HARTFORD, Conn.– The Walt Disney Company (NYSE: DIS) reiterated at its annual shareholders meeting today that it is establishing a new policy whereby it will no longer retain its auditors for consulting services or other functions not related to their auditing services.
In restating Disney’s position, Chairman and CEO Michael D. Eisner said, “We’ve been very prudent in this area over the years, with close and active oversight by the Audit Committee. But, in the current world, it’s become more important than ever to make sure that our shareholders – and the market as a whole – have full confidence in our financial reports, including the integrity of the auditing process.”
Disney originally announced its decision on January 31 during a conference call with analysts and investors to discuss the financial results for the first quarter of its 2002 fiscal year.
Shareholders did not adopt the proposal to prohibit the company from using its outside independent accountants for other services.
The preliminary vote was 473,141,725 FOR and 648,379,732 AGAINST.
Disney intends to go ahead with its policy notwithstanding the vote outcome.
Shareholders ratified the appointment of PricewaterhouseCoopers LLP as the company’s independent accountants for the fiscal year ending Sept. 30, 2002.
The preliminary vote was 1,547,533,943 FOR and 35,681,618 AGAINST.
Shareholders approved the company’s 2002 Executive Performance Plan, which ties executive compensation to annual performance targets.
The preliminary vote was 1,496,262,002 FOR and 80,768,157 AGAINST.
Shareholders rejected a shareholder proposal to impose special conditions on the manufacture of Disney products in China. Michael D. Eisner, chairman and chief executive officer noted that the company had in place a global code of conduct concerning manufacturing, coupled with active educational and enforcement efforts.
The vote was 62,376,893 FOR and 1,019,320,990 AGAINST.
A shareholder proposal to require the company to prepare a special report to shareholders on theme park safety was defeated.
The preliminary vote was 48,676,878 FOR and 1,052,660,232 AGAINST.
A final shareholder proposal to limit stock options was also defeated.
The preliminary vote was 79,640,129 FOR and 1,067,269,272 AGAINST.
Shareholders of The Walt Disney Company, meeting here today, voted by a wide margin to return the company’s 16 directors to new one-year terms.
Some 1,556,205,442 shares, or 97.52 percent, were voted in favor of returning the following directors to the board:
Reveta F. Bowers
John E. Bryson
Roy E. Disney
Michael D. Eisner
Judith L. Estrin
Stanley P. Gold
Robert A. Iger
Monica C. Lozano
George J. Mitchell
Thomas S. Murphy
Leo J. O’Donovan, S.J.
Robert A.M. Stern
Andrea L. Van de Kamp
Raymond L. Watson
Gary L. Wilson
Following are the speeches given at the Shareholder Meeting by Disney executives:
Good morning, I’m Michael Eisner and welcome to the 2002 Shareholder Meeting of The Walt Disney Company.
There are those who wondered why we chose Hartford for this year’s meeting of Disney’s owners. Of course, there are a number of virtues to this fair city, but, no, we didn’t come here because of the confluence of the 91 and the 84 Interstates, nor did we come because of the weather, nor because this is what some people would call the rightful home of the New England Patriots, nor because Jim Calhoun, son of the University of Connecticut’s basketball coach, is one of our top Consumer Products executives in Europe. . .and, no, we also didn’t come because it is home of the residence of Mark Twain. Speaking of Mark Twain, he once said, “To be talked to death is a terrible death”. . .and I assure you we will strive today to honor Mr. Twain by being as efficient as possible in our remarks.
So, I will tell you that the real reason we chose Hartford was because of its proximity to Bristol, the home of the greatest four letters in sports entertainment – ESPN.
We will be extolling the virtues of ESPN at greater length later on in this presentation, but I will tell you that if we had gotten only this incredible sports network when we purchased Capital Cities/ABC in 1995, we would have gotten our money’s worth.
For those of you who don’t know, the letters ESPN stand for Entertainment and Sports Programming Network. But, that “E” could just as soon stand for “exciting,” because 24 hours a day, ESPN makes the sporting world come alive for millions of fans around the world. And, it’s all because of those dynamic folks in Bristol. So, among other things, we’re here to say, thank you.
Another reason we are pleased to come to the East Coast is to demonstrate our support for this region of the country which suffered so directly on September 11. You should be aware that your company and its cast took meaningful steps to assist in the recovery effort, including the creation of The Walt Disney Company Foundation/DisneyHAND: Survivor Relief Fund, which raised nearly $7 million from a corporate gift plus individual cast donations.
With this in mind, I would like to introduce a few special people.
First, there’s Jimmy Carroll, who is Assistant General Manager of Operations for our New York ESPN Zone. Jimmy was at the Zone on September 11. Over the next three days, Jimmy, along with some of his fellow cast members, worked nonstop to prepare food and clothing to be delivered to the rescue site. He oversaw the preparation of more than 2,500 sandwiches each day, which were delivered to rescue workers. He also maintained the Zone as a place where police officers could utilize to get some rest and sustenance before going back out onto the street. Thanks to his resourcefulness and compassion, Jimmy was able to make a meaningful contribution to keeping the rescue effort going during those first crucial and uncertain days. Jimmy, would you please stand?
Then there’s Etta Brown, who has been with ABC for 29 years, during which time she has volunteered generously with her time. So, it was not surprising that, after September 11, she was among the first to ask what she could do to help. She started out working through church programs to assist the victims and their families. Then she signed up to help host the Monsters, Inc. premiere in New York for families of Fire, Police and EMS workers. Next came the Disney Hand Holiday kickoff event at ABC’s Times Square Studio and Etta was there entertaining the children as they waited their turn to take pictures with Disney characters. Finally, there was the Winter Wonderland event organized by the Mayor’s office at Pier 94, which featured Etta hugging every family member as they were presented their gift from the DisneyHand fund. As you can see, Etta is a prime example of so many of our cast members in New York and across the country, who embraced volunteerism to help those who had suffered the most. Etta?
Next, I would like to introduce Angie McKee. She works at the Disney Store near the Pentagon and is married to an Air Force officer assigned to the Pentagon. On the morning of the attack, Angie picked up her three children from school, but was unable to reach her husband. Despite her own concerns, she immediately contacted the Family Support Group at the local Air Force base to volunteer. Fortunately, she reached her husband at 4:00 that afternoon and learned that he was unharmed. Angie is a certified paramedic and took advantage of her training to assist anxious and grieving family members. She greeted them at the center that had been set up, escorted them to the attack site, read stories to their children and purchased flowers for the families to take with them to the site to use as memorials. The Saturday following the attack, Angie spent 12 hours on a phone bank, taking calls from families who wanted to know if their loved ones had been found. With her husband on “high alert,” Angie McKee could have just cared for herself and her family. Instead, she cared for others. Angie, would you please stand and be recognized?
These three heroes exemplify the thousands of Disney cast members who did everything from donating money to giving blood to helping with the national telethon to countless other efforts. The people who work for your company made a difference.
And, to the three of you, I want to extend the thanks of a grateful company and a grateful country. And I want to recognize as well, two cast members who lost their lives on that day: Donald DeFranco of ABC and Marianne MacFarlane of The Disney Stores.
Now, it is time to introduce a number of other very special people – the members of The Walt Disney Company Board of Directors. The Disney board is a dedicated and diverse group of leaders, who are determined to care for a company that is so much more than just a company. . .and to craft its future in a way that honors its extraordinary past.
First, there’s vice chairman Roy Disney. Roy has guided the renaissance of Disney animation since 1985 and has been the ultimate guardian of the legacy and tradition of this company that bears his family name.
Next, our company’s president and chief operating officer, from whom you will be hearing more shortly, Bob Iger. Bob joined Disney in 1996 when we acquired Capital Cities/ABC, where he was serving as president and chief operating officer.
Reveta Bowers heads the Center for Early Education in Los Angeles, an independent school for kindergarten through sixth grade, which has received national prominence as a model for its innovative curriculum. Reveta helps us focus on the tremendous opportunities for Disney in the ever-growing educational market.
John Bryson is chairman, president and chief executive officer of Edison International. John brings multi-faceted abilities as a lawyer, as an expert on environmental and energy issues, and as the top executive of one of the nation’s major corporations.
Judy Estrin is the former Chief Technology Officer of Cisco Systems and currently is Chief Executive Officer of Packet Design, Inc., the most recent of several pioneering companies she has founded in the field of high technology. As we will be discussing, technology is a key to Disney’s success, and Judy is an invaluable guide, shedding light on our future.
Stanley Gold is President and Chief Executive Officer of Shamrock Holdings. Stanley is one of America’s dynamic business leaders. He manages an international portfolio of more than $2 billion, helping to give him a global scope combined with a strong bottom-line sensibility.
Monica Lozano is president and chief operating officer of La Opinion, the largest Spanish-language daily newspaper in the United States. Monica’s deep understanding of the media and of the Hispanic audience here in the United States and throughout this hemisphere is of tremendous value to the board.
George Mitchell served in the United States Senate for fifteen years, retiring as Majority Leader in 1995. Since then, his stature as a statesman has only grown, most notably in his efforts to help bring peace to Northern Ireland and the Middle East. George’s experience and understanding are tremendous assets for the company as we strive to work effectively with governments around the world. And, it should be noted, he is now a part owner of the Boston Red Sox.
Tom Murphy built Capital Cities/ABC from a single UHF TV station in 1954 into one of the top communications companies in the world. Tom is a visionary in the world of communications, who is helping keep us ahead of the curve in the brave new world of electronically-transmitted entertainment.
Father Leo O’Donovan is former president of Georgetown University, where he continues as Professor of Theology. Father O’Donovan combines an expertise in higher education with a strong sense of moral leadership, thereby helping to make sure that we always pursue the highest standards possible.
Sidney Poitier is one of America’s most beloved actors and directors. From his years as an Oscar-winning performer to his work on behalf of children and civil rights, Sidney brings great depth and wisdom to the Board.
Bob Stern is the founder and Senior Partner of Robert A.M. Stern Architects and dean of the school of architecture of Yale University. He has been instrumental in our company’s creation of extraordinary entertainment spaces. . .and, you should be aware, he is currently overseeing the design for the new Education & Visitors Center at The Mark Twain House here in Hartford.
Andrea Van de Kamp is chairman of Sotheby’s West Coast, overseeing business development for the world’s leading auction house. She is also chairman of board of the Los Angeles Music Center. Andrea merges the best of the art world with the business world, making her a particularly valuable member of this company.
Ray Watson is vice chairman of The Irvine Company, which is developing America’s largest master-planned urban community. As well as being an expert in land management, Ray represents part of the continuity that has made the Disney legacy so powerful.
Gary Wilson joined our company in 1985 as executive vice president and chief financial officer. He is now chairman of Northwest Airlines, but continues to lend his fiscal expertise to the responsible management of our company.
I would like to ask all the Board members to stand. . .as well as the spouses who have joined them – Ilene Gold, Barbera Thornhill Wilson, and my wife Jane Eisner. Ladies and gentlemen – owners of The Walt Disney Company – please join me in recognizing an extraordinary group of individuals, your Board of Directors.
Now, to provide you a financial overview of your company, here is Disney’s chief financial officer and senior executive vice president, Tom Staggs.
Senior Executive Vice President & CFO
It’s a pleasure to be here with you today to provide a financial overview of your Company. As shareholders, I’m sure you recognize that the current economic environment has created challenges for most of corporate America, including Disney.
In the face of a weakened US economy — and a fourth quarter that was impacted significantly by the events of September 11th and their aftermath — Disney’s pro forma earnings per share were roughly flat in 2001 versus the prior year.
Despite this difficult environment, our business units delivered still solid operating income of $4 billion and as I’ll discuss in a moment, we continued to deliver increased levels of cash flow.
More importantly, the challenging environment has done nothing to diminish the strength of Disney’s unrivaled brands, characters and entertainment franchises; which, of course, are the assets that have driven your company for so many years and that continue to provide the foundation for future growth.
Given the recent public discussion of corporate accounting policies, I would also like to point out that our balance sheet, liquidity, and financial flexibility all remain strong as well. We strive to make our financial statements both complete and clear and our public disclosure makes plain all material obligations, including contingent ones. In short, we apply the same standards of quality and integrity to our accounting practices that we apply to the protection and development of the Disney brand itself.
We recently announced results for Disney’s first fiscal quarter, which reflected the continued softness in the advertising market and the broad-scale disruption in travel patterns as a result of September 11.
As we continue to manage through this difficult period, a key priority for the company is improving the primetime performance of ABC. Although we can’t influence the recovery of the ad market, we have taken steps to drive the turnaround of our primetime performance, as Bob Iger will discuss later this morning.
Another primary area of focus has been Consumer Products and we are pleased with the progress this segment is making in its turnaround. Over the past two years our consumer products group has taken a number of significant steps. We’ve rationalized the total number of licensees. We’ve moved to a more product-driven approach and we’ve given greater emphasis to promoting a more cohesive presentation of our products at retail. Disney’s consumer products business continues to be the strongest of its kind and we are confident in its ability to contribute to our long-term growth.
To mitigate recent challenges in the travel and tourism industry, our theme parks and resorts’ operation has shown great flexibility in managing costs, through actions such as reducing man-hours, closing non-essential food and beverage locations, and instituting a hiring freeze.
Of even greater importance is the fact that our Parks and Resorts continue to meet the high expectations of our guests: during the downturn, our guest satisfaction ratings remain strong and we are capturing even greater market share.
In our experience, people tend not to permanently cancel trips to our Parks. Rather, they defer them, thereby creating pent-up demand for future periods.
As a result, our more cost-efficient Parks and Resorts are particularly well positioned to benefit from an economic recovery. Our near-term view of the marketplace in general is still somewhat uncertain. However, we expect that the worst is behind us, and we are beginning to see signs that the economy is coming back.
The calendar fourth quarter GDP actually posted a gain … and the Conference Board’s Consumer Confidence Index — which had declined dramatically from September through November — rebounded sharply in December, jumping from 84.9 to 93.7 and nearly another three points in January to 97.3.
This type of increase is often a leading indicator of an improved business climate, especially at our Parks.
At this point, our expectations for the balance of the year are consistent with what we told you to expect at the time of our last earnings release. However, changes in our theatrical and video release schedule will likely result in shifts in earnings among the remaining three quarters of the year. Media Networks is still tracking about as we expected and our Parks and Resorts segment is showing the gradual signs of improvement in attendance and advance reservation bookings we had hoped it would.
As we wait for more tangible signs of a recovery, we are managing our businesses prudently and efficiently in order to gain rapid momentum when the economy does turn around. While 2001 presented a year of challenge for Disney; it also represented a year of meaningful progress in a number of areas. It was a year that saw the culmination of projects set in motion to improve the efficiency of our organization and to establish a firm base from which to grow.
Eighteen months ago, for example, we set out to take $500 million out of our cost structure and to put in place a rigorous focus on cost containment. In doing so, we sought to instill a fundamental attitude about efficiency throughout the company. In 2001 we met this goal.
Seeing the early signs of a softening economy, we also made the painful decision to reduce our workforce by some 4000 positions. This action, which is virtually complete and was accomplished primarily through a voluntary separation program, will yield an additional $350 million in annual savings over time.
Over the past two years, we have engaged in a company-wide project to focus all our businesses on driving greater shareholder value. This project established a new set of performance metrics for each of our business units centered around improving returns on capital and increasing cash flow — in addition to earnings growth. These key drivers are now an important part of management objectives and evaluation throughout the company.
We feel this focus will generate greater shareholder value and provide capital for future growth through acquisitions or investments in existing and new businesses. In keeping with these efforts, Disney has already shown strong growth in its cash flow. In 2001, the company delivered after-tax cash flow from operations of over $3 billion, which represents annual growth of nearly 20% per year since 1998.
A portion of this cash flow was used to re-purchase almost 64 million shares of Disney stock, which is certainly an investment that we believe will show great returns for our shareholders.
As troubling as the economic conditions are, it is important to keep them in perspective and recognize that this company has been through uncertain times before. There is no question that the current situation will have an impact on our results for a few quarters to come. However, the true measure of good management is its performance in times of austerity, not prosperity.
Given the efforts I’ve just outlined, as the economy rebounds, we will be in an even stronger position to deliver attractive and growing earnings and cash flow coupled with steady increases in our capital returns.
Disney has unparalleled assets, a strong balance sheet, and significant earnings and cash flow potential. In this environment, it is easy to lose sight of those facts, but never more important to keep them in mind.
Bob and I will now take you through the rest of the presentation.
We’ve already introduced you to the members of the Board. Now, we’d like to introduce you to a few more prominent individuals at The Walt Disney Company.
First, there’s a long-time veteran who has had a tremendous impact on this company across all of our businesses – on film, television, consumer products, video games and, especially, at our theme parks. He is truly an inspiration, viewing every challenge as an opportunity. Ladies and gentlemen. . .Mickey Mouse.
The next individual truly needs no introduction. He’s a real high-flyer who seems to always be in tune with young people around the world. . .his latest film, “Return to Neverland” just opened Friday. . .Peter Pan
Next is a woman who is an inspiration for readers everywhere and is truly a real beauty. She recently made her debut in IMAX theaters and can be seen here in Hartford at the Crown Odyssey Giant Screen Theater on New Park Avenue. Ladies and gentlemen. . .Belle.
Then there’s a newcomer who is literally out of this world. Although he’s not here today as he’s still being drawn, we expect him to be with us for light years – the co-star of this summer’s “Lilo and Stitch”. . . the universe’s most lovable alien. . .Stitch.
In highlighting these key players at The Walt Disney Company, we are having a little fun. But, the fact is that characters like Mickey, Peter, Belle and Stitch – and literally hundreds like them – are extraordinary assets for our company. From Bambi to Sleeping Beauty to Buzz Lightyear . . .all of them are timeless and each has their own distinctive personalities, appealing to people of all ages around the globe. They are among the reasons that the Disney brand is so incredibly strong by any measure.
Of course, even with all of these characters in our corner, our company is still subject to the challenges of business cycles and recessions. To position our company for growth when the economy rebounds, we have initiatives in place, which draw from and build on the strength of our remarkable family of entertainment brands – ABC, ESPN, Miramax, Touchstone, Lifetime, A&E, the recent addition of ABC Family and, of course, Disney.
This morning, we’re going to give you some previews of the entertainment that is coming from our company. We want you to see this because at Disney, creation of new content is the key to the creation of shareholder value.
At Disney, content can take the form of an animated film, a children’s toy, an educational book, a prime-time show, an interactive game, a news broadcast, a stage play, an ice show, a sports magazine, a theme park attraction or any of an enormous range of other offerings. We are determined that this entertainment, whatever it is, should be of the best possible quality. This is truly the Disney heritage, which we are honoring all this year at Walt Disney World, with our 100 Years of Magic celebration in honor of Walt Disney’s 100th birthday.
This celebration is all about the Disney legacy, of which Michael and I are stewards. It was created by Walt and Roy – and has been watched over by our own Roy E. Disney — and it is why the strength of this brand is unmatched in the entertainment industry.
Consider the fact that last year there were more than 100 million visits to Disney theme parks, there were 250 million visits to Disney Stores, 217 million Disney videos and DVDs were purchased and 94 million cable and satellite subscribers received the Disney Channel. Every week, three million kids and their parents listen to Radio Disney, 13 million watch “The Wonderful World of Disney” and four million log on to Disney.com. In fact, a recent brand equity study concluded that, in the 14 primary world markets, 1.2 billion consumers had used at least one Disney product over the preceding 12 months.
Consumers everywhere seek out all things Disney. As long as we keep doing our job of providing quality, innovative family entertainment, this gives us an enormous advantage in the marketplace, providing us with a strong and positive daily connection with people around the world.
When the economy improves, there can be little doubt that our family of brands will help propel resurgent growth. Growth in travel will likely bring our parks to new levels of performance and a rebound of the advertising market will have enormous significance for ABC, ESPN and our other strong cable outlets. But, in addition to the improvement that will come from a healthier economy, we believe that our company’s performance will be getting an important added boost from technology.
Throughout its history, our company has benefited from technology. We produced the first cartoon with synchronized sound, the first color cartoon, invented the multi-plane camera, developed stereophonic sound, and made cutting-edge use of robotics and ride simulation technology in our theme parks.
And, our entertainment has also benefited from new technology. Mickey went from black and white to color to publishing to television to theme parks to video games to cell phones. Or, to cite a more recent example, “Beauty and the Beast” migrated successfully from film to video to theme parks to Broadway to audio cassettes to CDs and now to IMAX and soon to DVD and then broadband.
So, it should be easy to see how advances in technology are opening up a wonderful range of new possibilities for our company. We’d like to show you a few examples.
First, there’s the adaptation of our content to wireless distribution. In this form of technology, the United States is a bit behind the curve. In Japan, they already have cell phones that are really mini-computers offering an array of services. In that country, we have entered into agreements with distributors to provide subscribers with Disney-branded services.
This represents a look into the wireless future. We now have similar agreements elsewhere in Asia and Europe. And, of course, once wireless technology in North America has the kind of capabilities that you see here, this will represent a considerable opportunity in the U.S.
Or, consider the impact of broadband Internet delivery. We have already pioneered the convergence of the Internet and traditional television with the development of Enhanced TV broadcasts of such shows as “Monday Night Football,” “Who Wants To Be a Millionaire,” the Academy Awards and the Emmy Awards. With broadband delivery, the possibilities become incredibly vast. This has the potential to transform the Internet into a true entertainment medium. Thus, the implications for our company are substantial.
Another, and very different, utilization of technology is an initiative we call Customer Relations Management, or CRM for short.
As we’ve already mentioned, Disney enjoys an extraordinary affinity with its customers. Until now, this has been based on the appeal of our stream of products. But, thanks to technology, we will have the ability to have a deeper two-way relationship with our biggest fans.
Let us give you an example of how this can work. Imagine that Mr. and Mrs. Charming and their two children visit Walt Disney World. During their stay, preferred reservations are made at their favorite restaurants, advance FASTPASS tickets are provided for their favorite rides and one morning a cupcake with a candle is brought to their room in honor of their daughter’s 8th birthday.
When the Charmings leave the resort, they indicate in their guest surveys that they particularly enjoyed the Peter Pan flight attraction. Shortly after arriving home, they receive a note thanking them for coming to Disney World and offering them discount coupons for the video of “Peter Pan” and for the film “Return to Neverland,” playing at their local theater. Later in the year, they receive promotional materials offering them a family package for the Disney Cruise Line, mentioning that Captain Hook himself will be on board. And, at Halloween, they are sent discounts for Peter Pan and Tinker Bell costumes at the Disney Store. When they return to Disney World, they are notified of a Character Breakfast that features the Peter Pan cast.
This hypothetical example should give you an idea of how we can interact with our guests, making them aware of opportunities and providing them incentives to enhance their sense of connection with our company.
You also should be aware that the Customer Relations Management program is completely voluntary and guests are welcome to decline to participate. We absolutely respect our customers’ right to privacy and leave it to them to decide if they wish to take advantage of the benefits of this program.
As much as technology can be a catalyst for growth, the underlying growth engine will always be the entertainment of our company.
An area of current challenge is the ABC television network during primetime. And, the way to return the network to ratings prominence is through the creation of great programming. We are highly focused on this issue and have installed new leadership at ABC to spearhead our efforts.
Returning ABC to number one is not as daunting a task as it may sound. The primetime ratings race is incredibly close. Because of the small margin of difference between the networks, it could take as few as two to three hit shows to take ABC back to the top.
With strong signature series such as “The Practice,” “NYPD Blue,” “Drew Carey,” “My Wife and Kids,” “Alias,” “20/20” and “Monday Night Football”, we have a strong foundation to improve our position. We also have the rights to some major event programs, such as the Academy Awards and the Super Bowl in 2003. Development for next season is now underway, and we are focused on quality family-friendly shows. Here is a glimpse of some of the top quality programming you can sample across an entire day on ABC.
Great programming also is going to be a driving force for the growth of ABC Family. This newest addition to our television assets will help the ABC Television Network, by broadcasting some of its shows at alternative times for people who might have missed them, and it will draw on the great Disney library, while also airing original series developed especially for this channel. This will improve the economics of the network, in much the same way that the creation of SoapNet, which now goes into 20 million homes, has helped leverage the programming of ABC Daytime while also further building the audience for the initial broadcasts – a true win/win situation. Like our ESPN collection of cable networks, the combination of the ABC Television Network, SoapNet, and ABC Family represents an integrated programming franchise that we will be able to cross-program, cross-promote, and grow.
ABC Family is just a few months old, but already we are seeing positive results, with primetime ratings up more than 25 percent over the prior year. As its name indicates, ABC Family appeals to the core Disney audience. And, with the Fox Kids channel in Europe and South America, our television presence also is expanded overseas. This clip should give you an idea of the new directions we’re taking ABC Family.
To help bolster our television assets, we recently reached a broadcast agreement for the rights to some particularly great programming – the games of the National Basketball Association. In a demonstration of the interplay of our television services, this agreement will add wonderful programming for ABC and especially our other great brand – ESPN.
ESPN is now the only domestic program service that offers National Football League, college football, Major League Baseball, National Hockey League and National Basketball Association games. With the strength of its league offerings, and strong original programs like “SportsCenter” and “X-Games,” ESPN is an even more important service to cable and satellite operators for acquiring new subscribers, retaining existing ones, and securing greater local advertising revenue.
As part of our NBA deal, ESPN and ESPN2 will air the majority of the games but this package also is extremely important to ABC. ABC Sports will broadcast 15 regular series games as well as post-season games, including the entire best-of-seven championship series. Beyond the NBA games, our agreement also provides for related NBA programming, such as features and post-game shows, to be covered by a wide array of our businesses on a global basis, including ESPN Classic, ESPNEWS, ABC Family, ESPN Radio and ESPN.com. This deal clearly plays to the strengths of our company and its multiple platforms, and further solidifies our platforms’ value to the consumer, as well as to cable and satellite providers.
What Disney is to family, ESPN is to sports. ESPN has unrivaled appeal in the world of cable television. ESPN and ESPN2 alone account for nearly 20% of the local ad revenue that is earned by cable operators. In a recent survey, cable operators ranked ESPN as the number-one reason that viewers subscribe to cable. ESPN is an incredible franchise that owes its success to the finest sports content on the air. Actually, it’s content with attitude, as award-winning SportsCenter spots like this one demonstrate.
By the way, that is not meant as a commentary on Connecticut Light & Power.
ESPN is currently expanding its appeal by creating original programming. On March 10th, it will broadcast its first ever made-for-television film, “A Season on the Brink,” about coach Bobby Knight and the 1985-86 Indiana Hoosiers basketball season. Here’s a glimpse.
And, for the first time, ESPN is going to the big screen . . .and we mean big.
Beyond ESPN and ABC Family, we have all or part ownership of an extraordinary array of cable networks – Lifetime, A&E, The History Channel, E! Entertainment, SoapNet, Toon Disney and, of course, the Disney Channel. You are probably all familiar with the Disney Channel, but you may be unaware that there are now 12 international Disney Channels, reaching subscribers in 56 territories, serving as an extraordinary ambassador for the Disney brand around the world. Beyond this is the Fox Kids channel – which will be renamed of course – that we acquired as part of the Fox Family deal and reaches more than 34 million additional homes in Europe and Latin America. Furthermore, we have equity holdings in GMTV in England and RTL2 and Super RTL in Germany.
Nowhere is unique Disney content more on display than at our parks and resorts. These are also places that do so much to build and reinforce the Disney brand, since this is where people immerse themselves in all that Disney stands for.
Last year, we opened two all-new theme parks – Disney’s California Adventure and Tokyo DisneySea. In four weeks, we are going to launch yet another new Disney theme park – Disney Studios Paris, next to Disneyland Paris. As with California Adventure and DisneySea, this park will help transform the site of a single Disney theme park into a two-park multi-day resort destination. Here’s a preview.
Next year, we will be opening a great new E-ticket attraction at Epcot, called Mission: Space, which will give guests the thrill of space travel, from the rush of lift-off to the sense of weightlessness. Also among the major theme park projects in the works are a “Bug’s Life”-themed adventure area called Flik’s Fun Fair, coming in the fall to Disney’s California Adventure in Anaheim, where we will also be bringing the Twilight Zone Tower of Terror in 2004. And, in the middle of the decade, we will be adding one more entire theme park – Hong Kong Disneyland. This will be modeled closely after the original in Anaheim and will be at the doorstep of the world’s most populous nation – China. Clearly, the potential of this project is enormous.
The area of the company that arguably serves as our greatest incubator of entertainment is The Walt Disney Studios, where our films are created. Every year, between Walt Disney, Touchstone, Miramax and Dimension, some 50 movies are released by our company. Last year, they achieved worldwide box office revenues of $2.5 billion. And, more important, our films earned a solid return on our investment to produce them.
In addition, the studio produces an extremely profitable made-for-video product, called Disney Video Premieres. Last year, we released “Lady and the Tramp II: Scamp’s Adventure,” which sold a remarkable 10 million VHS and DVD units worldwide. This year, we will have “Cinderella II: Dreams Come True,” which will be released next week and, later in the year, “101 Dalmatians, Too.”
With regard to the theatrical film business, one of its virtues is that you can pretty safely predict a floor of performance, but the potential ceiling is practically unlimited. With films from “The Lion King” to “Tarzan” to “Sixth Sense” to “Pearl Harbor” to “Monsters, Inc.,” we were assured a reasonable level of success. But, when these films broke out into the box office stratosphere, the upside was tremendous.
Of course, in order to achieve this kind of box office success, it certainly helps to create high quality films. Last week, the quality of our movies was attested to when Walt Disney Company films garnered 24 Oscar nominations. . .more than any other entertainment company. And, with the nomination of “In the Bedroom” for Best Picture, Miramax tied the all-time record of having a Best Picture nomination for ten consecutive years.
As for 2002, we feel we have a great range of projects in the wings. And, some of those projects have the added advantage of the Disney name, as we have already seen this year with the successful release of “Snow Dogs.”
This past weekend, we released the Peter Pan sequel, “Return to Never Land,” which grossed $16.1 million. This is all the more impressive when you consider that the film was produced at a much lower cost than our traditional feature animated films.
Looking forward, on March 29, we are releasing the Disney live-action film, “The Rookie,” which stars Dennis Quaid.
This summer, we have the next film by the extraordinary director, M. Night Shyamalan, who brought us “Sixth Sense” and “Unbreakable.” This film is called “Signs” and stars Mel Gibson.
Also for the summer, we have a great Disney film, which brings to life the famous Country Bears that you’ve probably gotten to know at our theme parks. Along the same lines, further down the road, we have films based on “The Haunted Mansion” and “Pirates of the Caribbean” attractions, the latter of which will be produced by Jerry Bruckheimer.
From Miramax and Touchstone, later this year, we will have a true epic helmed by one of Hollywood’s greatest directors, Martin Scorcese – “Gangs of New York.” And, from Dimension, there will be the sequel to the wonderful family film, “Spy Kids.”
Finally, of course, no discussion of Disney content would be complete without a look at Walt Disney Feature Animation, which continues to embody the heart and soul of our company. We are extremely well-positioned in the areas of traditional 2-D animation and 3-D animation. With regard to the latter, we have enjoyed an unprecedented string of success working with our partners at Pixar on “Toy Story,” “A Bug’s Life,” “Toy Story 2” and last year’s smash, “Monsters, Inc.” During this time, we also produced on our own the landmark film, “Dinosaur,” and we now are developing a 3-D animated version of the classic tale “Chicken Little”. . .and a 3-D Mickey Mouse film.
This holiday season, we will be offering a remarkable film that merges the best of 3-D and 2-D, called “Treasure Planet.” It is based on the Robert Louis Stevenson book, “Treasure Island,” but, as the title implies, it takes the classic tale into the stars.
This summer, we have a spectacular – and I stand by this term, “spectacular” – film, called “Lilo & Stitch,” which takes us to the lush tropical world of Hawaii and introduces two great new characters – Lilo, a very adorable little girl, and Stitch, a somewhat out-of-control mutant alien. You remember, he was introduced earlier and also honored us on the cover of the annual report.
To build awareness for this film and clearly establish it as the next to inherit the mantle of classic Disney animation, we have put together a particularly innovative marketing campaign that I’d like to preview for you now. It consists of a series of mini-trailers. Here are two, the second one is still a bit rough, with pencil test images, but they should give you a good idea of what we’re up to.
Needless to say, we could stand up here into the evening to talk about all the initiatives underway and all the great entertainment product that is being created at The Walt Disney Company. But, we only paid for your parking for a few hours. So, we hope that this at least provides you with a useful overview of your company, which, as you can see, is driven by content, while also guided by the strong financial underpinnings that Tom described. It is this combination that we believe will produce tremendous results over the long-run.
And, the long-run is what we are all about.
Consider what has happened during the last number of years to strengthen Disney and position it for the future.
We built three new theme parks. . .we acquired Cap Cities/ABC and have expanded its assets, most notably ESPN. . .we have grown the Disney Channel domestically from 12 million subscribers to nearly 80 million, and have established 12 international Disney Channels. . .we have launched such strong media assets as Radio Disney, SoapNet, Toon Disney and ABC Family. . .we have built a major and consistently high-margin business with Disney Video Premieres. . .and most important, we have continued to create new characters and franchises that further enrich the Disney library.
As a result, the company has assets that are far more valuable and generate more cash flow than five years ago, placing us in a stronger position in the global marketplace and generating more inherent value for you, the shareholders.
This continues to be a company you can count on. After all, for most of the 20th century, people were drawn to Disney and all it stands for. We fully intend for that to continue to be the case in the 21st.
Thank you very much.