Disney CFO Outlines Strategy, Explains Forgoing Third Party Financing

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Jay Rasulo and his friend Mickey Mouse

Jay Rasulo says the company's emphasis on franchise films is more about harvesting the upside than protecting the downside

The Walt Disney Company will continue as the only major movie studio in Hollywood that does not seek or use third party financing to lay off the risk on its slate of movies, according to Disney senior executive vp and CFO Jay Rasulo.

Speaking at the Citi 2015 Internet, Media and Telecommunications Conference, Rasulo said it is part of their strategy to focus investment in a limited number of movie franchises, mostly properties from Marvel, Star Wars, Pixar or the Disney-branded films.

"We feel we are strategically stacking the deck toward success," explained Rasulo. "Rather than give that success away by bringing in financial partners and having them experience the upside, we have the capital — we're not a capital constrained company — and we've decided these, each and every one, are good bets and good investments."

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He said in any creative endeavor there will be movies that underperform, but they know each of the franchises has a following. "We feel each and every film is more likely to be a hit than not," added Rasulo. "So it's less for us about protecting downside risk — which is what you do when you sell off participations on the financial side — and more about being able to harvest what we believe is the potential upside of those films."

Rasulo said Disney also looks at movies differently than most other companies. They see the release in theaters, on TV and other platforms as only part of their business. "The back end is what the Walt Disney Company is good at," said Rasulo. "The consumer products business, the theme parks and resort business, the interactive entertainment business — all use the feeder that comes out of the theaters and the Disney Channel."

He cited Frozen as an example of a movie that has driven their business around the world and brought revenue in everything from theaters to toy stores and theme parks.

"It fundamentally changes the economics of the film business for us," added Rasulo, "and when you look at these ultimates (how much they think a movie will make eventually), you have a lot longer tail on them."

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Rasulo said they take a similar long-term view of the theme park business and investments in cable channels and content, some of which, like sports rights, require significant capital investment upfront.

"There is a long-held belief at Disney," said Rasulo, "that you don't invest around business cycles, because whatever we put out there, whether it's a film, a television show or the Disney Channel, or a show on ABC Family, theme parks or cruise lines, are long-term assets that have a long life and we hope have long-term affinity with consumers."

Rasulo said CEO Robert Iger laid out the strategy some seven years ago — what he called the three pillars: great creative products, use of new technology and expansion internationally

One example of the use of technology, Rasulo said, was the deal with the Dish Network that this week resulted in an announcement about Sling TV, which will carry ESPN and other Disney networks.

"Sling TV is a product targeted at a very specific customer," said Rasulo, "that is television interested but a broadband only household. That is a fairly narrow target and this is a product that is really targeted. It does not substitute for the value of the extended basic cable package which we still believe and most customers in America still believe is an incredibly strong value."

Pushed to comment on the long-term prospects for cable networks as these over the top players siphon off customers, Rasulo said, "We love the cable business. We think it's a great value proposition for consumers."

He noted Disney has made massive investments in cable, not to acquire channels, but to boost the existing portfolio by acquiring more sports rights and programming and then using technology to "expand our business model."

Asked if he was concerned about huge investments in sports rights at a time the business models may change, Rasulo said "not all sports cable channels are created equal."

He meant that a regional sports network is dependent on the teams it carries which he believes limits its potential; while ESPN as an all sports channel targets sports fans and has unlimited upside. He said that gives them an advantage.

He defended the money spent on sports rights by pointing to the current college football playoffs, where Disney owned outlets have 33 or 36 games, which he said has driven viewership. "We look at it as a strength," added Rasulo, "not a vulnerability."

As an example of how technology can make a difference, Rasulo cited the theme parks where they have introduced an app called My Magic Plus in the last year or so. "People who plan spend more time with us on their trip to Orlando," said Rasulo.

Disney's strategy going forward is to do less not more, he explained, but to do the things they take on in a bigger way and all over the globe. "Narrowing our focus," Rasulo called it. "More investment in properties we think have legs."

He said they have cut out a lot of businesses that were "not big enough for a $50 billion company to pursue."

 

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