Walt Disney Co Executive Insights: Consumer Products Benefit, Marvel

On Tuesday, Walt Disney Co (NYSE:DIS) reported its second quarter earnings and discussed the following topics in its earnings conference call. Here’s what the C-suite revealed to analysts and investors.

Consumer Products Benefit

Benjamin Swinburne – Morgan Stanley: Starting with Avengers, I am wondering if you could talk a little bit about how we should think about the Consumer Products benefit and in particular the change in the relationship – sorry, that’s a Sony comment – just the timing of when you would recognize merchandising revenues for that film and how you’re thinking about sort of the plan to monetize that particular title along the licensing front? Then Jay, could I just ask a follow-up? Was the insurance settlement a meaningful contributor to margin in the parks this quarter? You called that out and that was one thing I didn’t know?

Robert A. Iger – President and CEO: Let me start then with the insurance question. So there are a lot of moving parts from for our Tokyo results and ultimately their impact on the overall parks and resorts margins for the quarter. It was a driver. First of all we had the comparison between last year when Tokyo Disney Resort was closed for three weeks in the quarter, versus current week. Secondly, we had a business interruption payment this year that we received relative to that quarter, and finally the performance of Tokyo Disney Resort actually improved over the comparable operating weeks compared to the prior year. So the aggregate benefit of all of these effects was about $50 million in Q2.

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Benjamin Swinburne – Morgan Stanley: Could you quantify the one-time insurance piece of that just for our benefit?

Robert A. Iger – President and CEO: I’m not sure frankly relevant compared to the fact that the park was closed in prior year, but roughly its $50 million.

Jay Rasulo – Senior EVP and CFO: I will try to give you some perspective, both on the licensing side of the vendors, and our vendors in general. First of all, there was substantial amount of interest in the film, among I will call it the Consumer Products industry, more interest than some of its predecessor films, Thor and Captain America. But the interest was not commensurate with what we’ve already seen in terms of the success of the movie and the interest in the movie among audiences around the world. So what you basically have is you’ve extraordinary demand for the products that are on the shelves and in many cases products that’s already been sold out. So our global licensing team is hard at work working with licensees and retailers around the world to stock the shelves as fast as possible. We expect given the interest in this film that demand for its product is going to continue to be strong pretty much throughout the year, but given the plan that we have for this film and the characters it’s our complete and full intent to make sure that demand for Consumer Products continues. So, as I mentioned in my calls, in 2013, you’re going to see a sequel to Thor 2 and you’re going to see Iron Man 3. In 2014, you are going to see a sequel to Captain America and then eventually a date to be determined you’ll see a sequel to Avengers and so on. The other thing that we’re seeing is that interest in other characters like the Hulk for instance is also strong, that had always been a decent merchandise product for Marvel in the past, but the presence of the character in this film and performance of the actor, the popularity has actually grown significantly so there’s real demand for Hulk product in the marketplace right now. So, I think what you’re essentially seeing here is a true franchise not necessarily in the making, but having been made and launched and I think the box office is only one part of it. There are multiple opportunities to continue to mind this great set of characters and while it all started with a set of really good movies, we fully intend to continue to fuel the marketplace with Marvel’s Avengers related stories and characters so that the momentum continues.

Marvel

Spencer Wang – Credit Suisse: Bob may be just as a follow-up question on Marvel and Consumer Products in two parts, the first is have you look at Marvel holistically in terms of the licensing opportunity, I think one of the big synergy opportunities from the acquisition that you talked about in the past is driving higher penetration abroad for the Marvel licensing and the characters, so I was wondering if you could just update us on where is that today I think back pre-acquisition of 40% of Marvel’s licensing revenue was international, where is that today? Secondly, as you look at the portfolio of characters, would you consider buying back the film rights to some of the other characters say like X-Men from Fox.

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Robert A. Iger – President and CEO: I’ll answer the second part of the question first; Marvel’s got slew of great characters to mind and will continue to do that. They’ve got development in the works for a number of unnamed characters that are going to give us – Marvel the ability to make numerous films over the years ahead, so I don’t think you’ll see necessarily a need to buy back characters or all that much opportunity. On the licensing front, we’re fully integrated internationally. Marvel used to use third parties frequently to represent them on the licensing side. We had a global licensing organization that we fully integrated with some really talented Marvel folks and that we believe will not only – has not only reduced costs because we’re paying basically third-party representatives to handle licensing on behalf of Marvel, but we believe that the combined entity has a much more effective ability to again access to the marketplace and increase our presence at retail and with the quality of the films that Marvel is making and the interest in them that obviously increases that much more. No specifics though in terms of the percentage represented by international sales. Clearly, the box office side is really significant and should continue to be this we believe will be the most successful Marvel film internationally and that obviously will give us some great opportunities on the licensing front too.