Lowell Singer - Senior Vice President, Investor Relations Robert A. Iger - Chairman & Chief Executive Officer Christine M. McCarthy - Chief Financial Officer & Senior Executive Vice President.

Doug Mitchelson - UBS Securities LLC Alexia S. Quadrani - JPMorgan Securities LLC Michael B. Nathanson - MoffettNathanson LLC Omar Sheikh - Credit Suisse Securities (USA) LLC (Broker) Jessica Jean Reif Cohen - Bank of America Merrill Lynch Anthony DiClemente - Nomura Securities International, Inc. Todd Juenger - Sanford C. Bernstein & Co.

LLC Benjamin Daniel Swinburne - Morgan Stanley & Co. LLC Jason Boisvert Bazinet - Citigroup Global Markets, Inc. (Broker) Bryan Kraft - Deutsche Bank Securities, Inc. Tim Nollen - Macquarie Capital (USA), Inc. Daniel Salmon - BMO Capital Markets (United States).

Welcome to the Quarter Three 2016 Walt Disney Company Earnings Conference Call. My name is Katy, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

And I will now turn the call over to Lowell Singer, Senior Vice President of Investor Relations. Please go ahead, sir..

Good afternoon, and welcome to The Walt Disney Co.'s Third Quarter 2016 Earnings Call. We issued two press releases about 45 minutes ago and they are both available on our website at www.disney.com/investors. Today's call is also being webcast and a recording and a transcript will be available on our website as well.

Joining me for today's call are Bob Iger, Disney's Chairman and Chief Executive Officer; and Christine McCarthy, Senior Executive Vice President and Chief Financial Officer. Bob will lead off, followed by Christine, and then, of course, we'll be happy to take your questions. So with that, I'll turn the call over to Bob and we can get started..

Episode VIII, we've begun production on Episode IX and work on two more stand-alone movies is well underway. This kind of great storytelling will always be our first priority, but bringing great stories to consumers in innovative ways is a very close second.

So even as we continue to invest for growth, as we have with Shanghai Disney Resort, we're also aggressively investing for change with BAM Tech being the latest example.

We'll continue to use the strength of our incomparable brands, Disney, Pixar, Marvel, ESPN, ABC and Lucasfilm, as well as our coveted content to lead the way forward, driving change and creating value. Now, I'm going to turn the call over to Christine to share the details of our Q3 results.

Christine?.

The Force Awakens and Zootopia. The Studio segment has generated $2.3 billion in operating income during the first three quarters of fiscal 2016, which has already surpassed the record full year results the Studio delivered during all of fiscal 2015.

Parks and Resorts had another great quarter as segment revenue and operating income set all-time records.

These results are particularly notable given the quarter was negatively impacted by both the timing of the Easter holiday period, which fell in our fiscal second quarter this year, compared to our fiscal third quarter last year, as well as significant pre-opening costs at Shanghai Disney Resort.

This quarter also marks the 21st consecutive year-over-year growth in operating income, which is evidence that our Parks and Resorts business, particularly on the domestic side, is operating at a high level and continues to benefit from key investments supporting world-class intellectual properties, successful execution and prudent cost management.

Operating income at our domestic operations was up over 20% in the quarter and margins were higher by about 400 basis points, driven by continued growth in Domestic Parks and Disney Cruise Line.

Attendance at our Domestic Parks was down 4% in the third quarter, with most of that decline due to the adverse impact of the shift in the Easter holiday period. The impact from lower domestic attendance was more than offset by the impact of strong per capita spending, which was up 8% on higher admissions and food and beverage spending.

Per room spending at our domestic hotels was down slightly. However, occupancy was 3 percentage points higher at 90%. Domestic resort reservations for the fourth quarter, excluding the 53rd week in Q4 of fiscal 2015, are pacing up 1%, compared to prior-year levels, while booked rates are pacing up 2%.

Growth in domestic operations was partially offset by a decline at our international parks, due primarily to preopening spending at Shanghai Disney Resort, which opened toward the end of the third quarter. As Bob mentioned, we are incredibly pleased with the opening of Shanghai Disney Resort.

At our other international parks, operating income was lower at Disneyland Paris, but we saw improved results at Hong Kong Disneyland. Turning to Media Networks, operating income in the third quarter was comparable to Q3 last year, as modest growth in cable was offset by a decline at broadcasting.

At cable, we saw nice operating income growth at ESPN, driven by higher affiliate and advertising revenue. Growth in affiliate revenue at ESPN resulted from increases in contractual rates, partially offset by a decline in subscribers and unfavorable impact from foreign exchange.

ESPN ad revenue was up 5% in the third quarter, driven by an increase in units sold. So far this quarter, ESPN cash ad sales are pacing down, compared to prior year. The lower ad sales pacing reflects a difficult comp versus Q4 last year, which included an extra week.

Also, as expected, we're seeing some impact in the quarter from the presence of the Olympics. Disney Channels generated lower income from program sales, compared to Q3 last year, which was partially offset by higher affiliate revenue. Cable equity income was down in the quarter due primarily to lower income from our investment in A&E.

Broadcasting operating income was down in the third quarter, as growth in affiliate revenue and higher income from program sales were more than offset by higher equity losses from our investment in Hulu and lower network ad revenue, as well as higher programming costs.

Ad revenue at the ABC network was down 4% in the third quarter, as the benefit of higher rates was more than offset by lower ratings, compared to prior year. So far this quarter, scatter pricing at the network continues to be very strong, pacing about 30% above upfront levels. Media Networks' affiliate revenue was up 5% in the third quarter.

Cable affiliate revenue was up 3.5%, and would have been about 1 percentage point higher if not for a negative FX impact. Broadcasting affiliate revenue continue to grow nicely and was up double-digits for the quarter.

At our Consumer Products and Interactive segment, operating income was lower in the third quarter, as decreases in our merchandise licensing and retail businesses were partially offset by an increase in our games business.

Merchandise licensing results were lower in the quarter, as growth in licensing revenue from sales of Star Wars and Finding Dory merchandise was more than offset by strong sales of Frozen in the prior year, and unfavorable foreign exchange impact, and higher revenue share with the Studio, compared to prior year.

Results in our games business improved, compared to third quarter last year due to a reduction in costs as a result of our exiting the Infinity games business.

As we look ahead, I want to remind everyone that our fiscal fourth quarter results will reflect one less week of operations, compared to Q4 of last year, when we had a 53rd week due to our fiscal calendar. The extra week essentially drives a pro rata increase in annual operating income for the company. However, the impact varies by segment.

We estimate last year, our Media Networks and Parks and Resorts segments disproportionately benefited from the 53rd week. We continue to actively repurchase our shares, and in the third quarter we bought back 15.2 million shares for $1.5 billion. Fiscal year-to-date, we've repurchased 65 million shares for approximately $6.6 billion.

And with that, I'll now turn the call over to Lowell for questions..

Okay. Thanks, Christine. Katy, we are ready for the first question..

Thank you. And our first question comes from Doug Mitchelson from UBS. Please go ahead..

Oh, thanks so much. If I could just ask two. Bob, on BAM Tech you said that you love the business model, at least on CNBC you did. Will you be willing to discuss that in more detail? What about it do you love? Any comments about accretion or dilution from the deal would be helpful as well. And Christine, I just wanted to make sure I didn't miss it.

I believe you said that cable network affiliate revenue growth was 3.5% in the quarter. Was that a worldwide number? And if that was a global result, that compares to 1.3% growth in fiscal 2Q. So if you could desegregate the acceleration, that would be helpful. Thank you..

Doug, I love the business model because I love the quality of what they've created, largely from a technology perspective. You're looking at an industry-leading platform. And we did a fair amount of due diligence on this, speaking with people who have been clients of their service.

And also, we did our own due diligence in the sense that we've been clients of competing services. And we concluded that what they've got is really robust. As we consider that and we look at the marketplace and we look at general growth in Internet-delivered video, particularly live, we think this is a really smart investment for the company.

And we really think it's smart strategically because we obviously need this capability to take product like ESPN, Disney and other Disney IP onto similar platforms. So we feel great about that. There is some very slight dilution from this 33% acquisition, however. But we feel really good about the trajectory of this business.

Obviously by adding IP from the company, starting with ESPN, we think that it will give it the ability to grow faster than it would have grown on its own..

Okay. Doug, on cable affiliate revenue growth, you're right that in this quarter it was up 3.5%. And also that would have been up one percentage point higher if it were not for the negative FX impact. You're correct that in the second quarter, it was 1.2%. And I wouldn't read too much into the quarter-by-quarter shifts in it.

But the 3.5% is the right number for this quarter..

All right. Thank you both..

Thank you Doug. Katy, next question, please..

And our next question comes from Alexia Quadrani from JPMorgan. Please go ahead..

Thank you. Just two questions if I can.

First, with two of the bigger kind of streaming platforms launching over the next sort of six or so months with DTV and Hulu, and Disney's presence in both those packages, Bob, do you think this could become the delta that investors maybe are looking toward or are worried about in terms of creating a more notable shift away from linear TV or the traditional bundle? And if so, sort of how does it impact Disney's strategy or business at all? And then I just have a follow-up on the Parks business, which is continuing to be so strong and so impressive.

I guess any commentary or feedback on how the dynamic pricing that you rolled out earlier this year may be favorably impacting those results..

Alexia, we know from what we've seen particularly in the last year, that the inclusion of Disney product, particularly ESPN, on these OTT services is quite meaningful. Sony certainly had that experience when it launched Sony Vue without ESPN. And then it included it later after the launch. And it saw its subs go up substantially.

So clearly, we believe that by putting our product on these platforms, the platforms stand a chance of growing faster than they would have without it. Whether it will result, I guess, in a huge shift, I don't know.

I think the consumer is largely going to dictate that, but I think it's important to point out that by us being on these platforms at prices that make sense to us, we're really quite neutral in terms of shifting from a traditional MVPD consumer to an over-the-top consumer.

Meaning, the pricing of our networks is similar on the over-the-top networks than it is on the MVPD platforms. I guess I could add that – and I guess the DirecTV, AT&T platform, DirecTV Now is a great example of this. We think Hulu will be as well. These platforms provide – will provide great user interface and functionality.

And the better the user interface, the better it is for us because we think the customer's going to be more engaged and is likely to consume at higher levels, which could only be good for us. So I'd say look, it's meaningful probably that we're going to be on these platforms.

What it means in terms of the distribution of them, we can't say yet, meaning its impact on a shift from traditional to more modern forms of distribution. On the other – on the Parks business, I think there's a lot can be said about the Parks business. We, clearly, have had incredible strength domestically, both at Disneyland and at Disney World.

We've had softness in Paris as we've cited. Actually Hong Kong has strengthened. We feel great about the launch of the park in Shanghai and our cruise ship business is also – which is in the Parks business – has been incredibly strong. We mentioned earlier we've not seen an impact from Zika.

Interestingly enough, while there's a fair amount of concern about the international tourists, the mix of international tourists to our domestic Parks hasn't really shifted that much. We've had shifts market-to-market. Brazil's had some big issues in the last year, as a for instance.

But the mix from international versus domestic attendance is basically in-line with what we've seen. And interestingly enough, Great Britain has been fairly strong, which given what's gone on there, particularly the headlines and the Brexit issue, you'd expect otherwise.

And also of course the pound versus the dollar, but business is quite strong there. So we think – and we've got great product domestically. We're continuing to add to that. Avatar will open in 2017, as will the rest of the buildout of Animal Kingdom. We're investing with our Star Wars IP in both California and in Florida.

So that bodes well long-term and we're building two new cruise ships. We feel bullish about the business, and I think that the launch of Shanghai should not go unnoticed in the sense that we built something that was very complex and very large and it opened flawlessly.

And we know from what we've seen that consumers there really love the product, which is evidenced by the fact that they're staying much longer per visit than we ever expected. So we feel good about the business overall.

There've been some foreign exchange issues that we've seen, but – and clearly what's happened in Europe on the terrorism front has put a damper on the Paris results. But I think the long-term trajectory of this business is quite strong..

Thank you..

Alexia, thanks a lot for the questions.

Operator, next question, please?.

Our next question comes from Michael Nathanson from MoffettNathanson. Please go ahead..

Thanks. I have two. One for Bob, one for Christine. Bob, on the announcement of Major League Baseball, you've said in the press release that the content will not be the same as a linear feed in ESPN.

So can you give me an example of what type of content we're talking about? And will you launch the service globally at some point?.

The goal is to launch the ESPN-branded service probably by the end of the year, but we're not saying specifically what date it will launch.

It will include content that BAM Tech has already licensed for Major League Baseball and the National Hockey League, and we will add content that ESPN has licensed like college sports, football and basketball, tennis, rugby, cricket, et cetera.

The goal is not to take product off ESPN's current channels but to use sports and product that ESPN has already licensed that's not appearing on the channels. And so we view this as a complementary service to what ESPN is already providing as part of their multichannel package. Obviously in an over-the-top, direct-to-consumer fashion.

In terms of the international rollout, I don't think we've gotten that specific nor have we gotten specific about pricing.

But I think what you can – you'll see over time is that we're going to create a form of dynamic pricing or pricing that is determined in part by the consumer which – where the consumer actually has a voice in the nature of the package that they buy.

There'll be so much product on that you can buy the whole thing or you can buy parts of the whole, and that obviously will have an impact on pricing. And we feel really good about this as a complementary product to what ESPN has, and we feel great about the fact that it will be ESPN-branded..

Okay. Thanks. And then for Christine, as you mentioned you signed a new deal with DirecTV for an over-the-top offering.

Do those deals and the deals you do with Dish together somehow open up negotiations on the linear side? So is there potentially a change in the step-function of the linear relationship once you see the OTT launch announced?.

I think it probably will have an impact on the linear negotiations over time. One thing we should add is that a component of this deal is to provide AT&T Direct with in-season stacking of all episodes of our network shows, which I guess is in the form of change or amendment to the existing deal.

We've actually done a similar deal recently with Comcast that I think has been maybe reported on but we haven't been specific or announced. So that basically means that two of the largest MVPDs, AT&T Direct and Comcast, will now have access to in-season stacking of all episodes of our shows.

And that's obviously designed to strengthen the traditional MVPD package, and on the DirecTV AT&T side was a result of essentially a new negotiation for this OTT service..

Okay. Thanks, Bob..

Thanks, Michael. Operator, next question, please..

Our next question comes from Omar Sheikh from Credit Suisse. Please go ahead..

Good evening, everyone. Just a couple of questions. First of all, Bob, you've now got a few options on the over-the-top front. You've got the new investment in BAM Tech. You've got Hulu. Obviously, last year, you announced DisneyLife. You've got these new third-party arrangements.

I wonder if you could just maybe help us understand how you prioritize where you put content, whether it's from ESPN or from the cable nets or from ABC. It would be helpful to get your thoughts on that.

And then secondly, I wonder if you have any details on the succession, whether there's anything you'd like to share with us on timing or on thoughts on that front. Thanks..

The prioritization on where we put content is all driven by monetization. And where we monetize, where we can monetize the most is where the content will go. And right now, the reason the MVPD, multichannel MVPD product, is the priority is that's where we're monetizing the most.

And by the way, the same thing is true with other types of products, like our movie output deal with Netflix, for instance, and some of the other sales that we've made, the Netflix, with Hulu, Amazon, other distributors.

What will be interesting is long-term, to what extent do we hold back product to put on services that are ours that we're selling direct to consumer versus third-party distributors, but it's really premature to get into all of that because right now, we've got kind of a best of all worlds in the sense that we're monetizing really well on multiple platforms from multiple parties.

And we're starting to move some product in the direct-to-consumer fashion, like what we're doing in the U.K. with DisneyLife, which again is a complimentary service to other subscriptions.

In U.K.'s case, the Sky would be the best example of that, where the product that is on DisneyLife is complimentary, in a way, to what is on Sky and does not really rob or deprive Sky of product because we're monetizing so much better from Sky. I have nothing really new to add on the succession front except that we have a really strong Disney board.

They are very focused on the subject of succession and committed to it. They have an ongoing process and we're all confident that it will result in a good decision for the Walt Disney Co. and its shareholders long-term..

Okay. Thank you very much..

Omar, thank you. Katy, next question, please..

Our next question comes from Jessica Reif Cohen from Bank of America Merrill Lynch. Please go ahead..

Thanks.

On these OTT platforms, could you talk about the advertising opportunity? And also, will it be the same ad loads, the same sales force? And I guess on the affiliate fee side, when Bob used a similar pricing, are the whole suite of channels included so that your total affiliate fee is similar?.

On the advertising front, we use the same sales force. We've been doing that for a while. So particularly in ESPN's case, all of its digital advertising is sold by the same team. In fact, a lot of the advertising buys are across platforms, if not all of them, at ESPN.

There are opportunities that will be new to us on the OTT platforms because some of the technology platforms will offer dynamic ad insertion. And we think that that's got some real potential for the company. And that is a component of the DirecTV Now relationship.

And in terms of the ad load, I think there probably will be some – it will be variability. But in live sports, the ad load will basically be the same.

Was there another part of that question that I missed?.

It was about the affiliate fee. And then just one other question on advertising. Christine said that scatter is 30% above the upfront.

I'm just wondering, is it the 2015 upfront or you're referring to a 2016?.

On the affiliate fee, the per-channel fees – which we're not getting too specific about – are commensurate with what the fees are on the existing services. So it's essentially neutral to us in terms of migration. And the new service will take 100% of our core channels. Not 100% of our channels but of our core channels.

And we won't get much more specific than that at this point. But the key channels, particularly at ESPN, will be distributed by DirecTV Now, as well as Disney Channel and Freeform and ABC, et cetera..

And, Jessica, that scatter pricing of over 30% is above the upfront of last year..

Okay. Thank you..

Jessica, thank you. Operator, next question, please..

Our next question comes from Anthony DiClemente from Nomura. Please go ahead..

Thank you very much for taking my questions. So on the BAM Tech investment, I think the question that most people have would be, does the new investment here require incremental investments in sports rights? So it sounds like the answer is no, because it's leveraging existing rights that BAM has and that ESPN has.

But I just want to make sure that I'm as clear as possible on that.

Maybe by way of one example, the ACC deal that you talked about in the prepared remarks, the deal that ESPN just signed – will ESPN be able to make available any of that ACC content? For example, in the over-the-top direct-to-consumer BAM Tech ESPN platform? Or are those rights at least partially or entirely tied to the linear ESPN, where you would need go back and ask the ACC for the digital rights, therefore needing to incrementally invest in the rights to put it on the new platform? I hope that's clear.

And....

Well – go ahead..

Well, so – go ahead. And then I hopefully have a follow-up.

But that's the crux of the question here is, will Disney ESPN need to incrementally invest in digital sports rights from here?.

Anthony, it's a really good question. The answer is no, that we have purchased a lot of rights. We won't get specific about exactly what they are. But we have a lot of rights that are already purchased to put product on this platform. And BAM has licensed a significant amount of rights as well.

So we'll be able to launch this service without adding any additional costs to purchase new rights. What specific rights will be on – you mentioned ACC – we're not going to get into details. Obviously we're going to be launching an ACC channel and a platform.

And we're going to be mindful of the product that we put on that as we go to the distribution world and seek distribution for that. I will say that long-term, there may be an opportunity to purchase additional rights to put onto this service.

Because the technology is so robust that we actually believe that it does enable us to potentially expand our sports offering, which is something long-term down the road we will consider. But from a near-term – on a near-term basis, don't expect there's any incremental costs associated with rights acquisition..

Okay..

In order to service this platform..

Okay, Bob. Thanks. And one follow-up, please. In terms of your response to Michael Nathanson's earlier question, you referred to amendments to the AT&T DirecTV affiliate agreement and the Comcast agreement in terms of new stacking rights or VOD rights that Disney's provided to those MVPDs.

The question is, do those or do those amendments have any impact on the trajectory of the cable networks' affiliate fee growth? So the 3.5% or adjusted 4.5% growth that Christine mentioned. So from here, do those amendments change the shape or the trajectory of cable networks affiliate fee growth? Thank you..

No, I wouldn't say that they will, except there was consideration for the rights that we're bestowing. But I won't get into details about what that consideration was. But don't expect it's going to have a meaningful impact on cable fee increases. Where it could have an impact is if it enables the MVPDs to retain subs more effectively.

Then I think that's to be considered a real positive. But the rights weren't just given away, but there are other considerations..

Okay. Thanks, Bob..

Make sense?.

Yep. Thanks..

Okay. Anthony, thank you. Operator, next question, please..

Our next question comes from Todd Juenger from Sanford Bernstein. Please go ahead..

Oh, hi. Thanks for taken mine. Quick one for Christine. I hope it's quick, and then maybe a more broad one for Bob. Christine I'm hoping you might just be willing to help us with a little more of the ins and outs on the cable network revenue. I've got the affiliate fee. I won't press you on that any further.

I don't think I heard a cable advertising number from you. Forgive me if you said it and I missed it. And then I know there's an offset it looks like from programming sales on the Kids and Freeform side. So any comment on those two items and how they all come together would be helpful.

Bob, I'll just give you my other one while I've got you and then I'll shut up. Thinking about all of the what's going on in your sports universe. Would love to hear how you think about the tradeoff between launching more and more – like you said, there's so much product out there, so much good content out there, various people have interest in.

How do you think about the tradeoff of launching and proliferating more and more specific type services? The ACC, the SEC, this over-the-top one? Versus keeping the power of the flagship mainstay network? And basically the tradeoff between making everybody want everything and the risk that you finally give people the specific things they want and maybe in overall you end up with less, if you know what I mean.

Would love to hear your just thoughts how you do that balance. Thank you both..

I'll take the first one, Todd. And I did mention on my comments that the ESPN ad revenue this quarter was up 5%..

Okay..

On your – go ahead, you want another question for Christine before I respond?.

So that's ESPN. Nothing on the total cable side and nothing you'll disclose on the program sales side, Christine. It's okay with whatever your answer is..

That level of detail is all in the Q..

Okay. Fair enough. Thanks..

I think your question about a proliferation of sports is a fair question. We ultimately believe that where we will end up is a bigger piece of a bigger pie. In the sense that we think the ACC is very attractive product. We have every reason to believe that something would have been launched eventually from the ACC.

And we wanted to participate in and facilitate that launch. We feel the same about what we're doing with BAM. We think that there's actually an expanding sports universe because there are a lot of sports that are on that do not get as much distribution.

And there's significant interest in live and in live sports that if you look at the NBA finals as an example. Now maybe not a great example because they were so great. But we just – or to look at the NFL, another great example. In general, live sports has really thrived, even in a world where there's so much more for people to do and to watch.

And we believe that our best interest as a company is to invest more in the total pie..

Thank you very much..

By the way, even if it means fragmentation, because we ultimately think that all of the new parts will be greater than the current whole. All of the addition of the new parts will result in a bigger whole..

You good, Todd?.

Yeah, I'll let it go at that. Thank you, both, for your help. Thanks..

All right. Operator, next question, please..

Our next question comes from Ben Swinburne from Morgan Stanley. Please go ahead..

Thank you. One for Bob and one for Christine, as well. Bob, just taking the other side of the sports rights analysis that you guys did, you've walked away from deals in the past. I'm thinking about NASCAR and others. And there's some press reports that maybe you're downsizing your Big Ten deal.

How are you thinking about balancing rights and sort of the benefits of fragmentation you just talked about with the escalating costs and competition for those rights? Well, I don't know if you'll comment on Big Ten specifically or not. But maybe just at a high level as we think about rights fees growth over time.

And then just shifting to the parks, Christine, I think the release suggests that the domestic OpEx was down year-on-year in the quarter, or at least labor and marketings, some common site infrastructure? Can you just help us put that into context, sort of what's driving that? How sustainable it is.

Any one-time events in there we should be thinking about? Thank you..

You want to take the second part first?.

Sure. In the parks this quarter, as I mentioned also in the comments, that they did have some cost-control measures, some cost initiatives. And that flowed through in their operating line..

And to cover your question, Ben, about sports rights in general and things that we passed on in the Big Ten, we won't get too specific about the Big Ten except to say we're hopeful that we will continue a relationship with them.

We look at ESPN as a whole and their menu of sports product, and we've tried hard to extend relationships with sports that are delivering great value to ESPN and that will continue to, and in some cases, we really believe have growth potential.

The new NBA deal that kicks in, we feel great about, even though there's a substantial increase in rights from the last year of the old deal to the first year of the new. We're expanding our rights package with the NBA and we believe that it's still a sport that's on the rise in terms of popularity.

Because live sports is very attractive to distributors, to advertisers, to consumers, we don't really see the costs abating. There's just a lot of competition for it. There's a lot of demand for the quality that sports represents.

And we know that we can't buy everything, so we've made some tough decisions, but we can't look you in the eye and say that costs are going to go down because still among the most valuable product that's out there..

Thank you..

Operator, next question, please?.

And our next question comes from Jason Bazinet from Citigroup. Please go ahead..

Thanks. Just a question for Mr. Iger. Regarding BAM Tech, in the release it talks about your option to increase your stake over time in the coming years.

And I was just wondering if you could comment qualitatively about what are the factors that you'll be looking for in terms of whether you decide to scale up your position? Is it the technical capability of the platform? Is it the financial metrics this entity will generate? Is it the evolution of the OTT marketplace or at large? Just any color..

I think – probably be a number of factors, maybe all of them that you mentioned. We feel great about where they are technically, by the way.

We think – we feel great about the potential, and I don't want to say that our purchase of a controlling stake is inevitable, but we wanted to maintain the option to do that, sort of a bit of a walk before we run.

Although admittedly, we're walking very fast initially with the size of this investment and the collaboration that we're going – that will result in between us and the BAM Tech team. But we just wanted to get a sense for where the business is going and what the scope or scale of this is.

It also gives BAM a chance to monetize the remaining stake that we might buy at a level that's commensurate with the value at the time that we make the purchase..

Understood. Thank you..

Jason, thank you.

Katy, next question, please?.

Our next question comes from Bryan Kraft from Deutsche Bank. Please go ahead..

Hi. I wanted to ask about foreign currency and also consumer products. Christine, how should we think about the impact of foreign currency going forward given where spot rates are and the hedges that you have in place? And then – excuse me – on the Consumer Product side, I guess I was a little surprised to see it down two quarters in a row.

Should we expect Frozen to continue to drive tough comps for several more quarters, or is this something that has worked its way through the system now? And – excuse me – you've created and refreshed so much IP over the past year. Is any of that going to, do you think, become a new emerging growth driver as we go forward? Thank you..

Okay. So on foreign exchange, Bryan, we had the estimated year-over-year impact for fiscal 2016 at $500 million and that is still a good number. So, looking – and you're probably referring to the impact of Brexit and did that have any significant impact either on 2016 or looking forward – on 2016 it did not, because we were 100% hedged for the year.

So changes during this year did not impact our foreign currency exposure. And when Brexit occurred, we were already 85% hedged for fiscal 2017. So the impact from those currency shifts post-Brexit were very muted for us. On DCP, I think it's fair to assume that the difficult Frozen comps will continue.

As you know, that was a tremendous piece of IP for us and it was very, very successful in our consumer products division. So those comps will continue to be difficult on a quarterly basis..

Let me add to that, though, by saying that we are making another Frozen movie, although it won't be out for a few years. And that in our slate in fiscal 2017 is another Star Wars movie and a Cars movie. And Cars, before Frozen, was the number one Consumer Products franchise at the company. Not as big as Star Wars, but really significant.

So – and we also have Spiderman being released by Sony but being made by us, as well as Thor in calendar 2017. And so we have a lot of Marvel activity as well.

And then, of course, we've recently with Zootopia had some real success at Disney Animation, which gives us a new franchise to mine, admittedly not nearly as big as some of the other franchises. So there's a lot of activity there. And if you look at the film slate over the next number of years, there's a significant amount of IP.

Beauty and the Beast is another coming out in March from the Studio that Consumer Products can mine. Also – let's also recognize the fact that Consumer Products has doubled its earnings over the last four years. That's just tremendous, tremendous growth. And it will be hard to top that over the next number of years.

But what we've built is an incredible engine to leverage and monetize the IP output of this company over a long period of time and globally. And no one's got that..

And just one more thing. On Frozen, while that's a difficult comp, let's not forget that Star Wars and Finding Dory merchandise was very strong this quarter..

Okay. Great. Thank you..

Okay, Bryan. Thanks. Operator, next question, please..

Our next question comes from Tim Nollen from Macquarie. Please go ahead..

Thank you. Couple of things, please. I wanted to ask another question on BAM Tech, which is actually if you could give us a little bit of color on how that business does on its own. Bob, you mentioned it might be slightly dilutive. I wonder if that's given its relatively low margin or borrowing costs to finance the deal, what that might be.

But anything you can tell us on how BAM Tech's business on its own is going. And then actually another question on Shanghai, which I guess excluding BAM Tech might have been the story of the quarter. Curious if you could tell us a bit more about your visitation there.

Is it mostly local Chinese visitors, as you had said it would be? Or if there's any – can you talk about the mix in terms of other visitors from the region? And then also about anything might give us help on per-cap spending there versus your other parks would be interesting to hear. Thanks..

95%, 96% occupancy. And Lion King, which is a separate ticket, is also doing extremely well and very well booked. So we had essentially a flawless opening that the people, not just of Shanghai, but the people of China have embraced. Clearly the marketing has worked and the product is performing really well. And with that in mind we're already expanding.

We broke ground a while ago on expansion of the park. We've not announced exactly what it is that we're building, but we're already building to expand and we have plenty of property, I should remind everyone. So that we have an opportunity to build out new lands, new gate, new hotels, new restaurants, et cetera. All very positive..

Thank you..

All right. Thanks for the question. Operator, we have time for one more question, please..

Our next question comes from Dan Salmon from BMO Capital Markets. Please go ahead..

Hey. Good afternoon, everyone. Two questions, maybe one for Bob, one for Christine. Bob, just to take a step back from the OTT world for a moment, Dish last week unveiled a new service offering that they're calling a skinny bundle that did not include ESPN in the core package. I'd be interested just to hear your thoughts on that.

And then second for Christine, Parks and Resorts CapEx eased off really nicely this quarter. Obviously we're getting past Shanghai.

Just curious to hear are we starting to get to the point where we're coming down? Or do we see some upticks from some of the other domestic projects that are starting to get underway?.

That new Sling product is pretty skinny. I was going to say so skinny you can't even see it. But I mentioned earlier on the call that a few new products have entered the marketplace without us, namely without ESPN. Sony was one. And had real troubles getting off the ground.

And in Sony's case, when ESPN was added they had a significant uptick in their subs. So I don't want to suggest that Sling has to have ESPN. They'll determine that.

But as we look at the product that they're offering, we really don't believe that it's going to have – it has a great future, because it's lacking some of the most attractive channels that are out there.

You can slice and dice some of these channels, but – to create packages, but if you don't have some of the best ones, it's pretty hard to see significant adoption of the service that's being offered..

Okay. On Parks CapEx, you're right in that the number was down for the quarter. But I wouldn't read too much into that. A lot of that is timing related.

As we've mentioned before and Bob mentioned, the offerings that will be – that are underway and soon to come to the theme park near you, such as the Star Wars lands in both Anaheim and Orlando, those are underway.

So this CapEx is more of a timing issue, and we will update next quarter for the prospective year what to look forward to for fiscal 2017..

I just – this is Bob. I just want to thank everybody for the call and hope you all have a good rest of your summer. We feel really good about this quarter. Clearly the bottom-line 12% increase in EPS was quite strong.

The Studio's performance, as Christine mentioned, through three quarters is record performance for us already, maybe a record performance for any studio in the industry. And the slate going forward is extremely strong. What we did in Shanghai was certainly something that we feel great about and very excited about. And the future there is very bright.

And the two announcements that we made today are really important. BAM Tech provides us with a great opportunity in a space that is very exciting, both to us and to consumers, and the OTT relationship that we've now created with AT&T Direct is also very important.

We think they're going to launch an incredibly robust platform with a great user interface, and it's great to be part of that launch. And I thank you all very much..

Okay, Bob. Thanks. I guess I now get to read the Safe Harbor. So thanks again, everyone, for joining us today. Note that a reconciliation of non-GAAP measures that were discussed 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 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 and in our other filings with the Securities and Exchange Commission.

Everyone, thanks for joining us, and have a good rest of the day..

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating, and you may now disconnect..