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Burbank, Calif.—At Walt Disney (DIS) headquarters in this studio-filled city, Suite 3H in the original animation building holds stacks of scripts and an aerial photograph of Disneyland to the south, marked with ongoing construction projects. This is the workplace of Walter Elias Disney, re-created much as he left it in 1966.

Nearby, in another large, tidy office appointed with Os and action figures, longtime Chief Executive Bob Iger spends much of his day like the company’s co-founder, weighing in on movies and park projects—including Star Wars: Galaxy’s Edge, vast twin lands being built in Disneyland in Anaheim, Calif., and Disney World near Orlando, Fla. But some things are different. In Walt’s day, television threatened to disrupt film and radio. Today, streaming, especially Netflix (NFLX), has become a threat to traditional TV, including cable.

In this recent episode of The Readback, Alex Eule is joined by senior writer Jack Hough, who sat down for an interview with Disney CEO Bob Iger and got an exclusive tour of Disney’s new Star Wars land. You can sign up for the podcast in iTunes or wherever you listen to podcasts.

In 2019, Disney will launch a streaming service of its own called Disney+, following the integration of film and television assets picked up in a $71 billion deal with 21st Century Fox. Barron’s recently met with Iger, 67, in his office to talk about streaming, park spending, succession, and more. For more on the outlook for Disney, see our recent cover story, “Working More Magic at Disney.” For details on the new Star Wars lands, see our notes from Barron’s exclusive tour of the construction site at Disneyland.

Barron’s: The new streaming service brings opportunity but also uncertainty. How do you manage that transition?

Iger: Not doing anything, really, creates more uncertainty than this. I can imagine other companies in other industries in similar positions in the past 50 years. Eastman Kodak (KODK) watching the advent of digital photography probably comes to mind the most. It became very clear that what we were observing was real, sustainable. Sweeping, permanent, profound transformation.

What I posed to my senior team and ultimately to the board was, “We can’t sit back and let this happen.” I can also see a component of the failure of companies to innovate. What sets in is, one, this sense it’s a speed bump, but two, we have durability. We’ve gone through economic crises, the global impact of terrorism. You can go all the way back in the 95-year history of the company. There was war, the Great Depression. Here we are 95 years later. But this felt like our ability to endure was going to be solely tied to our ability to transform ourselves, and not pursue [a strategy of] “We’re going to get through this, it’s a storm that’s passing overhead, and when it clears we’ll be fine.” We have to be different when that storm clears. We can’t be the same.

What we really needed was to lock arms and say this period of transformation that will now be more self-inflicted is going to require a reset in a number of different directions, including Wall Street.

Our board listened to the whole pitch. Their reaction was not only unanimously positive, but what they said was, “Go for it, speed is of the essence.” it was complete acceptance of the problem, support of the solution, and exhortation that we ought to go about it quickly. Don’t dillydally.

What did you do first?

We needed a technology platform, ultimately to monetize and distribute our content direct to the consumer, and so the very specific pitch to the board was a request for approval to buy this platform that Major League Baseball, of all things, created called BamTech. We had invested in it as a minority partner. That gave us an opportunity to really look under the hood and to test it, to determine whether it was robust enough and could do the kind of things we needed to do to take our business in that direction.

That was in June 2016. We came back to them in the September [2016] meeting with the deal basically in place, with a strategy in place. We just had a meeting in New York and the board reflected. They were amazed at how far we have come, how fast. We have not looked in the rearview mirror at all.

I declared [direct-to-consumer] our No. 1 priority as a company. And that also led to some changes in our compensation approach. We’re now at a point where the buy-in is complete, there is no resistance. There are no pockets of traditionalism here that are in any way getting in the way of what we need to do.

What do you mean by compensation changes?

If you’re investing for the future, and you’re spending to create a new business model whose revenue is going to lag the launch and the expense of the initiative, then your profits are going to go down. What happens compensation-wise? I didn’t want to disincentivize people to get behind this effort. I wanted to incentivize them.

The studio is being asked to create five or six additional movies in 2019 to launch in this Disney service. In addition, we’re no longer licensing our movies to Netflix. So we’re losing that licensing revenue that went directly to the studio, that went to enabling them to grow. That went directly to their pockets, really. Their compensation.

It’s such early days for this platform. Does that mean the incentives have to be more qualitative than quantitative?

I’m smiling, because yes. In the conversation we had with the comp committee about this, when there were a couple questions asked—“Well, what are the metrics?”—and I said, no, this can’t be about the metrics near term. We’re going to grow subs, obviously. That will become a metric. But we’ve got to launch the product first. We haven’t even decided what we’re going to charge for it. So if you’re going to look for traditional metrics to measure performance, it’s not going to work.

Read more: Here’s a Sneak Peek of Disneyland’s New ‘Star Wars’ Attraction

And they said, “Well, what will work?” and I said the most important thing for these executives is that they create great content for this platform. And I will know whether they have. And instead of setting numerical targets, you set different kind of targets. It’ll change over time with how many subs we get. Initially it needs to be—I need everyone to step up and make more great stuff.

How will the streaming business be organized?

[A year ago] I sat down with a whiteboard in my conference room, alone, writing down all of the assets that we had bought to try to make sense how we could manage this sprawling media empire. I looked at how a number of other companies that were not in the traditional media space were organized. What hit me was that they were organized in a more modern way because their businesses, the media side of their businesses, had launched in recent times.

We basically created a division, a unit of the business, to manage the platform of taking all the product direct to consumer. That new division will be where we report all of the investment in the content for the new platforms. And where we will report our subs. That unit will pay, will license, from the content engines of the company, the content that they’re making specifically for the new business. So for Wall Street, they can look at the company and look at it as traditional businesses, and see monetization that looks relatively good from a growth perspective, because what they’re investing in the new platforms is being paid for by the growth unit.

The platform unit will show the level of investment. And to the extent there are losses—I should say the bottom line, we’re not projecting what it will do yet—it will show the investment phase that we’re in, but it will also talk about progress that we’ve made in terms of sub growth. So that it is not only transparent, but so that we’re breaking it out in a very digestible way for the Street. It’s kind of a way to measure New Disney and Old Disney—but it is ultimately one [company].

What I’ve discovered is, businesses in a traditional space that want to innovate and spend money to do so, they park the cost of innovation in their traditional businesses. And those businesses all kind of suffer from the cost of that innovation, because it’s not typically monetized right away. And because of that, you can get impatient to the point of losing interest, and abandoning innovation, because you don’t have the patience to wait for it to really pay off. And the Street doesn’t give you that luxury either.

So with one unit paying another, Disney will be its own customer.

That’s correct. But we want the Street to know what we’re spending.

Is part of your thought that by breaking this out cleanly as its own entity, Wall Street might put a higher price/earnings multiple on Disney, like it has with Netflix?

We’re not doing it for that reason, and we’re not even looking for Wall Street to raise our multiple because of it. We’re looking for Wall Street to show some patience while we prove this out. This past November we had our last earnings call. It was the first earnings call I’ve been on...when our CFO never got one question, and 90% of the questions that I got were only about the direct-to-consumer strategy. So I think Wall Street is at least accepting of the fact that we’re doing this, that it’s the most important thing we’re doing. And while I won’t say they’re cheering us on, they’re definitely giving us the room to prove that we can do it.

How do you make the decision, with all this intellectual property, what you’re going to make for movie theaters versus streaming?

Some of it is easy. Our studio makes between eight and 10 movies a year, and they’re big budget, hopefully big box-office films, that really belong, we believe, on the big screen. We’re not looking to take one of those and put it on this platform. When we made the announcement, we said we’re going to make original movies for the platform. A number of ideas were pitched. Other than one, which was being contemplated for the big screen but wasn’t a big movie, none of them were in development as big-screen movies. One of them that we’re making for the platform is a remake of Lady and the Tramp. There was not one discussion about whether we should make that for the big screen. Everybody said this is a great story, would love to make it again, let’s make it for what we call “the service” internally.

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Almost every movie the studio makes is a $100 million-plus movie, and we’re not looking to make movies at that level for the service. We’re looking to invest significantly in television series on a per-episode business, and we’re looking to make movies that are higher budget, but nothing like that. We wouldn’t make a Star Wars movie for this platform. When everybody goes out on the weekend and you have a movie that opens up to $200 million, there’s a buzz that creates that enhances value. We like that. And eventually the movies we’re making are going to [end up on] the service.

On the television front, we’re kind of at capacity in certain cases. Like the Disney Channel has been at capacity in terms of the number of shows that it buys, and we believed that there was room for the team to start developing other Disney-branded television shows for the service without depriving them of the pipeline that they need for their channels. We’re also making a Marvel series and a Star Wars series.

I guess we could have made the Star Wars series for ABC if we wanted. But the budget and what we’re spending on it and the nature of the material suggested it would be a perfect anchor for the new service. Because it’s a priority for the company, that needs to be reflected in the trafficking or the direction of where a lot of content goes. There have to be some subjective decisions made on where stuff goes because we have to feed this new beast.

Frozen 2 comes out late in 2019. The first movie had a lot of repeat viewers.

That happened with Frozen. By the way, it happened with Black Panther. It happened with Avengers. We get repeat viewing on a lot of our movies. I have a screening room at the house. My weekends are spent in the damn room. And every once in a while I will flip the channels on DirecTV. And I came upon Frozen. I thought wow, I haven’t seen Frozen in a while. It was the very end of the movie. I had almost forgotten how it ended. And my wife walked in, because she was going to screen a movie with me. She said, “What are you doing? You’re watching Frozen?” [Laughs.] I said, “It’s good, I forgot how great is was.” That was not only a home run, that defied gravity.

How do you feel about the current movie slate?

The slate for this coming year is extraordinary. We have Captain Marvel coming in March, which is our first Marvel female superhero movie, with Brie Larson. Then we have Dumbo, which is Tim Burton. And then we hit Avengers and Toy Story 4 and Aladdin and Lion King. And toward the end of the year we have Frozen 2. And I forgot, Star Wars IX. We’re going to hit $7 billion [in 2018] as a studio [in] global box office. That’s only the second time in history that this has been done, and we were the ones that did it the first time, in 2016. That’s $4 billion in international box and $3 billion U.S. And that’s on eight or nine movies. It’s not on 25.

In the movie business, everyone talks about box office, which is revenue. But what about profit?

It’s all about return on invested capital. I just mentioned box office, but I’m much more focused on ROIC. The ROIC in the broader movie business is probably in the low single digits, and we have years that it’s above 30%. And that’s because of choices we’re making. The franchises and the name value of these. There was a purpose to all of this. It didn’t just happen. It was designed.

You can make money in so many different ways when you buy assets—parks, merchandise, movies. Is that an advantage when you get into a bidding war, like with Fox?

In the case of Pixar, Marvel, and Lucas, none of them were for sale. We were the only ones. Us identifying them as acquisition targets and my going out and meeting with Steve Jobs and Ike Perlmutter and George Lucas one on one. Just alone. And broaching the subject and ultimately doing a deal. In looking back, particularly with Marvel and Lucas—Pixar was different—we had an ability to monetize those assets better than anyone else. If someone came along, we would have had a competitive advantage. You can argue that in the Comcast case with Fox, they’re probably the only other company out there that can monetize. Whether they monetize as well as we do, I don’t know. I don’t think they’re quite where we are.

What we looked at there was partly the result of the strategy we’re deploying, which is to be in the direct-to-consumer space in a very serious way. In order to do that, we needed a few things, and one of them, really the most important, was intellectual property. And when we looked at the Fox assets and brands—National Geographic, FX, Searchlight, the movie Avatar, the Marvel properties that they licensed, I could go on, The Simpsons—they had a lot that we could use to feed the beast that we’re taking to the market. And the board has been great at articulating this back to me. Had we not defined this strategy and gone for it, they would not have figured out how the Fox assets would have been of value to us. Because on the surface, you’re buying traditional businesses—cable channels and the like—and what do you need that for?

And then on top of that there was a global element to it that was very important to us. For instance, the Star assets in India. And they have a very successful business across Latin America. Sky was obviously attractive to us too, but it got less attractive as the price went up.

You’re only now getting the Avatar movies, but you already have a new Avatar-themed land, Pandora, in Disney World’s Animal Kingdom.

We had licensed—well before we anticipated buying Fox, we went to Jim Cameron and suggested to him that we build an Avatar presence at our parks, as we had done with George Lucas with Star Wars and Indiana Jones. As Universal did with Time Warner and J.K. Rowling and Harry Potter. So we licensed from Jim the right to build Avatar lands at our parks and paid a fee to Jim and to Fox for the rights. In this particular case, it doesn’t really change except that we’ll be paying ourselves. There are two more Avatars coming and two in the pipeline that have not been greenlit.

Avatar’s a strange movie because it did well, but viewers don’t necessarily latch onto particular characters. Will the new ones be different?

The new ones are a continuation of the former one, so the characters will become more familiar because they’ve only been in one movie. I can’t get into all the details, but there’s obviously character development and story development as part of Avatar 2 and 3. I’ll call it growth or evolution of core characters and introduction of some new ones. It didn’t do $2.6 billion worldwide by accident. There’s something there.

You’re putting a lot of money into the parks. How confident are you about the return there?

The acquisition of these brands and the creation of intellectual property behind them have had a tremendous impact on growing our returns at the parks. When you have Star Wars to market at the parks...Avatar is a good example, Cars Land, we’re building a Frozen land in [Hong Kong, Tokyo, and Paris parks], the interest among the potential audience is higher. It’s not like, “Well, I’m going to ride some nondescript named coaster somewhere that maybe is like, maybe is in India or whatever.” No, you’re going to Arendelle and you’re going to experience Frozen with Anna and Elsa. Or you’re going to fly a banshee into Pandora. Go to Cars Land. We built Radiator Springs. You’re with the characters in that town.

The success of these has allowed us to raise our margins significantly. There’s just more demand for our product than there ever was, because people are coming not just to visit a theme park, they’re coming to experience the stories and the characters, the places, that were part of the movies they loved.

The investment cycle that we’re in is a reflection of that success. Our ROIC, it’s not quite triple where we were, but it’s certainly above our cost of capital. And it’s a good place to put our money.

Do you still feel like you can bring more people through the parks, or is it more about growing ticket prices?

In some, you get more repeat visitation and increased length of stay because there’s more to do. You get more capacity. When Star Wars opens in Anaheim in June and in Florida later in the year, that’s adding capacity. You’re adding 14 acres of land [each], more rides, and more things for people to do. It’s the biggest land we’ve ever built. We’re just getting higher demand on our product spread throughout the year. That gives you pricing leverage. But what we’re also trying to do is be much smarter about pricing strategy, to try to spread attendance and reduce attendance in the peak periods so we can improve guest satisfaction. Crowding is an issue.

What can you tell us about your business in Shanghai Disneyland in light of the tariff standoff between the U.S. and China, and the tension around the arrest in Canada of an executive from Huawei who faces extradition to the U.S.?

We’re mindful of fragility when we enter any market around the world. One of the reasons we were so intent on building a park in China that felt like it was China’s Disneyland instead of America’s Disneyland was we wanted the people to have a pride in it, to feel it was theirs. We’ve built something that is truly a wonder of the world in China. It employs 10,000 Chinese citizens, and it supported and created I think at least 20,000 new jobs in the area. They’re service-sector jobs, not manufacturing. It has become a real tourist attraction. But it’s not without risk.

We have a [local] partner that owns more than 60% of the park. They funded it accordingly. There’s a management company that runs it that we own a majority piece of. That management company earns a management fee and a royalty. It brings the economics to close to 50/50. We’re both incentivized for that park to do well.

How has your day-to-day routine at Disney changed over the years?

I delegate a lot more. The company [has grown] so large that no one human being could possibly manage in terms of hands-on on a daily basis. My senior team makes many more decisions. My priority hasn’t shifted in that we are as a company are far more reliant on the quality of our storytelling than anything else. There isn’t a day that goes by that something related to storytelling—a movie we’re making, a television series, a park we’re building—doesn’t end up on my agenda. I believe, because of my background, I bring some value to that. There’s nothing wrong with accountants, but it’s not like I’m an accountant reading a television script. I came out of the business of making things.

As I said, the forces of disruption are real. I probably spend far more time dealing with the reality of that, strategizing to contend with it, than I ever did. Although one of the first things I did here was make the decision to put our television shows on the video iPod and iTunes platform. So I think it was in me.

Do you still get up very early every morning?

That’s changed. I used to get up at 5:00, and then 4:30. I got up at 4:15 today and exercised in my house for about 45 minutes. I read the paper and a few apps with my wife next to me and a cup of coffee, and I was at the office today at quarter to seven.

What kind of exercise?

At home I use something called a VersaClimber, which simulates climbing. It’s not for the faint of heart. [Laughs] I lift and I stretch a few days a week and I get on a bike outside on weekends. [Walks away, retrieves iPhone.] I love stuff like this that’s a motivator. My watch reads every day that I exercise. So only two days in November I didn’t work out. That’s pretty good.

You’ve said you’re not going to run for president to oversee the Fox deal. Would you like to say how you think things are going on the political front?

No. I’m trying not to wade into politics. The only time i’ll comment on policy is when it affects the company. I have very strong opinions that I’m not sharing.

There was a shift in what was seen as Disney’s succession plan in 2016 [when Tom Staggs left as chief operating officer]. How do you feel about the succession plan now?

The shift there was we had a succession process in place and we identified some possible successors, and ultimately one possible successor, and we made him COO, and it just did not work out in the board’s mind and my mind. I’m not rehashing that. We tried, and we tried at a time that was early enough that if it didn’t work out, the board and the company had time to pivot. And we’re developing other executives who run sizable businesses, to the point I mentioned earlier, who are making decisions more autonomously than ever before given the size of the business. In recent conversations I had, the board believes it has the time to make the right decision and the people to choose from.

What should we make of shareholders not approving your compensation package?

When the Fox deal was announced, my contract was expiring in June 2019. Both Rupert Murdoch, when he contemplated selling the company for stock, and then our board, said in order for this acquisition to happen I had to extend for three years. Part of that extension was compensating me for having done this deal in the first place. There’s a say-on-pay right that shareholders have, and in our case they vote every year. It’s nonbinding. Last year we got less than a majority in favor.

Even though it was not binding, our board believed, and rightfully so, that it needed to engage with shareholders to find out what the issues were that they voted against. The bar was raised in terms of Disney’s performance, and how the company would have to perform, in order for me to earn the kind of compensation that was contemplated in the original contract. That will now be taken to shareholders in the next proxy season.

I’m a big boy. I agreed to do this. I met with board an hour after the vote. We looked at one another and talked about what we had to do. One of my primary responsibilities in this job is to make sure the reputation of this company is stellar, and that’s among customers, employees, and shareholders. I said to them I want to do what is necessary to get a positive say-on-pay vote.

What’s your favorite thing when you go to the parks—or do you just look at it as a businessman?

I look at it as a human being. I go there and I marvel at how many people are there having the time of their lives. You just get the sense that in a world that can at times feel dark and as sinister as it is, these are people that have escaped all of that. They have spent time and good money, I will say, to provide themselves and their friends, their family, their loved ones, an experience that not only is going to make them feel good, but that they’re going to remember forever. That is never lost on me. I appreciate it as an executive, as a human being, and as a parent. I have grandchildren I take there.

Do you have a favorite ride?

I happen to love Pirates [of the Caribbean]. It was the last attraction Walt was really involved in creating. He died just before it opened. And you go and you think, this is just silly, but it’s great. You look at Main Street and you look at kids meeting Mickey. I love it because of what it means to people. I don’t go thinking, “Wow, look what we’re charging for these churros. Isn’t that great?”

What’s it like to go to a Disney park as Bob Iger’s grandchild?

It’s different for them, I will admit. They don’t wait in line.

Corrections & Amplifications

Walt Disney CEO Bob Iger, when asked about Disney park investments, said, “When you have Star Wars to market at the parks...Avatar is a good example, Cars Land, we’re building a Frozen land in [Hong Kong, Tokyo, and Paris parks], the interest among the potential audience is higher. It’s not like, ‘Well, I’m going to ride some nondescript named coaster somewhere that maybe is like, maybe is in India or whatever.’ “

A previous version of this interview incorrectly omitted the word “named” and quoted Iger as saying, “It’s not like, ‘I’m going to ride some nondescript coaster somewhere that maybe is [themed like] India or whatever.” Some readers took the published comment as a criticism of Expedition Everest, a ride with elements of a Nepalese theme in Disney World’s Animal Kingdom. Iger responded in a tweet that he loves the ride and the land around it. In an attempt to clarify matters, Barron’s eliminated the part of the quote that alluded to India. The interview has now been updated to reflect the original quote.

Write to Jack Hough at jack.hough@barrons.com