Good day, and thank you for standing by. Welcome to The Walt Disney Company's Second Quarter 2021 Financial Results Conference call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Lowell Singer, Senior Vice President of Investor Relations. Please go ahead.

Good afternoon, and welcome to The Walt Disney Company's second quarter 2021 earnings call. Our press release was issued about 25 minutes ago and is available on our website at www.disney.com/investors. Today's call is also being webcast and a transcript will be available on our website. We are once again hosting today’s call remotely. So joining me remotely are Bob Chapek, Disney's Chief Executive Officer; and Christine McCarthy, Senior Executive Vice President and Chief Financial Officer. Following comments from Bob and Christine, we'll be happy to take your questions. So with that, let me turn the call over to Bob, and we will get started.

Thanks, Lowell, and good afternoon, everyone. It's been a busy few months and we've been pleased to see more encouraging signs of recovery across our company. We ended the second fiscal quarter with adjusted EPS of 32% to $0.79, compared to $0.60 last year. And since then, we've continued to make progress across our businesses as we remain laser-focused on our ongoing recovery, while also fueling long-term growth. Our strategic focus continues in three key areas. First is direct-to-consumer. We successfully launched our streaming offerings, Disney+ and Star, in a number of markets internationally. And we've been pleased with the growth and engagement in those markets to date. Our steady cadence of new high-quality branded content, along with our robust collection of library titles, allows us to continually attract new subscribers and retain existing ones. At the same time, we are also closely monitoring the recovery of theatrical exhibition, as consumers begin to return to theatres, and I'll talk more about the specifics later. Finally, we are focused on the ongoing recovery of our parks business and the resumption of Disney Cruise Line. There have been some encouraging developments in recent months, particularly with the ongoing rollout of the vaccine and the gradual lifting of government mandated restrictions. And through this time, we've taken advantage of the opportunity to make improvements to our operating procedures to enhance the guest experience through the use of technology innovations, new ticketing strategies, and other offerings. We are especially excited that after being closed for 412 days, we welcomed our first guests back to Disneyland two weeks ago and the response has been overwhelmingly positive. Bob and I stood on Main Street USA on opening day, and it was so wonderful to see the joy on our cast and guests' faces and feel the excitement in the air. It's been fantastic to see cast members back at work. Most recently at Disneyland, we were able to quickly recall more than 10,000 furloughed cast and retrain them to be able to operate to the State of California's new health and safety requirements. We continue to see strong growing demand from consumers as we are at or near our reduced capacity levels at both Walt Disney World and Disneyland for the current quarter. It's clear our guests are excited to get back to experiencing the magic of Disney and they also have extraordinary confidence in our safety protocols. At Shanghai Disney Resort, where they just kicked off their year-long 5th anniversary celebration, the park is operating at or above FY 2019 levels. We're also encouraged by what we're seeing at Hong Kong Disneyland, and we are hopeful we will be able to announce a reopening date for Disneyland Paris soon. Despite the pandemic, we continue to make progress on a number of highly anticipated projects at our parks around the world, including the all new Avengers Campus, which is set to open at Disney California Adventure on June 4. I had a chance to visit recently and the attractions and multiple state-of-the-art experiences are truly phenomenal. We recently unveiled our newest cruise ship, the Disney Wish to the public with a virtual live stream presentation that has been viewed nearly 1.2 million times. The ship is amazing and it includes the AquaMouse water ride, the first-ever Disney attraction at sea. The Disney Wish will set sail on its maiden voyage in 2022 and bookings open to the general public on May 27. On the studio side, we are pleased to be nearing full production levels, and we are also significantly ramping up content creation at our studios consistent with the guidance we provided at Investor Day. An example of this is 20th Century and Searchlight Pictures, where they are gradually increasing output and will reach a steady state of 15 and 20 films, respectively, to fuel our general entertainment offerings across all of our distribution platforms. We're incredibly proud that Searchlight's Nomadland took home Oscars for best actress, best director, with Chloé Zhao becoming the first woman of color to win the award and best picture. That's five best picture wins since 2009 and 43 Academy Awards in total. Additionally, Pixar's stellar record of award-winning films continues with the Studio's animated masterpiece, Soul, which took home Oscars for Best Animated Feature and Best Original Score. And I'm happy to say that now millions are able to enjoy Soul on Disney+ and Nomadland on Hulu. As we have consistently stated, flexibility is a key component of our distribution strategy. And we have outlined three approaches for distributing our films. Releases in theatres with a simultaneous offering via Disney+ Premier Access releases straight to Disney+ and traditional exclusive theatrical releases. Here's how this translates to our tremendous upcoming film slate. Cruella will be released in theatres and via Disney+ Premier Access on May 28, followed by Pixar's Luca, which will be released exclusively at Disney+ on June 18. The highly anticipated Black Widow will be in theatres and on Disney+ via Premier Access on July 9, and Disney's Jungle Cruise, filled with hilarious adventures, will be available in theatres and on Disney+ via Premier Access on July 30. I'm pleased to announce today that amidst recent signs of increased consumer confidence in moviegoing; two films, 20th Century's exciting comedy, Free Guy; and Marvel's action-adventure, Shang-Chi and the Legend of the Ten Rings, will be released with a 45-day exclusive theatrical window on August 13 and September 3, respectively. And of course, regardless of where they originate, all of our films and episodic series will end up as part of the robust library of content on our direct-to-consumer platforms. Like our films, our Disney+ original series have become must-watch events. Starting with the success of The Mandalorian followed by Marvel's WandaVision and The Falcon and the Winter Soldier. These not only became immediate hits but part of the cultural zeitgeist. And the anticipation for Marvel's newest series, Loki, which debuts on June 9 has been through the roof. The second season of High School Musical, The Musical, The Series, the all-new The Mysterious Benedict Society based on the popular young adult book series, and the animated series Monsters at Work are also coming to Disney+ in the next couple of months, just to name a few. We are uniquely positioned with the most compelling brands and franchises in entertainment. And we continue to deliver the high-quality, one-of-a-kind content that consumers want. That's clearly reflected in the success of Disney+, which amassed nearly 104 million paid subscribers as of the end of the second fiscal quarter. We are on track to achieve our guidance of 230 million to 260 million subscribers by the end of fiscal 2024. Looking at our entire portfolio of streaming services, we expect that as full production levels resume and we get to a more normalized cycle, the increased output will help fuel additional subscriber growth across Disney+, ESPN+, Hulu and Hotstar. Hulu and ESPN+ had 41.6 million and 13.8 million paid subscribers, respectively, at the end of the quarter. On Hulu, buzz-worthy content continues to boost performance, including the award-winning Hulu original film, the United States vs. Billie Holiday, and Season 4 of The Handmaid's Tale, which premiered to the biggest audience ever for a Hulu original. And there's lots more coming to Hulu, including Marvel's new animated series, M.O.D.O.K.; Season 2 of the hit series, Love, Victor; and Season 10 of the wildly popular anthology, American Horror Story on FX on Hulu. In March, we launched ESPN+ on Hulu and we are very pleased with its early progress. Viewers who subscribe to both Hulu and ESPN+ can watch and engage with the great content available on ESPN+ without leaving the Hulu environment. ESPN+ programming includes thousands of live sporting events, original shows, series, and documentaries with the UFC lightweight Championship airing live on ESPN+ pay-per-view on May 15. The final match of the FA Cup also on May 15, followed by the PGA Championship, Wimbledon, and the highly anticipated third UFC matchup between Dustin Poirier and Conor McGregor on pay-per-view, July 10. Not to mention the incredible additions to our lineup, including NHL and more college football in the fall. Live sports are a very important component of our content business. And even amidst the challenges of the past year, we have continued to build our unrivaled portfolio of sports rights in a disciplined way. While our overall strategy is still very supportive of our linear business, given the important economic value addressed for the company, we're also building out our ESPN+ direct-to-consumer offering and with every deal we make, we are considering both the linear and DTC components. With this strategy in mind, we've reached a number of long-term accretive deals that each play a very specific role as part of our sports portfolio. Some are weighted more towards linear with a significant digital component, such as the NFL and SEC deals, others reflecting an emphasis on direct-to-consumer. These include agreements with the UFC, the PGA Tour, Bundesliga, and the NHL. For example, as part of a 7-year rights deal with the NHL, 75 of the league's live National Games will be available exclusively on ESPN+ and Hulu. And ESPN+ will be the sole home for more than 1,000 out of market NHL games, further establishing the service as a must-have for hockey fans. And today, I'm excited to announce two additional sports rights deals. We've reached a renewal deal through 2028 with Major League Baseball with 30 exclusive regular season games, which include 25 Sunday night baseball games and opening night annually. Coverage of the highly anticipated potential expanded Wild Card Series and the option to simulcast all live MLB coverage from ESPN networks on ESPN+. We've also signed a historic rights agreement with the top division in Spanish club football, La Liga. La Liga is one of the world's best and most popular soccer leagues, including a number of the top clubs in the world, and one of the best players in the world, Lionel Messi. This 8-year deal, covering both English and Spanish language rights, brings 380 La Liga matches and a host of La Liga two matches per season to ESPN+, beginning in August. This deal bolsters ESPN+'s position as a top destination for soccer in the U.S., offering fans more than 2,900 matches per season. When you combine the unparalleled assets of the Walt Disney Company, ESPN, ESPN+, ABC, and Hulu, plus our highly engaging digital and social content, it's clear that Disney is the absolute leader when it comes to serving our sports fans in the most effective way possible. We believe in the power of live sports and are confident our multi-platform rights deals we've made will provide us tremendous value now and into the future. Overall, we are pleased with the encouraging signs of recovery across our businesses, and we are confident we continue to move in the right direction for our future growth. And with that, I'll now turn it over to Christine and she'll talk more in depth about our results for the quarter.

Thank you, Bob, and good afternoon, everyone. Excluding certain items, diluted earnings per share for the second fiscal quarter increased 32% versus the prior year to $0.79 per share. We are beginning to see progress in many of our businesses after more than a year of adverse impacts from the pandemic. While we are not out of the woods yet, we are pleased with our results this quarter at both our DMED and DPEP businesses. I will walk through our results by segments, starting with Media and Entertainment Distribution. Operating income at the segment increased by 74% in the second quarter versus the prior year, due to higher results across all of the segments lines of business. At Linear Networks, the increase was driven by growth at both our domestic and international channels. At domestic channels, both cable and broadcasting operating income increased versus the prior year. Higher results at cable were driven by lower programming and production costs and higher affiliate revenue partially offset by lower advertising revenue. ESPN's results were in line with the guidance we gave last quarter, and ESPN was the most significant contributor to cable's growth this quarter. The decrease in programming and production costs was largely due to the timing of the College Football Playoffs. As we mentioned last quarter, fiscal Q2 included only one CFP Bowl game, the National Championship compared to four in the prior year quarter, three CFP Bowl games and the national championship game. Cable programming and production costs also benefited in the quarter from lower production costs for other live sporting events and lower programming costs at Freeform. Lower advertising revenue at cable was primarily due to lower average viewership. At ESPN, domestic advertising revenue decreased significantly in the quarter driven by lower ratings for key programming, in addition to the timing of the College Football Playoffs. Quarter to date, domestic advertising revenue at ESPN is currently pacing up significantly versus last year, benefiting from the prior year's lack of significant live sports programming due to COVID. At broadcasting, higher results were driven by growth at ABC, partially offset by a decrease at the owned television stations. At ABC, lower programming and production costs and higher affiliate revenue were partially offset by lower advertising revenue. Programming and production costs were impacted by the shift in timing of the Academy Awards, which took place in the third quarter this year compared to the second quarter last year. Lower advertising revenue was primarily driven by lower average viewership and the timing of the Academy Awards partially offset by higher rates. On our Q1 earnings call, we said we expected the Academy Awards timing shift and lower political advertising at our own stations would negatively impact broadcasting results in the second quarter versus the prior year. While we did see those specific adverse impacts play out, overall broadcasting results were higher than we expected, driven by lower marketing spend due to timing shifts of some new series, in addition to a number of other smaller factors. Total domestic affiliate revenue increased 5% in the quarter. This was driven by a benefit of 8 points of growth from higher rates, offset by a 4-point decline due to a decrease in subscribers. Operating results at international channels increased due to a decrease in programming and production costs and an increase in advertising revenue, partially offset by lower affiliate revenue. Lower programming and production costs in the second quarter were driven by a higher percentage of content cost being allocated to our DTC business rather than our networks business as we continue the international expansion of Disney+ and Star, in addition to channel closures over the past year. Advertising revenue increased primarily due to the timing of BCCI cricket matches, which generally take place in the first quarter, but were in the second quarter this year due to COVID-related timing shifts. Lower affiliate revenue at our international channels was due to channel closures as well as an unfavorable foreign currency impact. At our direct-to-consumer businesses, operating results in the quarter improved by over $500 million versus the prior year due to stronger results at Hulu and ESPN+. The increase at Hulu was due to subscriber revenue growth and higher advertising revenue, partially offset by higher programming and production costs related to the Hulu Live TV service. Hulu ended the second quarter with 41.6 million paid subscribers, up from 39.4 million in Q1, inclusive of the Hulu Live digital MVPD service. Paid subscribers to Hulu Live declined modestly to 3.8 million from 4 million at the end of Q1, which we attribute primarily to the $10 price increase we took in December, in addition to a modest impact from seasonality. At ESPN+, improved year-over-year results were driven by subscriber growth and an increase from UFC pay-per-view events. ESPN+ had 13.8 million paid subscribers as of the end of the quarter. At Disney+, results were comparable to the prior year quarter, as an increase in subscribers was largely offset by higher content, marketing, and technology costs. As Bob mentioned earlier, we had almost 104 million Disney+ paid subscribers at the end of the second quarter. At our Annual Meeting, we announced we have reached 100 million global paid subscribers. We reached that milestone in early March. So we added subscribers at a faster pace in the last month of the second quarter than we did in the first 2 months. And that was despite no major market launches, a price increase in EMEA and a domestic price increase towards the end of the quarter. We attribute this success to the strength of our overall content slate. The launch of the Star general entertainment offering in many markets and the continued growth of Disney+ Hotstar. Between Q1 and Q2, Disney+ Hotstar was the strongest contributor to net subscriber additions, making up approximately a third of the total Disney+ subscriber base as of the end of the second quarter. However, ARPU at Disney+ Hotstar was down significantly versus the first quarter due to lower advertising revenue as a result of the timing of IPL cricket matches and the impact of COVID in India. As a reminder, the majority of the prior IPL tournament took place in fiscal Q1 and there were no games in Q2. The current IPL tournament began on April 9, in fiscal Q3, and was suspended last week, given the COVID situation in India. Disney+'s overall ARPU this quarter was $3.99. Excluding Disney+ Hotstar, it was $5.61. As we move through the remainder of the year, we should start to see the benefit on Disney+ ARPU from price increases we've taken around the world. Last quarter, we guided to second quarter direct-to-consumer operating income improving modestly versus the prior year. Actual results came in significantly better versus the prior year, due to Hulu advertising sales upside, lower content and marketing expense at Hulu and Disney+ and better-than-expected ESPN+ pay-per-view results. Content sales licensing and other operating income at DMED increased in the second quarter versus the prior year due to higher TV SVOD results and lower content impairments, partially offset by lower home entertainment results. Higher TV SVOD results were primarily due to an increase in income from sales of episodic content, driven by sales of more profitable programs in the current period and lower write-offs. This was partially offset by a decrease in sales of film content. The decrease in home entertainment results was driven by the absence of significant title releases in Q2. Moving on to our Parks Experiences and Products segment. DPEP's operating income in the second quarter decreased by $1.2 billion year-over-year as growth at consumer products was more than offset by lower results at Parks and Experiences due to the impacts of COVID-19. Our consumer products growth and operating income was due to increases at our merchandising games licensing businesses. The Parks and Experiences results were again adversely affected by COVID-19 related closures and reduced operating capacities versus the prior year. Disneyland Resort, Disneyland Paris and our Cruise business were closed for all of the second quarter, whereas these businesses closed in mid-March of the prior year quarter. Hong Kong Disneyland Resort was opened for approximately 30 days during the second quarter, compared to approximately 25 days in the prior year quarter. Walt Disney World Resort and Shanghai Disney Resort were both open for all of Q2. In the prior year quarter, Disney World closed in mid-March and Shanghai closed in late January. Our parks and resorts that were opened during the quarter operated at significantly reduced capacities yet all achieved the objective of a net positive contribution, meaning that revenue exceeded the variable costs associated with opening. At Walt Disney World, attendance trends continued to steadily improve throughout the second quarter, and guest spending per capita again grew by double digits versus the prior year. Disneyland Resort reopened on April 30, and as Bob mentioned earlier, we are very encouraged by the initial guest response. Forward-looking bookings for park reservations at both of our domestic parks are strong, demonstrating the strength of our brands as well as growing travel optimism as case counts decline, vaccine distribution ramps, and government restrictions loosen. Looking ahead, there are a couple of items I would like to mention. At Linear Networks, we expect a significant decline in operating income year-over-year in the third quarter, largely due to higher sports programming and production costs at ESPN, which we expect to increase by $1.2 billion versus the prior year. This year's Q3 includes marquee events, such as the NBA, Major League Baseball, The Masters, Wimbledon, and the European Football Championship, which compares to Q3 of last year during which we had a limited slate of events due to COVID. At our direct-to-consumer business, we now plan to launch Star Plus, our standalone general entertainment and sports streaming service for Latin America on August 31. Moving the launch to late summer allows us to leverage a strong sports calendar, which includes the return of European soccer leagues, including La Liga, and the Premier League. Championship games for the Copa Libertadores, the prominent regional international soccer competition, along with Grand Slam tennis. As Bob mentioned earlier, we remain right on track to reach our fiscal 2024 guidance of 230 million to 260 million subs, powered by the addition of 30 million paid Disney+ subs in the first half of the year. And notwithstanding our expectation for fewer net sub adds in the second half of the year, given the COVID related suspension of the IPL season, and our decision to move the Star Plus Latin America launch to the fourth quarter. We remain very optimistic about our future. And with that, I'll now turn the call back over to Lowell, and we would be happy to take your questions.

Okay. Thanks, Christine. And as we transition to the Q&A, let me note once again that since we are not all physically together this afternoon, I will do my best to moderate by directing your questions to the appropriate executive. And with that, operator, we are ready for the first question.

Thank you. Our first question comes from Ben Swinburne with Morgan Stanley. Your line is open.

Thank you. Good afternoon. To start on the direct-to-consumer side, Bob, could you discuss how the price increases have performed compared to your expectations, both internationally with Star and in the U.S.? I'm also interested in the impact on churn and how that might influence your pricing decisions moving forward. Additionally, I wanted to ask about the approximately $700 million in free cash flow generated this quarter. We don’t usually focus too much on quarterly free cash flow, but it’s been a while since we've seen this. Christine, do you believe we are now back in a position to be free cash flow positive moving forward and expect to generate free cash flow for the year? Thank you both.

All right. Of course, these were our first price increase since we launched. I have to say that we're extremely pleased with how the market reacted to both. In the U.S., we've not observed any significantly higher churn rate since the price increased in EMEA. As we added Star as a sixth brand title, we've actually seen an improvement in our churn rate. So we seem to be fairly resilient to those price increases. And as such, I think it makes us feel relatively bullish going forward that we still offer a tremendous price-value relationship across the world for Disney+.

Hi, Ben, and thanks for the free cash flow question. We don't usually get those. But I would like to comment on it because it's something that we're tracking not only this year versus last year, we look at it actually weekly. But I'm also looking at it versus fiscal 2019, which I consider a more normalized year. I would say that the upside that we're really seeing and we're quite pleased with it is since we've reopened Walt Disney World, and we really don't have the impact of Disneyland yet, but we're seeing, as I mentioned, a strong per-cap growth in the parks that's flowing through the parks' cash numbers, and we're also seeing good strong cash flow from our direct-to-consumer businesses. So those two elements are kind of upside to what we had planned for. And I would also say that there's some choppiness year-over-year, because of some of the shifts and sports rights expense timing from last year to this year. But we expect that to be more normalized this year as we get through the year. But we're looking at a more favorable free cash flow than we did when we started off the year.

Thanks a lot.

Ben, thank you. Operator, next question please.

Our next question comes from Alexia Quadrani with JPMorgan. Your line is open.

Thank you. I have a question about Disney+ subscriber growth and another about the parks. How should we approach projections for Disney+ subscriber growth moving forward? You've provided valuable insights on the growth we've experienced so far, but I'm curious about what you consider the key factors that could influence a surge or decline until we reach your long-term goal. Are certain content releases significant in this regard? Are you planning to expand into Eastern Europe or other Asian markets? What do you identify as the main factors driving subscriber growth? Additionally, regarding the parks, could you share your thoughts on when it might be appropriate to start increasing attendance capacity, particularly at Walt Disney World?

Yes, I'll take them both. So on the first one, in terms of the drivers for sub growth going forward, we really see four different elements. First of all, is our content slate. As you know, we're spending a lot of money across our variety of franchises in order to create the content that's going to keep consumers coming back and keep not only our sub number growing but also our engagement growing across all of our platforms. So the first one is content slate. The second one is our general entertainment international growth driven by our Star brand. And we think that's going to continue to fuel growth for international territories as well as Disney+. The third one is continued market expansion in markets where Disney+ has not yet been launched. And as you see, we're announcing in Malaysia today as June 1, and Thailand as June 30. So market expansion will continue to be a piece of it. But one thing that continues to impress us is the opportunity to have the bundle in the U.S. be even larger. All the metrics that we see, all the performance factors are extraordinarily positive for that. So I would say those are the four components that continue to drive us and our bullishness in terms of our ability to continue to project that we're going to hit between 230 million and 260 million subs by the end of 2024. In terms of the parks, and when we're going to sort of be able to raise our capacity limits, we've actually already started that, given the guidance that just came today from the CDC, and earlier guidance that we got from the Governor of Florida, we've already started to increase our capacities. Those - obviously, today's guidance that we got from the CDC in terms of those that were vaccinated do not necessarily need to wear masks anymore, both outdoors and indoors, is very big news for us. Particularly, if anybody's been in Florida in the middle of summer with a mask on, that could be quite daunting. So we think that's going to make for an even more pleasant experience. And we believe that as we're now bringing back a lot of people back to work, that it's going to be an even bigger catalyst for growth in attendance. And we've been quite pleased to date. So I think you're going to see an immediate increase in the number of folks that were able to admit into our parks through our reservation systems that we recently implemented. So we're very, very excited about that.

Thank you.

Thank you. Our next question comes from Michael Nathanson with MoffettNathanson. Your line is open.

Thanks. Well, I have two. One is on the gross addition side of Disney+. We heard from Netflix that may have been a pull forward and maybe perhaps the reopening is impacting gross additions. Can you talk a bit about what you're seeing in some of the more mature or, I guess, developed markets on the gross addition side? And then you guys have consistently beat us OI profits, or lack of losses, I'd say, on DTC. Which of the platforms is providing the biggest surprise? And does it make you rethink maybe some of the guidance you gave around breakeven, given how strong the year has been so far on limitation of losses? Thanks.

Sure, I'll handle the first question. We've observed growth in all our regions. When comparing mature markets to new ones, every market we've launched has surpassed our expectations thus far. In our mature markets, we added 30 million households in the first half of the fiscal year, which aligns with our projections, and our domestic market continues to support this growth. The addition of Marvel content has been particularly strong, and we anticipate substantial growth with the upcoming launch of Loki. This will significantly boost engagement, which is critical for net subscriber additions. We're very satisfied with both our domestic markets and those that have been established for over a year, as well as our new markets.

I'll address the second part of your question, Michael, it's great to hear from you. The main factors driving our direct-to-consumer growth are coming from Hulu and Disney+, though each is slightly different. For Disney+, we experienced lower content costs due to a decrease in allocated costs for some of our titles compared to our expectations. At Hulu, we also saw reduced content costs, but this was primarily due to delays with their third-party content caused by COVID-related issues. Content is not being delivered as rapidly as anticipated, but the standout factor for Hulu remains the strength of addressable advertising, which is thriving and we believe will continue to grow. There is significant demand for that type of advertising.

Thanks, Christine. My other question was, sorry, Lowell. Thanks.

Okay, Michael …

And does that make you rethink your guidance on breakeven timelines, given how strong Hulu has been?

No. The only guidance that we have reaffirmed was the 2024 total Disney+ global subs. Bob mentioned it, I mentioned it, that 230 million to 260 million. All the other guidance we have not reaffirmed or changed at this point. We're still going through our long-term planning cycle. So we're not making any changes now.

Okay. Thank you, Christine.

Thank you. Our next question comes from Jessica Reif Ehrlich with BofA Securities. Your line is open.

Thanks. I’ve just the same, parks and DTC. Some of the pictures from the parks look like it's totally full even with this reduced capacity. So now with capacity increasing, how does that relate to kind of normal attendance? Even though you don't have international visitors, it still feels like from what we can see that it's fairly full. And you said demand is strong. I just wonder if you can comment on that. And also, any update you can give us given the strong demand, how that overlays with some of the things you've talked about in the past and didn't really discuss today, but the yield management, some of the cost changes you've put in place. And then, sorry for such a long-winded question, but given the tight labor market, are there any issues that you're seeing there either on the cost side or in hiring? And then finally on DTC, I mean, this lower net adds in second half sounds like it's coming from India, which of course is understandable, given IPL as well as COVID. But there's also likely to be an impact on ARPU, a positive impact on ARPU, and I'm just wondering, how does it all translate into the operating results OI?

Okay. So in terms of the parks demand domestically, our intent to visit at Walt Disney World is growing and is actually already flat with '19, which is obviously our last pre-COVID year. So that's really good news for us. And since we've opened up Disneyland Resort, intent to visit is actually growing as well. So we're thrilled with the guests' response to that. So as capacity limits increased, we don't think we're going to have any problem at all, sort of increasing our attendance to match that capacity, that is not something that keeps any of us up at night. In terms of our yield management, as you know, we've been practicing yield management for a while. And it's really become an art form with this extraordinarily limited capacities that we've been operating yet. But you've seen the margins very healthy, our yield is growing up from a very healthy standpoint, consumers are spending more, and we're doing it under some tremendous cost management parameters, because everything's become automated. And so we've sort of got the perfect positive storm, if you will, where we've got plenty of demand, we've got really great yield management gains and the cost management at the same time. And in terms of labor, we've had about 80% of our cast members return that we've asked to return. And obviously one of the gating factors for us to continue to increase capacity is to continue to get more and more cast members back, it thrills us to be able to do that. But we've had no problems whatsoever in terms of trying to get our cast to come back and make some magic for our guests.

I'm going to discuss direct-to-consumer and the slower net additions expected for the second half of the year. This is indeed the situation, primarily due to the COVID-related suspension of the IPL and our decision to postpone the Star Plus Latin America launch to the fourth quarter. We made this decision because of the strong sports calendar that we anticipate at the time of launch. Additionally, the absence of IPL games in India will impact advertising revenue, which may lead to a decrease in ARPU and subscribers in India. However, we have implemented price increases for Disney+ in the domestic U.S. and EMEA, which could enhance our overall ARPU. We raised prices in the U.S. at the end of March, and we will monitor how that affects our ARPU in the coming quarters.

Thank you.

Thank you, Jessica. Operator, next question please.

Our next question comes from Doug Mitchelson with Credit Suisse. Your line is open.

Thanks so much. Thanks for taking the question. So, Lowell, I would say sort of two areas of focus. The first you started touching on it a bit with the last series of questions, but I think one of the core theses is that coming out of the pandemic, it's potential that the parks at Disney are more profitable than pre-pandemic. And you've talked about some of those drivers, one of them, perhaps, when the parks returned to 100% of capacity, is that capacity different than it was pre-pandemic? Is it bigger? Are you smarter on pricing? Are margins structurally higher? So, one, I was just curious if you agree with that thesis at the parks could end up being more profitable coming out of the pandemic than it was going in? And then the second area, the NFL deal was obviously super interesting. And I'm curious under what circumstances would you consider doing what some peers are doing, simulcasting your football games, Friday Night football games from either ESPN or ABC onto ESPN+? Thank you.

In terms of park profitability, we've encountered several negative impacts due to COVID. However, this situation allowed us to reassess our ticket pricing and programming. We discontinued our previous annual pass program at Disneyland, which enables us to develop a modern park loyalty and affinity program free from legacy constraints. The net contribution to the company has varied significantly, serving as one of the factors in increasing yield over the years based on the ticketing structure of each guest. This opportunity allows us to reimagine our loyalty and frequent visitor programs, enhancing the guest experience throughout the year, regardless of the demand on any given day, while also improving our per caps and yields. We've already observed significant growth in these areas over the past several quarters, but I believe we have only begun to explore the possibilities with our programs to enhance guest experiences and ensure a satisfactory return to our shareholders. I'm optimistic about these developments. Regarding our ability to simulcast with ESPN+, ESPN, and ABC, that flexibility is built into our agreements, allowing us to bring our programming to DTC platforms like Hulu and ABC. We plan to pursue this aggressively. One of the key advantages of The Walt Disney Company in sports is our multiple avenues to reach our consumers, which the leagues recognize, along with our guests.

Thank you.

Thank you, Doug. Operator, next question please.

Our next question comes from Kannan Venkateshwar with Barclays. Your line is open.

Thank you. I have a couple of questions. First, Bob, regarding the vision for sports streaming, you now hold digital rights to all major sports available on ESPN. You've made some significant decisions in other areas concerning licensing and studios to focus on streaming. However, it seems like transitioning ESPN fully to a streaming model is still a few years away. Could you elaborate on the long-term vision now that your sports portfolio is established? How should we view ESPN in relation to ESPN+, and how are you considering the overall transition's impact? Secondly, Christine, regarding the guidance for direct-to-consumer subscriber growth in the second half, the IPL suspension might affect things. If they consider running the tournament in different regions, would that alter the outlook for subscriber growth in the latter half of the year? Thank you.

We have discussed the importance of being adaptable when transitioning between traditional platforms and our direct-to-consumer digital rights. This flexibility is crucial because we anticipate changes ahead. As we've previously mentioned, when the time is right for us to make significant advancements, similar to what we've done by enhancing our entertainment and sports platforms in ways that benefit our shareholders, we will proceed with that. Our long-term goal is to develop both ESPN and ESPN+ simultaneously. Recent agreements and the flexibility we've secured to transition to direct-to-consumer platforms, particularly with ESPN+ and any future services that may follow, strongly reflect our confidence not only in our ability to make these moves but also in the feasibility of doing so.

Hi, Kannan. And your question around if they move the IPL. About half of the 60 IPL matches that were expected to be played this season have already taken place. So you're looking at the back half 30 games to be played. So sure if they were able to successfully relocate the tournament, we would hopefully see an impact, especially on advertising. And so there would be a positive what we're expecting. It would be better than if there were no rescheduled. The big issue is going to be when in the quarter and if it overlaps into Q4, or if it goes into the first fiscal quarter, which starts for us and the beginning of October. So it would have an impact on it, it just depends on when it would come in. So let's hope they are able to relocate it.

Got it. Thank you, both.

Hey, Kannan, thanks for the questions. Operator, next question.

Our next question comes from John Hodulik with UBS. Your line is open.

Thank you. In line with the sports rights discussion, it appears that you are increasing your portfolio of sports rights. Do you still see a demand for acquiring more rights, provided the financial terms are favorable, such as for Sunday Ticket or the English Premier League? Is there a threshold for spending where you feel you need to stop? Additionally, considering all the rights and digital platforms you have, is sports gambling becoming a larger opportunity for the company, and do you plan to explore it further? Thank you.

Thank you. Regarding sports rights, we have recently secured MLB, La Liga, NFL, and NHL rights, providing us with a comprehensive lineup of sports content. Additionally, we hold NBA rights, which gives us a robust portfolio. As for further acquisitions, there isn't much left on the table; Sunday Ticket is one option we are exploring, and while it’s an appealing prospect, we will only proceed if it enhances shareholder value. This strategy will guide our decisions moving forward. Concerning gambling opportunities, we have engaged with several partners in this area over the past couple of years. We view it as a promising opportunity, with minimal risk to the company and to ESPN. In fact, it can strengthen our brand among younger audiences who connect sports with this experience. We believe it offers growth potential, and we plan to approach it cautiously while looking to expand our involvement.

Okay. Thanks, Bob.

Okay. Thanks, John. Operator, we have time for one more question today.

We have a question from Brett Feldman with Goldman Sachs. Your line is open.

Yes. Thanks for taking the question. You mentioned during your prepared remarks, the three primary ways you look to release theatrical content, whether it's in the theatres or on your direct-to-consumer platforms. And one of those methods is a simultaneous release in the theatres and Premier Access. And I can understand during COVID, when it was very unlikely that people would be in theatres, but that was a reasonably easy call. It seems like this could be a little trickier to make a decision around when a film has the right characteristics for that type of release model going forward. So I was hoping you can maybe give us an insight in terms of what you're weighing when you make that decision. And in particular, with your big franchises, for example, you'll be doing this with Black Widow. What gives you conviction that you can build and nurture and create a lot of enthusiasm around those mega franchises without at least some limited theatrical window. Thank you.

I'm going to address the second part first. Our ability to build franchises is significantly supported by theatrical releases, which we know to be effective. However, the merchandise sales from Mandalorian, which did not have a theatrical release, demonstrate that our Disney+ platform can also successfully drive merchandise sales. Regarding Premier Access, you are correct. As we assess when consumers will feel ready to return to theatres, approximately 90% of the domestic market is currently open, and we are encouraged by polling regarding forward growth. However, last weekend's box office was 85% below the pre-COVID average domestically and 63% to 67% below internationally, indicating that the market is still recovering. The Disney Premier Access strategy provides us with the opportunity to release content into the market to stimulate interest while offering consumers who are hesitant about crowded theatres the option to watch from home. Looking beyond this fiscal year, we haven't disclosed our specific strategy regarding which titles will be released theatrically, which will utilize Disney Premier Access, and which will go directly to Disney+. We will continue to monitor the recovery of the theatrical marketplace and remain flexible in our decision-making. Currently, we've only announced films for this fiscal year due to the unpredictable nature of the recovery in exhibition.

Thank you.

Brett, thanks for the question. And thanks again, everyone for joining us today. Note that a reconciliation of non-GAAP measures that were referred to on this call to equivalent GAAP measures can be found on our Investor Relations website. Let me also remind you that certain statements on this call including financial estimates or statements about our plans, expectations, beliefs, or business prospects, and other statements that are not historical in nature may constitute forward-looking statements under the securities laws. We make these statements on the basis of our views and assumptions regarding future events and business performance at the time we make them. And we do not undertake any obligation to update these statements. Forward-looking statements are subject to a number of risks and uncertainties and actual results may differ materially from the results expressed or implied in light of a variety of factors, including factors contained in our annual report on Form 10-K, quarterly reports on Form 10-Q and in our other filings with the Securities and Exchange Commission. This concludes today's call. I wish everyone a very pleasant good evening. Thanks.

This concludes today's conference call. Thank you for participating. You may now disconnect.