NEW YORK, June 8: At a presentation to investors yesterday at the Deutsche Bank Securities' Media Conference, Bob Iger, the president and COO of The Walt Disney Company, and soon to be CEO, discussed the companys relationship with Pixar and emphasized the importance of new technologies.
Its been 86 days since you were named CEO-elect. I imagine it's been an interesting three months for you.
It's been an interesting three months. Obviously the company has been doing well, there's a fair amount of momentum, that momentum is across the board, as was evident is our last earnings remarks. Things, generally speaking, are healthy at the company.
In those 86 days, and I think a lot of this is coincidental, the company has managed to resolve its relationship with Bob and Harvey Weinstein, and the future of Miramax, ESPN extended its deal with the NFL for eight years, we were upgraded by the S&P, ABC sold somewhere in the neighborhood of $500 million more in the Upfront versus last year, we've opened up talks again with Pixar, and we've also started a pretty significant restructuring of corporate, which I think is an appropriate thing for the company to do given the nature of our businesses and the times. So, it's been a pretty busy 86 days. We've managed to see over that time 10,000 of our employees face to face, including the 70 new ones we hired in Mumbai, India.
I've spent a fair amount of time concentrating on our key strategic priorities. They are, first and foremost, creativity and content creation. We think that's the heart and soul of the company, where we need to allocate most of our money and our time, our people resources as well. We think the world sets us up well to take advantage of that investment. Second to content creation is the application of technology, the digital age is upon us, and so it's vital for us to migrate from traditional media platforms to new media platforms, to use technology as a real growth driver, particularly to use it to distribute our content more broadly, more efficiently. Also to use technology to create more compelling content. And then the last prong is globalization. This is a company that needs more depth globally and we've been hard at work creating strategies to do just that.
How do you manage a company like Disney?
One of the most important things is to make sure your creative processes are vibrant. We've had a pretty good run in terms of our creative successes, notably ABC, and it's imperative for us to maintain that momentum. To do so the corporation has to create a healthy creative environmentthat requires a fair amount of empowerment and trust, which is something I've talked a lot about. And also supporting our creative processes with an adequate amount of capital, but making sure that we approach creativity with some financial discipline.
When I talk about empowerment, that's something we're applying to the general management of our businesses. The move we made basically eliminating strategic planning in its prior form and ultimately reconstituting it in a different form was designed to do just that. I intend to work closely with senior management, creating goals, basically joint strategies, but then making sure they have a real sense of ownership over those strategies and the ability to execute them, again with a fair amount of trust associated with it but also accountability. I think there is a need for some centralization at Disney, particularly when it comes to managing franchises across the businesses, there's a real consistency thats necessary.
One of the most important things I need to do is, in a world where digital technology is all around us, it's very, very important to create a balance between managing our traditional businesses and continuing to drive shareholder value from the success of those businessesthe studio, ESPN, consumer products, ABC, the theme parksbut not allow the management of those traditional businesses to get in the way of the very important migration to new media platforms. The competition is going to get the best of us if we don't move our businesses in that direction.
Is the process for the approval of capital projects changing at Disney?
Yes. We've taken what was strategic planning and moved a number of the senior people into business units to actually create strategies for those business units. They finally have not only the freedom to create some strategies, but also the resources, people wise, to do that. They hadn't had that before. I also intend to create a process that is rigorous enough in terms of vetting these strategies, but not make it so rigorous that all entrepreneurial spirit is killed.
Digitalfriend or foe?
Huge friend. I think digital technology is really allowing us to do four things. One, we can reach many more people, particularly when you add mobile to it. Secondly, it's going to give us a huge opportunity to get closer to our customer. The third is that the life span of our content will be much longer. And the fourth, to make better product. HDTV is a lot better than traditional TV. HD DVD is going to be a lot better than the current DVD platform. With that will come greater consumption. So it's clearly friend. You could argue whether it's creating more headaches for us in terms of competition. But there's much more potential and possibilities in terms of the kind of content you can create, how you reach people, how you get to know your customers, the fact that you can exist anywhere, anytime.
What business models do you think you'll be using to get that content direct to the consumer?
I think you're going to see a real blend. The customer is going to have a lot more authority than ever before. I'm very excited about the notion of taking a traditional dot-com site, factoring in the speed of connectivity and bandwidth, and all the devices content can be consumed on, and basically putting it on steroids to create these robust content portals. That's really exciting for me, particularly with brands like ABC News, Disney and ESPN. The notion of creating a network that is a multimedia play, where you access text, watch slow-motion video, design your own programming to some extent, and then make it all portable. That's very exciting.
If you've got strong brands and strong content and the financial wherewithal to continue to invest in not only creating great content but applying technology in a positive sense, you can be very well positioned in this new world.
How do you deal with the near-term downside of digital technologyDVRs and ad skipping, piracy?
With DVRs, it's not a simple answer. We've seen penetration go up. With that seems to be a rise in consumption. What we've got to figure out is a way to capitalize on that increase in consumption. How can you embed, in some form, advertising messages? What can you provide the advertiser that the analogue world provided but that the digital world doesn't provide? I think you'll see a lot of direct marketing opportunities that are created by this technology. We're in a lot of discussions with advertisers. It's in our best interest and theirs to see to it that we find a place for the advertiser in this brave new world.
You mentioned talks with Steve Jobsare you optimistic about Disney's relationship with Pixar?
I'm not sure I want to give you odds. We've had really good discussions. The goal is, to use Steve's term, see if we can reach common ground, which is basically trying to determine what are the critical issues for both companies and is there a deal that makes sense for both sides. Obviously we've not gotten to that point. We haven't gotten to the point where it doesn't make sense either. The fact that we're having a dialogue is really a good thing. We've gotten to understand the issues that are most important to both sides, whether they're financial or creative or both. We'd like to figure out a way to continue to do business with them. But it is too early to tell.
Last year you said it would take more than one hit to fix ABCit turns out you were right.
ABC is in much better shape than it wasthe power of a few hits. We think we can continue to capitalize on those successes and build on them. We own all three by the wayLost, Desperate Housewives and Grey's Anatomy. Two or three are rolling out on the international market. These are going to continue to generate value for the company over, we think, a fairly long period of time.
Network TV is still a challenging businesssomewhat low margin, single revenue stream, falls prey to the ups and downs of the marketbut ABC positioned itself extremely well from a creative perspective and business wise. The sales team's decision, and it was theirs, to go into the marketplace quickly and reasonably was a very, very good decision. They booked a lot of business before anyone else opened up shop and drove nice increases in cpms and great increases in terms of market share and $500 million year to year on roughly the same amount of inventory. If things continue along the same lines, then ABC stands a good chance to be profitable. They're on track to have a modestly profitable year this year and obviously the success in the upfront goes a long way in terms of supporting strong economics next year.
Any early sense of how the Upfronts are looking for the cable networks?
Signs are decent but too early to tell.
Looking at the Disney channels, you've been investing more in programming, in international channels. Is there more investment to come?
We're still investing internationally. We're also still launching. We launched in India in December. We just launched in Vietnam. We hope to at some point launch in China, although the regulatory environment there is such that I'm not sure that's going to be easy to accomplish. On the domestic side, we don't have advertising revenue so it's all fee-based and the fees for the Disney Channel, while they are healthy, moderate in terms of growth. But we're using it as a very important platform for the company to brand build. It's one of the single biggest drivers of people's perception of Disney, so we think there's value in continuing to invest in original programming.
On the film side, what are you focusing on there?
On the live action side, moderating investment, being reasonable in terms of how we invest, given the nature of that business. Also focusing on Disney-branded live action movies and on franchises. In animation, virtually all of our work in 3D. The first is Chicken Little this fall. We think it's going to surprise a lot of people. I liken our theatrical release animation to a giant wave machine that has the ability to create a ripple effect across so many of our businessesonline, theme parks, games, TV, the Disney Channels.
Any concerns about the pace of DVD growth over the next few years?
We're still doing fairly well. We do see moderation, particularly in terms of number of units bought by a new DVD household, which I think is to be expected because these are not early adopters anymore, so they tend to be less avid in terms of their buying habits. We've also seen some price pressure, but mostly on library titles, and we're not that impacted because when we bring a library title out we usually do it in an event nature. That said, we see this as a business completely flattening out about 07, and that's why we're so intent on bringing the next generation forward. Better quality, more capacity, much more robust in terms of anti-piracy technology.
How do you see new media relative to Disney's opportunity to create value?
The new media businesses seem to have more sex appeal than the old media businesses. My goal is not to be treated like an old media company. If you were to sit in a Disney senior staff meeting today, you'd hear a litany of discussion about how to we move traditional media platforms into a new media space. It's imperative for us to do it. The profile I want to create for the whole company is a multimedia approach where we're not relegated to old media platforms. Our business is content and creativity, but it's content that lives on all media platforms.
How do you get from here to there? Historically, Disney has been more a builder of brands. Can you build this from scratch, do you look at acquisitions?
We've certainly been disciplined when it comes to buying traditional media, and that's going to continue. I believe we need to look opportunistically at some new media, but you're going to see a continued disciplined approach from Disney. We do have to look at allocating capital to create growth initiatives and if that means buying versus building, we're going to do that.
