We are joined by Bob Iger, of course, Chairman and CEO of Disney, after really a very important day for the company. An investor day long in coming, much awaited, you didn't disappoint. I will tell you, at least from my perspective, in terms of inundating us with content, then giving a lot of the specifics the investment community has been clamoring for. Let me just start with the big picture if I can, Bob, which is you clearly are pointing in a different direction for this company in terms of the way it goes about distributing the amazing content that you create here at Disney. Why is that something that you feel is necessary to do, and necessary to do in such a significant way as you detailed today?
Well, I think you have to look at not only the way the world is going, but we had to assess what the biggest opportunity was for the company to grow over the long term. Clearly, consumers are enjoying a kind of a different form of entertainment in the home. One that is over-the-top, not necessarily connected to a traditional satellite or cable distributor or distribution model. One that has a significant amount of choice, one that enables the consumer to customize or to have personalized experiences, one that can be watched seamlessly on multiple devices. It was clear that given the company's ability to create content that people love, why not give people content that they love, but on platforms that are becoming more and more interesting to them, more and more compelling to them?
Now, you set out some relatively ambitious goals in terms of subscriber projections, between 60 million and 90 million on the Disney+ service by fiscal year 2024 or the end of-
Correct
that. As well Hulu, which you control 60% of, I think 40 million-60 million subs in the same time period. Some people look at Netflix and say 150 million subs around the world, they still lose $2 billion-$3 billion a year. How is Disney going to be able to make money, and more money than otherwise would have, by licensing so much of that content in this new world if Netflix is still losing so much with such a large subscriber base?
Well, as we demonstrated at the beginning of this presentation, we have almost 100 years of creating great content that the world loves. Under Disney, then Marvel and Pixar, and of course, Star Wars, then adding National Geographic to it. I think when you start with a brand base that is that strong, then you have an advantage basically in the marketplace because of the love that people have for that brand and the desire to be entertained by it or spend money on those brands. We've seen that in multiple ways as a company. I grant you that, in this new world, while we're still really learning more and more about monetization, we enter this business, I think, with real strength in terms of the brand affinity that our products have.
I think that gives us not only the ability to reach more people, but it gives us the ability to do so in more economically viable ways.
Yeah, I'm curious about that. Economically viable meaning what? You're pricing the service at $6.99. That is below certainly what Netflix is at and a number of the other competitors out there. What about it makes it economically viable at those subscriber projections-
Well-
when you do say you're going to be profitable by fiscal year
Yeah, interestingly enough, we're pricing this to be accessible to the millions and millions, if not hundreds of millions, of Disney fans and Marvel fans and Pixar fans and Star Wars fans that are out there. I think that's where you have to start. The sheer number of people worldwide that know our brands, that interact with our brands on a daily basis, that spend money on our brands, is huge, and no other company has that. While I think Netflix has done a good job of creating brand value and name value, and make a product that I think is considered of great value to a lot of people, they're still building their brand in many respects. Whereas in our case, we start with a customer relationship that in many respects is visceral.
As I mentioned, I was taken to see Cinderella by my grandparents when I was, I think, four years old. I watched that movie with my grandchildren. That's five generations of Igers that watched that movie. There's a connection that my family has to these stories and to these brands. If I see the opportunity to buy Disney+, and I can watch it on all these devices, and I can download the movies, and I'm going to watch original product, but I'm also going to watch things from the library, that's something I know that I'm going to want.
Nobody disputes the power of the brand. I think it's apparent to everybody. The evergreen nature of it that you just mentioned in terms of spanning generations. There are those who say, you know what? You have a great model now, even with the bundle starting to certainly lose carriage. Nonetheless, the license fees that you're going to forgo as a result of now putting so much of your own content on the platform are significant. Some say as much as $2.5 billion in incremental profits in 2019, perhaps as much as $5 billion a year by the early 2020s that you're forgoing in license fees. Why is it the better way to go?
Because I think there are platform economics that trump license fees to third parties. We can start with the affinity that people have to the brand. They want to be connected to it. Obviously, the ability to have a direct relationship with the consumer gives us, I think, an opportunity, in having that relationship with them, to monetize much more effectively. Knowing your consumer gives you the ability to, as a for instance, give them a more compelling experience, and have a connection now also is, I think, as obvious as if you look at the Disney consumer, they're going to movies in movie theaters, they're renting or downloading movies in their home, they're buying consumer products, they're visiting our parks, they're sailing on our cruise ships, and I could go on and on.
Interestingly enough, now that's true with Marvel and Pixar and Star Wars across multiple businesses. If suddenly your customer relationship is much tighter, if the proximity between you and a customer is better, then you're going to serve them a lot better across your platforms, and you'll monetize that I call a broadened, deepened relationship.
It's fully.
In the third.
Yeah
If you look at this company over the years where we've been distributing movies through movie theaters, the movie theater is the relationship with the customer, even though it's our product that is touching the hearts and basically becoming part of the deep and happy memory. The cable channels or the satellite channels are distributed through satellite providers and cable providers. The customer relationship is theirs. The consumer products are usually sold by big-box retailers. The customer is theirs, or by Amazon. I could go on and on. We have a customer relationship with all these folks through third parties. Other than our theme parks, where we have a direct relationship, we don't know who these customers are. In knowing who they are, I think we have an opportunity that is extraordinary from a bottom-line perspective.
It's worth the many billions in costs that you're going to see between now and 2024.
Yes, look, I think you have to consider that a lot of the product that's on that service is being made for another platform and being monetized for that platform. You look at all the movies, put aside the library, but you look at, just say, Captain Marvel, which is the first movie that will be available.
Right
The first original movie that'll be available. That will have over $1 billion in global box office, probably well over, by the time it becomes available. The cost of that product has already basically been borne by its initial, basically, foray into the marketplace. I realize that we could license it to third parties and make money on it's much more efficient for us to do it this way and have it be part of a service that's also creating new content, which by the way, the content that we're creating that's original for this also will create longer-term value for the company.
Right. In a sense, it does fully commit you in terms of what you're producing to the service.
Fully
That's where you are.
The Disney model-
This has got to work. In other words, if five years you find yourself not getting the projections that perhaps you had, the model's not going to necessarily be in the right place.
Well, I'm an optimist. I'm a realist, but I'm an optimist, and I've been at the company for 45 years. I've been president or COO since 2000. I have a strong understanding of, or a deep understanding and appreciation of Disney and its brand and its relationship to consumers. I'm pretty optimistic about the ability for this thing to work, particularly when we make it accessible because of the content we're putting on, because of the user interface, and because of the price. I believe this is going to be successful. If, in five years' time, I prove to be wrong or we prove to be wrong, we're still making great content that's going to be in great demand globally, and you can shift in a moment and license to third parties.
You can. You could shift that pretty quickly if you needed to. Not that you're necessarily going to.
I won't
Of course, you expect it to be successful.
I do. I don't want to dwell on that for that reason. I don't think that's really an issue. Look, you're building up library value regardless.
Right. You mentioned, of course, theatrical display. There's been some questions about windowing, whether or not the service over time is going to start to see some of your original content when it comes to even the big movies sooner than it otherwise would. Is that a possibility?
This is really not about windowing to us, because frankly, those other windows are really working for us. It was mentioned earlier that our studios had two years where they've had over $7 billion in global box office. By the way, that's only on about, what, 10 movies a year.
Right.
That's really working for us, and if it's not broken, we don't want to try to fix it. I don't really think for us there would be any more money in it if we were to put those movies on the service a little earlier. Don't forget, in that window after it's available for its theatrical run, these movies will be available for a form of rental or download or purchase. The physical copies are still being sold.
You were asked towards the end of the presentation today, you're going to have three services in the marketplace, obviously, Disney+, which we've been talking about here, Hulu, and ESPN+, which already is in the market now. Do you run the risk, particularly when it comes to Hulu and Disney+ both operating at scale, of confusion amongst the consumer or with the different interfaces? I just wonder whether there's a way to sort of consolidate that offering that perhaps is more efficient for you.
I think there'll be a way to consolidate the creation, meaning the technology and both the user interface, customer relationship management, data storage, all those things across those businesses, but we still have minority shareholders in Hulu. Until we work our way through that relationship, I think you can basically figure that Hulu's going to be run pretty much as it's been run. On the ESPN front, the back office and the back of house, so to speak, is the same, but the user interface is different because you're talking about two very different products. Look, I study the marketplace very carefully, and we both know that you're in the same business in many ways. We're being distributed to the home on platforms that were created many years ago that served us well and the consumer extremely well over now decades.
I think in today's world, I don't think the consumer really wants to buy 150, 200 channels of programming for a fairly significant price when they're not interested in many of those channels, and in some cases, they can't even find them. I think what we're starting to see in terms of that platform is not necessarily the popularity of these channels decreasing, as I think consumers are starting to say, "Wait a minute. The price to value relationship, even though I'm getting a lot of content and a lot of quality, isn't really there because I don't need all of that stuff.
I know, you know a lot of this started, you and I have had this discussion, in fact, some of your peers, if you want to call them that in the business, look at you and say, that started because of ESPN, because of how much you're charging for it, because you paid all that money for all those rights a long time ago.
I think we were a convenient scapegoat in that regard. I think all of the channels. I know that ESPN charged more per subscriber than a lot of the other channels, I think you have to look at the value that was created there, both to the consumer and to the distributor. The advertising rates on live sports, the distributor, the cable company, the satellite have traditionally been better, for instance, those channels are in demand. Look, it's an open marketplace, the more in-demand you have, the more pricing leverage you have. I don't think that ESPN should be blamed for what we're seeing today. I think you just have a different consumer today. And the more choice that has entered the market.
Well, your grandkids or kids or my kids, they're not going to subscribe to this bundle. That's just not happening.
Okay.
You believe that, don't you?
I believe that they will continue to watch a linear television. I think live sports and certainly news, and maybe financial news, by the way, you know-
We can always hope
continue to have value and people will be interested in it. I think long term, I think you have to consider that linear television is going to be less popular than just television, than programs. We're in the short term, we still are very supportive of the channels that we own and that we're distributing. We're going to continue to put resources behind them to create great programming. I think long term, you have to put the consumer first. If going all the way back to how this started, if we put Hulu and ESPN and Disney+ into one product, the only way you can get these things is one, that's doing exactly what the consumer today doesn't want. If there are consumers that want it that way, we'll give it to them that way.
Hopefully, ultimately, in all three, one username, one password, make it really easy for them to do it in a discount.
In a discount, right. Yeah.
Yes, we still have ownership issues as it relates to Hulu to accomplish that.
Bob, when you think about the evolution of this business and when you get to a more mature phase in this new undertaking that you discussed today, will it have the same margin characteristics or profitability of the good old-fashioned business of having your networks carried on a cable system that was so profitable for so many years?
Well, we're not projecting what margins will be, but again, I think that there's huge system economics in owning a platform and attracting customers directly over time and giving us the ability to attract customers of Pixar, Marvel, Disney, Star Wars, and National Geographic. In other words, in the past, if you went out with channels, Marvel didn't have a channel. Marvel might have a channel, and Disney would have a channel, Nat Geo has a channel, and there's, I think, a lot of waste there. If you really look at margins, this is one platform for all of them. And again, a direct relationship with a customer. We have the ability to basically interact with not just in this business, but across the board. Think about ultimately the relationship you have with them, like going to our movies and going to our parks.
I think that long term, the value creation for this is better for us based on the investment we're making than what we're currently doing.
You do.
Yeah.
I mean, again, that direct-to-consumer relationship you've mentioned a number of times. You can market to people, I would assume, who walk into a theme park. Do you give them a free trial or something like that?
No, I think one of the things we will do is that we will immediately begin marketing to people who go to our theme parks and people who are members of D23, which is essentially a club of great Disney fans, or people who have Disney co-branded credit cards. I think that there's already a pretty significant group of people that have expressed themselves as Disney fans. By the way, there's efficiency in marketing right there. We have a relationship with them. I think that there'll be a lot of that here, meaning using the platform to connect ourselves to the customer more intimately and to interact with them or transact with them more frequently.
I wonder-
Think about movie downloads.
Right
That which right now almost all of them are done through third parties. There's no reason why that can't be done through this, meaning for purchase in that window down the road, just as a for instance.
Right.
Possibly selling tickets to movies and packages to theme parks. I think there's a lot that can be done because you've got a fan base that is so interested in interacting with the brand in multiple ways.
I wonder just in the larger sweep of sort of history in terms of business, there are many companies that did not do what they should have, which is change their model, and they didn't leave their old business, and they suffered dramatically. You are doing what many believe you have to do in order to change the trajectory of the business. Just because you go from one house that's a really nice house, but now it's getting flooded all the time, and move to another house, doesn't necessarily mean that house is any better than the one you're leaving. It could be worse, but it's not getting flooded all the time.
Okay, I got to try to follow that.
I mean, I guess I'm just wondering.
There was.
Is the business that you're going towards going to look like the business you are moving away from?
No, the world isn't going to look that way either. I don't think if you measure it against the present, the present doesn't stay the present for very long. In fact, in today's world, it's changing so much. The marketplace has never been this dynamic.
Right.
Meaning speed of change is much faster, that's technology, that's consumer behavior driven by technology. It's economics. It's how things are marketed anywhere you look. You can't measure it against what it is today. You have to measure it against what you believe it's going to be tomorrow. And I think one of the reasons why companies fail to innovate is they continue to measure it against today. If you're in the business of selling film, physical film, you want to keep selling as much of that film as you possibly can. You're not really thinking, you believe you may hit a speed bump here and there, whether it's the economy or new competitor enters the marketplace, you're not really thinking it's going away.
Right.
What you do-
Well, you may fail to understand what your business is, which is not about film, it's about capturing images, right?
Well, it's about taking pictures.
Yeah.
Exactly. Let's let people take pictures no matter how they want to take them. Look, it's a lot of pressure to not do that in a way because you're getting measured by quarterly earnings and annual earnings and how much you grew next year. In many cases, compensation is tied to near term versus long term. It becomes very, very difficult to innovate, again, because you're so tied to the business model that got you where you are, which could be great, but it often causes companies to not think about what is that business model going to look like tomorrow. Again, we're in a world that is Everything about our world is being disrupted.
Right.
How we communicate, how transportation, how we buy things. I mean, I can go on. I don't have to tell you, I can go on and on. When you look across industries, the automobile industry and the electric car. Tesla comes along and now, we'll see how they do long term, but you could maybe argue that that's something that the major automotive companies should've been doing a while ago. Soft drink companies not going into the healthy drink business and mainframe companies not going into.
Right
the laptop business and you could.
You are obviously not wedded to the distribution model-
We're wed-
that you've been following for years
The monetization model. What we're wedded to is we're wedded to creating great content that is branded. That has served us extremely well. What we also believe is no matter how much the business, sorry, the marketplace changes, no matter how much technology changes how people are told stories or get their stories, we're still going to be relevant, but only if we enable ourselves to be distributed and purchased by the consumer in more modern ways. If we stick to the old, that to me is a recipe for ultimate distinction. Extinction, I'm sorry. Distinction would be the going the other way.
Yes. Extinction. How much of Netflix's current value do you think has been derived as a result of things that were produced by Disney?
I have no idea. We've had a good partnership with Netflix. We were the first to license movies to them. There was a big discussion about that way back at the company.
It's got to be something. I mean, it has to be.
I think, sure.
some portion of value there that's been-
Look
created as a result of your content.
Definitely. They derive value for it. They stood up and paid a significant amount of money for it at the time because they realized its value. Then after that they licensed television shows. After that they licensed original television shows, the Marvel shows. I think that clearly what we licensed to them was important to them from a value creation perspective. I don't begrudge them having done that or us. Nor do I second-guess the fact that we did it. We did it-
O r that you did it as long as you did it and perhaps let it-
No. I'll tell you why. First of all, we did extremely well licensing our content to Netflix. We're launching this product because we are ready to launch it. We wouldn't have been ready to launch it two, three years ago.
Why?
We wouldn't have even been ready to talk about it. It takes technology, it takes content. It takes the talent to make the content. It takes a marketplace. You could argue that what Netflix has done has actually been good for us because they've seeded the marketplace to robust over-the-top content distribution and presentation. I like launching when we are launching, and believe that it's a great time for us, and the Fox acquisition had a lot to do with it. Something interesting, David,-
Yeah
that I've observed, and I don't think I've said it publicly, but we announced that we were doing this in 2017.
Right.
Just summer of less than two years ago. It was actually June of 2017 that we decided to do it, and that led to the purchase of BAMTech. The opportunity to buy Fox first came up later that year.
In fact, just a few months after the board approved us buying the majority share of BAMTech, which was done for one reason, to go into the direct-to-consumer business, Rupert and I sat down and talked about a transaction. We would not have done that transaction had we not decided to go in this direction because if we hadn't, we would've been looking at that business in through a traditional lens. "Oh, we're buying TV channels. We're buying more movie-making capability," et cetera and so on. By the time the acquisition opportunity came up and we knew we were going in this space, we evaluated what we were buying through this new lens of, wow, what could National Geographic mean to us? What could it mean to us being in the direct-to-consumer space in India?
What could it mean having access to their library, not to monetize it through traditional means, but to do it through this?
Right.
Bam. I mean, the light bulb went off.
Man, 30 years of "The Simpsons.
Well, okay.
That's actually I'm not kidding.
That's a-
Yeah
perfect example of what I'm talking about, or example. It just maybe proves the point. Again, which maybe speaks to why people don't acquire companies too, because you try to measure what you're acquiring in a traditional sense. Our decision to buy Pixar, Marvel, and Lucasfilm was made because we believed that great storytelling would stand the test of time and no matter how much the marketplace was disrupted, whether it was cable and satellite, movie theaters, traditional television, you name it, a great story, well told, really, a story well told, was going to succeed.
Right
as an investment or as a financial proposition, no matter what.
Yeah. You mentioned the Fox deal, of course, something I followed closely. By traditional measures, particularly given the fact that you had to increase your bid to compete against Comcast, then, well, we don't know where the RSN sale ends up. The multiple seems fairly high for that business. Do you feel by the traditional measurements, though, that it's going to have been a deal well worth having done?
Well, look, we're very early into this process. I've never second-guessed decisions that we've made. I'm certainly not going to second guess this one, not at this point anyway. I'm confident. Sitting in the audience today and watching what we were presenting and seeing National Geographic be part of it, "The Simpsons" be part of it, some of the films from the Fox library, knowing there was a team in place in that room that has done a phenomenal job of creating scripted television over the years, made me feel great about that acquisition.
Yeah. Now, there's $2 billion or so in synergies that a lot of analysts have certainly pointed at. I think there has already been some.
Well.
You announced that number.
talked about that number, yeah.
Are there more to come? I know there's been job losses, as there would be when you're putting these two together. Is there more to come there, or are you largely through the job cuts?
No, no. We're just beginning a consolidation process across the world. We've been candid about that with people in the organization. There's work to do to get to the synergies that we talked about, which were cost synergies. We have consolidation ahead of us.
There's more to come there.
Yes.
Do you think the $2 billion number is?
We're not updating the number.
Specific to the process itself, a couple of things as well to get to. The sale of the RSNs, these Regional Sports Networks, continues. I've been following that somewhat closely as well. It doesn't seem as though it's been going particularly well. Am I going to be surprised?
In what direction?
In the upside. Major League Baseball may be there.
We're not-
Perhaps there's a couple. It's hard.
We spent the day. I know we don't get a chance to sit down with one another very often.
You and I don't, exactly.
We spent the day presenting Disney+ and our other direct-to-consumer services. We have an earnings call in a couple of weeks. We probably will know a lot more then anyway.
I would think so. We're getting fairly close to when you would want to have that deal kind of near or done or completed.
Our commitment to the Justice Department of the U.S. government was 90 days after closing.
The Apple board. It's another thing I just was curious about. Can you stay on that board?
Well, obviously, when you sit on the board of a publicly traded company, you have to be very mindful of your responsibilities, fiscal responsibilities to the shareholders of that company, and I have been. When the business of direct-to-consumer television or movies is discussed on the Apple board, I recuse myself from those discussions there. There aren't many of them. It's still very small business to Apple, and I'm not at the point where I believe it's problematic, but it's something that I have to continue to monitor.
Finally, ESPN, we haven't talked as much about ESPN+, which has been in the marketplace. 2 million subs you talked about today in roughly 10 months. How should we view ESPN, the network itself, that is still carried on, what, 80-something million subs or something along those lines.
ESPN+? I know the programming is different to a certain extent. Are you expecting ESPN subs to continue to decline in the traditional model in the bundle? Does ESPN+ pick that up along the way, or are they two different sort of models?
Well, I think right now, ESPN+, and probably for the foreseeable future, meaning near term, is an extra service, meaning it's not designed to replace the traditional business model. It's an add-on.
Yeah.
It's a place you can go to get more, and engage more, or to get different. If you want to watch an Ivy League football game, it's going to be difficult to find that on ESPN, but they have the rights on ESPN+ and so on. In fact, a lot of what we've licensed for ESPN, we can't put on because there's just so many hours in the day.
Yeah.
This is great in that regard. I think that will continue for a while. We believe that there are sports fans out there that do want more ESPN and want it in this fashion, which basically means easily watched across devices, over-the-top, not connected, not have to have a cable subscription service if they want to watch some sports or gain access to some. We're not making any predictions about the health of the bundle or how many subscribers. As you know, the business has seen some.
It's going to. My God, we started this conversation in 2011. One of our few interviews back in August of that year is when it sort of started to at least reverberate in the marketplace.
Yeah.
The sub numbers are going to continue to decline at ESPN.
Well, I think the sub numbers for the expanded basic model will continue to decline. We'll see what happens with ESPN, where we don't have anything to say about it in between earnings calls. We typically comment about sub figures during earnings calls. They're already breaking down the set today, I guess.
Yeah.
Nothing more to say.
Well, the growth of virtual MVPDs has been beneficial-
Yes
That seems to be slowing as well.
Well, again, I'm not going to update numbers on that. I think what this does, frankly, is it gives us the ability to have a platform and a relationship with the consumer that should the traditional model start failing us, which it's not yet. There's been-
Will you know when it is?
I'm sure, yes. I'm sure we will, but I don't see it happening during my tenure here. Not that, by the way, I'm pushing off the problem to somebody else. I just don't think it's a problem we're going to have. If there's a time when the channel, the linear channel, is no longer viable, then we've got the ability to flip a switch and go in this direction.
When you talk about your tenure, of course, and I hope we do interviews for many years to come, but 2021, is it, well, two and a half years away or so, right?
Yeah.
You seem to indicate in the meeting you're going to stick to it this time.
Yes.
That your time is You're going to be right in the middle of this enormous transformation of the company, of this transition that we've talked about. Is that going to be frustrating to you?
No, it won't be frustrating to me at all. The most important thing is that the company gets through the transition seamlessly. I believe that two and a half years from now, or roughly two years after we've launched this massive initiative, the company will, it will be well on its way, and the company will be well on its way in terms of success here, and that will be the right time for a transition at the CEO level. The Fox acquisition will have been assimilated. We'll be off and running on the direct-to-consumer space. Now would've been, and the reason that I stayed, now would've been tough, primarily because of the Fox acquisition. As I said earlier, that was somewhat tied to what we were planning to do direct-to-consumer. The timing was not right for the shareholders of the company.
I actually would've been fine setting all this aside and going off and who knows?
Potentially running for office. At least you were thinking about it.
That's old news, but not current news.
No, it isn't. Well, we've got you for another couple of years, and I appreciate you taking time today. Thank you.
Pleasure.
All right.
Thanks.
Thanks, Bob.