Disney CEO Bob Iger On Earnings Miss And Streaming Wars

CNBC Exclusive: CNBC Transcript: Disney CEO Bob Iger Speaks with CNBC’s Julia Boorstin in Interview Airing Today

Disney CEO Bob Iger

Image source: CNBC Video Screenshot

WHEN: Aired today, Wednesday, August 7, 2019

WHERE: Across CNBC’s Business Day programming

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The following is the unofficial transcript of a CNBC EXCLUSIVE interview with Disney CEO Bob Iger and CNBC’s Julia Boorstin, which aired across CNBC’s Business Day programming today, Wednesday, August 7. The following is a link to video of the interview on CNBC.com:

Disney CEO Bob Iger On Earnings Miss And Streaming Wars

All references must be sourced to CNBC.

JULIA BOORSTIN: I'm Julia Boorstin here at Walt Disney Co (NYSE:DIS) headquarters. And I'm joined by Disney CEO Bob Iger, on the heels of announcing your fiscal third quarter results. Thank you for talking to us today.

BOB IGER: Sure.

JULIA BOORSTIN: So, the quarter was much lower than expected on both the top and bottom line which is really quite unusual for your results. And it really seemed like this quarter was about the impact of a lot of the changes you've made, both the acquisition of Fox and the digital transformation. To what you attribute this disappointment to, you know, expectations?

BOB IGER: Well I don’t know if I’d address it is a disappointment. There are a lot of variables in this quarter that were the direct result of the acquisition or of strategic moves that we've made recently. For instance, it was affected by the Hulu deal that we made -- the deal to buy Comcast stake in Hulu, take operational control and ultimately buy it. Clearly, it's affected by the pivot to the direct to consumer in the direct to consumer business because the increased spending on production and reduced licensing from licensing our product to third parties. Then there are the ins and outs of purchasing a big business in India -- Star and Hotstar, as a for instance. And so, there's just a lot in it that is a direct result of either the acquisition of Fox, or a change in strategy.

JULIA BOORSTIN: Is integrating Fox more challenging or more costly than you anticipated?

BOB IGER: No, it's not more challenging. More costly, I think the -- the only thing I'd have to say there is clearly the results of some of their businesses notably their studio were disappointing to us. I don't if we’d consider them more costly -- I guess maybe that would be the right way to put it. But no, we knew that in buying these assets, which are global in nature, and large and significant in nature, that it would be complex in terms of integration. More so than any of the acquisitions that we made. But, you know, we were on, we're undaunted by it. We have a management structure in place and people in critical positions in order to really drive success for the company long term. But we knew that this quarter-- really the next quarter too, were transitional quarters.

JULIA BOORSTIN: You mentioned that the fact that there was such a long delay between when the deal was first announced and when it was actually integrated -- when the deal actually went through, resulted in sort of a lot of uncertainty at Fox, which may have resulted in these -- you know, disappointing performance of a film like Dark Phoenix. Do you think that the, the assets that you're going to buy did not or suffered from that delay?

BOB IGER: Yeah. I mentioned on their earnings call, I've been bought twice as part of companies that were bought. And I know what can happen when a company is bought. There's just a you know a tremendous amount of anxiety that's created and uncertainty, people who are not sure where they'll be working for what's expected of them with jobs and it can look at variety of different circumstances. We've bought Pixar and Marvel and Lucasfilm. And in all three cases, we're able to get at the, the acquisition or the closing and the ultimate transition pretty quickly. And so, the businesses just continued to perform really without any effect or any interruption. In this particular case, we announced the deal initially in December of 2017, and we didn't close it until March of 2019. So you're looking at a 15 month period, which is a long time of transition and uncertainty, you know among the people in the assets of 21st Century Fox. And that did have an impact. Clearly, decision making slows down in a period like that and also prevented us from really affecting the direction of some of the businesses both creatively and otherwise, or the output of those businesses, meaning the actual products themselves. And since we just started doing that really in the Spring, our impact on those businesses really won't be felt for some time.

JULIA BOORSTIN: And so, what's next in terms of the integration? Do you have more layoffs planned or other changes?

BOB IGER: Well we announced that there's considerable synergy. $2 billion was a number that we announced publicly and we're not through with that. And so, with that consolidation, it will come cost cutting from in a variety of different directions we have my getting more specific than that. That will be ongoing for a significant period of time. We're trying to do it as fast as possible to be as fair as possible with people, but it's going to take some time. But what is I think the good news is that, you know, we're already integrating the assets into our businesses. Their studio was working in a very significant way with Alan Horn and Alan Bergman in our studio and redirecting the efforts of the live action side of 20th Century Fox Studios, so that the slate is reflected in probably 2021 and beyond. It will be a direct result of essentially our management influence over that. The TV organization is now under Peter Rice, who was running it on the Fox side. He's now running the Disney side as well. They're well on their way to not only integration but producing the kind of programming to support both our traditional businesses the channels, and the new businesses -- the over the top platform. So there's already a lot of work going on, but there's certainly more to come.

JULIA BOORSTIN: Now that you have those assets in place, do you think you need to make more acquisitions, either in the content sphere or in terms of international exposure?

BOB IGER: No. I think we've -- you know we have a tremendous hand from a content perspective with a Fox acquisition comes, not only great library IP but great production development, creative capabilities and oversight. And we don't really need anything more right now, either internationally or on the content side.

JULIA BOORSTIN: I have to ask you about China. Two and a half years ago, we were sitting right here and you said an all out trade war with China would be damaging both to your business and to the overall economy. Now that things have escalated, the way that they have, how concerned are you?

BOB IGER: Well, we'll see where they go. Right now, I'm obviously not going to take a trade war lightly. Right now, we're fortunate that we've not seen a direct impact on our Shanghai business -- the theme park, Shanghai Disneyland. Nor have we seen the impact on our movies in the marketplace. What happens in terms of movie access long term, I really -- I don't know. I'm hopeful that there will not be a change. But so far, we've not seen an impact in China, from the trade war that seems to be going on right now.

JULIA BOORSTIN: Is that something that you anticipate, either in terms of the country further limiting the number of movies you can release there or -- or even in terms of the economic impact of attendance? You know, will consumers not have the money to go, you know, spend their money at a park in Shanghai? Or even economic impact here in the US?

BOB IGER: Well I think it's a little too soon to tell. I'm not as concerned with economic impact here in the U.S. right now, but I think it's a little too soon to tell. We don't know how far this trade war will go out, how long it will be waged. So, it's just too soon. I think for us, obviously, the exposure in Shanghai Disneyland but it's an extremely popular destination for tourists in China, and guest satisfaction is really high. It’s a product people like. Hopeful there that we don't see an impact. On the movie front, our films have done extremely well in China. And we hope that we continue to see the market access that we've seen these last number of years. And at one point we were talking about increased access to that market. We will see whether that ever develops.

JULIA BOORSTIN: And what about impact on your U.S. parks, either from Chinese tourists, which used to come to the U.S. in great numbers, or just in terms of economic impact here?

BOB IGER: Well visitation from China was growing but it was still relatively small when you look at international visitation to our parks in the United States. So, I think it's just too soon to tell what the economic impact of this trade war will be.

JULIA BOORSTIN: And in terms of -- in terms of the parks, I think there was some talk with us on the call about Disneyland performance coming in lower the next expectations because of Star Wars Galaxies Edge not drawing the huge crowds the many had feared, but in fact scaring away crowds. Do you wish you would handle that launch differently?

BOB IGER: Well, what happened there was that I think through some efforts of our own and just general word of mouth -- I think there was an expectation that the crowds would be extraordinary when we opened. And that had a, you know, double, double -- dual impact on us. And people stayed away, waiting for the crowds to dissipate. And the second thing that happened was that there were price increases at all the local hotels in Anaheim, expecting larger crowds to take advantage essentially the demand, and that kept some people away. And we had some of our own price increases that may have had a negative impact short term because we didn't open both attractions at the Land when we opened. So, I think there's some delayed visitation waiting for the both crowds to dissipate and the second attraction to open which will open in January. I think if we could do it again our messaging to the public probably would have been somewhat different. But this is a product that we know is working. That is already very popular. That is in high demand. That will be there for a long time. And this is something that we invest in for the long term.

JULIA BOORSTIN: And as you look at that pricing and how that might have impacted things, do you think you've hit the upper limit of how high prices of the parks can go?

BOB IGER: Look, I don't think we have a pricing issue at our parks. We have put a lot of capital into those businesses over the last number of years and we're continuing to put capital in. The Star Wars Galaxies Edge will open in Orlando later this month. We have a number of other things being built there. And at Disneyland for instance. And as we build out these parks, particularly using IP that's created from our movies and our television shows that is so popular-- the experience improves. And so that gives us some pricing elasticity. And just product that continues to be in demand. So, no-- we're not-- we're definitely not tapped out. But we did take price increases this last year and I don't think you can expect that they'll be any coming, anytime soon.

JULIA BOORSTIN: Shifting gears over to streaming. You made some big news announcing you’re bundling three streaming services for $12.99. That happens to be the same price as Netflix. How did you land at that price point which seems like a meaningful discount, and how big do you think the audience for that bundle will be?

BOB IGER: Well we're not changing our guidance and we gave very specific guidance on Investor Day and we're not changing that guidance. Our goal all along was to achieve scale, particularly with Disney Plus, as soon as possible. To basically sign up as many subscribers as possible, and get them into the service getting them giving them a chance to enjoy the great intellectual property and the product will be part of that service. And we thought this bundle would be a great step in the direction of achieving that goal, even though we hadn't anticipated specifically doing it this way when -- on Investor Day we didn't anticipate some kind of a bundle. And the $12.99 is coincidental price. I assure you.

JULIA BOORSTIN: But if you look at the you know the offer for Hulu with ads right now and with ESPN Plus, you're effectively giving away Disney Plus for free for people who would subscribe to those two services. And I'm wondering if, if this is going to be as profitable with this kind of low cost bundle, as if you were offering these only a la carte.

BOB IGER: Well, there are a couple of ways to look at it. First of all, on the Hulu front, the bundle will include Hulu, ads in the ad supported. So that's becoming a very important part of the Hulu business. So, if this bundle serves to grow Hulu's subscribers more aggressively, that will be very valuable on the advertising side. So, there's another revenue stream that will come in, that I don't think has necessarily been appreciated, if we grow who subs quicker, which we believe this bundle will do. And so – so, I think if you if you look at it that way, the economics of the bundle are better than what you might expect from just basically doing the math, adding up what you would spend if you were to buy three on an ala carte basis, or on a two a la carte basis versus the three.

JULIA BOORSTIN: Because of this additional advertising revenue, you would bring it with each new subscriber.

BOB IGER: Better economics to us by growing Hulu, ad supported more aggressively.

JULIA BOORSTIN: Netflix just reported declining U.S. users for the first time in many years. Did you see that as a sign or do you see that as a sign of saturation in the streaming market, and how does that impact your perspective?

BOB IGER: You know I don't know what caused the Netflix numbers to decrease slightly this last quarter. I don't know whether it was an aberration or not. I just don't know enough about their business. We've always believed that there's plenty of room for us both to thrive in this marketplace -- for both to exist. Although I know there's a lot that has been speculated about us going after them or competing with them. We're not. We're looking to occupy space to clearly is a growth opportunity for the company and growth in terms of consumption, with product that is very, very differentiated from the Hulu product. So, I don't think what happened to Hulu in the quarter in terms of their subs—

JULIA BOORSTIN: Or – Netflix, you mean.

BOB IGER: --Netflix, sorry. I said Hulu earlier -- what happened to Netflix was really that relevant to us.

JULIA BOORSTIN: And, but there's no doubt this is a very – it’s going to be a very saturated market especially you know six months from now when Apple TV, you know, in addition to your services NBC Universal, HBO Max when all these services launched. Do you -- are you concerned about it being a crowded market?

BOB IGER: We think we are group very uniquely were uniquely positioned because of the content. Because of the brands.

JULIA BOOSTIN: There have been some pretty striking numbers in terms of cord cutting this quarter. Even just the top three streaming videos -- I'm sorry, its top three TV distributors lost a million and a quarter subscribers. You're providing a pretty appealing price point here for those three services. Are you concerned about cord cutting? Do you think that you're going to drive cord cutting?

BOB IGER: Well, we've been concerned about decreases in subscribers and the traditional TV bundle for quite some time. You mentioned earlier when we were talking, it was 2015 on this earnings call -- our August earnings call, that we talked about what we were seeing at ESPN. Which led us to make the investment in BAM Tech and led us to announce that we're going into the director consumer space in 2017. And had a big impact on our acquisition of 21st Century Fox, because we thought those assets would serve as well and would be vital to our future as we pivot in a new direction strategically. So, are we concerned about cord cutting? Yes, that's been an important business for us. But it's the reason why we're going into this other space. Why we're pivoting strategically. To give us an opportunity now where we contend with the transformation that's going on in the traditional space. But to -- to thrive and basically completely different marketplace – go in a different marketplace condition.

JULIA BOOSTIN: And do you think that this low cost bundle of these three streaming services could end up driving it -- driving cord cutting?

BOB IGER: I think the more choice that people have in terms of accessing content in different ways, you know, the more impact you will have on -- on everything really. On all basic and all media.

JULIA BOOSTIN: Well pretty remarkable transformation over the past four years, and we look forward to seeing where things go from here. Bob Iger CEO of Disney thank you so much for joining us. I'm Julia Boorstin reporting from Disney's headquarters.




About the Author

Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver