Disney’s External Environment Analysis

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PESTLE Analysis

The present section aims at utilizing the PESTLE framework to analyze Disney’s external environment.

Political Environment

One of the primary forces that affect Disney is the growing trend of strengthening intellectual rights protection laws and treaties (Lee, 2019). Improvement of intellectual property regulations is considered an opportunity. Improved intellectual property rights laws can increase Disney’s revenues due to decreased piracy (Lee, 2019). Additionally, the company is affected by unstable international relationships such as US-China Trade War (Liu and Woo, 2018). Since trade instabilities negatively affect the economy of the engaged countries, they can be a source of threat for Disney.

Economic Environment

One of the central threats affecting Disney and the entertainment industry, in general, is the COVID-19 pandemic, as it reduces global demand for Disney’s key products (Wang et al., 2020). The pandemic had a drastic effect on the entertainment industry in general, which decreased the company’s revenues. It is unclear if future waves of the pandemic will have a similar effect on the company (Wang et al., 2020). At the same time, the rapid economic growth of developing countries and the economic rebound after the crisis are favorable factors affecting Disney (Wang et al., 2019). Thus, there are both opportunities and threats associated with the global economic environment.

Social Environment

The growing use of information technology is an opportunity for Disney, as it can be used for sales and marketing to increase the company’s revenues (Yu et al., 2019). In particular, expansion to streaming services can be increased Disney’s profits. However, growing cultural diversity may be a threat to the company, as the audience may require more diverse content (Ulker-Demirel et al., 2018). At the same time, growing cultural diversity may be the reason for the company to improve its inclusion practices (Ulker-Demirel et al., 2018). Thus, the company needs to ensure that the needs of culturally diverse audiences are met.

Technological Environment

Movie and entertainment industries need to invest in R&D and use advanced technology to attract viewers and customers, which may be a threat to the company (Salvador et al., 2019). Currently, customers have become more demanding of content that requires advanced technology, such as CGI, and 3D. At the same time, there is an opportunity for the company to enter the video games business or sell the rights to video game makers (Batchelor, 2021). Even though the company has already entered the business successfully, it can still expand its revenue base in the future. Thus, the technological environment can be both favorable and unfavorable for Disney.

Legal Environment

Currently, Disney suffers from censorship law in China, as it prevents the company from entering a very attractive market (Ballantyne, 2021). Similar laws in other countries may also have an unfavorable impact on the company. Even though there may be other factors affecting the industry, they are only minor.

Environmental Factors

Disney is viewed as one of the world leaders that support sustainable development, which is a significant strength of the company (Walt Disney Company, 2021). It should be noticed that Disney is affected by all the other ecological problems similar to other industries. Currently, environmental factors are a source of strategic opportunity.

Porter’s Five Forces

Porter’s Five Forces analysis is a framework that helps to assess the external environment of the industry based on the competitive rivalry, bargaining powers of suppliers and customers, threat of new entrants, and the threat of substitution (Perera, 2020). It helps to determine the industry’s strengths and weaknesses and define the corporate strategy. Porter’s Five Forces analysis for the Walt Disney Company is provided in Table 1 below.

Table 1. Porter’s Five Forces

Force Strength Description
Competitive Rivalry Strong Force 1. Disney is forced to operate in an environment with numerous competitors. The key competitors of the company are Comcast, Time Warner, 21st Century Fox, CBS Corp., and Discovery Communications (Delaney & Stawicki, 2016).
2. The competitors in the industry are aggressive, which forces Disney to continuously adjust its strategy to stay competitive (Research and Markets, 2021).
Bargaining Power of Suppliers Weak Force 1. The population of the suppliers in the industry is large, which makes their bargaining power low (Fern Fort University, n.d.).
2. Disney diversifies its supplier base to ensure that they do not obtain high bargaining power (Walt Disney Company, 2021).
Bargaining Power of Buyers Strong Force 1. The customers have low switching costs, which lets them easily turn to the competitors (Brown, 2019).
2. The customers are growing more demanding of new experiences and lower prices (Walt Disney Company, 2021).
Threat of New Entrants Weak Force 1. The entry cost is high, which creates a significant barrier for new entrants (Brown, 2021).
2. Brand development requires much time, which implies that the capital investments have a large payback period (Vogel, 2014).
Threat of Substitution Moderate Force 1. The strengthening of the gaming industry may win customers from Disney (Palomba, 2020).
2. The variety of available substitutes is moderate (Brown, 2019).

References

Ballantyne, A. E. (2021). Film in Crisis: Why Pushing Back against Censorship in Film Should Be a Central Component of International Trade Policy with China and Saudi Arabia. Mich. St. Int’l L. Rev., 29, 1.

Batchelor, J. (2021). Disney’s resurgence into video games is only just beginning. Games Industry.

Brown, L. (2019). Walt Disney Company Five Forces Analysis (Porter’s) & Recommendations. Panmure University.

Dalirazar, S., & Sabzi, Z. (2020). Strategic analysis of barriers and solutions to development of sustainable buildings using PESTLE technique. International Journal of Construction Management, 1-30.

Delaney, T., & Stawicki, T. (2016). The Walt Disney Company (NYSE: DIS).

Fern Fort University. (n.d.). The Walt Disney Company Porter Five Forces Analysis.

Lee, P. (2019). Reconceptualizing the Role of Intellectual Property Rights in Shaping Industry Structure. Vanderbilt Law Review, 72(4), 1197-1283.

Liu, T., & Woo, W. T. (2018). Understanding the US-China trade war. China Economic Journal, 11(3), 319-340.

Palomba, A. (2020). The Rowman & Littlefield handbook of media management and business. Rowman & Littlefield.

Perera, R. (2020). Understanding Porter’s Five Forces Analysis. Nerdynaut.

Research and Markets. (2021). Global Film and Music Market Report 2021: Market is Expected to Reach $392.34 Billion in 2025 at a CAGR of 6% – Long-term Forecast to 2030. PR Newswire.

Salvador, E., Simon, J. P., & Benghozi, P. J. (2019). Facing disruption: the cinema value chain in the digital age. International Journal of Arts Management.

Ulker-Demirel, E., Akyol, A., & Simsek, G. G. (2018). Marketing and consumption of art products: The movie industry. Arts and the Market, 8(1), 80-98.

Vogel, H.L. (2014). Entertainment industry economics: A guide for financial analysis. Cambridge University Press.

Walt Disney Company. (2021). Annual report 2020. Web.

Wang, Q., Jiang, R., & Zhan, L. (2019). Is decoupling economic growth from fuel consumption possible in developing countries?–A comparison of China and India. Journal of Cleaner Production, 229, 806-817.

Wang, R., Xie, Y., Chen, H., & Jia, G. (2020). Analyzing the Impact of COVID-19 on the Cross-Correlations between Financial Search Engine Data and Movie Box Office. Fluctuation and Noise Letters, 2150021.

Yu, K. T., Lu, H. P., Chin, C. Y., & Jhou, Y. S. (2019). Box office performance: Influence of online word-of-mouth on consumers’ motivations to watch movies. Social Behavior and Personality: an international journal, 47(10), 1-17.

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