The Walt Disney Company, headquartered in Burbank, CA, USA, is a diversified entertainment company operating worldwide. Operations are primarily conducted in the following regions: Asia Pacific, Europe, Latin America, and North America. The company employs approximately 149,000 people worldwide and recorded total revenues of $38,063 for the 2010 Fiscal year ending in September (henceforth FY2010). From 2009 to 2010, net and operating profits increased 19.8% and 18.9% respectively (Datamonitor).
Walt Disney Co. and its subsidiaries have operations in the following four key business segments: consumer products, studio entertainment, media networks, and parks and resorts. The consumer products segment consists of operations related to products based on characters created in the company’s other segments. The studio entertainment segment consists of operations related to the production and acquisition of motion pictures, stage plays, and musical recordings.
The media networks segment consists of several television stations, broadcast networks, and Internet operations, including the ABC Television Network, ESPN, and Disney.com. The parks and resorts segment consists of ownership and operation of several parks and resorts worldwide, including but not limited to Disneyland in California, the Disney Cruise Line, and the Tokyo Disney Resort (Business & Company Resource Center).
Mission and Vision
According to the company’s website, Walt Disney Company’s mission statement is as follows:
The Walt Disney Company’s objective is to be one of the world’s leading producers and providers of entertainment and information, using its portfolio of brands to differentiate its content, services and consumer products. The company’s primary financial goals are to maximize earnings and cash flow, and to allocate capital toward growth initiatives that will drive long-term shareholder value.
The company’s vision is to lead the industry in diversified entertainment, with a particular emphasis on family entertainment.
The Walt Disney Company was founded on October 16th, 1923 as the Disney Brothers Cartoon Studio. The company was founded by Walt Disney and Roy Disney. In 1929, the company was reincorporated as Walt Disney Productions, Ltd. In 1938, the company became publicly traded as Walt Disney Productions (Business & Company Resource Center). In 1940 the Disney Studio moved to Burbank, California, where it is still headquartered today.
During the 1950s, the company expanded from motion pictures into television at a time when television was rapidly gaining in popularity as an entertainment medium, helping to establish the company’s long term success. Walt Disney died in 1966, and as a result, during the 1970s Walt Disney Co. lost significant momentum. Some ground was regained in the early 1980s, but it was with the hiring of Michael Eisner as CEO in 1984 that Walt Disney Co. began to grow again.
Eisner took advantage of expanding markets in new technologies and international investment opportunities. In 1991, Walt Disney Co.’s international operations exceeded 20% of the company’s total revenue. The company entered the cruise line industry in 1998. In the early 2000s, the company experienced a downturn, posting losses of $158 million in 2001 and experiencing bidding withdrawals due to depressed stock prices in 2004.
These losses were partially a result of the September 11, 2001 terrorist attacks. Eisner resigned as CEO in 2004 in response to popular demand. A string of acquisitions in the later 2000s, including a $7.4 billion deal for Pixar Animation Studios in 2006, helped to restore the company’s status (“The Walt Disney Company”; “Walt Disney Co.”).
Current and Future Environment
The Walt Disney Company operates in the diversified entertainment industry. Other top players in the industry include News Corporation, Time Warner Inc., and Liberty Media Corp. For FY2010, Walt Disney Co. led the industry with total revenues of $38,063 million.
Disney’s closest competitor for FY2010 was News Corporation, with posted total revenues of $32,778 million. Time Warner Inc. posted FY2010 revenues of $26,888 million, while Warner Music Group Corp, the next closest competitor, reported only $2,984 million for that fiscal year.
For the immediate future, Walt Disney Co. can be expected to continue to perform well relative to the rest of the industry. Disney’s closest competitor, News Corporation, has recently received blows from a telephone hacking scandal involving several of its subsidiaries in the United Kingdom (Van Natta, Becker, and Bowley).
Although Disney experienced a slight decline in profits in the first quarter of 2011, expected gains in the studio entertainment and consumer product segments could offset the decline (Barnes). Additionally, the company expects to open its first direct-sale retail store in China in 2012 (“Walt Disney Co.”).
The range of strategic factors affecting Walt Disney Company is vast. Those factors that are most salient in the company’s current situation and market position are competition, environment, and market entry. Details are given in the sections below.
In the current situation, competition is one of Walt Disney Company’s strongest strategic factors. As evidenced by the company’s mission statement, Disney is strongly committed to promoting its primary and subsidiary brands. In the past, Disney’s brands, including Pixar, ABC, and ESPN, and Disney itself, have been undervalued by consumers. The recent telephone hacking scandal afflicting Disney’s primary competitor, News Corporation, places Walt Disney Co. in a rare position to capitalize on and enhance the visibility of its brands.
Consumer awareness of media brands and their parent companies is at an unusual high due to the phone hacking scandal. Competitor brands, including FOX News and FOX Searchlight in the United States, are increasingly identified by consumers as brands under the control of the now tarnished News Corporation. This allows Disney to position itself and its brands in strong opposition to News Corporation, potentially increasing loyalty and, as a result, market share.
The current environmental situation is mixed for Walt Disney Co. A resurgence of interest in 3D technology, as well as technological advancements in this area, place Disney in a favorable position as a leader in family entertainment. Family entertainment is a natural home for 3D technologies, and Disney has already begun to capitalize on this opportunity with several 3D ventures including the most recent installment in the Pirates of the Caribbean motion picture franchise.
In contrast, several environmental factors are working against Walt Disney Co. The current economic downturn could translate into losses in revenue if consumers dedicate decreasing percentages of their household budget to entertainment. Additionally, rising fuel prices have already begun to take a toll on Dinsey’s cruise ship line (Barnes), and unless the company begins to invest in alternative fuel sources for its cruise ships, fuel prices could continue to increase and contribute to further losses.
Prospects & Market Entry
The diversified entertainment industry represents a unique case for market entry and prospects. Because the industry is defined as encompassing all or many media and forms of entertainment, companies within this industry could have several prospects for market entry, depending on the companies’ missions and investment direction.
In the case of Walt Disney Co., the company is committed to family entertainment and already operates in four business segments, with no known plans to expand into other segments, despite potential opportunities to do so. (It should be noted, however, that Disney’s corporate culture has a strong tradition of fostering innovation, so there is a persistent drive to creating new prospects, even in otherwise tapped business segments.)
Instead, Disney appears to be focusing on its international operations, expanding into new markets worldwide. An example of this is the company’s plan to open a direct-sale store in China.
Expanding middle-class consumer bases in rapidly developing nations such as China and India represent vast new markets for the entertainment industry, and Walt Disney Co. has demonstrated a commitment to taking advantage of these opportunities. Disney’s commitment to growth, as demonstrated by its mission statement, underscores the strength of this strategic factor.
Projected Future Performance
Walt Disney Company is a powerhouse within the diversified entertainment industry. Disney has been a household name in the United States and beyond for decades. The long-term resiliency of the company has been demonstrated time and again by the company’s successes in recovering from negative situations.
Specifically, periods of stagnation after Walt Disney’s death and after the economic trouble in the wake of September 11 and the subsequent scandal over Eisner’s leadership threatened to diminish the company’s industry-wide standing. Despite these hardships, Walt Disney Co. has always managed to bounce back through commitment to its brands and to its corporate culture. These events strongly suggest that Disney will continue to succeed and to lead the diversified entertainment industry for the foreseeable future.
The current global market situation leaves Walt Disney Co. poised to take advantage of uncommon opportunities to strengthen brand loyalty and expand into emerging markets. If Disney continues to demonstrate dedication to its customer base and to respond to shareholders through strategic investment in operations, it should be able to maintain its position at the top of the industry.
On the other hand, if Disney fails to take advantage of the situation in which it finds itself, or if it fails to respond to changing environmental factors, it could experience trouble. Of specific interest are the political and economic issues related to the global energy crisis. Environmental responsibility and efficiency will determine which companies continue to prosper internationally in the coming decades.
Fiscal responsibility is equally important within the United States, where issues of corporate finance and corporate ties to government are hot topics. Disney must demonstrate to shareholders and consumers alike that Disney brands are superior to competitors’ brands along all of these dimensions. If the company accomplishes that, the company is poised for future success.
Walt Disney Company’s primary internal strength is its brand portfolio. This is not surprising given that the company’s mission is dedicated to promotion and improvement of its brand portfolio.
In addition to the Disney brand itself, Disney’s brand portfolio includes a number of well-known and well-respected entertainment industry brands. These brands include but are not limited to: ABC, A&E, The Disney Channel, History (formerly The History Channel), E!, Entertainment Television (ET), ESPN, Infoseek Corporation, and Touchstone Films (“The Walt Disney Company”).
In terms of strategic factors, this strength serves Walt Disney Co. primarily in the area of product differentiation. Disney and its subsidiary brands are easily identifiable and consumers identify with the brands themselves as much as with the products. This minimizes the potential for the introduction of directly competitive products into Disney’s markets of core competency.
Disney’s market capitalization (henceforth “market cap”) is perhaps its biggest financial strength. Market capitalization is a measure of the publicly traded value of a company determined by multiplying the share price times the number of shares outstanding. The reason this information is important to the analysis of a company’s situation is that it is used as a proxy for public opinion. Market cap demonstrates a company’s value in the eyes of public shareholders.
At the end of FY2011, Walt Disney Company had a market cap of $82.7 billion. This figure was approximately 45% higher than the end-of-year market cap for News Corporation, which was only $46.2 billion. This is particularly striking in light of the fact that, in terms of total revenue, News Corporation only trailed Disney by 16%. Disney’s outstanding market cap echoes the strength of its brand portfolio and the degree of brand loyalty that the company enjoys.
Walt Disney Co.’s reach is significantly greater than that of its competitors, due in large part to the size of its operations. Although Disney’s competitors have operations in many of the same geographic regions, size as measured by the number of employees is a much more telling description of this strength. Disney employs approximately 149,000 employees, significantly more than any of its top competitors.
By contrast, News Corporation employs 51,000 individuals, Time Warner employs 31,000, and Liberty Media employs just over 19,000. The number of individuals employed by Disney is a strength for the company for several reasons.
First, it indicates that Disney is an important fixture in the economic situations both domestically and abroad. Second, it suggests that Disney’s management strategy emphasizes operations at the individual level. Finally, it demonstrates that Disney has outperformed competitors in terms of consistent growth.
As the leader in the diversified entertainment industry, Disney maintains a commitment to having a strong presence in a range of areas within the industry. Although the company started in the field of animation, it quickly began to expand its operations into live action film and television. This tradition of diversification and expansion has continued into the present.
Expansion into different segments of the motion picture industry, into the music industry, into the theme park industry, and, recently, into the cruise ship industry have characterized the eras of Disney’s history. The consumer products segment itself includes a wide range of products, from toys to housewares to clothing.
The diverse nature of Walt Disney Company’s operations is a considerable strength for two key reasons. First, the company as a whole is protected from both internal and external turmoil in any one segment of its operations. Second, loyalty to Disney brands can carry over from one business segment to another, ensuring a stable market share across Disney’s areas of operation. For example, customers who trust the Disney brand for home entertainment are likely to extend that trust to Disney’s parks and cruise ship lines.
Studio Entertainment Losses
Although it is perhaps the segment for which the Disney brand is the most well-known, the studio entertainment segment has been the worst-performing of Walt Disney Company’s four primary business segments for the past several years. In FY2007, the contribution to total revenue for the studio entertainment segment was 21.1%. By FY2009, that figure had declined to 17.0%. In terms of operating profit, the situation is even more dramatic.
In FY2007, studio entertainment contributed 15.2% of operating profit, compared to 2.6% in 2009 (Datamonitor). The causes included poor box office performance of many of Disney’s latest efforts. The 2011 film Mars Needs Moms was a box office flop compared to its production cost. Effects could include decreased shareholder value, diminished brand loyalty, and weakness in overall financials in the future.
Chaotic Corporate Culture
Although Walt Disney Company has a long-standing and relatively well-defined corporate culture, recent upheavals in corporate governance and management have left the situation in turmoil. Eisner’s resignation in 2004 left a void in leadership that led to confusion about Disney’s position, values, and mission moving forward.
Under the current leadership of Robert A. Iger, president and CEO, Walt Disney Co. has begun to recover some of its internal stability, but rapid acquisitions and expansions have left residual confusion as to Disney’s identity. This internal turmoil will continue to be a problem until Disney can reestablish itself with a single, cohesive brand image. Possible long term consequences include difficulty recovering its former status and the need to reinvent itself.
Reliance on North America
Although one of Disney’s strength is its international reach, Walt Disney Co. has failed to take full advantage of its global position. Despite operations in Asia Pacific, Europe, and Latin America, Walt Disney Co. continues to emphasize North America in its growth and expansion projects. This has led to an imbalanced economic situation with regard to global operations. For FY2010, 74.3% of Disney’s revenues were derived from operations in the United States and Canada.
Latin America, Asia Pacific, and other emerging markets accounted for 8.5% (Datamonitor). This situation makes Disney particularly susceptible to the current economic downturn in North America and offsets some of the strength derived from its diverse product and service portfolio.
If Walt Disney Company wishes to take advantage of its current situation, it must differentiate itself from its major competitors within the diversified entertainment industry. Although Disney and its subsidiary brands are, on individual bases, well known and easily recognized, there is little public awareness of the brand family. ESPN, for example, is not well recognized as a Disney brand, although the brand is well recognized on its own.
Disney could have created this situation on purpose in order to maintain the identity of the Disney brand. However, consumers who wish to remain loyal to Disney at the expense of other media conglomerates are hindered by low awareness of the brand family. Long term effects could include failure to maximize earnings potential.
Walt Disney Company is currently in a strong position to take advantages of weaknesses suffered by its primary competitors. The recent scandal involving News Corporation has diminished the public trust in that company and its subsidiary brands, many of which are direct competitors to Disney brands. This is an opportunity for Disney to increase market share relative to News Corporation.
Additionally, Time Warner has been heavily selling off assets during the last decade, a period during which Disney has largely been involved in acquisitions. Time Warner’s decreased scope of operations leaves room for Disney to maximize gains from its recent expansions.
Disney’s studio entertainment segment is presented with a significant opportunity in the recent popularity among American moviegoers of franchise films. Walt Disney Company controls several popular franchises, including Pirates of the Caribbean, Cars, and Toy Story. These franchises all saw new releases in 2010 and 2011, demonstrating that Disney is keen to take advantage of the opportunity presented by the franchise craze.
The current global economic situation presents Walt Disney Company with a sizeable opportunity. Even as the economic situation in North America and Europe declines, new markets are becoming available in other regions. In particular, Brazil, Russia, China, and India (collectively known as BRIC) are experiencing vast booms in their middle-class populations, and increased demands for luxury products and entertainment options are resulting.
This is particularly salient for Walt Disney Co. because of the company’s longstanding commitment to global operations. More than its competitors, Disney already finds itself globally situated and is therefore uniquely poised to take advantage of these emerging economies.
Partnerships and Agreements
According to Datamonitor, Disney entered into a distribution agreement with DreamWorks Studios in 2009. Under the agreement, Disney will distribute DreamWorks and Starz films under its Disney Touchstone Pictures brand. This is a significant opportunity because DreamWorks has historically been one of Disney’s primary competitors in the studio entertainment segment.
This partnership will increase Disney’s revenue through new distribution fees and will allow Disney to expand its reach to include DreamWorks and Starz audiences. Due to Disney’s size and success, it is in a position to continue in this vein, creating similar partnerships and agreements with other companies in order to ensure continued increases in shareholder value.
Piracy has been an issue in the entertainment industry for several years, and despite staunch efforts by companies across the industry to keep piracy in check, the trench of illegally obtaining entertainment media via the internet does not appear to be slowing.
Piracy has threatened the revenues of companies in the entertainment industry and will continue to do so, possibly at increased rates. Higher internet transfer speeds facilitate piracy, and companies have made few legal gains in preventing this behavior. Disney is particularly susceptible to this threat due to the volume and diversity of its entertainment products.
The current political climate in the United States is placing large multinational corporations like Walt Disney Company under increased scrutiny. Companies are faced with increasing tensions between increasing shareholder value and maintaining their standing in public opinion. The recent News Corporation scandal has brought media conglomerates in the diversified entertainment industry more under the public eye than they have been in recent memory.
Additionally, stark political divisions in the United States are bringing continued corporate operating freedom into question, and the regulatory environment of network broadcasting continues to restrict Walt Disney Co.’s activities both domestically and abroad.
The current economic climate in the United States presents a serious threat for Walt Disney Company. Although economies in the United States and Canada have been experiencing slowdowns in growth for some time, recent downturns resulting from the housing crisis, loss of investor confidence, and U.S. financial difficulties, have taken a toll on middle class Americans.
This is troubling for Disney because of the entertainment nature of its products and services. In the coming months and years, Americans could spend increasingly less on entertainment, which would be problematic for Disney’s revenue.
Although Disney currently leads the diversified entertainment industry, its closest competitor, News Corporation, is not far behind. In addition to competition from other media conglomerates, numerous companies engage in fierce competition in all of Disney’s business segments. Of particular concern for Disney is the high visibility of brands owned by News Corporation and Time Warner.
HBO, for example, is a Time Warner brand that has experienced rapid growth. Although Disney has thus far met the demands of competition, focusing on remaining at the top of the industry threatens Walt Disney Co.’s ability to devote resources to innovation, experimentation, and the creation of new products and markets.
In light of the above SWOT analysis for Walt Disney Corporation, several important courses of action can be logically proposed. Disney is a strong company with a long history of success and a current position of being the market leader in the diversified entertainment industry. The size, diversity, and brand differentiation enjoyed by Disney have taken the company through many different eras in the development of the entertainment industry.
If Disney is to continue into the future with equal or greater success, it must focus on its historical strengths, develop and enhance its identity, and evolve a new culture of flexibility for the future. These three points of the proposal will be discussed in detail in the following sections.
Focus on Strengths
Walt Disney Co.’s stated mission is to be the leader in family entertainment with a distinctive brand portfolio. Over the years the company has accomplished this mission and must focus on the strengths that have contributed to this success. In order to do so, Disney needs to embrace its diversity in two ways. First, it needs to raise consumer awareness of its brand family, making the Disney imprint more visible in connection with brands like ESPN and History.
This will secure brand loyalty and help strengthen Disney’s image, moving beyond a brand that is primarily associated with children’s entertainment to an umbrella imprint that people recognize as providing diverse quality entertainment products.
Second, Disney must devote more attention to its international presence, particularly in emerging markets such as Brazil, Russia, China, and India. Rather than relying on North American markets for the majority of its revenues, Disney must invest in emerging economies and strengthen its global presence.
Develop and Enhance Identity
In the wake of Disney’s early-2000s period of losses and Eisner’s resignation as CEO, Walt Disney Company was thrown into a morass of confusion regarding the company’s vision, values, and identity. Once primarily a children’s brand, Disney expanded into many different markets and became the diverse company it is today. However, the image of Disney as a children’s brand did not evolve in the public opinion, hence Disney’s decision to give brand independence to many of its subsidiaries.
Today, Disney is slowly regaining stability under the leadership of Robert Iger, its identity remains unclear and lacks cohesion both internally and externally. In order to move forward, Disney should develop a new corporate identity with the guidance of corporate consultants and market research. Disney and all of its subsidiaries should embrace the new identity, which should be clear, explicit, and in keeping with Disney’s historic mission.
Culture of Flexibility
Significant changes in the political and economic structure of the 21st century will require businesses to respond quickly and effectively to the changes that affect them. A company as old as Disney is in danger of becoming entrenched in old-fashioned management and operations. As part of the evolution of its identity, Disney must ensure that each of its segments is prepared to adapt to rapidly changing environments.
This means creating an organizational structure that reflects the new, decentralized nature of the internet age. Disney’s branches and subsidiaries must be able to act quickly and in response to local climates. Disney’s size has been one of its primary strengths, but if its localized components cannot act independently, it will suffer on account of that size.
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