Strategic Management Fall 2013

Bryan Claire Rebecca Craig Jeff Gloe Christina Orndorff

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Corporate Strategy
Centered on: Creating a high-quality family content Exploiting technological innovation to make entertainment experiences more memorable International expansion
* Disney is employing both a growth and

differentiation strategy
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Walt Disney Companys Portfolio

Media Parks and Resorts Studio Consumer Products Interactive Media

Media Industry
Threats: Social Media and video on mobile devices User Generated Content Fragmentation Shift from traditional media outlets

Opportunities: Social Media Combining social media with traditional media for expanded footprint
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Parks and Resorts

Threats: High competition in U.S. Markets (Busch Entertainment) Weak economy High unemployment Opportunities: High barriers to entry Technology advancement Threat of substitutes are minimal Niche market for theme parks and resorts

Studio Entertainment
Threats: High competition Weak economy High unemployment Social Media Increasing box office prices Shorter time in box office Opportunities: High barriers to entry Technology advancement Low consumer bargaining power Improved CGI and 3D capabilities Social Media

Studio Entertainment
Global Box Office - All Films (US$ Billions)
US/Canada
$40 $32.6 $35 $27.7 $30 $29.4 $31.6

(contd)

International
$34.7

$25 23.9 $20 18.1 $15

(65%)

18.8 (64%)

21.0
(66%)

22.4
(69%)

(69%)

$10

$5

9.6

10.6

10.6

10.2

10.8

$0 2008 2009 2010 2011 2012

Consumer Products
Threats:

Consumer products industry is highly competitive

Weakened global economy has significantly impacted bottom lines

Technological impacts
Many available substitutes

Opportunities:
High supplier power
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Interactive Media
Threats:
Low barriers to entry

Opportunities: Technology Inexpensive for consumers in a weakened economy Social Media

Growing market

Long-Term Attractiveness of Portfolio

Media - Attractive
Parks and Resorts Attractive Studio/Motion Picture Neither Attractive nor Unattractive

Consumer Products Unattractive

Interactive Media Attractive

Overall the industries represented in Disneys portfolio are attractive.

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Competitive Strength
Media Networks Business unit operates domestic and international cable networks, ABC Television network, television production, U.S. domestic TV stations Advancing in the global market with filmed entertainment Most TV stations are number one in their market Very strong news brands with 238 affiliates that reach 99% of U.S. households Radio Disney is offered through multiple platforms including SiriusXM, iTunes, and mobile phones Utilizing technology to reach viewers via apps for mobile devices and online viewing Operating income increased 29% from 2009 to 2011
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Competitive Strength
Parks and Resorts Disney has parks on both the west coast and east coast of the U.S., as well as a cruise line with ports on both U.S. coasts Disney has ownership in other parks and resorts in the global market Inclusive facilities so visitors never need to leave the area which results in high revenues due to hotel lodging and food sales All parks and resorts tie back to the themes of popular movies produced by Disney Disney has the capital resources to expand attractions when necessary
Two new cruise ships were deployed due to the existing fleet operating at full capacity

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Competitive Strength
Studio Entertainment Business unit produces live-action and animated movies, pay-per-view and DVD home entertainment, and Disney on Ice performances Pixar and Marvel were purchased by Disney for use of technology as well as character use Disney knows exactly how many of each branded movies will be produced each year: one animated Pixar and Disney film, two Marvel films and six to eight live-action Disney films Operating profits grew about 250% after acquisition of Marvel
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Competitive Strength
Consumer Products Business unit includes Disney Stores and businesses focusing on merchandise licensing and childrens books and magazine publishing Global with 208 Disney Stores in North America, 103 in Europe, and 46 in Japan Publishing includes print format as well as electronic format that is viewed on mobile or tablet devices
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Competitive Strength
Interactive Media Business unit produces video games for multiple devices as well as Disneys websites Acquired Playdom, Inc. which creates online games for social networking

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9-Cell Industry Attractiveness/Business Strength Matrix

High

Industry Attractiveness

Media Networks

Parks and Resorts

Studio Entertainment

Interactive

Consumer Products

Low

Weak

Strong

Business Strength/Competitive Position

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Strategic Fit: How do Disneys businesses build off each others successes?
Branding is king leveraging to the max Costs incurred long ago by the Studios to develop characters like Mickey Mouse and Cinderella now continue to generate returns in hotels/cruise ships, gaming/video production, theme parks Gaining Expertise in technology also to be shared, no borders, to catch up and potentially overtake competitors Assets are deployed across all business lines to drive shareholder value. Lets look at three examples.

Disney Growth by Strategic Business Unit

FYE 9-28-2013
45%

Revenue %
31%

Growth %

26%

13% 9%
5% 3% 8% 9% 2%

Media Networks

Parks and Resorts

Studio Entert'mnt

Consumer Products

Interactive

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Parks & Resorts: An example of Strategic Fit at Work in China

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China and Theme Parks: What not to do

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How Strategic Fit Informs Disneys Shanghai Plan

(http://skift.com/2013/11/08/how-disney-plans-to-build-a-brand-in-china-before-shanghai-park-opening)

There are risks: Disney still has a far way before Mickeys famous ears are recognizable by every child and parent in China. Disney CEO Robert Iger addressed the issue during the companys 4th quarter call on Nov 7, 2013. He cited the synergies of the Disney empire in addressing these risks: LEVERAGING MEDIA In CHINA: Relying more on its mobile and online platforms than TV due to national restrictions. The company is planning to increase marketing once park attractions based on cultural or media interests are announced. Chinese culture will be wedded to Mickey.
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Disneys Shanghai Plan, contd

(http://skift.com/2013/11/08/how-disney-plans-to-build-a-brand-in-china-before-shanghai-park-opening)

RETAIL: will also help Disney build a buzz before the 2015 opening . Were also opening or developing our first big store in China and that is actually in Shanghai, which will be used before it opens sort of a quasi visitor center to let people know more about the park itself, said Iger. Once the park opens we actually believe that well have a significant halo effect on the brand. There will be a lot more interest in and appreciation of Disney stories and characters. DISNEYS CRUISE LINE: represents another opportunity for tapping into the Chinese market. Iger says the company currently has no plans of adding to its fleet or expanding itineraries; however, it could become an option when Asia opens up to the family cruise business.
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Another example of Strategic Fit: Consumer Products (9% growth) In August 2013, Disney Introduced its latest COLLECTION Disney Fairytales Designer Collection.
Limited to an edition of 6,000 of each of the five couples globally, each Doll Set retails for $129.95. And what else? Apparel and home dcor, of course.
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Delivering on Strategy: Financial Performance

Disneys mission focuses heavily on financial performance:
The Walt Disney Company's objective is to be one of the world's leading producers and

providers of entertainment and information, using its portfolio of brands to differentiate its content, services and consumer products. The company's primary financial goals are to maximize earnings and cash flow, and to allocate capital toward growth initiatives that will drive long-term shareholder value.

-thewaltdisneycompany.com/investors
EPS Trend 2010-2012
$3.50 $3.00

Revenue Trend 2010 - 2012

43,000 42,000 41,000 40,000 4,000 $MM 39,000 38,000 37,000 36,000 35,000 7,000

Net Income Trend 2010 - 2012

6,000

42,278 40,893

5,000

$2.50

$2.00

38,063

3,000

$1.50

2,000

$1.00

1,000

$0.50

$0.00

2010

2011

2012

2010

2011

2012

2010

2011

2012

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Strategic Business Unit Contribution

Amounts in $MM USD

2011
MEDIA PARKS & RESORTS STUDIO CONSUMER INTERACTIVE MEDIA MEDIA PARKS & RESORTS

2010
STUDIO CONSUMER INTERACTIVE MEDIA

Revenue
Operating Expense Selling & General Expense Depreciation & Amortization Other

18,714 10,376 2,539 237 (584)

11,797 7,383 1,696 1,165

6,351 3,136 2,465 132

3,049 1,334 794 105

982 732 504 54

17,162 9,888 2,358 222 (438)

10,761 6,787 1,517 1,139

6,701 3,469 2,450 89

2,678 1,236 687 78

761 581 371 43

OPERATING INCOME

6,146

1,553

618

816

(308)

5,132

1,318

693

677

(234)

Total Operating Income from SBUs CONTRIBUTION MEDIA PARKS & RESORTS STUDIO CONSUMER INTERACTIVE MEDIA

8,825 2011 70% 18% 7% 9% -3%

7586 2010 68% 17% 9% 9% -3%

Media by far the strongest strategic unit Parks & Resorts, Studio and Consumer are all effectively leveraging the Media / Broadcast unit Disney has not effectively capitalized on Interactive Media. Why?

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Strategic Business Unit Contribution

The roll out of the Disney Infinity game has had a massive impact

http://thewaltdisneycompany.com/sites/default/files/reports/q4-fy13-earnings.pdf

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Interactive Media Sales

Disneys fiscal year runs October September Anticipated holiday sales of Infinity may take unit to profitability
Interactive Media Revenue Trend $MM 2010 2011 2012 2013 761 982 845 1,064

Interactive Media Revenue Trend 1200 1000 800 600

400
200 0

2010

2011

2012

2013

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Interactive Media Operating Income

Disney is erasing the huge operating losses in the division slowly Infinitys Q4 release led to the first profitable quarter in years for the division
Operating Losses 2011 2012 -308 -216

2010 -234

2013 -87

Operating Losses Last 4 Years $MM

0 2010 2011 2012 2013

-100
-200 -300 -400

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Interactive Media Sales Forecasts

Currently not providing guidance Key Factors for Sales:
Holiday Season for Infinity Leveraging the Lucas Arts and Marvel intellectual properties New Platforms: Playstation 4 and Xbox One

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References
http://www.iaapa.org/resources/by-park-type/amusement-parks-and-attractions/industry-statistics http://www.mpaa.org/Resources/92be6469-1d3c-4955-b572-1d3f40f80787.pdf

http://stateofthemedia.org/2013
http://www.disneyabctv.com/division/index_stations.shtml http://www.ibisworld.com/Common/MediaCenter/Fastest%20Growing%20Industries.pdf http://www.joystiq.com/2013/08/07/disney-interactive-loses-58-million-in-q3/

http://www.nintendolife.com/news/2013/11/disney_interactive_sees_big_financial_boost_in_q4
http://www.gamasutra.com/view/news/32919/Disney_Interactive_Losses_Up_Slightly_On_Continuing_Playdom_Acquisitio n_Costs.phphttp://www.iaapa.org/resources/by-park-type/amusement-parks-and-attractions/industry-statistics http://www.mpaa.org/Resources/92be6469-1d3c-4955-b572-1d3f40f80787.pdf http://stateofthemedia.org/2013 http://www.disneyabctv.com/division/index_stations.shtml http://www.ibisworld.com/Common/MediaCenter/Fastest%20Growing%20Industries.pdf http://www.forbes.com/sites/scottmendelson/2013/11/10/weekend-box-office-analysis-thor-2-sets-marvel-record-withmighty-86-million/ 32