Disney is “a leading diversified international family entertainment and media enterprise” (Disney, 2011). The firm was established in 1923 by Walter Disney in California as a cartoon production studio. It began producing full length films in 1950 and ventured into hospitality industry in 1980s (Disney, 2011). From the year 2000, the firm joined the property industry. Currently, the firm operates four business segments namely, “media networks, parks and resorts, studio entertainment and consumer products” (Disney, 2011).
The consumer products sold by the firm include apparel, books, toys and electronics. The studio entertainment segment distributes films and produces animated films. The media networks segment offers entertainment and advertisement services through cable TV and radio stations while the parks and resort segment provides hospitality services such as accommodation. The firm operates in all the continents with a great focus on America, Europe and Asia (Disney, 2011).
Disney’s Vision and Mission
The company’s vision is “to be the world’s premier entertainment company” (Disney, 2011). The company’s strategic objective is to be the leader in production and provision of entertainment and information services in the global entertainment industry. Consequently, it aims at differentiating its services and consumer products through its diversified brand portfolio.
The company’s mission is “to produce unparalleled entertainment experiences based on the rich legacy of quality and creative content and exceptional storytelling” (Disney, 2011). In order to accomplish this mission, the firm is focusing on the following five objectives. First, it is focusing on producing high quality products across all its business segments in order to meet the expectations of its clients.
Second, the firm is promoting ‘great storytelling’ in order to produce memorable entertainment experiences (Disney, 2011). Third, it is focusing on providing a wide variety of family entertainment services in order to increase its market share. It is also keen on strategic talent acquisition in order to improve the quality of its products (Disney, 2011). Finally, the firm remains optimistic for the future by anticipating future challenges in the industry and identifying timely remedies.
Porter’s Five Forces Analysis
Threat of New Entrants
The threat of new entrants in the industry is low and this can be explained as follows. First, the entertainment services or products are highly differentiated (Curiah, 2006). The incumbent firms focus on product differentiation in order to improve their competiveness (Arnold, 2008). Second, most firms in the industry enjoy economies of scale. Most of them have their own production and distribution channels which help them to lower costs (Richard & Stolarick, 2009). Third, the capital requirement for joining the industry is high since it is capital intensive. Finally the switching costs are high since buyers and suppliers normally enter long-term contracts. The low threat of new entrants means that the incumbent can not easily lose their market shares as new firms join the industry.
Buyers’ Bargaining Power
Buyers (Entertainment companies) have a low bargaining power in the industry due to the following reasons. There are very many buyers as compared to the suppliers of entertainment products such as music and stories for making films. The products of the suppliers are also highly differentiated (Richard & Stolarick, 2009). Besides, the suppliers’ products are very important since they determine the quality of the entertainment products. The buyers’ bargaining power is also low due to the high switching costs associated with the industry. The low buyers’ bargaining power means that they are venerable to exploitations such as high copyright fees (Arnold, 2008).
Suppliers’ Bargaining Power
There are very many buyers as compared to the suppliers thus increasing the competition for supplies in the industry. Besides, the suppliers differentiate their products in order to improve their competitiveness (Curiah, 2006). These trends indicate that the suppliers have a high bargaining power. Consequently, they can dictate the prices of their supplies thus reducing the competiveness of the buyers.
Threat of Substitutes
The threat of substitute products is very high in the entertainment industry. There are several alternative sources of entertainment such as live performances, portable entertainment devices such as iPods and the traditional print and electronic media (Richard & Stolarick, 2009). Due to the high competition, the substitutes are differentiated to meet the tastes and preferences of the customers. Besides, most substitutes are associated with very low prices. For example, DVDs and radio programs are cheap as compared to pay TV (Curiah, 2006).
Intensity of Competitive Rivalry
The intensity of competitive rivalry is very high due to the following reasons. First, there are very many competitors in the market. Second, the entertainment and consumer products industries especially in America are growing at a slow rate since they are at their maturity stages (Curiah, 2006). Finally, the fixed costs are high since the copyright fees and cost of talent acquisition is constantly increasing (Richard & Stolarick, 2009). The high intensity of competitive rivalry means that a firm can easily lose its market share if it can not improve its competitiveness through innovation and product differentiation.
The greatest strength associated with the company is its financial stability. In the 2010 financial year, the firm’s net income “increased by 20% to $3.9 billion and its total revenue increased by 5% to $38 billion” (Disney, 2011). The robust financial growth has enabled the firm to invest in modern technology. Consequently, it has been able to provide entertainment services through a variety of media networks such as cable TV, pay TV and the internet (Disney, 2011).
It has also enabled it to produce the best films in the market. The financial stability has also enabled the firm to acquire the best talent in the industry especially in its production and distribution departments. Consequently, it has been able to offer superior products. Due to its financial capability, the firm has been able to increase its brand portfolio. For example, it successfully acquired Marvel Entertainment ltd in 2010 thus increasing its market share (Disney, 2011).
The main weakness of the firm is its inability to reduce operating costs. For example, the programming and production costs in 2010 rose from 8.2 billion to 8.66 billion (Disney, 2011). Its performance in the 2010 financial year was adversely affected by the rising operating costs. Currently, the firm’s staff costs continue to rise as it spends more on “pension and post-retirement medical benefits” (Disney, 2011). The rise in operating costs is undermining the firm’s ability to fund its expansion and marketing initiatives.
The greatest opportunity available to the firm is the steady growth in demand for entertainment products (Curiah, 2006). The advancement in technology has lowered the cost of producing and providing entertainment services. Consequently, the services are more affordable leading to high demand. The robust economic growth and high population in emerging economies such as China and India has also increased the demand for entertainment and consumer products (Curiah, 2006). Consequently, the firm has the opportunity to increase its market share by increasing its production.
The main threat to the firm is high regulation in the industry especially in the US market. The government not only regulates the content of TV and radio programs but also limits the number of TV and radio stations that can be owned in one market (Curiah, 2006). Currently, a firm can own only one TV or radio channel in a market. This limits the firm’s ability to expand by establishing new stations that offer differentiated entertainment programs.
The company’s strategy is guided by the following principles. First, the firm focuses on innovation (Disney, 2011). This involves promoting creativity in order to facilitate both product and process innovation. Second, the company’s strategy is guided by quality (Disney, 2011). Due to the high competition in the industry, the firm aims at producing high quality entertainment products in order to distinguish itself in the market. Third, the firm values the welfare of the community it operates in (Disney, 2011). Thus it participates in community development activities such as environmental conservation in order to create a positive rapport with the community. Finally, decency is the most important principle that guides the firm’s strategy. Due to the high regulation in the industry, the firm focuses on producing films whose content are appropriate to the targeted audience.
Owing to the high competition in the industry especially in US, Europe and Asia, the firm should venture into new markets especially in Africa. Currently, the firm operates only in South Africa thus it can join the East African market (Disney, 2011). The East African market is associated with cheap labor and this will help the firm to lower its staff cost. The East African market is also deregulated thus the firm can own as many stations as it can afford (Curiah, 2006). Besides, there is low competition in the region. For example, there is only one pay TV operating in the region (Curiah, 2006). The robust economic growth and technological advancement in the region will also increase the demand for the firm’s products.
How to Implement the Strategy
In order to implement the strategy, the firm should join the East African market through foreign direct investment. This will involve either acquiring existing entertainment firms in the market or establishing new subsidiaries in the market (Arnold, 2008). The resources required to implement this strategy include talented employees who will be able to develop products that suite the region. The firm will also need financial resources to acquire or establish a new branch in the market. The results or benefits of this strategy can be realized after three years of its implementation.
Disney is one of the leading firms in the global entertainment industry (Disney, 2011). The firm aims at being the premier provider of entertainment services in the market. The global entertainment industry is characterized by intense competitive rivalry, low buyers’ bargaining power and low threat of new entrants. However, the threat of substitutes is high and the suppliers have a high bargaining power (Curiah, 2006). The main opportunity available to the firm is the rising demand for entertainment services while the main threat it faces is the high regulation especially in US. The main strength of the firm is its financial stability while its weakness is its inability to reduce operating costs. In order to increase its market share and to improve its profitability, the firm should join new markets such as East Africa.
Arnold, R. (2008). Macroeconomics. New York: Cengage Learning.
Curiah, A. (2006). Hollywood verses the internet: the media and entertainment industry in adigital and newtorked economy. Journal of economic Goegraphy, 6(4), 439-468.
Disney, 2011. Annual reports: FY 2010. Web.
Richard, F., & Stolarick, K. (2009). That’s entertainment: scale and scope economies in the locations and clustering of the entertainment economy. Working Papers Series in Economics and Institutions of innovation, 158(1), 112-121.