Table of Contents
EXECUTIVE SUMMARY 3
1. The Walt Disney Company: 4
1.1 Company Overview: 4
1.2 Company History: 8
2. Company Analysis: The Walt Disney Company 10
2.1 Vision and Mission of the company: 10
2.2 Competitive Position in the Industry (Porter’s Five Forces Analysis): 11
2.3 A SWOT Analysis: 13
2.4 The Corporate Level Strategy: 15
3. Presence in the Global Market & International Marketing Strategy: 17
4. Marketing Strategy: 19
5. Portfolio Analysis: 25
4.1 Media Networks 25
4.2 Parks and Resorts 27
4.3 Studio Entertainment 29
4.4 Consumer products 30
6. BCG MATRIX 32
5.1 Matrix Analysis 32
7. International Product Life Cycle 34
8. Recommendation: 36
8.1 Studio Entertainment 36
8.2 Media Networks 36
8.3 Parks and Resorts 36
8.4 Consumer Products 37
9. Conclusion 38
10. Bibliography 39
The goal of this study is to analyse the international marketing strategy, operations and business portfolio of a diversified company. I have chosen Walt Disney Company because it is one of the worlds’ leading diversified entertainment company with operations in four business segments:
o Studio Entertainment
o Parks and Resorts
o Consumer Products
o Media Networks
The company faces competition from companies within the media network and television industry and alternative forms of leisure and entertainment activities. The entertainment industry is also subject to rapid developments in technology and shifting consumer tastes. Neither industry is growing at a rapid pace.
The principal tools that I have used to analyse the company are the Porter’s five force model, SWOT, BCG Matrix, international product life cycle etc. This results in a graphical representation of the relative market share and the industry growth rate for each segment relative to all other business segments of the company.
Disney’s media networks and studio entertainment are better positioned within the business portfolio. Their market share is respectively 60 % and 70 % of the market share of the principal competitor. They show similar growth rates. These business segments represent for Disney the best long-run opportunities for growth and profitability.
The relative market share in Parks and Resorts industry is 100%. Although its low growth rate, for Disney this is the division that generates cash in excess of their needs. This position is in no danger in the near future as revenues for Disney’s parks are more than five times that of their nearest competitor.
Consumer products division is difficult to place exactly. Whether we compare it with licensing based companies or large retailers the results of analysis are quite different.
The Media and Network, and Studio Entertainment divisions should receive substantial investment to maintain and strengthen their dominant positions.
Park & Resorts should be managed to maintain their strong position as long as possible through product development and concentric diversification especially.
The Walt Disney Company:
1 Company Overview:
The Walt Disney Company was funded in 1922, and has become a world leader in family entertainment. Today, the company is operating on a multinational level. The Company and its affiliated companies have remained faithful to their commitment to produce unparalleled entertainment experiences based on the rich legacy of quality creative content and exceptional storytelling. Today, Disney is divided into four major business segments and each segment consists of integrated, well-connected businesses that operate in concert to maximize exposure and growth worldwide. These are:
o Studio Entertainment
o Parks and Resorts
o Consumer Products
o Media Networks
The Walt Disney Studios
The Walt Disney Studios is the foundation on which Disney was built and its heart is world-renowned animated features and live-action motion pictures. With the creation of Mickey Mouse and Snow White and the Seven Dwarfs, the world's first full-length animated feature, the Disney name quickly became synonymous with quality entertainment for the whole family.
Ratatouille The Walt Disney Studios distributes motion pictures under Walt Disney Pictures - which includes Walt Disney Animation Studios, Pixar Animation Studios and DisneyToon Studios - Touchstone Pictures, Hollywood Pictures and Miramax Films. Walt Disney Studios Motion Pictures International serves as the studio's international distribution arm. Walt Disney Studios Home Entertainment distributes Disney and other film titles to the rental and sell-through home entertainment markets worldwide. Disney Theatrical Productions, one of the largest producers of Broadway musicals, also includes Disney Live Family Entertainment and Disney on Ice. Disney Music Group distributes original music and motion picture soundtracks under Walt Disney Records, Hollywood Records, and Lyric Street Records. Advancing its strategy of developing outstanding creative content, Disney acquired renowned computer animation leader Pixar in an all-stock transaction completed in May 2006. In February 2007, The Walt Disney Studios joined forces with Academy Award-winning director Robert Zemeckis and his ImageMovers partners/producers Jack Rapke and Steve Starkey to form ImageMovers Digital, a new state of the art studio devoted exclusively to the production of performance capture projects.
Parks and Resorts
Walt Disney Parks and Resorts is the division of the company that conceives, builds and manages the company's theme parks and holiday resorts, as well as a variety of additional family-oriented leisure enterprises. It is one of the major units of the company. The segment traces its roots to 1952, when Walt Disney formed what is today known as Walt Disney Imagineering to build Disneyland Park in Anaheim, California. Since then, Parks and Resorts has grown to encompass the world-class Disney Cruise Line, eight Disney Vacation Club resorts (with more than 100,000 members), Adventures by Disney (immersive Disney-guided travel around the world), and five resort locations (encompassing 11 theme parks, including some owned or co-owned by independent entities) on three continents:
o Disneyland Resort, Anaheim, California
o Walt Disney World Resort, Lake Buena Vista, Florida
o Tokyo Disney Resort, Urayasu, China
o Disneyland Resort Paris, Marne La Valle, France
o Hong Kong Disneyland, Penny's Bay, Lantau Island
Disney Consumer Products
Disney merchandising began in 1929 when Walt Disney was approached by a businessman interested in placing Mickey Mouse on the cover of a children's writing tablet. Disney Consumer Products and affiliates (DCP) extend the Disney brand to merchandise ranging from apparel, toys, home décor and books and magazines to interactive games, foods and beverages, stationery, electronics and fine art. This is accomplished through DCP's various lines of business which include: Disney Toys, Disney Apparel, Accessories & Footwear, Disney Food, Health & Beauty, Disney Home and Disney Stationery.
Disney Consumer Products Disney Publishing Worldwide (DPW) is the world's largest publisher of children’s books and magazines, reaching more than 100 million readers each month in 75 countries. Disney's imprints include Disney Libri, Hyperion Books for Children, and Jump at the Sun, Disney Press, and Disney Editions. Other businesses involved in Disney's consumer products sales are Disney Interactive Studios, developing and publishing interactive entertainment, and disneyshopping.com, the company's official shopping portal. The Disney stores retail chain, which debuted in 1987, is owned and operated by unaffiliated third parties in North America and Japan under a license agreement with The Walt Disney Company. Disney owns and operates the Disney Store chain in Europe.
Media Networks comprise a vast array of broadcast, cable, radio, publishing and Internet businesses. Key areas include:
o Disney-ABC Television Group
o ESPN Inc.
o Walt Disney Internet Group
o ABC owned television stations
o A supporting headquarters group
Marketing, research, sales and communications functions also exist within the segment.
The Disney-ABC Television Group is home to all of Disney's worldwide entertainment and news television properties. The Group includes the ABC Television Network (including ABC Daytime, ABC Entertainment and ABC News divisions); the Disney Channels Worldwide global kids' TV business, ABC Family and SOAPnet; as well as television production and syndication divisions ABC Studios, Stage 9 Digital Media, Disney-ABC Domestic Television and Disney-ABC International Television. The Disney-ABC Television Group also manages the Radio Disney Network, general interest and non-fiction book imprint Hyperion, as well the Company's equity interest in Lifetime Entertainment Services and A&E Television Networks.
ESPN Inc., The Worldwide Leader in Sports, is the leading multinational, multimedia sports entertainment company featuring the broadest portfolio of multimedia sports assets with over 50 business entities. Sports media assets include ESPN on ABC, six domestic cable television networks (ESPN, launched in 1979; ESPN2; ESPN Classic; ESPNEWS; ESPN Deportes; ESPNU), ESPN HD and ESPN2 HD (high-definition simulcast services of ESPN and ESPN2, respectively), ESPN Regional Television, ESPN International (31 international networks and syndication), ESPN Radio, ESPN.com, ESPN The Magazine, ESPN Enterprises, ESPN Zones (sports-themed restaurants licensed by ESPN), and other growing new businesses including ESPN360.com (Broadband), ESPN Mobile Properties (wireless), ESPN On Demand, ESPN Interactive and ESPN PPV. Based in Bristol, Ct., ESPN is 80 percent owned by ABC, Inc., which is an indirect subsidiary of The Walt Disney Company. The Hearst Corporation holds a 20 percent interest in ESPN.
The Walt Disney Internet Group
It offers a compelling mix of interactive entertainment and informational content and services for Internet and mobile devices for audiences around the world. WDIG is both a developer of unique new media experiences specifically designed for Internet and mobile media and a developer of new platforms for distributing content selected from broad, existing entertainment divisions and libraries of The Walt Disney Company or its affiliated companies. With a portfolio of products and services designed with quality and guest safety in mind, WDIG's integration of Disney's unmatched breadth of content with a best-practices approach to Internet and mobile technology drives multiple revenue streams from premium content offerings, advertising and ecommerce. WDIG's suite of properties includes Disney.com, Family.com, and Movies.com and mDisney mobile entertainment. WDIG is an industry leader in online virtual worlds for kids and families, with offerings including Disney's Club Penguin, Disney's Toontown Online, Pirates of the Caribbean Online and Disney Fairies Pixie Hollow. WDIG is headquartered in North Hollywood, Calif. WDIG content is available directly or through third parties in many major markets worldwide, including the Americas, Europe, and Asia Pacific.
2 Company History:
The Walt Disney Company has a prestigous history in the entertainment industry, stretching over 75 years. It started on October 16, 1923 as the Disney Brothers Cartoon Studio, a joint venture of Walt Disney and his brother, Roy. Three years later the company had produced two movies and purchased a studio in Hollywood, Calfiornia. Pitfalls in distribution rights nearly sank Walt and his company, but the creation of Mickey Mouse saved a sinking ship.
By 1932, the Disney Company won its first Academy Award for Best Cartoon, for the Silly Symphony. 1934 marked the production of Disney's first full-length feature film, Snow White and the Seven Dwarfs, which released in 1937 and became the highest grossing film of its time. But afterwards, the expenses of production caused difficulties with the next few animated films; then the advent of World War II halted the production of films as the Walt Disney Company contributed its skills to the war effort.
After the war it was difficult for the company to pick up where it had left off, but 1950 proved a turning point with the production of its first live-action film, Treasure Island and another animated film, Cinderella. In that time period, Disney also began several television series; in 1955, The Mickey Mouse Club also made its debut.
1955 also provided another landmark moment: the opening of the first California Disney theme park, Disneyland. Disney continued its rise in popularity, and survived even the death of its founder in 1966. His brother Roy took over supervision at that time, and then was succeeded by an executive team in 1971. Several more projects, from merchandising to the continuing production of animated and live-action films to the construction of more theme parks filled the years; in 1983, Disney went international with the opening of Tokyo Disneyland.
In the past few decades, Disney has moved into a wider market, beginning The Disney Channel on cable and establishing subdivisions such as Touchstone Pictures to produce films other than the usual family-oriented fare, gaining a firmer footing on a broader range. In the 1970s and 1980s, the company suffered from takeover attempts, but eventually recovered; the recruiting of the current chairman, Michael D. Eisner, was crucial to that. Eisner and executive parnter Frank Wells have been a successful team, leading Disney to continue its tradition of excellence into a new century.
For more than eight decades, the name Walt Disney has been preeminent in the field of family entertainment. From humble beginnings as a cartoon studio in the 1920s to today's global corporation, The Walt Disney Company continues to proudly provide quality entertainment for every member of the family, across America and around the world.
Company Analysis: The Walt Disney Company
To begin to understand the Disney phenomenon, it is crucial to investigate Disney, the corporation. In other words, to understand Disney's brand of fantasy one must understand how it is manufactured and marketed, by whom and why Despite the image of Disney as a fun-loving, lighthearted and creative company, like any other corporation it is primarily geared to accumulation. On analyzing the industry, it will be feasible to derive the factors that contribute to the company's successes and failures on its way towards becoming the World's largest companies. It can be done by taking in consideration the following factors:
o Vision and Mission of the company
o Disney's industry in relation to Porter's Five-Forces Model
o The strengths and the weaknesses and the opportunities and the threats that the company is facing (a SWOT analysis)
o The corporate-level strategy and corporate philosophy
3 Vision and Mission of the company:
As we all know Disney provides a diversified product range. They offer quality entertainment for the entire family ranging from a visit to one of their theme parks to the latest Disney DVD. The market that Disney is in can be described as the entertainment market. But Disney has as huge range of products. Nowadays they also sell Disney cutlery (with your favourite Disney figure on it) to jackets. So Disney has expanded their business in other ‘potential’ markets like the clothing industry and so on. But their main goal is to provide entertainment for the entire family.
The exact target group for Disney’s products is not really well defined. Disney’s main vision at the moment is:
”The Walt Disney Company strives to be one of the world’s leading producers and providers of quality entertainment and information.”
With this, Disney wants to make sure that they provide good entertainment and products for the entire family. So there is no defined line for everything Disney does. The Walt Disney Company’s objective is to be one of the worlds leading producers and providers of entertainment and information, using its portfolio of brands to differentiate its content, services, and consumer products. The company’s primary financial goals are to maximize earning and cash flow, and to allocate capital profitably toward growth initiatives that will drive long-term shareholder value.
4 Competitive Position in the Industry (Porter’s Five Forces Analysis):
Porter’s model is based on the insight that a corporate strategy should meet the opportunities and threats in the organizations external environment. Especially, competitive strategy should base on and understanding of industry structures and the way they change. Following is the detailed analysis of Disney Company.
Threat of new entrants
The first force to be discussed is the threat of new entrants. Since the Disney Company has been able to find a very distinctive niche in the industry, the entrance barriers are relatively high. The company has been able to grow over a long period of time, and has developed from within the departments of Research and development, marketing, and finance. By relying on past experience, company officials know to a large extent what the target customer wants. As Disney pretty much dominates the family entertainment market, it will be very difficult for such a new organization to develop brand recognition/identification, and product differentiation. Disney has focused of market diversification for years and the company covers a wide array of products and services. Being a market leader has made it possible for the company to practice effective economies of scale in production.
For example, over 500,000 copies of the Videocassette "Pinocchio" were sold in only two months, and have 20-30 million visitors to its theme parks every year. In addition, an extremely large amount of capital investment is required for new entrants into the industry. The capital requirements are extremely high. For instance, Disney spent USD3.6 billion in its European theme park (Euro Disneyland). Only very large companies can meet such large capital requirement. Lastly, the government policy towards the industry appears to be very favorable. The French government invested USD 1.2 billion (40%) in Euro Disneyland, provided public transportation facilities, provided a large tax relief (from 18.6% to 7%) on the cost of goods sold.
Bargaining power of customers
The bargaining power of customers is high in the service and in the entertainment industry. Since a large number of customers are needed to make Disney's operations run smoothly, the customers have certain powers. For instance, if the price on a particular home video is too high, customers may be reluctant to spending the money needed to purchase the product. Another example is the entrance fee charged at Disney's theme parks. It is stated in the case that the maximum amount of money that customers are willing to pay is USD 33. Furthermore, the entertainment industry does not save the buyer money. Instead it is designed in a way that it will make the buyer spend more. A majority of Disney's product mix focuses on intangible returns on the buyer's money. The case that some customers may not realize that they are getting such a return may increase the bargaining power of the customers.
Bargaining power of suppliers
The bargaining power of suppliers is moderate. As the Disney Company is operating in a highly differentiated and unique industry with high switching costs associated with operations, the suppliers are dominated by a few companies and are most probably very concentrated. However, Disney is a unique and important customer of many of the suppliers. Furthermore, the size of the company may certainly be a great advantage. By being able to order large volumes of unique products from unique suppliers, will create a dependency relationship in the industry.
Threat of Substitutes
The threat of substitute products or services is moderate to low. Obviously, other cartoon figures, theme parks, and movies can penetrate the market in which Disney is operating in, but I do not believe that this is representing a significant threat. The Disney Company has already placed price ceilings on many of its product lines, and should be able to compete with new competitors. However, the threat alone of new entrants into the market requires Disney to hedge against such risk by concurrently upgrading products and services.
Competitive rivalry within the industry
Jockeying among current contestants does not play a very important role in Disney's external operational environment. It is true that the company's exit barriers are extremely high. Furthermore, capacity is augmented in extremely large investments. However, there are no close direct competitors to Disney's operations. Competitors such as "Lonely Tunes" retail stores do not appear to commit themselves to expensive advertising campaigns to obtain market shares. Moreover, Disney's products are highly differentiated. The switching costs are therefore quite significant.
5 A SWOT Analysis:
A multinational corporation such as the Disney Company faces internal weaknesses and strengths, which can to a certain extent be controlled. The external forces such as opportunity and threats are more difficult to control, and Disney has to adopt and take advantage to those forces. I would like to start-up focusing on the internal capabilities of the company.
Disney's main strength is reflectd in the following:
? Internal resources: human resources and financial stability
? Experience in the business
? Low-cost strategy of the company
? Very strong and well known brand-name
The company has also been able to diversify its operations and products to hedge against decreasing sales in product lines. In recent years it has diverted into Home Video, Film, merchandise, Radio broadcasting, and Net-work television and in theme parks. It has also effectively globally diversified its operations from USA to Japan and Europe. Employees in the Disney studies appear to be extremely innovative and in recent years they have produced several box-office productions. A company without new ideas is doomed in today's competitive business environment. The low-cost-corporate-strategy is a benefit for the company. The company can control costs, and still produce quality goods and services. Financial risks have been minimized by sharing initial investment costs with a maximum number of outside participants.
Corporations always have internal weaknesses. Disney's main weaknesses are the following;
? A very large work force
? Frequent change in top-management
? High overhead expenses
The company has today 137000 employees. This fact represents possible communications problems, and a high bureaucracy level within the corporation. By diversifying into more businesses and niches, the company's work force will grow even larger, and the organizational structure has to be able to support an expansion of the work-force. The fact that the company very frequently changes its corporate officers makes the corporate structure even more complicated. There are many positive things that accompany changes, but change is also associated with resistance, and large expenses.
Large overhead costs are usually direct effects of a large work-force and a large number of fixed assets. For instance, ticket prices should not be able to exceed USD 50 for entrance to Walt Disneyworld. Customers are not prepared to spend more money than that. Therefore, we can conclude that overhead costs should be closely monitored to match the price that customers are willing to pay for the goods and services offered.
External opportunities should be recognized, analyzed, and responded to in a very early stage. The Disney Company is facing several external opportunities; however, presently I believe that the external threats facing the company are out-numbering the opportunities. Opportunities include the following;
? Positive government attitudes towards its operations
? Barriers of entry are significant
? The entertainment industry
Legal and legislative forces are usually identified as being negative external factors to a company. Ironically, in Disney's case, the French government contributed greatly in the Euro Disneyworld project. The French government invested over USD 1.2 billion in the project, built communication facilities, and gave Disney tax relief's on cost of goods sold accounts. In addition, since the barriers of entry into the highly specialized industry in which Disney is operating, competition will find it difficult to penetrate the company's highly diversified product/service mix. Furthermore, large initial capital investments are required to enter the industry.
Major threats to the Disney Company include the following;
? Over saturated markets
? Politics and economic aspects from a global perspective
? Foreign competition
As the supply of services and products in the entertainment industry is starting to saturate the markets, competition will be more intense, and only the most powerful companies will be able to survive. I believe that Disney has leveraged this risk to a certain extent as it has diversified and globalized its operations, but still, the company is in the service/entertainment business. Some of its operations, such as the Network-television division may not be able to handle the pressure from the Cable-giants such as AT&T and AOL Time Warner.
World politics and the state of the global economies are related to the market capacity. In 1991, the sales revenue of Disney decreased due to a decrease in travel caused by the Persian Gulf War. Furthermore, economic depression could make it too expensive for people to utilize the services and the products offered. Once again, I have to point out that the company has hedged itself to the macroeconomics forces, as it has diversified its business worldwide. If there is a depression in Europe, Euro Disneyland may operate on a loss, meanwhile, the operations in Japan would be able to cover-up the losses by boosting operating revenues. It is known that economic depressions very seldom strike the whole world economy at once.
Competition is always a threat to a company. Even though the entrance barriers are relatively high in the niche in which the company is operating in, the threat of new competition cannot be excluded. The movie business and the Network-television departments are extremely risky. In those two areas of operation, Disney is the intruder, and there are several very powerful rivals. A less significant threat comes from new cartoon characters. New cartoon figures appear every-day in television shows, and in movie theaters overseas.
6 The Corporate Level Strategy:
Disney's corporate level strategy is based on a horizontal and decentralized and informal management approach. Ideas are born from within the departments and are worked-up throughout the relatively low hierarchy, where the final decisions are made. The management focuses on group creativity and in team-work. For instance, the most creative employees usually met every Sunday in the purpose of coming-up with new ideas and new business concepts/strategies. The Sunday meetings are referred to as "Gong Shows", where all participants have to come-up with a unique idea. As seen in this example, a large emphasis is placed on employee participation, especially on the most talented employees. Furthermore, the company is frequently refreshing its top management with new executives. "Top-flight" managers from the entertainment and the financial business bring with them new ideas and concepts which can be applied in the Disney Company. There is however a significant increase in expense attached to luring the very best to join the company. This increase in expense is directly related to special perk-packages, higher bonuses and escalated salaries that are offered to the top-executives.
Another interesting approach is the emphasis that is placed on expansion of the business. It is important for the company to meet demand with an adequate supply of goods and/or services. This can be accomplished by effective distribution channels and effective marketing. This leads us to another corporate policy, efficiency and restraint. Recent trend towards rapid increase in costs in the movie industry have a direct effect on the profitability of the company. By cutting back on the costs involved in making and marketing Disney films, less expensive and more profitable movies can be produced. Efficiency enforced by tight budgets and expected high returns, have surely made it possible for Disney to produce less expensive movies than its competitors.
In addition, the corporate strategy is clearly focusing on diversifying its products and services. Rapid expansion overseas and an increase in the product and service mix have created an umbrella effect. Thus, risks have been minimized. If one product line fails, other product lines will cover-up for its losses.
Presence in the Global Market & International Marketing Strategy:
Today, the company has a reach in almost every country. Its main subsidiaries are as follows:
|ABC television network |ESPN, ESPN2, Jetix, Pixar |
|Disney Channel |Disney parks and attractions |
|Disney films |Radio Disney |
|Disney production studios |Disney radio stations |
|Disneyland Resort |Television series by Buena Vista Television |
|Disney television stations |Touchstone Pictures |
|Walt Disney Theatrical | |
For promoting its product in other countries, it has applied many strategies. Some of them have been stated as under. In the later part of this report, Disney’s strategies have been discussed in detail with appropriate examples. Following is just an overview of its international startegy all over the world.
• The Walt Disney Internet Group (WDIG) offers a compelling mix of Disney-branded online and mobile interactive entertainment and informational content and services for audiences around the world. WDIG also provides the centralized technology infrastructure and expertise that underpin Internet and mobile objectives for all properties of The Walt Disney Company and its subsidiaries, including ABC and ESPN. T The past year at WDIG was characterized by expansion and exciting new beginnings ? most notably the launch of an all-new Disney.com. In February 2007, the Company reintroduced the popular site, complete with innovative, highly customized new features for Disney fans of all ages. Disney.com has been transformed into an immersive entertainment destination with expanded community and social networking features that have been incorporated into the Disney.com XD and Virtual World environments.
• Synergy between its own products is the company is old and successful strategy. For example, with Disney Channel’s smash hits High School Musical, Hannah Montana and The Cheetah Girls, DCP has connected tweens to their favorite stars through a creative assortment of lifestyle products celebrating fashion, music and friends. These products include the High School Musical pillow, which doubles as iPod-compatible speakers, Disney’s first line of musical instruments inspired by Hannah Montana and the High School Musical Sing It! karaoke-style video game for the PlayStation 2 and Wii consoles.
• Wherever the Guest experience takes place in parks, on the high seas, on a guided tour of exotic locales, through the company’s vacation ownership program, people of the organization remain dedicated to the promise that their Cast members turn the ordinary into the extraordinary. Making dreams come true every day is central to its global growth strategy.
• Technology is being applied not only to tell favorite stories in new ways, but also to enable Guests to customize their vacation experience. For example, the world-famous submarines returned to the Disneyland Resort in 2007 when Finding Nemo Submarine Voyage opened to Guests. Inspired by the Disney Pixar film Finding Nemo, the new attraction introduced a technological twist that submerges Guests into the colorful underwater world of Nemo and his friends.
These were some of its strategies while dealing with domestic as well as international consumers. It has always a unique strategy for each of its segment, may it studio entertainment or consumer products. The company has a competitive advantage of mass production, economies of scale and differentiation. In the next section, all these are explained in detail.
In this section, I would like to take a look at the different marketing strategies of Disney Company. From its evolution as a small Hollywood animation studio, Disney has expanded into a giant media conglomerate. To begin to understand the Disney phenomenon, it is crucial to investigate Disney, the corporation. In other words, to understand Disney's brand of fantasy one must understand how it is manufactured and marketed, by whom and why Despite the image of Disney as a fun-loving, lighthearted and creative company, like any other corporation it is primarily geared to accumulation.
To better understand how Disney operates, its strategy has been divided into three parts that explain how it integrates and promotes its diverse activities and global strategies.
? Disney synergy and children’s culture
? Media acquisitions
? Global disney
Disney synergy and children’s culture:
The major media and entertainment companies have long been diversified with business divisions spread across film, broadcasting, and print. Yet, these companies increasingly are realizing the benefits of promoting their activities across a growing number of outlets, creating a cross-promotional dynamic or synergy between individual units and producing immediately recognizable brands.
Such a strategy is not so much vertical or horizontal integration, but a wheel, with the brand at the hub and each of the spokes a means of exploiting it. Exploitation produces both a stream of revenue and further strengthens the brand.
This certainly is not a new development for the Disney Company. From its inception, Disney created strong brands or characters that were marketed in various forms (mostly through films and merchandise) throughout the world. The company's cross-promotional strategies accelerated dramatically in the 1950s when the company opened Disneyland, the theme park that used previously created stories, characters, and images as the basis for its attractions. In addition, the television program Disneyland was introduced on ABC, providing further opportunities to promote the theme park as well as Disney's other products. Over the past few decades, the possibilities for synergy have expanded even further with the addition of cable, home video and other new media outlets. Indeed, the Disney Company has developed the strategy so well that "Disney synergy" has become the phrase typically used to describe the ultimate in cross-promotional activities.
While synergy is often a goal of other media corporations, the Disney company claims to be especially suited for such a strategy of seamless market expansion. It's a unique attribute of the Disney Company, the ability to create synergy between divisions, whether it's interactive games, Buena Vista television, or the Disney Channel. The whole company work together and they do it on a year-round basis that too aggressively. The success of those ongoing roles makes everything in the company work better. It actually has people in every division that are responsible for the synergy relationships of the company and every division has that.
Disney synergy is first and foremost about the commodification of children's culture, its transformation into a universal market, in which licensed characters become the center of an infinite array of interlocking marketing schemes. A close look at the release of one film provides insight into how every division of the company becomes involved in the marketing effort. For example, Disney's thirty-fifth animated film, Hercules, was released in U.S. theaters June 27, 1997. However, a wide array of promotional activities and the sale of merchandise started long before that date.
In much of the press and industry coverage, Disney marketing and promotion activities are portrayed as simple, even "natural" processes. The movie is the primary product and serves as the inspiration for the merchandise that flows from it. For them, it is important to see that the entertainment comes first. First, the kids will see the movie and fall in love with the characters; then they'll want to bring home a piece of that movie. But the film doesn't come first. For a Disney film, the promotion starts with the initial announcement of the film, usually years before its actual release. Work on the pre-production and production process is covered in entertainment and trade magazines, as well as in Disney-owned media.
The Disney Company manufactures its own products as well as licensing specific characters and images to other manufacturers. Disney requires a sizable up-front guarantee and a 16 percent royalty fee on wholesale orders, although most other movie tie-ins are around 12 percent.
It is important to point out that the marketing/merchandising effort is not a haphazard or casual affair. Not only are licensees carefully selected, but the Disney Company insists on coordinating all aspects of the design and marketing of the products. Disney's goal is to have the entire merchandising plan look similar. They want all the products in the store to have the same feel and style. They want their property to look uniform; they treat it like a brand. Even the licensees themselves work together, sharing ideas for marketing and participating in joint promotions. When the realising date come closer, segments of the film are highlighted in the media, especially those channels owned by Disney.
For example, the Hercules World Premiere Weekend in New York included a wide range of events scattered around the city, which were promoted widely and covered extensively by the media. During the entire weekend, The Hercules Forum of Fun at Chelsea Piers" (sponsored by Chevrolet) featured live performances and there were other activities like interactive games, and animation demonstrations. Exhibits included the "Baby Pegasus Playland," "Titan's Tattoo Parlor," and "Hercules' Arcade," featuring a sneak preview of the Hercules video game. As part of the festivities, sweepstakes tickets to win a customized Chevy Venture Minivan themed to Hercules had been distributed through New York-area newspapers. The world premiere of the film was followed by "The Hercules Electrical Parade," a nearly two-mile extravaganza that started on 42nd Sweet and continued up Fifth Avenue to 66th Street. All these was covered live on cable channel E!, as well as receiving extensive coverage by other media outlets.
Disney also repeated its sneak preview weekend strategy (used for Hunchback and 101 Dalmatians) to promote the Disney Stores, Disney On-Line and the Disney Catalog. The on-line site allowed "guests" to purchase special preview tickets for the Hercules Sneak Preview Weekend, plus to locate participating theaters closest to them. By ordering tickets, consumers would receive special character collector pins and special offer coupons valued at over $50. Tickets were also available at the Disney Stores, through the Disney Catalog, or through a special hotline. For one penny more, shoppers could also purchase the already hit single from the film, "Go the Distance," performed by Grammy Award winner Michael Bolton, however, the cassette single was available only at the Disney Store.
Thus, Walt Disney is one of the most efficiently integrated entertainment companies on the planet. All the other entertainment conglomerates talk about 'synergy,' but Disney is the only company that actually does it. They know how to squeeze 'synergy' until it screams for mercy.
The Hercules example demonstrates how all of the corporate divisions become involved in promoting a Disney brand, but does not fully reveal all the additional means of synergistic accumulation that were created with the ABC merger. The addition of ABC and ESPN to the Disney Empire dramatically increased the possibilities for cross-promotional referencing of Disney properties. There are plenty of examples, and only a few are mentioned here:
? Shortly after the Disney-ABC mega-merger, "Roseanne" featured several episodes about visits to Disney World and several "Good Morning America" broadcasts directly from the theme park.
? The introduction to ABC's "Monday Night Football" during the 1997 season featured an opening sequence in which jets flew across well-known American landmarks, including the EPCOT dome and Cinderella's castle at Disney World.
? In 1997, ABC's coverage of the Tour de France included a feature on Disneyland Paris.
? One of the events taking place at Disney World in November 1998 was ABC's "Super Soaps Weekend."
? The Disney-ABC merger also allowed for the cross-over of talent especially between ESPN and ABC. For instance, Chris Berman, the popular ESPN sportscaster, now appears regularly on ABC's sports programs. Other examples of cross-over talent include films, such as The Waterboy, a Touchstone production, which included several sequences with ABC and ESPN sportscasters. Significantly, Disney also has been accused of refusing to sell advertising time on the ABC network for films of rival studios, another indication of the hardball tactics used to protect the Disney brand.
Although promotion of products across divisions, cross-over talent and restrictive advertising policies are probably predictable business strategies, leading people to look the other way, coverage of news and public affairs is (and ought to be) another matter. When Disney took over the reins at ABC, and thus, ABC News, there was a good deal of attention to the Mouse House's involvement in the news business. While the company claimed that it would institute a hands-off approach to news production, there still have been numerous instances of corporate meddling.
The most notable example involved ABC's news magazine program, 20/20. ABC News was accused of canceling a story about theme park security, including claims that Disney World does not administer the kind of security checks of potential employees that would identify sex offenders. Apparently, network executives had agreed to use research from the critical book Disney: The Mouse Betrayed, by Peter and Rochelle Schweizer, but then rejected drafts of a script for the story. Of course, company spokesmen claimed that the chairman of ABC News made the decision on his own without direction from network or Disney executives. In the process of influencing news coverage it works in subtle and indirect ways. "Few media overlords are so crude as to give direct orders to kill or slant stories. They do not have to do that in order to let it be known what their views are and where their interests lie. Almost imperceptible Pavlovian cues reinforce desired behavior and inhibit what is unwelcome. While claims of direct censorship can often be denied and possibly substantiated in some situations, it is still difficult to separate editorial policies from ownership connections, no matter who makes the decisions.
The Disney Company and other U.S.-based multinationals move with agility in foreign markets, not only because of their own activities, but with assistance from the U.S. government. For instance Disney joins with other U.S.-based media corporations in insisting on copyright protection for their products in foreign markets, and relies on the U.S. government to enforce these rights using whatever means are necessary.
As part of its global strategy, Disney waged a campaign aimed at the state to support the copyright extension bill. U.S. entertainment companies continuously make financial contributions to election campaigns, so that politicians and government officials will feel favorably disposed to supporting their interests in foreign markets. For instance, the Washington-based Center for Responsive Politics, in a study based on reports to the U.S. Federal Election Commission, included major contributions to the Democrats from entertainment and communications companies in 1995. Among them: $125,000 from the Walt Disney Co. and $373,000 from Miramax Films Corp. In light of these contributions, it is not surprising to find that President Clinton's trade negotiators have challenged policies that limit the sale of American films and television programs in international markets.
The Disney Company stands out among multinational corporations in the degree to which it is able to elicit financial assistance from foreign governments on its own, especially in the construction of their theme parks and resorts, in ways that other companies probably only dream about. A relatively recent coup d'etat was the support received from the French government in the construction of Disneyland Paris. To attract the Disney company and the estimated 30,000 jobs that would be provided by the park, the French government offered land at below market value, as well as agreeing to arrange low-interest loans, lowering taxes on admissions (from 18.5 percent to 7 percent), and investing 2.7 billion francs in infrastructure improvements, such as new highways and railroads. The funds for constructing the $2 billion Park came from the government, plus a group of banks and investors, with Disney reportedly paying merely $200 million for its 49 percent share.
Meanwhile, in late 1999, the company announced that it would build a new theme park in Hong Kong, with the government there contributing as much as $1 billion for a majority stake in the project. Although the Disney Company doesn't always get its way with governments around the world, or even in the U.S., their ability to do so in many situations provides them with important advantages in foreign markets. Thus the Disney brand continues to cross international borders and Disney products continue to be interpreted as universal.
Not only is Disney generally able to move with agility in global settings, but the company also succeeds by exploiting international opportunities. Similar to other multinational companies, Disney takes advantage of chances to produce its products outside the U.S., where they find cheaper labor and lower operational costs. Disney's film and television production is arranged where labor is cheap or tax advantages are lucrative, which often means countries outside the U.S. Animation production is often cheaper outside the U.S., so consequently, some of Disney's work is done in Asia, Australia, and Canada.
Disney's extensive merchandising activities also benefit from the globalization of labor that has accelerated over the last few decades. Like many other American companies, Disney often designs its own products and then licenses the actual manufacture to independent subcontractors, mostly in Third World countries. The company obviously benefits from controlling the design of products, which then can be produced at lower cost and sold for higher profit margins. As a capitalist concern, Disney benefits from a global division of labor that perpetuates the de-skilling and devaluation of labor in this process. The company licenses the rights to its intellectual property to contractors at relatively high rates, thus subcontractors seek to manufacture products for the lowest possible cost. For products that depend on manual labor (clothing and toys, for instance), this often means that products are manufactured where labor costs are low, meaning American sweatshops or in factories located in developing countries.
One source claims that Disney licensed products are manufactured at an estimated 3,000 factories worldwide, often in Third World countries where workers are paid poverty-level wages and often work in inhumane conditions. For instance, in December 1998, the minimum wage for workers in Haiti was $.30 an hour, which means $2.40 a day, or $624 a year. If a worker is paid on a piece rate system, it is possible to receive around $.42 an hour, which is still not enough to pay for a family's food for one day. Human rights groups have organized efforts to call attention to these conditions, calling for a living wage of $.60 for Haitian workers.
Licensed products are also produced in China, Macau, and Vietnam, where workers are sometimes paid late (or less than promised) to work in factories where they are exposed to toxic chemicals. Other products are produced in Hong Kong, Taiwan, Dominican Republic, Mexico, St. Lucia, Malaysia, Brazil, Thailand, Colombia, El Salvador, the Philippines, Indonesia, Sri Lanka, Honduras, India, and Bangladesh.
While the labor of developing countries produces these articles, the laborers are excluded from consuming their products. Further, surplus value created by underpayment is embodied in the products. When Disney prices the product as if it were manufactured in an industrialized country, Disney profits from that surplus value.
Looking at the Disney merchandise available in one American city, Tracy compared different types of Disney products and where they were produced. He found that a majority (80 percent) of the toys, jewelry and ceramics (which require manual labor) were manufactured in dependent countries, while media products (which benefit from automated production) were overwhelmingly (92 percent) produced in industrialized nations.
The Walt Disney Company, together with its subsidiaries, is a diversified worldwide entertainment company with operations in four business segments:
? Media Networks
? Parks and Resorts
? Studio Entertainment
? Consumer Products
Disney instantly became a household name when it began producing its famous animations and then full length feature films. With the addition of the Disney theme parks it has also become a popular family vacation destination. These productions and services operate as the core of The Walt Disney Company. Slowly, Disney has acquired additional investments that complement Disney’s original assets. It has expanded into e-commerce, consumer products, media networks, and international theme parks. Among all of Disney’s acquisitions there are strong synergies. Disney’s television and radio acquisitions act to complement its production company and its consumer products, cruise line, and e-commerce support its theme parks, and of course there is a large amount of horizontal overlap. Each company complements the original core of Disney, with the goal of making all of them stronger. The diversification has been carried out mainly through horizontal and concentric integration. This further secures their advantages in many market segments within the industry which makes it difficult for competitors to enter.
7 Media Networks
The Media Networks segment consists of the Company's television and radio networks, cable/satellite and international broadcast operations, production and distribution of television programming and Internet operations.
The Company operates the ABC Television Network and the ABC Radio Networks, which have affiliated stations providing coverage to households throughout the United States. The Company also owns television and radio stations, most of which are affiliated with either the ABC Television Network or the ABC Radio Networks.
Walt Disney's cable/satellite and international broadcast operations are principally involved in the production and distribution of cable television programming, the licensing of programming to domestic and international markets and investing in foreign television broadcasting, production and distribution entities. Primary cable / satellite programming services, which operate through consolidated subsidiary companies, are the ESPN-branded networks, Disney Channel, International Disney Channel, SOAP.net, Toon Disney, ABC Family Channel and Fox Kids channels in Europe and Latin America. Other programming services that operate through joint ventures, and are accounted for under the equity method, include A&E Television Networks, Lifetime Entertainment Services and Entertainment Television.
The Company also produces original television programming for network, first-run syndication, pay and international syndication markets along with original animated television programming for network, stage plays and musical recordings. Additionally, it operates ABC-, ESPN- and Disney-branded Internet Website businesses.
The Media Network segment revenue for 2007 was $15,046 million which represents 42% of the total revenue of the company. This Segment revenue has increase by 12.4% in comparison to the fiscal year 2006. ABC a leader in entertainment, news and sports television programming, celebrated its 53rd anniversary in 2007. Last season ABC Entertainment introduced several successful new comedies that returned the network to its traditional strength in family programming. ABC was able to write approximately $2.4 billion in advertising being second only to NBC, and achieved double digit price increases of 14-16 %, more than NBC or Fox.
The television industry is changing and national television stations no longer hold the majority of the market and are not as dominant as they have been historically. There are four large public television networks that now also offer a myriad of shows available for viewers. In addition to these stations, there are also numerous smaller public television networks, but more importantly there is cable and digital television. Cable, and especially satellite, television greatly increases the number of program options open to the consumer. This has not always been the case. The availability of other television networks has increased greatly over the last fifty years. In the 1950s, most American television set owners had access to only three channels. Through the 1970s viewers could choose to watch programs on one of the three major networks: CBS, NBC, or ABC. Up until the early 1980s the national networks had well over 90 percent of the market share. The only substitutes for programs on ABC were the programs on the other two channels. Then throughout the 1980s and 1990s the number of cable networks exploded because of the improved cable technology and direct-broadcast satellite television. This technology multiplied the channels available to viewers, thereby greatly increasing the number of options. The number of broadcast networks increased as well, with the success of the Fox network and then the arrival of the UPN and WB networks. By 1997 the market share of the broadcast networks had decreased to under 50 percent. With so many channels available to the viewer there is less opportunity for one channel to have a majority portion of the market share.
Disney’s second largest network is ESPN, a cable sports channel. ESPN is the top rated network in its category and has proven to be a sound investment for Disney. Aside from ESPN, Disney controls the Disney Channel, ABC family, and A&E. These are small channels that do not cause a drain on resources while simultaneously increasing diversity in Disney’s portfolio.
The media network business is highly competitive. Competition for sales of broadcast advertising time is based primarily on size and demographic characteristics of audiences. Disney is number 3 in the market after AOL Time Warner and Viacom. In the table 1 the relative market share and sales in million USD of the principal competitors are shown. The industry growth rate is estimated to be 2.77%.
|($ in million) |2007 |2006 |2005 |
|Company |Sales |Market Share (%) |Sales |
Company |Sales |Market Share (%) |Sales |Market Share % |Sales |Market Share (%) | |Disney |$10,626 |46% |$9,925 |48% |$9,023 |54% | |Vivendi |$5,977 |26% |$4,788 |23% |$3,245 |19% | |Six Flags |$6,320 |28% |$5,795 |28% |$4,500 |27% | | | | | | | | | |
8 Studio Entertainment
The Studio Entertainment segment produces and acquires live-action and animated motion pictures for distribution to the theatrical, home video and television markets. It distributes these products through its own distribution and marketing companies in the United States and most foreign markets primarily under the Walt Disney Pictures, Touchstone Pictures, Miramax and Dimension banners. The Company also produces stage plays and musical recordings.
Disney’s studios are as good as their competitors in the industry, but there are numerous competitors in the film industry. Whether or not Disney films generate large revenue depends directly on attendance figures, which of course varies greatly by film. The hope in motion picture production is that a movie will be a blockbuster and already make a profit once it is released in theaters and then generate large amount of revenue with the sales of the related merchandise that goes along with the movie. If moviegoer attendance is low to a film then the production companies typically have a very high probability to lose money on the film due to the high initial production costs of a film.
Disney’s production companies are comparable to other relative production companies in size and stature. In 1999 Eisner mandated that the annual investment in movies be reduced. No doubt this decision was based on the box office failures that Disney had suffered from in previous years. Eisner’s plan, combined with the intensive research of which films Disney decides to produce, has proven to be a successful combination, as evident by the overwhelming number of nominations that Miramax and Buena Vista Motion Pictures Group has received from the Academy of Motion Picture Arts and Sciences.
The studio had a lot of bright ideas and vision in 2003, resulting in the most successful year in live action film in its history (Pirates), both in terms of total box office and more important the profitability.
A big part of Disney Pictures’ identity is based on animated releases which in 2003 proved to be as strong as ever. “Finding Nemo” became the number one animated film of the year. Further down the road in 2005, Disney plans to create a 100% computer generated animated film, an extreme contrast from where Disney started by manually drawing every frame. An important development during 2003 is the increasing sales of DVD’s with a total of 20 million Lion King recordings sold in just 2 weeks.
Disney’s film production companies have been quite efficient and successful. They have succeeded in producing movies that are not only hits but also affordable to create. One improvement that Disney could make would be to decrease the cost of distribution by digitalizing their new releases. This technological investment would save millions of dollars.
In the Movies and Entertainment industry, Disney’s competitors are AOL Time Warner, Viacom, Sony, and Newscorp. Disney has a strong 3rd position behind AOL Time Warner and Viacom; the current industry growth rate is 4.3%. In 2007, Disney’s revenues were $7491 million.
9 Consumer products
The Consumer Products segment licenses the Company's characters and other intellectual property to manufacturers, retailers, show promoters and publishers.
The Company licenses the name Walt Disney, as well as its characters and visual and literary properties, to various manufacturers, retailers, show promoters and publishers throughout the world. It also engages in direct retail distribution, principally through the Disney Stores, and produces books and magazines for the general public in the United States and Europe. In addition, Walt Disney produces computer software products for the entertainment market, as well as film, video and computer software products for the educational marketplace.
The Company's Direct Marketing business operates the Disney Catalog, which markets Disney-themed merchandise, through the direct mail channel. The Catalog offerings include merchandise developed exclusively for the Disney Catalog and DisneyStore.com, as well as products from the Disney Store, other internal Disney businesses and Disney licensees.
Disney consumer products really complement the rest of Disney’s assets. The clothing, toy, art, recordings and other accessories accompany Disney’s movies and theme parks. If a movie is a blockbuster it will have high sales in merchandise. Although they are in a market that has a relatively slow growth rate and do not have a high market share, they serve an important purpose by promoting brand identity. The specificity of these consumer products makes it quite difficult to compare the Disney Consumer Products with other companies of this industry. The revenues of Disney in the business segment Consumer products have increased in last three years from 2127 million USD in 2005, 2193 million USD in 2006 and 2347 billion USD in 2007.
This matrix is based upon philosophy that a business can be classified in four main categories based on different combinations of market growth and market share in relation to the largest competitor in a given section such as Disney in the Parks and Resorts sector.
It is most useful for companies that are not only large but also diversified and organized into business units, the BCG Matrix was developed by the Boston Consulting Group as a means to properly allocate resources among the respective units. This model greatly assists with managing a portfolio of different business or for that matter lager product lines.
Stars: High Growth, High Market Share
Cash Cows: Low Growth, High Market Share
Dogs: Low Growth, Low Market Share
Question Marks: High Growth, Low Market Share
10 Matrix Analysis
Both Disney’s media networks and studio entertainment are clearly stars in the company’s portfolio. The two industries are closely related and it is not surprising that they show similar growth rates. While neither industry is growing at an extremely rapid pace, both are well in the positive range. The main difference for Disney in these two areas is the considerable difference in relative market share. The company has a much stronger position in studio entertainment with over 70% relative market share compared to just fewer than 60% for media networks.
Disney is most often associated with its parks and resorts and rightly so. This division was once a strong star. Now that this industry is shrinking slowly, this segment has become a cash cow. However, it is a very strong cash cow due to a 100% relative market share. This position is in no danger in the near future as revenues for Disney’s parks are more than five times that of their nearest competitor.
Consumer products segment is difficult to place exactly. If we compare it to other licensing based companies, it is a strong star due to the fact that the Disney is the number one brand in licensing and this industry is growing. On the other hand, if we compare it to other large retailers in the clothing or toys industry, Disney’s consumer products division slips to a question mark position due to its weak relative market share in a growing industry.
International Product Life Cycle
IPLC is concerned with the diffusion process of an innovation across national boundaries. In essence, a developed country, having a new product to satisfy consumer needs, attempts to exploit its technological breakthrough by selling abroad. Other advanced nations soon start up their own production facilities and before long, less develped countries do the same. Finally, advanced nations, having lost their comparative advantage, begin to import products from their former customers.
Not counting stage 0, IPCL has four distinctive stages:
0. Local Innovation
1. Overseas Innovation
3. Worldwide Innovation
Local innovation is a regular and highly familiar product life cycle in operation. In case of Disney Company, it has passed through this phase long back, in its initial days of inception in US. Due to technological know-how and abundant capital to develop new products, it started its operation in Europe and on later stages in China and HongKong.
This is the stage when the IPCL begins, and it is known as international introduction stage. At this stage, Disney looked to overseas markets for expansion. It was a logical chocie first to expand in other advanced or developed countries because of their similar needs and high income levels.
This stage is characterized by stability. Sales and exports begin to level off, but remain relatively stable. In case of Disney, there is a high demand of its product in other countries like India, China, Australia, Japan etc. But this does not necessarily mean that there are greater exports. At present, there are many substitutes of its products and for this reason, Disney is somewhere around the maturity stage.
In this stage, exports from US decline. Despite stable imports demand from the less developed countries, the US worldwide exports fall because:
? Advanced nations are now self sufficient,
? These countries increasingly replace the US in exports to less developed countries,
? Consumer demands in such developing nations grow to absorb all of the supplies offered by all advanced countries.
Disney has not reached to this stage yet. It can be said that its studio entertainment and media network segment has reached this stage. But parks and resorts and consumer products are still doing well in advanced nations.
If Disney would come at this stage, then US will be no longer an exporter and may become importer instead. The major functional characteristic of this stage are product standardization and comparative disadvantage. And the product is no longer a novelty. This may be possible in the case of Disney after a time period of seven to eight years. The reason behind this is the upcoming players in the market. At present, Disney faces major competition in each of its segment. And gradually people are becoming price sensitive and benefits from competiton between these players.
Strategic changes and tactical changes that are needed in the Disney Company have been mentioned throughout the paper. However, in this section, I would like to summarize some of the changes which I believe are necessary for keeping-up the profitability of the company.
11 Studio Entertainment
This star in Disney’s portfolio should be treated as such and a high amount of investment is appropriate in this area. In light of this, Eisner’s 1999 mandate that annual investment in films be reduced was ill advised. Fortunately, Disney has reversed this trend and is investing heavily in their studio entertainment division which is evidenced by rapid revenue growth in the last two years. With six competitors above three billion in revenue, this industry segment is very competitive. Complacency or lack of investment could quickly lead to declining market share.
In the past, Disney has employed integration, market development, product development, and joint ventures to strengthen their position in this industry. This is a good recipe for the future as well. Unfortunately, the company’s highly successful joint venture with Pixar was recently cancelled. It is imperative that Disney continue to search for new opportunities.
12 Media Networks
Disney’s second star has risen from question mark status due to horizontal integration. Many competitors have followed similar strategies and two of them are ranked above Disney in overall sales with three more closely behind. Disney’s strategy for this segment should be similar to that for studio entertainment with a large focus on maintaining or increasing market share. In recent years, the company has been successful with product development. However, in the future, a shift to horizontal integration or joint ventures may be necessary to keep up with competitors, several of which have recently announced joint ventures of their own.
13 Parks and Resorts
As a clear cash cow, this division should be managing in such a way so as to remain the market leader in its industry. This should not be difficult due to Disney’s position as significant market leader. However, the company is still concentrating on growth through market development in areas such as Hong Kong and Japan. This strategy would usually not be optimal for a cash cow. However, since the markets in the Far East are still growing, Disney’s parks in these areas are better defined as stars and market penetration becomes appropriate.
14 Consumer Products
Since this segment is such an integral part of Disney’s strategy and so closely linked to the other business areas, it is recommended to continue as is in this area. This business unit will most likely never achieve star status due to its inability to compete with the truly large retailers. However, Disney is able to achieve high margins in this segment while at the same time using it as an advertising tool. As long as the other segments continue to run well, this area will also be successful and add a certain amount of diversification and important profits.
Some more recommendations:
First, I would like to focus on organizational changes. The frequent changes of corporate officers should be stopped. It is true that a new leader not requited from within the organization will bring with him/her new ideas and concepts. But, such a person also brings a foreign corporate culture to Disney's organization. That fact may lead to communication, efficiency, and moral problems within the organization. By promoting from within, employees will know the new corporate officers, and understand the new rules of the game.
Second, Disney's market diversification is excellent, but what is the point of licensing product ideas? I believe that it would be more profitable for the company to produce, sell and market consumer products itself rather than to a large extent relying on licensing, and percentages of revenues. For instance, the company did sacrifice too many profits while negotiating the Tokyo deal. Furthermore, there is a possibility that the company is loosing its original purpose of being if it continues to get into various market segments. Disney should always place a very specially emphasis on its theme park division and its film entertainment division. The company's original mission was to "nurture the imaginations of children around the world as well as to celebrate American values." I certainly believe that the company is drifting away from its original purpose of existence. Moreover, it could be very dangerous by entering into markets which are totally unrelated to the products/services that the customers directly associates with the Disney Company.
Finally, efficiency has to increase in the theme parks and resort division. The asset turnover ratios are far too low in this division in comparison to the other divisions. Furthermore, as the liquidity ratio appears to be a bit too low for the corporation, I would suggest the company to increase current asset requirements and keep current liabilities under strict control. Under no circumstances should the current liabilities be allowed to increase in a greater rate than the current assets.
Disney is a household name with many products such as Mickey Mouse and Disneyland that everyone knows. At the same time, the company is very diverse with many departments and divisions that are not immediately associated with the Disney family. After analyzing these divisions, it becomes evident that the company has a strong portfolio with stars in media networks, and studio entertainment, a cash cow in the parks and resorts division, a strong question mark for consumer products, and no dogs. With an enviable portfolio such as this, it is easy to see why Disney is currently a takeover candidate.
Disney is an icon of American culture. It has insinuated itself into the everyday life of hundreds of millions of people, primarily through its role in the commodification of children's culture, but also through the commodification of media and culture, more generally. Although it still has a beneficent public image that goes back to the original Disney animation studio, there is no doubt about what the company is all about. Disney's overriding objective is to create shareholder values by continuing to be the world's premier entertainment company from a creative, strategic and financial standpoint.What Disney is about is creating entertainment commodities that penetrate into homes everywhere through the manipulation of innocence and dreams--the manufacture of fantasy for profit.
In terms of accumulation, there are no limits to the expansionary goals of Disney, which sees itself as a global corporation with a universal, increasingly high-tech content in a new economic age. The magical-market world that Disney has created is one in which a global megacorporation is able to exploit the new digital technology while continuing to plunder history, mythology, and folktales for its visual icons--and transforming these into new, fun-filtered licensed products aimed mostly at children, who are taught to buy into both the visual images and the final licensed products. At the same time, Disney, with its unlimited commercial thrust, has absorbed one of the big U.S. television networks, ABC, giving it considerable control over not simply the manufacture of fantasy, but also the presentation of television news, supposedly a window into the world of reality. What Disney thus represents is a giant financial box, expanding seemingly without limits into a wide range of cultural products. "People feel overworked and underpaid, especially in contrast to their CEOs, who now make 500 times the average employee's wages."
5. Case study: Walt Disney Feature Animation, available on ftp.codeweavers.com/pub/crossover/case_studies/WaltDisney.pdf
6. Case study: Walt Disney Company, available on www.geocities.com/TimesSquare/1848/disney.html
7. Article on “The Magical-Market World of Disney” by Janet Wasko (Business Week, September 11, 2000, p. 182)
8. Article on “World Promotions & the Walt Disney Company”
9. Annual Report & Company Presentations: Walt Disney Company