4th Annual MoffettNathanson Media & Communications Summit · 2019-09-29 · 4th Annual...

transcript

©Disney

4thAnnualMoffettNathansonMedia&CommunicationsSummit

MAY17 , 2017

DisneySpeaker:

ChristineMcCarthySeniorExecutiveVicePresidentandChiefFinancialOfficer

P R E S ENTAT ION

MichaelNathanson–Analyst,MoffettNathanson

Thanksforbeinghere.Thisisthekickoffofour4thAnnualMedia&CommunicationsSummit,

andthankyouallforthegreatsupportyou'vegivenustostartourbusiness.

Today,IwanttothankChristineMcCarthy,theCFOandExecutiveVicePresidentofTheWalt

DisneyCompany.WereallyappreciateChristinebeinghere,kickingitoffasDisneydidlastyear

aswell,sothanksforbeinghere.Weappreciateit.

4thAnnualMoffettNathansonMedia&CommunicationsSummit May17,2017

Givennextweek'sopeningofPandora–TheWorldofAvatar,let'sstartwithThemeParks.

You'reabouttoopenthisnewattractionatOrlando'sAnimalKingdomandthentwoyearslater

you'regoingtoopentwonewStarWarsattractionsinCaliforniaandFlorida.Whathaveyou

seenhistoricallywhenyouaddnewattractionsorlands?

ChristineMcCarthy–SeniorExecutiveVicePresidentandChiefFinancialOfficer,TheWaltDisneyCompany

Thanks,Michael.Wecouldn'tbemoreexcitedabouttheopeningofPandora–TheWorldof

Avatar.ItopensnextweekdowninOrlandoandit'sbeenaprojectthat'sbeenintheworksfor

awhileandit'ssomethingweverymucharelookingforwardto.Oneofthethingsthatwelook

atis,everytimewedoaparkexpansionoraprojectinapark,ittendstobeuniqueanddriven

bydifferentthings.Someoftheelementsofthethingsthatwelookforareprettyconsistent:

Welooktomakeourparkdestinationsmust-seedestinations;wealsolookforprojectsthatwe

believecannotonlydrivenewattendance,butcandriveincreasedattendancethroughrepeat

visitation;wealsolookatimprovingguestspending,andyou'llseethatinthingslikepercaps;

wealsolookatextendinglengthofstay;andmostimportantly,welookatimprovingtheguest

experiencebecausethat'sreallykeytogettingrepeatvisitationforourconsumersandguests

towanttocomebackagainandagain.

Sowhenwelookatallofthose,webelievethatPandora,whichisaten-acreimmersiveland,

andwhenIsayimmersive,yougoinandyoufeellikeyou'reintheworldofPandora.Thereare

acoupleofkeyE-typeticketattractions,butinadditiontothat,youhavedining,retail,

entertainment,andmerchandisethat'sthemedtotheland.Soallofthatcomestogetherto

makeavery,veryattractiveandcompellingexperience.

AndthenStarWars?

Oh,andStarWars--andtheotherthingI'dliketomentiononPandora,soifyou'relookingfor

whatdoesitdo,andIthinksometimesyoulookinthepastandyousay,whatexperienceis

analogoustoit?Andtheonethat'smostanalogoustoitisin2012,whenweopenedCarsLand

atDisneyCaliforniaAdventure,verysimilartypeofimmersiveexperience.Itwentintoapark

andupliftedthepark.Wehadanimmediateincreaseinattendanceandalotofthat

attendancewasverysustainable.WhatitalsodidinCaliforniaAdventureisitbalancedmoreof

ourload,ourguestvisitation,acrossthetwoparks.Andweexpectthatsamekindof

phenomenontobeapparentwithDisney'sAnimalKingdom,thatthiswilldrawmorepeople

intoAnimalKingdomandwillbetterbalancetheloadthroughoutWaltDisneyWorld.

SoStarWarslands,wealsohavethosecoming--comingsoon.IntheStarWarslands,wehave

two:therewillbeoneinAnaheim,oneinOrlando.They're14acres,andat14acres,theywill

bethelargest,single-themedadditionstoanyparkwe'veeverhad.They,too,willbeimmersive

andyouwillfeellikeyouareinStarWars.Onceagain,thesamearrayofdining,retail,

entertainment,merchandise,andalsoalotofcharactersthat'llbewalkingaroundsoyouwill

reallyfeellikeyou'rethere.Andthereareacoupleofattractionsandthereprobably--these

twoI'dliketomentionbecauseIthinkthere'sprobablysomeStarWarsfansintheroom.One

oftheattractionsallowspeopletotakecontroloftheMillenniumFalconandtheotherputs

youintoabattlebetweentheFirstOrderandtheResistance.Sothesearethingsthatpeople

wholovetheStarWarsuniversearereallygoingtofindcompelling.

Webelievethatthesewillalsodrivesignificantincreasedattendancethatwebelievewillbe

sustainableinbothHollywoodStudios,wheretheOrlandoStarWarsisgoing,aswellasin

Disneyland,wheretheAnaheimStarWarsislocated.

Isthereananalogy?Yougaveustheanalogyof--theCarsLandanalogy,whichisreallygreat

forAvatar.IsthereananalogyfortheStarWarsexpansion?Canyouthinkofsomethingthat

bigthat'sbeenadded?

Ithinkyoucouldthinkofitasthatonsteroids.Becausethefanbaseissosignificantandso

loyaltotheStarWarsuniverse,therewillbepeoplewhoprobablyhaveneverbeentooneof

ourparksthatthiswillbringthemin.

Okay.Soayearago,whenBobwashere,hesharedapre-openingvideooftheShanghaiDisney

Resort.Nowthat'sopen,how'stheparkperformedversusinitialexpectations?

Yes,Idon'tknowhowmanyofyouwereherelastyearandsawBob'svideo,butifyoudidorif

you'vebeentoourparkinShanghai,Ithinkyou'llnotethatwhatwecallauthenticallyDisney

anddistinctlyChineseand--thetranslationofthatisyouknowthatyou'reinaDisneypark,but

youalsoknowthatyou'reinChina.Sotherearethingsaboutthatparkthatareveryuniqueto

thepark,butitalsoincorporatesalotofourDisneyIP.Whenwelookathowtheparkhas

performedtodate,wecouldn'tbehappier.It'sperformedaboveexpectationsandIthinkalot

ofpeopleinthisroomprobablywanttothinkaboutprofitability,andtwoofthelastthree

quarters--soitwouldbeourfiscalfourthquarteraswellasitsmostrecentquarter--were

profitable.Andyou'llseesomeseasonalityforattendanceinChinathat'srelatedtojusttheir

schoolholidaysandChineseNewYear.Sofourthquarter,you'llhavethepeakholidayseason

andinsecondquarteryou'llhaveChineseNewYear.Sothosewillbethetwohighest

attendancequarters.

Whenwethinkaboutsomeofthelearningsandsomeofthethingsthatweexpectedor

surprisedus,Iwouldn'tsaythere'sanythingthat'sabig--therewasnothingthatwasabig

surprise,butoneofthethingswaswheretheattendancewascomingfromsofar.Wehad

thoughtitwouldbemoreofalocalShanghainesepopulationthatwouldbevisiting,andsofar,

two-thirdsofthevisitorshavebeenfromoutsideofShanghai.Sowefindthatveryencouraging

becauseitmakestheparknotjustalocalShanghaipark,butsomethingthat'smuchmore

nationalinscopeanddesiretovisit.That'salsodrivenaveryhighoccupancylevelatourhotels,

andinthosehotels,we'vebeenabletogetabove-expectationADRsandrevenue.Sothoseare

allgoodthings.

Right.Oneofthequestionsweaskedlastyear,andIthinkitwastooearlytofindout,washow

wouldtheparkleverageotherpartsofDisney'sfranchises?Sowhattypeofbenefitsyou're

seeingtomaybefilms--DisneyfilmsinChina?AndCPsalesinChinaduetotheParksbusiness?

Yes,thisis--beingin--theparkpresenceissignificantinthatitallowsustoonceagainkeep

someofourfranchisesfreshinthemindsofconsumers.OnefilmIjustwouldliketopointout

thatwasreleasedinChinaanddidextremelywellwasZootopia.Itdid$235millionatthe

Chineseboxoffice.ThosefurrycharactersareextremelypopularinChina,andwhenyousee

ourparades,they'reveryprominent.SothisissomethingthatreallyresonateswiththeChinese

guest.Andthat'sjustoneexampleofunderstandingwhattheyreallylikeandwhatappealsto

themandreallymakingitaliveandrelevant.

Okay.Letmetakeyoutosomethingmorenear-term,whichisyourlastearningscall.Yousaid

onthelastcallthatyouexpectQ3Parkscoststoincreasemeaningfully.Canyouhelpus

quantifytheincreaseanddiscussthedriversofwhat'shappeninginthecurrentthirdquarter?

Sure.SoinourParksbusiness,Ithinkyou'veseenthatwe'vemadealotofinvestmentstodrive

growthandwe'vealsobeenmanagingourexpensegrowth.You'veseenthecombinationof

thosetwointhestrongmarginimprovementthelastfewquarters.Sowhenyoulookatthe

thirdquarterspecifically,wedohavebothincreasesinunderlyingvolumeandnewattractions

thatarecomingonline.Withnewattractions,wehaveexpenses.Thoseexpenseswillbepre-

opening,operational,sales,andmarketing.AndthreethatareinthisquarterarePandora,as

we'vetalkedabout.AlsoGuardiansoftheGalaxy–Mission:BREAKOUT!,whichisinAnaheim.

It'satDisneyCaliforniaAdventure,itisatotallyreimaginedTowerofTerror--Ifyou've

beentoDisneyland--orDCA,youknowthatwehaveTowerofTerror--itdoesn'tlooklikethat

anymore.ItisaGuardiansoftheGalaxyattractionandit'scomingveryclosetotheopeningof

ourGuardiansmovie,andthisisanotherthingthatwethinkwilldrawnewguestsinandhave

repeatvisitation.ThethirdnewattractionthatopenedearlierthisquarterwasExplorersLodge

andthatisourthirdhotelinHongKong,that'sa750-keythemedhotelandthat,too,came

onlinesoyouhavesomeexpensesassociatedwiththat.

Thethirdthingthatisgoingtoimpactthisquarter'sgrowthisafullyearofoperationin

Shanghai.Sothisisthefirstthirdquarterwhereyouhaveafullquarterofoperatingexpense.

AndthelastoneI'dliketomentioniswehavean18-daydrydockoftheDisneyFantasy.Disney

Fantasywaslaunchedin2012,sothisisthefirsttimeit'sgoingintodrydock.

Sowhenyoutakeallofthosetogether,thegrowthyear-over-yearweexpecttobehigh-single

digitstopossiblylow-doubledigitsinexpensegrowth.I'dalsonotethatsomeofthe--quitea

fewoftheseexpensesarerelatedtonewattractionscomingonline,butyou'llalsohavesome

thingsthatwillberecurringandthatwillbethingslikeShanghai,becauseShanghaiisupand

operating.

Right,okay.Thankyousolet'sturnto--we'regoingthroughallthedivisions,nextisStudio.

Overthepast3years,Disney'sfilmStudio,basedonourmath,sourced60%,6-0percent,ofthe

filmindustry'sprofitability.It'samazing.Andthequestionthatwehaveisit'sabusinessthat's

alwaysbeenhistoricallyknownasrisky,youcan'tguaranteesuccess.Sohowhaveyoubeen

abletocontinuethatsuccessoverthreeyearsinatoughindustry?Andhowhaveyoubeenable

tomakethathappenbothfinanciallyandcreatively?Sowhat'sdifferentaboutyourpastthree

yearprocessmaybeotherpeoplearenotrealizing?

Thankyouforthatquestion.OurStudiohasbeenonagreatrunforthelastthreeyears,both

creativelyandfinancially.Sothere'sacoupleofthingsthatdistinguishourStudiofromothers

andtheyaregreatIPandasoundstrategy.

SosomeofthethingsI'dliketocallout,whenyoulookatouracquisitionsthathavebeeninthe

IPspaceandhowthey'veimpactedourStudiobusiness.FirstwasPixar--andallofthese

acquisitionsI'mgoingtotalkabout,theyaresimilarinmanyways,buttheyalsohavesome

uniqueelements.ThesimilaritiesaregreatIP;reallygood,creativetalent;aswellasstrong

management.ButwhenwelookatPixar,weallknowPixar'strackrecord,it'sbeengreat.And

oneofthethingsthatwewereabletogetwiththatacquisitionwasalsoareallystrong,

creativemanagementteaminJohnLasseterandEdCatmull.AndatthetimewedidthePixar

acquisition,ourDisneyAnimation--DisneyFeatureAnimation--wasn'tperforminguptothe

expectationsthatwehad.SowhatwedidwasEdCatmullandJohnLasseter,inadditionto

runningPixar,alsoworkedwiththeDisneyAnimationteamandreallyreinvigoratedtheir

process.Andovertheirperiodoftime,theyhadincreasingsuccesseswiththeiranimatedfilms

andI'lljustpointtotworecentonesandIthinkyou'llagreethatithasbeensuccessful:Frozen

and--Iamdrawingablank--Zootopia.FrozenandZootopia,twoextraordinarilysuccessful

moviesandthey'realsoOscarwinners.SowhenyoulookatthePixaracquisition,itreally,

really,notjustPixar,butalsoreinvigoratedourDisneyAnimation.

TouchingforamomentonMarvel.Marvel'sIP,weknowthatthelibraryofcharactersis

extraordinarilydeepandmanypeopleknowthosecharactersthroughourfilmsintheMarvel

CinematicUniverse.Andthosearethingsthatappealtoawide--they'refour-quadrantfilms,

sothey'renotonlymaleskewing,theyalsoappealtowomenandchildrenandpeopleofall

agesandsizes.Sothat'sanotherone.

AndLucas.Lucas,Ithinkwecanallagree,hadwhatisprobablyoneofthemosticonicbrandsin

filmhistoryintheStarWarsuniverse.AndsincewehaveacquiredLucasfilm,we'vereleased

twofilms:TheForceAwakensbackinDecember2015,didextraordinarilywell.Ithinkitwasthe

thirdall-timebestboxofficeglobal--onaglobalbasis.AndthispastDecember,wereleased

RogueOne.ComingDecemberof2017,wehaveTheLastJedi,whichwillbeEpisodeVIII,and

followingthat,we'llhaveHanSolo.Soyou'llseeaseriesofStarWarsmoviesthat'llwork

throughourfilmreleaseslateformany,manyyearstocome.

Sowhenyoulookattheacquisitionsandtheimpactit'shadonus,sincethePixaracquisition,

we'reincludingPixar,Marvel,Lucas,andalsothereinvigoratedDisneyAnimation,we've

released33filmsthathaveaveraged$800millioninglobalboxoffice.Sowhenyoulookatit,

that'swhatit'sreallydoneforourStudio.

Withalsoalowdegreeoffailureratebecausewhatblowsyouupinanygivenquarterisa

bomb,right?Andyou'venothad,fromthatcatalog,verymanyproblemsgettingyourmovies

toacertainthresholdintheboxoffice.

Well,that'sagoodpoint.Butno,webelieveourstrategyisverysound,butwealsoknowthat

nostudioisimmunetoamiss.SoIdon'twanttosaywe'reperfect,butwecertainlytrytobe,

butyoujustneverknow.Wedoourbest.Thestrategywehaveofcreatingbranded,franchise

filmsthataretentpolesisveryimportant.Andwe'vealsoreducedthenumberoffilmsonan

annualbasisthatwerelease.Onaverage,it'llbeaboutten.Sosomeyears,it'llbemore,some

yearsit'llbeless.Thisyear,fiscal2017,wehavesevenmovies.Infiscal2018,weplantorelease

11movies.Soifyoulookatwhatisthattenmoviescomposedof?Ingeneral,you'llseeoneto

twoStarWars,twotothreeanimatedmoviesandtheycouldbefrombothPixarandFeature

Animation,twotofourMarvelmovies.Wedohavefournextyearthatarebeingreleased.And

thebalancewillbefilledinbyDisneyliveaction.

NowletmetouchonDisneyliveactionforamoment.Since2014,wealsochangedourstrategy

forDisneyliveactionandwe'regettingmoreandmoretowardsreimaginingDisneyIPinthe

live-actionformat.Thefirst--we'vedoneseven1movies.Thefirstonein2014wasMaleficent

andthemostrecentwasBeautyandtheBeast.Andifyoulookatthosefilms,theyaveraged

$650millionattheboxoffice,sothatstrategyofreimaginingIPinalive-actionformathasalso

workedverywellforus.

Okay.Canyoutalkabit--thisisacurrentdebatethatwehaveallthetime.Canyoutalkabout

howyoumonetizeyourfilmsthroughthevariouswindowsanddiscussyourthoughtson

premiumvideo-on-demandandwhetherornotit'sgoingtohappen?

1 Should be six

Yes,there'sbeenalotoftalkrecentlyaboutpremiumvideo-on-demand,butlet'sjusttalkfora

momentaboutthewindows.Thewindowsthatwehaveareverysimilartoanystudio.After

release,thehomeentertainmentwindowistypicallyfirst,andthat'llbebothphysicalaswellas

digitaldistributionofthefilm,followedonbyVOD,andtypicallynextisthepayTVwindow,

followedbyfreeTV.AndinthefreeTVwindow,youalsohavesalestobasiccable.Sothat'sthe

kindofsequencingofthewindowsthat'sfollowedformostmovies.

AsitrelatestopremiumVOD,becauseourstrategyisreleasingfilmsthataretentpoles,they're

branded,four-quadranttentpoles,manyofourmoviesareseenasevents.There'salotof

socialmedialeadinguptothereleases,alotofpeoplegetinvestedinthecharactersthrough

ourtrailers,someofourtrailershavebeenthemostdownloadedtrailers,you'veseenallthose

kindsofstatisticsrecently.Butwhenwerelease,webelieve,andIbelieveourconsumers

believe,thatourmoviesarebestseenonabigscreen.Definitelyinitially,andwe'dlikethemto

seeitonthebigscreentwoorthreetimes.Butbecauseofthat,wedon'tfeelthatweshouldbe

movingourmoviesoffofthebigscreenanysoonerthantheycurrentlyare.Sowhilepremium

VODisprobablyastrategythatdoesworkforotherstudiosgiventheirfilmsandgenres,forthe

kindsoffilmsthatwedo,wedon'tbelieve--we'renotengagedinconversationsonpremium.

Okay.TurningtoConsumerProducts.Canyoutalkabitaboutprofitperformanceinthefirst

halfoftheyearandwhatdoyouexpectfortherestoftheyear?Soit'sbeenabitofalagging

category,Iknow.Eveninthepastthreequartersorso,ithasnotbeenasconsistentasitwas,

let'ssay,2013to2015or2016.Sowhat'shappenedandwhatdoyouexpectfortherestofthe

Sure.Greatquestion,andI'dlikeamomenttostepbackandjusttalkaboutourConsumer

Productsbusinesstoputthingsinperspective.Soifwegobacktoafour-yearperiod,2013to

2016,ourConsumerProductsbusinesshasdoubledinoperatingincome,talkingfromabout$1

billionto$2billionoverthatfour-yearperiod.SoIjustwantto--thisisabusinessthathas

grownvery,very--hashadverystronggrowthoverafour-yearperiod.

Inthefirsthalfofthisyear,backinNovember,wesaidthatourConsumerProductsbusiness

wasgoingtohaveavery,verytoughcomptofirstquarterof2016,thereasonbeingwestillhad

strongFrozenmerchandisesalesandwehadthefirstStarWarsreleasethathitinthefirst

quarterof2016.InadditiontoStarWarsmerchandise,wealsohadalicensedgamebythe

nameofBattlefront,soallofthatwasinourConsumerProductsnumber.Thefirstquarterof

thisyearcomparedtofirstquarterof2016,weweredown25%andweprettymuchsaidwe

weregoingtobedownover20%.

Sothefirsthalfcomphasbeenverydifficultandthegrowthfortheyearwouldbe--ifitwas

year-over-yeargrowth,itwouldbedrivenbythesecondhalf.Nowwhileweexpectverygood,

stronggrowth--meaningfulgrowthinboththethirdandthefourthquarter,thatwillcome

frommerchandisesalesrelatedtotwoupcomingfilmsCars3,whichwe'llreleaseinJune,and

Spider-ManinJuly.Sorightnow,we'reabout,Idon'tknow,six,sevenweeksintothethird

quarterandwherewearenowIwouldsaythatwedon't--ifwe'rejustsayingwedon'tbelieve

thatwecould--thatsecondhalf,includingthethirdandfourthquarterwill--itmaynotbe

sufficienttohavegrowthforthefullyearsoit'sjustthatthefirsthalfwastough.Second

quarter--halfwillbegoodwithstronggrowthinthreeandfour,butitmaynotbesufficientfor

fullyeargrowth.

Andonthatpoint,howimportantarenewfilmreleasestodrivinggrowthinCPinanygiven

year?Givenwhatyouhavecomingin2018and2019,whatshouldwetakeawayfromthe

pipeline?AndhowimportantisthattotheoverallgrowthofCP?

Well,filmreleasesare--theyhavebeenimportanttothegrowthespeciallywhenyoulookat

someofthecontentthathascomethroughacquisitionswithMarvelandwithLucas,withStar

Wars.Anygivenyearcanbeimpactedbyafilmrelease,butourunderlyingfranchises,wehave

elevenfranchisesthatgenerateover$1billioninretailsales,andamongthestrongest,the

largestare--actuallyMickeyandDisneystandardcharacters.Sothisisabusinessthathasa

verystrongbaseofIP,andontopofthat,wehavefilmreleases,whichaddtothefranchises.

Andwhenyoulookatthesefranchises,Disneyhasauniquewayofmonetizinganddistributing

ourcontentthroughoutourcompanyacrosstheworldandwe'reabletokeepthesefranchises

aliveforalongperiodoftime,andthat'suniquetoDisney.

Andyouknowwhat,it'sfunny,Frozenwasasurpriseintermsof--Frozenwas--Iremember

whenFrozencameandallofasuddentheCPfollowed.SoFrozeniscomingin2019.It'sgoing

toneedadifferent--ithastobeadifferentsequencethistimearoundbecausepeople

anticipateFrozenatretail.

Sure.Frozen--thereareacoupleofthingsthatareupcomingforFrozen.First,Frozenisoneof

thosefranchisesthatisveryappealingtoyoungchildren.Theylovethemusic,andifanyofyou

havechildren,youhaveprobablyheardthosesongsmany,manytimes.Butwehaveastage

playcomingin2018toBroadway,andin2019therewillbeasequeltoFrozen.

Sopeopleareanticipatingthat,butwecankeepFrozenaliveinourThemeParks,notonlythe

storiesandnotonlyatretail,butinourThemeParks,onourchannels.Andwhenthemovie

comesin--themoviecomesout,peoplehaven'tforgottenaboutit,so--andthat'llbeasix

yearwindowbetweentheoriginalandthesequel.

Andmovie'sinthefourth--thecalendarfourthquarter,it'saChristmasquarter?

Ihavemore,butIhavetoremindeveryone,wedotakequestionsandTracyinabout10

minuteswillcollect--15minuteswillcollectquestionsfromtheaudienceandI'llaskChristinea

question,soifpeoplewanttowritequestionsin10to15minutes,we'llcollectthem.

Thisisnotanewsflashtoanyoneinthisroomthatbrick-and-mortarretailisstrugglingase-

commercegrows.HowdoesDisneyweatherthattrend?Andhowarethosestorespositioned

tosucceedgoingforwardgiventheretailfootprint?

Yes,thisisnotanewsflashisright.Ithinkanyonewhofollowsconsumertrendsandretailsales

hasseenthat.Physicalretail,callitbrick-and-mortar,callitphysicalretail,ischallengedjust

withchangingconsumerconsumptionhabits.OurglobalfootprintforourStoresbusinessis350

stores.Thatis--thathasbeen,overthelastdecade,thestorecounthasreducedby30%and

it'sactuallydownmorethan50%since2000whenwehadourpeakstorecount.Welookat

optimizingourfootprint,rationalizingthewaywe'readdressingthisbusiness,lookingathow

we'redesigningourstorestomakethemacompellingconsumerexperience,tohavepeople

wanttocomein.Ingeneral,ourstoresaresmallerthantheyusedtobeandnotonlyarethey

smaller,buttheyhavenewIP,incrementalIP,thatwaspickedupwithacquisitions.Sostore--

thewaythestoresarelaidoutisdifferentthantheywereadecadeago.Andwealso,whenyou

lookatourstores,thelocationsofthem,keepourfranchisesandournameinfrontof

consumers.Soyoucan't--peoplecan'tgotoaDisneyparkeveryday,everyweek,every

month,butifyou'reinalocationandyourkidsoryouarebigDisneyfans,youcangotoastore

andyou'rekindofsurroundedbytheIPandthefranchises.Sowhilewestillrationalizeand

addressthisbusinessonaphysicalbasis,wearealsoinvestingmoreine-commerceandreally

lookingatthedirect-to-consumerchannels.

Okay,let'sgototheMediaNetworks,we'llgotowhateveryonewantstotalkabout.You've

alwayssaidandBob'salwayssaidandpeopleinthefirstrowhavealwayssaidthecompany

likesitshandwithESPN.Sowhatdoyouseethatgivesyouthatconfidencetokeepsayingwe

likeourhandatESPN?

Well,Michael,Iamsogladyouaskedthatquestionbecauseit'ssuchalongwhilesinceanyone

elseaskedusaquestiononESPN.Soyes,ESPNisabusinessthatwebelieveisattractive.We

havecompellingproduct.Wearecompetitivelyadvantaged.Itisabusinessthatwebelievelive

sportshasneverbeenstrongerandlivesportsarenowbeingviewedonESPNthroughTV,

mobile,over-the-top,digital,audio,andthroughstreamingmorethaneverbefore.Andsome

oftherecentsuccessesthatwe'vehadinliveevents,andI'mtalkingreallyrecent,istheNBA

Playoffs,they'reonrightnowandI'mgladtosaymyhometownteamisstillintheplayoff,

guesswhichonethatis.

Knicks.

Joking.I'mjoking,joking

No,itwouldbetheBostonCeltics.

BostonCeltics.

ButtheNBAPlayoffs,alsotherecentNFLDraftwasvery--hadverystrongratings.Andwe'rein

thecurrentMLBseasonandwe'regettinggoodratingsoutofMajorLeagueBaseball.Sowhen

youlookatthose,webelievethatthat'scompellingcontentthatpeoplewanttosee.Andin

fact,inthefirstcalendarquarter,theESPN2audienceonayear-over-yearbasiswasup15%and

whenyouincludeout-of-homeviewingandWatchESPNviewership,thataddedanother10%lift

totheiraudience.Sothosethings--Ithinkyouwouldagreethatlivesportsissomethingthat

viewersaregoingtocomeandviewonESPN.Wealso,andIknowthere'sbeenalotspoken

aboutthis,butwebelievewehavethesportsthatpeoplewanttosee.Sowhenyoulookat

2 primetime

national--theimportantnationalsportsrights,wehavemoreofthoserightsthanallother

sportsmediacombined.Andwedohavesomeofthosesportsthatweconsidermostimportant

--NFL,NBA,andMLB--andreallycovetedcollegesportsintothenextdecadeandwebelieve

thatthatisacompetitiveadvantage.

Oneofthethingsyou'vesaidforafewyearsisthere'sgoingtobemorevirtualMVPDs.Sonow

we'veseentheexplosioninvirtualMVPDs.CanyoutalkabitabouthowDisney'snetworksfare

relativetothetraditionaldistributorworldandthevirtualworld?

Sure.NowIthink--remindmetoanswerthatquestion,butletmefirstsaythatournetwork,

ourbrand,consumerdemandmakesournetworkscompellingtoputontheseplatforms.ESPN

wasnotinsomeoftheearlyskinnypackages,butitisinthedigitalplatforms:Sling,SonyVue,

DIRECTVNow,YouTubeTV,aswellasHulu.Weareencouragedbywhatweseeinthose--in

theadoptionofthosenewplatforms.Ithinkit'sfairtosaythesearenascentofferings.Manyof

thesehavecomeoutinthelastyearandtwohavecomeout,bothYouTubeandHulu,have

comeoutinthelastsix,eightweeks.Hulujustcameoutearlierthismonth,thefirstweekin

May.Sowe'reveryencouragedbywhatweseethereand--butonceagain,we'reverybullish

onthelong-term,butyoudohavetohavesometimetoallowforconsumeradoption.

Whenyoulookatonapersubbasis,beingontheseplatformsisasgoodforusasitisonthe

traditional.Sowedon't--soweviewtheseasbeinggreatofferingsthatareimportanttous,as

profitableforus.Andwhatwelikeaboutthesenewplatformsistheyareuserfriendly.The

interfaceskeepgettingbetterandbetter.They'realsomobile.AndBobIgerhastalkedalot

aboutthenecessityfortheseplatformstobeallofthethree:user-friendly,greatinterface,and

mobile-friendly.Andwhenyoucombinethoseattributeswithalowerpricepoint,webelieve

thatprovidesaveryattractivealternativeforconsumers.Sowe'reverybullishonthisinthe

longrunandwe'restillintheearlydays.

Okay.SooverthemanyyearsI'vecoveredyourcompany,it'salwaysbeeneasiertobebearish

onESPN'svaluetodistributorswhenyou'reoutofanaffiliaterenewalcycle,right,sothat's

wherewejustdebatethevalueofthefutureofESPN.Sowhenwillthenextrefreshcyclestart

ontheaffiliatefeeside?

SoIthinksomeofyouknowthatwehaveasmallrenewalthatwillbeattheendofthisfiscal

year,ourfiscalyearendsSeptember30.Soattheendofthefiscalyear,wehaveasmall

renewal.Thatwillstarttherenewalcycle.Thatrenewalcyclewilltakeahandfulofyearsto

workthroughthesystem.Andwhenwelookatwhat'simportanttous,we'renotgoingtogive

youallthestrategythatwehave,butwhat'simportanttouswhenwelookatthesearenot

onlytheratesthatournetworksget,buthowourrates--howournetworksareputonthese

platforms,andalsoit'sreallyimportanttounderstandwhatthefullentertainmentexperience

is,whatisthedistributorgoingtoprovidetotheconsumer.

Sowethinkallofthoseareveryimportant,butthosearejustveryhigh-leveldetails,and

there'samyriadofoptionsandalternativesandthingsthatarepartofthenegotiatingstrategy.

AndwhileIlikeyouverymuch,Michael,andeveryoneinthisroom,wedon'tthinknowisthe

righttimetotalkaboutournegotiatingstrategyforthese,buttheyarecomingup.

We'reprovidingguidanceintothefuture.

Goodtry,butno.

Okay.Inthelastrounds,youlaunchedtheSECNetworkandyouestablishedWatchESPNasa

paidservice.Whatotherproductsdoyousee?IknowACCisanetworkthatiscomingtothe

fore--possiblecomingtotheforefront,sohowbigcanACCbe?OrisACConeoftheproducts

you'retryingtoestablishalongtheway?

Well,Ithinkduringthese--ACChasnotyetlaunched,butit'scomingup.Duringthisroundof

negotiations,they'lltrytogetthenegotiating,sowe'lltrytogetfulldistributionaswedidwith

theSECNetwork.

Okay.IftherewasalegitimateconcernaboutESPN,it'sonthechangingconsumer--

consumptionpatternsofsportsnews.SowhatareyoudoingatESPNtoshiftthisbusiness

modeltodealwiththistrendofhowallofusnowgetBostonCelticsnewsonourphonesthe

momentithappens?

It'sagreatquestionandIdon't--Idon'tthinkit'ssomethingthatanyonehasn'talreadybeen

thinkingabout.Sonewsandinformationforsports,consumershavechangedthewaythey

consumeit.AndIhaveaprop,sothisisusedalotfornewsandinformation.Somobilephones,

mobiledevicesareusedalotfornewsandinformation.ESPNhasbeenaleaderinmobileand

they'vedone--they'vecreatedveryinnovativeprojects--productsthroughtheirdigital

platform.Theyhavecontinuedtodothingslikerationalizetheirapps,combinetheirapps,look

atengagementthroughtheirinterface,throughpersonalization,customization,useofvideo--

that'skeyforsportsfans--andthatisallwhattheyhavebeenworkingon,andincreasingtheir

integrationacrossalloftheirplatforms.Sonewsandinformationissomethingthatischanging

andESPNhasbeenaddressingthatchangeforseveralyearsnow.

AnotherthingIjustwanttotalkaboutisSportsCenter.Sothere'sbeenanawfullotoftalk

aboutSportsCenterandoneofthethingsthatwe'vedone,anditreallystartedabout18

monthsago,iswe'velookedatpersonality--brandedpersonality-drivensegmentsof

SportsCenter.So18monthsago,welaunchedScottVanPeltatthe12--midnighthour,and

sincethattime,hisshowhasdoneverywell.Andinfact,it'sthe#1showinhistimeslotfor

males18to34,andthat'scompetingagainstsomelate-nightTV.Sothat'saveryappealing

demographic.We'vealsorecentlylaunchedinthe6p.m.hourapersonality-drivenshowwith

MichaelSmithandJemeleHill.Andjustyesterday,weannouncedattheUpfront--ESPN's

Upfront--thatSageSteelewillbegoingtoBristolanddoingthemorningSportsCenter,7to10,

andwe'llalsohavewhatwebelieveisareallygood11p.m.SportsCenterthatwillhaverotating

anchorswithsomeofourfourbest-knownanchors,includingtheveryengagingandsometimes

irreverentKennyMayne,sohe'llbepartofthat.Andthat'stheleadintoScottVanPelt.Sowe

areaddressingSportsCenterandreallychangingitfromnewsandinformationtomore

personality-drivensegments.

Okay.Tracy,youwanttocollectthem?I'llkeepaskingquestions.

Sinceyou'vebeenCFO,youreallysteppedupthebuybackeffortsofthecompany.Sohowdo

youbalancetheneedtoinvestininternalgrowthversusthereturnofcapitaltoshareholders?

Sure.Youknow,sinceI'vebeenCFO,ourcapitalstrategyhasnotchanged.BeforeIwas

fortunateenoughtobetheCFOofDisney,IwasTreasurerfor15years.SoIwasveryinvolved

inourcapitalallocationstrategyaswellastheexecutionofit.Sowehaven'tchangedthat.

We'vealwaystakenaverydisciplinedandmeasuredapproachtocapital,andfirstand

foremost,ourpriorityistoinvestinourbusinesses.It'sinvestinginbusinesseswhereit's

investingforgrowthandalsonewinitiativesinsomeofthosebusinessesthatwebelievecan

alsonotonlydrivegrowth,butdrivestrongreturns.Sothat'sfirstandforemost.Wealsohave,

overtheyears,executeduponaverydisciplinedM&Astrategy,that'salsobeenpartofour

growth,andIthinkyouseewiththeacquisitionsofPixar,Marvel,Lucas,thatthosehavebeen

verysuccessfulandverywellintegratedintothecompany.

Sowhenyoulookatthestrengthofourbalancesheet,whichisstrong,we'vealsobeenableto

consistentlyreturncapitaltoshareholdersandwe'vedonethatthroughnotonlybuybacks,but

alsodividendsandthisissomethingthatweviewasastrengthofthecompany.Andjustlast

week,weannouncedthatweweregoingtoincreaseourfiscal2017sharerepurchase,which

wehadgivensortofanexpectationofit,wouldbeinthe$7billionto$8billionrange,thatit

willnowbeinthe$9billionto$10billionrange.Andthat,onceagain,justreinforcesour

confidenceinourcompanyaswellasourlong-termfuture.

Yes,asaformerTreasurer,Idon'tknowifyouagree,butthecompanytouslooksveryunder-

levered.Sogiventhestabilityofyourcashflows,whynotraiseyourdebtleveltosomething

moreinlinewiththerestofthemediasector?

Well,that'sagoodquestionandotherpeoplehavebroughtitupfromtimetotime.Wedo

generatealotofcash,Michael,andwedohaveaverystrongbalancesheet.Weconsiderour

balancesheetandourfinancialstrengthtobenotjustafinancial--notjustastrategicasset,

butalsoafinancialasset.Andweare--wehavelessleveragethantheothermediaand

entertainmentcompanies,andthat'sreallyreflectedwhenyoulookattheratingsdifferentialin

ourcompanyversustheothermediacompanies.

Whenwegotothecapital--thefixedincomecapitalmarketstoraisedebt,thefixedincome

marketreallylooksatourpeergroupasbeingthelargeglobalbrandedcompanies.Sowe're

notcompetingagainstthemediasector.We'rereallycompetingagainstglobalbranded

companynames.Sothat'sjustanotherdifferential.

Whenwethinkaboutourbalancesheetoverall,wethinkaboutitprovidingflexibility,financial

flexibility.Wehavebeenabletomakelong-terminvestments,acommitmentonourown

balancesheetwithoutstructuredfinancingtoo,butonourownbalancesheetandwe'vebeen

abletodothatthroughcycles.Andsosomeofthoseprojectsthatwehadthatbeganbefore

thefinancialcrisis,wewereabletocontinuethoseprojects.Wedidn'thavetoslowdown.We

justcontinuedandcompletedthemonourscheduledtimeframe.Sothat'sveryimportant.

We'realsoableto--whenwedogotomarket,we'reabletoraisedebtatveryattractivelevels

andwealso,andI'lljustquoteoneoftheratingagenciesthatrecentlyupgradedus,wehave

exceptionalliquidity.Andwhat'sgreataboutourliquidityisthatthathasalsoservedusvery

wellduringperiodsofmarketstress.Sohopefully,wewon'thavetodealwiththingslikewedid

afewyearsagowiththefinancialcrisis,butwebelievethatwe'llstillhavethesameexperience

wedidbackthen.

Andyouguysdon'ttakefilmfinancing,that'soneofyourdifferences.Youdon'thavetogoto

thirdpartiesforfilmfinancing,soyouownallyourIPandyoudon'tshareoutsidewithanyone.

Correct,correct.

Okay.SoIhavesomequestionsfromtheroom.Howimportantareglobaldigitalrightswhen

negotiatingTVcontractswiththemajorU.S.sportsleagues?SoyouonlygettheU.S.rights,I

knowwiththeNFLyou'vegotsomeglobalrights,theNBAalso.Socouldyougiveusasenseof

how,perhaps,theglobalrightsopportunitiesisnowimpactingyourinterestinnegotiatingnew

deals?

Yes.Whenyoulookatsportsrights,ESPNisprimarilyadomesticU.S.business.Theotherpart

oftheworldwheretheyhaveasignificantpresenceandsignificantsportsrightsisinLatin

Americaandwehavevariouschannelsdowntherethatarebettertargetedtowardsthekey

sports,oneofwhichweallknowisfootballorsoccer,butalsobaseball--thereareotherthings

thataredownthere.ButLatinAmerica--andthenwehavesomelicensedealsinotherpartsof

theworld.WehaveadealinChina,Tencent--withTencentandthey'verecentlydoneother

dealsinAfricaandinvariouslocations,butweareprimarilyaU.S.sportscompany.

Okay.Andthis,willDisneyeverconsiderbiddingfordigitalsportsrightsinsteadoftraditional

airingrights,soIthinkrecentlywasthatUEFAChampionsLeague.SowithBAMTechinthe

background,howdoestheinterestindigitalrightsappeartoyouwithBAMTechdeveloping

Sure,BAMTechwasaninvestmentweshouldprobablygiveamention.SoIthinkitwasabouta

yearago,looking--yes,aboutayearago,lastAugust.Wemadeaninvestmentof$1billionfor

abouta30--1/3ofBAMTechandwedohavetheabilitytoincreaseownershipovertimeand

theywillbelaunchingabrandedESPNofferinglaterthisyear,buttheywillbe--we'renotgoing

tocompeteagainstthemfordigitalsportsrights,butthat'scertainlyapossibilitythatwewould

beaparticipantasthecurrentthirdownerinthose.Theworld'schangingandESPN,whenI

lookatsportsrightsandwheneitherwe'relookingatrenewalsandrenegotiationsorthings

thatareoutinthemarketplace,they'llconsiderallthingsandthey'lllookatthecurrent

environmentandmaketherightdecision.

YouhadaquestionthatwegetandI'msureyouhearthisallthetimeiswhywoulditmake

sensetoseparateABC,ESPNfromDisneyassets?Somepeoplethinkitmakessense,so--

Theremustbeaninvestmentbankerintheroom.That'ssomethingthat'stalkedabout.We

haveafiduciaryresponsibilitytolookatthingsforshareholders.Andweareverydeliberate

andwelookatalotofthingsandIthinkit'sfairtosaythatwelookatourbusinesses.Welike

thehandwehavenow,butwecontinuetolookatourarrayofbusinessesanddowhatwe

believeisinthelong-termbestinterestofshareholders.

Okay,ABCTVStudioyesterdaywastheirUpfront.Howdoyoubalancesellingoutsidetoother

networksversusonlyacquiringyourABCStudiocontentforABC?Andmaybeturningaround,

howmuchofABC'scontentiscomingfromABC'sownproductioncompany?

SoABC--bothESPNandABChadtheirUpfrontyesterday.ABCStudiosisourin-house

productionstudioandIthinkover60--maybemostofthe--over60%oftheshowsthatwe

pickedupthisyearwereABCStudioshows,andIbelievewehaveapieceofeveryshow.We

madesomeco-producedshowsinournewslate,butwehaveapieceinallofthose.We

produceshowsanddependingonourslate,whentheyputtogethertheslatefortheweek,

whentheylookatwhetherit'sacomedy,whetherit'sadrama,whetheritfitsintheschedule,

ourentertainmentpeoplewillmakeadecisionwhetherornotitmakessenseandalsoforthe

viewershipthatwehave,ifitmakessenseforourviewers.Withsomeshowsthatweproduce,

weownthem,buttheyactuallydoquitewellonothernetworks.Oneexamplethat'sbeen,for

severalyears,ontheairisCriminalMinds.That'saverysuccessfulshowforCBS,butweownit.

Sothat'sjustoneexampleandthereareafewshowsthatwe’llproducethisyearthatother

networkspickedup,butwedogetfirstlookandwe'llmakethedecisionifwethinkit'srightfor

ournetworkandrightfortheschedulethatweareputtingouttothemarketplace.

Goingbacktovirtualbundles,youexpressedconfidencethatthesewillbequitepositivefor

revenuesintheindustrygoingforward.NowthatYouTubeandHuluhavebeeninthemarket

foronetotwomonths,havetheybeensufficienttoreversetheacceleration?Orisittooearly

andit'snotknown?Andperhapsyourvisibilityisnot--youguysarenotuptothe--soyou

wanttotalkalittlebitabouthowmuchyouseeandhowquicklyit'shelping?

Ithinkthequestionisreally,doyoubelievethattheadoptionofthedigitalMVPDswillbe

sufficienttooffsetthelossoftraditionalcable,that'sthebasicquestion.Iwouldsaywe

certainlyhopeso,buttheseare--thesejustcametomarket.Theyjustcametomarket.People

aregoingto--I'msurethey'regoingtotalkaboutthem,they'regoingtogoonline,they're

goingtotalktofriends,doyoulikeit,whatdoyoulikeaboutit,whatdoyounotlikeaboutit.I

thinkit’sreallytooearlytotell,butwehaveseengoodadoption,initialadoption,early,early

days,andwhenyouhavethesedigitalMVPDs,you'vegottolookattheadoptionandalsoyou

havetolookatthechurn,andwe'rehopingthatthesenewproductsarecompellingenoughfor

thosewhochoosetousethemthattheywillkeepthemandthetrendwillbedownandthe

adoptionwillcontinuetorise.Theyarealowerpricepointsowebelievethattheywillappeal

topeoplethatmaynothavetraditionalcable,theymaybeyoung,theymaybegettingoutof

school,theymayhavejustmovedoutfromtheirparentsandtheymaylookitthisasagood

alternative.SoIthinkweareoptimistic,butwe'realsorealistsandtimewilltell.

Andthisisafollow-upquestion.Onthelastcall,allcallsreally,thecompanyhasalwaysbeen

veryopenaboutwhatyou'reseeinginthebusiness,right?AndyouinvestedintoBAMTechand

you'vebeenbehindvirtualMVPDs.IsthereaPlanB--isthereaPlanB?Oristhis--isthere

anotherplan?Peoplewantedtoknowifthetrendsdon'tstabilize.OristhisthePlanBtowhat

was--usedtobePlanA,whichwasthebusinessisthebusiness?

Boy,that'sacomplicatedquestion.Look,Ithinkwherewearenowinthiscycle,thesedigital

MVPDshavejustbeenlaunched.AndIsuggest–Imean,Icameoutofthebankingindustryfor

manyyearsandIrememberwaybackwhenATMscameonandpeoplewerekindofafraid,and

overtime,IthinkeverybodyusesanATMnow.AdoptionwilloccurandIthinkit'lloccurmuch

fasterbecausepeoplearealotmoretechsavvy.Theyknowhowtodownloadthings.They're

goingtosample,alotofmillennialslovetosamplethings.

SoIthinkrightnow,whereweareintheevolutionofthemediabusiness,thedigitalMVPDs,

we'llseehowtheywork.Nowsomethingelsemaycome,Idon'tknowwhatthat'llbe.Ifthere

wasamagicholygrailsomeplace,Ithinkwe'dallbejumpingonhorsesandgoingtothe

pilgrimage.Butwedon'tknowandIthinkwearevery--wehavegreatmindsandpeople

thinkingaboutthis.It'satopicwethinkaboutdailyandwe'llseehowtheseworkandI'msure

thattherewillbeiterationsandmodificationsthat'llcometothemarket.Butrightnow,I'dsay

givethemachance,thedigitalMVPDs.

Right.AndIwouldsay,lastquestiontowrapitup,iswhenyouallocateyourcapital,your

allocationofcapitalhasproducedprettygoodreturnsawayfromtheMediaNetworksbusiness,

right?Sothere'sbeenalong-termstrategytoinvestbehindthewholeDisneybalancesheet

andthewholeDisneyoperatingdivisions,justaround,andnotonlyaroundMediaNetworks,

right?

Ohsure.

SotheROICimprovementatDisneyiscomingawayfrom--theotherbusinessesarekickingin

muchmore--higherincrementalROIC.

Oh,yes.Ithink,inclosing,ourbusinesses,whenyoulookatourStudiobusiness,ourConsumer

Productsbusiness,ourThemeParksbusiness,theyareallverystrong.Thereisalinkage

betweenallthosebusinessesthat'sIP-related.Andonceagain,whenyouthinkaboutwhat

makesDisneyuniqueversusothercompaniesinthemediaandentertainmentworld,it'sthe

factthatwecantakeourIPandwecanuseit,monetizeit,keepitalive,keepthefranchises

alivethroughthatwholeDisneyecosystem.Sowhenyoulookatthat,thathasreallyresultedin

improvedandvery,Iwouldsay,veryattractivelevelsofreturnoncapital.

Okay.Christine,thankyou.Thankyouall.Weappreciatethesupport.Andweknowthere'stwo

comingupafterthis,sothankyouverymuch.

Thankyou.

Forward-LookingStatements:

Managementbelievescertainstatementsinthiscallmayconstitute“forward-lookingstatements”withinthemeaningofthePrivateSecuritiesLitigationReformActof1995.Thesestatementsaremadeonthebasisofmanagement’sviewsandassumptionsregardingfutureeventsandbusinessperformanceasofthetimethestatementsaremade.Managementdoesnotundertakeanyobligationtoupdatethesestatements.Actualresultsmaydiffermateriallyfromthoseexpressedorimplied.SuchdifferencesmayresultfromactionstakenbytheCompany,includingrestructuringorstrategicinitiatives(includingcapitalinvestmentsorassetacquisitionsordispositions),aswellasfromdevelopmentsbeyondtheCompany’scontrol,including:

-adverseweatherconditionsornaturaldisasters;-healthconcerns;-international,political,ormilitarydevelopments;-technologicaldevelopments;and-changesindomesticandglobaleconomicconditions,competitiveconditionsandconsumerpreferences.

Suchdevelopmentsmayaffecttravelandleisurebusinessesgenerallyandmay,amongotherthings,affect: -theperformanceoftheCompany’stheatricalandhomeentertainmentreleases; -theadvertisingmarketforbroadcastandcabletelevisionprogramming; -expensesofprovidingmedicalandpensionbenefits;

-demandforourproducts;and-performanceofsomeorallcompanybusinesseseitherdirectlyorthroughtheirimpactonthosewhodistributeourproducts.

AdditionalfactorsaresetforthintheCompany’sAnnualReportonForm10-KfortheyearendedOctober1,2016andinsubsequentreportsonForm10-QunderItem1A,“RiskFactors”.Reconciliationsofnon-GAAPmeasurestoclosestequivalentGAAPmeasurescanbefoundatwww.disney.com/investors.

4th Annual MoffettNathanson Media & Communications Summit · 2019-09-29 · 4th Annual...

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