Thanks for being here for day two, and a special thanks to Bob Iger. We really appreciate it, Bob.
My pleasure.
I've been talking to you for a long time, and you know, every few years we check in, and this is a great time to come back and talk to the Walt Disney Company and Bob Iger. Last time we had a chance to talk at our conference, it was 2019, and it was right after you bought Fox, and you were about to launch Disney+. You spent some time talking about how you were thinking about the structure of the company at that point to maximize the assets you had. I wonder now, five years later, when you think about the structure of the company, what have you done to think about the maximization of the assets you now have in place to meet the objectives that you have? What's changed for you?
Well, first of all, back then, I was laying the foundation for a structure or an organization that was really designed ultimately to serve streaming.
Right.
I had a content division, not one, but you know components of it, which included sports and films and television. Then I had essentially a distribution division, which was mostly focused on the management of the platform that was streaming, as well as other forms of monetization. Because I wanted basically the people that were making content to concentrate on that, and the people that were monetizing, particularly a newest form of media, to concentrate on that. I did not take P&L responsibility away from the content creators because they were spending a fortune.
Right.
But no, no, it was money well spent, but I wanted them to be accountable. And then Bob came in and decided to move P&L under basically the distribution arm of the company or the revenue-generating arm. When I came back, it was clear to me that that structure was not working because removing accountability from those that were basically investing the most capital was a mistake, and I wanted there needed to be direct linkage between the monetization side and the creative side to basically help guide what was being made.
Right
... when it was being made, where, meaning internationally. So, and there was also an us versus them mentality that had developed at the company between the distributors, monetization side, and the creative side. That's not healthy.
Yeah.
It does need to be a creatively led company, because that's really where the value begins. Almost every transaction of the company emanates from some form of creativity.
Right.
The structure that we have now, actually, I feel great about, because as I look at it, and as I manage it, it is the most efficient, and most effective and most accountable structure that we've ever had since I became CEO in 2005.
Okay.
First of all, it's very clean. We report three operating units: Experiences, which is parks and resorts and cruise, et cetera, Entertainment, which is streaming, movies, and television, and then Sports.
Right.
That's very clean, and those that are investing the most capital in content, which is basically television shows, movies, and sports, are directly responsible for how that content is monetized on every platform globally.
Right
... which is critical, because then they can make decisions better than anyone, because they're so accountable for those decisions on where their content goes, meaning what platform-
Right
... when it goes there, and also what content is made on a global basis.
Right.
Meaning, how much do you invest in what I'll call global content, content that's made typically in the West for distribution across the world, versus content that's made market by market? What markets are important? Where are these... Is there a better return on investment in the content that you make? So for me, I really have four direct reports in terms of its operating units: television and film, which together manage streaming, sports, and experiences. So it's clean as can be.
Yeah.
The other thing I think that's really important is, for decades at the company, technology, the investments in technology were primarily aimed at serving content, serving storytelling.
Yeah.
It was, by the way, investments in parks technology, investments in animation technology, et cetera.
Right.
Now, what we really need to do is invest in technology to serve the user, because it's very, very clear that in order for us to turn streaming into a profitable business, it has to have a user-first mentality, and we can get into that.
Yeah, and that's... Yeah. The reason I asked Bob about organization is 'cause when you read your book, one of the first things you did when you first became CEO was change the organizational structure. I know how important that was to you back then. That's why I keep asking about organization structure. One of the questions we have is, you know, obviously, Disney, at its core, is about great and evocative storytelling. But I wonder, have changes in either culture or technology challenged the company's ability to be as consistently strong as prior periods of storytelling?
Well, I think, look, we obviously have a huge history or a legacy in storytelling. The company was 100 years old last October. I think as we, you know, got into the streaming business in a very, very aggressive way, we tried to tell too many stories. Basically, we invested too much, way ahead of possible returns. It's what led to streaming ending up as a $4 billion loss-
Yeah
... for instance. And the combination of spending more than was truly monetizable, but also spending more that resulted in volume and not quality turned out to be a mistake.
Right.
Now, you need a certain amount of volume, and we'll get into that as we talk about a path to true growth in streaming for engagement.
Yeah.
But there's a very fine line that you can cross and get in trouble if your volume ends up diluting management's attention to what is being made.
Right.
And that's what happened to us.
Well-
So I've pulled that back-
Right
... in a variety of ways.
Well, that's one of the questions I have for you to follow on this, was like, it seems to us by observing Netflix, that's a volume play. It's just shots on goal from all, from all over the court. So how do you balance in streaming the need to continually refresh content versus your drive for quality, right? So how do you, how do you toggle between the two?
Well, first, I'll get to that.
Yeah.
I think, to drive quality at a company, and it's. You can look at the history of the company, and it's kind of interesting. I happen to believe that demanding excellence from the top is really important.
Yeah.
Having the senior leader of the company, it's not like I'm—never mind. I was gonna say a government official in a certain country, but I won't do that. But having me demand a level of quality and paying attention to it drives other people to deliver as close to perfection as possible.
Right.
If you look at the history of the company, when the CEO of the company had a deep creative background, the company thrived, and the three eras really were Walt's era and Michael Eisner's era, which, you know, began the first 10 years were tremendous in terms of growth, returns, and quality. And I'd have to say, in my tenure from 2005 to 2020, and I think the reason for that is because the entire organization knows there's some guy in a corner office that's watching everything carefully.
Right.
There's also... It goes both ways. They, they wanna perform, they wanna deliver.
Yeah.
But it's constantly reminding everybody of the need to do that. You know, lately, I've been telling everybody, "Good isn't good enough. It has to be great.
Yeah.
Just keep driving that. But if you, if you force them to make too much, then that becomes almost impossible to do.
Right.
So there's that dynamic. I think in terms of, you know, how much you make and how much you need to make, and your comment about Netflix, you know, we're learning a little bit, a lot more actually, in terms of how do we turn streaming into a growth business. And it's clear that, in order for us to lower churn rates, which is obviously a major factor in our ability to increase margins-
Right
... and ultimately create growth, you have to have enough engagement by the audience. How many times does a subscriber open an app? How many times do they open an app and actually watch something?
Right.
By monitoring that in a very granular fashion, well, first, it gives you an opportunity to be in touch directly with that consumer, but you can obviously then measure, do you have enough engagement? Are you causing people to open the app more often-
Right
... and use it? 'Cause if they don't, on a monthly subscription basis, they're gonna disconnect. So what we see happening now is... And look, when we launched Disney+, there was a good news, bad news to that. The good news was, we signed up 10 million subs in 24 hours, and we hit 100 million faster than anybody imagined was even possible. Our guidance for the... when we launched it, was 60-90 million subs in five years, and I think we hit 100 million subs in 15-18 months. It was an incredible accomplishment, really with not that much content, and not that much that would create the kind of engagement that would keep churn rates low. We were neophytes at this, by the way. We didn't. We had...
We wanted to launch it, look and make sure that it was navigable and elegant-looking, and that there was quality there, and that it represented our company and its brands well. We wanted the video to be stable at scale, meaning, and we needed that because of how much, how many subs we signed up quickly.
Right.
We got all that. We didn't know about other, you know, all the other factors that contribute to, you know, to turning it into a real positive business like Netflix has done, and I've said in our earnings call last week, they're the gold standard.
Yeah.
So it was clear that we needed, we needed more. We had the quality and we had the library, but we needed more engagement, and by the way, series television provide that. We now hit a nice rhythm with Disney+ in terms of that, in terms of engagement, but we've added to that engagement by combining it with Hulu. I won't get into too many details there, but if you are a Disney+ subscriber, for an extra $2, you can get Hulu, advertiser-supported, and then that experience is a seamless experience with your Disney+ content. The combination of those two is an engagement play more than anything else.
Right.
And we're seeing some, you know, nice trends there, without getting into too many details, because it's still relatively new.
Okay.
And then ultimately, we mentioned on our earnings call last week that there'll be an ESPN tile, as there is a Hulu tile on the app, and, starting in December, there'll be—it'll start with, I'll call it light, ESPN Light, and ultimately, when our so-called flagship product of the full ESPN suite of services launches in 2025, that will be there, too. And if you look at Disney+ and Hulu and ESPN, you increase engagement to an extraordinary level. That is probably, in terms of all the things we have to do to turn it into a profitable business, the first and biggest step.
Right. Right. Okay. Well, I'm gonna touch on that stuff later, but it feels just in your explanation that there's just this iterative process that you've all learned from 2019 to today, what has to be done to get there? It feels like-
Well, and, and-
Like it's all coming together now.
Yes, and Hugh Johnston, who's our relatively new CFO, who's in the audience, and I must say I was extremely fortunate to talk him into first even meeting with me and then joining Disney. He covered this well on earnings. There are five or six critical steps we have to take to turn streaming into a growth business. The good news is we know exactly what they are, and we've actually started to execute against them, but we're just in the early stages. But we know exactly what we have to do, and he covered it well, but one of them is engagement, which was just talked about. The other clearly is password sharing. We covered this a bit on the call. It'll start this June.
Yeah
... meaning going after password sharers that shouldn't be sharing-
Yeah
without paying. And then ultimately in September, it'll start rolling out far more aggressively across the globe. So that's a second one. A third one is our marketing expenses are too high, and the reason they're too high is because we didn't build in the technology to have not only the algorithms, but the ability to send very, very highly customized messages to our subscribers when we believe they're potentially at risk.
Yeah.
Netflix is brilliant at this. So that's... You know, if they detect that someone has opened an app and hasn't found anything, boom! And you ping them with what actually the algorithm knows that they would like.
Right.
And so on and so on. So that's another step. And then, you know, we're going to get, you know, far... So we'll reduce our marketing spend. There'll be an increase in some technology investment, which is necessary, but we'll reduce our marketing spend. And then we have to look at the way we're distributing, too. You know, we, unlike Netflix, we distribute largely through third-party app-
Yeah
... basically app stores. And, you know, there's obviously advantage to that to some extent, but there's a cost to that, too.
Right. Right.
We're looking at that.
So, a subject that's near and dear to your heart is the Disney premium content flywheel, right? And that during your first tenure, the flywheel was perfect. Can you talk a bit about your confidence level of what's upcoming theatrically and and how you feel about the 2024, 2025 outlook and potential kind of reengine-- you know, restarting the flywheel that worked so well?
Yes, and I think, if you don't mind, you know, when I, when I came back, and I settled in, and we reorganized the company, and we really focused on what our most critical needs were, but also what our most critical opportunities were, which is very tied to the flywheel. One was turning the movie studio around. They had been in a period that was not nearly as successful as it had been and as it needed to be to serve the so-called flywheel well.
Right.
And I really feel great about that, and I'll get more specific. But the second what we wanted to do was turn streaming into a profitable business and a growth business. I've talked about that to some extent. The third was, which is tied to the flywheel, is I looked at the return on invested capital in our parks and resorts unit over the, you know, my tenure, really, and it was extraordinary. I asked about how much we were planning to invest over the next decade, and I realized that if we believe we're going to basically turn things around from a free cash flow generation perspective, which we've done and we're doing, then we have an opportunity to invest. Why not invest in the business that has the highest returns?
So turbocharging parks and resorts, which with investment, but using the flywheel, using the content that I just talked about to do that. And then the fourth was to really enable ESPN to become a preeminent digital sports destination, which I'm sure you want to get into, and that's basically enabling ESPN to migrate very successfully-
Right
... to a streaming business. Now, on the flywheel, we were just in Shanghai, a couple of weeks ago. It was my fiftieth trip to China, by the way, so I got feted with a cake, which I didn't really need, but-
Yeah.
And it was my second visit since we opened Zootopia Land. Now, Zootopia was the number one animated movie in China, and so we decided, I don't know, five years ago or so, in thinking about what we would invest in in Shanghai in terms of IP, why not lean into Zootopia, which is such a popular film? We built a huge land there, tremendous, and the success is... I can't really even describe it, but, almost like 90% of the people who show up are aware that Zootopia is there. We built a big enough land, so we're serving, I think, about 50% of the people who visit actually go through Zootopia Land. It's just a great example of that flywheel.
Okay.
If you look at the films that we have coming up, which include Moana in November, where we're starting to lean into investment in the parks for that IP, also happened to have been the number one streaming movie in America across all streaming platforms last year, and the film came out in 2016. Obviously, we're leaning in more to Star Wars. We have a Mandalorian film, the end of 2026. We have a Toy Story film, you know, Toy Story 5 coming up, and that has this Toy Story presence in, I think, I believe every one of our locations around the world, although I got to remember whether there's one in Tokyo, but I know Hong Kong, Paris-
Right
... Orlando, and, and Anaheim. And so if, if we get things right film-wise, and I feel really good about where we are, then that should start to pay off more in terms of combining it with the turbocharged concept that I described at the parks.
Right
an investment. Interestingly enough, if you look, if you analyze carefully how we achieve those returns on invested capital in the parks, it was all about the IP.
Yeah.
So for quite a long time, new attractions and lands at the parks were based on essentially either very old IP or no IP.
Yeah.
You know, just an attraction. And starting really with Cars Land and Toy Story, and a few other, I can't remember this, all the specifics, we decided that almost all of our investment in the parks, in terms of attractions and lands, would be using that IP, and it's very, very clear what that delivered.
Right. Can I ask a question on that? You know, when you think about more and more of the human experiences happening in virtual and remote locations, do you think that your position in creating live experiences in parks, and even sports itself, is becoming more valuable to consumers? You know, as we all spend more time behind screens, does a place to gather become more valuable?
Yeah, I think... Well, first of all, I, I don't think the popularity of, I'll call it, collective, outside of physically immersive experiences, is in any way going to wane. If anything, it may increase, hopefully it will. Whether that's because people are tired of being, you know, basically umbilical to their devices or inside or not, I don't know. But it's very, very clear that the experience that we deliver, whether it's at a park or at a cruise ship, and, is an extraordinary experience that I think where the value is not going away, showing no signs of ebbing at all. And it, it's what's fascinating to me, and it's obviously heartening, is that it's multi-generational. It doesn't wane even for older people, interestingly enough.
The number of people who visit, the number of people who go on our cruises without kids, because their connection to the brand and the IP is extraordinary, and their kids, and their children's children, and so on and so on. So I think we shouldn't take it for granted at all, because it's a very popular vacation destination, and it's an important experience for people to have, and there's something about that immersive experience when it's shared with others, particularly if you're engaging with stories and characters that you know, that is not just memorable, but is just really valued.
Okay. After last week's earnings call, we received a lot of questions about some commentary on the, on the call, and the question we have for you is: how do you think about the drivers of park growth after 2024? You know, there was a comment about post-COVID normalization, but just, just, you know, I, I think it was misinterpreted, but I wanted to give you, give you a chance to talk about that.
Well, I think, I don't know if it was misinterpreted or not, but I think what you have to realize is that, we've had double-digit revenue growth in that business for quite some time, and that's extraordinary, really. But I think we're being realistic, too, in that, you know, delivering double-digit revenue growth, you know, into the, well into the future, is not necessarily that achievable.
Yeah.
It doesn't mean that we're not gonna have growth, but I think maybe, I don't know, whether the market got ahead of us too much, or whatever, but I think that's one point I'd like to make. It does. Again, I wanna, I wanna emphasize that we believe we'll be able to grow these businesses nicely over the, you know, the near term-
Yeah
... meaning next few years. The other thing is, if you just look at the second quarter, we had record revenue at all of our parks. We had record per capita spending. We had record attendance in every one of our parks except Disney World, which was still strong. We had, you know, tremendous double-digit growth to the bottom line.
Right.
We've said that, save for, you know, one-time only, issues and expenses or timing, that we'll end up with mid- to high-single digits in the third quarter, and back to double digits in the fourth quarter. And again, we're talking about off incredible success-
Yeah
post-COVID. So I just think we ought to just be realistic about it. We're not in any way concerned about not being able to grow that business. It's just a question of, you know, how, how, what is possible. Now, all of those investments over time certainly will help. The other thing I think you have to look at is that we, in expanding that business over, you know, the last decade or so, we really have created a portfolio approach just to that business.
Right.
We're in six locations around the world. Finally, we have Shanghai profitable, Hong Kong is profitable, Paris is profitable. That's a major accomplishment. We have five cruise ships that have been enormously profitable, and three more being built. One will be launched the end of this year. I think it's two that'll be launched in calendar 2025, including one that will be based in Singapore, so that we can really start to open up a family cruise market in Southeast Asia.
Right.
So if you look at the entirety of the business, even if there's softness in the U.S., then we have these incredible growth engines outside the United States-
Right
... and on the sea. So I'm bullish on the business, you know, but I'm also realistic about it.
Right, and when you say turbocharge, what are those two or three priorities? You know, it's a portfolio, but when you think about where you're putting incremental capital, what are the areas that you think you can turbocharge?
Well, I mentioned cruise-
Yeah
... where we're building three, including one that'll be a 7,000-passenger ship that'll be based in Singapore. We have just gotten approval from the city of Anaheim for the biggest expansion of Disneyland, really since we opened California Adventure in 2001, so in over two decades. And it, it's a huge expansion, and we haven't been specific about what will be in it, except for Avatar, which going back to the flywheel-
Yeah
- by the way, is an extremely successful land in Orlando. So that's one example. We have 1,000 acres of land to develop. We have plenty of opportunity. We're opening up, actually, a big expansion next month in Tokyo. And so we haven't announced the specifics behind it all, nor do we have to over ten year—we're not gonna say we're gonna build in years eight, nine, and 10, because we'll be opportunistic if new IP emerges-
Right.
but or if we want to lean into a given market. But I'm, I'm bullish about what it is we will be investing in, whether it's the additional ships or whether it's in the lands, and the attractions, and the hotels, and the vacation club, which is our timeshare business.
Right.
that we're building out. Again, it's, it's a, it'll be portfolio expansion.
It feels like those international parks, Shanghai and Paris, have really turned a corner, right? Those were assets that you long invested in. Talk a bit about, like, just what you're seeing on the ground in terms of the dynamic-
Sure.
-of the international park.
Well, Paris, we have been investing nicely in the second park that opened there, which was called Studios, which ultimately will be renamed, and we've opened up a significant amount of new attractions there, and there are a lot more being built that will open in the next two to three years.
Yeah.
I feel great about that. Shanghai opened in 2016, obviously affected negatively by COVID, which hit them hard, and what was really hard is there were openings and closings, and openings and closings.
Right.
But having now been there, you know, as much as I have, and twice... I've actually been there three times since I came back-
Right.
-it's an extraordinary thing to see, because of its popularity. It's the number one tourist destination in Shanghai. It has had a huge impact on brand affinity in, of Disney in the country-
Mm.
-which is what my intention was when we decided to plant the brand flag deeply in a significant way. So demand is huge. I feel and also, high-speed rail serving basically that specific area of Shanghai is growing enormously, and so just people's ability to get there, and we ended up with seven square kilometers of land, and I believe we developed four of that, so there's opportunity at some point there as well. You know, we've done some nice expanding in Hong Kong. I mentioned Tokyo, talked about Paris.
Yeah. Okay.
Plenty of opportunity.
So before I leave parks, I'd be remiss not to ask you about competition that's coming in Orlando as Universal rolls out a new park. We saw a video of it yesterday. Brian was here to show it. What do you think the impact's going to be to Disney, and what attractions will you be adding to potentially compete with that?
Well, first of all, if you look at the last six or seven years, we've opened up a lot in-
Yeah
... in Orlando, including, you know, gigantic, we call it Galaxy's Edge, which is a Star Wars land with two E-ticket attractions, which has also been enormously successful. There's a relatively new Guardians of the Galaxy coaster in Epcot. There's a TRON attraction, which is enormously successful in Shanghai.
Mm.
If you go back, I mentioned Avatar, as a for instance.
Right.
We've been investing aggressively there, and there'll be continued investments.
Right.
We haven't announced specifics yet, but we're looking at a few of those parks-
Right
... to, you know, place some pretty big bets on.
Right
... I, you know, as we've seen in the past, when Universal is expanding, it does bring more visitation to Orlando. That's fine. We've had competition from them for a long time. You know, I'm mindful of what they're doing, but I'm confident. I like our hand. I'm confident in what we've built, and I'm confident in what we'll continue to build.
Okay.
It's not a... I don't believe, you know, that it, it's not something that should be distracting to us or anxiety-provoking. We should just continue on the path that we've been on, which is mine the great IP, deliver, you know, continued growth for that business, seek double-digit returns on invested capital, and-
Okay, so let's leave parks. I just want to note for the record, we've now spent more time on parks than we have over the years. Usually, we get right into media, but the importance of parks, as you know, it's really interesting just how investors need to shift their focus on what's-
Yeah
... actually driving Disney's earnings.
Yeah, and I think a few things happened there. First of all, all those investments paid off, so suddenly, and I, I can't remember the specific numbers, Alexia is here, but I think we doubled OI in those parks over a relatively short period of time. I, I know, just to give you an example, I think when I became CEO in 2005, Disneyland, the whole thing was making $100 million. That's well over a billion-dollar OI business today. So it's, it's grown enormously, and, and we should feel great about that. And so just by that, those statistics alone, it would've become more important-
Right
... and a topic of conversation.
Right.
But another thing that happened is, you know, we had a movie division that was, you know, throwing off an enormous amount of, we call operating income and cash flow, and they faltered, you know, during COVID, and then they had some misses creatively, and we're aiming to turn that around.
Right.
Actually, I'm heartened by the results just this past weekend. We have three big movies this summer. The first one was Kingdom of the Planet of the Apes, did really well.
Right.
I feel great about Inside Out 2, and I feel great about Deadpool, and I, we can talk about the slate-
A lot
... well into the future. But as movies faltered, parks and resorts had a larger share of our-
Yeah
... bottom line, and of course, traditional media channels, cable and satellite channels, you know, played an enormous role in essentially delivery to the bottom line, and we know what's happened there. So you had the movie business hitting a speed bump of sorts. You had the continued erosion of traditional media. We had our losses in streaming, which we've reduced by billions.
Right.
Now we have to turn that into a growth business. I think if you look at the company over the next five years, you'll see continued growth in parks and resorts, and they will remain significant. You'll see growth in streaming. I'm not saying how much, how fast, but we don't, we believe that that should be a double-digit margin business.
Right.
We're not saying by when-
Right.
but that's what it should be, and you're looking at a turnaround at the movie studio, and I think we can, we can talk about traditional media, too, and how we're using that, if you'd like. But I think you'll see more of a portfolio-
Right
... of businesses serving-
Yeah
our shareholders better.
Okay, got it. So let's turn to streaming. You touched on it in the beginning about the evolution of the product, how it was only launched five years ago, but can you share your vision, what you now see as the right product offering for Disney+, right? So you think about the design of what you'd like to see. Can you walk us through just, you know, intuitively, where the product should be in terms of the technology and support, too?
Well, I think I've said already, first of all, there'll be a marriage of our content engines to increase engagement. We're doing this, by the way, coming up in June, in a big way in Latin America, where we've had two platforms, one that is general entertainment and sports, and one that is Disney+ . They're coming together. So I've talked about what we've done in the United States already with Hulu and Disney+ . In EMEA, we have we call it Star there, and not Hulu, and Disney+ . So first big step is grow engagement, and part of that, basically, plan is to put sports in. And that's coming, as I mentioned. And what will happen there in December is that there will be an ESPN presence on the Disney+ app. If you're a subscriber to...
If you're not a subscriber at all to ESPN, you'll get a taste. There'll be studio shows, including SportsCenter, and some other sports. If you're a subscriber to ESPN+, it'll be there-
Right.
-right there.
Yeah.
In a year, that will become ESPN, the full suite of services, and if you're a subscriber, you'll have it seamlessly with Hulu and Disney+. So the first step is grow engagement. The next steps are all those technology areas that, or specifics that I talked about, which is investing in the technology to basically create much more to serve the user-
Yeah
... to serve the consumer, really. And it's some of it is really subtle, but really important, which is that first screen experience needs to be really customized and dynamic-
Yeah
... and constantly changing. It's not doing it once for a day, it's every time the consumer turns it on, opens the app, it should be different based on those consumers' needs. And it's and this is where AI will be just a huge, huge-
Yeah
... obviously, it's an important tool to do all this.
It's funny because, you know, I've often griped to my people around me, when I watch sports in an app, I leave, and it's like, for ESPN, it's a wasted opportunity if it's not integrated. But, but-
Okay, so-
Yeah
... well, just imagine, not only integrated, but just imagine a world, and it is coming soon, where we customize SportsCenter for you.
We know that you, you, are you a New Yorker originally?
Yeah, from Brooklyn.
Oh, you're a Brooklyn...
Yeah.
Okay, so we know that you like New York sports-
Right
... but maybe one sport, hockey, you like the Detroit Red Wings-
I don't. Oh, no.
or whatever. I don't know, they still-
[crosstalk] The New York Rangers.
You should have a SportsCenter that is customized for your interests. Now, it might not be, it doesn't mean you're not gonna see scores from other games or highlights or top ten, but the first thing you see, like, I turned SportsCenter on this morning, if I'm a Knick fan, the first thing I want to see is highlights from last night.
Right.
It should know that I'm a Knicks fan. So, and that's one example. That's coming. We are actually working on that.
Right.
So when you think about the user experience, and this is where... Look, I know a lot's been said about the demise of the traditional platform. That was inevitable. The reason it was inevitable, because it served the consumer really well to a point, which is variety, tons, and volume, meaning, and quality, too, and for the most part, a good consumer proposition economically. But in today's consumer, used to basically the internet and app-based experiences, and ultimately AI-driven experiences, wants much more than that, and doesn't and also, it's interesting, you could argue, you know, cable or satellite has all this variety, but it's not in one, it's not on one channel.
Right.
You have to keep changing channels or, you know, and using your remote. Imagine opening an app, and all that variety is in one screen. It's right there, and the switching costs for a consumer from one concept, one program, one genre, one whatever to another; it's negligible.
Right.
Nothing.
Right.
The click.
Right.
Obviously, if you're using an iPad or whatever, it's, you know, you're using your finger. So I'm really excited as a content creator about ultimately what streaming will do in terms of serving our consumers and growing general engagement down the road.
Right.
It's just, again, you know, I'm not second-guessing the fact that we launched and when we launched, because it's clear that it was time, as you remember, and we were applauded for doing it-
Yeah
... actually, and I think you saw that in our share price. But we launched it basically as rookies.
Yeah.
Now we know exactly what we need to do.
Right
... to get that to deliver double-digit margins.
How do you toggle between my constant asking of you and Alexia about margin targets versus the need to grow and invest and to you know to make the product as good as it can be? So how are you toggling between those two?
Well, I don't think they're mutually exclusive. I think we can do it all. I think one of the things that we're mindful of is we're not gonna chase subs by discounting too much and lowering price. There'll be some wholesale components to that, but before we really lean into growing subs, we wanna make sure the technology is right. Before we lean into investing in more content, because there are markets in the world where we are under-invested in content, we don't wanna do that until the returns on that investment are strong, and the only way we get there is with that technology. So first step, build the technology. Cost-wise, you're really looking at people, and I sense that in that case, it's upgrading to some extent.
It's hiring people that are, you know, steeped in that world, instead of in the more traditional world, and, you know, we're actually looking to do that right now.
Right.
I'm confident we will identify the right people. I don't think you're looking at enormous increase in investment at all.
Okay.
The increase in investment that will come is when we have the technology. I think there are some selective opportunities to invest in content-
Uh-huh
... in certain markets in the world.
I'm not gonna ask you about the precipice, but I wanna ask you about your vision you smiled at how pay TV landscape coexists with streaming, right? Because there's still a product out there, so how do you think the world's gonna develop with all the multiple choices we have?
The precipice you're referring to is my quote, I guess, when I was not at Disney.
No, I guess-
Who, who knew it was gonna come back to haunt me?
I guess threw it out there.
That, the traditional platform or multi-channel TV was on the edge of a great precipice, and tomorrow was gonna take one step forward or whatever. I don't know, I might have quoted a European leader or something. But, I... You know, when I came back, I did declare that everything was on the table. I, meaning I wanted to look at our asset base as a company, and determine whether we were supporting assets that not only had no growth, but were drags on our bottom line, on our multiple, whatever. And so I looked very expansively at traditional media, and we really...
It was exhaustive in terms of our analysis, and ultimately, we concluded that, and I know I've mentioned the word portfolio, where it's not gonna be a growth business, but it could become an important component to our ability to basically engage with the consumer. And so what has gone on, and this is where I give, I give Dana Walden, tremendous credit, because she's managing the traditional networks, and Jimmy Pitaro, sports, is basically to reduce pretty dramatically our investment in content specifically aimed at those traditional networks. Invest in some, but then manage the traditional platforms, networks, and the streaming platforms seamlessly. So you've got the same executives managing both, and their goal is to drive basically bottom line growth and success. And so you- we put something on ABC, Grey's Anatomy, Abbott Elementary, it goes on Hulu, you know, pretty quickly.
Yeah.
In some cases, there's some simultaneous. What you're—what we're getting is we're unduplicated audience, so ABC is, if you look at the demos, older and a different audience than Hulu. We're amortizing, so we're basically aggregating greater audience, and we're amortizing costs, and we're using the marketing of the traditional network really to help in some cases, even though there's not much duplicated audience. So we're doing that across the board, Disney Channel, ABC, National Geographic, and it's working.
Right.
Now that we're gonna continue to see erosion in terms of subs for those businesses, but we're gonna actually continue to drive profitability because we're managing our costs so effectively. And I think they'll play an important role, as we're already seeing in sports. And I don't know whether you have ESPN on your list, but I'll save that then.
Okay.
We'll get to that.
Well-
But again, so we feel comfortable with our hand right now.
Right
... because we're using those networks efficiently and effectively.
Okay. So I was gonna ask Bob the question on ESPN and sports costs, right? So College Football Playoffs, done, you expanded it. Rumor has it the NBA may be done. I know you're not gonna break news today on that. But, you know, the question we've always asked is, when you signed up those new contracts, you must have a vision for how that's gonna grow revenue and engagement. So just give us a view of, like, you know, why are you committing, and what do you see as the opportunity from getting those rights?
Yeah, and I can't. I won't comment about the NBA, but if you look at ESPN's portfolio, they've, you know, they have long-term deals with the NFL, college football, conferences, the NCAA championships, not basketball or football, but the football championships was a separate deal. The NHL, Major League Baseball, we've got some rights left, you know, still, but the. They have a, they have long-term agreements. They've also been selective in what they've extended or what they've bought, so we have passed on things. And we did so because, you know, we knew we couldn't buy everything, first of all, and we leaned into what we felt were delivering great results for us, and ESPN will continue to do that. ESPN's approach, so it's selective, but they do have the most in terms of volume, and the most in terms of audience engagement.
So if you look at sheer rating points, ESPN still is the leader. If you look, by the way, at even digital consumption, ESPN is the leader. And so we aim to manage a portfolio of rights that will enable ESPN to maintain a leadership position in sports media. Not the only position, we can't afford that, but a leadership position. So you know, if you maintain a leadership position, which I'm confident we will, then you protect your economics.... because everybody's gotta have it. If you are a sports fan, you have to have ESPN, and as long as that's the case, it will be-- we'll be able to monetize it. Now, in terms of growing it, I think there are a few ways this will happen. Multi-platform approach, no question.
So ESPN, we're not gonna. When we launch so-called Flagship, which is all the suite of ESPN services, we're not gonna turn off the traditional channels. We'll keep them on. If you wanna stay as part of a multi-channel bundle or get it from cable and satellite, you can do that. Or if you wanna buy it alone or as a bundle with our other streaming services, you can do that as well. So it's basically creating an omnipresence, and then customization. I really think that by basically using the AI technology that is becoming available to us, we'll be able to provide the sports fan with an even deeper and more customized experience that will even increase the stickiness of ESPN. And look, we know live sports today is still extremely valuable.
You see what's happening with interest from the streamers. That's for one reason. They, you know, they see what we've done, they know what we've done and what it can do. So as long as we maintain a leadership position, which I'm confident we'll be able to do, certainly through the next decade, given the portfolio of rights that we've already bought and that we intend to buy, we're, we'll be fine.
Okay. Well, Bob, thank you for being here. Really appreciate it.
My pleasure.
Thanks, everyone.
Thank you.
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