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Case Assignment 2

The Walt Disney Company: The Entertainment King

Prepared for:
Dr. Alok Chakrabarti

Prepared by:
Jennifer Boada-Rodriguez
Kyle Degruttola
Gilbert Gatchalian
Arthur Robertson

Management of Technology
MGMT 692 – 850 - 10680
Summer 2008
Table of Contents

Introduction ................................................................................................................................3

SWOT Analysis ..........................................................................................................................3

Strengths......................................................................................................................3

Weaknesses .................................................................................................................4

Opportunities ...............................................................................................................4

Threats.........................................................................................................................5

Corporate Advantage ..................................................................................................................6

Corporate Strategy ......................................................................................................................8

Diversification .......................................................................................................................... 10

Studio Entertainment ................................................................................................. 11

Parks and Resorts....................................................................................................... 12

Consumer Products .................................................................................................... 13

Media Networks Broadcasting ................................................................................... 13

Media Networks Cable .............................................................................................. 14

Walt Disney Internet Group ....................................................................................... 15

Conclusion ................................................................................................................................ 15

Resources .................................................................................................................................. 17

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Introduction

Disney has steadfastly experienced a resurgence since Michael Eisner took the helm in

1984. He was able to incorporate his superior business acumen while maintaining the

fundamental values founder Walt Elias Disney treasured. With superior strategizing, the Disney

Empire was made into one of the most diversified business marvels. Although Disney’s

management triumvirate has been disassembled, time will show how successfully newly

inducted CEO Robert Iger leads this entertainment giant into the new millennium.

SWOT Analysis

Strengths

Disney’s prominent strength is undeniably its extremely strong brand. Once the words

Disney is uttered, it is simultaneously paired with wholesome family fun. Due to Eisner’s

insight, this fact remains true far beyond the domestic borders of the United States. Families

from the U.S. to Europe and Asia, readily recognizes the Disney brand as a premium supplier of

quality family entertainment. This global dispersion has effectively cemented Disney’s brand

worldwide.

Another salient strength is Disney’s vast options for cross marketing. Their

diversification affords them the ability to promote specific ventures across multitudes of other

avenues and business units. The fact that they own multiple television stations further adds to

their options. Not only does Disney promote heavily internally, they’ve also perfected the art of

partnership promoting. When a new movie is set for release, you will easily find droves of

merchandise available for the very characters in the movie. Disney’s prowess in marketing has

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undoubtedly propelled them past their competition. Disney executives were also wise enough to

establish their own distribution company, Buena Vista, early on in their motion picture

endeavors.

Weaknesses

One of the primary criticisms of the Eisner era was the corporate culture he fostered. His

mentality was that it took toughness to administer change and results. As a result, Disney created

an undeniable atmosphere of tension and micromanagement. No one was better able to attest to

that than the employees of ABC after the acquisition. It was this autocratic management style

that proved to be a culture shock for the ABC employees. Bob Iger must be skillful in re-

administering synergy while maintaining authoritative control of the company. Employees feel

that more emphasis must be placed on creativity and not dollar value. It is this creativity that has

served to garner Disney their distinction.

The turn-around period for producing hand-drawn animated features films were also a

well known weakness. The average cartoon film had usually taken Disney upwards of 5 years to

produce. Recently Disney has turned towards computer-animated films instead of hand drawn

releases. These computer-generated movies are released under the Pixar moniker and have much

shorter turn around periods. Quicker production leads to quicker profits. Prior Pixar releases

include such box office hits as Toy Story and Finding Nemo.

Opportunities

There remains a distinct opportunity for Disney to continue international franchising.

These partnership-based liaisons are superior considering that all risks are shared. Disney World

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in France and Japan were similar ventures in which the core company siphoned in annual

concessions based on visitor patronage. Considering the strong brand Disney has maintained,

there is no reason to believe that similar ventures in additional countries such as Spain wouldn’t

be successful. Although it has long been rumored, it may prove extremely profitable for such a

venture to come to fruition.

Disney’s venture into the world of sports has also proves fruitful. In 1992 Disney spent

$50 million to acquire a National Hockey League team, The Anaheim Mighty Ducks. This

venture proved successful. Acquisition of another team in a different sport or other sports

partnerships should not be ruled out. In 1993, 80% of money spent on hockey merchandise went

towards Mighty Ducks apparel.

Other opportunities that have already proved fruitful are re-releases. Disney re-release of

such hits as Aladdin and Tarzan on DVD has been astronomical hits. If Disney were to continue

this cycle of re-mastering old favorites for newer generations of children, they should continue to

be successful. New technology should be adapted however. Disney should now focus attention

away from standard DVD formats and look towards next generation platforms such as Blu-Ray.

Another attempt at the search engine industry may also prove profitable this time around as far as

advertising is concerned.

Threats

Disney’s diversification serves to limit their direct competition. To analyze potential

threats, business units would have to be critiqued individually. Let’s analyze the competition of a

few of Disney’s prominent business units.

Disney makes close to half of their profit from films. Most of the successful ones are

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animated features geared towards a younger audience. Despite their decades of success in this

genre, there have recently been rivals to challenge Disney’s positioning. One of the most

successful opponents has been DreamWorks animation. DreamWorks hits include such feature

films as Shrek, Shark Tales, and Madagascar. Disney must continue to create new characters and

not rely only on classic stars to sustain their success.

The next major business units are the Disney theme parks. While Disney parks currently

dominates market share, the threat from other local parks including Orlando’s Universal Studios

is very real. Disney must use the leverage of their various hotels and animal parks to continue

wooing customers away from the competition.

Disney has also managed to sustain good network television presence. Hits such as,

“Who wants to be a millionaire”, has served to stabilize ABC’s rankings. The cable based

Disney Channel is not doing too well however. Channels such as Nickelodeon and The Cartoon

Network have steadfastly affected their ratings. Disney must find newer contemporary offerings

for their younger viewers that will garner more attention. Disney’s most profitable station to date

has continued to be the cable based ESPN network.

Corporate Advantage

Disney’s strength lies in their resources, strong business portfolio, and an effective

organization. Eisner’s “plan was to build the Disney brand name while preserving the corporate

value of quality, creativity entrepreneurship, and teamwork.”iii With this motto, Eisner was able

to achieve a huge turnaround in the Disney Corporation. He managed not only to help expand the

company but to turn around profit margins and make Disney a leading corporation.

Through the years, Disney has expanded its company and diversified its portfolio. The

corporation has expanded into network television, movies, merchandising, radio, theme parks,

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and more. The company has also been able to expand the Disney name outside the U.S. and into

Europe and Japan. Disney’s expansion affords them the opportunity to utilize all of their

resources via cross-functional activities. In fact, the company motivates its divisions to form

synergies by offering increased bonus incentives to those who do.

Forming synergies throughout the company not only promotes support but also

minimizes costs from outside providers. Disney has been successful in executing joint efforts

within the company. In 1987, the company implemented corporate marketing functions to

encourage and manage the entire company’s marketing activities. This involved monthly

meetings with 20 divisional managers from the marketing and promotions departments. These

meetings were designed to discuss interdivisional matters and synchronize all efforts and

activities.

Disney also implemented internal transfer prices for activities executed by other

divisions. In addition, the company vertically integrated many functions used by the entire

company to limit costs and afford flexibility. Disney also utilized cross-promotion among

company initiatives. During the launch of Roger Rabbit in 1998, Disney launched a huge cross-

promotion, which rendered profitable. By the time the movie premiered, Disney had managed to

attain over 500 licensing agreements which promoted the movies characters in products such as

clothing, computer games, jewelry and a lot more. As Eisner puts it “I think our biggest

achievement to date has been bringing back to life inherent Disney synergy that enables each

part of our business to draw from build upon, and bolster the others.” iii

Disney’s success can also be attributed to the way they managed creativity. Disney

divisions were working under limited budgets and goals to meet 20% annual revenue growth.

Even with these demanding and some would say limited settings. Disney has been able to

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maintain its creativity. Through the struggles of managing the financial stability of the company,

Disney’s creative ideas have always managed to reach new and different limits through out all its

divisions. The low cost strategy has enabled the company to keep tight reigns on expenses while

still producing quality products and services. This has enabled the company to remain

competitive and offer their customers new reasons to support the Disney brand name.

Corporate Strategy

The Disney and ABC merger was an extremely important development. Although many

felt that it would not prove advantageous for these companies to do this, Eisner has been able to

prove them wrong. By far the majority of mergers fail due to conflicts in corporate fit,

conflicting management styles, and lack of a sound strategy. It seemed as though they would

follow the path of AOL-TimeWarner, however, Eisner’s models to develop the companies into a

single machine through things such as his synergy boot camp was brilliant. This synergy boot

camp fostered the appropriate atmosphere for many of these individuals to progress and form

timeless bonds with one another. Also in structuring incentive to maximize the synergistic

atmosphere aided in the expedient assimilation of the two companies. Creating centralized

divisions with the use of outside consultants to limit favoritism would be very important in

maximizing structural efficiency.

Developing a total quality management process is important in furthering Disney. Having

management think tanks of 8 people or less would be prudent. Having smaller groups such as

this gives upper management a greater ability to produce ideas and provide a reasonable amount

of supporting evidence to conclude their ideas relative weighting in comparison to others in the

think tank. It is important to determine two individuals that will have fixed apposing views prior

to the meeting to eliminate the potential for group think.

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Concentrating on animated films will increase Disney’s ability to increase potential

markets. By creating these animated films they can quickly develop them, translate them into

every targeted language necessary, market them in a similar fashion, and saturate all potential

markets with ease. This will greatly reduce the costs of making different films for each area.

Being that Disney was based on a creative intelligence that many of their competitors lacked,

they should structure divisions known as creativity teams to increase project opportunities. They

should have goals to develop media that is desirable and captivating by all. These divisions

should be geographically diversified so they can design new themes while overseeing each

others work to edit anything that may be considered offensive in their area.

Disney’s target market should be grandparents, young families, and children.

Grandparents often have the discretionary income to spend on their grandchildren and a greater

amount of time to take them to films or theme parks. Providing family content in a way that

appears automatically in people is essential. Marketing to children through different types of

media such as advertising a new film/product platform in a current film’s video game is

inexpensive and extremely effective.

Seeking greater growth is not necessarily the best measure for Disney. Disney should

concentrate on value added projects and seek to divest areas that are not in their primary

concentration and that are not performing to their standard benchmark. An important

performance measure should be more geared toward providing for employees, optimizing

investor returns, and creating a service for society. Providing appropriate benefits to employees

as well as giving them stock options will establish greater employee retention. This will also give

them a vested incentive to use the company’s services even if leaving as long as there is a

mandatory holding period on exercised options. Return on equity would be an important measure

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for shareholders. A consistent level that is below eight percent accompanied with a return on

assets that is below eight percent suggests that Disney should trim some of its fat and restructure

the company. Disney has a great opportunity to proceed into senior assisted living facilities.

Creating or buying existing assisted living facilities would create many opportunities for

Disney. They would greatly aid society in doing so, baby boomers control a majority of the

world’s wealth, governments help to subsidize these facilities, and there is a complete lack of

quality competition. So it would meet all attractiveness tests and the cost of entry test would be

met because these facilities are inexpensive to acquire at current market prices. This would also

aid in synergies between many business segments due to the fact that these individuals would be

more likely to invite grandchildren to visit the local theme parks, children to visit the local golf

and sports centers, and themselves to utilize the Disney cruise and ABC tours divisions as well.

In targeting services toward the baby boomers, young families, and children, Disney will

aid in reducing the cyclicality of earnings and the need to drastically reposition in future years.

The proceeds for assisted living should be stable with having governments to assist in defensive

times. Due to the fact that Disney is highly leveraged toward recreational activities and in

economic recessions and depressions these areas revenues would significantly decline, it would

be in Disney’s best interest to manage a debt and equity portfolio holding counter cyclical assets

because this would reduce this risk. Owning international defensive companies, inflation

adjusted bonds, and a diversified commodities fund would alleviate much of Disney’s earnings

risk. All of these methods developed and used as a team will ensure the longevity of the Disney

name.

Diversification

The Walt Disney Company started out as an animation entertainment company. After the

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success provided by Mickey Mouse, Disney was able to expand its business. Disney’s growth

yielded expansion to other markets and businesses.

In this section we’ll discuss Disney’s diversification. We’ll discuss how Disney’s

diversification relates to the company’s corporate strategy as we evaluate whether the strategy is

related or unrelated diversification. We’ll discuss Disney’s different business segments and

evaluate whether they fit with the corporate strategy (related diversification) or not fit (unrelated

diversification).

Studio Entertainment

One of Disney’s biggest business segments and also the most profitable is the studio

entertainment business segment. The studio entertainment business segment creates the full-

length movies (live motion or animated). Businesses in this business segment are Disney

Pictures, Pixar, Touchstone Pictures, Miramax Films, Walt Disney Animation Studios and Walt

Disney Studios Home Entertainment. These studios created some of the most top-grossing

movies of all time. Some of the most recent successes by the studio entertainment business

segment are the “Pirates of the Caribbean” franchise, animated movies such as “Cars” and

“Ratatouille,” comedies such as “Wild Hogs,” adventure movies such as “Enchanted,” the

“National Treasure” movies, and the “Chronicles of Narnia” movies, along with musicals such as

the “High School Musical,” and more serious movies such as the award-winning “No Country

for Old Men,” movie and “The Queen”i

Even though the reach of Disney movies is global, the company has also expanded its

studio entertainment business segment to support international markets and locally relevant

movies. A sample of this is the movie “The Magic Gourd,” which was produced and marketed in

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China.

Music production is also included in the studio entertainment business segment. The

Disney Music Group has been very successful in the last few years, primarily due to widely

popular Disney brands produced by the Disney studios in the studio entertainment business

segment.

Parks and Resorts

This business segment started when Disney opened its first entertainment park,

“Disneyland”. This business segment extended the reach and methods by which Disney fulfills

its entertainment goals. The entertainment parks bring entertainment to Disney’s customers in a

way that allows interactivity. This was a great move by Disney, as it expanded the impact of the

Disney brand and name.

Today the parks and resorts business segment has expanded greatly from just the

entertainment parks in California and Florida. Disney has expanded its entertainment parks

globally, with parks in Europe and Asia. They have also diversified into the resorts business,

with hotels and resorts now located in various major cities and tourism locations around the

world. Disney encourages innovation in this business segment with the “Imagineering”

department, which creates / updates attractions in the Disney parks and resorts.

Latest in the parks and resorts business segment is Disney’s dive into the cruise ship /

cruise vacation business. The Disney Cruise Line expands on the success of the parks and resorts

business segment by inducing itself into another method of entertaining their customers.

Disney’s parks and resorts business segment also developed the Disney Vacation Club, where

Disney aims to help their customers maximize the fun and excitement of their vacations through

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the multitude of Disney vacation services.

Consumer Products

“Disney Consumer Products and affiliates 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.”ii With Disney’s excellence in entertainment,

its staple in the modern culture and also its phenomenal brands, it is just fitting that Disney can

expand on their corporate strategy to the consumer products space. With the expansive use of the

Disney name in the popular consumer products, it also helps in promoting the Disney brand to

their customers.

This business segment of Disney does not just target a primary market consisting of

children. Disney has also identified its appeal with adults (most of whom grew up enjoying

Disney entertainment as well). Disney is now expanding to the adult market by offering a wide

selection of products such as home décor and recently collaborating with couture designer

Kirstie Kelly to offer a selection of wedding gowns.

Media Networks Broadcasting

This business segment of Disney encompasses their broadcasting operations, which is

primarily the ABC Television Network. This is separate from their cable networks, which will be

discussed, in the next business segment.

In February 1996, Disney completed the acquisition of ABC. This acquisition was

monumental and introduced additional business segments to the Disney Company, a major one

being the Media Networks Broadcasting business segment. This business segment has the

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greatest reach of the US market, with some global reach as well for shows that are syndicated in

other countries. This business segment also helps in promoting Disney’s corporate responsibility

through delivery of high-quality news and public service offerings. This includes not just

nationally syndicated shows but also local TV stations in various regions. This allows ABC to

service both national / global and localized customer needs.

This business segment also includes the ABC Studios (formerly Touchstone Television) i

ABC Studios services the production needs of television networks. Their clientele is not limited

to Disney / ABC networks. As of 2007, ABC Studios had a “slate of 23 series on broadcast and

cable networks, including ABC, NBC, CBS, ABC Family, Lifetime, The CW and FX.” i

Media Networks Cable

“The Cable Networks Group provides a strong foundation for franchise building across

the Company as well as unique opportunities to capitalize on international expansion and digital

media opportunities”i

In the forefront of this business segment are Disney’s two flagship networks. First is the

worldwide leader in sports, ESPN. Second is the Disney channel network. Other networks are

also part of this business segment, some of which are ABC Family, A&E, Lifetime, The History

Channel, SOAPnet.

ESPN is a consistent and growing network for the Media Networks Cable business

segment. The Disney channel is in line with the children’s entertainment segment of Disney’s

strategy. The Disney channel has been exceptionally successful in recent history with the wide

popularity of recent shows such as “Hannah Montana” and “High School Musical”. Success of

these shows also attributed to success of other business segments that leveraged these brands,

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such as the Consumer Products and Parks & Resorts business segments.

Walt Disney Internet Group

The Walt Disney Internet Group (WDIG) business segment is a relatively new business

segment for Disney. This business segment supports Disney’s other business segments. “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.” i

WDIG is at the forefront of web technology innovation for the Disney Company. This business

segment was recently expanded by Disney’s acquisition of Club Penguin, creator of online

virtual worlds for children.

Conclusion

So is Disney’s Strategy smart or Dumbo? In review of Disney’s expansion strategy one

can say Disney has had a sometimes rocky strategy but overall a smart one. The company began

as a small animation company and has expanded to a huge entertainment industry.

Disney is known for identifying their strongest brand product and expanding its success

via the use of their diverse business groups. Through out the years, Disney has successfully

managed to expand its corporation with business units that have opened up their brand to a new

generation of customers. The partnerships formed with Touchstone, ESPN as well as Pixar have

strengthened Disney’s offerings. Not to mention, the evolution into an international chain of

specialty stores selling exclusive Disney merchandise and increased Disney toy sales. The

company’s expansion into parks, resorts and entertainment has made the Disney Corporation a

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powerful company to compete against.

Of course, all of Disney’s projects have not been a success story but the company has not

allowed low profit ventures to bring the company down. The Disney Company has continued to

discover new and creative ways of entertaining their customer. The success of one venture or

division is the success of the company as a whole. Disney has managed to develop synergies

across several of their business units and maintained control of their business resources. Disney

ensures all their divisions are working in sync to the same tune – making Disney a successful

corporation.

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Resources

i
“The Walt Disney Company: 2007 Annual Report”; The Walt Disney Company;

2007
ii
“The Walt Disney Company: 2007 Fact Sheet”; The Walt Disney Company;

2007
iii
“The Walt Disney Company: The Entertainment King”; Michael G. Rukstad

and David Collis; 2005

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