Bob Iger President and Chief Executive Officer, the Walt Disney Company
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Sanford C. Bernstein Strategic Decisions Conference MAY 28, 2008 Disney Speaker: Bob Iger President and Chief Executive Officer, The Walt Disney Company PRESENTATION Michael Nathanson – Analyst, Sanford C. Bernstein I'm Michael Nathanson. I'm the Media Analyst at Sanford Bernstein. And I am so pleased today to have our guest with us, Bob Iger, the President and CEO of The Walt Disney Company. Bob is joined today by Tom Staggs, Senior Executive Vice President and CFO of Disney; and Lowell Singer, Senior Vice President of Investor Relations. And on behalf of Sanford Bernstein, I really want to thank Bob and the Disney team for coming in today to participate in this conference for us. Bob, thank you. Page 1 Sanford C. Bernstein & Co. Strategic May 28, 2008 Decisions Conference Bob Iger –President and Chief Executive Officer, The Walt Disney Company Good morning. Michael Nathanson – Analyst, Sanford C. Bernstein Good morning to you. Over the past few years, as Disney has exceeded analyst estimates, improved return on capital, continued to innovate; you've often used the phase the “Disney Difference." Can you explain to our audience how that difference has affected your performance? Bob Iger –President and Chief Executive Officer, The Walt Disney Company Well, we've been using the term to -- or as a means of -- describing why and how we think our company is different than most or all of our competitors in the media and entertainment space. And it starts -- and this has a direct impact on the results -- it starts with the fact that we have the only global brand in the media and entertainment space that has real value, from a consumer point of view, in terms of what I'll call platforms and distributors -- that's everything, by the way, from technology platforms like FIOS to platforms like mass retail platforms -- we have access; the brand has meaning there. And it also has meaning in terms of access to territories, meaning geographic territories. So brand value, particularly when it is fueled with great creativity, has a direct impact on our superior results. Secondly, we now have a company that owns a number of platforms that are Disney branded, that give us the ability when we have success in one business to leverage that success across company-owned businesses much more effectively than our competitors, and much more effectively than we could in the past. And there are numerous examples of that. One of the best and most recent is High School Musical, which began as a relatively inexpensive Disney Channel movie, whose success is now being leveraged in just about every Disney branded business in the company, from Consumer Products, video games and publishing, to music; to parks and resorts, where High School Musical shows can be seen; to our studio, which is releasing a feature film, High School Musical, et cetera, et cetera. But that ability to leverage success without having to license to third parties, but essentially to take it in ourselves, is quite significant. Page 2 Sanford C. Bernstein & Co. Strategic May 28, 2008 Decisions Conference And then in addition to the brand value and the ability to leverage success, we also have a collection of platforms that provide marketing support. And in a day and age where there's a significant amount of competition, breaking through the clutter to let people know product exists is a real challenge, and can also get extremely expensive. And so not only do these platforms give us the ability to break through the clutter, but they provide efficiencies as well. But more than anything, I'd say that it's the brand value that we really are talking about the most when we're talking about this difference. Michael Nathanson – Analyst, Sanford C. Bernstein Okay. If you look over the next three to five years, let's say, what are your targets -- areas that you think that you need to develop, let's say – the next two or three areas that really will matter in the next three or five years, that you're focusing right now on, on expanding into? Bob Iger –President and Chief Executive Officer, The Walt Disney Company Well, this company starts with great creativity. And in terms of expansion, meaning growth, most of it will emanate from creativity. And we're fortunate now that we have more than one creative engine at the company which was, for years, the studio. This is the case, by the way, with many media and entertainment companies. The motion picture studio is their primary creative engine. And that was true for Disney for decades. Now we have creative engines in many parts of the company -- the Disney Channel a great example, the studio, of course; parks and resorts, video games, publishing, et cetera. And we believe that we can leverage the breadth of that creativity now in more ways, and basically grow the bottom line, to create growth. We're also really focused on growing internationally. And there are a number of initiatives underway there. But one that's getting, I think, quite interesting is -- we really believe that while we can effectively distribute Disney product globally -- meaning product made in the U.S. -- the notion that there's a one-world culture, we think, is not necessarily the case. And while our culture works well in many parts of the world, we Page 3 Sanford C. Bernstein & Co. Strategic May 28, 2008 Decisions Conference believe that it's also wise for us to create locally generated content, and we're investing significantly -- Disney branded in that regard. And so, growing internationally, but also basically building creative excellence -- becoming a creativity company rather than just a distribution company in these markets-- is really important. And of course using technology -- as an example, we're launching Disney.com, a new version in France this week. We're putting the new version of Disney.com out in multiple markets around the country -- taking something like Club Penguin, or the new virtual worlds that we're creating -- online social networking for kids -- and moving that not only in the United States effectively but to markets around the world -- also really important. Michael Nathanson – Analyst, Sanford C. Bernstein Okay. Let me turn to ESPN. In the ESPN cable model, it's straightforward. The leagues have accepted long-term commitments from you in return for giving you the ability to exploit those rights on television. But as new markets develop, like the Web and mobile, is there a risk that the league will either hold back those rights or make the entry price so high that it's uneconomical to get into the business? How do you look at those new opportunities? Bob Iger –President and Chief Executive Officer, The Walt Disney Company Well, in most cases, ESPN, when it buys -- when it licenses sports rights -- from leagues, in most cases, licenses all rights -- NBA is a good example, as is NASCAR. In the NBA's case, they license rights to put the NBA on 17 different platforms, as an example. So ESPN has plenty of opportunity to exploit rights in new media. In two cases -- and they're significant -- ESPN's rights are limited. One is the NFL, and the other is Major League Baseball, where, in both cases, those leagues have opted to go their own way in that regard. We believe over time that ESPN's ability to access more digital rights will grow, in part because these leagues realize that being part of ESPN in an integrated basis is good for their business. The exposure that ESPN creates for these leagues -- keeping them Page 4 Sanford C. Bernstein & Co. Strategic May 28, 2008 Decisions Conference relevant -- is really valuable. And there are examples of this, of leagues that have opted not to be on ESPN. And what's happened in leagues that have, particularly those that have opted to be omnipresent in terms of ESPN platforms -- there's real value. And I think that -- now it may cost ESPN a little bit more money going forward; I'm not suggesting they'll be given to ESPN for free -- but I think that we will be able to strike deals that expand our rights. And in doing so, there'll be mutual benefit. Where we believe it gets too costly, as we've done in the past, then we'll walk away from it, because we believe ESPN has enough rights to put their brand and their product on new platforms anyway. And while it would be great to have everything, the cost and the returns on that investment will have to be weighed. Michael Nathanson – Analyst, Sanford C. Bernstein Right. One of the things [I'll] say to you -- I remember a couple years ago, there could be this thesis where ESPN could be outflanked by a FOX Sports or a Versus. But clearly, the past four or five years, you've only gotten stronger. So how have you changed your own kind of internal marketing or programming of ESPN to meet those challenges? Bob Iger –President and Chief Executive Officer, The Walt Disney Company Well, first of all, while I think the last four or five years have been great for ESPN, and while I don't think anyone has truly threatened their position in sports, we do not take that for granted. That's true across the company. The creative success that we've been experiencing, or other forms of success -- we've been around when that hasn't been the case.