Executive Summary
Disney is a global media conglomerate that operates within five market segments. These segments include studio entertainment, media networks, theme parks and resorts, interactive media, and consumer products. On studio entertainment, the major industry rivals include AT&T’s Time Warner Incorporated, ViacomCBS, and Comcast’s NBC Universal. Disney uses a combination of product differentiation and cost leadership to attain market competitiveness against its immediate competitors.
The combined strategy has allowed the company to maintain market leadership in studio entertainment. The Disney brand is a global brand that customers assign value through augmented product features that appeal to all family members. However, the intense competition and market saturation in the North American territory means that the company can venture into emerging economies, integrate a mix of market push and pull strategies, and adopt timed and continuous product releases to minimize the latency between idea conceptualization and implementation for company growth and global performance.
Introduction
Disney is a global media and entertainment conglomerate that operates within five market segments; studio entertainment, media networks, theme parks and resorts, interactive media, and consumer products. On media networks, the company’s broadcast and television networks (spanning ESPN, Disney Channels, and ABC Family) are rivaled by industry competitors like Viacom, Comcast, Sony, and Charter Communications. These companies rival Disney in television, cable, and media markets, including DVD/Blue-ray and video games. On studio entertainment, the company faces intense competition from Time Warner Incorporated, 21st Century Fox, Comcast, and ViacomCBS (VIAC), among others.
The company experiences fierce industry competition from Comcast, Cedar Fair, and Six Flags Entertainment, among others, on theme parks and resorts. Noticeably, Disney’s competitors are other giant global media conglomerates that leverage their global presence, brand image and value, and innovative product offerings to create intense competition.
Despite this intense competition, Disney has managed to be a market leader in studio entertainment. This leadership is demonstrated by the company’s studio revenues of $ 12 billion that is more than the combined studio revenues of ViacomCBS’s (about $ 3.5 billion) and Comcast’s 7.0 billion by the end of the 2019 financial year (Trefis Team, 2020a). Besides, Disney has managed a profit margin of 15-17% compared to Comcast’s 10-12% (Trefis Team, 2020b). Compared to industry peers, these relatively higher profit margins can be attributed to the company’s unique content that cannot be licensed or distributed by other big media networks, allowing Disney to generate profits above its competitors from advertising and affiliate fees (Delaney & Stawicki, 2016). This aspect has allowed the company to employ both product differentiation and cost leadership strategies to attain market competitiveness in the studio entertainment segment.
Disney’s Competitiveness in Studio Entertainment
While Disney operates in various markets, this competitive analysis focuses on its studio entertainment segment using Porter’s generic factors.
Porter’s Generic Factor Analysis
In the studio entertainment industry, Disney primarily uses a product differentiation strategy in rivaling immediate market competitors, though elements of cost leadership are also evident. In product differentiation, the company focuses its efforts on offering unique products or services that cannot be copied or imitated by immediate rivals in the industry (Mustafa et al., 2015). Disney’s animated feature films and live-action non-animated feature films strongly resonate with global cultural shifts that create psychosocial identities that span gender, family, and societal heritages (Zurcher et al., 2018). These attributes have made Disney’s creative content rare, non-substitutable, and inimitable, creating a competitive advantage
Disney’s product differentiation strategy has allowed it to perform well on Porter’s Five Forces. The approach has allowed Disney to experience a low threat of entry of new firms and weak buyer bargaining power. The value created by product differentiation impedes the perceptions of the same products elsewhere, making a low to moderate threat of substitutes from giant media like Comcast, ViacomCBS, and AT&T’s Time Warner Incorporated. Ideally, this creativity has allowed the company to grow its revenue from $ 55.6 billion in 2016 to $69.6 billion in 2019 (Trefis Team, 2020b). Although product differentiation creates lower substitutes, it increases the bargaining power of suppliers. Disney’s suppliers have a moderate to high bargaining, making substantially higher operating costs.
However, these costs are traded off by excellent box office performances as shown by the company’s performance in 2018 when “Black Panther,” “Avengers: Infinity War,” “Star Wars: The Last Jedi,” and “Incredible 2” accounted for 50% revenue in the first quarter. Additionally, while product differentiation is crucial in maintaining a competitive edge, its leverage becomes lower when industry competitors use the same strategy. Nonetheless, the company employs a cost leadership strategy where its catalog of films spans sequels, prequels, and spinoffs to reduce conceptual and creative costs that could hurt its profit margins (Delaney & Stawicki, 2016).
Disney’s Main Competitors in Studio Entertainment
AT&T’s Time Warner Incorporated
Time Warner Incorporated produces, distributes, and exhibits original content. Unlike Disney that holistically makes, distributes, and showcases its creative range, Time Warner Incorporated often licenses other distributors and streaming services to its content. The company’s Warner Bros division has produced global motion pictures like “Wonder Woman,” “It and Dunkirk,” “Middle Earth: Shadow of War and Justice,” “Harry Potter” series, and “Batman” and “Superman,” among other films. These diverse and differentiated products have made Time Warner Incorporated one of the leading studio entertainers.
Company Strengths
Time Warner Incorporated has a market capitalization of about $ 77.27 billion. With such a vast financial capitalization, the company can produce differentiated content with excellent box success (Gentili et al., 2013). The company’s revenue growth from $ 18.94 billion in 2018 to $ 33.5 billion in 2019 could be attributed to its high-value suppliers. Besides, the company’s history in the media industry has allowed it to develop a global brand that has become a dominant company resource. Like Disney, Time Warner’s brand is globally reputable for creativity and excellence in the motion picture, creating significant brand loyalty.
Company Weaknesses
Time Warner faces high production costs. These costs are occasioned by high supplier bargaining power as the company attempts to achieve box office success (Gentili et al., 2013). The company has a narrow studio audience located mainly in North America; a risk that can make the company lose significant sales just as it happened in 2018 when the company registered $ 18.94 billion down from $ 31.3 billion in 2017. The low switching power to substitutes from immediate competitors is also a weakness.
Comcast
Comcast focuses on the broadcasting and cable industry. However, its NBC Universal division is engaged in studio entertainment, allowing it to develop, produce, and license content for distribution by its parent company. NBC Universal has seen feature films like “Dracula,” “Frankenstein,” “The Mummy,” and “The Invisible Man,” among other feature films that obtain recognizable global motion pictures. The company’s studio segment generated about $7.0 billion in 2019, coming second to Disney’s $ 12.0 billion.
Company Strengths
Comcast’s $220 billion market capitalization allows it to consolidate in a bid to increase its market share. NBC Universal has theme parks that consumers can relate through the characters they meet in the motion pictures. An example is the Harry Potter theme park that rivals Disney’s theme parks. The company also produces blockbusters that span prequels, sequels, and character spinoffs to minimize operational costs. Unlike Time Warner’s audience primarily located in North America, NBC Universal’s audience is global, allowing it to enjoy a global brand loyalty.
Company Weaknesses
Comcast and NBC Universal have been experiencing high operations costs, making the companies realize a 10-12% profit margin in the last five years (Trefis Team, 2020b). Besides, the company appears to experience latency between content development and release. The long wait times mean that the company’s return on assets is substantially extended because of the low conversion of projects into revenues.
ViacomCBS
ViacomCBS has various studios that include Nickelodeon, CBS, and Paramount Studios, among other studios. The company’s year-over-year revenues have grown from $25.56 billion in 2015 to $ 27.81 billion in 2019, with its studio segment generating $ 3.5 billion in revenue in 2019 (Trefis Team, 2020a). The company’s studio affiliates are known for globally successful feature films like “Mission Impossible, “G. I Joe,” Transformers,” “CSI,” and “The Amazing Race,” among other global movies and series.
Company Strengths
ViacomCBS’s greatest strength is its brand loyalty. This loyalty has been a crucial company resource when developing and implementing creative content. The company’s highly differentiated content that focuses on specific cultures and audience demography has allowed its unfettered access to traditionally marginalized cultures and population groups. Like Disney and NBC Universal, the company’s target audience is global, allowing ViacomCBS market access to global cultures previously dominated by Disney.
Company Weaknesses
ViacomCBS faces rating declines in major content areas. The company’s feature films and television series have suffered plummeting ratings that have seen its $ 18 billion market capitalization. The changing shifts in consumer preferences towards culturally sensitive and health-conscious content have affected the company because of the need for suppliers that would reinvigorate the ratings and create content that would guarantee box office success. This reality means that ViacomCBS will incur additional operational costs.
Disney’s Holistic Analysis
Currently, Disney’s profit margins are below those of competitors. The company’s margin of -4.38% is far below that of competitors like ViacomCBS (5.22%), AT&T (6.42%), and Comcast (9.90%). While the negative margin could mean management inefficiencies in modeling the business, it could also mean that Disney is currently working on a portfolio of creative content for future releases. Therefore, Disney could have used a significant portion of its current assets to pay suppliers, hence its profit performance below 5%.
This construct is supported by the company’s super high P/E of more than 50 times, against AT&T’s 19.15 times as investors speculate strong growth prospects with the company’s conceptual content (Trefis Team, 2020b). Besides, in 2019, Disney spent a considerable part of its revenue in the development of Disney+, its archetypal streaming platform that would rival Netflix as the company endears to punctuate its presence in the streaming business.
Despite Disney’s negative profit margins and relatively low operating margins compared to competitors, it has the second-highest liquidity after ViacomCBS. Disney’s current ratio of 1.32 is above AT&T’s 0.84 and Comcast’s 0.93, despite the two media conglomerates having a gross profit of $ 97.05 billion and $75.4 billion, respectively. Disney’s higher current ratio means that the company has a higher amount of liquid assets available for each dollar of current liabilities compared to AT&T and Comcast, despite the two companies having relatively higher operating margins and EBITDA of $54.94 billion and $ 31.85 billion, respectively (Trefis Team, 2020b). Therefore, in terms of liquidity, Disney is in a better market position, which accounts for the highest investor confidence, as demonstrated by its P/E of over 50 times.
Whereas Disney’s ROA of 1.2% is below the industry standard of 2.17%, its immediate competitors have their ROA above the industry standard. This aspect means that Disney’s competitors are better at efficiently turning their assets into revenue. Disney’s ROE follows a similar pattern below the market’s average of 2.74%, while competitors’ ROE occurs above the industry standards. While these management ratios may dissuade investors from investing in Disney, the P/E statistics show paradoxical outcomes where investors prefer Disney over other media conglomerates. This higher P/E could be from Disney’s strong growth prospects (Trefis Team, 2020b), more than any other media conglomerate.
Evaluation of Disney’s Performance
Disney’s performance in the last five years has been incredible. The company has grown its revenue from $ 52.47 billion in 2015 to $ 69.57 billion in 2019, representing a 32.6% growth in 5 years. This growth can be attributed to the company’s strong differentiation strategy, where it has continually produced exceptional blockbusters, feature films, and animated films that have resulted in box office success. This incredible performance is also evident from its profit margins that have seen the company enjoy over 15% operating margins against the industry’s 10-12% margins (Trefis Team, 2020b). However, the company’s ROA and ROE appear to fall below industry standards, a development that could impede future investment and financial viability.
Recommendations for Future Performance
Blue Ocean Strategy
Disney should understand that emerging markets offer greater product demands. Markets like the Arab League Countries, North and South Africa, Indonesia, and Brazil, among other emerging economies provide potential market share that needs exploitation. Being a global conglomerate, these market segments have rich cultures and significant economic power that if tapped could increase the company’s global market share. Arguably, these markets have not been exploited by other global media conglomerates.
Venturing into the aforementioned markets will allow Disney to develop new demand through highly innovative product offers that would resonate with the cultures in these market segments. The innovative offers would allow the company to effectively differentiate its studio content relative to those of immediate competitors while minimizing the risk of consumer non-acceptance through customer orientations (Mustafa et al., 2015). This way, the company is likely to grow its content to non-traditional audiences.
Integrate a Mix of Market Push and Pull Strategies
The current Disney business model is a push system where the company makes feature films and blockbusters and then pushes them to the consumers. The contemporary audiences have proven somehow unpredictable, as shown by shifting consumer trends. While the previous “push” strategies embodied a low customer bargaining power for motion pictures, the current consumer is responsive to socio-cultural, psychosocial, and other sensitive representations in motion pictures (Zurcher et al., 2018). The traditional market push system has seen some ViacomCBS programs plummet in ratings, highlighting that consumer pull factors are crucial in the perceptions and experiences of creative content.
Adopt timed and Continuous Product Releases
Disney experiences a low ROA and ROE because most of its creative projects experience significant lapses between idea conceptualization and innovative product confirmations. While it is vital to subject the creative process to rigorous quality assurance practices, delaying the product release holds up its assets and investor equity, giving a false sense of low profitability and profit margins that could hurt its future investments. Adopting a timed and continuous release will reduce the latency between idea conceptualization and implementation and raises switching costs to competitor substitutes that will eventually reinforce brand loyalty.
Conclusion
Disney’s studio entertainment faces significant competition from AT&T’s Time Warner Incorporated, Comcast’s NBC Universal, and ViacomCBS. These film and television studios are giant global conglomerates that compete through a mix of Porter’s generic factors that span product differentiation, cost leadership, and market focus. Disney’s studio entertainment segment has incorporated a combination of product differentiation and cost leadership, allowing the company to produce feature films, animated films, and blockbusters with excellent box office performances. This attribute has allowed the company to be a market leader in studio entertainment.
However, the intense competition and consolidation by market rivals put Disney in a precarious position that threatens its studio entertainment market share. Nonetheless, the company can venture into emerging economies, integrate a mix of market push and pull strategies, and adopt timed and continuous product releases to minimize the latency between idea conceptualization and company growth and global performance.
References
Delaney, T., & Stawicki, T. (2016). The Walt Disney Company. UCONN. Web.
Gentili, N., Vincent, J., & Loversky, L. (2013). Time Warner Inc. strategy report. Bridges Consulting. Web.
Mustafa, H., Rehman, K. U., Zaidi, S. A., & Iqbal, F. (2015). Studying the phenomenon of competitive advantage and differentiation: Market and entrepreneurial perspectives. Journal of Business and Management Sciences, 3(4), 111-117. Web.
Trefis Team. (2020a). Disney, Comcast, Viacom: Can Consolidation Boost Growth For Studio Giants?. Forbes. Web.
Trefis Team. (2020b). Disney or Comcast?. Forbes. Web.
Zurcher, J. D., Webb, S. M., & Robinson, T. (2018). The psychosocial implications of Disney movies. Social Sciences, 7(47), 1-230. Web.