The Walt Disney Company (DIS) Earnings Call Transcript & Summary

Hey. I'm back, Michael Nathanson. I'm really excited about this next session. Thank you both for being here. Women next to me, Christine McCarthy, CFO of The Walt Disney Company. I also want to say the EVP. You've been here before. Thanks for being here.

I have been, yes.

And we have a new guest. We brought a friend, Rita Ferro. And Rita is president of ad sales at Disney. And I thought, because it's the first time and because of the upfront week and -- congrats on the upfront yesterday. I know it was a -- big.

Thank you. Thank you.

But let me tell you what Rita does, okay? She's responsible for advertising sales at Disney's entertainment, news, sports, kids and family, linear, digital; ad support; and audio businesses. You also are in charge of [ integrated ] sales for Disney digital, online, mobile and social and also direct political national TV, regional ad sales for the stations. You have a huge purview. And under your leadership, you've created a one-stop-shop approach to leverage the breadth of your portfolio and reach audiences across all of the company's assets. And because it's upfront week and because of the pivot to Disney+ in advertising, we all thought it would be great to have you here, so thanks for being here.

I'm thrilled to be here. Thank you. Thank you.

So what we thought we would do is we start with some questions to Christine on Disney, Disney large. And then we'll turn to Rita on advertising. And then we'll come back at the end to Christine on Disney, okay?

Okay. And I know you're all going to enjoy this: Because this is webcast, our disclosure police, as I call them, but they keep us out of trouble, have that safe harbor on the screen. But I just have to read you a couple of things. Certain statements today, including financial estimates or statements about our plans, beliefs, guidance or business prospects and other statements that are not historical in nature may constitute forward-looking statements under securities laws. We make these statements on the basis of our current views and assumptions regarding the future and do not undertake any obligation to update them. Forward-looking statements are subject to a number of risks and uncertainties. Actual results may differ materially from results expressed or implied in a light of -- and something of a variety of factors, in sight of -- I don't know what it -- even what that word is. Anyway, it's a typo -- including factors contained in our Form 10-K and other filings with the SEC as well as [ a legend ] you see here and on our IR website. So thank you for tolerating me with that fair safe harbor.

Yes. Have a good night, everyone. Thanks for coming.

Beautiful read.

Exactly. Okay, so on your recent earnings call just last week -- [ it seems like ] a couple of years ago. You reiterated your longer-term guidance on profitability for Disney+. You also reiterated that second half subscriber growth for this fiscal year should be higher than first half but tempered your comments somewhat. Can you elaborate on how we should think about growth in subscribers near term?

Sure. I think there was a lot of confusion about what was said on our earnings call, so I welcome the opportunity to clarify it. I may -- actually may use some hand signals, but what we did say, we reiterated the long-term guidance, 230 million to 260 million. And back in when we -- in November, when we reported our full year fiscal '21 earnings, we said, looking at fiscal '22, that a lot of our subscriber growth would be more back-end loaded and not just quarterized equally. We made that comment. I think we reiterated it again in February when we reported Q1. And both Q1 and Q2 came in higher than expected, so bear with me for one moment. Just don't look at any dimensional here, but this is the first half of the year. This is the second half of the year in our plan. When both Q1 and Q2 came in higher, we were here, so what I was talking about is the difference between first half and second half wouldn't be as great because, first half, we overperformed. So that's all it was, was the delta between first half and second half. We still expect a strong second half of subscribers because we have 2 things going on. We have a lot of great content coming, and we've often talked about content driving not only sign-ups but also retention of subscribers. And we also are launching in several new markets, international markets, so by the end of the year, we will be in about 150 markets. And those are going to be -- the balance of what we are now versus that 150 will be rolling out in the second half. So hopefully, people understand. We didn't change anything. Back half is stronger. It's just less strong from a difference perspective because first half overperformed.

All right. So one of the benefits coming to a conference and seeing people live is you get to see the hand gestures...

Yes. I get to do hand motions.

Right. So everyone in the room now has a hand gesture benefit, okay. So also on the same earnings call, to me what was most notable was Bob spoke about Disney fully going into ESPN -- into an ESPN DTC model. Was he signaling a more aggressive move forward towards shifting away from linear, towards ESPN+? So help interpret that because that's also a bit of a surprise based on what's been said before.

So those of you who've followed us -- and I know you probably remember this, Michael. Several years ago, when we started talking about our pivot to direct to consumer -- and it first started in sports. We were going to do ESPN+. We acquired a majority of BAMTech. That was the engine that allowed us to do live streaming, many, many simultaneous streams. It's been a great product. We were able to launch ESPN+, but back in the day when Bob Iger was CEO, we always said that, at some point in the future as consumers change the way that they consumed not just entertainment content but all content, including sports, we would look at that as a long-term outcome, but we weren't going to put any parameters around when that would happen. And I will tell you today there are still linear and direct to consumer as well as digital that we provide a lot of sports information for ESPN. So we have 3 ways of looking at serving our sports consumers and sports fans. I think the one thing has never changed; is ESPN's motto is serving sports fans anywhere they want, any time they want. And so looking at the -- of the flexibility that we have is something that we're continuing to focus on. When you look at some of the rights that we've done recently -- and I'll point out too because we look at both rights for linear predominantly or rights for ESPN+ predominantly. When you look at what we did with the NFL in the most recent renewal, it was primarily linear, but there will be some opportunity to also put some NFL content on ESPN+. If you look at the NHL, that was primarily an ESPN+ DTC renewal, while we do have some opportunity to put some key games on the linear channel. So what we're trying to do is be flexible and look at both of those, but there are various models that we can serve up the sports fans.

Okay. So our presumption was that Disney -- ESPN+ is a supplemental service to the core ESPN. Like yes, I'm a sports fan. I got ESPN, but then I want to watch golf this week and I'll watch ESPN+, so tell us how you are thinking about the balance shifting those rights. That's the ultimate question of having one foot on the dock, one foot on the boat. So how do you think of determining when you -- or the factors that you look at to determine when you want to shift more of the core rights to ESPN+.

Yes. It would be a different product because what ESPN+ is today is a complement to, not a substitute for, ESPN linear. So it doesn't make any sense to just port over all of those linear rights, which come with rights expense, onto an ESPN+ at the price point that it currently is. So at the time, TBD. When that would happen, it would be a different offering. And we may have an ESPN+ always be there. That would be niche, if you want to call it that. Or it would be a complementary to, but when you look at the big rights portfolio that we have, we wouldn't just port that on the existing ESPN+ with the same pricing.

Okay. So in essence, you're saying not much has changed from the answers you've given [ for ] many years...

Yes, previously, yes.

Okay, cool. And then before I turn to Rita, a question we have for you is how should we investors think about your cap allocation decisions into the future and especially in light of the purchase of Hulu likely in 2024. So how are you juggling all of these dynamics?

Sure, great question, especially in a market like we're currently all experiencing. I know many people have thought that this last cycle went on and on and on. And it was great for a long time and we're now seeing that this is really a cycle. And so we're in it. Our capital allocation philosophy and strategy has not changed. We still look at, first and foremost, investing in our businesses. And when you look at what we do in both of our segments, we invest in content and we're continuing to do so. And we're -- also have invested decades and decades in our Disney parks and experiences segment. And those continue. Why do we do that? Because we have the experience of doing it in parks. We know that our investments there drive long-term sustainable returns. And we also are doing it in the content side, the DMED side because we believe it will drive long-term sustainable returns. We're still in a ramp-up mode and investment mode. So that investment mode is not at steady state now, but that's, first and foremost, what we would do. If we found acquisitions along the way -- we've always looked at acquisitions. We've done some in the past, whether it's Pixar, Marvel, Lucas, some of the Fox assets that we acquired. Those were done at a time where we believed that they were complementary to or enhanced our strategies. Then you get to what else, and that's returning capital to shareholders. We believe in that. Right now given our -- I would say, the double hit of debt that came along with the Fox acquisition and then what we've been in, in a very severe COVID downturn in 2020 -- and I think not to toot our own horn, but I think we weathered it very well. We got through it. And our parks businesses and many of our other businesses were completely shuttered, but we've been able to get out of that hole. And our leverage was quite high. It has consistently come down. We do believe that, a company like The Walt Disney Company, a strategic asset of ours is our balance sheet. And having a A credit rating has served us well over time. It has given us an amazing amount of financial flexibility. And so getting our leverage ratio back down to that level -- and it has come down. We're improving. Our recovery, primarily driven by theme parks, has really given us the opportunity to take that leverage down, but we're still not quite there yet. Look at our financials. We're not where we want to be. However, when we return capital to shareholders, we are going to prioritize, meaning put first in line, dividends. We know that dividends are important to our shareholders, especially in markets like we're experiencing now. And further down the line, when we have the flexibility, we'll engage in share repurchase. That is further out, but dividends is something that's top of our mind and we will resume them at the appropriate time.

Right. Before I turn to Rita: It's interesting because, when you did Fox, no one assumed a pandemic. We assumed that you -- buybacks. We assumed dividends [ would stay, and the -- maybe ] buyback, because you issued stock. So the pandemic has slowed your ability to do what you wanted to do on the capital allocation side. That's what -- that's happened in our model.

Yes, yes.

Okay. So Rita, let me turn to you. Thanks for being here. So let's start out big picture walking through an overview of your capabilities at The Walt Disney Company. So walk us now through how Disney goes to market in advertising, all right? So give -- this is an education for all of us. So how are you structured? And how you go to market.

Great. Thank you. So in anticipation, a couple of years ago, of the merger with Fox and Hulu coming into the fold, we did a relook at our entire business, wanting to make sure that we were going to be prepared for the future we saw, which was a future of today, right? Tech and data enabled, high velocity of change, making sure that we have the right expertise. And so that was really anchored in 3 -- I would say, 3 buckets. The first is really around our structure. The legacy structure was very regional-based. It was very agency-based. It was very daypart, I would call it, based, so you have sport sellers and you have news sellers. And you have prime sellers; [ very, very ] much siloed organizations. And so we moved to an audience-based sales approach really anchored in serving our customers and categories with category expertise and customer expertise, making sure that we were servicing every part of the marketing funnel, all right? So when we think of the marketing funnel, we have major marketers across the marketplace. We have our local business through our stations as well as Hulu, but we also wanted to service that SMB and programmatic and performance marketers because that's the highest-growth area for us. So that structure was really important to lay a foundation for what was coming next, which was really thinking about audience and data solutions. And so we spent a lot of time, years, I would say, really building out our ID graph, which we call Disney Select, which really has a broad range of ways that we can target and bring campaigns to market for our partners. That allows us to measure and base that on outcomes, right? That's the ultimate goal for an advertiser. And then the third piece was the investments in tech to be able to deliver against that. And so the tech piece was extraordinarily important because it not only services, again, our linear and our addressable businesses. It allows us to maximize the total breadth and scale of our portfolio, but it really allows us also to really focus on how do we think about self service. How do we think of automation? How do we think of measurement outcomes? And making sure that all of that runs through one integrated solution so that, no matter who we are talking to, we can deliver the scale that the audiences are looking for.

Okay. And on that third idea of tech investment, walk us through what type of investments you made and just even the time line. Because I know this is something that's been going on behind the scenes for a while. So any update on that?

So I brought a slide that best illustrates that because there's a lot on this page. I want to walk you guys through this because it's really helpful, but it also speaks to, when you start to think about what goes into it, the importance of that. So we have launched our Disney ad server. It is the backbone of our entire addressable business. We've been working on that for years. I would say 3 years-plus. It came -- as we've started the integration of Hulu, we realized it was so important for us -- to grow in addressable, we had [ to on ] our technology stack, and so the investments we made around that were really anchored in how do we build our business using first-party and third-party data. Yield plays into that. So we always optimize for the best opportunity possible because, when there's demand in the marketplace, we want to lean into programmatic, but we do have tremendous scale in direct client relationships that we also have to serve through this. So that takes all of that into it, managing the customer experience, advertising formats, the most opportunity in terms of what's the right ad to serve to the right client in the right time; and allows us to do sequential targeting, right? So when you see someone in one platform and they come back again in another platform, we know that, the advertiser knows that they can deliver the right message at the right time. The left-hand side talks to all the programmatic -- the demand side of our business, if you will, the programmatic side, the self-service side, how we think about local versus national brands, programmatic brands, performance brands, which really anchor in data and expect to be able to leverage all of that data to do buys. And that allows us to really talk about -- [ and you and I've ] talked about this before, move advertisers who are brand marketers down the funnel into transaction; but also take advertisers who come into our funnel through small and medium businesses, small budgets and elevate them to the funnel to eventually become big brand marketers. And then on the right side, it's making sure that they deliver across all of our platforms seamlessly, right? Because the importance of that is scale. And that will be something that is really important in the addressable marketplace. As people come to market, you have to make sure that you have enough volume to be able to move in the market to make it deliver the campaigns for partners. And then on the bottom piece, I just want to make sure: Our Disney ID graph powers all of that through all of these, the connected device IDs, the mobile device IDs and the household IDs, that really feed that in an anonymized way but with direct targeting capabilities.

All right, can you talk about how you manage that demand? You mentioned it's obviously very much yield-based, so how do you calibrate that marketplace with all of these different types of buyers coming [ together ]?

So we've been doing it for a long time. And obviously there's a tremendous demand coming in from small and medium businesses and our local businesses. Those are businesses that are growing at double digits every single year. And yet at the same time, all of the business is slowly migrating to a much more targeted world, so the growth of our data-enabled business is going to continue to be a really important focus for us driven by obviously self-service, driven by automation but really leveraging the combination and the magnitude of the size of marketplace that we have. Today, we have thousands of small and medium businesses, over 1,200 advertisers who come in through that self-service tool who have 3 campaigns each. They are very different marketers. They're universities. They're hospitals. They're auto services, very different advertisers than the ones that we service directly with agencies on a multilevel -- multi-market national ad campaigns. So the combination of all of that is really how we bring it together to make sure we're maximizing every impression.

Okay, so let's dig into that. So for those large campaigns coming in, are they still playing on the linear side because -- or are they -- are the large brands looking for more of the performance-based marketing that you're offering on the streaming side? So how are large brands engaging with you...

So both. So what's wonderful about this marketplace is that they plan video holistically. And so when you plan video holistically and you're dealing with buyers that way, it's easy when you think of a portfolio like The Walt Disney Company because of the scale of our linear reach, which is still extraordinary. We have some of the best entertainment platforms in the planet today on the linear side that really service specific audiences. They've been buying them for years, but there is a complement to that in the scale and reach that we have across our addressable platforms, right, through Hulu and our television everywhere apps. And then on the sports side, which is really an important marketplace for us today and really growing very much in demand, we have scale in both addressable and linear. And so they buy holistically across both of those. In this upfront marketplace right now that is a really important differentiator for us. It's why people come to Disney first.

Okay. And as a pivot, do you want to talk about first- and third-party data? Like what advantages do you have on the first-party side?

Well, I mean, we know our customers across all of our platforms that -- where we have registration. And so obviously that's been a piece of what we do, but we also have for a very long time worked on businesses where we had -- like our mobile games business have device IDs that we use to help build our ID graph. And so we've been very -- over time, very deliberate in curating and making sure that we have the right permissioning. That's the other piece. On the data side, you have to have the right permissioning and the right ability to bring all of that data together and de-dupe it and make sure that you can bring it to market in a holistic way. So we have all of that on the first-party side. And through third party, we work with great companies, obviously. Nielsen is one of them, but Samba is another one where we do cross-stream measurement. We're working on building out our data clean room solutions so to be able to do third-party matching where data doesn't ever get exchanged between partners, but we can use it to target media campaigns. That's a really important piece of what we're building right now, and you're going to hear a lot about that in the marketplace.

Right. And this is happening behind the scenes. We won't see very much of this [ disposed to us ].

Yes, correct.

So the question is you've seen tremendous success at Hulu from advertising, so what have you learned from that experience in selling Hulu? And how has Hulu's advertising tier helped drive overall ARPU? And then maybe we [ could posit ] that to Disney+, but...

I'll leave her with the ARPU question, but I'll answer your first part of the question. So I mean the integration of Hulu for us has been outstanding for a multiple of reasons. Obviously the obvious one is scale, but it's [ also our ] great intel and learnings to our team because Hulu was the first platform to launch advertising, right, the first AVOD platform. So they had 14 years experience in this space, but since we took operational control of Hulu, we've doubled the revenue. We've doubled the number of advertisers. Programmatic revenue is up 5x, so it was a really important piece of our portfolio, but it also benefited tremendously from being with a company who's been in the advertising business for decades, all right? And so when you think of how do people measure their opportunity, again, on AVOD, when you look today, Comscore says we're in 150 -- 115 million homes and -- or users, right? And so those users are really valuable. And the scale of that is really valuable in terms of being able to deliver campaigns because, when an advertiser says, "I want to run X amount of media," not everyone has the scale to deliver those campaigns, but it's also really set us up for the future of the marketplace is moving to an addressable-first world. And so we have learned a ton. We have brought on great talent as part of that. And that is really setting us up for the future of a much bigger addressable opportunity as part of our go to market.

Okay. And do you want to take -- handle of -- the advertiser ARPU at Hulu relative to the subscription ARPU and how it's working out for you?

So when we think about the opportunity here. Because based on our Hulu experience, we actually have more AVOD than SVOD subscribers. We think that, that will probably be a -- maybe it won't be on day 1, but we expect about the same percentage for both Disney+ and Hulu just based on the experience curve that we've witnessed. And then we believe the -- Rita can talk about the plans for Disney+. They're not going to be as robust in terms of pods as Hulu just because it's a different product, different market, but we do expect there to be a premium from that advertising that will enhance the ARPU.

Okay, okay.

So we feel -- we really feel good about this opportunity.

Okay. And there are quarters in which that Hulu-with-ads ARPU is higher than "Hulu with no ads" ARPU...

I think there is some seasonality to that. Holiday season, it's just different when advertisers -- the CPMs may go up, the effectiveness. There's a lot of levers that the ad sales team can work with, but I think seasonality won't be that different as it is that we see in Hulu.

Okay, so now let's pivot to Disney+ for a second. So how has that experience contributed to the decision to create a Disney+ ad tier? You have content. It's family focused, where you never had ads on Disney's channel, Disney+. And you also have premium IP. Movies have never been interrupted with commercials, in my world, anyway, so how do you sell and deliver advertising that is both appropriate and sensitive to the content and the communities that you're trying to reach?

Yes. So I actually brought a slide on that so that you can just see kind of the highlights, but obviously I can't even tell you the demand that we've had for this. I remember day 1 that Disney+ launched. I had about 4 clients call me and say, "Okay, now give me the date." I think they assumed we had some magic date in our head where that was coming. So the response has been extraordinary, as you can imagine. I think the learnings are pretty obvious. We understand the marketplace. We understand what it takes to launch a service with advertising. We have built the tech to be able to service it through our Disney ad server. We understand that it's a -- we're going to roll it out slowly. So yes, we're going to have advertising on the kids -- on our kids platform to kids, but it's going to be controlled advertising with a lot of parental levers to pull. We're not going to collect data on that. We're not going to have advertising preschool content at launch, and -- but obviously we're focused on [ 4 quadrant ] advertisers, right? And so we know that the movies are the reason people come to the platform. And movies have a different ad load than you would see on Hulu, right? So that's going to impact the average. We plan to have an average of 4 minutes of advertising per hour. It's less than Hulu, but it's because 65% of the consumption is really happening in movies. And they do have different ad breaks, but that will evolve over time. And so we want to start slow and so we're going to just start with 15s and 30s, but we'll evolve to the full [ suite ] of ad products as we learn and we understand how people come online and how they use the platform.

Okay. A great debate we've had -- I think about my partner. Craig Moffett and I, for years, debated this. Maybe [ Alexia ] and everyone has debated this too. Does an hour of consumption in this new world, let's do Hulu versus Disney+ because it's more mature, equals more advertising dollars than an hour in the old world? The trade-off is you have less people buying reach, but the new world has got targeted and more SMBs, better data, so like how do you think longer term an hour of content looks monetizable by advertising in the new world versus the world that we [ all lived in for ]?

Yes. We evaluate that all the time in terms of CPMs, for example. And a lot of our platforms today on linear have pass-through advertising. They pass-through the advertising on -- so for ESPN, we passed-through the advertising on our digital platforms. We constantly evaluate that. I think we're not there yet, but I think the demand is shifting so strategically that I think more demand raises price, right, which is it's part of the supply-demand situation that we have in linear, right? Every advertiser, every year, says, "I don't understand. Ratings are down 25% in prime and the CPMs are going up [ 30 ]." Supply, demand. And so I think more demand will create more price balance, but I also think the value of what you're getting in premium content. Not every AVOD platform is the same. They're not priced the same. That's public information. You can go on SMI and get that. There's a value to the targeting. We call it -- when you call it CPM, you decorate it with data. That means there's a premium for targeting a premium for data. There's also a premium for ad products and experiences. We've built the most robust ad products and experiences on our platform. And all of that contributes to the opportunity that, yes, you will likely have less advertising within a series on Hulu than you have on linear, absolutely. That's the way it is today, but the opportunity of how we think about it, it's not exactly apples to apples because we're still selling on the adults 18 to 49.

Right.

And when you translate that into people -- P2+, it's not that different, but the opportunities for upside in a targeted world are [ absolutely correct ].

So you touched on it. Like many of your peers now moved on or are moving on -- into advertising. HBO Max is now moving to that business. I think Netflix made some noise about that on their last earnings call, right?

Yes, they did.

So could you talk a bit about your competitive positioning and maybe the challenge of getting to the place that you've gotten to [ in all the years you've been doing so ]? How easy is it to turn on the switch and do this business?

Not easy.

Yes.

We've been preparing for this moment for years. So we have been methodically thinking about the technology investment. What was the right thing to put our dollars against? How do we think about our resources around people and expertise and the partnerships that we have to have in place to do it, the way we think about the content partnerships? And how you have to allow -- the people we buy content from have to allow us to put advertising in that. So that just doesn't happen because I decided to put advertising. I love our hand. We have 14 years of Hulu experience, decades of Disney experience on how to go to market and sell advertising. We have the relationships in the market. People trust us. And we understand -- I run the kids business, so I also understand what it is to sell advertising in a kids-first platform and understand the control that we need to have around that while being able to really fully monetize our adult business which is a big piece of what we will have on the Disney+ platform. So I love our hand. And I am excited about every advertiser who wants to come in -- or marketer who says -- or platform, sorry, platform who says they want to come in to this space. Because it's not easy. And we're seeing that right now as the rollout of many, many platforms that are coming out, but they don't have the scale and the expertise that we have.

Okay. This is as mentioned in the upfront week. And you walked through the entire Disney portfolio, but I wanted to dig in a bit on linear. Any perspective now on how advertisers are embracing it? What's the value of the linear pitch? Why are they there? Any outsized interest from any particular segment of the market that's supporting you in linear right now?

Yes. As I said, I think most marketers are looking at video holistically. There is absolutely demand for linear platforms. We are in the upfront marketplace, and there's not a single partner client who is not interested in buying across our particular suite of linear businesses, I would say, especially in sports. The demand in sports is really, really strong right now. And I think it's you're seeing it across the board across all leagues, but the value is really in how you bring it to market, making sure that we have the flexibility to deliver campaigns across. So the beauty is we've started fluidity many years ago to make sure that -- when an advertiser wanted to buy a campaign, that they could move across sports, entertainment, cable, whatever they wanted, even streaming. And so we bring that to market together, but there's absolutely, I would say, demand for linear and with some exceptions, right. You're talking about there are some categories that are down. Packaged goods, for example, is down. You have other categories that are up, pharmaceuticals. In sports, you have people who came in, in the scatter marketplace, like crypto and sports betting. They're coming in to the upfront marketplace now. That changes a little bit the dynamic, all right, because those are categories that are new. They tend to have more aggressive CPMs. And so it's a mix in terms of new markets, old markets and in terms of old traditional advertising categories, I would say, but there's definitely a demand for our linear businesses. I see that continuing to be an important piece. Especially when a marketer is looking to launch a product, there is no better way to do that than in broad television, right, and so that continues to be really important for us.

Okay. So let me turn to Christine for a couple. So a question, I asked this on the call but I'll ask it again, is you have so many amazing brands, franchises, traditions that also set the company apart from your peers. Why not focus on those strengths and let others chase either region-produced content and general entertainment programming? This is the question is about streaming, right? Is there a case to focus only on your core brands [ and ] streaming versus broadening out? So when you look at the give-and-takes [ in the ROI ] becoming broader versus playing to our strengths, how do you allocate that decision? Or how do you...

That's a great follow-up from earnings. I know your position and I'm going to convince you...

All right. Well, it's a theory. I -- it's a theory. It's a theory. It's -- yes, yes.

Well, it's a theory, but we can probably have a longer conversation about this. But I think we do look at our brands, our franchises, the things that encompass Disney, whether it's Disney, whether it's Pixar, it's Lucas, it's Marvel. Those are incredible brands. We tell wonderful stories around them. It's live action. It's animation, but when we look at the opportunity, the one thing that we hear from subscribers, especially ones who churn out, they may come back, but they are looking for more general entertainment. And we look at -- and is still -- we don't -- I know there's a belief out there that we already have every single Marvel and Lucas and Pixar. Not true. We look at these markets -- and we have opportunity to grow in all of these brands, but the one we have the most potential is in general entertainment. Now you could say -- and I think, if you didn't know Disney and you didn't know the content creators that we have and the storytelling, how it's so, it all begins with -- the content is what we -- is in our DNA. The storytelling, and it's just the ethos in the company, is -- just is to really tell great stories. Now when you're telling stories, they aren't all wonderful, but our track record is pretty good when you compare it to the competition. So we look at our opportunity in general entertainment as being able to have a variety of content, whether it's nonscripted, whether it's scripted, that will be appealing and that will keep and retain more consumers and potentially attract even a different demographic than we have. So we look at things. And I'll just call out a few, but we showed these at the upfront yesterday, but Only Murders in the Building: It's a wonderful lighthearted comedy. That's general entertainment. And that, you can see on Hulu, but why wouldn't you have something like that on Disney+? But we look at that opportunity. And then you can have things that are much more adult, whether it's Dopesick. I wouldn't have my 8-year old watch Dopesick or Pam & Tommy, but there's things that are truly adult. But then there's a lot that are just more general entertainment. And when you think about parents with young children. And we do have a lot of people on Disney+ who are what we call AWOKs, adults without kids. And it's about half that don't have kids that are subscribers, but they're looking for -- they may love and want to relive their youth and watch some of the library content or watch the great new series that are coming out on any given month or so. And they may do that, but they also want to see some things that are more adult oriented or not branded. And so we look at this as being additive, not being that we're going to just be in a race that we can't win.

Yes. Because in any ways, your first -- like I said, the first 100 million subs were so incredibly efficient, right? You turned it on, the service; and people [ really ] showed up, right? So the question is the next 100 million subs, but we'll see...

Right. And we also have -- the other thing I didn't mention was I know there were some questions, I mean. "Why are you doing 500 shows into various stages of development, production on local language content?" Well, that's because our experience -- and we've seen it when it was the old ecosystem with linear channels throughout the world. People in countries that have a different culture, they want to see things that resonate with them. Their world views are not necessarily homogenized. And so doing things in the European markets that really speak to those sensibilities or doing things in Latin America or doing things in Asia, those are stories that -- they're not all transportable. Now we do hope that there are some stories and shows that we create that we will be able to transport across different regions, but once again, people in those markets, they don't just want to see content that was made for the global audience or the U.S. audience.

Okay. And then let's talk about the theme parks. You hosted that event back in Orlando in March. It was really worth the while to go. What elements of the park business do you think is the most underestimated by Wall Street today? And should we be worried about this, you get this all time, the sharp rise in per caps too? So what don't we understand about the parks even though they've been around for a long time? Yes.

Yes, great question. And I think with the -- you haven't been down there for a couple of years because of the pandemic, but I think -- and tell me if this resonates with you. I think, when you're down there -- and you could be in world. You can be in land. You could be in one of our international parks. There's 3 things that I don't think are that appreciated or not appreciated as much, and the first I would point out is our cast. When you see the people working in the park, they are there to make you have a great time. And they are so engaged in what you're there for and what they are doing. A lot of them get into character. It's actually really amusing to watch them. I mean it's like these people love their jobs. Can you imagine if everyone loved their job like this? And -- but they want to engage. They want to talk, whether they're putting you on a ride, whether they're in a parade, but they are there to entertain you. And I think, when you're there, you sense this is -- what do they feed these people? I mean this is a wonderful, wonderful environment because people want to have you have a good time. So cast is one. The other thing I think that's underestimated is creativity. And I think you experienced it when you went through some of the new attractions that we have and certainly the new -- we don't even call it a hotel. It's the interactive, immersive experience of star ship -- of star galactica. And -- galactic star ship, excuse me. You go in there and you see creativity that you can't experience anyplace else. It's not like you're just going on a ride, no. You're going into an experience. You're going into a -- the preshow to an attraction, but it's all very creative, even some of the food and beverage. We've spent -- we have great food and beverage teams there. You will have food and beverage that you can't get anyplace else, except at one of our parks, whether it's the shape, the size, the stories around it. So that's a creativity part that I think, people, when they're there, they're like, "This is really cool." The third thing is what I would call relevance in keeping the parks relevant. So our parks have been around for a long time. Disney World is celebrating its 50th. Disneyland is -- just celebrated its 65th. It's now 66th, soon to be 67th, but if you went there in the '60s or the '70s or the '80s, it's not the same experience. And even if you hadn't been there 4 or 5 years, you will go and you will find something that was updated. It may be a seasonal update. It may be something that we've pulled in from some of our great content. Something that's not yet really in the parks but I think you will see it soon is something like Encanto, what was really just wonderful and the music. That, elements of that could be incorporated into the park experience. Some of it will be transitory. Some of it will be more permanent. Certainly when we put like a Marvel or Avengers Campus, that's more permanent, but we can do things with entertainment that really are relevant. So I would say it's cast, creativity and relevancy. And that, unless you're there with your eyes open and letting your -- you experience the heart and the mind, I don't think people appreciate that.

Okay. And then on per caps, yes.

Per caps. So per caps, this is once again math. And I hope people get it. I [ wouldn't ] even put it in the arithmetic category. We have had fabulous...

There's no hand gestures...

I may do hand gestures. So what you have to think about per caps is we have had -- from our yield strategy -- and it's not just ticket prices. It is food and beverage, merchandise as well as some ticket prices, but there's a wide range of ticket prices depending on what the consumer chooses to do. But that all factors into per caps. The growth -- and we look at the base year not as 2020. We look at it as '19 because '19 was the first -- it was a -- at the time a really high watermark for us, but we compare it to '19. And our per caps are up significantly versus our per caps in '19, but when you think about -- now we've had some really big versus last quarter or versus last -- '19. Now we will -- we still expect growth, but once again the -- we're lapping really big increases, so the percentage increases are not going to be what we saw, because now we're already lapping really strong per caps.

Right, right, [ the optics. It was the optics ].

Yes. So once again, strong per caps, but you will have a -- the percentage increase versus the prior year, which was also high, won't be as much.

Okay, okay. So let me have one last one for you and then one last one for Rita. We [ have to talk about ] the box office and historically the dominance you've had at the box office. How are you now viewing the film industry? What are the changes that you think are in place now post pandemic? And how those changes help or hurt your ability to create franchises and monetize IP, all right? There's a lot there.

I think, well, some things have changed. I think one thing is that the consumption of a movie can be in the theater or at home. I think one thing we have learned is that all movies are not created equal. The audiences are not created equal, so those people who are choosing to go to theaters, they tend to go to theaters for a different product. The ones that have -- and it's not just our movies. It's the industry. The movies that have done the best, so far, as movies have reopened, are action; superhero; and I would call it, adventure. You saw what we did with Doctor Strange. Great opening, continues to perform well. We think -- that's a superhero movie and it's -- we knew that -- we knew -- we believed that our film guests were going to show up in the theaters and they did. That's not necessarily the same for, let's say, adult dramas. A lot of adult dramas, they don't need the big screen. They don't need the wonderful sound. Maybe they -- people like it, but you don't need it. And so some of those people say, "I'm just fine watching those at home." So when we think about the kind of franchises that we build, we have found it's great to utilize theaters because you can have the crowd experience in the theater. People can hoot and howl and high five each other when they see something, but we also saw that we could develop a franchise on Disney+. The Mandalorian is a case in point, a new storytelling. It came out of the Lucas Star Wars kind of group, but it was new -- a brand-new story. And that was -- that is we've had 2 seasons. There'll be another one coming, but that's a franchise. So we know that we can do both. It's great that we can do it, but we're -- we have -- know that we will be able to attract people to go into the theaters. That's why we have talked a lot about the flexibility. It's just not one size fits all.

Right, right. And that with advertising could really set you apart from [ other people's ] business, and that's something that I think the narrative has to be told. Okay, last question for you, Rita. It's kind of [ geeky ]. So thanks to Benne Rosner, who you know from working at Disney -- he's done a ton of work on the opportunity in mid funnel, right? So television always been top-of-funnel brand building; search, bottom of the funnel; engagement, so talk a bit about how you see AVOD [indiscernible] SVOD moving into the middle of funnel. And what are you -- what type of again targeting are you able to do to really engage people in a way in advertising they were not before? So any examples of how you're moving people from top of funnel to mid-funnel. And do you agree this is a huge opportunity for [ someone like yourselves ]?

It absolutely is. So when we brought Hulu onboard, one of the great things that Hulu had started was this whole self-service tool beta. And it was because they wanted to talk to performance marketers. And so performance marketers obviously have very different, smaller budgets. They're more nimble. They tend to have multiple creative. You have to help them with creative. So unlike a major marketer who shows up and he has his beautifully produced multimillion-dollar commercials, a lot of these advertisers require us to help them with creative and creative generation. And so the self-service tool really allowed us to do that, but it was also the tools that we bring to market to service those types of advertisers; how we think about measurement; how we think about the types of environments that they're going to serve; and price, right, because those marketers tend to be more opportunistic, smaller, last minute. So the price models had to be there. And so that tool is really important. And as we think about performance marketers, we learned a lot in that space, right, what it takes to launch a campaign, how they measure, what are the metrics that they're asking for, that helped inform some of our brand big marketers, multinational marketers. And a lot of those, as you know, have started to really look at their customer throughout the funnel, right? So they do brand marketing, but they also want to start to measure outcomes. And so we started to learn a lot of those tools and services that we can bring to those marketers to bring them down the funnel. And they have engaged with us in different ways and bought basically experiences they wouldn't necessarily have bought in a traditional media campaign. We also have small and medium businesses who came in and, all of a sudden, realized, "Hey, I want to be part of the Oscars. I want to be part of a major sporting event." That wasn't really core to how they thought about coming into the funnel and that has happened as well, all right? And so the beauty of what we're seeing now is marketers may come in through a different part of the funnel, but they -- we absolutely can move them. And that's really been identified mostly through our local businesses, right? So we've had our station teams who merged with our Hulu local team. We had multiple teams inside. And they've really been able to drive that together, so the growth in that space has been double digits every year. And they're talking to different types of advertisers because obviously, from our stations, they had very different relationships that -- [ than ] the Hulu performance and local teams, but bringing them together has really been where we've been able to magnify and amplify the opportunity.

Okay, well, Rita, thank you. Christine, thank you. We really appreciate it.

You thank....

Thank you.

[indiscernible]. Thank you. Okay, thanks.