🔰Disney CEO Bob Iger Talks Trump's Election and His 2017 Outlook

We're delighted to be joined now by the chairman and CEO of the Walt Disney Company, Bob Iger, coming from his headquarters out there in Burbank, California. Bob, so you have your full year earnings as well as your fourth quarter, and you have yet another up year, both in earnings per share and in revenue. At the same time, I think you would agree that you've got some headwinds that developed as the year unfolded. Give us a sense of where you think you came out in 2016, and give us a peek into 2017. Well, 2016 was a tremendous year for the company for a variety of reasons. First of all, 14 and 15 had been record years for us, and we did even better in 16. So we continued to grow the company at a robust clip. In addition to that, the two biggest things that we had to accomplish in fiscal 16 was, one, bring Star Wars back. Our first movie, Force Awakens, came out in December, the first one since the acquisition of Lucas, and it was just a gigantic success, over $2.1 billion in global box office, third highest grossing movie of all time, and a critical success as well. And the second thing we had to do was to open up the biggest, most ambitious project that we've ever embarked on, and that was building Disneyland in Shanghai. We opened on June 16, and I'm proud to say that after four months of operation, 4 million people visited the park, and they're loving what they have experienced, and the prospects for that park in the most populous country in the world, I think, are really bright. So as we move to 17, we feel great about what we accomplished in 16. There is momentum in most of our businesses. We have a couple of headwinds as it relates to comparability factors like the cost of the new NBA contract for ESPN, and the fact that we don't have a Star Wars saga film in 2017, but we think that the company is headed in the right direction. We've talked about the fact that 17 is an anomaly, and that it's a lower growth year than we've experienced since 2013, for instance. But I think it's fair to say the media networks have gotten a lot of attention, particularly ESPN, frankly in part because it's so successful and so large. But there are questions about the subscriber level for ESPN and some reduction in the subscribers. Can you bring us up to speed on where that stands right now? At what rate are you losing subscribers? Is that continuing? Look, we've been eyes wide open, I'll call it, about what's going on in the television business overall. We've seen a lot of disruption. People are consuming TV on new platforms in very, very different ways in new places as well. Mobile has become really important, for instance. We were candid a year ago about what we had been seeing at the time regarding ESPN subs. We've been seeing losses. A lot of it came from the adoption of cable light bundles that did not have ESPN in them. We decided that we would embark on a campaign, so to speak, to make sure that ESPN was included in any new light bundles that launched, and we've been quite successful at negotiating deals with distributors, particularly a lot of new distributors, to make sure that ESPN is included in the new packages that are coming out. So we are heartened by, one, a slight abatement in the loss of subs due to light bundles, two, the launching of these new digital platforms, which we think provide a great user interface and are very mobile friendly. We know ESPN is a great hand as it relates to their programming. We know that live sports is still really popular, and so while there are some challenges that are due to some of the disruption that we've seen, we actually believe that there are some solutions or some answers to some of the questions that people have had about what's going on with ESPN, and we feel good about our prospects. And as you look out into 2017, do you believe that those new digital distribution alternatives can make up for the loss of subscribers in ESPN and resume the normal path of growth that ESPN has enjoyed? Well, ESPN, save for the anomaly that is 2017, because of the 600-some-odd million dollars of incremental rights fees due to the new NBA deal, which, by the way, we're not complaining about because we did a deal that takes us through the 2024-2025 season, there are a lot more rights, more games, more programming, and the NBA is what we consider to be an ascendant sport, it's growing in popularity. But there is an anomaly in 2017 because of that. In 2018, we believe ESPN will return to some nice growth again, and we believe ESPN will continue to grow beyond that. So again, our outlook for ESPN is positive. We can't predict yet just how big the impact will be from some of these new platforms that are launching, because they're just launching, but we feel good about the user interface, we believe that their pricing is right in terms of increasing adoption of those platforms, we think it provides a great alternative to people who thought the expanded basic bundle was too expensive, or to young people who weren't that interested in subscribing to what they consider to be cable television, but they like new digital platforms, and so we think that this is one of the best developments that we've seen in the multi-channel ecosystem in a long time. And we also know that everybody wants to launch with ESPN as part of their new package because of the popularity of sports and of ESPN. On the subject of those new digital platforms, with the AT&T Time Warner deal, the old question about do you need to own the distribution in addition to the content is brought back full center. Does Disney need to own the distribution of those digital platforms or not? It's interesting because I look at the AT&T Time Warner merger, planned merger, as a distribution company needing to own content, as opposed to a content company needing to own distribution. I'm not going to comment on whether those synergies work or not, except that to me it echoes what we've seen, you've seen, I've seen for many, many years, and that is content is king. If you're a distribution platform today and you don't have great content, you better figure that out because the consumer is interested far more in content than they are in how they get that content, although that's important too. For Disney, what we really would like to accomplish and we see as a great opportunity is how do we get closer to our customer? There are these tools that exist today that mine user data that do two things. They improve the user experience because of customization, personalization, more tailored, more contextual programming in advertising. It also gives the distributor or the owner of the content an opportunity to monetize under more compelling circumstances. One of the reasons why we made the investment in BAMTech that we did is we like the play of BAMTech in the sense that it is one avenue that gets us closer to the customer and gives us the ability to mine that data, sell directly, and grow our business. We're going to continue to look with an open mind expansively at those opportunities. Do we have to own distribution? No, not as a company. We're doing quite well without it. Would we like to have the kind of distribution that solves the problem or provides us with the opportunity that I just described? Yes, we would. Bob, one of your strengths as a CEO is you've always believed in going to scale. You don't like to do things in a small way. You mentioned the BAMTech investment. It's a billion dollars and it's a substantial company, but is BAMTech alone enough to take you to scale or do you need something more to really take you to scale in this new distribution area of digital? Very good question. I don't know the answer to that. It's a start. It's a step in the direction of achieving scale, whether it gets us to the kind of scale we need or not. I think it's premature to answer that question since we haven't launched the ESPN-branded product on it yet, but it's an important step. Bob, you mentioned Shanghai. I can't possibly let you go without talking about Shanghai because that was a personal project of yours and it's a big project. Bring us up to speed on where that is. What do we know about Shanghai today that we didn't know three months ago? Well, it opened June 16th to great fanfare, the biggest investment that we've made outside the United States. It shows, by the way, in the product. It's a great product, high quality, very entertaining, very original and being very well received. So first four months, four million visitors. That did include the peak summer months, so we said on the call that people could infer if you factor in those peak months that that should result in about 10 million visitors for the first year. By the way, we'd be happy with that number, but we're not providing guidance there. What we can say is that about 50 percent of the people that are visiting come from outside of the Shanghai region. That's a big surprise to us. We thought it was going to be well above 75 percent initially that came from Shanghai. The fact that it's so balanced leads us to believe that word of mouth on this and the intent to visit from well beyond Shanghai is very, very high. So this has become suddenly not a local product, but a national product in China, a national tourist destination, which is what Shanghai is. That's really positive. We also know people are staying longer per visit, almost two hours longer. That's because there is a lot to do. We built, to your point earlier, we built the scale here, and they love the experience, so they're staying longer. That's not a bad thing. You want people to want to spend more time consuming your product. And so the combination of those and what we've seen from attendance and basically how the product is behaving in the marketplace, all really positive, which is why our outlook for that business is positive, why we decided, by the way, to expand even right away. We're building a new land, Toy Story land, and the opportunity for expansion beyond that is pretty significant. I think you'll see a lot more. Theme parks are so important to the Walt Disney Company, and as you say, you're expanding in Shanghai itself. Talk about growth. What have you learned from Shanghai about further growth in your theme park business, either in existing theme parks or even, I don't mean to press you on a new theme park already, but even expanding beyond Shanghai? I don't know that we learned much more from Shanghai other than the fact that the product works in China, and there are many other places in China that we could build theme parks, but it's premature for us to talk about that. It just reaffirmed what we already know. One, our intellectual property works great in theme parks. It is at an all-time high in terms of its popularity. We see that in all the brand research that we do, the fact that we have 11 franchises that did over a billion dollars last year in global retail sales. So the intellectual property works. We know technology, when used in the park to create better experiences, really works. And if you were to visit Shanghai Disneyland and try the Tron attraction or Soarin' or the new Pirates attraction, which is vastly different than anything we've ever built, you'd see what I mean. You can take that technology and create an immersive experience that is unlike any that you get, certainly in the home or anywhere else for that matter, and that's why we're not just in China, but across the board in that regard at our theme parks, because it grows our business. Bob, this has been a remarkable week, not only because of the Walt Disney Company earnings, but also because we elected a new president that surprised a lot of people. It's early going, but I know the way you plan ahead. What are your first thoughts about how a President Trump could affect the Walt Disney Company? Well, first of all, I think that so far so good in terms of what I'll call transition, even though it's very, very early. I think both the president-elect, I was going to say the candidate, he's no longer the candidate, president-elect and President Obama have approached this very, really smartly. Be cordial, be open, understand that the most important thing here is America, not one party or another, not one ideology or another, and so let's be gentlemen about it, and that's what they're doing. That's great for the country. For the country to see that, it just instills confidence in our country and faith that the future is good, even if your ideology is not necessarily represented in the next president of the United States. So I like what I've seen so far, and I think the country's reacting well to it. It's too early to really predict what the policies of a new administration would mean for this company. Believe me, I've gotten briefed on what they – how they might affect us, but way too early to speculate publicly. What I can say, though, is that we've been talking a lot as a company and lobbying a lot about the need for a new tax policy. The corporate tax rate of the United States is the highest in the world. It's not competitive. It needs to get fixed. It needs to get lowered, and loopholes need to get closed. And we definitely believe we would benefit from that happening, and the sooner the better. And I think it's something that's going to be addressed – might ensue – really too early to say. So finally, Bob, you're a student of the media. I mean, you've lived your entire professional career in the media. You know it, and you love it. It's not too soon, I think, to start asking ourselves the question of the role of the media in this election. I mean, it strikes me that this is a very different media than was in existence even four years ago, certainly eight years ago. And certainly Donald Trump took full advantage of that, both in terms of being able to get access, particularly on the cable channels, but also in social media. Is the media starting to think about its role in future elections and what role it should be playing as the fourth estate? There's a lot of hand-wringing about the media this week and its role in the election. And I think that that hand-wringing is missing the point. And the point it's missing is that the media today doesn't look anything like the media of yesterday. We're living in a world where the sheer definition of media – and I'm talking about not the definition of what the industry creates, but the definition that the people create – is extremely different than what it used to be. How we get our news, what we consider news, how information travels, how fast it travels – it's vastly different. So I would argue that the media actually played a positive role in this campaign in the sense that it was ever-present, which media is today. It was sort of eyes on, cameras on, voices about. Everything that went on, everything was exposed. Everything was subject to scrutiny by the new media. That can't be a bad thing. Now, did the media get it right in terms of predicting the outcome? No. I think that deserves some scrutiny by the media. How did they get it wrong? But I don't think the manner in which the campaign was covered is necessarily something that deserves criticism. You can always be reflective about it. That's fine. There's nothing – I think there's nothing harmful about that. But what is media today? It doesn't look anything like it did certainly five years ago, ten years ago, when I started my career at ABC 42 years ago. It's just different. And I think it's time that those that follow the media from a critical perspective accept the fact that the media they are following today is vastly different than the media they used to follow, or maybe than they think they're following.