The fiscal year started off with a demonstration that while the movie business is still very volatile, the revenue stream from films is now much larger and stretches over a longer period as a result of the growth of the international and, especially, home video markets. This growth really helps successful films. That continues to be the secret. Make good films at the right price. For this reason, in the first and second quarters of fiscal 2004, we had huge success from the international and home video releases of such blockbuster 2003 films as Pirates of the Caribbean, Finding Nemo and Freaky Friday.

In addition, demonstrating the incredible value of the Disney library, we also benefited from the DVD re-release of The Lion King. Also during the first quarter, we began to see the resurgence of attendance at our parks, with some record-setting days at Walt Disney World during the holidays. It was shaping up to be a very good year, and, as you can see, one of the primary drivers, as always, was fantastic creative product – in our films and in our parks.

As the year continued, we saw strong growth in our other two
primary business units as well – Media Networks and Consumer Products. Consumer Products showed what can be achieved by the shrewd combination of creativity and great business sense, as the Disney Princess line grew to an amazing $2 billion at retail. As for Media Networks, the domestic Disney Channel was the number one cable network in ‘tweens (kids 9-14) in primetime for the fifth year in a row, our international Disney Channels expanded to 22 with the addition of Japan, SOAPnet grew to nearly 40 million subscribers and ESPN continued to prove itself as one of the greatest assets in all of television. Not only does it serve as the TV home base for millions of men (and women too), but in 2004 we further expanded its offerings with the Spanish language ESPN Deportes, and we also opened ESPN's Digital Center to keep the network on the cutting edge of sports coverage.

Toward the end of the year, the good news at Media Networks came from the ABC Television Network, which had three of the strongest new series of the new season. Actually, they were more like sensations – the kind of "water cooler" shows that every network hopes to have – Lost, Desperate Housewives and Wife Swap. In addition, Extreme Makeover: Home Edition demonstrated that Reality TV can be a quality experience that doesn't just involve people eating bugs or jumping off of buildings. And so, we ended the year as we began it, propelled by the success of outstanding, original creative content embraced by millions of people.

Of course, we always like to err on the side of conservative analysis and projections, but the fact is that Lost and Desperate Housewives show every indication of being long-time hits. This is made even more significant by the fact that we produce and own these shows through our Touchstone Television production group. The financial returns on a successful network show can be substantial, especially once it goes into syndication. But the importance goes even further, since these shows become "building blocks" for other programs, providing a large audience for the promotion of future new shows. This is how networks periodically climb from last place to first, which is precisely what we aim to do with ABC.

continue to part III of Letter to Shareholders >>

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Julie Andrews, the official ambassador of Disneyland’s 50th anniversary celebration, is joined by Michael Eisner (left) and Art Linkletter (right) for last May’s announcement of the global golden anniversary festivities.

In November, Disneyland’s golden anniversary ambassador Julie Andrews was on hand when Tournament of Roses officials announced that Mickey Mouse would serve as the Grand Marshal of the 2005 Rose Parade.