George Bodenheimer at UBS Media Conference
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George Bodenheimer at UBS Media Conference DECEMBER 5, 2005 Disney Speaker: George Bodenheimer Co-Chairman, Disney Media Networks, President, ESPN, Inc. and ABC Sports Moderated by, Aryeh Bourkoff UBS Securities Aryeh Bourkoff- UBS Securities Good afternoon, everybody. I hope you are enjoying your lunch, please continue. My name is Aryeh Bourkoff and I cover the entertainment, cable, and satellite stocks and high-yield bonds for UBS. And I am very pleased to have with us as our first keynote lunch speaker of the week, George Bodenheimer from the Walt Disney Company. ESPN, as many of you know, is the leading multi-media sports entertainment company, and is often recognized by the industry for its innovations in creating content and developing new technology applications. Page 1 George Bodenheimer December 5, 2005 at UBS Media Conference Its leader, George Bodenheimer, is here with us today. He joined the Company in 1981 right out of college, quickly rose through the ranks to oversee the affiliate ad sales and marketing areas, and was strategically involved in the development of many of the ESPN entities that exist today. He is here to tell us about ESPN's success, its main new businesses, since he became president in 1998, and ESPN's growth prospects, George Bodenheimer President of ESPN and ABC Sports and Co-chair of the Disney Media Networks. We are going to hear from George for a presentation and open it up for Q and A. Thank you very much for being here, George. George Bodenheimer - Co-Chairman, Disney Media Networks, President, ESPN, Inc. and ABC Sports Thank you Aryeh, and hello sports fans. I always feel comfortable opening up with that because all of our research always shows that about 85 to 90 percent of all people identify themselves as sports fans, it's a comforting feeling. Anyway, it's great being with all of you here today. It has been a very active year for us. I am going to take you through some of the things we've done in the last year or so and then get into how we're managing our business going forward. Some of the recent developments you can see on the screen. We reorganized our structure to better line up our business objectives. We also signed the NFL, Major League Baseball, World Cup deals, did a major video games deal with Electronic Arts, and launched a number of new businesses, ESPNU, ESPN2 HD, ESPN360, ESPN Deportes Radio, and ESPN La Revista. Our consolidated affiliate sales team closed several major deals. Our ad sales group found a new way to play. And perhaps most importantly, we updated our mission statement. I will give you a bit of detail on each one of these up front. In keeping with Bob Iger's lead, we simplified our organizational structure into six specific areas, as you can see here: content, technology, sales and marketing, international, finance, and administration. This new structure will help us be nimble and take advantages of opportunities as we see fit in the marketplace. We have also had a very busy year negotiating major sports rights. You can see the three major deals we have signed recently, NFL, FIFA, and Major League Baseball. FIFA, of course, is World Cup Soccer, men's and women's. And all of those deals go through either 2013 or 2014. And you can see also the other major product that we already have under contract. It's really a lineup second-to- none in sports. Also, as has been reported, and some of you may have read, we are in ongoing discussions with Nascar and we hope to have an announcement shortly. We're also extremely excited about the move next season of Monday Night Football from ABC to ESPN. As all of you know, Monday Night Football is really a television icon, and I know it's going to thrive on ESPN. Our unique ability to turn a game into a must-see event is what has made Sunday Night Football such a success, and we will do the same for Monday Night Football as only ESPN can. We were searching for a way to significantly participate in the burgeoning video games business and reach our fans in another arena we know they are all flocking to. We were able to accomplish that with a long-term deal with Electronic Arts, and you will see some of the games that we will be participating in. I am very excited about this partnership with those fine people. We have also been busy launching new businesses as ESPN continually does. We are particularly pleased to have moved forward in our effort to serve Spanish speaking fans with ESPN Deportes radio and a Spanish language version of ESPN, The Magazine. ESPNU, our college sports network, fits in perfectly with what has always been at the core of our company, serving college sports fans. We have major distribution deals in place for ESPNU with DirectTV and EchoStar. And less than a year into business, it is truly off to a great start. ESPN 360, our broadband product, is also extremely promising. It's now available through 11 ISPs in the United States and was part of the groundbreaking Disney-wide deal we announced with Verizon just a few weeks ago. Just a year ago, the Disney, ABC, and ESPN affiliate sales groups joined forces and they're also off to a great start. You can see here the long-term deals they have negotiated just in the past year with DirectTV, EchoStar, Adelphia, and, as I mentioned, Verizon. I grew up in this side of the business at ESPN, so I feel well versed to tell you that these deals have continued to grow in scope and significance. We have been doing these for 25 years now and they bear little resemblance to the deals we were doing just 10 years ago. For example, the DirectTV agreement includes 18 separate services, such as ESPNU, ESPN HD, Disney Channel, SOAPNet, ESPN2HD, and on and on. On the ad sales front, similar to affiliate sales, we're not resting on our laurels. By listening closely to our advertising clients, we decided on a new way to go to market, and we executed on that strategy this past year. Our new way to play is about a sales force in which the myriad of ESPN and ABC Sports platforms are on the table for every deal and not sold separately. It's about a transformation in the way we demonstrate the benefits of advertising with us. It's no longer just about ratings or circulation. It's about an association with the world-class ESPN brand, and a change of focus from advertisers' return on investment to return on objective, or the real impact of our media on their business objectives. And we're already seeing results. In this year's Page 2 George Bodenheimer December 5, 2005 at UBS Media Conference upfront, 50 percent of all of our deals of $2 million or more (and that's over 150 deals) included more than one medium, or said another way, a medium other than television. Our wireless licensing business, for example, which offers ESPN content to a variety of wireless carriers, pulled in $1.2 million dollars in the upfront. This service was not even sold in the upfront as little as a year ago. In addition, we had a record year in our international business. I am particularly pleased with our growth in Latin America. We have worked very hard over the last year to improve our operations in Latin America with cost control as a major priority. We're always looking to build the international strength of our leading franchise SportsCenter. This year, we launched new versions of SportsCenter in Spanish and Cantonese. As you know, wireless technology is exploding around the world. ESPN has launched a new wireless effort in Japan and we're exploring others in the U.K., Argentina and Brazil. That's a look back at where we have been over the last year or so. Going forward, we are extremely bullish about our financial prospects. We have the majority of our sports rights locked in through long-term deals. Similarly, we have subscriber rates locked in, or soon to be locked in, through long-term affiliate deals. And as a result, we're comfortable with our ability to deliver double-digit profit growth on average through 2009. In addition, this year, and perhaps most importantly for those of you who know about ESPN, we updated our mission statement. We have been working under our mission statement created 10 years ago and it badly needed updating to better reflect what the ESPN business is today and more importantly where it's going. Our mission - very simple - to serve sports fans wherever sports are watched, listened to, discussed, debated, read about, or played. In our business, this requires three things as we look ahead: Acquiring broad rights, creating unique, innovative and cutting-edge content, and harnessing technology. This, of course, is right in sync with Bob Iger's mission for the Walt Disney Company as you may have seen in this morning's Wall Street Journal. When we walk into a rights negotiation, we have to make it clear that we're not just in the TV business anymore. We need broad rights to fuel our many new and traditional businesses. We're no longer walking in as a cable network. We're going to the table as a sports multi-media company.