Walt Disney crushed Wall Street's expectations in the recently reported first quarter. The company is looking back at six straight quarters of positive earnings surprises, and Disney shares have started off 2015 with an 11% return while the S&P 500 SPY rose less than 2%.
Following that fantastic first-quarter report, Disney CEO Bob Iger and CFO Jay Rasulo sat down to a conference call with analysts, fielding questions and expanding on the state of the business. Here are five of the most interesting lessons investors learned from that call.
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From Hollywood to Bollywood
Global media giants ignore Bollywood at their own peril, and Disney isn't getting caught in that trap. Instead, Iger sees the Indian market as yet another vibrant venue in which his company can monetize a big hunger for cinematic content.
It's a very different market, for sure. Hollywood produced 476 theatrical titles in 2012, collecting an average of $22 million per movie at the box office. All told, that adds up to $10.8 billion in total ticket sales.
Meanwhile, in India, the Bollywood machine pumped out a staggering 1,602 titles. With the average revenue per film landing at just $1 million, the $1.6 billion market size may not impress American studios.
But these fundamental differences only underscore the magnitude of "PK." The New Delhi production, best described as a Hindu update of Kevin Spacey vehicle "K-Pax" from 2001, pulled in 107 times the average revenue for its market.
Pulling off a similarly scaled hit in America would generate something like $2.5 billion at the box office. That has happened exactly once. And don't forget that theproduction budget for "PK" was a measly $13 million. A $107 million return on that investment isn't half bad.
Disney's Indian production studio looks kind of lonely right now. Iger may talk about developing local content, but he doesn't own any production assets in no-brainer markets like China, continental Europe, or even Latin America. As a Disney shareholder, I can't wait to see the company following through on its global vision with a plethora of localized mini-studios. It just makes sense.
How busy are Disney's hotels and resorts?
To put Disney's 89% hotel occupancy rate in perspective, consider the case of the American tourist mecca, Las Vegas. The city broke tourism records in 2014, filling hotels with ease. Even so, hotels on the prime real estate of the Vegas Strip reported a 92% occupancy rate, leaving 8% of the rooms unused. The brick wall around 90% that Rasulo was talking about is a reality even for the best hotel operators in top-shelf markets.
In other words, Disney's resort business is humming along at top speed. These high occupancy rates were achieved while raising prices modestly, which seems like the only quick route to further growth in this segment. Great results also open the door toward building more hotels around Disney's parks, but that's a slow and costly play. Disney is building new reports connecting to the theme parks in Hong Kong and Shanghai, but I'm not aware of any hotel expansions in America.
So, for now, the tourists who don't fit into Disney's 89% hotel occupancy rate have to spill over into other lodging providers around Orlando and Anaheim. You can call it a driver of the local economy, or leaving millions of tourist dollars on the table. That's another potential growth project that Disney might want to explore.
Walt Disney CEO Bob Iger. Source: Disney.
What does Maker Studios bring to the table?
This is Bob Iger admitting that not even his titanic media studio knows how to do everything.
YouTube star factory Maker Studios gives Disney access to some of the short-form video platform's biggest stars, like Epic Rap Battles of History and video gamer PewDiePie. Those two channels alone account for over 9 billion YouTube views and 36 million channel subscribers.
But that's not all.
The billion-dollar studio acquisition also put Maker Studios' creative juices in touch with Disney's own production assets. It's a cross-pollination of new and old creativity and business thinking. That's what it takes to stay relevant in the increasingly digital world that Netflix, YouTube, and Amazon are creating.
That nugget ties right into Iger's next insight.
The next level of personal entertainment
That's right. DVR recording and over-the-top video streaming is just the beginning. Beyond that, Bob Iger sees the consumer demanding an even more personalized entertainment experience, and he hopes to be able to meet that requirement.
Disney won't be alone in this, of course. YouTube and Netflix are already tailoring their content feeds to your personal tastes. Disney is treating both of these new-age channels as business partners, which bodes well for the next era. I'm heavily invested in the digital future of the entertainment industry, because I share Iger's vision here.
Disney doesn't live or die by"Frozen" alone
Yeah, so if you thought you'd make it through an entire Disney article without running across "Frozen," I'm afraid you were mistaken.
On the other hand, this quote reminds us that Anna and Elsa sure made a difference, but that Disney is so much bigger than any single franchise. Even a monster property like "Frozen" can only do so much for a company with a world-class stable of proven cash machines.
Elsewhere in the call, Bob Iger repeated the line about 11 billion-dollar Disney franchises, and filled in with a couple more examples. "The strong holiday demand for Frozen as well as Mickey and Minnie, Spider-Man and Avengers led to the most successful quarter ever for Disney consumer products," Iger said.
There's life in the classics yet, and I don't expect that to change. Have you seen the lengths Disney is going to in order to keep its best back-catalog titles current? The live-action "Cinderella" remake, 65 years in the making, hits theaters in March. "Snow White and the Huntsman"pulled in $400 million of global box office stubs, 75 years after the animated tale's debut. "Maleficent" followed up on "Sleeping Beauty" a mere 55 years later, ringing up more than $750 million in worldwide ticket sales.
For a lesser studio, these remakes might have qualified as big risks. For Disney, they're simply a smart way to stretch an established content portfolio even further. One day, we'll get a live-action version of "Frozen," too, just as kids start to forget the words to "Let It Go."
Just be prepared to wait a few decades for that one.
The article 5 Things Walt Disney Co's Management Wants You to Know originally appeared on Fool.com.
Anders Bylund owns shares of Netflix and Walt Disney. He alsohas the following options: short January 2016 $320 puts on Amazon.com and long January 2016 $320 calls on Amazon.com. There are plenty of winners in this Hollywood shake-up, starting with the consumer. The Motley Fool recommends Amazon.com, Netflix, and Walt Disney. The Motley Fool owns shares of Amazon.com, Netflix, and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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