LPWire: Disney's Sweeney Presentation to Merrill Lynch Conference
Presentation to Merrill Lynch Media & Entertainment Conference by Anne Sweeney, President of ABC Cable Networks Group and Disney Channel Worldwide
To hear a replay of this presentation click here. Available until 5:00p PDT on September 17, 2003.
September 10, 2003
Good morning everyone.
I want to thank Jessica and Merrill Lynch for inviting me to this conference and joining the media executives who are addressing you.
This is a very good time for me to be updating you on our cable TV businesses because we have been in a period of sustained momentum and growth across our holdings and are entering an exciting new stage.
In the past year, we've talked about our focus on the key brands that drive The Walt Disney Company - Disney and ESPN. ESPN, our cable sister, has gained well-deserved attention for its success in building a cable television brand that has become synonymous with sports by delivering to fans, particularly men, compelling content that is valuable to cable operators, advertisers and viewers.
Today, I want to provide you with insight into our success expanding the Disney brand - already synonymous with family entertainment - to audiences important to the success of the Company: especially kids, women and families.
As Jessica noted in her introduction, I manage a group of assets under the ABC Cable Networks Group. It is a broad and deep set of businesses that are efficient and profitable vehicles for growth.
We are an important contributor to the company's operating income and free cash flow.
The persuasiveness and ubiquity of television have allowed us to profit from new brands - like SOAPnet - and to leverage our existing brands in new profitable ways - like Disney Channel and Toon Disney, as well as our kids programming on ABC Family and ABC Kids.
In particular, I want to focus on our reinvention of children's television at The Walt Disney Company, centered around Disney Channel.
Our growth has been strong and consistent. In 1996 we began accelerating the distribution of Disney Channel in the U.S. and around the world, while diversifying our portfolio of cable networks by launching new channels and through acquisition.
As this chart demonstrates, our portfolio growth has been extraordinary: In international markets alone, we have added at least one new Disney Channel every year since 1995.
Today, we have 21 Disney Channels around the world, 3 international Toon Disney Channels and 3 international Playhouse Disney Channels.
This November we launch Disney Channel Japan, a market of obvious importance where we expect the network to continue to feed the Japanese demand for the Disney brand.
A key milestone in our television growth came in 1996 as a result of the Company's acquisition of Capital Cities/ ABC. Of course, the news at the time was that Disney was the first major studio to acquire a broadcast network. But of perhaps equal importance are the cable assets that we acquired. In addition to ESPN, our media networks added equity positions in Lifetime, History and A&E.
In 1997, we added an equity position in E! As each of these networks grew in distribution they spawned spin-offs like Biography, Style and Lifetime Movie Network.
In 1998, we launched Toon Disney as a complement to Disney Channel and in 2000 launched SOAPnet as a complement to our ABC Daytime programming on the broadcast network.
In 2001 we added Fox Kids Europe, providing an ad-supported revenue stream to complement the premium Disney Channels in international markets.
And we expanded Toon Disney and Playhouse Disney as stand alone channels in the UK, Spain and France.
The result has been profitable growth in the segment for The Walt Disney Company.
In the five-year period ending September 30, 2003, we estimate these combined businesses will have:
- Delivered a double digit compound annual growth rate in revenue and operating income
- Increased the distribution of each of our networks by tens of millions of homes
- Increased CPMs at our ad-supported networks
- And grown our portfolio of assets with multiple new domestic and international networks.
This only shows part of the success, though. Just as important as the direct revenue and operating income these assets generate are the ways we integrate these platforms into other divisions to enhance growth and create new opportunities for profit in other businesses of the Company.
I've worked at a few of the other entertainment companies, and Disney represents truly the most integrated of them all. You're going to hear me speak a lot about synergy and franchise building today. That's because our cable networks are responsible for a significant and growing amount of valuable support to the Company in these areas.
Our wholly owned cable networks alone this year will provide more than 1.9 Billion gross impressions in support of other Disney businesses, ranging from the release of Disney/Pixar's "Finding Nemo" to the launch of ABC's Fall primetime line-up
Most importantly, though, ABC Cable has given birth to creative properties - like Lizzie McGuire and Kim Possible - that are generating sales and profits across the company. And we've launched several low-risk, high-return businesses, such as SOAPnet and Toon Disney, that are turning synergy support into ongoing, profitable endeavors.
Before detailing our success in creative franchise development, let's focus on these newer television platforms that leverage our Company's existing product for new revenue. While many media companies continue to struggle with how to manage cable and broadcast networks in an integrated way, we're succeeding every day on multiple networks.
In fact, there's been no greater example of success in dual-purposing in television than SOAPnet.
Launched in January 2000, SOAPnet was greeted by skeptics who said: "Who's going to watch a cable channel showing repeats of soap operas?"
These are probably the same people who wondered why anyone would want to WATCH music. And the same people who wondered why anyone would need 24 hours a day of sports.
Of course, looking at the success of MTV and ESPN makes it easier to see why SOAPnet is succeeding. Let's look at the fundamentals underlying SOAPnet's business:
- Nearly 100 million people over the age of 15 have watched soap operas.
- One-sixth of the U.S. population watches soaps in a typical week.
- And 25% of all women 18 - 49 watch soaps in a typical week.
So, it's not surprising to me that SOAPnet is already in 33 million homes, and just as ESPN has become the home of sports fans, SOAPnet is the home of soap fans. And these viewers are truly fanatics. In fact, studies show soap fans are even more loyal than sports fans. And soap fans are a particularly valuable demographic. This year, marketers spent nearly $1 billion reaching soap fans on the three broadcast networks.
SOAPnet has caught the attention of these marketers, who have driven the network's sell-out rate to a consistent 99%.
Of course, the advertisers are coming because the viewers are coming. Year-to-date, SOAPnet is a top 10 cable network in prime with the key demographic of women 18-49. Before you jump to any conclusions, you should know that 1 out of 4 SOAPnet viewers is male. That's because SOAPnet is a GENRE network, not a GENDER network.
SOAPnet's core viewer is more valuable to advertisers than those at many competing networks. That's because our viewer is younger, better educated, more affluent and more loyal than the viewers at competing networks - cable AND broadcast.
And, boy, are soap fans loyal - which is of key importance to attracting quality advertisers. In July, SOAPnet viewers watched SOAPnet an average of 29 consecutive minutes in primetime, marking the fifth consecutive month that SOAPnet topped the list of all broadcast and cable networks. By the way, No. 2 went to our equity network Lifetime, with 23.9 minutes of consecutive viewing. In fact, we have four of the top 6 networks in length of tune, including Lifetime Movie Network and Toon Disney.
Toon Disney is uniquely able to program a 24-hour, all-animation kids cable channel, leveraging the treasure-trove of animated programming created or acquired by The Walt Disney Company. From Mickey and Minnie to Pooh and Piglet to all of our princesses, Toon Disney is building audiences and supporting the long term growth of important Disney franchise properties. Toon's distribution has grown 21% this year and earlier this month the channel's distribution surpassed 40 million households, a key measurement for advertisers.
Toon's programming lineup is attracting the core 2 - 11 year-olds, but is also showing tremendous co-viewership, where parents are sitting with their kids and sharing the experience. This year Toon Disney's household ratings are up 33%.
ABC Kids, our Saturday morning block of kids programming on the ABC broadcast network, provides our most-widely distributed television platform. We've used this branded block to showcase our original series, such as Lizzie McGuire, Recess, Power Rangers, Kim Possible and That's So Raven. These properties gain valuable exposure to broadcast television audiences, adding millions of incremental viewers to those that see the properties on their original cable airing.
Many of you are aware of the rapid rise of Disney Channel as a force in kids television. What you may be less familiar with is the positive impact that Disney Channel is having on the Company. Indeed, Disney Channel is the centerpiece to a reinvention of the kids television business at The Walt Disney Company.
The importance of this reinvention lies in two realities: First, television has become an important driver of global, multi-platform entertainment properties; and second, Disney is extremely well-positioned to profit from creating, building and leveraging these properties worldwide.
As a new engine of creative and franchise growth, we leverage multiple kids networks and branded blocks on cable and broadcast television around the world that already reach more than 600 million households in more than 60 countries.
Our goal is nothing short of global leadership in kids and family television viewing.
To achieve this, we have consolidated our kids television businesses into one organization for the first time. This year, we integrated the Television Animation Studio into our group, bringing our programming and production expertise under one roof, with aligned global strategies, to leverage our success across our Company.
The crown jewel of our kids business is Disney Channel.
Disney Channel was launched in 1983 as a premium service. Ten years later the Company began to slowly transition the network to basic cable. By 1996 Disney Channel was a premium channel in 4 million homes and basic in 10 million. In 2003, we are a fully distributed basic cable network in more than 83 million homes. This distribution strength allows Disney Channel to be the Company's always-on branded representative in America's living rooms, extending Disney brand affinity and awareness.
Cable and satellite operators pay a premium for Disney Channel for a couple of reasons: First, the network carries the Disney brand and all of the attributes of quality, family-oriented entertainment associated with it. Second, Disney Channel does not accept third-party advertising, thereby providing a "safe and trusted" environment parents appreciate.
The result has been strong, predictable revenue and operating income growth.
Over the past five years domestic Disney Channel on a stand alone basis has delivered a double digit compound annual growth rate in operating income, with operating margins that have increased by more than 10 percentage points since 1999 to well over 50% this fiscal year. As a result, since then, operating profit at Disney Channel has increased by more than 50%.
Our recent growth is the result of our successful distribution strategy. Our future growth will be based on the success of our programming and our ability to launch franchises across the company.
Today, Disney Channel is enjoying the highest ratings in its 20-year history as a result of our successful programming, which mixes original live-action and animated series and movies with strategic acquisitions, such as Harry Potter, Stuart Little and The Grinch.
This success stems from our ability to produce and program kid-driven, family television. That means attracting more kids without alienating parents. That's what differentiates Disney Channel from our competition. We engage kids in a world where the whole family is welcome... parents, pre-schoolers, kids and a group that no one had yet reached: tweens, kids ages 9-14.
The recent success of our tween strategy has been impressive. Disney Channel has been No. 1 in prime time ratings with tweens for more than two years. This brought new viewers to the brand and increased Disney's appeal among 9 - 14 year olds. More important, the success of the tween strategy has paved the way for success in the core 6-11 demographic allowing us to challenge Nickelodeon's decade-long dominance in kids TV. In fact, Disney Channel's ratings are up 63% over last year in primetime with kids 6-11. In comparison, Cartoon Network was up by 6% while Nickelodeon fell 11%.
And we know the parents are watching because this summer Disney Channel was the second-highest rated network in cable television, behind only TNT.
In achieving this ratings success, Disney Channel has updated the Studio system of the 1940s by building awareness, cultivating talent and making stars of young actors by providing them with opportunities throughout our businesses.
These actors began on Disney Channel original series, starred in Disney Channel Original Movies and moved on to additional Disney projects: Hilary Duff, Shia LaBeouf, Christy Carlson Romano and Raven.
The studio has clearly benefited from leveraging our talented actors: "The Lizzie McGuire Movie," starring Hilary Duff, grossed more than $42 million in domestic box office. "Holes," starring Shia LaBeouf, grossed almost $70 million.
The success in building franchises for older kids is even more impressive.
Of course, the best example of this is Lizzie McGuire -- THE break-out kids television property of the past year. Despite what you may have heard, Lizzie McGuire remains a vibrant and growing franchise. In addition to the feature film, Lizzie has spawned two platinum soundtracks, successful lines of licensed apparel, merchandise and toys, and the best-selling series of books at Disney Publishing, with more than 2 million books in print.
In August, Buena Vista Home Entertainment launched the Lizzie McGuire Movie and it debuted at No. 1 in DVD and VHS sales, in addition to being a Top 10 rental. Hilary Duff's first record on Walt Disney Records debuted last week at #2 on the Billboard charts.
And the Lizzie McGuire momentum is continuing as new retail accounts continue to pick up products, including 359 Disney Stores in the U.S. The Lizzie McGuire Game Boy Advance handheld game comes out in October from Buena Vista Games; and new original Lizzie McGuire content will come from books released every month beginning in November.
New episodes of the television show, meanwhile, will continue to be added to the daily rotation on Disney Channel into 2004. And K-Mart will launch its Lizzie line in stores in February.
The continued success of Lizzie McGuire is significant because it marks the first time in more than a generation that a Disney television property has spawned such a comprehensive franchise. Disney's ability to compete in new television-based franchises is so important because TV-driven franchises have become a significant part of the kids entertainment merchandise industry.
Which is why we are so excited by our entry into the category and proud of our success. And Lizzie is just the beginning. Right behind her is a dynamic animated character who is a cheerleader by day and crime-fighter by night. Kim Possible's on-air success is driving this franchise to retail success. In fact, Kim became Disney's first major TV merchandising deal with retail leader Wal-Mart with an extensive line of products that began hitting shelves in July and have performed very well during this Back-To-School season. The Wal-Mart line is boasting a 30% sell-though after just five weeks on the floor, matching the great performance of Disney/Pixar's "Finding Nemo" merchandise at Wal-Mart.
Meanwhile, Kim Possible is also generating sales in other areas of the company: The soundtrack is on the Billboard Top 20 Soundtracks and Top 200 albums; Disney Publishing just released the first titles in the Kim Possible book series; Home Entertainment last week launched a compilation DVD, including an original, never-aired episode; and the Studio is developing a live-action feature film version of Kim Possible.
And there's more coming as we see the tremendous success of programs like "That's So Raven, starring Raven of The Cosby Show fame. Raven has already caught the eye of our Studio, which has signed her to star in "All American Girl," from the writer and producer of "The Princess Diaries." Raven has also signed with Disney Records to continue her music career.
While we are expanding our portfolio of franchises targeting tweens and kids 6 and 11, we're also making great strides in the preschool category. In 1999 Disney Channel launched "Playhouse Disney" as a morning block of learning-based programming for preschoolers. Our research shows that just four years since the Playhouse Disney brand was launched, it has surpassed PBS Kids in awareness among moms and rivals the market leader Nick Jr.
Here you see our Rolie Polie Olie on the cover of Newsweek alongside older billion-dollar franchises Dora, Arthur and Blue's Clues. This year, Playhouse Disney's Stanley has broken out as a popular character on-air, and has become a new licensing and promotional character.
Playhouse Disney is a global brand, with programming blocks on every Disney Channel worldwide and is a stand alone network in 3 of the top 5 television markets in Europe.
Like Lizzie McGuire and Kim Possible, Playhouse Disney is being leveraged by nearly every division of this integrated company: In our Parks and Resorts, at Walt Disney Records, Consumer Products, Interactive, Online, Home Entertainment.
Given all of this, Disney Channel is arguably the most effective synergy partner in The Walt Disney Company, providing support to key company initiatives, products, attractions and services in more than 100 million households worldwide. Disney Channel is not ad-supported, but its agreements with cable operators allow the network to promote Disney-related products on-air. Disney Channel's ability to drive viewers to other Disney properties is becoming more and more impactful.
For example, a recent study indicated that Disney Channel was the #2 source of pre-awareness among movie-goers for "Finding Nemo," second only to paid TV advertising.
These promotions are particularly compelling because they are most often created as programming via entertaining and informational features. In support of the upcoming DVD release of "The Lion King," Disney Channel not only created promotional shorts for the release, but is also airing a music video featuring Disney Channel stars singing "A Circle of Life,' introducing that inspirational song to a whole new generation of viewers.
Let's take a quick look. DISNEY CHANNEL STARS CIRCLE OF LIFE VIDEO
In summary, you see that over the last seven years, ABC Cable Networks Group has profitably cultivated and launched a range of programming assets that audiences embrace. We've grown Disney Channel, specifically, into one of the most successful, fully distributed cable networks in the world. And we've made it one of the most omnipresent - and therefore critical - interfaces with the Disney consumer, driving more positive brand affinity than any other Disney business.
Our efforts have resulted in a cable network that boasts a leading share of viewership - which continues to grow relative to our competition - and an audience reach which spans the globe.
So what can you expect from us in the next few years?
We're fortifying this tremendous foundation by continuing to develop successful character franchises, by taking advantage of new opportunities like aggressively targeting boy viewers and by launching new cable networks around the world.
But the impact that our cable group has on Disney overall extends far beyond its financial contribution. Our mission includes a broader company purpose which revolves around developing new character franchises and providing unparalleled marketing and promotional support for company initiatives. Disney Channel is now one of the company's primary drivers of Disney brand awareness and we will continue to uphold and extend those brand values to new and existing consumers.
I want to thank you for your attention and would be happy now to open it up for Q&A.
Thank You.
--Posted September 10, 2003
Source: Walt Disney Company