Disney Speaker: Bob Iger - The Walt Disney...

Bear Stearns 21st Annual Media Conference

MARCH 10, 2008

Disney Speaker:

Bob Iger President and Chief Executive Officer

P R E S E N T A T I O N [VIDEO] Alan Schwartz – President, Bear Stearns I'm supposed to read these things first. Hold on a second. Stay riveted to your seats

because this is important.

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Bear Stearns 21st Annual Media Conference March 10, 2008

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So now that we've got that out of the way, Bob, looking at the power of the brands you

have there, and over the years since we have been doing this, and you have been talking

about the Company, brands has been a real focus. So, I wanted to take a step back and

not just look at the Company for a second but for as long as we have known each other,

brands have been something that you have really been all over and thought a lot about.

And I know that from your background. So can you just take a step back and talk

about, from a shareholder's perspective, and a valuation creation perspective, just

before we get into how you manage these brands, what do brands really mean?

Because you have got a lot of thought on that.

Bob Iger – President and Chief Executive Officer, The Walt Disney Company

Well, in our case and in the case of other companies that possess valuable brands, they

mean value, which essentially means that is where your capital should be spent. We

know that a really good brand will generate more value for the money that we invest in

it than brands that do not have the value. Disney is a great example. We were

investing in multiple brands of the Company, some that made sense, ESPN, some that

didn’t make as much sense, Touchstone and Hollywood and Buena Vista. And we

concluded that the most value that we could generate would be in the Disney brand

and that is where we should be putting most of our capital.

It is obvious when I say this, but when you have a valuable brand, it does a number of

things. It gives you pricing leverage. It gives you access to more shelf space, whether


you're looking for shelf space on a multi-channel provider or in a mass retailer. It

typically enables you to reach a market at less expense, not meaning you don't have to

spend any money on brand marketing, but that name recognition, and the value

proposition that people are aware of when they hear a brand name, goes a long way. It

actually allows you to spend a little bit less money in the marketplace than it typically

would if you had a brand that didn’t have any value.

So in our case, we think that, in terms of the decisions that we make to invest our

capital, it should be invested mostly in the direction of the brand, which is Disney. And

that is what we have been doing for the last, certainly, two and a half years.

Alan Schwartz – President, Bear Stearns

When you think about the fact that so many brands have been powerful brands for

many, many years and now we look back at them and they are no longer powerful

brands, like Kodak or something - you and I have talked about that, for example. So

you come into an industry, you come in with these powerful brands, and in the media

business now the question is, the brands that were relevant to the past, are they going to

be relevant to the future? How are you making these brands more relevant? So we

could talk about the challenges or the opportunity, both, right. Technology is a big

issue, you know, creativity, globalization. So let's start with technology. How do you

protect the brand and its values and still play in new technologies?


Well, when people talk about valuable brands, typically a brand is something that is

differentiated as value that is relevant. We believe that technology can be used to


continue to differentiate a brand but also to maintain a level of relevance, in a variety of

ways. Interesting when you are just talking about Kodak and other brands and I grew

up in the United States in the '50s and '60s and when television was really coming into

its own. And for the most part the classic brand manager views technology --

technology that is powering a new medium or technology in general - as a foe versus a

friend because technology does two things: it changes consumer behavior, which a

brand manager hates, and it typically enables access for more competitors, and you get

more competition. So people who manage brands oftentimes push technology away.

We believe that the opposite should be the case. It should be viewed as friend and not

foe, and that technology should be used really for two things, two primary things. I

mean, there's multiple things, but the two primary ones are, one, on the creativity side,

use it to enhance quality, make the experience more compelling. The way we used

technology in a theme park, a new attraction clearly a great example of raising the bar

in terms of experience. High-definition TV, Blu-ray DVD good examples of technology

enhancing brand value in a way. Now, that technology can be used for competitors'

purposes as well, but we felt that we needed to embrace it very, very aggressively.

The other thing it does is, to the globalization point, and globalization means not just

reaching more people in more countries, but just more people in general - it provides

access. In today's world, unlike we have ever seen before, what you can do with a

quality product or a quality brand in terms of reach today, and that obviously creates

relevance, it is enormous. We launched actually Disney.com in the UK and Japan

recently, the revamped version. And we will be launching versions of that or a 3.0

version in China, in Australia, in Hong Kong, in France, in Germany, in Italy over the

next year. Those are great examples of technology essentially providing more

distribution and creating more brand relevance.



So I want to come back on something that you mentioned - you're releasing 2.0 in the

UK and 3.0 in China. So I mean that's not much of a lifecycle for 2.0. So, how you

decide when you are upgrading and where you are rolling out - is that based on the

characteristics of that market, and what kind of broadband it has, as to what you put in

or how do you decide what to roll out where?


Well, first of all, 2.0 versus 3.0, we re-launched Disney.com a year ago February, which

was in bad need of an upgrade. We sort of let it sit for too long. We spent a fair amount

of time and investment to re-launch it, and it has been extremely successful. We

actually had our best month this past January in terms of unique users which was

somewhere in the neighborhood of 27 million unique users in January, which is not a

bad number considering where we had been. But when we created 2.0, we made a

decision that the space was changing so fast that, instead of resting on the laurels of 2.0

and enjoying the success and spreading it around the world, we should start

developing what we call 3.0. So the team that launched 2.0 started creating 3.0

immediately and we will be launching that in the United States and in certain

international markets within this calendar year. Some international markets which we

did not even get to 2.0 will have 3.0 first, others 2.0, and we are balancing the decisions

based on the variety of things -- how right the market is, how well-established we are in

number of broadband users.


The other thing that is interesting, just going back to the brand discussion a bit, because

it also hit me where you mentioned Kodak is, when you manage a brand -- I find this

with Disney a lot -- you have to balance innovation with heritage all the time. It is very,

very easy when you're managing a brand to be fixated on, or very, very loyal to a fault

to the heritage, because with that heritage comes a set of values and principles that

really are the underpinning for the brand itself. What does it stand for. Oftentimes,

you are so focused on that heritage that you either fail to innovate or you fear

innovation because a lot of people believe that innovation, when it comes to a brand, is

changing the values or the principles. In Disney's case, often we have talked about

innovation. There was some concern about getting edgier. “Oh, if we're going to be

relevant and we're going to innovate then we have to change our standards and become

edgier.” In reality, what it is about is just getting better. It is higher quality more

consistently and then using that technology to reach more people.


So, I'm going to stick with technology. Every time you say something, I think of

something else. I'm going to stick with technology because you mentioned that brand

managers tend to fear technology, right, for the reasons you mentioned. And I think in

the media business, the media business got comfortable with technology for a long time

because copyright protection told them that their business model was protected from

new technology, right. Whoever was going to bring a new distribution format had to

come and say, “when will you release it and what window” so you can protect your

business model and just get the increment. But the digital world and the Internet have

changed all of that where, now, there is a fear that technology not only can change

consumer behavior but it could hollow out the business model, right. If too many


things are out there for free, how are you going to get paid? But you have embraced

getting your stuff out on as many new platforms as possible. So how do you think

about protecting the return on investment for your brands while you keep them

relevant out there in new technologies?


Well, first of all, I think to fight piracy, the best way to do it is to be out there readily

available, well timed, well priced to market. You have to be on those platforms. It

does not mean that you are still not going to get pilfered. It happens all the time. But I

think it is really important that we use these platforms to make our product more

accessible, because in the absence of accessibility there are large population bases in

certain parts of the world still. In some cases it's very difficult to get that access because

you don't have infrastructure to do so.

We also feel that, in Disney's case, being out there, even if we're not monetizing the

presence, we're still creating brand relevance and we create a connection to the

customer and use it to sell the product. So, we will monetize Disney.com in

international markets either through advertising or through varying forms of video on-

demand and subscription services, or direct-sale products via the Internet, which is, I

think, an interesting way to monetize. But the other thing that we are doing is by being

out there for people, by giving people a chance to experience Disney or learn more

about it, they’re more apt to buy our product when they see it on shelves, so it sells

consumer product; it sells DVDs; it sells video games; it sells park experiences; it sells

movie tickets, even. You see what we have got on these platforms, these robust


broadband platforms, and it introduces you to product and it gives you a connection to

that product that you may not have had before -- really important.

So for us, it is not necessarily just about direct monetization of a dot com site. It is

about using that dot com site to build brand value globally.


So, when you talk about innovation and heritage that is a really interesting balance

there, right. So when I look at things like Enchanted, which we saw up on the video etc,

how do you, I mean a lot of brand managers would say, “You take a classic, you cannot

make fun of it. You can’t change it.” And yet Enchanted, I just want to use that as an

example of how important a decision was it? How much did you have to think about

whether you were threatening the heritage of the brand, or how do those two -


I think you have to take your values very seriously and Enchanted clearly did that. It

was a movie that embodied all of the values of The Walt Disney Company, high-quality

family entertainment. So you take your values seriously, but I don't think you should

take yourself so seriously or your brand so seriously. There is a fine line, I realize.

Every once in a while I think when you poke fun at yourself, people like that, when you

are self-deprecating at times. Sometimes it goes too far but I think for Disney, over the

years, we were viewed as a brand that took itself a little too seriously at times. Because

in fairness, we were important, and we were part of cultures, part of people's lives. A

lot of people, myself included, grew up on things Disney. But after a while, taking a


brand too seriously creates an aura of stodginess, I think. And every once in a while,

poking fun at yourself is the right thing to do and that is what we did. But we did not

in any way sacrifice principles there. It wasn’t edgy at all.


So, let me switch over to global for a second because there are very few truly global

brands. I think, again, media, if we were sitting in this room 10 or 20 years ago,

globalization meant “I'm going to take the stuff I have here and I'm going to use new

platforms to make people around the world see this,” right? And that hasn’t proven to

be so easy to just export U.S. content. Even a company like Disney, say, which has

probably got a lot of brand recognition around the world, before you start with a lot of

these things that you're doing, but it is still not the same attachment to the brand maybe

that growing up that people like ourselves had. How do you take Disney and stay true

to the brand values but do you adapt it to each culture? Or, how do you think about

globalization from a Disney perspective?


Well, I think you are right. We do have a true global brand and there is a lot of value

there. But in today's world, there's a bit of a misperception out there. Technology, we

read all the time is breaking down cultural and national barriers. I think that is our

CFO making all that noise. Anyway, technology is breaking down a lot of barriers,

cultural and national in nature. We're also seeing not just our Company but a number

of companies in our space unprecedented access to markets. The misperception is that

that dynamic is grading a one world culture or some level of homogeneity culturally in


the world. The world is flat culturally. I do not think that is the case at all. Because

we're finding, in a number of markets, that pride in local culture and a strong sense of

ownership of that culture is really profound. That has a big impact on business.

So while we do a fair amount of exporting of our product, actually more than ever

before because the world is enabling that, markets for the most part are hospitable to

that, our entry into the market in terms of exporting our product. We have decided that

in order to really succeed as a brand in some of these markets, we have to create a

balance of exported product into the market, a well-tracked Ratatouille for instance, with

locally created but Disney-branded product.

So in the past, Disney has distribution centers all over the world. The distributor

exported product that was made in the United States. We're now turning those

distribution centers into creative centers. So in Mumbai, in Shanghai, in Moscow, in

Buenos Aires, in Mexico City, I can probably name a few more, we actually have

creative hubs that instead of just exporting Disney product from California into that

market, they are actually creating Disney product there. And we think that blend will

create brand value locally.


How much of that travels back? Does that product end up with an audience in the

United States?



Every once in a while. First of all, we're sort of in the first mile of a 26-mile marathon in

this. So far, most of the product that we're creating in these markets is designed just for

that market. If there is an opportunity to either export it or to make things that are a

derivative of it, we will do that. We have had one example of that which was an

interstitial that was created locally for the Disney Channel in Italy that we're

introducing into the United States. We have it in China; we have it in a number of other

markets. Completely new production, but based on the same concept. But for the most

part, what we're doing is when we release a Disney film in China that was made there,

made in Mandarin, it is being made for China. It is not being made to export back to

the United States.


But then as you make it for Mandarin audiences but you do it with the values of the

brand so that all of a sudden there may be more demand for exporting some of the U.S.

product once the brand has gotten more identity as being something that is resonant

with local values?


In some markets, even though China, since we're talking about that now, we have been

in China for decades. Walt brought Snow White to China in the '30s or he made it in the

'30s, maybe he brought it to China in the '40s. But it has been there -- it went in there a

long time. But because our access to that market was not nearly what it was to the

United States, the Chinese people didn’t grow up on things Disney. They are aware of


Disney, but they don't have that connection and it does not feel like it is their Disney. It

feels like it is someone else's Disney. Our goal is to make Disney feel like it’s theirs. So

The Walt Disney Company China or the Chinese Walt Disney Company is what we're

trying to achieve. We think the only way we can do that is, first of all, you have to hire

well locally. Then you have to agree, which is somewhat of a leap of faith from a brand

management perspective, to enable your brand to be applied to product that you make

there. Which means you have do a lot of teaching, because we're not changing the

brand values or principles at all. There is not a different set of standards at all. But you

have to hire the right people. Obviously you have to trust them. You have to be

vigilant too because you can destroy value pretty quickly.


I would like to use one other example. When we were talking about Pixar, right, and

we talked about an area that is in terms of being innovative at the same time you are

protecting the values of the brand, animation was one area where it seemed you were

not being innovative enough. So would you just talk about where Pixar fit in, and why

it was important?


Again?



I tell you what, as illustrative of how to manage the brand and how you think about all

that aspect of the brand because I just think it is important to understand the thought

process.


Well first, I think everybody knows we had breathtaking decade in animation at The

Walt Disney Company from '85, or '85 to '95 call it, even though the hit did not really

start until '89 with The Little Mermaid. The value that was generated we are still mining.

You know, The Lion King is still being seen, it's playing as a stage play in New York and

Johannesburg and Paris. I'm sure it is ten other markets, but I have only seen it in those

three. And The Little Mermaid just opened up on Broadway and a year ago, we sold 10

million DVDs of The Little Mermaid worldwide. That is enormous value.

And then we hit a rough patch that lasted a long time, about a decade, where we didn’t

create any value close to the value that we created in the first decade. In fact, we

destroyed some value because if you look at the returns on investment in that business,

it is generally negative. And for this Company and this brand to thrive domestically

and globally, animation has to be right, has to be healthy, has to the vital, just the

connection between Disney and animation.

And then what really successful animation feeds to the Company, we have been talking

a lot lately about our ability to exploit success as a company. So, when we have a

success with the Disney branded product, particularly an animated film, but there are

other examples like High School Musical, we can exploit that success or leverage it in


more ways and more places than most of our competitors, which is a real competitive

advantage. We have to have successful animation to really create long-term value for

the Company.

When I became CEO, I concluded two things. I did not think I would be given a lot of

time to fix animation. It's somewhat of an unforgiving environment these days. The

questions would have been asked very quickly and I think very pointedly, what are you

doing to fix animation? And quite frankly, I did not have any bright idea except finding

the right people and being patient, and I could be patient but I did not think the world

would be patient. Probably people in this room would not have been patient.


The consumers of your brand might not have been patient.


I think clearly in the decade that we were so successful, we created not just

differentiation but brand relevance in the extreme and a connection. In the decade that

we weren’t, although we did have a Pixar relationship which created a lot of value, and

Disney deserves -- Michael in particular -- huge credit for that relationship. We tend to

forget, there is a lot of blame thrown around but huge credit is deserved there because

that did create value. That relationship coincidently was nearing its end when I became

CEO. In the absence of a solution to fixing animation, and given the fact that that

relationship was ending, I felt that the best solution to getting Disney animation right

was making that deal. Not only did it give us access to the phenomenal talent at Pixar


and the product that they would be making, but it also gave us access to John Lasseter

and Ed Catmull to run Disney animation, which they have been doing. The results of

their labors will be coming out in the near future. I'm pretty confident that we are on

the right track. It was a jump start in effect of a problem that really needed solving.


Going back to globalization, theme parks. You mentioned, you know, your content to

be true to the brand, but to deal with local customs you have to get local with some of it

and have a balance of that. So, I think the original view of the theme parks was you

take what is at Anaheim and you move it to Orlando, and then you can move it to Paris

or Hong Kong or wherever you want to go. When you look at globalization, is the mix

of local and exported also a factor in the theme parks? Do you have to situate each one

into its culture?


Well, it is definitely a factor. Clearly, the Disney experience at a theme park is probably

the most valuable for people and that experience is fairly universal in nature, meaning

there is a lot of duplication park to park. But it is also clear, and you don’t learn this

typically until you open a park, that people from the local environment want the park

to be their own, and they want it differentiated from other parts around the world.

That is important. They want something at the park that they consider theirs. It is also

clear that there are behavioral differences among customers. How they get there, how

they buy their tickets, the perception of what it is. The price to value relationship before

they go is different, what they do when they are there.


One of the most interesting learnings about Hong Kong, which was an interesting miss

on our part, is people were spending twice -- and they still are -- twice as much time

eating meals than they do at our domestic parks. So in the U.S., you probably, a lot of

you have probably experienced this, the average time people spend eating is 20

minutes. And in Hong Kong, it was 40 minutes. Now you set up a certain number of

tables, you have a capacity of restaurants that is based on 20 minute meals and turnover

that is fairly rapid. When you don't have that, you suddenly have half of the capacity

that you need and the lines are a mile long. That is an interesting learning. We fixed it

quickly, I don't know if that's an example of a culturally…


That’s a good one. And in EuroDisney they brought their own lunch, right?


Yes, they did a lot of things in EuroDisney. They smoked and drank and God knows

what else.


I know somebody who we could call to find out, but I won’t mention that. So I just

want to come over to this now. So when you think about a company this size and you

mention hiring local talent and making sure they understand the attributes of the brand

but then letting them create content, you've got all these divisions, with ESPN doing all

of the innovation it is doing, with Disney. I mean the creative part of this, right, how

do you get a creative process that consistently is innovative but reflects the brand's


values and how you do that across all of these businesses because you have got to set

the direction but you cannot be there doing it. I know you have spent a lot of time

thinking about how to manage that process. So can you just share with us how you do

that?


Well, it is pretty complicated. I'm not even sure you can articulate it that easily. You

obviously have to attract the right people. I was fortunate that I inherited a very

talented and experienced team of people that were well aware of the brand values and

the principles that needed to be applied. Ultimately when you have great people, you

have to give them a certain amount of room to operate - and when it comes to

creativity, a fair amount of room because I think that there are passions when it comes

to creativity. There are visions. It is not one person applying a vision; it is numerous

people. There is risk-taking; there is innovation; there is a need to accept failure, really

important. I'm not sure I appreciated that as much, interestingly enough, until I got this

job. But there is bound to be failure in creativity. And if you chastise people too much

for it, then they stop creating, either at your place, or for you. So you lose good people

or people that are good that stay just don’t create under optimal conditions because

beating people up for failure and creativity is, I don't think, helpful. So we’ve tried

really hard not to do that. You also want to be a place that people want to work for and

work with so you become a magnet for talent and creativity. I think success probably

goes a long way in that regard. I think that has happened at Disney.

It is also interesting for me in terms of my role, because I can be an arbiter of taste, and

in Disney's case the ultimate arbiter because I'm technically the steward of the brand.


But I cannot tell anybody exactly what to do creatively and give direction. Certainly

strategically that is important, but you have to give people room.

Technology is also interesting in that regard I found. Because I'm pretty good or bad,

however you look at it, using e-mail. Sometimes I'm a victim and a perpetrator. I get

too much, but I probably send too much. But I found, when it comes to managing a

company, it is a pretty interesting tool because you can create the illusion of access, first

of all, which is a good thing, because people want some level of access. But in reality,

significant access is impossible for me because of the size of the Company and how

diverse it is geographically.

What is interesting about technology, in terms of communication, and you can

communicate strategy, support, approval. I think if you start communicating criticism

and disapproval using technology, you start essentially damaging your creative

process.


It’s too cold. But I know your management team, I know that they are a team, right

that, you know, the theme parks guys want John Lasseter to be working on what is

going on in the next attractions and then as you know, the channel guys want to help

Dick Cook create a theatrical release out of whatever comes out of there. So what’s your

view on how you, in a creative enterprise, I think a management team is often

considered an oxymoron -



Well, first of all, any company has got its set of internal politics and territorialism. Just,

it's a way of the world, unfortunately. I mean it goes back to what my role is, really

interesting, because breaking that down is something that you have to do very, very

effectively to grow a company to create more value. We did it in a variety of ways.

One is the stock options are in The Walt Disney Company, they are not in Parks and

Resorts or the Studio. That is one thing.

Second, we looked hard at the way we were compensating people, executives. And we

actually de-emphasized slightly what I will call divisional success and emphasized the

Company's success. It is a balance. If a guy at the Studio has a phenomenal year but did

not do anything to create more value for the Company across businesses, whether it is

through cooperation or whatever, then that should be reflected in the way they are

compensated. It's not enough just to make great movies.

The other thing that you have to do is you have to show people the way, show people

how more value can be created with a behavioral change that looks more at the whole

than at the individual parts. We have done a lot of that over the last few years. So

Hannah Montana is a great example. It is a Disney Channel program that became a very,

very successful platform for our Music Group, that ended up as a theatrical release this

winter. That is going to be a theatrical release coming up. Instead of having a battle

between the Disney Channel and the Studio over whether it would be a movie for the

Studio or a movie for the Disney Channel or whatever, there is a collaborative

development process to what's best in terms of what to make, when to release it, how to

then leverage it once it is released, just a completely different look at it and the


acknowledgment going in that success is going to be good for everyone instead of just

for one business.

The other thing you have to do is destroy a sense of ownership by each business, which

I realize sounds almost contrary to what you would expect at a company like ours. But

the product is owned or the franchise is owned by the Company; it's not owned by one

business unit. Not one business unit owns High School Musical even though it was

created by the Disney Channel. It is owned by everybody, and that means an ability to

exploit a demand for support, and the knowledge that, by behaving that way, we're

going to ultimately create not only significant value but brand difference and relevance,

and that goes a long way.


So, one last question and I will turn it over to the audience, but it seems like every

media company now, there's a lot of demand or pressure as to how much of your

capital you reinvest back in the business and how much of it you give back to

shareholders. Do you want to just talk about capital structure? I mean you guys are a

strong cash flow generator. You’ve got a strong rating in a tough credit environment.

Is that competitively helpful? How do you balance the objectives of where you put

your capital?


We balance them well. Well, we bought $18 billion worth of our start back in the last

two and a half years, Tom, roughly? A little longer. $7 billion in the last two years?

Seven per year, right, the last two years. At the same time we did that, we have been


investing what we believe an appropriate amount back in our businesses. We will

continue to do that, focusing it mostly on Disney, to some extent on ESPN. We have

also increased our dividend, which I realize is modest at $0.35 but it has increased

double-digits these last few years, four years, double-digits. That is a good balance.

Access to capital, even in a difficult or a challenging environment, we don't think is

going to be an issue for The Walt Disney Company. Should we need it, we obviously

are buying back our stock under circumstances that we think are appropriate in terms

of returning value or capital back to shareholders. We're going to continue to look

carefully at how we're spending our money and how really we're investing to grow the

Company. I think you will see a generally conservative approach. We still have ample

opportunities for what I will call organic growth, and probably ample ability to take

advantage of the right opportunity if it comes around. We don't have a sense that we

have got money burning a hole in our pockets, so we don't feel it is imperative that we

make a large acquisition. But if we see one that we think makes sense a lot of sense

strategically, and from a value perspective, we believe that we will have the

wherewithal to take advantage of that.


Great. Let's turn it over to the audience. Spencer?

Spencer Wang - Analyst, Bear Stearns

Bob, among investors, one of the biggest concerns continues to be the impact of a weak

economy on the media business. Could you just update us on what you're seeing in

terms of advanced bookings at the parks and also current trends in the TV scatter


market? Secondarily, if there is a period of prolonged weakness, can you just talk about

what you can do to manage margins to perhaps offset any sort of slowdown? Thanks.


As you know, we announced earnings in early February and we're just nearing the end

of this quarter. We announce on May 6th, so we're not going to update the guidance in

terms of how the advertising marketplace is, or how we're doing in terms of bookings.

At the time, as you remember, we were fairly specific that our bookings were running

slightly ahead of where they had been the prior year. At that time, we were pleased

with our performance heading into the summer, given the circumstances but we did not

make any predictions about the summer. We will not today either. It is still, even

though it feels like it is since it is daylight savings times already, it is right here, it is still

a long way away. The advertising market was tight and therefore scatter pricing was

well into the double digits ahead of where pricing was at the upfront. And again, sorry,

but we are not updating our guidance at that point or our comments on the market.

To the second point part of your question though, as we have said, we have

experienced at times, the effects of recessions. Sometimes, they have been short-lived

and sometimes longer lived. A lot of it depends on how deep the recession is and

whether there are any other circumstances existing in the world that could have an

impact like we saw in 2001 with September 11th. We feel that those prior learnings

have taught us to be more resilient, not necessarily that we're recession proof, because I

think that would be wrong for us to say. But if there is a recession and a slowdown

from a parks attendance and bookings perspective, we think we're much more flexible

today than we may have been. That is largely in reducing staff hours, reducing certain


services not necessarily guest experience, but there are ways that we can address the

way the park is operated to reduce expenses based on basically lower attendance and

lower hotel occupancy.

On the advertising front, as a company we're less exposed today than we have been for

years in advertising. Roughly 20% is advertising at our Company, and so I'm sure there

are ways; I know that Anne Sweeney at the Media Networks, George Bodenheimer, are

considering some should they have to address it to reduce our expenses in the case of

an advertising downturn, but our exposure is limited. We don't have radio, television

right now. We only have ten TV stations. We also are fortunate that they are well-

positioned in the market. We have really strong local news brands, and just good

quality TV stations that are probably a little bit less vulnerable than if we had three

times the number of stations and less of a news brand.

Audience Member

Bob, there is a lot of worry worldwide about construction costs and major projects and

you have been pretty good about controlling costs in the parks. But one project where

you are up to your neck are these two boats that are God forbid being built somewhere

where it looks like they are using the Euro. Can you discuss what you're seeing on the

construction cost front, how you plan to manage that product, what perhaps you

learned from the last ships you built?



At that time we announced our last earnings, we said that -- and I think a subsequent

occasion some appearance that I made somewhere else -- that our cruise ship bookings

were running well ahead of where they were last year. I will give you a little bit of

update on that. And that is still the case.

Now, we don't have significant capacity. We have two ships. But it is clear that we're

providing an experience and a brand differentiation, when it comes to that business,

that has had a very positive impact in terms of our business during what clearly is a

more challenged time.

We're building two ships. They are tremendous in size. They are both being built at the

Meyer Werft boatyards in Germany, and we have flat prices with Meyer Werft. So,

even though we have seen increased construction costs worldwide, we're not

susceptible to those increases in the case of the cruise ships. That is of some comfort to

us.

Tom, do you want to comment on the Euro as it relates to that? We hedged most of the

exposure to the Euro.

And so we actually believe the ships will be delivered let's say somewhere in the

2011/2012 period. I do not know how specific we have been. I guess I was just -- we've

said that. We think that having four ships versus two is not necessarily creating

significantly greater exposure than we have today in terms of the overall cruise ship

business. And we seem to have proven, both to ourselves and to others, that the


experience that we're providing is really differentiated and that gives us leverage in the

marketplace.

These ships, by the way, will be incredible from an experience perspective. To give you

some perspective on size, they are 135,000 metric tons versus 85,000, roughly, for the

ships that we have now. An aircraft carrier is about 100,000 metric tons. So think of

something that is bigger than an aircraft carrier and we have already been through what

is a fairly detailed, although still somewhat preliminary design phase. They are pretty

exciting in terms of the properties that will be built.

Not only have we had double-digit returns on invested capital in that business, which

we expect will continue, but the brand value that it creates is just tremendous, not just

as an ambassador of Disney in markets that it visits, but the connection that you create

with the customer or the guest and the business that you end up doing with that guest

subsequent to their sail on a Disney cruise, including selling Vacation Club

memberships on the cruise ships, which we have done very successfully -- really an

interesting business for us.


More questions from the audience?

Audience Member

I guess on a similar line with Disney Cruise Line, you guys have started Disney

Adventures. As we talk about how that is tracking with your expectations, what do


you think you can do with that product over time? How do you maintain the quality of

that product? Are all of the tour facilitators Disney employees or --?


Adventures by Disney is a business that some of you may not be familiar with, but if

you're interested there's a pretty interesting brochure that I'm sure Lowell Singer can

get you. This is sort of a high-end family travel and adventure business that takes

families to specific destinations around the world, that when they go they want an

experience that is fairly multi-dimensional in nature, that would be difficult for them to

achieve without a fair amount of work on their own. So think of, well, I know

Butterfield and Robinson is in this space but it is mostly bicycle trips. So I will be more

specific. We're taking families, 2,000 of them this summer, to places like China, the

American West, Peru, Australia, London and Paris; there are 11 different destinations or

maybe 12 for this summer. And what we do it is we have a Disney team on the ground

that shepherds the families around as their guide, but we used third-party providers for

services. That includes transportation and hotels. But it is fully programmed by us. It

is not an immersive character experience. It is just a high-quality family experience

where we provide things that you may not be able to do on your own, but also we

provide a general experience that is sort of packaged soup to nuts. So you go to London

and Paris, you're going to get behind the scenes tours of the Mary Poppins play but you

also get a very special tour of the House of Commons and the House of Lords, in effect

the Disney way -- trustworthy, reliable, high-quality service. We've done a lot of

homework about the third-party providers. Even though not all of our cast members

are providing the service, the homework we have done gives us comfort that by and


large the families that are experiencing this will come away with a positive feeling

about Disney. And that’s what has happened.

This is fairly small in terms of our capital investment, not tremendous in terms of what I

will call the operating income it will throw off, although because the capital investment

is low, the returns are fairly high. It is a business we think we have a fairly decent

chance of growing. And it's a great extension of the Disney brand in the travel space

because of the desire to continue to invest in that brand, and that experience and, again,

the connection that it creates with families who do tend to come back. If they have not

already done it, they will go on a Disney cruise, or they have gone on a Disney cruise,

next year they will go on a Disney Adventure.

You know a lot of people who visit our parks don't come back, and yet they continue to

take family vacations. We would like to capture a little bit more of that spend with an

experience that has all the brand attributes of the experience they might have when they

go to our parks. We started this as a pilot program, and we're gradually growing it.

And as I said, I think 11 or 12 destinations this summer. There will be a few thousand,

maybe a little bit more than that, families that experience it. We think that is a good

thing. Maybe it is a few thousand people. It is about four thousand people, not two

thousand families.

Audience Member

Can you comment please on how the iPod and mobile phones are being used by your

various business areas?



We have been fairly aggressive putting product out there on new platforms for all of the

obvious reasons. We think people are going to use them more and more to access

entertainment and if we're not there, they will just access someone else's product. We

think it is a good thing to occupy that space. It also tends to elongate engagement or

create engagement with our product and that brand relevance that we talked about. We

are also increasing our revenue in this space. We're going to, in fiscal '08, we’ll drive

about $1 billion worth of what we will call digital revenue. That does not include Park

packages that are bought digitally. That is nice growth over the prior year. Some of

that comes from mobile space, some from the iPod platform and a lot from a variety of

other platforms, including platforms that we own. We think it's the right space for us to

be in to reach all kinds of different demographics, including the ESPN sports fan that

wants access to scores. We just launched an incredible ScoreCenter for soccer scores

around the world, or for ABC programs where they are original or off network, and of

course for a variety of Disney products, including what we think is a growing casual

games business.


The last question right here.

Audience Member

Now that Blu-ray has been adopted as the standard for DVD, what do you think the

potential is for monetizing the Disney library on Blu-ray DVD?



We think the potential is good. We have never thought that Blu-ray was necessarily the

leap that DVD was over VHS from a consumer perspective. But we think it is a nice

leap. The quality of a Blu-ray DVD is pretty extraordinary. The question is whether

the consumer comprehends that or not. I think there's still a lot of confusion in the

marketplace tied in part to just a new platform entrant or a new format, but also to the

format war that went on. I talked to someone the other day who said they did not buy a

Blu-ray player because it was not going to play any of their current DVDs. They were

going to have to throw out all their DVDs. I said, do you realize they will play

standard-def DVDs. They did not even know that. So I e-mailed our video guy and

said I know we have mentioned this, but are we mentioning this enough? You know,

there is that balance, because you want people to adopt the new platform. And so you

don’t want -- and you necessarily say it plays the old DVDs; on the other hand, that is

an important factor when a consumer has to make a decision to spend a few hundred

bucks more. The player price will come down to a few hundred bucks and that will

help a lot.

I think, in the end, anything that we do that improves the consumer experience and

creates a sense of greater quality is a good thing for us, which is why we support it a lot.

I think it will be helpful to us and give us some lift on those platinum titles that we

bring back. First up for us is Sleeping Beauty in Blu-ray of our platinum titles. But we

released Cars in Blu-ray, and Ratatouille in Blu-ray and those were great, but not enough

installed base yet to make a big difference. It will help, but I don't know that it is

necessarily a game changer. But we're certainly behind it.


Alan Schwartz – President, Bear Stearns Okay, I think we have to wrap up Bob. Thanks a lot. Bob Iger – President and Chief Executive Officer, The Walt Disney Company

Alan, Thank you. Thank you very much.

# # #

Management believes certain statements in this call may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are made on the basis of management’s views and assumptions regarding future events and business performance as of the time the statements are made. Management does not undertake any obligation to update these statements. Actual results may differ materially from those expressed or implied. Such differences may result from actions taken by the Company, including restructuring or strategic initiatives (including capital investments or asset acquisitions or dispositions), as well as from developments beyond the Company’s control, including:

- adverse weather conditions or natural disasters; - health concerns; - international, political, or military developments; - technological developments; and - changes in domestic and global economic conditions, competitive conditions and consumer preferences.

Such developments may affect travel and leisure businesses generally and may, among other things, affect: - the performance of the Company’s theatrical and home entertainment releases; - the advertising market for broadcast and cable television programming;

- expenses of providing medical and pension benefits; - demand for our products; and - performance of some or all company businesses either directly or through their impact on those who distribute our products.

Additional factors are set forth in the Company’s Annual Report on Form 10-K for the year ended September 29, 2007 and in subsequent reports on Form 10-Q under Item 1A, “Risk Factors”. Reconciliations of non-GAAP financial measures to equivalent GAAP financial measures are available on Disney’s Investor Relations website.

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