End of Year Telcon for Disney

Sorry it’s been a bit since I posted anything.  No, I’m not dead.  LoL.  Just been very busy (and a little TOO addicted lately to this).

So here is the blow by blow of this quarter’s conference call.

Of course, the lead off story was about the early morning announcement of the unusual swap of Tom Staggs and Jay Rasulo.  (Ed: It’s also possibly a shrewd move on Bob Iger’s part to keep two high profile executives inside the Disney fold, since with the slowly improving economy either would be natural targets to lure away.  It also gives both of them a chance to broaden their base for a CEO shot sometime in the future).

Bob Iger opening comments:

• Chinese last week gave permission for park in Shanghai.  Looking forward to building a ‘world class resort’ experience.
• Working toward closing of Marvel deal. 
• Studio had a BAD year due to performance of live action slate (Ed: 5 quarters of losses, which is probably the main reason why they let Dick Cook go).  Also see challenges to overall motion picture model.  Expect a tighter focus on costs of production, marketing and distribution.  Expect more challenges from Disney to the status quo as the distribution mediums for content expand.
• See Disney, PIXAR and Marvel now as covering a wider array of family entertainment.
• Will continue to invest in franchise properties in each of these studios such as Princess and The Frog, Cars 2, and Pirates 4. 
• Parks and Resorts continues to expand at DCA, HK Disneyland, Cruise Line, etc.
• ABC off to a good start with the fall lineup.
• ABC Family continues to grow and gain viewership.
• Disney Channel at all time high in ratings, and XD channel has been very successful in US.  Overseas expansion also continues to drive Disney Channel subscriptions.
• ESPN, in its 30th year, posted its largest ever audience numbers in the 4th quarter.

Tom Staggs financial highlights:

• ESPN operating income up, much of it because of an extra week in the quarter and a 1 time recognition of additional deferred revenue. 
• ESPN add sales were flat, but because of the extra week were likely down about 3%.
• Broadcasting improved on higher sale of shows, but relied on the extra week to overcome weaker ratings demands.
• Q4 add revenue, excluding extra week, at affiliates was off about 15% but seems to be firming.
• Q1 upfront pricing for advertising is running higher and Q2 option pickups are the highest in 10 years.
• Studio had another bad quarter forcing movie right downs as well as some losses in the music side.
• 2010 studio slate is full however.
• Consumer Products had a 20% decline in licensing due to the lag in how long it takes a downturn in the economy to ripple through the production of licensed products.
• Parks and Resorts domestic attendance were up 10% due to extra week and solid response to promotional offers.
• Combined attendance without the extra week was up about 3% with a 15% increase at DL offsetting a 3% decline at WDW.
• WDW occupancy for the quarter was 84%, 5% under the prior year, Disneyland was also at 84% occupancy (4% lower).
• Per cap spending at parks off 10% and per room spending was off 7%.
• Q1 bookings are running about 5% behind last year.
• New offers have increased the booking rate in recent weeks.
• Pension and health care expenses will increase dramatically this year. 
• Strong cash flow and tight control on cash expenses have allowed the company to weather the year.
• First priority for new spending is on increasing the slate of available opportunities that have attractive returns.
• This includes investment in programming, movies, and video games.
• Purchased only a modest number of shares in Q4, expecting to increase that throughout the year as they believe the current stock price is still at an attractive price.

Question highlights:

• No further information is forthcoming in the short term from Disney or the Chinese on the Shanghai park until the deal is formally done.
• Bob sees the largest opportunity for revenue growth in FY’10 in advertising.  Continue to perform for the next year as if the economy will not improve.
• Tom also mentioned that almost everybody in company got no salary increase in FY’09.
• Current discount is a slightly less costly (and therefore slightly less advantageous) than the previous offers this year.
• Bob sees the ‘Keychest’ initiative as a consumer focused technology that will allow the consumer to essentially ‘buy once, consume in many places without having to repay’.  Of course, expect that ‘keychest’ enabled content will be able to garner a higher price than a use on only one device type of purchase.
• On the Dreamworks distribution deal, probably will be very little impact in 2010.  Possibly one film in 2010, but probably more likely in 2011.

The question session was longer than this of course, but not a lot of other unique discussion there.