Walt Disney Company (DIS) Q2 2018 Earnings Conference Call Transcript

The Walt Disney Company (DIS -0.49%)
Q2 2018 Earnings Conference Call
May 8, 2018, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Hello, and welcome to the second quarter 2018 Walt Disney Company earnings conference call. My name is Michelle and I will be your operator for today's conference. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and during your question-and-answer session, if you have a question please press * then 1 on your touchtone phone. Please note that today's conference is being recorded. I will now turn the call over to Mr. Lowell Singer, Senior Vice President of Investor Relations. Sir, you may begin.

Lowell Singer -- Senior Vice President of Investor Relations

Good afternoon, and welcome to The Walt Disney Company's second quarter 2018 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 web cast, and a copy of the webcast and a transcript will be available on our website.

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 we'll then, of course, be happy to take some questions. So, with that, I'll turn the call over to Bob and we'll get started.

Robert A. Iger -- Chairman and Chief Executive Officer

Thanks, Lowell, and good afternoon, everyone. We're very pleased with our results in Q2, especially in our Parks and Resorts and Studio businesses. Our parks continue to drive growth through operational excellence and by effectively leveraging our extraordinary content. As an example, I just got back from opening our new Toy Story Land in Shanghai Disneyland. I'm happy to report that our first major addition to the park was met with strong reviews and great excitement. We're thrilled with the reaction and the enthusiasm generated by the new Land bodes well for future expansion.

Toy Story Land also opens in Orlando next month. Star Wars Galaxy's Edge will open in both Disneyland and Disney World by the end of calendar 2019. There's a lot more expansion under way in our Parks and Resorts around the world.

Turning to our studio, it's hard to come up with enough superlatives to adequately express the tremendous work that team is doing. It's clear from the recent results, as well as from the slate ahead, that our studio has and will continue to raise the bar in terms of both creative and commercial success.

The incredible performance of Marvel's Black Panther is just one of many examples. This groundbreaking movie opened to huge acclaim and record-breaking box office, instantly becoming a cultural phenomenon inspiring people of all ages, and breaking down age-old industry myths. With more than $1.3 billion in box office to date, Black Panther makes a very loud statement about the importance of risk taking and the value of inclusion. We're proud of this movie on so many levels. It speaks volumes about great innovative storytelling.

The power of new perspectives and unbridled creativity. We follow the phenomenal success of Black Panther with another Marvel masterpiece -- Avengers Infinity War, which broke domestic and global records to become the largest movie opening in history. With its latest success, our studio has delivered 9 of the top 10 biggest domestic box office openings of all time, all of them released in the last 6 years.

Infinity War crossed a billion dollars at the box office faster than any film ever released, with worldwide box office of $1.2 billion to date, before it has even opened in China. Judging from strong ticket pre-sales and the anticipation I saw during my recent visit, Chinese audiences are eager to see this movie too. There are now 19 movies in the Marvel Cinematic Universe, with a combined box office of more than $16 billion, and an average box office of $845 million per film.

The MCU is by far the most lucrative box office franchise of all time, creating an incredible pipeline of proven branded IP that drives significant opportunity across our entire organization. The rest of our studio slate is just as impressive, starting with Solo: A Star Wars Story, which is generating a lot of interest and strong buzz ahead of its Memorial Day weekend opening.

We'll follow that by releasing a dozen big movies over the next 18 months, including Incredibles 2, Ant-Man and the Wasp, Ralph Breaks the Internet, Mary Poppins Returns, Captain Marvel, Dumbo, Avengers 4, Aladdin, Toy Story 4, The Lion King, Frozen 2, and Star Wars Episode 9.

Looking at this collection gives you a real sense of what's in store when we launch our Disney branded, direct-to-consumer service in late 2019. We are creating a truly unique value proposition for consumers, a service focused on quality over quantity, featuring film and television product from our foremost collection of family oriented brands. Our content strategy includes a rich mix of beloved classics, recent releases, and new content being created exclusively for the new platform by Disney, Pixar, Marvel, and Lucasfilm.

We'll share more details in the coming months, including the robust slate of original movies, series, and other content currently being developed. The deeper we delve into the possibilities of this platform, the more excited we are by its potential to drive value, and we're more confident than ever that we're creating an exceptional entertainment experience that consumers will find very appealing.

On the sports front, we're very encouraged by the reaction to our ESPN+ service, which launched just about a month ago. The reviews have been strong and the response of sports fans has been enthusiastic. The new deal we announced this morning will add a rich slate of UFC content to the mix, including live events and original content created exclusively for ESPN+.

As we've said before, our incomparable collection of strong brands recognized and respected the world over puts us in great position to lead the way when it comes to building the direct relationships with consumers that will define the future of media. Our recent reorganization reflects our determination to effectively capitalize on a rapidly changing landscape increasingly defined by transformative technology and evolving consumer expectations.

Our studio and media networks are content engines for the entire company and we're maximizing their value by combining the management of our direct-to-consumer distribution platforms, technology, and international operations to deliver the entertainment and sports content that people around the world want most, with far more choice, personalization, and convenience than ever before.

We're also merging consumer products and Parks and Resorts together, combining strategy and resources to create extraordinary experiences and products that bring our stories and characters to life for consumers inside our parks, at home, and beyond. We believe this new structure positions our businesses for the future, creating a more effective global framework to serve consumers worldwide, promote growth, and maximize shareholder value. It brings our operations into even closer alignment with our long-term strategy, creating high quality content, innovative use of technology, and global expansion, including robust direct-to-consumer distribution.

If you recall, when we announced the Fox deal we noted that it would serve these same strategic priorities. For this reason, we're confident the assets were in the process of acquiring will easily fit within our new structure once the deal is approved. We're still deep in the regulatory process, so I can't share any more information or engage in further speculation about the deal, except to say that we strongly believe in the value of those assets as part of our ongoing strategy to create growth in a very dynamic global marketplace.

I'm going to turn the call over to Christine to discuss details of our Q2 results and then we'll be happy to take your questions. Christine?

Christine M. McCarthy -- Senior Executive Vice President and Chief Financial Officer

Thanks, Bob. Good afternoon, everyone. We are pleased to report another quarter of outstanding financial performance. Excluding certain items affecting comparability, earnings per share for the second fiscal quarter were up 23% to $1.84. Our results this quarter reflect strength in our Parks and Resorts and Studio Entertainment segments. At parks and resorts, revenues increased 13% and operating income was up 27%, driven by growth at our domestic and international parks and resorts.

I'll note that second quarter results reflect the benefit of one week of the Easter holiday period, whereas the two-week holiday period fell entirely in the third quarter last year. We estimate the timing of Easter drove a $47 million benefit to operating income. This benefit was partially offset by the adverse impact of a 14-day drydock of the Disney Magic, which reduced Disney Cruise Lines' operating income by about $20 million.

The segment delivered another quarter of stellar results with revenue and operating income setting new Q2 records, even after taking into account the net impact of these two items. Higher operating income at our domestic parks and resorts was primarily due to higher guest spending and attendance, partially offset by higher costs. Per capita spending was up 6% on higher admissions, food and beverage, and merchandise spending. Per room spending at our domestic hotels was up 12% and occupancy was up about 2 percentage points to 90%. Attendance at our domestic parks was up 5% in the quarter, and reflects about a 2 percentage point benefit from the timing of the Easter holiday.

So far this quarter, domestic resort reservations are pacing down 4% compared to prior year, reflecting reduced-run inventory due to conversions and ongoing room refurbishments, and the impact of only one week of the Easter holiday period in the third quarter compared to two weeks last year. Booked rates are pacing up 8%.

At our international parks and resorts, growth and operating income was due to increases at Disneyland Paris and Hong Kong Disneyland Resorts. At Disneyland Paris, the resort's 25th anniversary celebration continued to drive higher guest spending, attendance, and hotel occupancy. Growth at Hong Kong Disneyland Resort was due to increases in occupied room nights and attendance. At Shanghai Disney Resort, unfavorable weather early in the quarter resulted in lower attendance, which drove a decrease in operating income compared to prior year. However, we saw a nice recovery starting in March and expect this positive trend to continue given the recent launch of Toy Story Land.

Total segment operating income margin was up 220 basis points compared to Q2 last year. Our Studio had another phenomenal quarter. Operating income was up 29% to $847 million, setting a new second quarter record. Growth and operating income was due to increases in our theatrical and home entertainment businesses and growth in TV/SVOD distribution.

We had expected Q2 theatrical results to face a comparability challenge given the performance of Beauty and the Beast and the carryover performance of Rogue One and Moana during the second quarter last year. However, as Bob discussed, we couldn't be more pleased with the performance of Black Panther, which surpassed our expectations and drove a meaningful increase in our worldwide theatrical results.

Turning to media networks, operating income decreased in the second quarter due to lower equity income and a decline at cable. Equity income was lower in the quarter due to higher losses at Hulu, partially offset by higher income from our investment in A&E. The higher losses at Hulu were primarily driven by continued investment in programming and marketing, partially offset by higher subscription and advertising revenue.

Cable operating income was lower in the quarter due to losses BAMTech and, to a lesser extent, lower results at Freeform and ESPN. I'll remind you that BAMTech's results last year were reflected in equity in the income of investees, but are now reported as part of our cable results due to our acquisition of a controlling stake last year. The operating loss at BAMTech for the second quarter reflects ongoing investment in its technology platform, including costs associated with ESPN+. We now expect BAMTech's results to have an adverse impact on media networks fiscal 2018 operating income of $180 million compared to the prior year. This is $50 million worse than our previous estimate, due primarily to increased investment in ESPN+.

I'll also note that about $100 million of the full-year impact is expected during the third quarter. At ESPN, higher programming expenses more than offset growth and affiliate and advertising revenues. The increase in programming spend was driven by the timing of both the college football playoff semi-final Bowl games and the start of the major league baseball season, and contractual rate increases for other college sports, and NBA programming.

Like last year, ESPN aired 3 of the new year's 6 Bowl games during the second quarter. However, the mix of games included the two semifinal games in Q2 this year, whereas the semifinal games aired in the first quarter last year.

Ad revenue at ESPN was up 3% in the quarter, due to higher rates which benefited from the timing of the college football playoff semi-final Bowl games. We estimate the shift of the 2 semifinal bowl games into Q2 this year had a positive impact of about 5 percentage points on ad revenue growth in the second quarter. So far this quarter, ESPN's cash ad sales are pacing down 1% compared to prior year. Broadcasting results were comparable to Q2 last year, as growth and affiliate revenue was offset by a decrease in advertising revenue, lower income from program sales and higher network programming and marketing expenses.

The decrease in advertising revenue was due to fewer network impressions, partially offset by higher rates. Lower income from programs sales primarily reflects higher sales of How to Get Away With Murder in Q2 last year compared to this year. Quarter-to-date prime time scatter pricing at the ABC network is running 27% above upfront levels. Total media networks' affiliate revenue was up 5% in the quarter due to growth at both the cable and broadcasting higher affiliate revenue was driven by 7 points of growth due to higher rates, partially offset by about a 3-point decline due to a decrease in subscribers.

While the impact of subscriber declines on affiliate revenue growth still around 3 points, I'll note that this is the third consecutive quarter we've seen modest deceleration in the rate of net subscriber decline. And finally, consumer products and interactive media results were lower in the quarter, as higher licensing income was more than offset by lower comparable store sales in our retail business and an unfavorable foreign exchange impact.

During the second quarter, we repurchased 12.2 million shares for $1.3 billion. Year-to-date, we've repurchased 31.3 million shares for approximately $3.2 billion. And with that, I'll now turn the call over to Lowell, and we'd be more than happy to take your questions.

Lowell Singer -- Senior Vice President of Investor Relations

Thanks, Christine. Operator, we're ready for the first question.

Questions and Answers:

Operator

Thank you, sir. We will now begin the question-and-answer session. If you have a question, please press *1 on your touchtone phone. If you wish to be removed from the queue, you may press the # sign or the # key. If you're using your speakerphone, you may need to pick up with your handset first before pressing the numbers. Once again, if you have a question, please press *1 on your touchtone phone at this time.

The first question in the queue comes from Ben Swinburne from Morgan Stanley. Your line is open.

Ben Swinburne -- Morgan Stanley & Co. -- Analyst

Thank you. I have two questions -- one on the Parks business and one on your digital strategy. Whether you look at the recent results, Bob, over the last few years, the Parks have been growing operating income at I think a pretty healthy, double-digit clip. Can you talk about the runway ahead for that business, whether it's sort of pricing power capacity at the hotels you mentioned, or Christine mentioned 90% occupancy, the ability to drive additional operating leverage? I think your margins are at all-time highs. When you look out over the next 3 to 4 years assuming the economy's OK, can you just talk about the drivers of continued growth at the levels we've gotten accustomed to?

And on the digital front, I don't know if you can answer this but I thought I'd take a stab. You know you announced your digital pivot last year ahead of the Fox announcement. So maybe you could talk about how essential or not Fox and its associated global assets are to your digital strategy as you look out over time.

Robert A. Iger -- Chairman and Chief Executive Officer

Sure. Thanks, Ben. On the first question, we think that there's ample room for expansion. It'll come from multiple directions. One, with expanse I'm talking about growth, obviously, the bottom line. One will come from expansion. As you know, we are building out all of our parks, including the Toy Story Land that's about to open in Florida, the one that just opened in Shanghai, the cruise ships, the two Star Wars Lands, multiple hotels around the world, new lands and in places like Paris and Tokyo, and I could go on. So, that's one.

Two, we believe that the use of our IP, which is part of a lot of this expansion, creates growth. And of course, the more popular our IP is, the more in demand it is at our parks. Another opportunity is in pricing as we build out these experiences in terms of scope and scale, but also as we make them better experiences using technology to do things like book attractions in advance, etc. We believe that gives us pricing leverage that comes from simply delivering a better experience.

The last is that business has been great at running under very efficient circumstances. And while we're not going to promise continued margin expansion, we certainly believe that opportunity exists. So, we feel overall great about the future of this business, particularly by the way, as we get to build out some of the newer parks, Shanghai being probably the best example of that.

On the second question, we announced, as you suggested, the two new digital products -- the ESPN+ product and the Disney product -- well in advance of the Fox acquisition, and so neither one is dependent upon that acquisition. Both are capable of taking advantage of some of the assets we'll be buying as part of that acquisition. On the sports front, the regional sports networks.

And then on the Disney front, we think there's some great opportunities for a Nat Geo and some of the other Fox properties to be part of the Disney Family direct-to-consumer proposition. But that largely is going to be anchored by Disney, Marvel, Pixar, and Star Wars. So, not dependent at all on the assets we're buying from Fox.

Of course we end up in this acquisition owning 60% of Hulu, and it is our intention to continue to fuel Hulu with more original programming and much of that original programming will come from the assets of both Disney and Fox. Think FX as one example, Searchlight as another, of us using some of the other Fox intellectual property.

But I'd say when we announced a year ago, we were not talking about Hulu; we were talking about these two new properties. Again, neither is dependent upon, but stands to benefit from the Fox acquisition. That's helpful. Thank you.

Lowell Singer -- Senior Vice President of Investor Relations

Thanks, Ben. Operator, our next question please.

Operator

Thank you, sir. The next question in the queue comes from Jessica Reif from Bank of America. Your line is open.

Jessica Reif -- Bank of America Merrill Lynch -- Analyst

Thank you. Two questions. On ESPN+, I know it's early days, but can you talk about any learnings you've had so far regarding consumer behavior or the technology? You've added original content, you announced today. Do you think you need more? And how that would apply to the Disney DTC? And then we're going into upfront actually next week. Can you talk about your views of how the market shaping up and given the changes in the overall environment, how do you think the sales process will change?

Robert A. Iger -- Chairman and Chief Executive Officer

The first part, we are not going to give you statistics on ESPN+, except to say that so far, so good. A number of people have signed up obviously for the trial and our conversion rates have been good so far. Most importantly, the technology is working. The user interface is considered good. The fan reaction has been quite strong. We're going to continue to improve it. There's always opportunity to get better and that's what we'll do. But basically I'd give it a so far, so good.

I watched, not on a Wi-Fi connection, but I watched the other day a live Yankee game basically while I was sitting in my car and the quality was fantastic. I've found that as I've customized it with my favorite teams etc. and so on, that it's serving me and my sports interests quite well. I assume that's the case with other consumers.

We did announce today the acquisition of the UFC events starting in 2019 for 5 years. That's a start. We intend to continue to invest in buying product that is original or that is specific for the app, both live sports and non-live sports. We've also moved some product over there and put some library product over there. We think that there's a lot of opportunity for us to continue to fuel that experience with product you don't get to see on the linear networks. Just as a for-instance, we've launched the equivalent of us a short Sports Center that that Scott Van Pelt is doing that will be available on a daily basis. So, there's a lot of opportunity and we're going to continue to invest.

On the Disney front, we're in right now the process of creating a lot of original content. We're launching in late 2019. That's to wait for some of our movie output to become available once the Netflix deal expires, and also to give us an opportunity to ramp up some of the original content that we're creating for it. We've said a few times we're going to get more specific about that as we get closer, but we're producing original content that is Pixar-branded, Marvel-branded Star Wars-branded, and Disney-branded.

We are feeling quite good about the direction that we're headed there. In the Disney case, we're looking for quality over quantity. We're not looking for essentially massive amounts of content. We're looking for high-quality content utilizing those brands and the franchises and characters that fall under those brands. Right now, I feel good about both.

Christine M. McCarthy -- Senior Executive Vice President and Chief Financial Officer

On the upfront, Jessica, we feel really good about where we are with both the ABC properties, as well as the Disney Television Group, as well as ESPN as we enter those. Right now where we see the season to date, we've got good ratings momentum with a couple of new shows -- American Idol, as well as Roseanne. We feel really good about the other shows that we'll be presenting next week.

One of the things that is different is about a year ago, we consolidated the ad buying or the ad selling through our Disney ABC Television Group. So this is the first upfront that they're up and running as a single sales entity. So we think that's also going to help our upfront sales.

Jessica Reif -- Bank of America Merrill Lynch -- Analyst

Thank you.

Lowell Singer -- Senior Vice President of Investor Relations

Thanks, Jessica. Operator, next question please.

Operator

Thank you, sir. The next question comes from Michael Nathanson from MoffettNathanson. Your line is open.

Michael Nathanson -- MoffettNathanson -- Analyst

Thanks. Bob, I have two for you. The first one is, I wanted to hear a bit about the reorg you guys put through in March, where you shifted advertising, content sales, international to one division. What are we trying to gain by doing that?

And then secondly, when you think about what you've done in China in putting a park there to kind of build awareness for the Disney brand, as you move to more of a global RTT strategy, would you ever consider building parks in other parts of the world as kind of a brand beacon for just the overall interest in Disney's products?

Robert A. Iger -- Chairman and Chief Executive Officer

I'll answer the second part first. We think that there's opportunity to expand in China and there may also be opportunities in other parts of the world. We are constantly engaging in conversations with people from different markets who would love us to put Disneyland in their market. We're going to take a look at some of them because of the population base that lives in those markets, and consider all the factors that we typically have to consider, which are things like economic and political stability, spendable income, other infrastructure issues, you name it. But I'd say that there's an inevitability to us building parks in other countries. But it doesn't necessarily mean that we're going to build something anytime very soon, but we're going to look.

On the first question, when we were considering the best way to integrate the Fox assets, we asked ourselves how best to organize the company. One of the things that we looked at was how some of the new entrants in the marketplace are organized. You typically find Netflix is a good example, that they have global platforms that their content is basically being distributed on. That includes a global means of managing customers, data management, billing, customer acquisition, customer retention, you name it. It's essentially one technology.

I then thought if all these assets were to come together today from Day 1 and, in fact, on Day 1 without the legacy organizational issues, how would you best organize them? It became clear that we could be organized not only in a more efficient way, but in a more modern way to take into account how our businesses have been transformed by technology. That led to a decision to reorganize now, well ahead of the Fox acquisition, because if it made sense once we buy Fox, it seemed to make sense even before that.

So what we basically did is we have three primary content divisions. One I'll call media networks or television. Another one would be sports, ESPN. The third is the Studio. The fox assets would plug into all three of those. Then there was a division that was mostly focused on physical goods and experiences, where there were some obvious synergies and overlap and efficiencies really, between consumer products and parks and resorts.

Then we looked at creating essentially a global platform or distribution business that would include technology and would ultimately leverage the technologies that exist across the globe and across our current businesses. But then factor in the technologies that exist in the assets that we are acquiring. it seemed to make sense that international become part of that part, because as part of the acquisition there are two big platforms -- Sky and Star that are part of that. And so if this acquisition happens, it seemed to make sense that the international assets and the platform assets are in one business.

So, there's just a lot of efficiencies in managing the way we take all this IP to customers around the world. It's our intention to create a great user experience and an efficient way, not only of our moving the content people, but an effective way of monetizing it. It really dovetails with exactly why we're interested in these assets, which is to continue as a company to invest in and to create great products and experiences around the world, to invest in great technology to make it more modern and more innovative in terms of how customers interface with it, and diversify the company internationally.

Michael Nathanson -- MoffettNathanson -- Analyst

Thank you, Bob.

Lowell Singer -- Senior Vice President of Investor Relations

Michael, thank you. Operator, our next question please.

Operator

The next question comes from Alexia Quadrani from J.P. Morgan. Your line is open.

Alexia Quadrani -- J.P. Morgan Securities -- Analyst

Thank you very much. On the studio side, Avengers has been such a huge home run. Is there any opportunity for another content cycle upon the conclusion of the series after the next film? Or maybe just any color you can provide in general on your confidence that this incredible Marvel success can continue.

Robert A. Iger -- Chairman and Chief Executive Officer

Well, we've got right now the Marvel films that we've announced, is we have Ant-Man and the Wasp coming up. Then we have Captain Marvel and then we have the fourth installment of The Avengers which will be May of 2019. We meet on a regular basis with our Marvel team. We plotted it out Marvel movies that will take us well into the next decade. We're confident that with the 7,000-some-odd characters that are part of the Marvel Universe, that there's plenty of stories and characters to mine from and have some great ideas. I'm guessing that we will try our hand at what I'll call in a new franchise beyond Avengers, but that doesn't necessarily mean that you won't see more Avengers down the road. We just haven't made any announcements about that.

The goal of course was for the fourth Avengers series to have a significant conclusion, but given the popularity of the characters and given the popularity of the franchise, I don't think people should conclude that they'll never be another Avengers movie. But there's certainly a lot more stories tell and a lot more characters just to populate those stories with.

Christine M. McCarthy -- Senior Executive Vice President and Chief Financial Officer

Alexia, I'm going to add a comment on Avengers. I think the outstanding performance is nothing short of stellar, but there is one difference in this movie versus some of the others. I'll just point to the most recent one -- Black Panther -- and that's the size of the cast. When you think about it, if you've seen it, you've seen a couple of dozen Avengers in the movie. So, because of the size of the cast involved, the cost of the movie, all the special effects, the scale, the magnitude, while this is going to be very profitable, it may not be at the same return level of some of the other films just because of the sheer scale of it.

Alexia Quadrani -- J.P. Morgan Securities -- Analyst

I guess just jumping on that point, when you talk about the size of the cast, how should we think about the CP opportunity given the success since you do have so many characters in the movie?

Christine M. McCarthy -- Senior Executive Vice President and Chief Financial Officer

On the CP, for consumer products, this was one of 4 Marvel releases this year, along with Thor, Black Panther, and as Bob mentioned, the upcoming Ant-Man, but this is the largest property from a consumer products perspective. So, we do expect this to perform well for the balance of the year.

Alexia Quadrani -- J.P. Morgan Securities -- Analyst

Thank you very much.

Lowell Singer -- Senior Vice President of Investor Relations

Thanks, Alexia. Operator, next question please.

Operator

Thank you. The next question comes from Marci Ryvicker from Wells Fargo. Your line is open.

Marci Ryvicker -- Wells Fargo Securities -- Analyst

Thanks. I have two questions. First, can you talk about your marketing strategy around the launch of ESPN+? I know there's been a lot of concern in the market about upfront costs for both ESPN+ and for the Disney DTC app, so anything we can glean on at least marketing around that. And then secondly, can you remind us how big Toy Story Land Shanghai is relative to the Shanghai park and maybe your expectations for what this can do you, either drive attendance or have people stay longer? Thank you.

Robert A. Iger -- Chairman and Chief Executive Officer

The marketing strategy for ESPN+ is relatively modest in nature. We have primarily resorted to using time and marketing opportunity on the ESPN platforms, including the channels, the magazine, the websites, and the existing app. ESPN digital is the most popular sports digital product out there. It dwarfs some of the competition, and that gave us ample opportunity to promote basically what is a new app experience. So the marketing costs are modest. There's some investment in additional programming prior to launch, but we made more investment with the announcement of UFC. That doesn't come until 2019. We're going to continue to invest in product to make ESPN+ a real digital sports marketplace.

We're not going to give you specifics about the size of the Toy Story Land but it marked a substantial increase in expansion of that park. Building a new land. It's not as large, by the way, as the Toy Story Land that we're opening this summer in Orlando. But having been there last week, it's sizable in nature. It's got some great attractions -- retail and dining experiences. It makes a dent in terms of the scale of the park. But we have ample opportunity to grow Shanghai Disneyland beyond what we've already built.

Marci Ryvicker -- Wells Fargo Securities -- Analyst

Thank you.

Lowell Singer -- Senior Vice President of Investor Relations

Thanks, Marci. Operator, next question, please.

Operator

The next question is from Todd Juenger with Sanford Bernstein. Your line is open.

Todd Juenger -- Sanford C. Bernstein & Co. -- Analyst

Thanks a lot. One on advertising and one on content. Probably I guess for Christine, maybe. Thank you, as always, for the pacing number on ESPN. I was hoping maybe you'd be willing just to decompose that just a little bit in rough terms for us. Especially with the NBA seeming so strong in both audience and it looks like more games this year. One would think that would be a strong positive contributor to year-over-year growth. The pacing is, I think you said -1. It makes you wonder what the downs are. One thinks of Sports Center and all the hours particularly related to that. So, I'm not looking for specifics here, but if you could help maybe dimensionalize the positive and negative contributors, that would be awesome.

Bob, I'll try and make this faster. On the content for the entertainment direct-to-consumer strategy, you've talked many times on this call about the original content that you have in your minds and you're going to share with us I know over the coming months. You didn't talk much about the library content both at Disney or at Fox, as currently contemplated. What are your current thoughts, if you don't mind sharing them, on the importance and the role of that library content, especially a TV product in your entertainment service, especially relative to the revenue it generates in traditional syndication? Do you think it's OK to be in both places or is it important to be exclusive to your service and when and where that makes sense? Thanks.

Christine M. McCarthy -- Senior Executive Vice President and Chief Financial Officer

Okay, Todd. I'll take the average advertising question first for ESPN. In my comments, I did mention that quarter-to-date it was pacing down 1%. That was rounded up to 1%. So, where we are with the NBA finals with the teams that are remaining and what we anticipate being the Eastern Conference final, we feel really good about the prospects of advertising performing well in the balance of this quarter.

Robert A. Iger -- Chairman and Chief Executive Officer

On the content side, we are fully committed. I want to emphasize the use of the word "fully" to not only bringing this product out to market but making sure it's a success long term. "Long term" is the operative words to use here because in order for this to be successful long term, it has to become the destination to watch Disney, Marvel, Star Wars, and Pixar product. And that means ultimately weaning ourselves of product being available any other place except for the current linear channels that are in the marketplace.

This will become the destination globally for our movie library and our television library. We certainly hope to augment the product with some of the product we will be buying with the 21st Century Fox acquisition. Nat Geo comes to mind as a perfect opportunity for what will be a more family oriented app. But we are committed to this working, and that will mean both making product that is original for this app, but also migrating all of our other product that exist on many other platforms that are distributed and monetized by third parties, available on an exclusive basis through this app.

Todd Juenger -- Sanford C. Bernstein & Co. -- Analyst

Very helpful, thanks.

Lowell Singer -- Senior Vice President of Investor Relations

Thank you, Todd. Operator, next question, please.

Operator

The next question in the queue comes from Steven Cahall from Royal Bank of Canada.

Steven Cahall -- RBC Capital Markets -- Analyst

Yeah, thank you. Two for me. Bob, one for you and then one for Christine. Bob, I was just wondering if you could maybe reiterate how you view the strategic fit of Sky in the overall portfolio? To some of us, Sky maybe always looked like it was a little different than the rest of what you were buying with Fox, and now that things have changed there with the counteroffer on Sky, I was just wondering if you could help us put that all into the context of your strategy.

And then Christine, you had a really strong quarter for free cash flow. I think pension might have helped. Your buyback cadence has been running a little lower, but probably still in line with guidance, so just any update you might give us on what the buyback might look like this year. Thanks.

Robert A. Iger -- Chairman and Chief Executive Officer

We are buying the 39% of Sky that is part of the 21st Century Fox's assets. We know they're attempting to buy the remaining 61%, that should they be successful, we would step into their shoes and on the whole thing. We value Sky, obviously. We're certainly impressed by the talent that is there and the quality of the product. Actually, we're particularly impressed with the quality of the customer experience, the user experience, and the customer service they provide. That's certainly something that Disney can appreciate, given our record of providing high quality customer service.

I'm not going to in any way quantify what the strategic fit is, except to say that in today's world, a platform that can bring product to consumers in very user friendly and effective ways and then to monetize it in the process is something that we believe is attractive. We're not going to provide anything, any update on your other question. We're not going to address that.

Christine M. McCarthy -- Senior Executive Vice President and Chief Financial Officer

No. You're absolutely right that free cash flow is very strong. But what we've said is that we would buy 10 billion by the time that the Fox transaction closed. But as it relates to this year, we've got no change to make at this time.

Steven Cahall -- RBC Capital Markets -- Analyst

Thank you.

Lowell Singer -- Senior Vice President of Investor Relations

John, thank you for the question. Operator, I will take one more question.

Operator

The next question in the queue, sir, comes from Kannan Venkateshwar from Barclays. Your line is open.

Kannan Venkateshwar -- Barclays -- Analyst

Thank you. Just a couple from me. First is, in terms of the investments in OTT, just wanted to figure out how much of the cost is already in the system, especially when it comes to things like technology now that ESPN+ is light, and how much remains to be done?

Then, Bob, from your perspective, when you look at a product like ESPN+, can that at some point become an aggregator itself in the sense that you know you could put together a bundle of sports networks and provide it through ESPN+ instead of just having content that you own? Thanks.

Robert A. Iger -- Chairman and Chief Executive Officer

Yes, Kannan. On the first question, the technology, when we acquired BAMTech, that provided us with the technology that we needed to launch ESPN+. And so the costs associated with that, we were quite transparent when we announced the deal. Christine actually commented about them in her earnings call are already baked into this from a technology perspective. And then on the second part of the question, our goal here is to create a sports marketplace on ESPN+. That will include a number of sports that we've already licensed and sports that we are in the process of licensing, including the deal that we announced today, as well as the some of the sports that we would be acquiring as part of the 21st Century Fox acquisition. There are opportunities to license beyond what we've already done.

Christine M. McCarthy -- Senior Executive Vice President and Chief Financial Officer

Yeah, Kannan, just to put some numbers around the technology investment. This is BAMTech total, but a lot of this is for their technology platforms. Back in November, we told you that it would have an impact on 2018 of about $130 million, and we have said that that will now be $50 million more. So the estimate for the full year was $180 million. $100 million of that will be next quarter, but a lot of that is technology investment among other expenses related to BAMTech.

Kannan Venkateshwar -- Barclays -- Analyst

Thank you.

Lowell Singer -- Senior Vice President of Investor Relations

Thanks, Kannan. 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 and statements as to the expected timing, completion, and effects of the proposed transactions 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, Securities and Exchange Commission filings we'll make in connection with the proposed transactions, and in our other filings with the Securities and Exchange Commission. Thanks again for joining us. This concludes today's call. Bye.

Operator

Thank you, Ladies and Gentlemen. This concludes today's teleconference. Thank you for participating. You may now disconnect.

Duration: 45 minutes

Call participants:

Lowell Singer -- Senior Vice President of Investor Relations

Christine M. McCarthy -- Senior Executive Vice President and Chief Financial Officer

Robert A. Iger -- Chairman and Chief Executive Officer

Ben Swinburne -- Morgan Stanley & Co. -- Analyst

Jessica Reif -- Bank of America Merrill Lynch -- Analyst

Michael Nathanson -- MoffettNathanson -- Analyst

Alexia Quadrani -- J.P. Morgan Securities -- Analyst

Marci Ryvicker -- Wells Fargo Securities -- Analyst

Todd Juenger -- Sanford C. Bernstein & Co. -- Analyst

Steven Cahall -- RBC Capital Markets -- Analyst

Kannan Venkateshwar -- Barclays -- Analyst

More DIS analysis

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