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External Forces Faced by Walt Disney Company

Overall Economic, Social, and Cultural Forces

Disney is most notable known for theme parks. Having destinations around the world,
Paris, China, Japan, and the United States, these theme parks play a critical role in Disney’s
profitability. Currently, Disney is planning on laying-off, though the current number is
undisclosed. They employ around 80,000 people in their parks; in the month of January they
bought out 600 executives. 1 Also, profits for the December 2007 were down 24% in the parks.1
Currently, the economic recession has limited families to expend much of their income on
vacations. Oil and energy prices have also fluctuated, which contributes to the dwindling
number of visitors. Disney has special interest in natural gas and petroleum, currently being
partial shareholders of Bass Enterprises Production and Crude Petroleum and Natural Gas
Extraction Company. 2 Currently, the economy is slowing down the sale of both of these goods,
even though demand is still relatively high.
Disney’s Media business is also connected, but not affected as greatly by current
conditions, due to the diversification of Disney and box-office and TV successes. Pirates of the
Caribbean grossing $2.79 billion worldwide, and the acquisition of Pixar and their first movie
under the Disney label WALL-E grossed $521 million worldwide, 3 as well as the TV sector hit
shows such as Grey’s Anatomy and Desperate Housewives.3 The current economic situation has
brought many companies to cut back on advertising.3 As a result, Disney’s advertising revenue
has declined.3 In an attempt to fix this problem, job cuts were made in 2009 and ABC Studio
will be combining with ABC Entertainment in order to streamline TV production.3 Despite ABC
problems, Disney Channel and ESPN have had great success.3
Walt Disney Company has been integrated into Western Society, became a household
necessity, and if one has not been to Disneyland or seen a movie production, the person is
considered society misfits. 4 Though this is not to say Disney is perfect, when opening up Euro
Disney they failed to factor in the cultural and social differences, causing Euro Disney to greatly
suffer. The lack of wine being offered with meals and no smoking are considered European
necessities, with a host of other problems.3

Analysis
Studio Entertainment3
Walt Disney Pictures
Touchstone Pictures
Hollywood Pictures
Miramax Films
Buena Vista International
Buena Vista Theatrical Productions
Buena Vista Music Group

1
(Garcia 2009)
2
(Reuters n.d.)
3
(Hoovers 2009)
4
(Chiang n.d.)
 Page |2

Competition
Currently Walt Disney Company’s studio entertainment division has the narrowest
operating margin when compared to the other segments.3 There is a large amount of competition
in this particular industry segment. Time Warner and News Corp both operate in this field under
Time Warner, and 20th Century Fox.9 Respectively, other companies such as General Electric
who own Universal Pictures, Viacom who own DreamWorks and Paramount, 5 and abroad many
country subsidies, Taiwan, Canada, and India are all examples. 6 There is also copyright
infringements’ and intellectual property theft that happen daily that Walt Disney and the
governments that Disney operates must deal with.3

Studio Performance in 2009 7

Rank Distributor Market Share Movies Tracked 2009 Movies

1 Warner Bros 19.1 14 5

2 Sony/Columbia 15.3 9 6

3 20th Century Fox 14.2 7 2

4 Paramount 9.9 5 2
5 Fox Searchlight 8.2 4 1
6 Liongate 7.2 5 3
7 Buena Vista 5.5 7 1
8 Universal 4.3 5 1
9 Focus Features 2.9 2 1
10 Paramount Vantage 2.7 3 0
11 Summit Entertainment 2.7 3 1
12 MGM/UA 2.5 4 0

Substitutes
There are many different forms of entertainment and Movies can be substituted with live
theater, music, TV, books, magazines, video games, renting videos, sports and recreation, and
many other activities.

Threat of New Entry

The actual threat of new entries is quite high in terms of availability and ease of access.
Technology has significantly lowered costs, which has been the main barrier for new entries in
this market.6 Small and independent filmmakers have the ability to enter this market with ease.
Though they rely heavily on film festivals and the Internet (such as YouTube) in order to make
any profits, their low-cost movies produced very limitedly produced and very limited in terms of
marketing budget. 8 Larger studios spend large amount of resources on advertising and

5
(Hoovers 2008)
6
(Chiang n.d.)
7
(IMBD 2009)
8
(Iype 2005)
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distribution, thus their movies do have the advantage of mass people seeing the productions. For
example, Disney spent $671 million in 2005 for advertising and distribution of movies. 9 Though
movies are judged by their story, pedigree, special effects, and acting, there is little brand
identification or brand loyalty with the company towards any of these specifics.8 New entrants
can easily establish themselves, and the only time this may faultier is in the case of film
franchises where a fan base could establish.6

Suppliers
For studios, suppliers consist of writers, directors, new talent, and current talent. Each of
these groups have the ability to make hefty demands, particularly actors or directors that have
had past successes. Tom Hanks, Steven Spielberg, George Lucas6 are all successful people that
can hold out for more money or demand better profit-sharing deals.4 In return, all can affect the
studio’s profitability for that particular movie.4 Though there is an excess of actors, directors,
and writers, not all talent is equal or in high demand. 10 This results in bargaining power for these
particularly popular or talented people to have greater weight in their favor.4 Finally, the talent
could refuse to work, or even after production has begun, change their demands or decide not to
finish the film, causing scheduling and budget problems.10

Buyers
The general public is who the studios are selling the movies towards, or the audience.
Poor reviews by film critics or friends can cause films to flunk. The tremendous starting cost to
produce and publish a film is very risky.8 Ultimately, the audience decides the success of that
risk, and there is no way to predict successful films.3 Other factors that can influence the buyer
are exogenous such as, seasonality, economic conditions, and weather; or they could be
endogenous, such as cultural or social, the films marketing message, and the perception of actors,
directors, or writers.10 Finally the buyers are also the ones that pirate the films which undercut
the ability for the film studio to sell directly to the audience, such as previews for future movies,
or advertisements.10 It also hurts the overall sale of films which causes the studios to increase
ticket price or DVD prices, thus deterring people further to see a film.10

Parks and Resorts3

Disneyland Resort
Walt Disney World Resort
Tokyo Disney Resort
Disneyland Resort Paris
Hong Kong Disneyland
Disneyland Hong Kong
Disney Cruise Line
Disney Vacation Club Resorts
ESPN Zone
Walt Disney Imagineering

9
(Hoovers 2009)
10
(Wikipedia 2009)
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Competition
Domestically there are many theme parks that Disney must contend with, Six Flags, Sea
World, Anheiser Busch, and Knott’s Berry Farm.9 There are also many local single park
operations throughout the United States. Globally Six Flags and Cedar Fair Entertainment, as
well as small local theme parks operate successfully in competition with Disney.9 Conventions
and convention centers hold another possible rivalry, hosting gun shows, golf exposes, and car
shows, all cheaper then theme park entry fees.9

Substitutes
In this situation substitutes consist of events, activities, or destinations that are time
based. Since people go to theme parks expecting to spend most of the day or longer there, then
substitutes should consist of similar time frame. Cruises, museums, sporting event, spas, skiing,
water recreations, hiking, and beaches could all be cauterized as a substitute for theme parks.

Threat of New Entry

The extraordinary cost of building a new theme park and the ability to raise the capital
needed limits new entry. For example Disney is going to revamp its southern California Park,
California Adventures, and it is estimated that the cost will be $5 billion.11 This construction is
for a new entry, new section of the park, revamp of the board walk games, installment of other
new attraction (most likely around 3-4) and a new light show.11 This exceeded the cost to build
Disney Hong Kong, which topped $3.5 billion. Finally government, environmental, and safety
regulations further inhibit new entry.11

Suppliers
Designers, construction workers, maintenance teams and park operational employees are
the main source of supply. Designers, maintenance teams and some construction workers have
highly specialized degrees and thus are in limited supply.3 Due to this limitation salary, benefits,
and other perks are extremely important to keep these key people with Disney. Operational
employees tend to be high school or college students easily replicable offering a steady stream of
employees during peak seasons.3

Buyers
The general public the main buyer, visitors to parks weigh the entertainment value of the
theme park against the cost, time and travel distance that is required to attend.11 Large families
may find it too costly to travel or purchase tickets, or even demands for vacation could impede
traveling to Disney.11 Though Disney has created incentives, purchasing four night of vacation
and receive three nights free, low monthly costs for theme park membership starting at around $6
a month, and free theme park admission on your birthday.11

Consumer Products3
Disney Hard-lines
Disney Soft-lines
Disney Toys
Disney Publishing

11
(The Walt Disney Company 2009)
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Buena Vista Games

Disney Stores
Disney Online
The Baby Einstein Company

Competition
Consumer products categories range from adults, children, babies, families, couples,
singles, and so forth. Also the categories are arranged by their product type, house wares,
technology, apparel, etc. This industry is very competitive, and there is sparse growth, extreme
customer loyalty and profound customer segmentation.9

Substitutes
Substitutes are high since product variants are easily attainable; many customers base
decision on cost, location of the store, and ease of accessing the goods.9 Though the
diversification in the market by the major companies has mitigated the loss of the market share
or revenues; meaning that few companies own many of the products produced.9 The only market
that’s not controlled by this circumstance would be the high end consumer electronics sector,
since technological standards are consistently changing and most companies only operate under a
single brand name.9

Threat of New Entry

Entry into this segment of the market is quite high, though success is difficult to attain.
Economies of scale, price pressures, and fierce rivalry keep this segment intensely difficult to
survive.9 For example large firms can temporarily cut prices or increase promotions to stifle new
competition due to their economies of scale and deep pockets. 12 Finally new entries require
extremely effective marketing, which for the most part can be overshadowed by the larger firms.
Their marketing budget is extensive, causing the new entries not to be noticed.12 If a company
does succeed then large firms tend to buy them out, since new successful products in this
industry are difficult to establish.12

Suppliers
Supplier’s threat can vary depending on economic situation and how the firm operates
with suppliers. Some companies choose to manage brands and outsource production; if the firm
is successful at this advantageous deal, then they will succeed.12 Other companies choose to
manage the entire supply chain; this is effective if the company is not good at the latter.12
Overall since companies all operate differently, the threat of suppliers is either weak or strong,
but this depends on many circumstances, economy, labor trends, disasters, etc.12

Buyers
Reuters says this about buyer’s power, “The development of information transparency in
the modern consumer world has given consumers an unprecedented level of power. This has
placed extreme pressure on personal and household product manufacturers, as any products or
brands that are poorly received will generate high levels of negative converge, particularly on the
internet.”12 Product lifecycles has been cut short by the increase in communication and social

12
(Reuters n.d.)
 Page |6

networking, and consumers in small towns now can access products that are in large
metropolitan areas, limiting the firm’s ability to limit or create special product lines. 13 Finally
inhuman trade practices and unfair labor practice has become president to the public particularly
Western countries. 14 With many of these product being produced in China or other Asian
countries, firms need to make sure that in these other countries correct practices are being used;
if not, boycotts or bad publicity could be the result.14

Media Networks3
ABC
ESPN
Radio Disney
Disney Channel
ABC Family
Toon Disney
Jetix
Dinsey XD
Playhouse Disney
ABC News
Disney Family Movies
Disney’s One Saturday Morning

Competition
In the United States there are six main broadcasting networks, CBS, ABC, Fox, NBC,
and CW (The WB and UPN).3 Each of these broadcasting networks creates and distributes
content throughout the United States. Each of these networks also owns individual broadcasting
stations throughout the USA.3 Time Warner, Dish Network, and Cox Communication are the
main broadcasters of cable TV throughout the United States.9 Many broadcasting networks
fragment the market with dedicated channels, such as Disney’s ESPN, or Time Warner’s CNN.9
“Many industry analysts have decried the cable television business as local monopolies both
domestically and internationally.” 15 Expected growth for these networks is actually through the
internet, and small networks actually have advantages over the larger networks, mainly due to
bureaucracy of large networks.9 The continued improvement of bandwidth through the evolution
of fiber optics and continuing advancement is making the internet a viable expansion option.
Internet sites such as YouTube and Hulu have illustrated this expansion.9

Substitutes
In this situation, substitutes consist of events, activities, or destinations that are time
based. Since people watch TV expecting to spend most of the day or very little of their day, then
substitutes should consist of similar time frame. Museums, sporting events, spas, skiing,
reading, movies, theater, hiking, and beaches could all be cauterized as a substitute for TV.
Threat of New Entry

13
(Reuters n.d.)
14
(Clean Clothing Campaign n.d.)
15
(Chiang n.d.)
 Page |7

On February 19, 2002 the United State Federal Courts ruled to lift barriers on two
specific regulations. The first was intended to limit the power of the media companies by
limiting their span to only 35% of the country. 16 The second stated they were not allowed to
own a TV station in addition to a cable company in the same area.16 The Federal Courts also
changed the regulations to allow telephone companies to operate cable companies.17 With this
said there is still a large barrier to enter this market, requiring large capita, property, plant and
equipment. 17 Content side of the business is easier to enter, but still to find a distributor is
difficult, though the internet is changing this, where content can be developed, marketed and
distributed at very low cost through the internet, with sites such as YouTube.17 Apple’s iTunes
also sells full length TV shows, for extremely low prices, when compared to the cost of cable
TV. Hulu is also similar to YouTube or Apples iTunes except free.17

Suppliers
Media networks own all or part of the distribution process, for example Disney’s ABC
owns nine television stations, CBS owns thirty-nine stations, and NBC owns thirty.9 The content
that is produced is based on directors, producers, actors, and writers. Similar to studio
entertainment, this allows the threat of writer strikes, actors pay, director problems and so-forth.

Buyers
Broadcasters rely on high viewership since people do not purchase the TV station or
show. In addition, broadcasters heavily rely on advertisement or commercials.9 To further this,
broadcasters have teamed up with TV shows to implement advertisements within the show.9
This has a two folds approach; first, it reinforces to viewers the product and second, it increases
revenues.9 Many broadcasters will pull a show based on viewership, for example ABC’s
Commander in Chief.4 For the most part the majority of people in the United State have Cable
TV, though Satellite is gaining ground.9 Many consumers are shifting towards HD
programming, and with the new government law, analogue TV will be gone. 18

19

16
(Cooper n.d.)
17
(Shah n.d.)
18
(Hoovers 2008)
19
(NA 2009)
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Disney’s Iconic Power

The most visible international presence of Disney is their parks. Currently in Tokyo
Japan, Paris France, and Hong Kong China, each park has specific cultural attributes, but the
share similarities. Disney also attempts to underplay each culture and make sure the Disney
“feel” is consistent between all parks. 20
Disney markets their films and digital content very aggressively internationally. Through
ESPN, they distributed to more than 190 countries, with a special agreement between the Asian
markets for sports programming. 21 The Disney Channel has also gone international, Taiwan in
1995, Middle East in 1997, Brunei in 2000, Scandinavia in 2003, and India in 2004.21 Each of
these Disney Channels is specific to the country. Locally produced programming is present as
well as universally marketed shows.21
In recent news, there is a fear of Disney’s brand surpassing the indigenous brands of
nations. Governments have stated worries about an impending “Disney-fixation” of local
culture. Wired Magazine stated this,

“This has been most visible in France, where a new park continues to meet with staunch
resistance from locals, and more recently in China, where the company has engaged in
film production and Disney-brand retail stores. Indeed it is also the local governments
who end up subsidizing much of the company’s international expansion. The Hong Kong
government invested $3 billion, similar to the Japanese investment and the France
investment.” 22

In Hong Kong, Disney hired a Feng Shui master, whose recommendations prompted
designers to rotate the park’s front gate and place several five-ton boulders on the grounds. 23 On
its first day, the park opened at 1 p.m., a time determined by an ancient Chinese system of
harmonizing with nature. In addition, Hong Kong’s Mickey Mouse dresses in local garb
and bows.23 Hamburgers have been substituted for noodles and there is only one fast-food
restaurant for seven Chinese ones.23 Also, the “American standard toilet” has been replaced by a
more local type of toilet, considered more suitable.23 One of the park's main ballrooms measures
eight-hundred eighty eight square meters because eight is a number of fortune.20 In Chinese,
four is bad luck, so there are no fourth-floor buttons in the elevators at the Art Deco Hollywood
Hotel, or other hotels in the park.23 Cash registers are close to corners or along walls, where
their placement is believed to increase prosperity.23 In the parks upscale restaurant installation of
a virtual koi pond where virtual fish dart away from guests when they walk near the glass screen.
The pond is one of five feng shui elements in the restaurant, including wood, earth, metal and
fire, which glows on a screen behind bottles in the bar.23
In Japan, riders on Splash Mountain plummet down the flume, but they don’t get wet,
“It’s designed to keep them dry because the Japanese don’t like to get wet,” said a Disney
executive.20 Disney has secured the rights to local studios to produce Japanese anime films. 24
All the movies will be made using local animation creators and computer graphics specialists.24
Mariko Hisamitsu, a Disney spokesperson said, “We aim to provide products that match the taste

20
(The Walt Disney Company 2009)
21
(Wikipidia 2008)
22
(Wired n.d.)
23
(Forbes 2009)
24
(Chiang n.d.)
 Page |9

of the local market.20 Disney characters are well recognized in Japan and we believe providing a
content catering to consumers is necessary to expand the market."20

External Forces Matrix 25

Opportunities Weight Rating Weighted Score

HDTV/Cable .05 2 .10

Globalization .08 2 .16
New CEO .05 3 .15
Pixar/Media .15 4 .60
Internet .15 3 .60

Threat Weight Rating Weighted Score

Economic Growth .15 4 .60

Energy Prices .11 4 .44
Satellite Radio .05 2 .10
Piracy .11 3 .33
Internet .10 2 .20
Total 100 29 3.72

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