Disney's Earnings Call: You Have to Think about Virtual Worlds

Disney held its Q1 FY08 earnings call yesterday, and, while there was certainly much more discussed, President and Chief Executive Officer Robert A. Iger came back several times to virtual worlds. Disney was already making big plays in the space, but it picked up steam considerably when the company acquired Club Penguin last summer, going on to announce that it would develop a world for Cars based on its existing infrastructures and that it would then invest up to $100 million in new worlds. When asked about potential franchises, Iger noted that Cars was the biggest opportunity in some time. It has gone on to sell more merchandise currently than it did during the opening year. Part of that, Iger says, is hitting the right pattern for play across toys, video games, and attractions. Interestingly, he doesn't mention real-world theme park tie-ins until after virtual worlds: "We've clearly struck a nerve in terms of a play pattern, and that has led us to invest in more creativity. So we'll be launching a virtual online world for Cars. While I don’t have a specific announcement to make, I think it would be a relatively good bet that ultimately there will be a sequel in the works for Cars, again because we believe in the franchise potential of that set of characters. And then of course, lastly, when we really believe something has franchise value, we turn it into attractions at the parks. We are building Cars Land for California Adventure set to open in 2012, and we opened a Cars-related attraction in Paris this past year, and I'm fairly certain you’ll see more creativity and investment in terms of physical attractions at our parks against that franchise." Part of that may simply be that it's cheaper to invest in a virtual world than it is to design, build, staff, and promote a physical attraction, but when Iger was later asked about how investors should conceive of new franchises like Cars and Hannah Montanna, he noted that video games are becoming more and more important to younger audiences and that it's crucial to start thinking of franchises in terms of new opportunities--like virtual worlds. "When you think High School Musical and Hannah Montana, you suddenly can envision a franchise that is living in many more places than just say the syndicated world of the past. The other thing that we have also found is that music has really found a home in the video games business. That is certainly clear with some of the properties that are out there from other companies. [...] So what we are trying to do is essentially identify something that has franchise potential and then immediately invest to mine that potential creatively and then to leverage it financially in many, many places. And we are finding that those many places are many more than we used to see. Online virtual worlds are another example. Think Cars. You have to think not just of them as parks and movies and videos, but you have to think of an online virtual world as well as the other typical businesses like video games and other merchandise. So thanks to technology, when you have a successful franchise and you have the ability as a company to invest in basically self-created product, you can leverage that in many more ways than we ever envisioned in the past."