05 Earnings Call
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Disney’s Q4 and fiscal ’05 Earnings Call NOVEMBER 17, 2005 Disney Speakers: Bob Iger President and Chief Operating Officer and CEO-Elect, The Walt Disney Company Tom Staggs Chief Financial Officer, The Walt Disney Company Moderated by, Wendy Webb Sr. Vice President, Investor Relations and Shareholder Services, The Walt Disney Company Page 1 Q4 and Fiscal ’05 Earnings Call November 17, 2005 Operator Good day ladies and gentlemen. Thank you for standing by, and welcome to the Walt Disney Company's fourth quarter 2005 earnings conference call. My name is Carlo, and I will be your coordinator for today's presentation. At this time, all participants are in a listen- only mode. We will be facilitating a question and answer session towards the end of today's prepared remarks. [OPERATOR INSTRUCTIONS] It is now my pleasure to turn the presentation over to your host for today's conference, Wendy Webb, Senior Vice President of Investor Relations and Shareholder Services. Please proceed. Wendy Webb - Walt Disney - SVP, IR, Shareholder Services Thank you. Good afternoon and thanks for joining us. On the call with us today are Bob Iger, President and Chief Executive Officer, and Chief Financial Officer, Tom Staggs. Bob will lead off followed by Tom. Then we will open up the call to you for Q&A. We’ll try our best to conclude the call before 5:30 p.m., Eastern Time. So let's get started. Bob? Bob Iger - Walt Disney - President, CEO Thanks, Wendy. I'm pleased to report that we achieved our goal of delivering double-digit EPS growth for the year, despite the challenges we faced in the studio in the fourth quarter. Our continued strong performance this year reflects how well-positioned the Company is for the future. I've been in my new role at Disney for just under two months, and during this time have been listening with great interest to the debate among various constituencies, about old media versus new media. What this debate highlights, is the simple fact that the world is changing, due in large part to advances in digital technology that have led to an explosion in media, resulting in increases in content, distribution, and communication. This is a global phenomenon, as we are seeing the growth of mass media infrastructure in both developed and emerging markets. Competition for the consumer remains fierce, as consumers with a limited amount of leisure time have significantly greater choice. Distribution methods and new more sophisticated consumer electronics devices are multiplying, offering consumers far more flexibility, customization, and control over how, when, and where they consume content. With this dynamic in mind, we established three strategic priorities to meet the challenges of this era, to best position Disney to reach our goal of delivering long-term growth, and increased shareholder value. And they are once again, driving creativity and innovation, applying technology, and global expansion. I would like to reinforce them, as they tie closely to our current performance, and will continue to serve as our roadmap for the future. Nothing is more important to us than creativity. It's central to our growth over the long-term. Great creative content, whether a TV series, movie or theme park attraction is powering us today, and will continue to drive us into the future. It is essential that our creative efforts remain vibrant, relevant, and to a large extent branded, most notably Disney and ESPN, as we believe demand for branded content will grow in a universe of choice. To that end, all of us are extremely pleased with the early results of feature animation's first all CGI film, 'Chicken Little.' However, we recognize that this early success is only a first step. Animation is, and will remain, at the heart and soul of Disney. It provides the basis for cultivating enduring characters and franchises that extend across our businesses. As such, developing high quality Disney animated films is our number one creative pursuit, and thus investing in this business is essential. Our focus on creativity also includes attracting great talent, partnering with great talent, and creating differentiated content designed specifically for new media platforms. Delivering high quality content will enable us to occupy new technological space, and allow to us cross geographical borders. Our growing publishing business at Starwave Mobile, our recent acquisition of Living Mobile, and ESPN’s 360 broadband product are just a few strong examples of our creative efforts in this direction. Page 2 Q4 and Fiscal ’05 Earnings Call November 17, 2005 The application of technology is another priority. As new distribution platforms and consumer electronics devices penetrate our markets, we expect a voracious appetite for content, and in particular high quality branded content. No new platform, whether it is a consumer electronics device or a multi-channel system, can penetrate a market and retain customers without offering great content. This creates enormous opportunities for The Walt Disney Company. We firmly believe in a platform agnostic approach to distribution, as well as capturing a first mover position under the right circumstances. We believe that the strength of our brands and content drives our first mover opportunities and in turn affords our brands and content premiere positioning, pricing, instrumental marketing support, and platforms that promote strong brands to drive interest in their service. Our recent deal with Apple for both ABC and Disney Channel programming, is a great example of our approach. We have a long line of potential distribution partners interested in our content. While we undoubtedly will strike new deals, deals have to offer the right economics, acceptable consumer proposition, strong protection for our IP, and an otherwise favorable environment for our content, which is what Apple provided. We will not make deals for purposes of making headlines. Instead we are focused on getting our product into the marketplace on a well timed, well protected, and well priced basis. Apple recently announced it sold 1 million video downloads in less than 20 days since the launch of its video service, noting that 'Desperate Housewives' and 'Lost' were among the top downloads, which is fitting proof that demand exists, and that consumers are willing to use new, legitimate distribution methods and devices to access content in new ways. Technology also powers creativity and innovation. Across our Company, we are using technology to improve our product, and remain on the leading edge of entertainment offerings. Our relationship with consumers is all-important, and we are committed to delivering the best consumer experience possible. 'Chicken Little' in digital 3D, ABC, and ESPN's wide array of programming in high-def, and our attraction 'Expedition Everest' that opens in Walt Disney World this spring, are excellent examples. Based on the positive consumer reaction to 'Chicken Little' in 3D, we now plan to release 'Meet the Robinsons' in 3D format in fiscal '07. Applying technology to enhance our content and extend its distribution enables us to get closer to our increasingly more sophisticated consumers worldwide. Based on consumer demand, it is essential that we continuously reevaluate traditional business models and adapt accordingly. Our investments in ESPN Mobile and Disney Mobile are key examples of how we are placing bets on branded content and wireless services, to drive both a stronger connection with our consumers, as well as long-term returns. This is one of the smartest things we can do as a Company, to be thoroughly in touch with our customers, in-tune with our markets, and on top of emerging trends. Global expansion is the third prong of our strategic priorities. While globalization remains a challenge, we have tremendous opportunities to better penetrate international markets, both developed and emerging. In emerging markets where disposable income is rising and mass communications infrastructure is growing, we plan to aggressively expand our businesses. With the opening of Hong Kong Disneyland in September, we now have an important driver for all Disney businesses in the region. During its first two months of operation, the resort has achieved among the highest guest satisfaction scores we have ever seen, which points to the quality of our product, its word of mouth marketing potential, and it's outlook over the long-term. It is imperative that we continue to make strides to better reach, address and represent the diverse global markets we serve. As we expand our businesses and brands into emerging markets, we are making strategic investments in local content. For instance, we are currently developing original Disney-branded movies in China and plan to do the same in India. Financial performance will be the ultimate measure of our success as our strategic priorities are put into action. We intend to be disciplined in our approach to our current cost structure and our investments. This investment approach extends not only to our internal development, but also to how we approach acquisitions. As we have stated in the past, we do not feel the need to acquire assets just to get bigger, or simply to wade into new space. We are prepared to move wisely and quickly in order to respond to rapid changes in the marketplace. In order to do so, we are placing greater authority while emphasizing accountability at the business unit level. Page 3 Q4 and Fiscal ’05 Earnings Call November 17, 2005 I'm very realistic about the challenges that lie ahead for our Company, and I'm extremely enthusiastic about our creative capabilities, strategic direction, the strength of our senior management team, and our willingness to adapt or change our businesses or structure to best serve our consumers and marketplace conditions.