Looking to Disney Entertainment studios, we're focused on improving the quality of our films and on better economics, not just reducing the number of titles we release but also the cost per title. And we're maximizing the full impact of our titles by embracing the multiple distribution windows at our disposal, enabling consumers to access their content in multiple ways. For example, Avatar: The Way of Water, which is now the third highest grossing film of all time, is also on track to be the biggest ever electronic home video release for Disney domestically. Certain other titles will be sold in the download-to-own window as well. By focusing on big franchises and tentpole films, we're able to generate interest in our existing library. For example, we're seeing tremendous engagement on Disney+ with the previous Guardians of the Galaxy films, the original Avatar and the first four Indiana Jones movies.

But the value of our Disney entertainment studios and the reason this will be a key growth business for us extends far beyond our library and new releases. What sets Disney apart are the numerous ways we're able to reach consumers with the stories and characters they love, including in our parks and resorts. We'll be opening new Frozen theme lands at Hong Kong Disneyland and Walt Disney Studios Park in Paris as well as the Zootopia theme land at Shanghai Disney Resort. And later down the road, we will be bringing an Avatar experience to Disneyland, reinforcing the unrivaled worldwide appeal of our brands and franchises. Our Parks and Experience segment overall has had an impressive streak and will continue to be a key growth engine for the company, even as we navigate the cycles that come with operating this business.

Our Cruise Line in particular showed strong revenue and operating income growth in the third quarter. Current Q4 booked occupancy for our existing fleet of five ships is at 98% and we will be expanding our fleet by adding two more ships in fiscal '25 and another in fiscal '26, nearly doubling our worldwide capacity. In addition to our Cruise Line, strong segment results for the quarter were driven by solid performance at our international parks, and we also saw continued strength at Disneyland Resort. Our Asia parks have been doing exceptionally well, reinforcing a clear opportunity for continued growth. Both Shanghai Disney Resort and Hong Kong Disneyland have experienced stronger-than-expected recoveries from the pandemic. And in Q3, they both grew meaningfully in revenue, operating income and attendance.

We saw softer performance at Walt Disney World from the prior year, coming off our highly successful 50th anniversary celebration. Also as post-COVID pent-up demand continues to level off in Florida, local tax data shows evidence of some softening in several major Florida tourism markets. And the strong dollar is expected to continue tamping down international visitation to the state. However, Walt Disney World is still performing well above pre-COVID levels, 21% higher in revenue and 29% higher in operating income compared to fiscal 2019, adjusting for Starcruiser accelerated depreciation. And following a number of recent changes we've implemented, we continue to see positive guest experience ratings in our theme parks, including Walt Disney World and positive indicators for guests looking to book future visits.

This includes strong demand for our newly returned annual passes. We're making numerous investments globally to grow our parks business over the next five years, and I'm very optimistic about the future of this business over the long term. The third area that will drive growth and value creation for Disney is our direct-to-consumer business. When you consider our path to profitability in streaming, it's important to remember where we started and how we've adapted based on what we've learned. We overachieved with massive subscriber growth for Disney+ out of the gate and we leaned into a spending level to fuel subscriber growth, which had been the key measure of success for many. All of this happened while we were still determining the right strategies for pricing, marketing, content and specific international market investments.

However, since my return, we've reset the whole business around economics designed to deliver significant, sustained profitability. We're prioritizing the strength of our brands and franchises. We're rationalizing the volume of content we make, what we spend and what markets we invest in. We're deploying the technology necessary to both improve the user experience as well as the economics of this business. We're harnessing windowing opportunities, perfecting our pricing and marketing strategies, maximizing our enormous advertising potential and we're making extensive Hulu content available to bundle subscribers via Disney+. As I announced last quarter, we're moving closer toward a more unified one-app experience domestically to pair high-quality general entertainment with content from our popular brands and franchises for our bundle subscribers.

spatuletail/Shutterstock.com

It's a formula for success that we have already proven in international markets with our Star offering on Disney+. We see a future where consumers can access even more of the company's streaming content all in one place, resulting in higher user engagement, lower churn and greater opportunities for advertisers. We're also very optimistic about the long-term advertising potential of this business. Even amid a challenging ad market, this quarter, we began seeing early signs of improvement. And I'm pleased to announce that as of the end of Q3, we've signed up 3.3 million subscribers to our ad-supported Disney+ option. Since its inception, 40% of new Disney+ subscribers are choosing an ad-supported product. On our pricing strategy, this year alone, we've raised prices in nearly 50 countries around the world to better reflect the value of our product offerings, and the impact on churn and retention has outperformed our expectations.

Later today, we will release details regarding upcoming streaming price increases. And I'm pleased to share that our ad-supported Disney+ subscription offerings will become available in Canada and in select markets across Europe, beginning November 1, while a new ad-free bundled subscription plan featuring Disney+ and Hulu will be available in the U.S. on September 6. Maintaining access to our content for as broad an audience as possible is top of mind for us, which is why pricing for our stand-alone ad-supported Disney+ and Hulu offerings will remain unchanged. I'd also like to note that we are actively exploring ways to address account sharing and the best options for paying subscribers to share their accounts with friends and family. Later this year, we will begin to update our subscriber agreements with additional terms on our sharing policies and we will roll out tactics to drive monetization sometime in 2024.

Our DTC ambitions also extend to our sports business. Taking our ESPN flagship channels direct-to-consumer is not a matter of if but when. And the team is hard at work looking at all components of this decision, including pricing and timing. It's interesting to note that ratings continue to increase on ESPN's main linear channel even as cord cutting has accelerated. This rating strength creates tremendous advertising potential across the board. Our total domestic sports advertising revenue for linear and addressable is up 10% versus the prior year adjusted for comparability, which speaks to the fact that the sports business stands tall and remains a good value proposition. We believe in the power of sports and the unique ability to convene and engage audiences.

Yesterday, it was announced that ESPN has entered into an exclusive licensing arrangement with PENN Entertainment to further extend the ESPN brand into the growing sports betting marketplace. This licensing deal will offer a compelling new experience for sports fans that will enhance consumer engagement. We're excited to offer this to the many fans who have long been asking for it. Overall, we're considering potential strategic partnerships for ESPN, looking at distribution, technology, marketing and content opportunities where we retain control of ESPN. We've received notable interest from many different entities, and we look forward to sharing more details at a later date when we're further along in this process. Looking to our broader linear business.

While linear remains highly profitable for Disney today, the trends being fueled by cord cutting are unmistakable. And as I've stated before, we are thinking expansively and considering a variety of strategic options. However, we're fortunate to have an array of extremely productive television studios that we will rely on to continue providing exceptional content for audiences well into the future. And speaking of the content we create, I'd like to say a few words about the ongoing strikes. Nothing is more important to this company than its relationships with the creative community, and that includes actors, writers, animators, directors and producers. I have deep respect and appreciation for all those who are vital to the extraordinary creative engine that drives this company and our industry.

And it is my fervent hope that we quickly find solutions to the issues that have kept us apart these past few months, and I am personally committed to working to achieve this result. In closing, I returned to Disney in November and have agreed to stay on longer because there is more to accomplish before our transformation is complete and because I want to ensure a successful transition for my successor. In spite of a challenging environment in the near term, I'm overwhelmingly bullish about Disney's future for the reasons I shared at the beginning of this call. The work we've done over these past eight months are core foundation of creative excellence and iconic brands and franchises and because of the unrivaled talent we have at every level here at Disney.

I have the highest confidence in our leadership team today, and I'm enormously proud of the ways each of them is helping steer the company through this moment of great change. And with that, I'll turn things over to Kevin.

Kevin Lansberry: Thanks, Bob. It's good to be here and good afternoon, everyone. Our fiscal third quarter diluted earnings per share, excluding certain items were at $1.03, a decrease of $0.06 versus the prior year. In the coming months, we will be presenting recast financials in line with our new reorganized segments: Disney Entertainment, ESPN, and Parks, Experiences and Products. So today will be the last earnings call, where we will discuss our numbers under the existing structure. Now turning to this quarter's results. Starting off with direct-to-consumer. As Bob referenced earlier, we've improved direct-to-consumer operating results by $1 billion in just three quarters. For Q3, operating losses improved by approximately $150 million versus the prior quarter and by approximately $550 million versus the prior year.

These results outperformed the guidance we gave on the last earnings call, largely due to lower-than-expected expenses, including from realizing SG&A savings sooner than initially expected. Disney+ core subscribers grew by nearly 800,000 during the third quarter, in line with the commentary we made at our last earnings call, with international growth more than offsetting modest domestic net losses. As Bob mentioned, our progress will vary from quarter-to-quarter and we are more focused on overall economics versus pure sub growth. But currently, we do expect that in the fourth quarter, we will see core Disney+ net adds rebound with growth both domestically and internationally. Disney+ core ARPU increased sequentially by $0.11 driven by higher per subscriber advertising revenue domestically, as well as price increases in certain international markets.

With over 40% of gross adds opting for the ad tier, the domestic Disney+ ad tier is continuing to improve our ARPU. And we look forward to the additional market launches announced today, which should serve as a stepping stone on our path to profitability. Disney+ Hotstar subscribers declined this quarter as we adjusted our product from one centered around the IPL to one more balanced with other sports and entertainment offerings. I would also note that this business with its significantly lower ARPU compared to core Disney+ is not a material component of our overall D2C financial results. We will therefore continue to focus our commentary on the core Disney+ product. Hulu and ESPN+ subscribers were roughly comparable to Q2. Hulu remained profitable in the third quarter with advertising revenue increasing versus the second quarter, benefiting sequentially from a higher sell-through rate.

In Q4, we expect D2C ad revenue to continue to benefit from higher advertiser demand at Hulu as well as from the ramp-up of the Disney+ ad tier. As we work toward achieving D2C profitability by the end of fiscal 2024, we don't necessarily expect the progress to be linear each quarter as the impacts of the transformative work we are doing take time to realize. We expect to see more meaningful improvement in our D2C losses by middle of fiscal 2024. These expectations and plans remain subject to all of the risks and assumptions we previously identified and are noting here today, which will require close and ongoing assessment. But we remain encouraged by the early results we've already realized and are optimistic about our path ahead. Moving on to our content sales line of business.

Operating results declined by a little over $200 million versus the prior year. Lower results in the third quarter versus the prior year were due to lower TV/SVOD and theatrical results. For Q4, we expect this business to generate operating losses up to $100 million worse than last year's fourth quarter. And at Linear Networks, operating income declined versus the prior year by $580 million driven by declines at both domestic and international channels. The decrease at domestic channels was driven by lower advertising and affiliate revenue and by higher programming and production costs driven by the NBA and the new Formula One agreement. While domestic linear advertising revenue declined year-over-year, ESPN ad revenue increased by 4%, demonstrating the relative strength of sports.

Quarter-to-date, ESPN domestic linear cash ad sales are pacing down, reflecting in part the absence of the Big 10 this year. It's worth noting, however, that the absence of the Big 10 is expected to drive overall operating income favorability in Q4 versus the prior year. The fourth quarter will also hold one additional Monday night football game versus the prior year. Linear advertising continues to see impacts from market softness. While sports is healthy, entertainment continues to face headwinds. Note that we expect D2C advertising year-over-year growth to partially offset linear declines in the fourth quarter. And we wrap this year's upfront with overall volume roughly in line with the prior year. Growth in addressable revenue increased, representing over 40% of the total upfront volume, and sports pricing is up single digits across the board.

Domestic Linear Networks affiliate revenue decreased by 2% from the prior year due to a 6-point decline from fewer subscribers, partially offset by 4 points of growth from contractual rate increases. International channels operating income decreased versus the prior year, driven by lower advertising revenue and to a lesser extent, an unfavorable foreign exchange impact. Our Parks, Experiences and Products portfolio of businesses continues to be an earnings and free cash flow growth driver for the company, with both revenue and operating income increasing by more than 10% versus the prior year. International parks continued its strong growth trend with year-over-year operating income increasing at all our international sites, but most significantly at Shanghai Disney, which saw record highs from a revenue, OI and margin perspective.

At domestic Parks and Experiences, operating income was up 24% versus pre-pandemic results in fiscal '19, but declined 13% versus the prior year. In addition to the inflationary cost pressures we have discussed on prior calls and some of the near-term headwinds at Walt Disney World that Bob mentioned earlier, results reflect an approximately $100 million accelerated depreciation charge related to the closure of the Galactic Starcruiser. These drivers were partially offset by favorable performance at our Cruise Line and at the Disneyland Resort. While Walt Disney World results were down year-over-year, as Bob mentioned, operating income was nearly 30% higher versus 2019 when adjusting for the Starcruiser accelerated depreciation. Domestic parks attendance grew slightly year-over-year, reflecting comparisons against last year's strong trends coming out of the 50th anniversary at Walt Disney World.

Per cap spending was comparable to the prior year with contributions from pricing, Genie+ and higher food and beverage spend offset by attendance composition changes and lower merchandise spend. Excluding the impact of the Starcruiser accelerated depreciation, domestic parks and Experiences operating margins in Q3 were roughly 3 percentage points below the prior year, and DPEP margins were slightly higher than the prior year. We continue to expect some moderation in demand at our domestic parks, as we compare against our highly successful 50th anniversary celebration at Walt Disney World and the burn-off of pent-up demand persists, while elevated travel costs are impacting international visitation. We are also seeing continued cost pressures in the fourth quarter, predominantly from labor wage rate growth, coupled with $150 million of remaining accelerated depreciation for the Galactic Starcruiser.

However, we still expect all-in Q4 operating margins at DPEP to exceed the prior year due to the ongoing strength of recovery at our international parks and Cruise Line. Putting this all together, excluding the impact of accelerated depreciation for the Starcruiser, we are still expecting full year total company revenue and segment operating income to grow at a high-single digit percentage rate versus the prior year. We currently expect fiscal 2023 content spend to come in at approximately $27 billion, which is lower than we previously guided due to lower spend on produced content, in part due to the writers' and actors' strikes. We now expect capital expenditures for the year to total $5 billion. This is lower than our prior guide, primarily due to spending timing shifts for various projects across the enterprise.

In the midst of the transformative work we have been doing, we are prioritizing long-term free cash flow growth and have generated $1.6 billion of free cash flow in the third quarter. Our balance sheet remains strong with our single A credit ratings reflecting that strength. We have made significant progress deleveraging coming out of the pandemic, and we continue to approach capital allocation in a disciplined and balanced manner, prioritizing investments to generate future growth while also keeping an eye towards shareholder returns. And to that point, as we've mentioned before, we still expect to be in a position to recommend that the Board declared a modest dividend by the end of this calendar year with the intention to recommend increased shareholder returns over time as our earnings and free cash flow power grows.

And with that, I will turn it back over to Alexia for Q&A.

Alexia Quadrani: Thanks, Kevin. As we transition to the Q&A, we ask that you please try to limit yourself to one question in order to help us get to as many as possible today. And with that, operator, we're ready for the first question.

See also 10 Best Warehouse and Self-Storage Stocks To Buy and 10 Best Inexpensive Stocks To Buy Right Now.

To continue reading the Q&A session, please click here.