Disney Company’s Strategic Actions Since 2019 in China

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Introduction

Throughout the years of development, Disney has evolved into the largest company in the media industry, which includes media networks, parks, experiences and products, studio entertainment, as well as direct-to-consumer services. The key to the company’s corporate strategy is the building of a franchise based on the movies that it produces, merchandise, parks, and other entertainment. For example, through acquiring Pixar which produced such famous franchises as Monsters, Inc., Toy Story, Cars, A Bug’s Life, and many others, Disney managed to commercialize the movies and gain significant profit. With the help of a strategy that focuses on franchise building, Disney achieved considerable success, earning $14 billion in profits in 2019.

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Disney’s General Actions Since 2019

Since the publication of the case study on Disney’s building of billion-dollar franchises, it has undergone some developments in 2020. In the first quarter of 2020, the company launched Disney+, the success of which exceeded the most significant expectations (“The Walt Disney Company reports first quarter,” 2020). According to Robert A. Iger, Chairman, and Chief Executive Officer, “thanks to our incredible collection of brands, […] content, […] and state-of-the-art technology, the company’s direct-to-consumer services, including Disney+, ESPN+, and Hulu, position Disney well for continued growth in today’s dynamic media environment (“The Walt Disney Company reports first quarter,” 2020). For the same quarter, cable revenues of the company increased 20% to $4.8 billion while broadcasting revenues for the quarter increased 34% to $2.6 billion (“The Walt Disney Company reports first quarter,” 2020). Revenue from parks, experiences, and products increased 8% to $7.4 billion, while studio entertainment revenue increased to $3.8 billion (“The Walt Disney Company reports first quarter,” 2020). Finally, in the same first quarter of 2020, the revenues from direct-to-consumer and international increased to $4 billion (“The Walt Disney Company reports first quarter,” 2020).

However, the impact of COVID-19 and the measures that the company had to take to prevent its spread, affected Disney’s revenues. The most significant decrease affected parts, experiences, and products as the company had to close theme parks, retail stores, suspend sailings on cruise ships and guided tours. The merchandise licensing business was also affected by the pandemic, while in some cases, Disney had to delay, shorten or cancel movie releases to theaters as well as stage play performances. In the second quarter of fiscal 2020, the revenue from cable networks increased 17% to $4.4 billion as more people remained in isolation and looked for remote entertainment options (“The Walt Disney Company reports second quarter,” 2020). In the media networks area, the revenues for the second quarter increased 28% to $7.3 billion, while the broadcasting revenue increased 49% to $2.8 billion (“The Walt Disney Company reports second quarter,” 2020). The revenue from parks, products, and experiences decreased by 10% to $5.5 billion (“The Walt Disney Company reports second quarter,” 2020). Both studio entertainment and direct-to-consumer and international revenues increased, from $1.8 billion to $3.8 billion and from $0.9 to $4, respectively (“The Walt Disney Company reports second quarter,” 2020).

In the third quarter, as the social distancing limitations were elevated, the revenue for the sector of cable networks decreased 10% to $4 billion (“The Walt Disney Company reports third quarter,” 2020). The broadcasting revenues increased by 12% to $2.5 billion, while parks, experiences, and products revenue decreased by 85% to $1 billion. The declines show that Disney needs to adjust to the latest international trends that would affect consumer behaviors. As the impact of the pandemic persisted, Disney’s stores, cruises, parks, and resorts were closed in different locations and remained closed until local authorities allowed them to reopen. The decrease in the company’s licensing and retail reflects the recent influence of COVID-19, which resulted in the guaranteed shortfall of the areas of operation that engage customers in a physical engagement with the attractions or products that Disney has to offer.

Because of the worldwide efforts of governments to safeguard the public from the spreading of the coronavirus and mandating social distancing, entertainment that is available at home has never been as in demand. Thus, Disney’s launch of Disney+ was the most successful and profitable action carried out by the company. The platform is the online source for streaming Disney products, such as its franchises (e.g., Star Wars), Pixar, and other family-friendly content produced by Disney itself. The launch occurred a few months earlier than the quarantine, which meant that more audiences were at home and could purchase the subscription to stream content online. In addition, Disney+ allowed the company to launch new movie releases without theaters. The recent development is the planned release of a Mulan remake on September 4, 2020. The premiere of the movie was pushed back several times, starting from March (Solsman & Sorrentino, 2020). The decision to launch Mulan on the platform is a never-applied before the approach to releasing a movie that had been originally intended to be a blockbuster in movie theaters. While the plan for Disney is to resume its blockbusters at theaters as soon as the pandemic risks decline, such as the November release of Black Widow, the changes in content delivery strategies that the company had implemented served as a way to attract broad audiences worldwide.

Disney’s Strategy in China

China has been a long-term strategic focus point for Disney as a broad market with multiple opportunities for expansion. The advance of the company into China has been a matter of both diplomacy and long-term forecasting and planning intended to consider the peculiarities of the market and consumer behaviors. However, less than a year after initially opening to the public, the Shanghai Disneyland was already the largest amusement park in China, attracting around 12 million visitors (“Walt dynasty: Why Disney’s long-term focus is on China,” 2017). What was unique about Disney’s entry into China’s amusement park industry was the collaboration with the government to allow the latter to have a role in running the park, which meant that a significant piece of profit was handed to China. In addition to the franchise-themed rides and attractions, Disney embedded Chinese elements to the park, such as the Shangai resort’s signature restaurant or the Wandering Moon Teahouse, with rooms designed after different areas of the country (Barboza & Barnes, 2016). Such additions were detrimental to the success of Disney’s amusement park in China as increased numbers of multinationals agreed that cooperation with the state is possible “through alliances, joint ventures or partnerships, all in the hopes of garnering more favorable treatment and gaining access to the world’s second-largest economy, after the United States” (Barboza & Barnes, 2016, para. 12).

As to TV and online entertainment, Disney has struggled to capture the market due to several limitations. The company did launch Disney Channel in Mainland China in 2012, although, many of the Disney-produced or owned series and franchises are syndicated on regional channels through Dragon Club, which is owned by ABC. In 2016, Disney launched a content service DisneyLife, which was run by Alibaba but soon was shot down due to the request from Chinese regulators (Borak, 2019). While Disney Plus is available in multiple countries worldwide, it is not going to be available in China any time soon. The inability of Disney to enter the Chinese market of online streaming services because of the government’s tight content regulations make it nearly impossible to work as a foreign media company in the market (Borak, 2019). This is challenging for Disney because the target audiences in China are interested in the content produced by the company, especially the Marvel Cinematic Universe (Borak, 2019). The strict content rules enforced by the government of China require Disney to exhibit extreme levels of local responsiveness, which can only be achieved at the detriment of content quality.

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In terms of Disney’s studio entertainment segment, the company has had a presence in China since the premiere of the animated film Snow White and the Seven Dwarfs in the 1930s. This allowed Disney to launch its live-action and animated movies to Chinese audiences. However, film censorship in China applies to Disney’s releases, such as the 1997 Kundun that was objected by the government to portraying Dalai Lama in a positive light. Disney did not consider the objections and distributed the film, which caused a temporary ban on all movies produced by the studio. While the ban ended with the release of Mulan in 1999, Disney still had to apologize for Kundun during the process of negotiating the building of Shanghai Disney Resort.

Thus, the efforts of Disney in China align with the principles of the Integration-Responsiveness (I-R) Framework that implies the meeting of two basic strategic needs. The first principle is to integrate a brand’s value chain activities throughout global markets, while the second principle is to create processes and products that are responsive to the needs of local markets. Since experiencing some downfall with Euro Disneyland, the company had realized that its business operations could be the same in significantly different markets, which led to the change from the original global approach to local adaptation, which is evident in China (Liao & Le, 2017). Within the I-R framework, Disney’s approach is transnational, which seeks to reach a balance between the global efficiencies of its operations and local responsiveness. In addition, the transnational strategy offers to combine standardization and customization for relevant advertising processes.

The effectiveness of the strategy that Disney applies to the Chinese market has its points of strength and weakness. Setting up a business in China has always been a challenge to Disney because of the severe restrictions, some of which are non-negotiable. Since the country has strict rules about the content that people can see, any studio entertainment efforts would have to come down to what the government allows. Due to the need for Disney to focus on the transnational strategy aspect within the I-R framework, it is challenging to implement because of the high costs as well as considerations for the needs and the specific characteristics of the local market (Rothaermel, 2020). On the bright side, Disney already knows that doing business in China means negotiating with the government and explaining why new products or services will also be beneficial to the economic prosperity of the country. For instance, while accounting for the regional specifics associated with entering the Chinese market during the building of Disneyland, Disney still used its franchises as positive points to attract customers. Together with the opening of the amusement park, Disney has gained an opportunity to market more merchandise based on the most popular franchises at Chinese stores because of the increased coverage of the attractions in local media. Therefore, by opening the amusement park in China, Disney will plan to investigate the popularity of its products while also considering the local peculiarities of the market.

Conclusion

To conclude the case analysis, the changing consumer needs associated with the increased demand for online entertainment will affect the operations of Disney both in global and domestic markets. Due to the pandemic, the changes that the company had to implement were concerned with offering more remote options for content, entertainment, and product purchasing. While some of the attractions are opening and allow the company to broaden the spectrum of available entertainment options, it is crucial that Disney considers the takeaways from the pandemic and opts to develop solutions that would be available remotely. With the focus on the transnational strategy, it is expected that the company will adapt to the needs and restrictions of each region. In China, the greatest challenge is negotiating a content strategy that would allow viewers in the country to have access to streaming services while also adhering to governmental censorship policies.

References

Barboza, D., & Barnes, B. (2016). How China won the keys to Disney’s magic kingdom. The New York Times. Web.

Borak, M. (2019). Disney+ won’t be streaming in China any time soon. Web.

Liao, T-S., & Le, U-M. (2017). A dynamic global integration and local responsiveness framework: Understanding strategic movements of multinational enterprises. International Review of Management and Business Research, 6(4), 1394-1426.

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Rothaermel, F. (2020). Strategic management (5th ed.). McGraw-Hill Education.

Solsman, J., & Sorrentino, M. (2020). Disney Plus: Everything to know about Disney’s streaming service. Web.

The Walt Disney Company reports first quarter earnings for fiscal 2020. Web.

The Walt Disney Company reports second quarter and six months earnings for fiscal 2020. Web.

The Walt Disney Company reports third quarter and nine months earnings for fiscal 2020.Web.

Walt dynasty: Why Disney’s long-term focus is on China. (2017). Web.

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BusinessEssay. (2022) 'Disney Company's Strategic Actions Since 2019 in China'. 27 June.

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BusinessEssay. 2022. "Disney Company's Strategic Actions Since 2019 in China." June 27, 2022. https://business-essay.com/disney-companys-strategic-actions-since-2019-in-china/.

1. BusinessEssay. "Disney Company's Strategic Actions Since 2019 in China." June 27, 2022. https://business-essay.com/disney-companys-strategic-actions-since-2019-in-china/.


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BusinessEssay. "Disney Company's Strategic Actions Since 2019 in China." June 27, 2022. https://business-essay.com/disney-companys-strategic-actions-since-2019-in-china/.