At the 2006 Goldman Sachs Communacopia conference last month, Disney (NYSE:DIS) CEO Bob Iger showed up for an extended Q&A session with analysts. To give you the scoop on what information these analysts are getting, I listened in and wrote up my thoughts.
From all of us to all of you
Before we begin, let me just say that I consider Iger the best thing to happen to Disney since, well, Timon and Pumbaa, at least. Michael Eisner had a great run in the late '80s and early '90s, but he lost his way toward the end of his tenure, alienating colleagues and customers alike. Bob Iger has shown a remarkable willingness to rebuild the burned bridges and swallow his own pride, all for the good of the company. I became a Disney shareholder when he greenlighted the purchase of Pixar, which was handled entirely correctly and persuaded me to keep those converted shares.
This was a moderated questions-and-answers session, with a Goldman analyst at the rudder. Most of the questions seem to have come from the company, with limited audience participation. Iger avoided any sort of forward guidance but was more than forthcoming on questions of strategy and operations.
The discussion began with Disney's three stated areas of focus: creating and nurturing content, using technology to get the content across to audiences, and addressing globalization. Iger focused on the first two, saying that Disney's goal is to create great content under its major brands, and then "supply technology to move it readily, which is very, very important in this day and age to the consumer."
The technology buzz
The launch of Disney movies on Apple's (NASDAQ:AAPL) iTunes service shows Disney's willingness to blaze a trail into the digital unknown. Apple CEO Steve Jobs' presence on the Disney board of directors likely played a role in that move, too. Iger calls Jobs "a tremendous sounding board," always ready with ideas on how Disney can ride technology into the future of entertainment. "I think we're lucky to have him," Iger says, and it's hard to disagree with that assessment; Jobs is one of the market's most exciting innovators and visionaries.
Regarding the iTunes launch, Iger said that there was some trepidation about Disney stealing viewers from elsewhere to feed this new channel, but those fears turned out to be unfounded. In less than a week, more than 125,000 movies had been sold, adding about $1 million in new revenue, and there was no corresponding dropoff in DVD sales. The download market is great, because Disney doesn't have to spend anything on marketing that channel -- Apple is happy to do so for them, and the Disney brand name is enough to drive plenty of sales.
"We believe in this world that the more often you make content available to buy, and the more places you make content available to consume, the bigger the market will be," continued the CEO, explaining the market-enlarging potential of these new sales channels. "And so we are very, very bullish on consumption of electronically delivered media. We are taking a very positive or optimistic view about technology. It is our friend. It's a great enabler, versus being a threat or a predator."
That view jibes very well with ABC president Anne Sweeney's view of the Internet's role in Disney's market, hinting at companywide harmony on that point. Such agreement gives the company a fighting chance to enact the necessary culture changes and lead its longtime partners along into a new, heavily networked Experimental Prototype Corporation Of Tomorrow (if you'll pardon the EPCOT joke).
What's in a brand name?
Speaking of the Disney brand, Iger spent some time discussing the value of its Big Three household names: Disney, ABC, and ESPN. At the heart of the matter, he said, is the need to create great content under these brands, and then leverage those assets in every way possible, including an expected relaunch of the online Disney.com site in early 2007. Leveraging could mean taking a hit movie like Pirates of the Caribbean and turning it into a television show, computer games, retail shopping items, theme park rides (in a bit of cyclical irony), educational materials, music, and so on.
The upshot is that when Disney takes care to start from something great, the company subsequently requires less effort and money spent to market it across all these channels. The best advertising in the world is positive word of mouth. That's the idea behind giving the Pixar crew creative power within the Disney animation studio, and also the reason for scaling the film release schedule down to about ten live-action movies per year -- hopefully, ten really good ones. These are the sparks that should start the fires of customer acceptance and brand loyalty.
Doing the A-B-Cs
"We don't view ABC as just a broadcast television network today," Iger said. "We view it as a platform that side-by-side with other platforms will be used to essentially generate revenue to invest in great creative content, and then to move that content rather seamlessly across platforms, to reach as many people as possible and generate as much revenue as possible."
That's more of the content-first idea, seen from the other side of the issue. ABC will become a multi-platform outlet for Disney creativity, pulling in local and national television network resources alongside its online presence, and monetizing the content through all of these conduits.
ESPN got a nice viewership boost when Monday Night Football moved over from ABC, producing the highest-rated cable show ever. That should allow the company to negotiate much higher subscription rates from station carriers like DirecTV (NYSE:DTV), Comcast (NASDAQ:CMCSA), and even Verizon (NYSE:VZ) soon. Subscription revenue for ESPN puts that channel's advertising income to shame today, and the Disney Channel doesn't take outside advertising at all, making these segments fairly invulnerable to a drop in advertiser interest. ABC remains exposed to that risk, but hit shows like Lost and Dancing With the Stars should be more of an opportunity than a risk these days, even with TiVo (NASDAQ:TIVO) and its digital video-recording clones lowering the advertising value of each pair of viewer eyeballs.
We all park at the theme park
Iger also talked about the price increase on single-day theme park tickets, explaining it as a way to encourage longer stays with cheaper multi-day passes, driving revenues into the waiting arms of Disney hotels, the Downtown Disney retail and nightlife experience, and ancillary attractions like the water parks and Wide World of Sports. "Orlando had a very, very successful $1,500 package for a family of four, and that worked quite well," he said, and losing a few single-day sales in favor of more high-priced long-term deals is obviously a good thing for the company.
All in all, I'm just as happy to hear from Bob Iger as I was when Anne Sweeney said her piece. I see a unified management team across the business divisions, all on board with the idea that great content comes first, and the rest will follow. Furthermore, Disney's management team sees the Internet not as the enemy, but as the future. This Fool agrees with all of the above, and is happy to wear the Mouse ears for the foreseeable future.
That wraps up our report from this Disney presentation. Stay on the lookout for more "Fool on the Street" reports, bringing you the juicy information that the analysts are paying attention to.
Further Foolishness:
Disney is a Motley Fool Stock Advisor recommendation, as is TiVo. Discover The Motley Fool's top two picks -- and Wall Street's dirtiest secret -- when you snag our new free report.
Fool contributor Anders Bylund is a Disney shareholder, but he holds no other position in any of the companies discussed here. You can check out Anders' holdings if you like. Foolish disclosure rules apply even to the Mouse.
