Professional Documents
Culture Documents
Mernoush Banton
Adjunct Faculty/Consultant
DIS
www.disney.com
High unemployment, lingering recession, slow economic growth, and reduced consumer
spending all contributed to a 7 percent drop in revenue and a 46 percent drop in Walt
Disneys profitability for the first quarter of 2009. For eight decades, the Walt Disney
Company has captured the attention of millions of people, offering family entertainment
products and services such as theme parks, resorts, recreations, movies, TV shows, radio
programming, and memorabilia. Walt Disney brought Mickey Mouse and Donald Duck to
the world. Walt Disney offers a variety of family entertainment all around the world.
History
Mr. Walt Disney and his brother Roy arrived in California in the summer of 1923 to sell his
cartoon called Alices Wonderland. A distributor named M. J. Winkler contracted to distribute the Alice Comedies on October 16, 1923, and the Disney Brothers Cartoon Studio was
founded. Over the years, the company produced many cartoons, from Oswald the Lucky
Rabbit (1927) to Silly Symphonies (1932), Snow White and the Seven Dwarfs (1937), and
Pinocchio and Fantasia (1940). The name of the company was changed to Walt Disney
Studio in 1925. Mickey Mouse emerged in 1928 with the first cartoon in sound.
In 1950, Disney completed its first live action film, Treasure Island, and in 1954, the
company began television with Disneyland anthology series. In 1955, Disneys most successful series, The Mickey Mouse Club, began. Also in 1955, the new Disneyland Park in
California was opened. Disney created a series of releases from 1950s through 1970s,
including The Shaggy Dog, Zorro, Mary Poppins, and The Love Bug. Mr. Walt Disney died
in 1966. In 1969, the Disney started its educational films and materials. Another important
time of Disneys history was opening the Walt Disney World project in Orlando, Florida,
on October 1, 1971. In 1982, the Epcot Center was opened as part of Walt Disney World.
And, on April 15, 1983, Tokyo Disneyland opened.
After leaving the network television in 1983, the company was ready to get into its
cable network, The Disney Channel. In 1985, Disneys Touchstone division began the successful Golden Girls and Disney Sunday Movie. In 1988, Disney opened Grand Floridian
Beach and Caribbean Beach Resorts at Walt Disney World along with three new gated
attractions: the Disney/MGM Studios Theme Park, Pleasure Island, and Typhoon Lagoon.
At the same time, filmmaking hit new heights as Disney for the first time led Hollywood
studios in box-office gross. Some of the successful films were: Who Framed Roger Rabbit,
Good Morning Vietnam, Three Men and a Baby, and later, Honey, I Shrunk the Kids, Dick
Tracy, Pretty Woman, and Sister Act. Disney moved into new areas by starting Hollywood
Pictures and acquiring the Wrather Corp. (owner of the Disneyland Hotel) and television
station KHJ (Los Angeles), which was renamed KCAL. In merchandising, Disney purchased Childcraft and opened numerous highly successful and profitable Disney Stores.
By 1992, Disneys animation began reaching even greater audiences with The Little
Mermaid, The Beauty and the Beast, and Aladdin. Hollywood Records was formed to offer
a wide selection of recordings ranging from rap to movie soundtracks. New television
shows, such as Live with Regis and Kathy Lee, Empty Nest, Dinosaurs, and Home
MERNOUSH BANTON
Improvement, expanded Disneys television base. For the first time, Disney moved into
publishing, forming Hyperion Books, Hyperion Books for Children, and Disney Press,
which released books on Disney and non-Disney subjects. In 1991, Disney purchased
Discover magazine, the leading consumer science monthly. As a totally new venture,
Disney was awarded, in 1993, the franchise for a National Hockey League team, the
Mighty Ducks of Anaheim.
In 1992, Disneyland Paris opened in France. Disney successfully completed many
projects throughout the 1990s by venturing into Broadway shows, opening up to 725
Disney Stores, acquiring the California Angels baseball team to add to its hockey team,
opening Disneys Wide World of Sports in Walt Disney World, and acquiring Capital
Cities/ABC. From 2000 to 2007, Disney created new attractions in its theme parks, produced many successful films, opened new hotels, and built Hong Kong Disneyland.
Internal Issues
Organizational Structure and Mission
As indicated in Exhibit 1, Disney operates using a strategic business unit (SBU) type organizational structure. Note that Disneys four SBUs consist of (1) Disney Consumer
Products, (2) Studio Entertainment, (3) Parks and Resorts, and (4) Media Networks and
Broadcasting.
Disneys mission statement is To be one of the worlds leading producers and
providers of entertainment and information. Using our portfolio of brands to differentiate
our content, services and consumer products, we seek to develop the most creative, innovative and profitable entertainment experiences and related products in the world. Disney
does not have a vision statement.
EXHIBIT 1
Walt Disney
Company
Disney Consumer
Products
1. Disney Hard_Lines
2. Disney Soft_Lines
3. Disney Toys
4. Disney Publishing
5. Disney Press
6. Disney Editions
Studio Entertainment
1. Walt Disney Pictures
2. Touchstone Pictures
3. Miramax Films
4. Buena Vista Home
Entertainment
5. Buena Vista
Theatrical
Productions
6. Walt Disney Records
7. Buena Vista Records
8. Hollywood Records
9. Lyric Street Records
10. Pixar Studio
Media Networks
Broadcasting
1. Disney-ABC Television
2. ESPN Inc.
3. Walt Disney
Internet Group
4. ABC-Owned Television
Stations
5. ABC Radio
EXHIBIT 2
Revenues
Costs and expenses
Other (expense)/income
37,843
(30,439)
(59)
2007
35,510
(28,681)
1,004
2006
33,747
(28,392)
88
(524)
581
(593)
485
(592)
473
7,402
(2,673)
(302)
7,725
(2,874)
(177)
5,324
(1,837)
(183)
4,427
4,674
13
3,304
70
Net income
4,427
4,687
3,374
2.28
2.24
0.01
1.60
0.03
2.28
2.25
1.64
2.34
2.33
0.01
1.65
0.03
2.34
2.34
1.68
1,948
2,092
2,076
1,890
2,004
2,005
Financials by Segment
Exhibit 4 demonstrates the companys revenue and operating income by each business segment. Note that Disneys Media Networks brings in the most revenues and operating
income for the company. This division, as well as the Parks and Resorts segment, is growing. However, the companys Studio Entertainment business segment and their Consumer
Products businesses have experienced declining revenues in the last three years.
As shown in Exhibit 5, Disney derives 76 percent of its revenue and 77 percent of its
operating income from businesses in the United States and Canada. The companys revenues and income are growing in all regions of the world, with Europe being second
behind the United States/Canada in both revenues and income.
MERNOUSH BANTON
EXHIBIT 3
ASSETS
Current assets
Cash and cash equivalents
Receivables
Inventories
Television costs
Deferred income taxes
Other current assets
3,670
5,032
641
559
862
550
11,666
5,394
1,563
11,314
5,123
995
31,493
(16,310)
30,260
(15,145)
15,183
1,169
1,180
15,115
1,147
1,171
17,532
2,428
22,151
1,763
17,433
2,494
22,085
1,484
62,497
60,928
5,980
3,529
2,082
5,949
3,280
2,162
3,001
5,373
1,124
541
1,024
603
September 29,
2007
11,591
11,110
2,350
3,779
1,344
11,391
11,892
2,573
3,024
1,295
26,546
28,413
(81)
24,207
24,805
(157)
54,878
48,855
(22,555)
(18,102)
32,323
30,753
62,497
60,928
EXHIBIT 4
2008
2007
2006
2008
vs.
2007
Revenues:
Media Networks
Parks and Resorts
Studio Entertainment
Consumer Products
$ 16,116
11,504
7,348
2,875
$ 15,104
10,626
7,491
2,289
$ 14,186
9,925
7,529
2,107
7
8
(2)
26
6
7
(1)
9
$ 37,843
$ 35,510
$ 33,747
$ 4,755
1,897
1,086
718
$ 4,275
1,710
1,195
631
$ 3,481
1,534
728
607
11
11
(9)
14
23
11
64
4
$ 8,456
7,811
$ 6,350
23
(in millions)
Consumer Products (8 percent). Operating income was derived from Media Networks (57 percent), Parks and Resorts (23 percent), Studio Entertainment (13 percent), and Consumer
Products (9 percent). These percentages reveal a bit of a weakness in Studio Entertainment
because this segment creates 20 percent of revenues but only 13 percent of operating income.
Media Networks/Broadcasting
Disney owns ABC Television Network, which includes ABC Entertainment, ABC
Daytime, ABC News, ABC Sports, ABC Kids, Touchstone Television, and ABC Radio.
Also included in this segment, Disney owns ESPN, Disney Channel, ABC Family, Toon
Disney, SOAPnet, and Buena Vista Television. Disney has equity interest in Lifetime
EXHIBIT 5
(in millions)
Revenue
United States and Canada
Europe
Asia Pacific
Latin America and Other
2008
2007
$ 28,506
6,805
1,811
721
$ 27,286
5,898
1,732
594
$ 26,027
5,266
1,917
537
$ 37,843
$ 35,510
$ 33,747
$ 6,472
1,423
386
175
$ 6,026
1,192
437
156
$ 4,797
918
542
93
$ 8,456
$ 7,811
$ 6,350
2006
2007
vs.
2006
MERNOUSH BANTON
EXHIBIT 6
(in millions)
Change
2008
2007
vs.
vs.
2007
2006
Revenues:
Cable Networks
Broadcasting
2008
2007
$ 10,041
6,075
$ 16,116
$
$
8,159
6,027
10%
2%
12%
(1)%
$ 15,104
$ 14,186
7%
6%
4,100
655
3,577
698
3,001
480
15%
(6)%
19%
45%
4,755
4,275
3,481
11%
23%
9,167
5,937
2006
EXHIBIT 7
Market
TV Station
Analog
Channel
New York, NY
Los Angeles, CA
Chicago, IL
Philadelphia, PA
San Francisco, CA
Houston, TX
Raleigh-Durham, NC
Fresno, CA
Flint, MI
Toledo, OH
WABC-TV
KABC-TV
WLS-TV
WPVI-TV
KGO-TV
KTRK-TV
WTVD-TV
KFSN-TV
WJRT-TV
WTVG-TV
7
7
7
6
7
13
11
30
12
13
Television
Market
Ranking
1
2
3
4
6
10
28
55
66
72
EXHIBIT 8
Property
Estimated
Domestic
Subscribers
(in millions)(1)
Estimated
International
Subscribers
(in millions)(2)
98
97
63
67
4
20
97
71
97
70
78
32
19
52
20
7
30
19
9
25
4
1
1
1
100.0
100.0
100.0
73.3
100.0
100.0
100.0
100.0
97
97
52
52
1
1
1
1
37.5
37.5
37.5
37.5
97
66
11
1
1
1
50.0
50.0
50.0
ESPN
ESPN(1)
ESPN2
ESPN Classic
ESPNEWS
ESPN Deportes
ESPNU
Disney Channels Worldwide
Disney Channel
Playhouse Disney
Toon Disney
Jetix Europe
Jetix Latin America
Hungama
ABC Family
SOAPnet
A&E
A&E
The History Channel
The Biography Channel
History International
Lifetime
Lifetime Television
Lifetime Movie Network
Lifetime Real Women(2)
(1) Estimated U.S. subscriber counts according to Nielsen Media Research as of September 2008.
Source: Walt Disney Company, Form 10K (2008).
Number
of
Channels
Ownership
%
80.0
80.0
80.0
80.0
80.0
80.0
MERNOUSH BANTON
EXHIBIT 9
Walt Disney
World Resorts
Disneyland
Resort
Paris
Disneyland
Resort
Epcot
Disneyland
Disneyland
Park
Disney-MGM
Studios
Disneylands
California
Adventure
Walt
Disney
Studios
Park
Magic Kingdom
Resort
Facilities
Hong
Kong
Disneyland
Resort
Tokyo
Disney
Resort
Hong
Kong
Disneyland
Resort
Facilities
Disney
Cruise
Line
ESPN
Zone
Walt Disney
Imagineering
Tokyo
Disneyland
Tokyo
DisneySea
Disneys
Animal
Kingdom
Resort Facilities
Source: Walt Disney Company, Form 10K (2008).
43 percent ownership in Hong Kong Disneyland, 100 percent ownership in Tokyo Disney
Resort as well as Disneyland in both California and Florida. Exhibit 9 summarizes
Disneys key parks and resort holdings.
Disney revenues at its Parks and Resorts division increased 7 percent in 2008, or
$701 million, to $10.6 billion due to increases of $483 million and $218 million at its
domestic and international resorts, respectively. Domestic Parks and Resorts revenues
increased due to increased guest spending, theme park attendance, and hotel occupancy, as
well as higher sales at Disney Vacation Club. Higher guest spending was due to a higher
average daily hotel room rate, higher average ticket prices, and greater merchandise spending at both resorts.
Disneyland Resort Paris experienced increased revenues, offset by a decrease at
Hong Kong Disneyland Resort due to lower theme park attendance. Some of the increase
in revenue was due to favorable impact of foreign currency translation (weakening of
the U.S. dollar against the euro). Operating income from the Parks and Resorts
segment increased 11 percent, or by $524 million, to $1.897 billion. Exhibit 10 presents
Disneys attendance, per capita theme park guest spending, and hotel statistics for its
domestic properties:
EXHIBIT 10
Increase in Attendance
Increase in Per Capita
Guest Spending
Occupancy
Available Room Nights
(in thousands)
Per Room Guest Spending
FY
2008
FY
2007
6%
3%
5%
1%
89%
8,614
$217
West Coast
Resorts
FY
2007
FY
2008
FY
2007
(1)%
2%
6%
8%
3%
3%
5%
3%
86%
8,834
92%
810
93%
810
89%
9,424
87%
9,644
$211
$309
$287
$225
$218
FY
2008
Total Domestic
Resorts
The company also has been hosting VIP tours (additional fees applies), offering
added-value services such as number of attractions being covered along with personal
guide tours, preferred seating, and front-of-line access to rides. The company also offers
package deals for major corporations and schools.
Disney has plans to change its concept of the theme parks from the masses to a more
concentrated perspective. This move allows Disney to offer more stand-alone theme parks
and resorts in cities and beach resorts, as well as Disney-branded retail and dining districts,
and smaller and more sophisticated parks. This permits the company in using the Disney
brand name to expand in other areas of the travel business. The company has built timeshare vacation homes in popular places in the United States. Some of the challenges in this
marketing strategy have been tailoring the niche attractions to the local markets while
keeping the Disney brand reputation. However, there is a challenge of avoiding
cannibalization of existing parks and attractions. The goal would be entering into new markets without harming or cannibalizing Disneys brand.
Studio Entertainment
Disney produces live-action and animated motion pictures, direct-to-video programming,
musical recordings, and live-stage plays. Disney motion pictures are distributed under the
names Walt Disney Pictures and Television, Touchstone Pictures, Hollywood Pictures,
Miramax Films, and Buena Vista Home Entertainment International, which includes Walt
Disney Records, Buena Vista Records, Hollywood Records, Lyric Street Records, and
Disney Music Publishing. Disney owns Pixar, a computer animation leader, and produces
feature animation films under both the Disney and Pixar banners. The company also produces stage plays, musical recordings, and live entertainment events. As of September
2008, Disney had released 928 full-length movies, 80 full-length animated features, and
546 cartoon shorts. Product offerings include Pay-Per-View, Pay Television, Free
Television, Pay Television 2, and International Television.
Consumer Products
The Consumer Products segment includes partners with licenses, manufacturers, publishers, and retailers worldwide who design, promote, and sell a wide variety of products
based on new and existing Disney characters. The product offerings are Character
Merchandise and Publications Licensing, Books and Magazines, Buena Vista Games,
DisneyShopping.com, and The Disney Store. Products include books, interactive games,
food and beverages, fine art, apparel, toys, and even home decor.
In 2008, the revenues from this segment increased 26 percent to $2.9 billion. Sales
growth at the Disney Stores was due to the acquisition of the Disney Stores North
America. Sales growth at Merchandise Licensing was driven by higher earned royalties
across multiple product categories.
Operating income of this segment increased 14 percent to $718 million, mostly due
to growth at Merchandise Licensing partially offset by a decrease at the Disney Stores due
to the acquisition of the Disney Stores North America. In April 2008, Disney acquired
inventory, leasehold improvements, and certain fixed assets of the Disney Stores North
America for approximately $64 million. The acquisition included the assumption of the
leases of 229 stores.
Competition
Disneys competitors differ in each segment of business. Time Warner is a major competitor to Disney and is composed of five divisions: AOL, Cable, Filmed Entertainment,
Networks, and Publishing. Time Warner owns Time Inc., AOL, Warner Brothers, and TBS
Networks. Walt Disney generally is classified as Entertainment-Diversified, which directly
competes with Time Warner, Inc. (as shown in Exhibit 11).
CBS Corporation and News Corporation directly compete with the Walt Disney
Company in the Media Network segment, but they are not rivals in the Consumer Products
and Parks and Resorts segments. CBS Corporation was a part of Viacom, Inc., but now
operates independently under CBS Corp. News Corporation is a diversified international
media and entertainment company that operates in eight segments: Filmed Entertainment,
10
MERNOUSH BANTON
EXHIBIT 11
Market Cap
# of Employees
Qtrly Rev Growth
Revenue
Gross Margin
EBITDA
Oper Margins
Net Income
EPS
DIS
CBS
TWX
Industry
39.00B
150,000
-8.20%
$ 36.99B
17.81%
$ 8.18B
17.81%
$ 4.02B
$ 2.100
4.31B
25,920
-6.20%
13.95B
37.99%
2.69B
15.48%
-11.67B
-17.428
26.28B
87,000
-2.70%
46.98B
41.92%
13.34B
18.62%
-13.40B
-11.224
499.59M
7.51K
5.10%
930.87M
41.92%
166.44M
10.39%
N/A
N/A
Major Competitors
Discovery Networks
Disney/ESPN Media Networks
MTV Networks
Turner Entertainment Networks
Scripps Networks
NBC Universal Cable
Comcast Cable Networks
Fox Cable Networks
% Attractiveness*
72%
68%
52%
48%
43%
39%
34%
31%
television production, and syndication, Showtime, and CSTV Networks. In 2008, the
Television segment of CBS contributed 64 percent of companys total revenue (approximately
$8.99 billion). The Radio segment derives revenue primarily from advertising sales. In 2008,
the Radio segment generated 11 percent of CBSs total revenue (approximately $1.5 billion).
News Corp., with $33 billion in revenue, operates in eight industry segments: Filmed
Entertainment, Television, Cable Network Programming, Direct Broadcast Satellite
Television, Magazines and Inserts, Newspapers, Book Publishing, and Other. For the fiscal
year 2008, the Filmed Entertainment, Television, Cable Network Programming, and Direct
Broadcast Satellite Television contributed approximately 65 percent or $21.2 billion to the
companys total revenue. The company has been moving aggressively toward digital
technologies such as broadband, mobility, storage, and wireless. News Corp. owns
MySpace.com, one of the Internets most popular social networking site, and IGN.com (a
gaming and entertainment site). Fox TV, owned by News Corp., ranks as one of the most
popular networks on television with an average audience of 7.6 million every night, followed by CBS with 6.7 million viewers during each prime time, Walt Disney Companys
ABC with 5.4 million viewers per night, and finally NBC (owned by General Electric
Company) with 4.8 million viewers during each prime-time period. News Corp. recently
acquired Dow Jones & Company and Liberty Media Corporation, which included approximately 41 percent interest in the DIRECTV Group, Inc.
Time Warners media and entertainment segments include AOL, Cable, Filmed
Entertainment, Networks, and Publishing. The Cable segment services primarily analog
and digital video services, and advanced services such as VOD and HDTV with set-top
boxed equipped with digital video recorders. The Filmed Entertainment segment produces
and distributes theatrical motion pictures and television shows. The Network segment consists of HBO and Cinemax pay television programming services. The Publishing segment
publishes magazines and Web sites in a variety of areas and has a strategic alliance with
Google, Inc. Exhibit 13 demonstrates Time Warners revenue by segment.
EXHIBIT 13
Segment
Revenue
Cable
AOL
Filmed Entertainment
Networks
Publishing
Total
$ 17,200
4,165
11,398
11,154
4,608
48,525
Percentage of
Total Sales
Operating
Income
35.44
8.58
23.49
23.00
9.49
$ (11,782)
(1,147)
823
3,118
(6,624)
11
12
MERNOUSH BANTON
The second largest amusement park company after Disney is Six Flags, Inc., based
in Oklahoma City, Oklahoma, with 20 parks across the United States, Mexico, and Canada
and soon in Dubai and Qatar with more than $1 billion in revenue (2008). Six Flags
recently acquired Dick Clark Productions, which owns television hits such as the
American Music Awards, The Golden Globe Awards, the Academy of Country Music
Awards, Dick Clarks New Years Rockin Eve, and So You Think You Can Dance.
Ocean Park in Hong Kong has been aggressively competing with Disney. Ocean
Park is a theme park that covers over 870,000 square meters and receives more than
5 million tourists each year. In March 2009, Ocean Park launched two new sightseeing
locations in Shanghai to attract tourists from regions such as the Yangtze River Delta.
Ocean Park has the advantage of understanding the local market because they have been in
business for more than 30 years. They offer a range of transportation facilities to link Hong
Kong with major cities in the Pearl River Delta. In 2008, Ocean Park established an office
in Shanghai. Ocean Park plans to complete construction of four new themed travel attractions between 2010 and 2013. It also seems that the residents in Hong Kong are not very
impressed with the small version of Disney built there because many have visited
Disneyland in Tokyo or Anaheim, California. Disney in mid-2009 reached an agreement
with the Hong Kong government to enlarge Hong Kong Disneyland. That city government
owns 57 percent of that Disney theme park.
Risk
A wide range of factors could materially affect the future and the performance of the
Disney, such as:
1. A prolonged recession in the United States and other regions of the world could
have an adverse affect on the companys business.
2. The success of the business depends on the ability to consistently create and
distribute programs/products (movies, films, programs, theme park attractions,
resort services, and consumer products) that consumers want. As such, heavy
3.
4.
5.
6.
Conclusion
Walt Disneys net income fell 26 percent for the third quarter (2009) with no division or
segment of the company reporting an increase. The worst performing division for the quarter was Movie Studio, which reported an operating loss of $12 million on a revenue drop
of 12 percent. Disneys DVD sales slowed dramatically.
As the economic recession lingers and consumers still spend money on what the
need rather than what they want, Disney needs a clear strategic plan for the future.
Shareholders do not want to see a repeat of the firms third-quarter type results. Lets say
Disney asks your assistance in developing a strategic plan. Help Disney reverse its slipping
revenues.
References
Datamonitor Industry Market Research
finance.yahoo.com
Investors Business Daily
Multichannel News, available from www.multichannel.com
News Corporation, available from www.newscorp.com
The Wall Street Journal, available from www.wsj.com
The Walt Disney Company, available from www.disney.com
TheStreet.com, available from www.thestreet.com
Time Warner, Inc., available from www.timewarner.com
Standard & Poors, available from www.standardandpoors.com
USAToday.com, available from www.usatoday.com
13