Analysis of Walt Disney’s Diversification in 2012

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Introduction

Disney Company is a widely variegated broadcast journalism and entertainment firm headquartered in the US. In 2012, Walt Disney embarked on expanding its operations by adding new markets, products, and services because it wanted to maintain the good operating margin it already had. Essentially, the process was part of the company’s strategic plan to increase its performance objectives, for instance sales and market share beyond the previous years’ levels of performance.

Growth in the revenue was in fact, the target of the management of Walt Disney Company, since an increase in sales has always been used as a performance indicator in a firm. The most conspicuous achievement that Walt Disney has been able to attain under the diversification was to protect itself from the competition by other well established media and entertainment companies. In analyzing diversification, it is important to understand its mission, vision, the business model, trends in financial performance, market challenges and uniqueness of a company to enable one provide recommendations based on the PESTLE analysis.

Mission and Vision

Growth in sales and profits in the subsequent years after diversification by Walt Disney in 2012 could be attributed to the mission statement of the company. Precisely, Disney Company was on a mission of being one of the leading creators and givers of information and entertainment in the globe (Walt Disney, n.d.) The statement emphasized that the firm would use its various business units to diversify their products and services as they sought to create the most original, ingenious, and profitable experiences (Walt Disney, n.d).

Therefore, the Disney Company’s mission statement conveyed the values of the business, though in a subtle way, to their clients in a manner to generate interest in the products and services that were offered.

In addition, the future goals of Walt Disney were well captured in the vision statement of 2012. An importance of the vision was pegged on the fact that it was well-crafted, and powerfully communicated strategic plan. Analytically, the statement met the criterion of a good vision statement because it indicated its intent in making people happy (Walt Disney, n.d.). As a matter of fact, the statement is too broad, but not explicit as it represents the general aims and global direction of the business.

Business Model

Being a diversified media and entertainment company, Walt Disney had a business lineup that included of theme parks, resorts, motion picture production and distribution, cable television networks, among other businesses. The company adopted a business model that depended heavily on the revenues collected from various divisions of the company. Earnings from the recreational parks and hotels division for instance, were generated through park admission fees, accommodation costs, merchandise sales, meals and drinks purchases, acquisition or leasing of holiday club real estates, and cruise vacations’ fees (Gamble et al., 2015).

However, the sizable amount of income that was generated from the recreational facilities came from the hotel lodgings, and sales of food and beverages (Gamble et al., 2015). In consequence, the business model created value for not only the customers who enjoyed the services, but also for the company.

Apart from the income from the recreational provisions, the company also had other sources of revenue. Profits were generated from distribution of motion pictures such as movies when they moved from pay-per-view or video-on-demand after two months of their releases on a DVD following their availability on premium cable channels (Gamble et al., 2015). Moreover, Walt Disney had a collection of consumer products which generated profits in terms of licensing revenues that were obtained from the use of Disney’s portfolio of characters by manufacturers of toys, apparels, and footwear (Gamble et al., 2015). As evident, making money was important for the business to sustain its operations.

Financial Analysis and Stock Price Performance

The years from 2007 to 2011 witnessed some distinctive trends in financial performance by Walt Disney Company. Revenues collected by the company continued to grow from $35510 million in 2007 to $ 40893 (Gamble et al., 2015). Also to support the steady growth of the income was the monetary values of the assets from 2007 to 2011 which continued to rise steadily by about 18.5% in a span of 5 years (Gamble et al., 2015). Without any doubt, the company continued to grow through 2007 to 2011, but in a slower rate and that is why diversification was inevitable in 2012.

Of interest also in the analysis of Walt Disney’s financials are the trends in the company’s common stock price and the performance of the stock price against the Standard and Poor’s (S&P) 500 Index. From August of 2002 to the August of 2012, no single year did the price of stock rise more than it did in 2012 (Gamble et al., 2015). Clearly, the broad diversification of the company might have contributed to the $50 per share mark attained in 2012. Performance of the company’s stock price increased by 225% against S& P 500 Index of 75% (Gamble et al., 2015). This was the largest difference of 150% to have ever occurred within the ten years. Expansion of the business in 2012 then impacted the value of each share and therefore stabilizing the stock price.

Market Challenges

Like any other business operating in the media and entertainment industry, Walt Disney had its own share of challenges after diversification. For example the media networks division of the company faced competition for viewers from other television networks and broadcasters that impacted advertising rates and revenues (Gamble et al., 2015). Entertainment varieties such as watching digital versatile disc (DVD), playing video games, and browsing internet became more favourable to many consumers compared to watching television programmes.

Secondly, most of the motion pictures incurred losses during the theatrical distribution of the films because of costs of production and extensive advertising campaigns that accompanied their launch (Gamble et al., 2015). Profits for many movies were not realized until the films became available on DVD or Blu-Ray disks for indoor use, which in most cases began after three to six weeks from the film’s theatrical release. It is against these challenges that Disney Company managed to be a leader of production of moving pictures and also television programmes.

The PESTLE Analysis

There existed macro-environmental factors that provided opportunity for the growth of Walt Disney Company, through diversification in 2012. By application of the PESTLE analysis the factors were quite evident since the company was operating in a business environment (Barney & Hesterly, 2018). Among the factors that are related to the PESTLE analysis is the political element of the intellectual property (IP). In May 2012, Disney Chief Financial Officer said that “Marvel like Pixar, was primarily an IP acquisition.

We knew there was buried treasure there” (Gamble et al., 2015, p.377) According to him, the stronger intellectual property protection provided an opportunity which they as Disney could exploit by buying such rights. Certainly, acquisition of IP from other media and entertainment companies meant a growth for Walt Disney.

Equally noticeable from the PESTLE analysis of Walt Disney is a technological factor. Specifically to the media networks division of the company, the increased usage of internet all over the world has presented both an opportunity and a threat to the company (Barney & Hesterly, 2018). The result of internet on broadcast news has been substantial and the increase on streaming services had the prospective of affecting the advertising revenue capability of all Disney’s media businesses (Gamble et al., 2015). Nevertheless, the company enhanced their use of computer generated imaging and internet based services to provide better products.

Competitive Advantage Strategies

To compete better with other media and entertainment brands in the market, Walt Disney employed different strategies. Firstly, the company allocated sufficient capital to the core theme parks and resorts businesses to sustain its advantage in the industry (Gamble et al., 2015). In particular, the company increased the range of attractions at its Disney California Adventure park with an addition of the $75 million World of Color water and light show in 2010. Secondly, the Walt Disney Company captured the synergies that were existent between its business units (Gamble et al., 2015).

Two of the company’s highest earning films such as Pirates of the Caribbean: On Stranger Tides and Cars 2 were also featured at the company’s Florida and California theme parks (Gamble et al., 2015). Undoubtedly, the company got value for their investments hence making their business convenient to their customers.

Besides, Walt Disney Company also increased its presence in the international business arena by exploiting opportunities in other new emerging markets. In 2012 alone, 75 percent of Chinese and Russian viewers were reached by the Disney Channel as its presence continued to extend to over 100 countries, compared to 19 countries in 2002 (Gamble et al., 2015). Again the company used the advanced technologies to provide better products and efficient services to its clients (Hitt et al., 2017).

Simply put, the increasing usage of internet made it possible to integrate Disney Radio to SiriusXM satellite radio, i Tunes Radio Tuner and Music Store, therefore increasing the accessibility to many clients, worldwide (Gamble et al., 2015). Definitely, the company was able to maintain its competitive advantage through the greatest number of clients it had acquired.

Uniqueness of Walt Disney: Restructuring of the Business Units

Uniqueness of Walt Disney Company emanated from the way it restructured its business units into five divisions in 2012. The divisions which were created from the units were: animation studio, customer goods, interactive media, broadcasting systems, recreational facilities and hotels. Under the media networks division, the company placed its domestic and international cable networks, the ABC television network, television production, and US domestic television stations (Gamble et al., 2015). The Walt Disney’s parks and resorts division incorporated the Walt Disney World Resort in Orlando, the Disneyland resort in California, the Aulani Disney Resort and Spa in Hawaii, the Disney Vacation Club and other resorts (Gamble et al., 2015).

Live action and animated motion pictures, pay-per-view and DVD home entertainment, musical recordings as well as live performances were produced by the studio entertainment division (Gamble et al., 2015). Included in the consumer products division were the Disney Store retail chain and enterprises specializing in merchandise licensing, children’s books and magazine publishing (Gamble et al., 2015). Furthermore, the Disney Company tasked the interactive media division with production of video games for hand held devices, game consoles, and smartphone platforms (Gamble et al., 2015). In essence, reorganization of the company’s business units enabled tracking of performance by each division against the company’s overall success.

Strategic Recommendations

As a consultant, I would recommend a raft of strategic recommendations on how Walt Disney Company could improve their market position and their global presence in sustaining a competitive advantage. Most importantly, the strategic approaches would be for proactive business growth (Hitt et al., 2017). In broad perspective, the strategic management efforts should mitigate the possible threats from the macro-environmental factors. For example, I would recommend establishment of new parks and resorts in the in high-growth economies, the developing nations while reducing business threats such the political interference from such countries. This recommendation is based on the strength of the existing company’s strategies that support market penetration of the kind I have proposed.

An additional recommendation that would also serve the purpose of Walt Disney’s growth is to encourage the company to continue its research and development (R&D) investments for high-flying movies, merchandise, and high quality parks. In fact, the strategy would automatically strengthen the overall image of the company (Hitt et al., 2017). Also, a recommendation aimed at addressing the changing consumer demands in the international industry should be adopted (Hitt et al., 2017).

Specifically, a recommendation to develop new partnerships with companies that complement Disney’s business would be more suitable. Inarguably, the proposed strategic recommendations would improve the market position of the company as well as sustaining the advantage they enjoy.

References

Barney, J. & Hesterly, W. (2018). Strategic management and competitive advantage (6th ed.). Pearson.

Gamble, J., Peteraf, M., & Thompson, A. (2015). Strategic management: The quest for competitive advantage (4th ed.). McGraw Hill Education.

Hitt, M., Ireland, R., & Hoskisson, R. (2017). Strategic management: Competitiveness and globalization (12th ed.). Cengage Learning.

Walt Disney (n.d). About the Walt Disney company. Web.

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BusinessEssay. 2023. "Analysis of Walt Disney’s Diversification in 2012." January 11, 2023. https://business-essay.com/analysis-of-walt-disneys-diversification-in-2012/.

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