which is obviously a super, super popular product. And I think from that perspective, we'll basically be able to create more relationships with fans using RedZone as a vehicle.

Separate from that, we do have a commercial agreement as well, and the commercial agreement gives us more games. So obviously, that's terrific. We now have more NFL games on ESPN than we've ever had in the almost 50-year history of ESPN.

And then from a financial perspective, when it closes, and that's probably about a year or a year and change or so, the deal will be about $0.05 accretive at the outset. So financially, feel great about it, strategically feel great about it. We think it's just another tailwind for ESPN.

And then finishing up our chat, just on capital allocation and free cash flow. So fiscal '26, $10 billion, including the CapEx guidance of $9 billion, but you have a lot of cash tax movement in fiscal '26, which I think implies underlying is an extremely strong growth year on the cash side. It's a question I've received from folks over the last week. So I would love for you to unpack the strength in the cash flow guidance.

Yes. So it obviously begins with strong earnings growth. So double-digit earnings growth, creates a significant amount of additional cash. In addition to that, we are getting some tax benefit as most other companies are. And as a result, we're able to drive significant cash flow growth across the company.

I do feel very optimistic about where we are from a cash flow perspective, and we're looking to continue to drive cash flow growth in the coming years. Disney really is a company that's capable of being a cash machine. And my expectation is that's exactly what we will be.

Cash machine. We can turn that into then capital allocation priorities. So $7 billion buyback, I think, is the guidance for this year, which is 2x give or take last year and the 50% dividend raise, which I think raised a lot of eyebrows. So would love for you to speak about those 2 things and also the context of additional investments. You did Epic Games last year. You took in the rest of Hulu. So maybe you can put all of that into context for us here.

Yes, happy to. I mean as we think about capital allocation, very simply, obviously, our first priority is to ensure that we're investing in the business to make sure that the business continues to thrive and grow and basically enable that earnings compounding that I was talking about earlier.

In addition to that, obviously, we're focused on paying and increasing the dividend over time, and in addition to that, to the degree that we see small opportunities for tuck-in acquisitions and things like that, that's something that we've always done. Epic is a good example of that. But even after all that, because we're generating such strong cash flow, we certainly feel good about our debt levels at the level they're at right now.

We're not -- we're a single A. We're not looking to go any higher than that. And we certainly don't want to sit on excess cash. So I think you'll see us continue to drive strong share repurchase into the future because we do have the ability to do it. And frankly, we do find that to be a good use of cash.

I'm a media analyst, first and foremost. Lately, I feel like I'm an M&A analyst second, and it's changing by the week. I think you got the question last week as to how Disney looks at kind of strategic mergers and acquisitions. Given that there is some real-time news flow around that, I would love for you to just make a final comment as well.

Yes, happy to talk about that as well. Look, part of my job and our job is to look at everything. So of course, we're going to look at everything. But that said, we're very, very happy with where the portfolio is right now.

A lot of the things that people are talking about doing with other media companies, Bob Iger and the team did at Disney a number of years ago, whether it was Pixar or Lucasfilms or the Fox acquisition. So we don't think we need to add additional IP into our portfolio.

And more broadly, we really don't see the need for major M&A. We're really very happy with the portfolio as it exists right now. So I guess we'll sort of watch what happens with everyone else, but we feel good about where we are.

Great. Hugh, I want to thank you for taking the time with us today.

All right. Thank you, Steve. Appreciate it. Thank you all.

Good day.and welcome to The Walt Disney Company Fourth Quarter 2025 Financial Results Conference Call. [Operator Instructions]

Please note that today's event is being recorded. I would now like to turn the conference over to Carlos Gomez, Executive Vice President, Treasurer and Head of Investor Relations. Please go ahead.

Good morning. It's my pleasure to welcome everyone to the Walt Disney Company's Fourth Quarter 2025 Earnings Call. Our press release, Form 10-K and management posted prepared remarks were issued earlier this morning and are available on our website at www.disney.com/investors. Today's call is being webcast, and a replay and transcript will be made available on our website after the call.

Before we begin, please take note of our cautionary statements regarding forward-looking statements on our Investor Relations website. Today's call may include forward-looking statements that we make pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, including regarding the company's future business plans, prospects and financial performance are not historical in nature and are based on management's assumptions regarding the future and are subject to risks and uncertainties, including, among other factors; economic, geopolitical, operating and industry conditions, competition, execution risks, the market for advertising, our future financial performance and legal and regulatory developments.

Refer to our Investor Relations website. The press release issued today and the risks and uncertainties described in our Form 10-K, subsequent Form 10-Qs and other filings with the SEC for more information concerning factors and risks that could cause results to differ from those in the forward-looking statements. A reconciliation of certain non-GAAP measures referred to on this call to the most comparable GAAP measures can be found on our Investor Relations website. Joining me this morning are Bob Iger, Disney's Chief Executive Officer; and Hugh Johnston, Senior Executive Vice President and Chief Financial Officer. Following introductory remarks from Bob, we will be happy to take your questions.

So with that, I will now turn the call over to Bob.

Thank you, Carlos, and good morning, everyone. This was another year of great progress as we strengthened the company by leveraging the value of our creative and brand assets and continue to make meaningful progress in our direct-to-consumer businesses, resulting in strong earnings growth for the company. Adjusted EPS for fiscal 2025 was up 19% from fiscal 2024. And over the past 3 fiscal years, we have delivered a 19% compound annual growth rate in adjusted EPS. Our strategy and portfolio of complementary businesses, coupled with a strong balance sheet, enable us to continue to grow adjusted EPS and free cash flow over time. For fiscal 2026, we expect to deliver double-digit adjusted EPS growth compared to the prior year. The expected growth in earnings and cash flow enable us to continue investing in our businesses and to increase our return of capital to shareholders. We are targeting $7 billion in share repurchases in 2026, double the $3.5 billion we repurchased in fiscal 2025. Also pleased to announce that the Board has declared a cash dividend of $1.50 per share, a 50% increase over $1 paid to shareholders in fiscal 2025.

Before we take your questions, I'd like to touch on a few highlights from the quarter. First, our film studios. The summer's box office once again demonstrated the global and cross-generational appeal of our storytelling and IP. To date, Disney's live action Lilo & Stitch remains the highest grossing Hollywood film at the global box office this calendar year, and its success has extended across our interconnected businesses and consumer touch points. The film achieved 14.3 million views during its first 5 days on Disney+, becoming the second biggest Disney live action premier on the platform ever. Retail sales for Stitch from our Consumer Products business also continues to grow, eclipsing $4 billion in fiscal 2025. The popularity of this global phenomenon underscores the franchise's enduring strength and the effectiveness of our strategy to invest in popular stories and characters. Over the past 2 years, our studios have delivered 4 global franchise hits that have earned more than $1 billion each. While no other Hollywood studio has achieved a single one during the same period.

Additionally, with the strong opening of Predator: Badlands, the biggest opening in the franchise's nearly 40-year history, the Walt Disney Studios has now crossed the $4 billion mark at the global box office for the fourth consecutive year. Heading into the holiday season, we're excited to bring audiences Zootopia 2 and Avatar: Fire and Ash. Looking ahead, next year's slate includes numerous highly anticipated titles, such as the Devil Wears Prada 2, the Mandalorian and Grogu, Toy Story 5, the live action Moana and Avengers Dooms Day. We saw a strong viewership of our television content in Q4, fueled by series such as Alien Earth, FX's biggest premier ever on Disney+ and Hulu, Season 2 of High Potential, the #1 original broadcast series across all platforms among adults 18 to 49. The Korean global hit Tempest and Season 34 of ABC's Dancing with the Stars, which made history as the only fall show to increase its overall audience for 6 straight weeks following a season premiere. Something that's never been achieved by any show since Nielsen began electronic measurement in 1991.

And we have more highly anticipated titles to come over the next few months including new seasons of Paradise, the Secret Lives of Modern Wives, Percy Jackson the Olympians, American Idol and the revival of the comedy Scrubs. We're also excited to bring viewers Taylor Swift's End of the Era Docuseries, as well as the concert film Taylor Swift, the Eros tour, the final show. In our Entertainment segment, our streaming business had another quarter of profit growth with operating income up 39% in Q4. For the full year, we hit $1.3 billion in operating income, up $1.2 billion from last year and $300 million ahead of our original guidance. That is a significant achievement when you consider that just 3 years ago, our DTC business was running a $4 billion operating loss. As we continue to build DTC into a core growth engine, we're rolling out a more unified app experience to better serve our consumers and unlock new value. In October, Hulu became our global general entertainment brand, and we continue to work to consolidate all of our entertainment content domestically within a single app, which will simplify the user experience highlight the full value of our bundles and unlock global marketing efforts. We're also expanding our international reach by investing strategically in our own originals and working with local studios to license content that brings more high-quality local storytelling to the platform. We're taking a disciplined approach to the markets we are prioritizing, and we have confidence in our long-term strategy.

Turning to Sports. We ushered in a new era with the launch of ESPN's full direct-to-consumer service and enhanced the ESPN app, making ESPN's full suite of networks and services available directly for the first time. We're thrilled by the response from fans so far, especially to the upgraded ESPN app, which now includes features such as MultiView, Sports Center for you catch up to live and tools like live game stats, bedding, fantasy sports and commerce integration. Viewership of our industry-leading portfolio of live sports also remains robust with ratings across ESPN networks, including ESPN on ABC, finishing the quarter up 25% over the prior year quarter. In our Experiences segment, we delivered record operating income for both Q4 and the full year with operating income up 13% for the fourth quarter compared to the prior year and up 8% for the full year. We're looking forward to 2 new cruise ships joining our fleet in the coming months. The Disney Destiny, which sets sail next week and the Disney Adventure, which will become our first ship homeported in Asia when it launches in March. This will bring our fleet to a total of 8 cruise ships.

And in the spring, we're excited to open a World of Frozen at Disneyland Paris. With expansion projects underway at every 1 of our theme parks five additional cruise ships scheduled for launch beyond fiscal '26 and a new theme park planned for Abu Dhabi, the strategic investments we are making now will help ensure our offerings remain best-in-class and appeal to audiences worldwide well into the future. Overall, this quarter caps another strong fiscal year for the company. We continue to execute across our strategic priorities as we build for the future deliver the very best in entertainment and create value to shareholders.

And with that, Hugh and I will be happy to take your questions.

Thanks, Bob. As we transition to Q&A, we ask that you please try to limit yourselves to 1 question in order to help get to as many analysts as possible today. And with that, Rocco, we are ready to take the first question.

Our first question today comes from Ben Swinburne at Morgan Stanley.

Thank you. Good morning. Bob, I think we've been talking about ESPN going direct-to-consumer for, I don't know, it feels like a decade or so now. And you've got the product in the market. I know it's not been a ton of time, but I'm wondering if you could share a little bit about what you've learned so far in terms of adoption, engagement anything interesting in terms of what kind of packages people are attracted to? And really the question is, does this product kind of change the outlook in any meaningful way for the business as you look out over the longer term? And I just want to ask you on the cash from operations guidance that you provided, With the $1.7 billion cash tax swing, if I sort of adjust for that, I'm getting kind of underlying growth of well over 20%. So is there anything else we should be thinking about? Maybe it's the One Big Beautiful Bill, tax benefits or anything else in the cash outlook that suggests such a strong cash flow year in 2026. .

Ben, I'll take the first part of your question. The ESPN launch has been a real success for a number of reasons. First of all, what we said about to do was to attract basically new users people who had either been subscribers to the multichannel linear bundle or people who had not but wanted to engage more with ESPN and we've done extremely well in that regard, signing up essentially new users. The other thing we wanted to do is we wanted to give people who wanted to stay in the multichannel linear bundle, a chance to use the app and to engage with us more deeply because the app is so many more features than the linear channels do. And the authentication rate of people who are already subscribers has been very, very encouraging. Third, we ended up signing up a substantial number of subscribers to the -- what we call the ultra product, or the Ultimate ESPN product, which is essentially mostly attracting cord nevers, people who want to engage with sports, but maybe they don't want to engage as deeply as those that get linear channels and those that have subscribed to the main app. So it's been very successful in that regard. .

We're encouraged that people have found all the new features and are using them, particularly the sports center for you and what we call Verts, which is essentially just vertical sports highlights. And the algorithm seems to be working as well. I know it's working for me where if you watch certain videos on ESPN and particularly if you click like, then your feed is populated by sports news and sports highlights that you are more interested in. So I guess in almost every way you look at it, it is working, it's also working for advertisers because obviously, there's real value in the data that we provide advertisers on the direct-to-consumer platform. And so we're attracting both more advertising and new advertisers to the service. And we look ahead, we believe that we've created a product that is very, very consumer friendly, very advertiser-friendly and actually works both for the traditional distribution ecosystem and for what I'll call the DTC ecosystem, if there is such a thing. So we're very, very encouraged. I think it's a very positive step for the future of ESPN because while nothing necessarily provides future proof concepts or circumstances for a business that is constantly changing, but this certainly is a step in the direction of solidifying ESPN's future going forward.

The last thing that I'll say is the great thing about the app is the incredible variety of sports that you can access on it. So where the linear channels provide obviously, live sports and studio programming, more along the lines of the traditional sports television. The new app uses a chance to engage with thousands and thousands more sports events over the year. And I think that's not only a sports fans delight. But I think overall, it's about as consumer-friendly as it gets.

Okay, Ben. Yes, and I'll take the question on cash flow. You're right. If you adjust for tax, we're up about 28% year-over-year. Because of the timing on tax payments, the reported number is closer to 7%, driven by a couple of things. #1, obviously, OI growth is quite strong. #2, we've been investing for a couple of years, and we've now sort of leveled off in terms of those levels of investment. That's something that we think you can look forward to in the out years, continued strong free cash flow growth from Disney, which obviously gives us a lot of flexibility in terms of the ability to return cash to shareholders, which was evidenced today by the doubling in the share repurchase and the 50% increase in the dividend. So we feel very good about the free cash flow growth going forward.

Next question, Carlos. Before we take the next question, Carlos, I just want to add something to the question that Ben Swinburne asked about ESPN. One of the things that we're also very encouraged by is the fact that of the subscribers that have signed up to the new app a substantial number of them, about 80% have signed up to what we call the trio bundle, which includes Disney+ and Hulu.

Our next question comes from Steven Cahall with Wells Fargo.

So just on content. You had a pretty strong last couple of years in general entertainment. Bob, you talked about some of the things like Alien Earth, FX that have done really well. As we look into this year for the studio, I mean it's big slate with Avatar and Moana, you're off to a little bit stronger or a softer start, I think, implied in the guide for the first quarter. So I was wondering if you could just talk a little bit about what kind of growth you think you can do at the studio this year or over the next couple of years? And then, Hugh, just a tactical one. Given the ongoing carriage dispute with UP, have you provisioned anything in the EPS guidance for a sustained blackout? Or is the economic impact actually more minimal because you think those folks would resubscribe elsewhere, including maybe the ESPN app.

Hugh, I'll take the first part of the question, Steven, thank you. We're very encouraged by the studio slate that is coming up. We have a premier of Zootopia 2 tonight. That is our Thanksgiving release. And then we finished the calendar year with Avatar: Fire and Ash. Obviously, we have very high hopes for that. If you look at the slate for the rest of the year, it's about as strong as it's been in a while, maybe stronger than it's been in a while, including the Mandalorian, Toy Story 5, live action Moana and then we're going to finish the calendar year with Avengers DoomsDay. So we are very bullish on the slide ahead. As we look at the slate well into '27 and into '28, we feel that we've got similar strength to the strength that I just described for fiscal and calendar year '26.

Obviously, not every film works. We know that. We've been around long enough to understand that. But if you look back at the year and you look at the fact that we've already crossed substantial global box office level. We feel that we had some real strength, $2 billion films in the fiscal year, the biggest film of the year fiscal 2025 and calendar 2025 to date, which was Lilo & Stitch, which also had tremendous, tremendous consumption when it went on the platform. So we feel good about the direction of the studio, both the current slate that's coming up and what it looks like in the future. .

Right. And Steven, just to add to Bob's comments. In terms of Q1, that's more about what we're overlapping rather than the slate for the year itself, Just the timing of the overlap, particularly with Avatar coming at the very end of Q1 is what's driving the guide that we shared with you all. As it relates to the discussions with YouTube, Obviously, I'm not going to comment much on ongoing negotiations that are live right now. The only thing I would say is, in terms of our guidance, we built a hedge into that with the expectation that these discussions could go for a little while. In terms of the dollar impacts, Keep in mind, there's 2 pieces to it. There's the piece that we're not getting paid for and then the piece that we're picking up by virtue of subscribers moving elsewhere. So -- but beyond that, I don't want to comment because it is a live negotiation right now.

Next question comes from Robert Fishman at MoffetNathanson.

Bob, as we think about Disney+ as a portal to all things Disney, can you talk about the future road map and how subscribers will be able to use Disney+ as a super app for not only Hulu and ESPN that you start to talk about, but also engage with your parks and other assets. And then Hugh, do you see a path ahead for sustained double-digit DTC revenue growth through a combination of subscriber engagement and advertising increases.

Thanks, Robert. First of all, regarding Disney+, we're in the midst of rolling out the biggest and the most significant changes from a product perspective, from a technology perspective, since we launched the service in 2019. And we're really encouraged because it's enabling greater personalization, resulting in a product that's just more dynamic, more engaging and it basically is working. And as I mentioned in my remarks, we've turned Hulu into a global general entertainment brand, which we think is going to create more awareness and basically create closer alignment with our U.S. product. So as we look ahead, these things are obviously all designed to create a one-app experience. But we also see, particularly with the deployment of AI, the opportunity to use Disney as you suggested, as a portal to all things, Disney, there's clearly an opportunity for commerce. There's an opportunity to use it as an engagement engine for people who want to go to our theme parks, want to stay at our hotels and want to enjoy our cruises, our cruise ships.

And obviously, there's a huge opportunity for games and the investment that we made and the agreement that we reached with Epic Games, while that will largely be on their platform gives us an opportunity to integrate a number of game like features into Disney+. The other thing that we're really excited about that AI is going to give us the ability to do is to provide users of Disney with a much more engaged experience, including the ability for them to create user-generated content and to consume user-generated content, mostly short form from others. So a lot going on. We're pleased that the progress that we've already made from a technology perspective. We've made some great hires by the way, in the last year in that regard, including Adam Smith, who's also brought in some real talent and the opportunity here, we think, is enormous in terms of increasing our engagement with Disney fans across the world.

Okay. And Robert, regarding your question on DTC, a couple of comments. Number one, obviously, we guided you to the double-digit margins as we've been talking about in the past and as was expected coming into the year. Number two, in no way are we going to get there through cost cutting. The way we're going to get there is through revenue growth and driving operating leverage through the business. We didn't give a specific revenue guide, but our objective and our aspiration is very much to be growing the top line of that business by double digits as we did on an apples-to-apples basis that's what we're looking to do going forward is to grow the top line double digits. And again, as a reminder, and as we've discussed in the past, getting beyond '26, we're certainly looking to gain margin in chunks, not in basis points as we think beyond '26 and into the future. We think this is a terrific business that's really going to be super strategic for the Walt Disney Company and is going to be a growth driver for us for many years to come.

Our next question today comes from Jessica Reif Ehrlich with Bank of America Securities.

I got a couple of things. One, you've grown content via both building and buying. And clearly, if we're going to see M&A and media in the coming year with a lot of moving pieces across the industry, some being just some companies being broken up. So I'm just wondering, do you see any role for Disney? And if not, any concern that you'll see a stronger competitor coming out of all of this? And then secondly, on advertising, could you maybe go a little bit under the covers. There are a lot of things going on in CTC and linear, both entertainment and sports. Could you give us some color on your outlook for fiscal '26?

Go ahead, Bob.

Sorry. Go ahead.

So Jessica, on M&A, a couple of things. Number one, obviously, we don't comment on M&A specifically. That said, with what's happening in the industry right now, Bob and the team really built the IP portfolio that we have over the last decade, whether it was the Fox acquisition or Lucas or Pixar So we actually feel like we've got a great portfolio, and we don't need to do anything. From that perspective, I think we'll let this play out. In terms of other competitors, we'll see how the various moves play out. But we like the hand that we have right now. So I wouldn't expect us to participate in making any significant moves. As it relates to the advertising side, what you saw for the year for us last year was advertising grew 5%. Sports was particularly strong. DTC obviously has had supply coming into the market. That said, we did see CPMs improve at Disney over the last 2 quarters. So we feel like that's trending in the right direction. And then from a linear perspective, obviously, that's driven by what happens with subscribers. Going forward, we do expect advertising growth going into "26 as well. despite the fact that we're overlapping political advertising in the first quarter of '26. So.

Our next question comes from Michael Morris at Guggenheim.

I wanted to ask you first on the Experiences business. Can you talk a little bit more about the drivers of the segment into fiscal '26, in the context of that high single-digit operating income growth that you guided to? So how are demand currently trending? And how much of the guided growth comes from revenue as opposed to margin expansion in the coming year? And if I could ask 1 on the sports side. You talked about some of the content-driven cost pressure in the second and third quarters of the year. I would assume that comes from the NBA investment. Can you talk a bit about how the NBA investment is positive for you and will drive your growth over time?

Okay. Yes. Happy to jump in on both of those. In terms of the Experiences business and drivers for '26. Obviously, we've made big investments in cruise and we're expecting cruise to be a meaningful contributor to growth of experiences during the course of the year, particularly in the second half as we get past the launch costs and some of the dry docks that we have in the first half of the year. Number two, obviously, we're always going to have a combination of some pricing and some attendance growth. So certainly feel positive about that. And then obviously, with the slate that we have coming on the film side, consumer products ought to be a meaningful contributor as well. As far as sports goes from the perspective of the NBA because of the timing of the rights cost, it does create a little bit of bumpiness during the course of the year. Again, the latter half is where we'll really see material growth in ESPN. And then in terms of NBA being a contributor, the NBA is obviously a phenomenal property. We were fortunate enough to get out in front of that and create an attractive deal both for the NBA and for ourselves. It obviously, like a lot of other live sports attracts audience. And in the case of the NBA like the NFL, attracts scale audience. which obviously is super attractive to advertisers and therefore is strategically beneficial to us as well.

If I could follow up. Can you share anything about what you're seeing on the demand side currently domestically for the parks in terms of advanced bookings or per caps?

Yes, yes. Sorry, I forgot to answer that portion of your question. Bookings are up 3% in the first quarter. So we feel good about that, and they're also up for the year. So feel good about where demand is ramping.

And our next question comes from Kannan Venkateshwar with Barclays.

Bob, any interest from you on becoming a broader bundler of streaming. You already have ESPN and Disney+ and Hulu bundle. And of course, you also have the FOX One. And it feels like there's an opportunity here for Disney to maybe emerge as a new form of bundler, which nobody in the industry appears to have attempted yet. So any thoughts on that would be great. And then just to understand the impact of ESPN bundling on Disney+ and Hulu a little bit better. Anything you can share with respect to maybe the churn benefits or any kind of subscriber acquisition cost tailwinds that you saw in the quarter? What do you expect going forward potentially from that?

So I'll answer both parts of your question. First of all, as it relates specifically to ESPN bundling, what we found is that subscribers that bundle, either the bundle Disney+ and Hulu or subscribers that bundle Disney+, Hulu and ESPN are healthier subscribers in the sense that the churn rates are lower than the subscriber that only subscribe to 1 app. So I mentioned earlier the fact that about 80% of all the subscribers to the new ESPN service are actually buying the Trio or the triple bundle. That's a very positive sign for us. in terms of lowering churn into the future. We've also found that bundling with others, for instance, we've been bundling with MAX in the United States, also has a lower -- an effect of lowering churn. And we've expressed the desire to do more bundling with other companies and have been in discussions on and off with other companies about doing just that. So typically, the opportunity to bundle definitely exit and to bundle more exists. And we also have proven that it works both for us in terms of our subscribers and also for the subscribers that we attract for the bundling entity. If you were to ask the folks at Warner Bros. Discovery about the impact of the MAX bundle on them, they would tell you that they've signed up a substantial number of subscribers thanks to the bundle with us.

Our next question today comes from John Hodulik with UBS.

A quick follow-up on the parks business and then a question on cruises. It looks like domestic parks attendance was a little light in the fourth quarter. Hugh, is that driven by sort of competition, macro? Or are there any other factors that may have accounted for that? And then, on the cruise side, just comment on overall demand for the crude business. And if you could you remind us how do the margins improve as compared to overall margins in the parks business? And what should be the impact on that segment as that business grows as fast as it's slated to over the next several years?

In terms of the demand, demand was -- I wouldn't characterize it as light. It basically came in, in line with our expectations. We've talked about Epic in the past, in particular, is something that we knew was going to be a factor in domestic parks and in fact, was very much in line with our expectations. If anything, it seems to be, in fact, impacting the rest of the competition down in Florida, more that it's impacting us. From a consumer perspective, we certainly feel good about it. In terms of demand for cruise, very, very strong despite the fact that we've added as much capacity as we have. Our utilization rates are in line with what we've seen in the past. So we're filling all of that capacity as quickly as we can add it. Regarding margins, we don't really talk about specifics on cruise margins. That's not a disclosed item. But obviously, it's a very attractive business. we're capable of pricing at a good level. The guest satisfaction scores are higher than basically anything else in the company. So the margins in that business, as you would imagine, are quite attractive.

Our next question today comes from Kutgun Maral with Evercore ISI.

Two, if I could. First on direct-to-consumer. I was hoping you could share some of the puts and takes on the cost side in 2026, especially as you continue to invest in technology and programming. But I didn't know if there is some maybe cost savings associated with integrating the tech stack, for example, that we should be mindful of. And then Hugh, just a housekeeping one, if I could, around the 53rd week thank you for providing a clean guidance for the year on an underlying basis. With that, can you help quantify the impact of the extra week to this year? And as we look to fiscal would the expectation be that you could grow EPS double digits again, even without adjusting for the 53rd week comp.

Yes. First on DTC. It's really consistent with what we've talked about in the past. So we expect to grow revenue at an attractive rate. As I mentioned earlier in the call, our aspiration is to be double digits in that business. In terms of then the line items underneath, we'll obviously continue to invest at a reasonable level in content, leaning a bit more towards the international side as we identify opportunities in specific markets to grow the international business where we have a big opportunity. In addition to that, we'll be investing in product. So the technology area will get some level of investment as well. And obviously, as we put the 2 businesses together, there's opportunities to do a bit of savings on SG&A. That said, I would expect P&L leverage. In other words, expenses growing less quickly than revenue across all of those items, which is how we drive the margin growth that we would expect to see. In terms of the 53rd week, again, I would expect us to figure out as we get to Q4, what the 53rd week is worth. And then as we determine that as we have in the past 2 times, we've had the 53rd week, we would share something on that with investors, and we'd look to grow double digits off of that.

Operator, we have time for 1 more question.

And our final question today comes from David Karnovsky with JPMorgan.

Bob, you noted generative AI earlier, but it sounded primarily as a use case within your apps, and I'm wondering how you view the opportunity or risk to license out content or IP to some of the emerging video creation platforms? And then just relatedly, as it pertains to production costs over time, what role do you see for generative AI to drive cost efficiencies in the business.

Good question. We've been in some interesting conversations with some of the AI companies, and I would characterize some of them as quite productive conversations as well. seeking to not only protect value of our IP and of our creative engines but also to seek opportunities for us to use their technology to create more engagement with consumers. And we feel encouraged by some of the discussions that we're having. It's obviously imperative for us to protect our IP using -- or with this new technology. And we've been pretty engaged on that subject with a number of entities and hopeful that ultimately, we'll be able to reach some agreement or the industry or the company has on its own with some of these entities that would, in fact, reflect our need to protect the IP. We also -- as we look ahead, we see opportunities in terms of efficiency and effectiveness by deploying AI, not just in the production process, but really across our company as we engage with our cast members and our employees, but also our guests and our customers.

There are opportunities, as Hugh talked about earlier, about what I'll call the office and creating efficiency there. There are great opportunities in terms of our collection of data and our mining of data. And I'd say above all else, there's phenomenal opportunities to deploy AI across our direct-to-consumer platforms. both to provide tools that make the platforms more dynamic and more sticky with consumers, but also to give consumers the opportunity to create on our platforms. I also -- before we end the call, Carlos, I just want to say 1 thing because I know there was reference to where we are with YouTube. And I just want to end the call because we've been so engaged in this over the last few weeks, by kind of giving an overall summary of just where things stand.

First of all, obviously, we care deeply about our consumer. And our priority has always been to remain on their service without interruption to close a deal on a timely basis so that interruption does not occur. The deal that we have proposed is equal to or better than what other large distributors have already agreed to. So we're not trying to really break any new ground. And while we've been working tirelessly to close this deal and restore our to the platform, it's also imperative that we make sure that we agree to a deal that reflects the value that we deliver, which both YouTube, by the way, and Alphabet, have told us is greater than the value of any other provider. So we're not trying to break new ground. The offer that's on the table is commensurate with deals that we've already struck with actually distributors that are larger than they are. We're trying really hard, as I said, working tirelessly to close this deal, and we're hopeful that we'll be able to do so on a timely enough basis to at least give consumers the opportunity to access our content over their platform.

Thanks, Bob, and thanks to everyone for your questions. We wish you all a good day.

Thank you. That concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.