WHEN: Today, Wednesday, February 7, 2024
WHERE: CNBC's "Closing Bell: Overtime"
Following is the unofficial transcript of a CNBC exclusive interview with Disney CEO Bob Iger on CNBC's "Closing Bell: Overtime" (M-F, 4PM-5PM ET) today, Wednesday, February 7. Following are links to video on CNBC.com: https://www.cnbc.com/video/2024/02/07/disney-ceo-bob-iger-disney-entering-into-a-strategic-partnership-with-epic-games.html and https://www.cnbc.com/video/2024/02/07/disney-ceo-bob-iger-on-new-streaming-bundle-partnership-id-rather-be-a-disruptor-than-be-disrupted.html.
All references must be sourced to CNBC.
JULIA BOORSTIN: That's right, Morgan, Disney reporting a big beat in terms of earnings, revenues missing expectations, slightly falling right in line with last year's adjusted earnings. But we -- last year's revenues. But adjusted earnings of $1.22 per share, that is a big beat from the 99 cents per share that analysts expected. That's also what the company reported a year ago, so big beat from the year-ago numbers. That earnings beat follows cost-cutting, the company saying it's on track to meet or exceed its $7.5 billion savings target for 2024. Disney also giving some rare earnings guidance, saying they expect full-year 2024 EPS to increase by at least 20 percent to $4.60. Disney also announcing a new share repurchase program targeting $3 billion in repurchases in fiscal 2024, as well as declaring a 45-cent-per-share cash dividend payable in July. That's an increase of 50 percent from the last dividend that was paid in January. Now, Disney also announcing it expects to reach streaming profitability by the fiscal fourth quarter of this year and also saying that the direct-to-consumer entertainment division's operating income -- I'm sorry -- operating losses have improved dramatically, improved by nearly $300 million from the prior quarter, a loss of 100 and, a loss of $138 million versus a nearly-billion-dollar loss in the year-ago quarter. Now, Disney+ core subscribers did decrease sequentially by 1.3 million, but that's pretty much in line with expectations. Disney does forecast a rebound, though, in their direct-to-consumer subscribers, the addition of 5.5 million to six million Disney+ core subscribers forecasted for the second quarter. So, that this all gives us a lot to talk about with Disney CEO Bob Iger, who joins me now on an exclusive interview. Bob, thanks so much for joining us.
BOB IGER: Thank you, Julia. Nice to be here.
BOORSTIN: So, Bob, we have a lot to cover. We, of course, want to get to the big news about your new joint venture in the streaming sports space. But we want to start with this earnings beat. What is behind not just the beat for the quarter, but the outlook for this next year?
IGER: Well, I think, first of all, for the quarter, you have across-the-board success, all of our businesses doing really well. You just noted the improvement in streaming, which has been dramatic, not only quarter to quarter, but from a year ago. And that's the result of just a tremendous amount of hard work in terms of completely reorganizing the structure of that business, raising prices, of course, reducing expenses, and really turning it into a business that we believe not only can be profitable, but a growth business for the company. Parks and resorts continuing to do extremely well, particularly the international parks. It's just a very solid quarter overall for the company that gives us reason to be very, very optimistic about the year ahead.
BOORSTIN: Now, you have certainly benefited from these cost cuts, particularly in the streaming division, but revenue is flat. What do you see as the growth catalyst for revenue in this next year? You're not giving revenue guidance, but give us some insight into what do you think will be driving revenue growth.
IGER: Well, by the way, first of all, let's not ignore the impact of the cost cuts. The cost-cutting initiative that I announced a year ago, I think, on the earnings call of $7.5 billion, which we're on track not only to meet, but probably to beat, impacted the bottom line very positively this quarter, in fact, $500 million to the -- positively to the bottom line because of the cost reductions. So that's really significant. Obviously, it bodes well for the year ahead. In terms of revenue, we expect in the -- with the subgrowth guidance that we gave for the next quarter, we, and the price increases that we took recently, we expect obviously that to have an impact in terms of revenue for that business. Movies, the next quarter, relatively quiet because we're coming out of the impact of the strike. I think, if you look at the year and you look at the slate that we have, with a "Planet of the Apes" film and "Inside Out 2" and "Deadpool," and then the end of the -- well, the end of the year is really the next fiscal year. But if you look at the calendar year, you will see improvement revenue-wise as well in our film slate because of the "Mufasa: The Lion King," at the end of the year. And we're announcing today that we're actually turning what was a Moana TV series into a Moana feature that will come out in November, so—
BOORSTIN: A theatrical release?
IGER: Yes, correct. So the revenue from the studio, at least for the calendar year, is likely to be strong too.
BOORSTIN: And I understand you have a big announcement that you're going to break on our air of a new strategic investment and partnership you're making?
IGER: Yes. We have entered into a strategic relationship with Epic Games, the maker of "Fortnite," to not only invest in the company Epic, we took a minority stake, $1.5 billion investment -- but we're also creating with them a huge Disney universe that will be for gaming and for play and for watching and even for shopping for digital goods and maybe ultimately physical goods that will live alongside "Fortnite," but be completely interconnected with "Fortnite." And this represents probably our biggest foray into the game space ever, which I think is not only timely, but an important step when you look at the demographic trends and you look at where Gen Alpha and Gen Z and even millennials are spending their time in media. It's pretty dramatic, in terms of the amount of time spent in games, in fact, almost equal to -- in some demographics, equal to or greater than how people are spending their time on movies and television.
BOORSTIN: Yes, I mean, Disney has a number of big, popular movie franchises that you have turned into games, but this is a very different move to decide to invest in and partner with a company like Epic Games. What do you see as the monetization opportunities down the line? Is this more about marketing your characters and making sure this younger demographic is engaged with your I.P., or is it about the revenue you're going to be generating from the transactions that happen on the platform?
IGER: Well, it's primarily driven by the fact that we think we can turn this into a good, solid business in terms of the bottom line. We're not giving guidance on that, but we do expect it to be nicely accretive for this company once we launch this universe. That said, it's also another way that our great intellectual property, the characters and the stories, can be expressed in a different way. We have been great about doing that in parks and resorts and in cruise ship business around the world. This is obviously another example of how we leverage the great I.P. that we create in other platforms and other media. And when -- again, when you look at those demographic trends, I think it's critical for us to continue to stay relevant and continue to basically create ways that consumers can interact the way they want to with our storytelling and our characters.
BOORSTIN: Can you give us a launch date for this partnership?
IGER: I can't give you a specific launch date. I'm not even going to speculate right now. It's not going to be immediate. It takes a while to build this. It's not years, you know, maybe a couple of years, but we will see.
BOORSTIN: So your stock is up about 7.5 percent. You just forecast 20 percent growth in earnings for the rest of this fiscal year. You're announcing this big partnership. Do you think this will be enough to assuage the concerns of Nelson Peltz?
IGER: Look, when I came back just over a year ago, I discovered a company that was really struggling. We had issues creatively with our studio. We had a streaming business that was losing a huge amount of money, and there was no path to profitability. We had a questionable balance sheet, no ability to do what you talked about, which was things like stock buybacks, which we haven't done since 2018, or increase the dividend, which we had suspended at COVID. There were just -- there were many issues. Morale was bad. And, typically, when I face what I will call considerable challenges, I approach them with great patience. It was clear to me that the ability to be patient was nonexistent. We had to be impatient. We have assembled a great team. We have built on that team, adding Hugh Johnston as our CFO. That team is acting with a sense of urgency. And I think, if you look at the results that we just announced and all the things that we're talking about, that is the result of a team that is motivated, that is focused. And now all of us are very optimistic. The last thing that we need right now is to be distracted in terms of our time, our energy by an activist or activists that, frankly, have a completely different agenda and don't understand our company, its assets, even the essence of the Disney brand. And I think I'll just leave it at that.
BOORSTIN: But you, some of the things that you have been talking about today directly tie to what some of Nelson Peltz's concerns and recommendations are. For instance, he said that Disney streaming should target Netflix-like profitability margins of 15 percent to 20 percent by fiscal 2027. Is that possible?
IGER: We are aiming to not only turn that business into a business that's profitable, but to turn that business into a business that delivers margins that we feel good about, that we expect from all of our businesses. I'm not going to speculate about when that will be. But I think it's, what you just raised is just interesting. Netflix had an over 10-year head start on us. We launched Disney streaming just over four years ago. It's still a nascent business in many respects, very successful when you look at the number of global subs that we signed up right away and then obviously since then. And, but when you think about Netflix and you think about what they have done on password sharing, which we're going to get to later this year, it won't be in fact -- impacted -- it won't impact us until 2025. You look at their customer acquisition and retention costs, the technology they have that lowers churn, the global content that they have amassed including locally, that enables them just to be stickier and offer more to their customers. All of those things are things that not only do we aspire to, but that we're working toward in terms of delivering. You don't snap your fingers and get there. And as I said a moment ago, I'm not suggesting we're patient about it. We have got a lot of work to do. Some of it takes time. The fact that we're guiding to profitability by the end of this year, and that I'm saying to you, we're going to turn that business into a business that we're proud of in terms of margins, we know a lot more about it and how to do that than any outsider is going to tell us or educate us about.
BOORSTIN: So, have you spoken to Mr. Peltz, and are you planning on talking to him about these results ahead of your big April 3 shareholder meeting?
IGER: I have not spoken to Mr. Peltz in a while. I have no plans to speak to him. I'm -- I will leave it at that.
BOORSTIN: Well, we should, of course, get to the other big news which you announced yesterday, this joint venture with Warner Bros. Discovery and with FOX to create new streaming skinny bundle of your linear -- linear sports assets. Why does it make sense to do this? Are you at all concerned that this could drive accelerated cord-cutting or even challenge and cannibalize your Hulu live TV business?
IGER: Look, I think, if you're a sports fan, if you're a sports league, if you're an advertiser, even if you're a distributor, you want to engage with ESPN in some form. ESPN has always made a promise to sports fans that it will serve them wherever they are whenever they want. This is clear, and they have done a great job doing that. I think one of the secrets to their success, not a secret, is that they serve the sports fans so well. This is a big step in that direction to serve the sports fan that has not signed up for the multichannel linear TV or that maybe was disenfranchised and didn't want it. This is a way to do that. We have watched for years the decline of the -- basically the linear bundle on cable and satellite. And we have been preparing for a world where that business is not as strong as it used to be. Launching Disney+ is an example of that, the investments we have made in content, the FOX acquisition, the acquisition, what that did in terms of our ownership of Hulu. All of these things are prepared for us to pivot as well, as the world changes, as the world is disrupted. And, by the way, I'd rather be a disrupter than to be disrupted. The linear business is still a business that serves us well, in that it's profitable for us. And we intend to continue to be in it. We're investing in it in terms of the channels that we own, running them more efficiently, but we're still in that business. But we also have to be mindful of where the consumer is now and where the consumers go.
BOORSTIN: But if this product is priced, say, between $40 and $50, isn't there a risk that not only it would drive accelerated cord-cutting, but also put you into more conflict with the paid TV operators like Charter, who are already concerned that you were taking ESPN direct-to-consumer?
IGER: I have not discussed this with any of those operators. I think they probably, in many ways, either would understand or should understand that what we're creating here is a distribution mechanism to reach consumers where they are today, basically app-based entertainment. And I think this was a step that we felt was one that we not only wanted to take, but that one that we really should take, given what we know sports fans want and given what we see with the current multichannel ecosystem.
BOORSTIN: How does this impact your plans to bring ESPN+, the flag -- I'm sorry -- to bring ESPN flagship direct-to-consumer as an alternative to ESPN+, but bring your traditional linear flagship direct-to-consumer, which you have told me was going to happen before the end of 2025?
IGER: Yes.
BOORSTIN: How does this impact that? And how does this all impact your negotiations with those paid TV operators?
IGER: Well, I can tell you that our plan now is to bring so-called flagship to the market probably in the fall, maybe as early as late August of 2025. We're going to do that. It is a different product. It's singular, in that it is ESPN. It will have many more features and provide a much more immersive experience for the sports fan than this bundle has. This bundle is really a channel bundle that I think will be very user-friendly because it's more app-based. But ESPN flagship or whatever would -- I guess we will just call it ESPN -- will have features like integrated betting, fantasy, much more personalization, customization, probably some shopping in some form, much deeper in statistics and those sorts of things, kind of the sports lovers' delight. And it will live on its own, and they are side by side with what we just announced. We have said, been saying for a while that we're looking for partners for ESPN to help us take ESPN in a direct-to-consumer business. What we announced yesterday is with two partners that are helping to do that in one way, bundled with their services, and what we will do when we launch ESPN, where we will continue to look for partners, and we have been engaged in some good discussions with some possible partners. It's another step in the direction of just reaching the consumer in more ways, going where the consumer is and what the consumer -- giving what the consumer wants.
BOORSTIN: Before we're out of time, I want to make sure to ask you about your parks business, obviously a huge part of Disney. We saw strength internationally. But you have fascinating insight here into the consumer around the world, based on bookings, especially for things like spring break and looking ahead to the summer. What are you seeing right now and what's your outlooks for the park?
IGER: Well, let's just talk about the quarter first. You have to look at the parks globally now. Obviously, all were profitable in the quarter. What's happening in Hong Kong and Shanghai and Paris and in Tokyo is just extraordinary in terms of the numbers. We opened up Frozen in Hong Kong in November and Zootopia Land in Shanghai in December. Tremendous reception to those. And the combination of those with the domestic parks, whose business is I think more than twice what it was before the pandemic, is just an extraordinary business for us. Add to that the cruise ship business. We now have five ships. We're building three more, also tremendous in terms of near-term performance and also long-term outlook. I won't get specific about what we're seeing in bookings, except, in general, our parks business is healthy domestically. Again, you have to look at it in light of where we were before the pandemic, the fact that it came roaring back and it stayed really strong, versus just looking at sort of one isolated quarter.
BOORSTIN: Before we let you get off to your earnings call, I have to ask you about Elon Musk tweeting overnight that, after funding a lawsuit from a fired "Mandalorian" actress against Disney, that he will fund any Disney employee that wants to sue you. What's your response to this?
IGER: None.
BOORSTIN: Then I'm going to ask you one more. Do you have any update on succession?
IGER: That's an easier one. There's a succession committee of the board. They meet regularly. They have had some really good, I think, productive sessions. It's probably the board's number -- it is the board's number one priority. I'm confident we're going to find a successor to me in due time and in the right time. And, again, I think the commitment of the board, the attention to the process is all very, very healthy.
BOORSTIN: Well, we will leave it there. Bob Iger, CEO of Disney, thank you so much for joining us ahead of your earnings call, to break so much different pieces of news with us, from the Epic deal, to the fact that ESPN flagship is going to launch ahead of the football season in 2025. You heard it here first. Thank you so much.
IGER: You're welcome.