Interview: Tom Staggs, CFO, Disney: $930M Digital Revs 'Slightly Less' Than Hoped, 'Still Pleased'
This story was written by Staci D. Kramer.
Given the economic climate, the primary focus in today's Disney (NYSE: DIS) earnings call, particularly in the Q&A, was on the company's parks & resorts business. But, after the call, CFO Thomas Staggs agreed to provide some insight into Disney's digital media efforts, which came close to producing a billion in revenue for the company this year. The number stopped short around $930 million, though; Staggs said it was "slightly less than we might have hoped coming in to the year, and the difference was mostly on the advertising side. Overall, I'm still pleased."
-- Digital revenues: "We continue to see digital revenues increase. We were up a nice double-digit percent last year. Digital revenues came in across the companybut not including the value of the packages we sell for the theme parksright in the neighborhood of $930 million in revenue across internet advertising, paid content, digital downloads, that sort of thing. We had been actually seeing a little bit of a slowdown that corresponded with the slowdown in other ad markets so the internet hasn't been immune to that at all." But he said Disney hasn't seen much change in the pace of digital downloads "so the underlying business, I think, is still continuing along that path that we hoped it would."
More after the jump
-- Breaking out digital: Staggs points out that digital media revenues exist ion different places in the companyESPN.com is reported with ESPN as part of cable, ABC.com with the network in broadcasting, and, through this release, the Disney Interactive Media Group in broadcasting as well. (The group was formed by the recent integration of the Walt Disney Internet Group with Disney Interactive Studios.) That's probably going to change for FY09, he said, with DIMG being reported on its own. "As you might expect, between video games ... and Disney Online, that's a business we're very much in investment mode on so there are meaningful losses currently as we invest in that business." And, he said, they intend to continue investing. For example, as he said in the earnings call, Disney will increase its investment in the traditional video-game business by $75 million to $100 million in FY09, over and above the $170 million spent in 2008. "To be clear, that's the investment in research and development." The video-games business itself through 2008 was right around break even, he added.
- Club Penguin: Disney acquired the virtual world for kids last year for $350 million in cash and a possible earn out of $350 million. Is it performing as expected? "Club Penguin actually is doing quite well for us." Disney recently launched a CP consumer products line on a limited scale. "It's not launched broadly yet, so this is anecdotal, but it's really a fairly hot property right now where we've launched it so we're looking to see if we can roll it out more broadly." In terms of the subscriber growth, "we're not overwhelmed but we're pleased." CP also just launched its first non-English-speaking site in Brazil. "I think that bodes well for the future so I think there's real growth potential for Club Penguin and the rest of the work we're doing in virtual worlds."
-- Online advertising: On CNBC this afternoon, CEO Bob Iger said this was faster than any downturn or falloff in advertising he'd seen in 30 years, that it showed up first in local TV, then cable, then networks. Asked about online advertising in that context, Staggs said: "Online advertising actually started to soften a little bit earlier than some of the other media outlets, not quite as early as local but not long thereafter.. ... It hasn't necessarily softened as deeply but there's the same sort of trend you're seeing in other advertising areas." He attributes it to some advertisers questioning the efficacy of online advertising.
-- Clap your hands: Fairie are big at Disney. A direct-to-video Tinker Bell title quietly released last week sold two million DVDs in seven days. At the Fairies virtual world, roughly 7.5 million fairies have been created"mostly by little girls, we think." The Fairies virtual world is also an entry point for getting girls interested in games. Staggs offers both as examples of ways Disney is trying to find audiences with content that might engage them. The video is promoted at the site, while the site is mentioned in promos with the DVD. (I checked the site and also being promoted are Tinker Bell Nintendo and songs inspired by Tinker Bell.)
-- Disney's strategy: That's Disney's strategy illustrated: "We're developing franchises in multiple places across the company, then, when we develop strong franchises, we support them across multiple points of the company and by doing so we get more out of our creative properties." In this strategy, digital is "another area of possible distribution, of course, but also creativity that we can either use to leverage existing properties or create new properties for leveraging across the rest of the company. That's why we're investing in these businesses, why we're investing in video games, why we're investing in the Disney-branded web sites, because it's one more consumer touch point, one more creative center and one more distribution opportunity for Disney content."
By Staci D. Kramer