James Ambrose

Courtney E. Hamm
Brandy ONeal
Joseph Rendon
MGMT 428-Summer 1
rt re:
The Walt Disney Company: The Entertainment King
HBS Case #2
Introduction
The Walt Disney Company has truly been the entertainment king in the 83 years
since its founding. This is largely due to the vision of Walt Disney, as well as the
strategic management skills of Michael Eisner. The work of these two men, as well as
countless others at The Walt Disney Company has created an innovative business model
with universal appeal.
A History of Disney
The Disney Brothers Cartoon Studio was founded in California in 1923 by Walt
and Roy Disney. The brothers had a contract to produce Alice Comedy films about a
live girl in an animated world. Over the next four years, around 55 films are produced in
the series. In 1927, The Disney Studio began indirect production for Universal Pictures
films Oswald the Lucky Rabbit. The brothers produced 26 films in their first year. In
1928, Universal took the contract from the Disney Studio, and Walt Disney created
Mickey Mouse by widening Oswalds ears and changing his clothes slightly. Mickeys
film debut was also in 1928 in the film Steamboat Willie.
1937 saw the release of Disneys first feature-length animated film, Snow White
and the Seven Dwarfs. In 1940 the company made its initial public stock offering, and
ten years later, Treasure Island, Disneys first entirely live-action film was released. Walt
Disney himself also appeared on television for the first time in 1950. In 1955, Walt
Disney realized his dream for a family-based theme park with the opening of Disneyland
in Anaheim, California. Eleven years later, Walt Disney died of lung cancer, and his

James Ambrose
Courtney E. Hamm
Brandy ONeal
Joseph Rendon
MGMT 428-Summer 1
brother Roy became the new chairman of The Walt Disney Company. The company
opened its second theme park, Walt Disney World, in Orlando, Florida in 1971.
Walt Disney Worlds EPCOT Center was opened in 1982, with a central globe
based on the Unisphere from the 1964 Worlds Fair in New York City. EPCOT features
pavilions representing eight countries. Disney expanded its international focus with the
opening of Tokyo Disneyland in 1983. Tokyo Disneyland was designed by the creators
of Walt Disney World and features a similar look and many of the same attractions. A
shift in the company occurred with the board of directors unanimous decision to elect
Michael Eisner as chairman and chief executive officer and Frank Wells as president and
chief operating officer in 1984. Roy Edward Disney, son of Roy Disney became head of
the animation division.
The Reason for Disneys Success
The Walt Disney Companys success up until the selection of Michael Eisner was
due to Disneys ability to create unique characters with universal appeal and then truly
bring those characters to life. In addition to Mickey Mouse, the company created such
well-known characters as Minnie Mouse, Goofy, and Donald Duck. The companys
family appeal has also had a large influence on its success. The theme parks and retail
stores are based on the popularity of the original animations. In addition to the
companys success with consumers, its films have also received critical acclaim, winning
six academy awards. Walt Disneys vision still influences the companys strategies, and
causes it to continuously search out creative new ideas.

James Ambrose
Courtney E. Hamm
Brandy ONeal
Joseph Rendon
MGMT 428-Summer 1
The Michael Eisner Years
The Walt Disney Company saw many changes under the command of Michael
Eisner. Disney made a large entrance into the retail market in 1987 with the opening of
the first Disney Store. In 1988, Disney-owned Touchstone Pictures released the first liveaction and animated feature film. Who Framed Roger Rabbit cost over $80 million to
create and market and received four of Disneys six Academy Awards. Another addition
to Walt Disney World, Disney-MGM Studios Theme Park, opened in 1989 further
increasing the pull of the Orlando Park. After this success and the overwhelming
popularity of Tokyo Disneyland, The Walt Disney Company decided to open The Euro
Disney Resort and Euro Disneyland in Marne-la Valle, France.
In 1992, Beauty and the Beast became the first animated picture nominated for
best picture, a major milestone in the animation industry. The death of CEO Frank Wells
in 1994 created a void in the company, and Eisner took over many of Wells duties,
distributing very few among other members of top management. In 1995, Disney
purchased the ABC TV network for $19 billion, making it one of the largest players in the
television and radio industry. In 1998, Disney further expanded its reach by launching its
first cruise ship, the Disney Magic. A further expansion to Walt Disney World was the
opening of Animal Kingdom, also in 1998.
Key Issues in the Case
The case covers four key issues other than the management of Michael Eisner.
These issues are the revitalization of TV and movies, expanding into new businesses,

James Ambrose
Courtney E. Hamm
Brandy ONeal
Joseph Rendon
MGMT 428-Summer 1
regions, and audiences, maximizing theme park profitability, and coordination among
businesses.
Revitalization of TV and Movies
After the creation of the Disney Channel, Disney stopped production of network
television shows. Michael Eisner decided to renew their quality network programming.
In 1986, the Disney Sunday Night Movie premiered on ABC. Disney also created
independent shows such as the Golden Girls, Regis and Kathy Lee, and later, Who Wants
to be a Millionaire. A syndication operation was begun to sell TV programming
accumulated over 30 years of production.
Disneys movie department saw a 4 percent drop in box office shares in 1984. In
Eisners first week, Touchstone had brought him the script to Down and Out in Beverly
Hills, the first rated R movie that they had produced. Beginning with that, 27 of the next
33 movies produced by Disney Studios were profitable with six earning over $50 billion
each. By 1988, Disney held 19% of box office shares and led the industry in ticket sales.
Disney began a program of releasing 1518 films per year.
The animation department took longer to revive than television or movies. When
Eisner took over, the animation was averaging a new film every four to five years. Eisner
expanded the department, and reduced the time it took to release a film to 12-18 months.
$30 million was invested in the Computer Animated Production System (CAPS), which
was used to create movies such as Who Framed Roger Rabbit. This investment quickly
paid for itself, as Who Framed Roger Rabbit earned $220 million in box office sales and
also sold large amounts of related merchandise.

James Ambrose
Courtney E. Hamm
Brandy ONeal
Joseph Rendon
MGMT 428-Summer 1

Expanding into New Businesses, Regions, and Audiences

An extremely beneficial move for Disney was the operation of its consumer
products division as a retail-as-entertainment concept. This helped Disney generate
sales per square foot at twice the average rate for retail stores. Disney also incorporated
high-end collectors items to target a more mature consumer.
In the late eighties to early nineties, Disney founded Hollywood records (a pop
music label), Disney Press (publisher of children books), and Hyperion Books (an adult
publishing label). Each of these divisions proved to be successful because of their low
start up costs and huge profits.
Disney believed that in the creation of Euro Disney, it should follow the same
format as Disneyland, Walt Disney World, and Toyko Disneyland, rather than adapting to
the French Culture. This proved to be a mistake, and the cultural differences almost
caused the park to fail. This problem could have been avoided by greater market research
in Europe. However, Disney had the foresight to sell Euro Disney S.C.A. shares on
several European exchanges. Disney held 49 percent ownership of the park, with the
other 51 percent owned by outside shareholders. Michael Eisner was forced to focus in
particular on the revitalization of this park.
Disney began releasing a series of highly profitable and successful animated
features. Some of these animated movies include The Little Mermaid (1989), Beauty and
the Beast (1991), and Aladdin (1992). Disney also produced big-budget, live-action films
through their Touchstone label. The film Splash, which featured partial nudity, caused an

James Ambrose
Courtney E. Hamm
Brandy ONeal
Joseph Rendon
MGMT 428-Summer 1
out roar among Disney customers, eventually leading to a public apology by the
company. The purchase of Miramax proved to be a good acquisition because it is an
independent production studio with a history of success with low-budget art films.
Maximizing Theme Park Profitability
The Walt Disney Company broadened its scope with the opening of Walt Disney
World in 1971 on land secretly purchased by Walt Disney. Walt Disney World became
the top-grossing park in the world, with $139 million in sales and 11 million visitors the
first year. Disney made its park into a full-service travel destination with the creation of
hotels and an in-house travel company that coordinated vacation with travel agencies,
airlines, and tour companies.
The company added $1 billion worth of new attractions to keep up with cultural
changes over the next few years. These attractions included water-based attraction
Typhoon Lagoon, Disney-MGM Studios, and Toontown. The constant addition of new
attractions not only increased the length of customer visits, but also the number of return
visitors. By the year 2000, Walt Disney World qualified as a destination resort, as the
average tourist visit lasted three days.
Disney raised ticket prices and lowered restrictions on the maximum number of
park visitors. Overcrowding and high prices could have caused a loss of customers.
Luckily for Disney, guests still felt that they were receiving an incredible value for their
money.
Disneys first international theme park was in Japan. Tokyo Disneyland was
solely owned by a Japanese partner and designed by WED Enterprises to closely

James Ambrose
Courtney E. Hamm
Brandy ONeal
Joseph Rendon
MGMT 428-Summer 1
resemble Disney World. Disney received 10% of gate receipts and 5% of other sales as
well as ongoing consulting fees.
Euro Disney nearly proved to be a disastrous decision for The Walt Disney
Company. Cultural clashes as well as weather issues shocked a company which had
previously experienced only success. A professor of French literature was recruited to
oversee the parks development and integrate the companys culture into the culture of
France. Disney made the decision to allow wine in on-site restaurants; but male cast
members were still required to shave. The changing weather caused numbers of guests
that the park could barely handle in summer and also the near-desertion of the park in the
cold winter months. Disney is still forced to lay off employees and reduce hotel and
admission prices as well as management fees during the winter months to keep the park
open. Again, these problems could have been avoided simply through market research on
Disneys part.
Coordination Among Businesses
Overlaps necessitated the need for coordination among Disneys various
businesses. Campaigns with outside corporate sponsors had to be arranged through all
aspects of the business. Conflicts also arose over the Disney-owned minute of
advertising during The Disney Sunday Movie. This could be resolved by using general
company advertising and only using specific advertising for large events.
Disney used internal transfer prices for activities that one division performed for
another. For example, when any division wanted to use material from the Disney film
library, it paid a price to the Disney film studio.

James Ambrose
Courtney E. Hamm
Brandy ONeal
Joseph Rendon
MGMT 428-Summer 1
If a conflict arose between division executives, Eisner and Wells encouraged them
to resolve it among themselves, but they also provided the option of arbitration for
difficult problems. Management focused on quick resolution, allowing more time to
focus on important business matters.
In 1987, a corporate marketing function was installed to stimulate and coordinate
company-wide marketing activities. A marketing calendar was introduced to coordinate
marketing across the company and was updated at weekly meetings with divisions across
the company. All divisions were responsible for the generation of new ideas, and a
monthly meeting of 20 divisional marketing a promotional executives was initiated to
discuss inter-divisional issues.
Conclusion
The Walt Disney Company has been extremely successful in the past 83 years due
to both the vision of Walt Disney himself, and the strategic management skills of Michael
Eisner. Eisner took a profitable company and revitalized and expanded it until it truly
became The Entertainment King. It is possible that the immense diversification within
the company will be its downfall, as it may simply become too large to manage.
However, it has managed to stay strong and will most likely continue on its upward path.