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The Walt Disney Company

Content is King
By Peter Louis
Instituto de Empresa

December 2001
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Agenda
Disneys strategy Is there a competitive advantage? Current strategic challenges Recommendations Conclusions

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Disneys strategy

1. 2. 3. 4.

Strong corporate culture Innovative brands Employee buy-in Diversification

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Strong corporate culture


This was based on TCC:
Teamwork Communication Co-operation

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Innovative brands
Develop brands that were:
Highly differentiated Were wholesome and expressed American values Fun and fallible

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Employee buy-in
Employee identification made them:
Customer focused Customer friendly

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Diversification
Brand extension
2 versions of Winnie-the-Pooh

Channel occupation
Beauty & the Beast, the movie Beauty & the Beast, the Broadway musical

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Is there a competitive advantage?

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Disneys brand equity


World's Most Favorite Brands
90 80 70 60 $ billions 50 40 30 20 10 0 1999 Years 2000 2001 Source: Interbrand, Citigroup Sony Coca Cola Disney

Company Coca Cola


Disney

Rank 1999 2000 1 1


6 8

2001 1
7

Sony

18

18

20

Source: Interbrand, Citigroup

Company Coca Cola


Disney

Brand Value 1999 2000 2001 83.8 72.5 68.9


32.3 33.6 32.6

Sony

14.2

16.4

15

Source: Interbrand, Citigroup

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Yes!

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Is it sustainable?

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Yes

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but only if

Disney continues to both: 1. Innovate 2. Update the competitive advantage

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Current Strategic Challenges

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Current strategic challenges

1. 2. 3. 4. 5. 6.

Recession & September 11 ABC Talent drain Wheres Mickeys magic touch? Video Games Context is Queen
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Recession & September 11


Slow down: Trans Atlantic / Pacific flights

US to grow by:
0.7 per cent in 2002 (IMF) 3 per cent in 2003 (OECD)

EU to grow by
3 per cent in 2003 (OECD)

Japan, perhaps recovering in in 2004 (OECD)


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ABC
A strategic fit but:

1. How do we produce Disney hits? 2. How do we realize synergies in costs / revenues? 3. How do we reconcile different business cultures?
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Talent drain
1994 2000, 75 high-level executive departures. This can affect:
Employee morale Productivity Company direction Bottom line
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Disneys Revenue, 1983 - 2000


Revenue, 1983-2000
30,000 25,000

($millions)

20,000 15,000 10,000 5,000 -

1995 ABC m erger

1983 1985 1987 1989 1991 1993 1995 1997 1999 Years
Source: Annual reports

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Disneys Net Income Growth, 1984 - 2000


Net Income Growth, 1984 - 2000
% change NI 300% 250% 200% 150% 100% 50% 0% -50% -100% Linear (% change NI)

Percent

1995 ABC m erger

19 84

19 86

19 88

19 90

19 92

19 94

19 96

19 98

Source: Annual reports

Years
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20 00

Wheres Mickeys magic touch?


7th most valuable brand, yet:
Generates 82 per cent of revenue domestically (2000 annual report) Increasing European per capita expenditures could raise $2 billion (1999 annual report) Lack of new innovative content (themes, movies, etc.)

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Is there life still in myths, history and fairy tales?

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Yes, there is for AOL Time Warner

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The Bottom Line


Warner Bros. expects to make 7 movies Gross revenue expected to be > $2 billion (box-office receipts, merchandise, DVDs, etc.) Current estimates suggest that this is an underestimation
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Video Games

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Video Games
Actual and projected Value of Video Game Industry

25 20 Revenue 15 ($billions) 10 5 0 2000 Year


Source: IDC's 2001 Videogam e Survey

21.3

2003 CAGR=45 per cent

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Recently successful video games


Alien vs. Predator (Fox Interactive / News Corp) The Lost World (Dreamworks Interactive) Metal Gear Solid 2 (Sony Computer Entertainment) Fifa 2002 (Electronic Arts) Command & Conquer (Electronic Arts) Half Life (Sierra / Vivendi Universal)
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And of course, the hit

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Lara Croft: Tomb Raider, became

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Lara Croft: Tomb Raider, grossing

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$700 million for the game publishers EIDOS

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$223 million for Viacoms Paramount

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If content is king then

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Context is Queen

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Context is Queen
Rationale behind CapCities / ABC acquisition. It gave Disney: ESPN, ESPN2
cable access for NHL The Might Ducks franchise

ABC
mass distribution network for Disney program library

Publications
To distribute Disney material and promote Disney
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However, looking at the Internet

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Disney / AOL Time Warner Revenue Streams


Walt Disney Co Revenue Streams, 2000
Consumer Products Internet Group 10% 2% Parks and Resorts 27% Studio Entertainment 24%
Source: Annual reports

AOL Time Warner Revenue Streams, 2000

Media Networks 37%

Publishing 12%

AOL 21%

Filmed Enterntainme nt & Music 33%

Cable & Networks 34%

Source: Annual reports

AOL Time Warners Internet segment earns 21 per cent

Disneys internet segment earns 2 per cent


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But who wants to play Video games over the Internet?

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Video Gamers!
High Interest Responses to Potential Connectivity Applications Download new games/levels Broadband Gaming Service Pay-per-view games Online Gaming Web surf/email 51% 65% 62% 60% 76%

0% 10% 20% 30% 40% 50% 60% 70% 80% Percent


Source: IDC's 2001 Videogam e Survey

Predominately male, 21 years, 2 hours per day

Key: Content, New and Compelling Experience


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Is 20 per cent growth still achievable?

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Yes

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but only if

Disney continues to both: 1. Innovate 2. Update the competitive advantage

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Recommendations

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Recommendations
Reduce the attrition of executives Licence (or buy) innovative content Develop innovative local content Create an Interactive Games Division (to target the serious gamer)

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Reduce the attrition of executives


Survey executives
Use independent consultants, say Holzschu, Jordan, Schiff & Associates Determine causal factors (moral, culture fit, remuneration, lack of authority, change of location, etc.)

Review findings at board level


Implement recommendations Create future guidelines
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Licence (or buy) innovative content


Source innovative international content (e.g. programs, comic characters, cartoons, etc.)
Transferable to the US market (e.g. The Weakest Link) Can be leveraged internationally (e.g. Walking With Dinosaurs)

Seek extension opportunities (e.g. Teletubbies)


Program Cartoon Video Park theme ?

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Develop innovative local content


Leverage the rich cultural heritage of host regions to create local themes and programs (e.g. Japan)
Themes include movies (The Seven Samurai or Yojimbo), unique shopping experiences, etc Create characters that can be leveraged internationally (e.g. Pokemon)

Seek extension opportunities (e.g. Power Rangers)


Program Movie Cartoon Park theme ?

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Create an Interactive Games Division


Purchase an established publisher like Electronic Arts (fiscal revenue of $1.3 billion, 2001) Develop games for successful movie releases
Con Air, Pearl Harbor

Use new video expertise to create new Disney themes that are:
Interactive, immersive or simulations

Leverage publisher to position for emerging subscription based Web gaming services that allow:
Individual, cooperative or combative play
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Conclusions

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Conclusions
Disney can achieve 20 per cent ROE. However, this requires a focused strategy that:
Allows effective managers to manage ( la GE) Realizes brand values Kindles internal and external innovation Exploits areas of growth Realizes synergies, and Maintains incremental revenue growth (e.g. gate receipts)

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Thank you

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About the author


Peter is the Founder and CEO of p2people (http://www.p2people.co.uk), the innovative micro outsourcing service. Formerly a freelance consultant, Peter has extensive international experience in data warehousing and IT & HR outsourcing. Peter has an MBA (Instituto de Empresa) and MSc in Knowledge Management (Cranfield).

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The Walt Disney Company


Content is King
By Peter Louis
Instituto de Empresa December 2001
2001 Peter Louis. All Rights Reserved

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