Today, Bob Iger participated in a Q&A session at the Deutsche Bank Media & Telecom Conference. Now, I cant say I speak for Bob Iger, but with the economy still in a troubled state, and with the shareholder meeting a week away, I thought it would be a good time to take his answers and create a State of Disney from Bobs perspective. I do not necessarily agree with everything Bob says, but I do have great faith that he is the best person to run The Walt Disney Company at this time. So with apologizes to one of my heroes, here is the state of Disney from Bobs point of view:
There is no question that we face challenging economic times. But despite this, the strategy of The Walt Disney Company remains the same; create shareholder value through high quality branded creative content. But we always need to examine how we do this. Everything by our commitment to quality and integrity is on the table. While we most always examine our businesses, our company is still strong and we expect to emerge from these tough times even stronger. Creativity is the key to everything we do, and that is why I spend over 50 percent of my time encouraging creativity and making sure it is clear that it is our number one goal.
While some might say we are in a creative lull, I couldnt disagree more. It is true that our businesses have good years and bad years. Luckily none of the businesses have bad years at the same time, while they have had great years at the same time. Our studio is strong with Up, Princess and the Frog, A Christmas Carol, sequels to Cars, Toy Story, and Pirates, as well as Tron and Alice in Wonderland. Disney Channel continues to be on a roll with Sonny with a Chance and JONAS. ABC has Lost, Desperate Housewives, Greys Anatomy, and Dancing with the Stars. And while ABC has not had shows of the caliber premiering recently, I know they will come. We continue to create creative capital inside and outside the US.
In addition to the cyclical challenges, we must be aware of secular changes to our businesses. I recently commented on secular changes in the home entertainment business. The competition for consumers time has grown quite strong. While we have moved content to many platforms, technology has enabled many new entrants to the entertainment marketplace giving consumers and abundance of choice. People can now go to You Tube to be entertained by others home videos. Who knew when I put Americas Funniest Home Videos on the air twenty years s ago, I would be ahead of the curve. We need to adjust to a world where the computer is more of an entertainment device than the TV. In a recent study 80% of millennials believed that. Piracy is also a challenge and we need to avoid the mistakes the music industry made. We need to offer our content on new platforms at an affordable price in order to make piracy less appealing. While this might affect margins, but sacrificing some home video sales; the alternative is to force customers to piracy. Not making content available online does not save DVD sales, it just encourages piracy.
I believe the challenging advertising market is experiencing a cyclical change. Many believed we would see a profound change in advertising. But those that need to sell products and services need to market themselves. This makes advertising necessary. So while we see the cyclical change due to automotive, consumer electronics, and financial services sectors advertising less, companies still need to advertise.
While the abundance of choice changes our business, it does not weaken our business. The more players that are out there, brands become more important. The ability to stick out of the crowd is invaluable. Our brand is particular strong. People will always have babies. The babies become children and want to be entertained. Since my grandparents time, Disney has been the most important brand in family entertainment. Through the simple act of childbirth, though I dont know that it is that simple, our brand keeps replenishing its value.
Lets take a look at how our brand helps our home entertainment business. The average home owns 80 DVDs. They probably are starting to think twice before that start adding titles to their library. However our titles , particularly animated films, are collectable and easily playable, which is important for families. The advantage our Disney branded films have in this market is significant. This is why we will continue to invest in Disney branded films.
Our brand also allows us to experiment. This is a part of our heritage which goes back to Walts time. The strength of our brand allows us to try and share our content in new ways. For example, I would love to see an online Disney movie club where you pay a subscription fee to view our films. The strength of our brand makes this a possibility. This is why we are looking at investing our CRM structure including affinity clubs. In fact, you will hear about the creation of such a club in a matter of days. A consumer is not a consumer of one of our businesses. Most are consumers of all of our businesses. This means it is critical that we maintain our relationship with our customers.
There have been some questions about growth at ESPN. The rights fees we pay create a strategic advantage for the worldwide leader in sports. We believe ESPN will continue to grow due to its value to its viewers, distributors, advertisers, and sports organizations. And while the Olympics are not a must have, we believe ESPN could do great things for the Olympic Movement by giving them a constant outlet for Olympic sports, such as we did on ABCs Wide World of Sports.
At our parks, attendance is on par with last year, but with heavy discounting. In addition, per capita spending at the parks is slightly down. That being said, we continue to invest in new experiences such as The American Idol Experience which recently opened at Disneys Hollywood Studios and the two new Disney Cruise ships. We need to remain focused on the long term, by investing in our company and our franchises. With Toy Story 3, Cars 2, a new Winnie the Pooh feature, and the initiatives surrounding Mickey Mouse, we establish strong franchises that not only help our Consumer Products business, but all of our businesses.
Despite tough times, the state of The Walt Disney Company is strong. In order to remain strong, we need to continue to invest and foster creativity. This is the key to our brand. In tough times, it is easy to try and just hang on, but if you do not continue to invest and grow, you will be a victim of atrophy. We will continue to examine our businesses and find the best and most efficient ways to grow and create the creativity we are known for. By continuing to improve our foundation during the tough times, you will be able to better reap the awards of the great times.