Company Press Release
February 23, 2000
CHICAGO, IL -- At its annual meeting here Tuesday, attended by some 3,000 people, stockholders of The Walt Disney
Company (NYSE:DIS) reelected ten directors to Disney's board, ratified the appointment of PricewaterhouseCoopers
LLP as the company's independent accountants for fiscal year 2000 and rejected two stockholder proposals.
This year's meeting included, for the first time, holders of GO.com, the company's new class of common stock which
tracks the performance of Disney's Internet operations.
Reelected to the board were:
Stockholders also:
Rejected by a vote of 1.56 billion to 73.9 million a stockholder proposal to consider reduction of executive salaries
and discontinue bonuses, stock options and other benefits; and
rejected by a vote of 1.17 billion to 64.1 million a stockholder proposal to create an election contest for each
seat on the board.
Following are the texts of executive presentations at the meeting:
Michael D. Eisner, Chairman and CEO
The Walt Disney Company
It is great to be here in Chicago, a city that holds particular significance for our company. Our corporate roots
can be found here, as it is the birthplace of Walt Disney. And it is also the home of a wide range of Disney enterprises:
We have 18 Disney Stores including the midwest flagship store on Michigan Avenue; DisneyQuest and ESPNZone -- both
on Ohio; five radio stations: WLS, WXCD, Radio Disney stations WRDZ and WDDZ, and the charter ESPN Radio station,
WMVP. In addition, of course, we have Chicago's number-one TV station -- WLS, and an ABC network news bureau.
Plus, the legendary Paul Harvey broadcasts here; this is where we had the recent successful run of our latest stage
play, ``Aida''; this is the home of the renowned Field Museum, which established a fascinating permanent exhibit
at Disney's Animal Kingdom; and this is the home of our great corporate partner, McDonald's, which is currently
sponsoring our Dreamers & Doers Millennium Celebration at Epcot and was a partner with us in acquiring the
Tyrannosaurus Rex for the Field Museum.
So, yes, Chicago is our kind of town ... and we thank you for coming.
We started our meeting here today by showing you the opening of our next animated film, ``Dinosaur.'' This film
is particularly significant for a number of reasons.
First of all, it further pushes the bounds of the animation artform. I have seen that piece of film as many times
as there are dinosaurs in it -- and that's a lot -- and I am still amazed at both how startlingly realistic it
is ... and how artistically magnificent it is.
Secondly, ``Dinosaur'' could be the big event movie for Memorial weekend, with major implications for our entire
company.
Third, it further stretches the bounds of the Disney brand. The film has strong Disney themes about love and courage,
but because it is such a breakthrough work of film, we anticipate that it will draw far beyond the traditional
Disney audience.
Finally, this is entertainment that should effortlessly cross boundaries of culture, language and nationality.
Everyone is fascinated by dinosaurs, whether they live in Chicago or Shanghai.
Indeed, the international markets offer tremendous growth potential for our company, as our company's new president
and chief operating officer, Bob Iger, will be telling you. After Bob, you'll be hearing from Steve Bornstein,
chairman of GO.com. One reason the Internet is so exciting to us is because it represents an exciting new way to
make the most of the worldwide popularity of such assets as the Disney name, the ESPN brand and, of course ...
Mickey Mouse.
Now, quite frankly, we really don't like talking about Mickey as an ``asset.'' But, in fiscal terms, he does represent
a major asset that was created in 1928. However, unlike just about anything else created back then -- whether cars,
clothing or kerosene stoves -- Mickey is infinitely more valuable today than when he first came on the scene.
Our job, then, is to keep maximizing the value of an asset like Mickey Mouse in new and different ways.
If you were watching the Super Bowl pre-game show -- on ABC, the nation's number-one network, I might add -- you
would have seen one of those ways.
During the next number of months you will see more celebrities muse about why they love Mickey. We believe this
will help broaden and deepen his appeal, especially among teenagers and adults.
The campaign will be followed up with a range of Disney initiatives celebrating Mickey. For example, Consumer Products
will be unveiling a new line of Mickey-themed merchandise; a ``La Vida Mickey'' album will be released by Walt
Disney Records; Lou Bega is featured in a 90-second Mickey-themed music video that precedes ``The Tigger Movie'';
Mickey helps conductor James Levine introduce one of the segments in ``Fantasia 2000''; Disney Interactive is coming
out with a fantastic 3-D Mickey racecar game; MouseHouse, Jr. is a very popular site on Disney.com; Mickey makes
recurring appearances on Toon Disney; ``MouseWorks'' highlights brand-new Mickey Mouse shorts on ABC's One Saturday
Morning and, next January, a new show called ``House of Mouse'' will premiere on Saturday mornings. This is a company-wide
effort to give people even more reasons to ``love the mouse.''
Our Mickey Mouse campaign is just one step we're taking to strengthen Disney Consumer Products. Let me tell you
about a few others.
The first is that we've installed Andy Mooney as president. He comes to us from Nike, where he was chief marketing
officer. Andy was smart enough to help transform Nike into a brand. In the last few weeks, he has easily hit the
ground running with Disney, which already is such a strong brand.
In the area of licensing, we are bringing a new approach to our relationships with retailers. For example, Toys
`R' Us has begun installing front-of-the-store Disney-themed spaces. And, for Target and Macy's, we are developing
merchandise exclusives featuring our characters.
At the Disney Stores, we are implementing a broad array of initiatives, including new store designs that will incorporate
these computer kiosks ... which will allow our guests to order directly from the Disney Store Online, thereby making
it possible for the in-store and on-line shopping experiences to actually complement each other.
Speaking of Online, as Steve Bornstein is going to demonstrate to you, the Internet is an area where we're well-positioned
to take full advantage of this extraordinary new entertainment delivery system. With GO.com, I believe we are now
the sleeping giant of the Internet. Once the ability to stream video is commonplace, we will not only have an unmatched
library, but also the ability to create new programming expressly for this medium.
Make no mistake about it, entertainment will be a major force shaping the Internet. Just as Jack Benny transformed
radio, Milton Berle practically invented television and cable came of age with movies on HBO, the Internet will
make its next quantum leap when content from Disney and others redefines it for consumers as a full entertainment
medium.
Our Attractions division is the unquestioned leader in its industry. We are currently implementing cost-effective
strategies to make it even stronger.
For example, last year we introduced the Rock `n' Roller Coaster, an all-new attraction at the Disney-MGM Studios
at Walt Disney World. It puts guests in these special stretch limos, then hurtles them from zero to 60 miles per
hour in 2-1/2 seconds, speeding them through three inverted loops, passing a number of Hollywood landmarks as they
go ... all to the throbbing beat of the music of Aerosmith. This is definitely a Disney attraction, featuring strong
storytelling and a one-of-a-kind visceral experience ... but it is also a cost-effective attraction, since it was
built by integrating some components from an outside contractor. As a result, our Imagineers did not have to reinvent
the loop, so to speak, and were able to create a true E Ticket ride at substantially less than the usual E Ticket
cost.
Then there is a new invention we call FASTPASS. It is an advance booking system that enables guests to essentially
get a reservation to bypass long lines on our most popular rides. So much of business is common sense ... and,
when it comes to our theme park business, common sense dictates that if we eliminate lines, we accomplish two things
-- we can attract people who haven't been coming because they just hate standing in line, and we get our guests
to put their time to better use now that they're not spending hours waiting for the next ride.
We have also been bringing cost-effective strategies to the development of entirely new theme parks. There are
currently four of them in development.
Disney's California Adventure will open in just 12 months adjacent to Disneyland. Several attractions are being
built by integrating third-party-provided technologies with Disney showmanship, two will be highly successful 3-D
attractions from Disney World, and the rest will be novel rides that we have designed from the ground up. All of
it is rapidly coming together to form a completely original entertainment experience that celebrates the best of
the Golden State.
Tokyo DisneySea is scheduled to open in 18 months across from Tokyo Disneyland, which is our most popular theme
park of all. As with Tokyo Disneyland, we are tying up no capital in this project and will be receiving sizeable
cash flow from license fees from the day the park opens.
In 24 months, we will open the Disney Studios theme park at Disneyland Paris. This park will feature a number of
the most popular attractions already in operation at the Disney-MGM Studios in Florida. The majority of the capital
is being provided by Euro Disney investors and finance partners.
Each of these parks complements an already existing Disney theme park, thereby transforming these great single-day
tourist attractions into true multi-day destination resorts ... in much the same way that Epcot transformed Walt
Disney World back in 1982. We firmly believe that, thanks to the wonders of synergy, one plus one will equal far
more than two, both in terms of guest satisfaction and earnings growth.
The fourth new park location is in Hong Kong and will open in 2005. Most of the funds for the park's construction
will be provided by our local partner, and it will showcase many favorite attractions from our existing parks.
Hong Kong Disneyland will be something of a beachhead for our company in the world's largest nation, with enormous
implications for our future international growth.
And now, let's talk cash flow. From 1994 to 1999, our Attractions division was a net consumer of cash, totaling
about $750 million. By contrast, between 2002 and 2003, we anticipate that Attractions will deliver more than $2
billion in after-tax free cash flow, while at the same time growing earnings. This is not only good news in itself,
but this tremendous flow of cash can then be utilized in other potential-laden, high-return areas.
Another effort underway to optimize our company's performance is our Strategic Sourcing initiative, a top-to-bottom
review of our purchasing practices. Within five years, we expect to be saving more than $300 million annually from
Strategic Sourcing. Since we'd all rather I talk about movies, let's put this in terms of movies: $300 million
is the equivalent of earning the combined ultimate profits of ``The Rock,'' ``Ransom'' and ``The Waterboy'' each
and every year.
So, what about the movies? At the Studios, we are bringing a more cost-effective approach to the area of live-action
moviemaking. We'd rather win both the Bank of America award and the Academy Award. We certainly scored well on
the Academy Awards this year, with 31 nominations -- far more than any other studio. As for the Bank of America
award, during the last two years, by instituting a smaller slate of films, lower production budgets, consolidation
of operations, reduction in talent deals and trimming of overhead, we were able to reduce investment by $500 million.
The economics of live-action film are challenging. As Lew Grade once said about the making of the film ``Raise
the Titanic'': ``It would have been cheaper to lower the Atlantic.'' However, we believe we are bringing added
discipline to this important realm of entertainment that will pay off at the bottom line.
Another way we are working to perform more optimally is with our new strategy for Home Video. This market is in
transition from videotape to DVD. We are recognizing this transition by making more titles available all the time,
as is done in the music industry. This will allow consumers to continuously upgrade their Disney video libraries
as they convert to DVD during the next few years.
Obviously, the advent of DVD has enormous implications for our library and our company. And, our recent release
of ``Tarzan'' on DVD actually doubled our expectations. It now seems clear that ``Tarzan'' will sell well more
than 1 million units on DVD, which means that roughly one in four owners of DVD players will be buying this title.
Adding further significance to this remarkable performance is the fact that DVD will ultimately have substantially
better margins than VHS.
Another favorable industry trend is the recent scaling back of animation production by a number of our competitors.
It reminds me of a kid who won a major league tryout during spring training. Each week, as his batting average
and confidence soared, he e-mailed his mother. The first week, he wrote, ``Dear Mom. Leading all batters. These
pitchers are not so tough.'' A week later, he boasted: ``Looks like I will be a regular outfielder. Now hitting
.433.'' However, this was followed in the third week by this e-mail: ``Dear Mom. They started throwing curves.
Will be home Friday.''
Now, most of the studios who tried their hands at animation have packed up and gone home. Because of this reduced
competition, cost pressures are easing fairly dramatically in this all-important business which Disney continues
to dominate.
Of course, ultimately, we cannot save our way to sustained success. The key to growth at The Walt Disney Company
was, is and will always be the creation of great entertainment product. This is what has kept our theme parks growing.
This is what has returned the ABC network to a leadership position. This is what will move our Studio and Consumer
Products units forward.
We recently opened ``The Tigger Movie,'' which was made for just $20 million ... and in just 10 days, it has earned
nearly $24 million at the box office. Not only is this film headed toward strong profitability, but it carries
important implications for our entire Winnie the Pooh franchise in Consumer Products, on Home Video and at our
parks.
Our animated film for the holidays will be ``The Emperor's New Groove,'' which is an outrageous comedy set in a
mythical South American kingdom. It features the vocal talents of David Spade, who plays an arrogant young emperor
who one day finds himself transformed into a llama by his royal advisor.
For summer of 2001, we have ``Atlantis,'' which we believe will break new ground, as it will be our first true
animated action adventure that will take audiences on an exciting journey to uncover the secrets of the fabled
lost city.
For the Thanksgiving holiday, we have had the number-one film the last six years in a row. We think we have a good
shot at extending this streak with this film that builds on one of our strongest franchises.
As far as I am concerned, the AOL acquisition of Time Warner demonstrates once again that content is king. Whether
the content is a mouse named Mickey or a cute spotted puppy, its value is enhanced with the development of every
new entertainment delivery system. The Internet is now proving this eternal fact all over again.
I recently came across an interesting quote on this subject. Let me read it to you:
``It is a curious thing that the more the world shrinks because of electronic communications, the more limitless
becomes the province of the storytelling entertainer.''
This was said more than 40 years ago. The speaker was ... Walt Disney.
As usual, Walt was right. As usual, he saw things before most others did. Now, to paraphrase Walt, the world is
shrinking more because of electronic communications ... and the province of the storytelling entertainer is becoming
more limitless.
One of the reasons our company is poised to take advantage of these limitless opportunities before us is the Board
of Directors of The Walt Disney Company.
It is in large measure thanks to the guidance of the board that our company has enjoyed such tremendous long-term
success. From 1984 to the present, Disney's market capitalization has grown from $2 billion to $74 billion. During
the 14 years from 1985 to 1998, our Board oversaw 20% annualized earnings growth and an average annual return on
equity of more than 18%. And, as far stock performance goes, $1,000 invested in Disney at the beginning of my first
fiscal year with the company, 1985, would be worth nearly $30,000 today.
Even during the ``off'' year we experienced in 1999, Disney continued to be one of the most profitable companies
in the entertainment industry. And, as our chief financial officer Tom Staggs will be discussing, we are now seeing
signs of a return to solid growth into the future.
The Disney board is a diverse group that reflects Disney's diverse audience. It is made up of seven business executives,
three attorneys, two architects, one computer scientist, one actor, one journalist, one former United States senator
and two educators.
The Board gives ongoing insights into the management of our company, offers assessments of strategic opportunities
across all our business units and helps Disney find new ways to reach an even wider audience here in the United
States and around the world.
I would now like to introduce the members of your company's Board of Directors.
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.
Sandy Litvack last year was also named as vice chairman, having previously served as Senior Executive Vice President
and Chief of Corporate Operations. Since 1991, Sandy has been a tireless partner in managing the growth of our
company. Also here today is Sandy's wife, Judy.
Reveta Bowers is one of the nation's leaders in primary education. She heads the Center for Early Education in
Los Angeles, an independent school for kindergarten through sixth grade, which has been singled out as a model
for its innovative curriculum. Reveta helps us keep on top of the ever-changing needs and interests of Disney's
youngest fans.
Judy Estrin is Chief Technology Officer and Senior Vice President at Cisco Systems. With her knowledge of advanced
Internet projects, Judy is a key player in Disney's efforts toward becoming a leader on the World Wide Web.
Stanley Gold is President and Chief Executive Officer of Shamrock Holdings. Stanley is one of America's most dynamic
business leaders who offers ongoing insights into the management of Disney.
Ignacio Lozano is the Chairman of the Board of the leading Spanish language newspaper in America, ``La Opinion,''
as well as a former United States Ambassador to El Salvador. In his nearly 20 years on our Board, Nacho has offered
consistent guidance throughout this period of tremendous change.
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.
Whether it's negotiating with the government of China for our new theme park or assessing the impact of the latest
telecommunications bill in Congress, George's experience and understanding are tremendous assets for the company.
Tom Murphy built Capital Cities/ABC from a single UHF TV station in 1954 into one of the top communications companies
in the world. No one understands the evolving nature of broadcasting better than Tom, and his knowledge is invaluable
during this time of revolutionary change in telecommunications.
Father Leo O'Donovan is president of Georgetown University, where he also holds an appointment as Professor of
Theology. Father O'Donovan is a nationally recognized leader in higher education and his moral leadership helps
to ensure that Disney constantly strives to meet the highest standards in everything we undertake.
Sidney Poitier is one of America's most beloved actors and directors, whose many awards include the Academy Award
for best actor, the American Film Institute Lifetime Achievement Award and the Kennedy Center Honors. From his
years as a performer to his work on behalf of children and civil rights, Sidney brings great depth and wisdom to
the Board.
Irwin Russell is one of the nation's leading attorneys in the areas of management, arbitration and entertainment
law. He has served the Disney Board tirelessly since 1985. Also here with Irwin is his wife, Sue.
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 from
Anaheim to Paris to Times Square.
Andrea Van de Kamp is chairman of Sotheby's West Coast, overseeing all business development for the world's leading
auction house. Her background, which merges the best of the art world and the business world, makes her a particularly
valuable member of Disney's Board.
Ray Watson is vice chairman of The Irvine Company, which is developing America's largest master-planned urban community,
and previously served as chairman of the Disney Board. As well as being an expert in land management, Ray is also
an expert on all things Disney and 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 help Disney chart a course that will keep our fiscal bottom line healthy
and strong. Gary...
I would like to introduce someone who is not an actual Board member, but is certainly an integral partner in my
decision-making -- my wife, Jane Eisner.
There is one more Board member to introduce ... our newest member, Bob Iger, who will also be our next speaker.
Bob joined Disney in 1996 when we acquired Cap Cities/ABC, where he was serving as president and chief operating
officer. One year ago, Bob took on added duties as president of Walt Disney International, spearheading the reorganization
of all of our overseas operations. This served to complete his Disney education. Last month he was named as president
and chief operating officer of The Walt Disney Company as well as a member of the Board.
Before Bob comes up here to speak, I just want to say that I am privileged and honored to be able to work with
all of the members of the Disney board. This is an extraordinary group of individuals, each of whom is a leader
in his and her own right.
Robert A. Iger, President & COO
The Walt Disney Company
I am pleased and very proud to be here today in my new role as president and chief operating officer of The Walt
Disney Company.
This is an amazing company, with an array of assets and an ability to create great content, that when coupled with
new technology, will provide countless opportunities in this new millennium ... the Disney brand stands strong,
as one of the most valued brands in the world ... something I've certainly come to appreciate in the year I've
spent running our International Division.
Consider an experience I had recently in Beijing: I was walking some narrow back streets and alleyways of old Beijing
to get a different perspective of the city. I started a conversation with an elderly woman, who to my surprise
invited me in for tea. Her home consisted of two unattached rooms, with only the basic necessities ... and there,
on top of her simple refrigerator, was a stack of Disney books. I asked her about them, and she said she bought
them to read to her grandson, and she was obviously quite proud. Here we were in a tiny home in the People's Republic
of China -- and there was the Disney brand -- a valued possession in this home, in that corner of the world ...
and yes, I did tell her what I did for a living, and have since managed to send her sweatshirts, pajamas, toys
and a set of our newest books -- in Chinese.
Examples like that are abundant, some seemingly small -- a stack of books in a small dwelling, but some are tremendous:
like the recent opening of ``Toy Story 2'' in the United Kingdom, which achieved the biggest three-day opening
in UK cinema history. The Disney theatrical beat the previous record set by ``Star Wars - The Phantom Menace,''
grossing 7.8 million pounds!
Those of you who've seen it know that ``Toy Story 2'' is a great movie, but it was also the power of the Disney
brand, and all the company's efforts behind it, that enabled it to achieve this fantastic result.
Earlier, I mentioned technology. Wherever we go, whatever we do, we are seeing and experiencing sweeping technological
change ... in the home, at work, here in the United States and worldwide. This change is creating vast new opportunities
for The Walt Disney Company, in our ability to design and create new content, in our ability to distribute it to
people everywhere ... And of course, in their ability to consume it.
In Japan, we're working with a major cellular company to distribute Disney branded content to the cell phone.
In Latin America, we're launching a new Disney Channel via satellite ... the tenth international Disney Channel
to launch within 5 years!
And in the United States, we're distributing Disney product aggressively via new channels including wireless devices
like the Palm Pilot.
And as Michael mentioned, the advent of broadband and wireless technology will enhance our ability to provide content
to consumers in astounding ways. Today, any company developing distribution paths needs Disney, and the other valuable
brands we own, like ABC, and ESPN.
Technology will be a voracious consumer of content.
In one regard, the impact of the technology on our company is really nothing new. Throughout the 76-year history
of Disney, technology has been a key driver of our success. Consider ``Snow White and the Seven Dwarfs.'' It was
released as a theatrical film in 1938 and went on to be the most successful movie of the year. In the 1950s, Walt
Disney invented the theme park and his development of audio-animatronic technology gave new life to our Snow White
property. In the 1980s, video technology arrived and ``Snow White'' went on to become one of the most successful
video releases ever. In this new decade, DVD is taking hold and you can be assured that, when it is released on
DVD next year, ``Snow White'' will be a powerhouse on this new format.
Now on the horizon is the technology of broadband Internet delivery. There is no question that broadband will provide
consumers with one more way to enjoy the timeless entertainment of Snow White and will provide yet another strong
revenue stream for this eternal classic.
And speaking of strong content, let me report on the growth of our ABC, Inc. assets and in particular, the ``turnaround''
of the ABC Television Network.
This turnaround has certainly been helped by the phenomenal success of ``Who Wants to be a Millionaire,'' which
shows no signs of abating. This program like many of our narrative series is as much about the stories of our contestants
as it is about the thrill of victory, or the agony of defeat.
ABC is flourishing this year, and is number one in all of the key demographics: adults 18-49, 25-54, kids, teens,
and total viewer ... ABC has passed NBC and is in position to win the ratings race among these key sales demographics
for the first time since the 1994-95 season.
Also contributing to our success this season is the momentum we gained at the beginning of the new year with the
ambitious and unparalleled coverage of the millennium. ``ABC2000'' was a 24-hour worldwide broadcast celebrating
the new millennium in every time zone. 175 million people watched this broadcast, which received viewer and critical
acclaim. It was universally agreed that the day belonged to ABC. What a great way to begin a new millennium!
Our momentum this year continued with the Super Bowl, which was one of the best games in Super Bowl history ...
with many records falling, but the record we like the most is that advertising sales for the entire day of Super
Bowl programming totaled a historically high $158 million.
Just as our network is thriving, so are our broadcast properties. Our ten television stations and our radio division
are all benefiting from a great marketplace combined with strong programming with revenues and operating income
up sharply over last year.
Another great company brand and business, is ESPN, which continues to be the leading sports brand across all media
with four program services, a number one Web site, ESPN The Magazine, ESPN Radio, and the ESPN Zone.
In 1999, ESPN -- which is available in 77 million homes -- delivered more men than any other ad-supported cable
network. In addition, ESPN and ESPN2 enjoyed the highest combined viewership in the networks' history, with growth
in primetime fueling the increase. ESPN had eight of the top ten cable telecasts for 1999.
In addition to ESPN, the remaining cable assets in our portfolio continue to grow. The Disney Channel is now seen
in 60 million homes, and Toon Disney is in 15 million. Lifetime, A&E, the History Channel, and E! Entertainment
are all growing nicely, as well.
SoapNet is the newest of our program services, which launched on-air and on-line on January 24, with an attention
grabbing campaign.
It is the only 24-hour, all-soap cable network featuring same-day telecasts of ABC's ``General Hospital,'' ``All
My Children,'' ``One Life to Live'' and ``Port Charles.'' The program service also offers some of television's
most popular serial dramas such as ``Falcon Crest'' and ``Knot's Landing'' as well as an original program that
is similar in format to Sportscenter on ESPN called Soapcenter.
Agreements are in place to expand SoapNet to over 11 million subscribers over the next 36 months, and we believe
this service will be the fastest-growing new channel in cable and satellite television.
As I mentioned earlier, one year ago, I was appointed to lead The Walt Disney Company internationally and given
the mandate to focus on the enormous potential of our brand in markets outside the United States. Our principal
goal is to grow revenue, where the upside is enormous.
To give you some idea of the significant bottom line potential of our international efforts ... if we can simply
increase the per capita spending levels in just five countries -- England, Italy, Germany, France and Japan --
from the current 50 percent of U.S. levels to 80 percent, then we will generate an additional $2 billion in annual
revenue.
Another potential catalyst for international growth is represented by Hong Kong Disneyland. Consider the fact that,
from two years before the opening of Disneyland in 1955 until five years after, Disney merchandise sales in the
U.S. more than doubled. Similarly, in 1983 Tokyo Disneyland opened and, by the end of 1988, Disney Consumer Products
revenues had more than tripled in Japan compared to 1981. As for Disneyland Paris, from two years before the launch
of the park until five years after, our consumer products business in Europe went up by ten times.
Of course, there were many reasons why our businesses went up so much after these parks opened. But the power of
a Disney theme park is enormous and the fact is Hong Kong Disneyland could have tremendous implications for our
company with 1.2 billion people in China alone and a huge population base in Asia Pacific.
At Walt Disney International, we also are focused on reducing expenses, where we have an equally significant opportunity.
In order to accomplish these goals, we plan to act as one company in every market, as we do in the United States,
with an integrated view of our brand, all our businesses, and our consumers.
The four key initiatives we are focused on are:
Consolidation, rationalization, and economies of scale: simply put, operating more efficiently!
Consistent brand management across all lines of business within each territory, with a strong focus on local consumers.
Creating leverage with all our trade and partner relationships, particularly at retail.
And acting locally, and identifying local growth opportunities for global exploitation.
After fast-paced growth across many regions, in which we captured first mover advantages in many businesses, we
must now identify numerous opportunities to operate more efficiently as a whole, while also maintaining and respecting
the expertise of our global lines of business.
We expect to deliver cost savings through a consolidation of real estate, finance and accounting, human resources,
legal entities, strategic sourcing, and information technologies.
We are not only making traditional businesses more efficient, we also are building new ones.
I'm very excited about my new role during this extremely dynamic time ... and nothing is more exciting than taking
Disney to the Internet domestically and around the world.
I have great confidence in the brands of The Walt Disney Company ... brands that will thrive and grow in this vast
new medium.
Steve Bornstein, Chairman, GO.com
Despite all of the competition and the challenges that we face in the new world of the Internet, I strongly believe
that our Internet strategy at GO is a phenomenal business opportunity for The Walt Disney Company.
And I say this because we have three distinct and mutually reinforcing legs to our Internet strategy, each of which
generates tremendous competitive advantages for our company. First, our strategy is to maximize the reach and the
impact of our vertical sites -- Disney.com, ABC.com, ESPN.com and the rest of our branded sites, sites that already
hold the most powerful positions in their categories.
Second is to fully develop the potential for the GO portal, a significant resource which we have just begun to
mine.
And third, the most powerful tool we have in our arsenal and our largest competitive advantage, to push the envelope
on what we already do better than anyone else and that is television-Internet convergence.
Let me give you a few highlights about the first leg of our strategy -- our vertical sites. We have a lot to be
excited about with these branded sites, most of which are number one in their respective categories.
We are number one in the kids and family categories with Disney and Family.com. Disney.com has also consistently
been ranked the number one entertainment site on the Internet for the past two years, and our online service for
kids, Disney's Club Blast, is a leader in subscription sites.
The ESPN.com network, which includes ESPN, ABC Sports, NFL, NBA, WNBA and NASCAR Online, is number one in sports,
with more users than the next two online sports sites combined. Earlier this month at the Winter X Games, we launched
EXPN.com, a site dedicated to the extreme sports lifestyle.
ABCNEWS.com is the number three news site, but we are quickly closing that gap. In just the last six months, ABCNEWS's
unique user growth rate has been double that of MSNBC. We've recently introduced a number of initiatives that maximize
the tremendous assets of ABC News, such as a Web-exclusive interview program with Sam Donaldson and another Web-only
program called ``Political Points'' that we're doing in partnership with the New York Times.
ABC.com is the number one broadcast network Web site. In fact, the online version of ``Who Wants to be a Millionaire''
has been downloaded more than 43 million times with more than 2.5 million people reaching the virtual ``Millionaire
Winner's Page.''
Unlike our competitors, The Walt Disney Company already has a relationship with nearly everyone in America. We
create 70 million consumer impressions every day through our network of products.
Now, with the creation of GO, all we have to do is to leverage the power of these individual sites around the entire
portal to create the kind of network of community and interactivity that other companies can only dream of.
In order to leverage that power, we are creating a strategy for the GO portal that will emphasize the broad areas
of entertainment, recreation, leisure and lifestyle, generating an identity for the portal that will differentiate
it from all other Internet services. We will lead people to and create a best of the Web experience in this space,
whether that means sports or travel or movies.
Our recent agreement with eBay is an exciting example of what we can do within this entertainment and leisure category.
If you want to bid on an evening gown worn by Susan Lucci, or an autographed baseball from a game telecast on ESPN,
or even a retired Dumbo car from one of our theme parks, all authenticated by Disney, you will soon be able to
do so.
We believe our consumers will really enjoy this experience because auctions are truly entertaining and we believe
there is pent-up demand for authenticated Disney treasures, both big and small. This is a one-of-a-kind relationship
for eBay, and a first for our company as well.
In addition to the eBay deal, we have done several others and have more to follow. During the first quarter, we
signed deals with Netzero and Earthlink to be news and sports providers to their subscribers. In addition, we have
done an equity and distribution deal with Netpliance in which our sites will be the exclusive content providers
for several key areas of their product. These deals are in line with our goal to gain the broadest and deepest
distribution possible for all of our content.
And when broadband transforms the Web and it becomes a true entertainment medium, that is when GO's positioning
will really pay off. However, our strategy is to be successful in the narrowband space before we win in the broadband
space, and we're on track to do that. Once this ability to stream video is commonplace, we will not only have an
unmatched library to utilize, but also the creative ability to bring new programming designed expressly for this
new medium.
And this is where our third strategic component -- TV-Internet convergence -- comes in. Just as radio and television
were transformed in their early days by the advent of new content and programming, I believe the Internet will
make its next quantum leap when content from Disney redefines the world of online entertainment for consumers.
In anticipation of this transformation, we are leading the way in TV-Internet convergence with an application we
call Enhanced TV. Enhanced TV allows the television and the computer to work together in a powerful new way.
Research shows that 50 percent of all Web users have a computer and TV in the same room. In fact, just three weeks
ago, we set a new milestone for this service, as 650,000 people logged on to Enhanced TV during the Super Bowl,
staying for an average of 42 minutes each, which, in case you didn't know, is an incredible amount of time -- almost
eight minutes longer than our nearest sports competitor is able to generate in the average month. As the game progressed,
fans were treated to a wealth of statistics, graphics and interactive quizzes that were synchronized, to the second,
with the broadcast.
Most encouraging of all was that 96% of the users said that they would use Enhanced TV again. I have no doubt that
this kind of convergence of the television with the computer is the future. We are currently working on a new application
that will allow viewers to watch sporting events on television while listening to what's being said on the bench
or on the ice or on the field during the game. This is the next best thing to being there, courtside or ringside.
Next month, Enhanced TV will make further progress as an entertainment medium when it is incorporated into the
Oscar telecast on ABC, as well as regular broadcasts of ``Who Wants To Be a Millionaire.''
Today, the Internet is mostly about function and utility, but when we decided to create GO.com, we did so on the
premise that the future of the Internet involves much more. We knew that we had fantastic individual brands on
the Net and we knew that giving them all a common home would create a very strong and reinforcing community. But
where I get really excited is when I see the power of our third strategic advantage, TV-Internet convergence. I
see a time, in the next few years, or even sooner, where nobody will talk about television or the Internet separately.
They will become one synergistic, fused medium.
With our Enhanced TV constantly pushing this convergence envelope, our amazing content libraries and the number-one-rated
television network at our disposal there is little doubt that it will be The Walt Disney Company, the company that
put magic in entertainment over 75 years ago, that will lead the way and create a whole new level of magic in this
very exciting new world of the Internet.
Tom Staggs
Senior Executive Vice President & CFO
The Walt Disney Company
In 1999, excluding the impact of some one-time restructuring charges and transaction impacts, your company delivered
revenues of $23.4 billion ... operating income of just over $3.2 billion ... and net income of $1.4 billion ...
which resulted in earnings per share of $0.66. Our cash flow for the year came to a total of $5.6 billion.
While still evidencing the strong financial condition of the Walt Disney Company, these results fell short of our
prior year's performance. We are not satisfied with this performance and you have heard from us today about specific
steps we are taking in key businesses to improve on those results. These specific actions are underscored and supported
by two key company-wide initiatives, which will also improve future performance.
In April of 1999, we announced an across-the-board assessment of the company's cost structure aimed at improving
the efficiency of Disney's business without impeding future growth. To-date we have identified over 100 areas where
we believe we can improve our cost structure.
Beginning in 2001 and thereafter, we believe that our cost- cutting initiatives will allow us to achieve savings
of $500 million per year. And, as the impact of the strategic sourcing initiative that Michael discussed grows,
we have the potential to exceed that annual savings figure over time.
Nevertheless, we are not laboring under the impression that we can cost-cut our way to the type of long-term earnings
growth that we all expect. And earnings growth continues to be one of the primary objectives of this company. Additionally,
we are mindful of the fact that growth in earnings coupled with an attractive return on investment is required
to create value for you, our shareholders.
With this in mind, the company is increasing its focus on prudent capital allocation and driving higher returns
on its invested capital.
Across the company, we are taking steps to increase the focus on value creation and allocation of capital in the
day-to-day management of our businesses. And we will focus on these measures in evaluating and compensating our
executives.
We expect this focus to increase not only earnings, but also our cash flow and Returns on Invested Capital.
Q1 Results
Since we recently reported earnings for our first fiscal quarter, I would like to briefly go over some of the quarter's
highlights. Our most recent results were better than Wall Street had expected and they are encouraging on several
fronts. To underscore what I mean, let me talk first talk about Disney separate and apart from the results at GO.com
and then I will discuss GO.
For the first fiscal quarter of 2000:
Pro forma revenues for Disney, excluding GO.com, were $6.8 billion
Total Operating Income was $1.1 billion up 8%.
Net Income was $515 million, 7% higher
And fully diluted earnings per share were $0.25, up nearly 9% versus the prior year.
These increases, while respectable, are not particularly astounding by historical Disney standards. However, inside
those results is evidence of the momentum that we have started to build.
Media Networks was the main driver of our first quarter performance, delivering operating income of $642 million
which is an increase of 73% over the same quarter of last year.
Clearly, we benefited from an extraordinarily strong ad market across all properties, but improved ratings also
played a role. ``Good Morning America'' and ``20/20'' have improved, and of course, ``Who Wants to be a Millionaire?''
Although we do not necessarily count on the robust ad market to continue indefinitely, the successful quarter at
the network underscores the degree of operating leverage inherent in the nature of our broadcast assets. The key
to accessing that leverage is and will continue to be great programming (like ``Millionaire'') and that is what
this company is all about.
You should also know that these strong results include continued investment in our cable businesses in the form
of international Disney Channels, Toon Disney and our most recent launch, SoapNet. We believe these new business
extensions will be meaningful drivers of growth and shareholder value down the road.
As expected, our first quarter results for the Studio Entertainment division continued to reflect the issues in
Home Video we have discussed. We've only just begun to introduce our gold library titles into the market and while
sales are consistent with our expectations, we do not expect these staggered releases to compensate for the fact
that we will not release a major library title from our Platinum Collection this year.
The Consumer Products division performance reflected continued weakness in our merchandise licensing business.
However, the Disney Stores showed modest profit improvement both domestically and in Europe.
Furthermore, the company's ability to effectively leverage its content was apparent at Consumer Products, where
Disney Interactive capitalized on the success of ``Who Wants to be a Millionaire?'' with a CD-ROM version of the
show which became the number-one overall title of the season.
Our Theme Parks and Resorts segment continued to perform well in the first quarter, reflecting the tremendous strength
of these assets and the success of programs such as our Millennium Celebration. This performance is especially
heartening as we look forward to opening our two new theme parks in California and Tokyo next year.
On Feb. 9, we announced results for GO.com that were also better than analysts' expectations.
In the first quarter of 2000, GO.com's operating loss, excluding amortization of intangibles, increased to $83
million from $28 million in the prior year quarter, resulting in a loss of $0.30 per share for the quarter, excluding
non-cash amortization of intangible assets.
Now, GO's performance must be assessed differently from the performance for the rest of the Company for two reasons.
First, GO.com is a start-up endeavor and therefore is expected to be a net user of funds as we continue to grow
the business.
The second reason is that the metrics used to measure performance in the Internet industry are unique. While bottom
line earnings ultimately dictate economic success, the rapid growth and evolution of the marketplace often require
that Internet companies be evaluated on a top-line basis, with revenue streams, market penetration and on-line
traffic serving as proxies for value-creation potential.
With this in mind, GO.com performed well in the first quarter, although there are several areas where we will look
to regain momentum over time. On a pro forma basis, total revenues for GO.com were $126 million, representing a
44% increase from the fourth quarter of 1999, and a 13% increase from prior year quarter.
These figures could be a little misleading because they include significant revenues from the Disney Catalog, which
we now refer to as Direct Marketing. The Direct Marketing business provides infrastructure and a customer base
that is valuable to our e-commerce efforts, but its relative size in these early years tends to make evaluating
GO.com's growth relative to its peers more difficult.
If we consider just our Internet-related businesses, excluding Direct Marketing, revenues were $73 million, a 47%
increase over the prior year. This increase was driven by growth in our e-commerce business (which was up by over
150%), increased advertiser demand and higher site traffic across all sites.
It's worth noting that we increased our investment in our teleservice and fulfillment operations during the quarter
and this investment has already begun to pay off. During the holiday season, while competitors were experiencing
challenges with their holiday order fulfillment, we continued to ship on time even with orders received as late
as Dec. 22. We responded to customer requests faster than ever, with an average teleservice response time of 14
seconds versus 75 seconds a year ago. Although many areas of GO.com are still evolving, the state of the art infrastructure
necessary to maintain the Disney tradition of exceptional customer service and product fulfillment is in place
and ready to be fully leveraged as GO.com Internet commerce continues to grow.
Since GO.com is a start-up business, and therefore it is critical that we build market share now to ensure long-term
profitability. On a year-over-year basis for the quarter, our average daily page views across our sites increased
91% to 72 million, and we are continuing to build our sites to be market leaders. ESPN.com, Disney On-Line, and
ABC.com are all number one in their respective categories and ABCNews.com is growing faster than its chief competition.
GO.com is on track and even exceeding expectations on several fronts, while simultaneously building the platform
that our company will use to become a leader on the Internet. The combination of our ongoing business integration
with Infoseek, normal seasonality, and our ongoing development of the GO.com portal will likely result in some
softness in our results during the next couple of quarters. Although these steps may impact short-term performance,
they are necessary to ensure the long-term success of GO.
While we are definitely encouraged by recent results across GO.com and the rest of Disney, we remain focused on
the future and on capitalizing upon the long-term growth potential of The Walt Disney Company's assets both through
our traditional businesses and through new avenues like DVD and the Internet.
Since 1945, Disney's earnings growth has averaged more than 16% a year. By pursuing growth initiatives, never losing
our fundamental focus of the quality of our products and supporting ongoing development of our brands, The Walt
Disney Company is determined to return to the earnings growth it has delivered for decades.
--------------------------------------------------------------------------------
Contact:
The Walt Disney Co.
John Dreyer, 818/560-5300