The Walt Disney Company Case Report

Team 4

Ling Ge Ying Li Lu Sun Kexin Wang

Introduction
Walt Disney Company was established by Walt Elias Disney on October 16, 1923. Initially Walt had an interest in art and drawing at the early stage of his life. By seeing the potential development for high quality, graphic art cartoons, he soon created the character called Oswald the Rabbit. After the successful launch of Oswald the Rabbit, Disney came up with idea of Mickey Mouse in 1928. The success of Mickey Mouse provided Walt Disney with the resources to expand his repertoire of characters and improve his animation techniques. After the decade, Disney created the Donald Duck, Goofy, and the Three Little Pigs. By using Technicolors new three-color process, he produced these cartoons in color and won his first Oscar for color in 1932. By the late of 1930s, Disney developed his studios skill for the full-length movies. By 1950, he had come up with new directions for the Disney studios. Soon he took popular fictional characters and turned them into movies and then decided to take his products to the television screen. What Walt Disney principally saw in television was a way to promote an idea that a permanent amusement park could exploit the Disney characters. In 1966, when Disney died, he left the company with the new films ready to distribute, plans for Disney World, rising attendance at Disneyland and a secure television audience. In the years from 1966 and 1984, when Michael Eisner took over, the company encountered problems as nobody could provide the creative vision to lead a company. One move for the company was its entry into the home video market in 1983. Meanwhile, the performance of Disneys film business had been lackluster throughout the 1970s. After all, in 1984, Michael Eisner took control of Disney and a new era began. During Michael Eisners management period, he began to take a look at the theme park business which was companys biggest money spinner. He also set about revamping the theme park concept to find ways of increasing Disneys revenues. Furthermore, Eisner used his experience with Jeff Katzenberg, began to fashion Disneys new strategy. In 1987, the company announced plans for a large-scale expansion into retailing stores which sell only Disney products. As a result of Michaels management, in 1989, sales had increased from $1.46 billion in 1984 to $4.59 billion, net profit rose from $97.8million to $703.3 million. So far industry analysts wondered whether the company could maintain the same growth rate especially during the economic recession when the increasing price of gas could rapidly affect theme park business. Michael Eisner continued in 1990s to pursue the same strategy he had in the 1980s. in 1995, he announced to build a $500 million zoological park called Disneys Wild Animal Kingdom. In the studio entertainment segment, the company announced that it would produce fewer movies per year in future and focus more on the production of the two successful kinds of movies which are expensive blockbuster movies and inexpensive movies. Meanwhile the Disneys shopping empire also expanded rapidly in the 1990s. By 2005, Disney had opened 429 specialty Disney stores worldwide. In 1995, Michael Eisner announced that the company would acquire Capital Cities/ABC Inc. for $19 billion. By such acquisition, the company would make it the worlds premier entertainment company, to protect and build on the Disney name and franchise, and to preserve and foster quality, imagination and guest service. After the acquisition, Disney defined its three main areas of business as creative content, theme parks and resorts, and media broadcasting. However, ABCs poor performance in the year following the merger brought its top

management team under intense scrutiny from Eisner. Then it became clear that there were conflicts between Disneys management team and ABCs. As a result, several senior managers left ABC during that time. In addition, Disneys problems in its media properties continued to worsen over time. Furthermore, it also had the major problems in its studio entertainment group. The profitability of Disneys movies continued to fall in the 2000s for a variety of reasons. Several major developments had led to problems in Disneys consumer products group which reduced its profit margins. In September 2005, Disney announced that Michael Eisner had resigned and Robert Iger had been appointed as Disneys new CEO. In 2006, he reorganized Disneys decision-making hierarchy to help improve the companys performance. Under his management, Disneys revenue were a record $35.5 billion in 2007 which is 5% higher than previous year. Bobs new strategic moves had helped the company recovered from its former situation. In 2009, the company was facing the problems from widely use of internet to access digital entertainment which had a negative impact on companys business performance. This report first evaluates the company by using the Five Forces model and SWOT analysis. Then based on the analysis, our team will give the detailed recommendations regarding the companys current situation.

Five Force Analysis of Walt Disney

Studio Entertainment
Competition Currently Walt Disney Companys studio entertainment division has the narrowest operating margin when compared to the other segments. There is a large amount of competition in this particular industry segment. There is also copyright infringements and intellectual property theft that happen daily that Walt Disney and the governments that Disney operates must deal with. 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. Small and independent filmmakers have the ability to enter this market with ease. 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. 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.
Suppliers For studios, suppliers consist of writers, directors, new talent, and current talent. Each of these groups has the ability to make hefty demands, particularly actors or directors that have had past successes. In return, all can affect the studios profitability for that particular movie. Though there is an excess of actors, directors, and writers, not all talent is equal or in high demand. This results in bargaining power for these particularly popular or talented people to have greater weight in their favor. 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. Ultimately, the audience decides the success of that risk, and there is no way to predict successful films.

Parks and Resorts

Competition Domestically there are many theme parks that Disney must contend with, Six Flags, Sea World, Anheiser Busch, and Knotts Berry Farm. 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. 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. Furthermore, government, environmental, and safety regulations also inhibit new entry. 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. 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.
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. Large families may find it too costly to travel or purchase tickets, or even demands for vacation could impede traveling to Disney. 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.

Consumer Products
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. 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. 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. The only market thats 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. 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. For example large firms can temporarily cut prices or increase promotions to stifle new competition due to their economies of scale and deep pockets. 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. If a company does succeed then large firms tend to buy them out, since new successful products in this industry are difficult to establish.

Suppliers Suppliers 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. Other companies choose to manage the entire supply chain; this is effective if the company is not good at the latter. Buyers Product lifecycles has been cut short by the increase in communication and social networking, and consumers in small towns now can access products that are in large metropolitan areas, limiting the firms ability to limit or create special product lines. Finally inhuman trade practices and unfair labor practice has become president to the public particularly Western countries.

Media Network
Competition In the United States there are several broadcasting networks. 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. Many broadcasting networks fragment the market with dedicated channels, such as Disneys ESPN, or Time Warners CNN. Yet those networks must face the challenge from internet-based rivals such as YouTube. 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 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. The Federal Courts also changed the regulations to allow telephone companies to operate cable companies. With this said there is still a large barrier to enter this market, requiring large capita, property, plant and equipment.

Suppliers
Media networks own all or part of the distribution process, for example Disneys ABC owns nine television stations, CBS owns thirty-nine stations, and NBC owns thirty. 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. To further this, broadcasters have teamed up with TV shows to implement advertisements within the show. Many broadcasters will pull a show based on viewership.

SWOT Analysis
Strength
A Vast and diverse portfolio In so many years the brand name of Disney has always be linked with its famous original cartoon characters. All around the world, when people see a Mickey Mouse or a Donald Duck they will automatically remember the brand name. Disney also did a great job in making new adaptions of old classic such as Robin Hood, Sleeping beauty, Peter Pan and Alice in the Wonderland. The company has created countless characters to star in their new feature films. The huge portfolio of the company is the single best strength of the entire organization. Diversification Disney has moved well beyond its cartoon-oriented roots. Although still involved in the production of original feature films and other related media, the company is not just the typical animation studio or film production company. With several theme parks around the world, the company found a unique market place for consumer products and a chance to entwine and implement the already impressive portfolio of film characters into the parks attractions. Also, Company began launching and purchasing media outlets for which their productions and promotions to air. Disney owns now several media broadcasting networks television as well as several radio stations for terrestrial, satellite, and online hosts. Strong Financial Background Although suffered from the downturned of the world economy, Disney still was the worlds largest media conglomerate by revenues in 2010. The company had revenues of $38.1 billion and a net income of $3.96 billion. With decade of accumulation the company possesses a large amount of fortune to make it powerful enough to deal with any possible situations.

Weakness
The Constant Need of Successful Creative Material

Though The Walt Disney Company is possibly the worlds greatest generator of successful creative material, the constant need to churn out successful film after successful film and wonderful attraction after wonderful attraction is daunting at the very least. The fact that there could be a flop at the box office, or a ride that is negatively reviewed is terrifying for the Company that prides itself in its perfection. High (and Increasing) Cost of Operation Needless to say, it is quite expensive to produce or successful feature film or build a theme park. With recently diminishing profits and the economic recession, the high (and increasing) costs to operate are doubtlessly a weakness for The Walt Disney Company Low Revenue from Consumer Products The consumer products division of The Walt Disney Company is handedly the smallest division within the organization. While revenues continue to trend upward for the division, they do so at a slower rate to the other Disney divisions, proportionally. Consumer products should be a division of the Company that performs, proportionately, as well as the other three divisions of the company. The fact that the increasing revenue of the consumer products division is doing so at a slower rate of the other divisions shows a lack of marketing and promotion put on the division.

Opportunities
Increasing impact in the Music Industry With the meteoric rise of television programs such as American Idol, and Americas Got Talent, The Disney Company has made a point to hire actors with multifaceted abilities. As a result, Disney has seen huge success with films such as High School Musical and Camp Rock; and stars such as Hannah Montana, The Jonas Brothers, and Selena Gomez. The idea that the music industry is ripe and ready for Disney to take an even larger plunge is the single best opportunity of the entire Organization. Expansion into Untapped Geographical Areas Disneys currently standing parks and resorts (in Florida, California, Tokyo, Paris, Hong Kong, and Shanghai) are all located in areas of great population. The opportunity being discussed here is placing parks and resorts in new areas away from population mainstreams. Disney should look into planting parks and attractions in worldwide tourist attractions. Reuse of Past Portfolio A strength of The Walt Disney Company (was stated above) is its vast and diverse portfolio. An opportunity of Disneys, then, would be taking advantage of said portfolio. This option has been utilized in the past, but a continued use of past characters would serve as a cash cow for the Company. Mickey Mouse celebrated his 84th birthday this year, and is still being introduced to children worldwide every day in the form of Mickey Mouse Club House, a childrens television program on the Disney Junior portion of The Disney Channels. Mickey isnt the only Disney character worth revisiting, though. There are literally hundreds of characters that would garner

their own programs, new feature films, or theme park attractions. This reuse of a wonderful portfolio would generate increased revenue with lesser expenses associated with it.

Threats
Struggling Global Economy It seems almost unnecessary to list the struggling economy as a major threat to any worldwide organization. The slowly recovering economy has begun to feel like a permanent part of the world's business landscape. Almost every business division of the company suffered a lot from the economic recession, especially the parks and resorts division. The struggling global economy represents the largest threat to the entire organization. Rapid Pace of Changing Media and Technology Since widespread availability of the Internet occurred in the late 1990s, media and technological advances have bred more media and technological advances. While that is wonderful news for the consumer, it leaves companies struggling to stay on top of changes occurring at an almost daily rateso much so that often times technological departments have been bolstered just to keep organizations competitive on the online. The studio entertainment and media network of Disney already tasted the impact brought by Internet-based entertainment and media. Yet Disney has started its own Internet entertainment business to cope with this situation. Competition from Multi-dimension As stated above in the Five Force analysis, almost every business division of Disney is facing fierce competition. The history of war told us that facing multiple enemies at different battlefields at the same time could lead to total failure. In the business war, multiple business segments have brought Disney great advantages. Yet competitions from different angles may still be a threat to the organization.

Recommendations

Win the Market of China

Right this time of last year, the construction of Shanghai Disneyland broke ground. This project marks Disney has started its new campaign in mainland China. China is one of the very few countries which still maintain a high speed of development in this economy. Like other businesses did, Disney could also count on the booming Chinese buying power to be the Messiah

of the day. There are several reasons that Disney could be very successful l in China. Under the policy of Family Plan, most families in China only have one kid. That makes their parents more than willing to spend much more money on whatever they want. The lack of domestic cartoon characters makes Chinese kids easily become Disney fans. Due to the slow development of Chinese cartoon and animation industry, Children in China will find Mater the Tow Truck and Buzz light-year far more interesting than those dumb Chinese cartoon characters. More importantly, most parents believe their kid deserves better cartoons and toys. There is an estimated number of 300 million of potential customers in Shanghai area, the most prosperous land in China. Furthermore, the newly-developed high-speed railway system provides easy access to Shanghai from all over the country. With these advantages, it seems no doubt that Disneys business in China will turn out to be a great success. With the revenues generated from the new park and other facilities in China, Disney could offset the profit shrink of parks and resorts business in other areas. Also, Chinese market could be a lifesaver of Disneys deteriorating consumer products segment since most of Disneys toys are produced in China. However, to ensure the victory, Disney still needs to pay special attention to certain aspects: Overcome Cultural misfits. Although Disney cartoons are well-received in China for more than 20 years, the Disneyland still stands as a symbol of American lifestyle. Disney must heavily incorporate Chinese culture elements into its new theme park. Having Mickey Mouse and Donald Duck dress in Kung-Fu suits will not do the trick. Also, Disney needs to learn how to use traditional Chinese festivals to boost sales. Keep a good relationship with the government. In China the local government holds absolute power, a foreign company must be extremely careful when dealing with the government. If Disney could provide help to the development of local economic development such as creating more job opportunities, it will be a win-win situation for both the company and the local government. With the help from the government things will become a lot easier in China. Learn from the experience of Hong Kong Disneyland. As an early foray into China, the Hong Kong Disneyland initially suffered from a range of problems. To avoid the same issue in Shanghai, Disney should learn from the past and find possible solution.

Further Development of Game Industry

Disney has officially announced Interactive Media as the 5th business segment of the company. As mentioned in the case, being a brand new segment for the company, the Interactive media (including Internet entertainment) is an effort made by Disney to catch up with the latest technology shift. The company is counting on this new segment to become another profit growth point. The Interactive media segment is consisted by two major components: game and online entertainment. As a new comer of this business, Disney purchased Playdom, an online mini game provider, and Hulu.com, a popular online video streaming site. However, although started to generate revenues from 2008, the interactive media segment still lose money in fiscal 2011. The2011 annual report of Disney shows that the operating loss of

interactive media segment is $308 million. This loss may due to the acquisition of Playdom, but the development of this segment is still slower than schedule. Here we have another recommendation for Disney to make a leap in game industry: to purchase THQ. THQ is a well-known PC and console game provider. This company is best known for its World Wrestling Entertainment (WWE) games and other licensed fare from the likes of Nickelodeon and Disney's Pixar. The company also has some solid fully owned properties including Company of Heroes and Red Faction. THQs stock price was riding high a couple of years ago on the backs of hits like Saints Row and Cars, but the effects of tough competition and some product-management missteps have the stock down about 80% from its April 2007 highs. There are rumors that Electronic Arts, the world-leading game company, wants to purchase THQ to eliminate competition. Even Time Warner is making its move towards THQ. Now is the perfect time for Disney to buy THQ. The later one is in a bad situation, and the former one needs experience to be more competitive in the industry. This makes a perfect match for each other. With THQ in hand, Disney could lift itself into the line of the major players like EA and Blizzard in the industry. The vast and diverse portfolios of Disney could finally be directly used in Disney-made games instead of licensing to other developers. THQ has an enterprise value of about $335 million. Disney is sitting on $3 Billion-plus cash, buy THQ makes more sense than leaving all that money in the bank. Disney could offer THQ shareholders a significant premium -- 50% or more -- and the deal would still make sense from a financial standpoint. For $600 million or so, Disney would be getting its hands on an incredibly hot sports franchise with room for significant growth in coming years.