Bob Iger of Walt Disney on Digital Business Models

we are here in Southern California just down the street from Disney headquarters and the company is in the throws of a transition as we all are from digital techn from analog technology to digital technology across all of its platforms we are going to kick off Fortune brainstorm Tech with a chat with the president and CEO of the Walt Disney Company Robert Iger no one is better suited to conduct that interview than Fortune's editor at large Richard cichos who's been writing about the intersection of business and media for over 20 years please welcome Robert Iger and Richard [Music] [Applause] [Music] cichos good afternoon Bob Disney during the time that you've been the chief executive has blazed a trail in new forms of video distribution you were the first company to distribute via iTunes you the first company to uh stream videos online on your own website um but what some people may not remember is that you were also uh quite preent in the world of user generated content short form and you created something that has that has generated what hundreds of millions of dollars billion dollars worth of value and uh nobody here could probably what it is but it's America's Funniest Home Videos which um is the is it the longest running show on ABC or even on network television uh it's definitely the longest running show on ABC it's 20 years this year 20 years this year Network TV now 60 Minutes has been on longer right oh fair enough fair enough and and um although I think it beats 60 Minutes in the ratings probably Fair uh to Guess that when you conceived or green lit the show you didn't think that it would have the sort of futuristic ele components no no but what I kicked myself over the fact that having put the show on ABC 20 years ago at some point after that when I became pretty interested in uh what the internet can do particularly in terms of entertainment that it didn't come up with the idea of YouTube that would have been pretty cool right but I guess the I was still an old media executive right Al how how much money has uh the show made versus YouTube oh I don't I don't know what YouTube has made but they did they did sell it for sell for a nice little piece of change that is that is true well this is uh obviously a segue into um what is probably the you know the topic of traditional SL new however you want to term it media which is and I I I think I've written and I will say again I kind of hate the word monetization but but getting paid for putting video on digital platforms and you've done a lot of interesting things uh recently you invested in Hulu you have um made some comments that have expressed some I don't know skepticisms to word but maybe reservation about the idea of authentication of extending cables uh subscribers ability to watch video onto the web as an exclusive um way of Distributing it um and you also have talked about a subscription service at the same time for uh for some of your properties at Disney so uh help help everyone here understand uh what you're thinking well first of all um we have ample evidence both in uh traditional media and New Media that people are willing to pay for Quality uh they're willing to pay for Choice they're willing to pay for convenience um and in in effect good navigation or good user interface and they're willing to pay for what they perceive to be value so I think it's um wrong to assume that because there's there's a lot on the internet that is for free that it's going to be impossible to monetize if you offer something that you know meets the criteria that I just describe you can make you can make money on it or charge for it uh I also think that there's a significant amount of Headroom in terms of being able to charge for product on the web and we um looked at some pretty interesting statistics recently the company people pay about $5 an hour to see a movie in a movie theater um people spend about 75 cents an hour to read books magazines newspapers sorry it's not higher given the business you're in um if you watch or subscribe to cable and satellite TV you're paying about 50 cents an hour to do that and if you uh subscribe to an internet service provider and use the internet that's costing you about 25 cents an hour so and if you you could look at video games and movies I'm sorry and music and you know there's a lot there's a lot of information out there what about what people are willing to pay for an hour of media right so I feel that if people are spending about 25 cents an hour using the internet today there and $5 an hour to watch a movie there's plenty of room to for people to spend more money on things that they are doing online uh the other thing that I think is uh encouraging is that there isn't one form of monetization online there are multiple forms the beauty of the internet it is is that it is one incredibly robust in terms of interactivity and really robust in terms of its potential to get to know the consumer so when we think about monetization we look at advertising that's what's going on at abc.com and on Hulu and ESPN we look at micro payments the ability to spend small amounts of money to buy small small things but to um improve an experience online social networking um uh Virtual Worlds would be an example of that we look at paid for Content we do that on iTunes with est electronic sell through of movies and TV shows and then lastly subscription which in a way has probably the the greatest potential because people will spend a lot of money to subscribe to something that is really good and sure that's one of the reasons why we're looking at all different forms of monetization and you mentioned subscription we believe that our brand offers us some pretty rich opportunities it's certainly a differentiator in many respects in terms of entertainment Disney and the notion of going online at some point and uh as a subscriber to a robust Disney entertainment experience uh is pretty attractive to us can you give any and we're develop we are developing such an experience but I'm not going to get spefic in terms of when or what but you can assume ultimately it movies and TV shows and games and the like it's not a surprise to anyone that the head of the Walt Disney Company is an optimistic person by Nature um which I think you well I think the head of any company should be optimistic enough if you're trying to lead anybody you better not be a pessimist I have not too many people follow pessimists that is true but but going back to actually my first comment you know you've had three years of of uh of uh unencumbered experimentation with new business models and formats and um you've had a you know you've been fairly clear in your message to your employees about you know let's not be hamstrung but the frustration of course in all media businesses is you know the lack of uh the lack of monetization the lack of progress so are you what have you learned in those three years and and are we all just getting ahead of ourselves well first of all I think we're at the beginning of the beginning right right and jumping to conclusions when you're at the early early stages of uh moving media online or creating media for online would be a mistake so what we've learned is that um people as I mentioned earlier willing to pay for great content and good experiences and choice uh quality uh we've learned that the uh computer is an excellent entertainment device and we've learned that the internet is a very robust entertainment medium that's really good news uh We've also learned that there are still some impediments that need to be dealt with there's in some cases a lack of interoperability uh in other cases the user interface is not that which lowers the user experience in other cases the user interface isn't isn't as robust as it needs to be um but look dumb things are getting smart dumb um uh consumer electronics are getting smart toys are getting smart smart things are getting smarter the new iPhone's a great example of that everything's getting connected and the speed of connectivity is getting much faster so the problems that we're faced with today in terms of monetizing or making the experience better are going to be solved thanks to sort of those those Trends pretty Dynamic sure and let's just flesh out the two other examples of things you've done recently so you invest in Hulu as essentially an equal partner with the News Corp and NBC Universal uh you do so you know after it's been up and running after a period of time but that doesn't mean you're committing to the idea of a free to a advertising supported distribution no I as I said it what it means is that well first of all we believe in Hulu as a as a consumer experience and while we were somewhat skeptical at the beginning um they made us Believers by because they created a great product and a great user experience um and this is one as I said earlier there multiple forms of monetization and this is one by the way it's possible that Hulu will look at monetizing in different ways as well sure of course it's not maybe not just about selling ads there may be other opportunities what were they doing that you weren't seeing at abc.com or elsewhere in your business you thought you know this is actually maybe is it just a scale issue or is it a technology well it was it was a little well we have good technology we're really what what was accomplished by the technology Folks at ABC was um really impressive in that they created a great user interface and used great technology to do that and there's really nothing about that experience that I would consider a negative um actually quite positive but the power of aggregation of growing traffic um with more content and a aggregating more content and more Brands became more and more evident to us and we're not we didn't do it exclusively meaning we're going to continue to serve consumers with product on abc.com uh but felt that it would be wise for us to join right rather than just compete and we do so not only as content providers but also as Equity partners and you also get to it's a two-year commitment correct the exclusivity part of it I don't know how I'm sorry I don't recall how detailed we got publicly so I don't want to disclose something that may have not been fa um let's talk exclusivity is a distribution exclusivity that's exactly you can't go start a YouTube channel or something like it during the same period um so the other issue of course is this idea authentication TV everywhere why don't we preserve the ecosystem Disney is this very sprawling company $35 billion in Revenue but um according to a report I read yesterday 65% or more of operating profit comes from cable networks and this analyst was saying Disney is essentially a cable network company so the argument in favor of authentication is let's preserve the ecosystem we're getting paid the most money we can receive for now and hopefully the foreseeable future so why not just let the 80 or 90% of people who pay already watch it online and and the rest of everyone else can fend for themselves but you're not convinced you're not well let's go back first of all we have a a really strong relationship with a multi-channel business and they not only serve us well by paying us billions of dollars a year for our content but they've invested billions in infrastructure that enables them to deliver our content and charge for our content so that we can so that we can not only create it but so that we can profit from it so we're not looking in any way to uh be confrontational with that industry uh however um what we we don't view ourselves as a cable company I I noted the same report we view ourselves as a Content company and this case you're discussing we create content under the ABC and ESPN Brands and other brand and Disney brand and uh ABC family and others and we seek to reach consumers as broadly as possible and be paid for that so we don't have an exclusive relationship with multi- Channel providers to reach the consumer we believe it is one of many relationships we need to have the development of so-called Authentication seemed to come from a fear that cord cutting was going on that people were actually starting to um end their subscriptions to multi- channel uh providers and therefore and they were doing so because they were getting all the stuff online and didn't need it anymore we don't see any evidence of that occurring nor have we heard from uh cable operators that they've seen evidence of it so it seems to be a reaction to something that isn't necess necessarily uh evident now I guess you could AR maybe it's someday someday it will be but I think if that business continues to provide the quality and the choice at the right price to Consumers they're not under threat now let's talk about consumers we believe that anything that serves consumers better is a good thing so consumers who have subscribed to multi-channel Services being able to watch those programs and those channels online we think is a good thing right we do believe though that is something that should be charged for in other words if you're if you subscribe to you're in Cal Studio City so you're either a direct TV subscriber or time War cable you're paying to watch that on your television set if suddenly you said I'd love to be able to watch all these shows on my computer I'd say you can do that but we want to charge you a little bit extra for that right we'd like to uh be paid for that experience and we'd like to be able to pass that Revenue along to the creators of the content that we put on these services so that's that's one issue another issue is this is still very untested technically and I don't want to in any way suggest pessimism or skepticism about it but anything that ultimately makes the user experience or consumer experience difficult or Worse will lessen consumption and so I'm just being cautious about that right and I also think that there are people that do not subscribe to multi- channel Services they're aren't many of them these days you know a very very large majority of people get this product through multi Channel subscriptions but there are some that don't and I don't know why they should be deprived so this notion that the only people who can watch something online is the people who subscribe to these Services I'm not sure how Pro consumer that is so that's a concern to us interesting um I want to open up to questions I have many more but I want to involve everyone else uh who might have a question for Bob so please raise your hand or um use your little doad to send one if you if you have one but um Bob Bob you talk about the tension you know uh of you know that the multi Channel providers are obviously you have good relationships with them um but there's obviously this this tension that exists not just with you trying to figure out to to satisfy consumers but also um even on your own board your largest share holder Steve Jobs has kind of made his career out of challenging conventional business models and and perception so just tell me about your your view on how you how you Ma how you manage to make uh the Walmarts and Comcast feel that they're as much partners with you as all these new developing well as you can imagine when you when you manage a company that is as complex as this in so many businesses there's um an interesting challenge to manage for today and manage for tomorrow I talk about it in terms of using your hands you you have to have one hand in the future and one hand in the present if you have two in one place then you fail if you have two in the future then you're not managing your business day today and that's a big problem operationally and if you're just managing today then you're going to miss out on opportunities or you're going to completely ignore significant threats and not prepare yourself for that so this notion of protecting the present is something that I talk about a lot at the company David putam sir David putam gave a speech in the UK a couple of weeks ago and he said protectionism is much more digestible than Innovation which I thought was very well put so as the CEO of the company I feel that it is my role to make sure everybody's got a hand in the future and a hand in the present and that we are mindful of the value the president is delivering but not so overly protective of it that we're ignoring you know a world that is changing right before our eyes and the most important thing is what is the consumer doing and where is the consumer going so so when we made the decision which is funny today it seems like oh hum so we're putting programming online when we made that decision in October of 2005 it seemed groundbreaking and in fact the Earth did Shake uh below Uh current Partners uh big box retailers who are worried about the impact of selling DVDs cable operators who are worried about selling channels TV Affiliates who are worried about um their TV stations and that product and movie theater owners who are worried about the impact on movies and my feeling was okay we need to respect all of those concerns but the but the voice that we have to respect the most or the opinion is the consumer and I was watching a world particularly my kids generation that was looking more and more online to be entertained and felt that if we didn't serve the consumer on that platform or on new platforms then we were going to become irrelevant we'd be marginalized I didn't know how fast and I didn't know how significant it would be but I didn't want to be there and look we can go back time and time again you hate to beat the record industry up but look at what happened there and I people say well look how much money's now been lost in the record industry the record industry was propped up by a business model selling a 15 song CD for 15 bucks that um wasn't sustainable because the price to value relationship wasn't there and the other thing that was really interesting is that consumers knew that they could access music in much more convenient ways online and they ended up getting angry that their retailers or the record or the record industry wasn't providing that experience the result by the way was rampant piracy which I'm not sure the record industry has truly recovered from although talk about monetization that's a good example of a business everybody said well everything's got to be for free now well there are a lot of people who are paying for music today digitally right that is being monetized it may not be monetized at a level that the industry would like because the the level that they were used to was I think ridiculously inflated but it's being monetized sure so I'm I'm really mindful of uh the notion that the consumer is much more authoritative much more powerful today than ever before that's what digital technology is enabled and we have to be respectful of that and not ignore or or disrespect current relationships and business partners but keep that keep them in perspective as well cool um do we have a question over here let's hi uh Bob Gina keing with Reuters um speaking of timelines and monetization of your ad inventory online is there a time at which you think that the cpms for your online ad inventory are going to in any way approach what you get now for broadcast or cable well the cpms online are typically higher for us than what we get in broadcast and cable but um you're you're selling um basically far fewer um units and um uh we're not so we're not we're not we're not monetizing as much as we do in our traditional businesses can you do can you do that or is that is that just too fragmented for you to ever get that well I again it's very early in the timeline I think there's going to be ample opportunity to improve monetization from advertising online I think a lot of it is going to require um technology support for instance I think that you've seen a lot of growth in direct Marketing in fact money spent in marketing in direct marketing is outpaced uh money spent in advertising significantly over the last five years and the opportunities in terms of direct marketing are huge online and what I mean by that is T is basically tracking behavior and and targeting that behavior and using the information that you provide to increase return on investment in in Market spend online so as a for instance if we know that you've gone online and looked at uh five different automobiles in the last week then you're a great uh consumer for us to serve up a 30 or who knows it doesn't have to necessarily have to be 30 seconds but an advertisement for an automobile and if we could sell that your behavior to a consumer I'm sorry to an Advertiser or a marketer that potentially can be extremely Val both to the marketer and to the seller of the marketing time so I'm I'm actually pretty bullish about what technology is going to allow in terms of Behavioral tracking interestingly enough I know that there's the you know human cry about uh privacy and um while I think that it's not an issue that should be either neglected or um taken matter of factly I think that when you talk when you hear arguments about privacy they normally come from older people uh when what I mean by that is I'm I watch people online my daughters online I've learned more about my daughters on their Facebook page than I knew about them when I was raising them and they have no concern whatsoever about the information that they post online about their private lives pictures of what they did this weekend their favorite food their movie what they just ate for breakfast whether they've got a fever it's unbelievable and so if I talk to them which I have they're 30 and 27 I talk to them about privacy they can't figure out what I'm talking about about they you know so I I think again I don't want to make light of it completely but we're going to have access to information to sell to marketers and by the way we're on both sides of the fence there we are a company that spends a lot of money on marketing as well when you sell movies DVDs theme park experiences Etc you're you're a marketer and so we're mindful of of of you know monetization from a marketing perspective and think that ultimately we're going to be be faced with some really interesting opportunities as a marketer and we're going to be more than willing to pay for those opportunities cool let me I here's a few questions from your spot me devices the second one looks interesting uh as you look around who do you say wow they get it and who doesn't well aside from Fortune Magazine of course I you know I don't want to it's hard we look at they get it we look at a lot of different businesses and a lot of different aspects of business for instance let's talk about user interface who gets it right iTunes is a damn good one Amazon also excellent uh consumer relationship customer relationship marketing knowing who the consumer is recommending to that consumer what they may like if they bought this you'd have to site those as well uh the user interface by the way American Express go online and use their site um pretty damn impressive so those are just some examples but you know there are media companies that get it um we respect a number of our competitors and think look what look what News Corp and NBC did with Hulu um they really get it what's going on the subscription side with World of Warcraft and and and blizzard very very impressive extremely impressive so uh Walmart when it comes to sustainability another issue by the way that looms large uh both in out in our in our near future and our long-term future and I think you can't operate a big global company today without being focused on Corporate social responsibility and sustainability so there are a lot of different things that we look at that where we say boy they really get it a few that we say don't but I'm not going to mention those right fair enough um and on that note uh let me say thank you very much Bob I that was quick come at it was too quick but um we're overtime by 53 seconds but thank you so much thank you

Channel: Fortune Magazine

Views: 23,628

Keywords: Robert Iger, Bob Iger, Walt Disney, Fortune, Fortune magazine, Fortune Brainstorm: TECH, Brainstorm Tech, Richard Siklos, Fortune (Magazine), Conference

Id: 6DNYeeqBnos

Length: 25min 55sec (1555 seconds)

Published: Thu Jan 14 2010