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Last Updated: Wednesday, 13 June 2007, 05:08 GMT 06:08 UK
Disney's mouse is going digital
By Tim Weber
Business editor, BBC News website

Walt Disney and Mickey Mouse
Walt Disney and the mouse - how it all began
Walt Disney's media empire is legendary. The digital revolution, however, has little respect for legends.

Just like any other media giant, Disney has to fight for its share of an audience that has seen an "explosion of choice", says Tom Staggs, Walt Disney's chief financial officer.

New technology, he says, has put "the consumer much more in charge than ever before".

A few years back, under former chief executive Michael Eisner, Disney stumbled badly.

Now run by Robert Iger the company is hitting its stride again. Its share price has gained 24% over the past two years. During the last financial year sales were up 7%, while profits soared 33%.

But how does Disney do it?

Brand value

Mickey Mouse
HQ: Burbank, California
Founded: 1923
Annual Sales: $34bn
Annual Profit: $3.4bn
Staff: 133,000

"Fundamentally, we are a company driven by content creation and exploitation of content across many platforms," says Mr Staggs.

Good content alone, however, will get a company only that far.

"If you've got a sea of choice, then having a strong brand is critical to cut through the clutter," says Mr Staggs.

Most important, of course, is the Disney "core brand", with its movies, television shows, children's magazines, theme parks, leisure cruises, and shelves upon shelves full of merchandise.

Then there is the hugely successful ESPN sports brand, which encompasses not just the television channel, but also a bevy of websites and a range of video games.

The ABC television network, meanwhile, keeps churning out hit shows like Lost, Desperate Housewives and Ugly Betty.

And film studios like Pixar, Touchstone and Miramax are rounding off the world's second largest media group (behind Time Warner).

Tailor-made growth

But with the mouse ear logo ubiquitous already, where is there room for growth?

Mickey Mouse actor in Hong Kong
Disney is keen to adapt itself to local tastes

Mr Staggs sees key opportunities in relatively mature markets, such as France, Japan and Germany - at least during the coming five years.

Beyond that, in a "five to 10 year horizon", developing markets including South America, China and India will become more important for delivering profits.

Disney, says Mr Staggs, has to tailor its approach for each individual market, "methodically but quickly building [its] brand presence".

In the world's two largest markets, Disney has already sizeable operations.

In India a takeover has positioned the company as the country's top children's television group, while in China, Disney has a big retail operation, and 250 million people can watch Disney programmes.

Movie scene: pirates of the Caribbean
Pirates of the Caribbean moved from theme park to big screen...

And on 29 June, Disney will premiere The Secret of the Magic Gourd, a film combining live action with animation - made in China for the Chinese market.

It's all about making the all-important Disney brand "more relevant to the local market," says Mr Staggs. If it's a success, the company may export the film elsewhere.

Disney backs its local content strategy with a $100m (50m) investment fund to support about 20 different film projects over the next two to three years.

But there are areas where Disney has to tread carefully.

In China, for example, Disney's internet ambitions have to be "consistent with both our brand and government regulations".

"In some instances you walk before you run," he adds.

Multiplatform strategy

The main drivers of Disney's success are what Mr Staggs calls "our vibrant content engines" - from film studios to theme parks.

screenshot of Pirates of the Caribbean computer game
... and is now a successful video game franchise

And if one strikes gold, the other parts of Disney will also try to mine it.

The cinema blockbuster Pirates of the Caribbean is a typical example.

It started life as a theme park ride in Disneyland, was then turned into a movie, which was accompanied by a deluge of merchandise - from books to action figures.

Disney's Pirates of the Caribbean video game has shot to number one on every platform in the UK, France and Germany.

And at the end of June, Disney will launch a massive multiplayer online role-playing game based on the franchise.

It is this platform diversification that allows Disney to engage audiences at every level of the digital universe, thus turning a tidy profit.

Luring players

Riding the digital tiger, however, is not without risk. Most media firms facing the digital revolution have the "gut instinct of protecting their old business model," says Mr Staggs.

Disney, he implies, is different.

Hit TV series Lost on the ABC.com player
The ABC.com player delivers a young audience

Already the company is trying out plenty of new business models for the on-demand world.

Disney sells films through Apple's iTunes download store.

Its subsidiary ABC offers hit television shows on-demand through the ABC.com player - with each show sponsored by a single advertiser.

And the Pirates of the Caribbean online game lures in players by making a few levels accessible for free. Those who want to swashbuckle through more of the virtual world, will need to pay a $10 monthly subscription.

So what works best? Pay per view, pay per download, or pay through advertising?

Broadcast television is alive and well
Tom Staggs
Walt Disney

"We are going to continue to test different business models," says Mr Staggs, but quickly adds that advertising is the biggest digital revenue driver by far.

It is a business that Disney understands. "We've been in the business of renting our audiences to the advertisers for a long time."

Advertising sweet spot

The numbers are still fairly small, though.

Of Disney's $34bn annual revue, about $1.5bn is classed as digital - but $800m of that is online sales of holiday packages.

That leaves a relatively measly $700m of true digital media revenue.

Disney CFO Tom Staggs
Tom Staggs says broadcasting is alive and well

That doesn't put off Disney. Not only is the digital sector growing fast, it is also hitting the advertisers' sweet spot.

ABC's media player, for example, offers 17 shows and has served some 100 million episodes since September last year. And it has delivered a much sought after audience.

ABC already boasts the youngest audience of all US television networks, with an average age of 43.

But the ABC.com player has an audience in its late twenties, and delivers a whopping 80% recall rate for the sponsors. An astonishing 20% of viewers interact with the ads.

"What you've got is the beginning of an enhanced advertising experience," says Mr Staggs.

Broadcast 'not dead'

Despite Disney's digital ambitions, he is also convinced that old-fashioned broadcasting will continue to be "the most important part" of Disney's media offering.

"Broadcast television is alive and well," asserts Mr Staggs.

But there are changes at the edges. In South Korea, one of the world's most wired nations, high-speed broadband is already delivering a "second prime time", where films are watched during the lunch break on the day after the original transmission, says Andy Bird, president of Walt Disney International.

And mobile media consumption is growing rapidly in countries that have poor fixed-line infrastructure.

But what about Disney's most valuable asset, its vast archive of films?

Will the Mouse shake the "long tail" of its media offering and make it available on demand?

Mickey Mouse in Fantasia
Disney hopes its franchises can deliver digital magic

That's where Disney's digital ambitions end and hard-nosed brand management takes over.

There won't be an end to Disney's "platinum strategy" of brand exploitation, which sees about 10 to 12 films in circulation at any one time.

After a while, says Mr Staggs, Disney will put them back into the vault, until a new generation of children has grown up to rediscover the Little Mermaid, Cinderella or Peter Pan.

But aren't the likes of eBay undermining this hugely profitable strategy? EBay, asserts Mr Staggs, "hasn't spoiled it" for us yet.

Blockbuster risk

And what about the Mouse itself? When will we see "Mickey, the movie"?

That, it appears, is a touchy subject.

Mr Staggs chooses his words very carefully. Mickey Mouse, he says, is such a vital part of the Disney brand that the concept would have to be 100% right before Disney would risk it on a blockbuster movie.

"Mickey has an Everyman quality to him", he adds, and counsels that it would probably be best not to define him through a film.

So for now, fans will have to watch old cartoons or make the trip to Disney's theme parks to get close up and personal with their favourite mouse.

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