The Entertainment King. A Case Study of Walt Disney Co.

Contents

1. Introduction

2. The business model of Disney
2.1. Business Model Canvas
2.1.1. Key Partners
2.1.2. Key Resources
2.1.3. Key Activities
2.1.4. Value Proposition
2.1.5. Cost Structure
2.1.6. Channels
2.1.7. Customer Segments
2.1.8. Customer Relationships
2.2. Revenue Streams
2.2.1. Media Networks (Total revenue: USD 21,152)
2.2.2. Parks & Resorts (Total revenue: USD 15,099)
2.2.3. Studio Entertainment (Total revenue: USD 7,278)
2.2.4. Consumer Products: (Total revenue: USD 3,985)
2.2.5. Interactive: (Total revenue: USD 1,299)
2.3. Core Competencies & Competitive Advantage

3. Rejuvenation of Disney between 1984 and 1988 und Michael Eisner

4. Values and competitive advantage of Walt Disney
4.4. Pixar
4.5. Marvel
4.6. Lucasfilm

5. Biography

6. Appendix

1. Introduction

The following paper is an analysis about Walt Disney. It is an investigation about the business model of the Walt Disney Company and its objective is to turn out the characteristics in terms of values and strategies, which made the company to that what it is today- one of the most successful companies and well-known brands in the world.

In the first part of the paper we want to examine why Disney has been successful for so long and explain thereby what its core competences and competitive advantages are. In the second section we will have a look on what Michael Eisner did to rejuvenate Disney and what he did to increase the income in his first for years. Finally, in the last part we will valuate Disney’s policy of acquisitions, define the value they are adding to their different divisions and conclude with the explanation about how that translates into financial performance.

2. The business model of Disney

2.1. Business Model Canvas

For defining why Disney has been successful for so long, we will examine the “Business Model Canvas” of Disney.

2.1.1. Key Partners

Disney has different relationship structures: Strategic Alliances, Coopetition, Joint Ventures and Buyer-Supplier relationships. As Disney is a truly giant in building partnerships and acquiring companies, we want to mention only a few of the most important ones. Disney’s most important partners are movie companies and advertisers. One important partnership for the Media Networks and Studio Entertainment divisions can be seen in the venture with Hulu LLC, which distribute Disney’s film and television content in the internet. The Supply Chain of their Parks and Resorts consist of Disney Studios, Hotel and Resort Operators, Restaurants and Retail, Manufacturers and Suppliers, travel agencies, and airlines (Walt Disney Company FY 2014 Annual Financial Report)..

2.1.2. Key Resources

The Key Resources their Value Proposition require ranges from physical, intellectual, human to financial types of resources. These are innovative technology, an amazing collection of brands, high quality content, a strong balance sheet, creative talent and talented drawers as well as leadership talent. For their Customer Relationship a very important intangible resource is the image and customer loyalty that is associated with the Disney Brand (Walt Disney Company FY 2014 Annual Financial Report)..

2.1.3. Key Activities

- Disney’s Key Activities required to fulfill their Value Propositions in general are movie production and distribution, Marketing and brand management and touristic activities. The Walt Disney Company expanded its existing operations and also started divisions focused upon theatre, radio, publishing, and online media. In addition, it has created new divisions of the company in order to market more mature content than it typically associates with its flagship family-oriented brands (Walt Disney Company FY 2014 Annual Financial Report).

The key activities of the Media Networks segment include broadcast and cable television networks, television production operations, television distribution, domestic television stations and radio networks and stations. In the Parks & Resorts division the main activities are the development of technically advanced attractions and live Disney character interactions. Concerning Studio Entertainment the main activities are the production and acquisition of live-action and animated motion pictures, direct-to-video-content, musical recordings and live stage plays. Besides, in their Consumer Products business the main activities are Merchandise Licensing Operations of a wide range of product categories (toys, apparel, home décor, etc.), publishing of children’s books, magazines and learning products in print and digital formats. Finally, the activities in their Interactive business are the production and distribution of multi-platform games, licensing of game content, and the development of branded online services (ibd.).

2.1.4. Value Proposition

Disney’s Value Proposition is to always deliver the most exceptional entertainment experiences for people of all ages. All five business segments want to deliver the same value to their customer: happiness and well-being of kids and families.

With their Parks and Resorts their objective is to offer their customers a memorable and accessible leisure that families can enjoy together. The experience of being at a Disney theme park or staying at a Disney resort is all about creating a dream vacation. They want to make their customers feel the attention to detail and personal service as memorable as the attractions themselves. Therefore, we conclude that the Key Characteristic they are focusing on is Performance (FY12 Disney Citizenship Summary).

2.1.5. Cost Structure

The total costs and expenses of all business divisions accounted for USD 37,273 in 2014 and are composed of cost of services, cost of products, depreciation and amortization as well as selling general administrative and other components (Figure 1).

The highest costs of its business model Disney has to face in its Park & Resort division, which accounted for about USD 12,436 in 2014. In this sector the most significant costs are labor, depreciation, costs of merchandise, food and beverage sold, marketing and sales expenses, infrastructure costs and costs of vacation club units.

These division is followed by the Studio Entertainment segment with total costs of USD 5,729, the Consumer Products segment with total costs of USD 2,629 and the least costly division of Interactive with total costs of USD 1,183 (Walt Disney Company FY 2014 Annual Financial Report).

In General, the most important operating costs related to the sale of services and the sale of tangible products in all business segments include:

- Amortization of programming, production, participations and residuals costs
- Distribution costs
- Operating labor
- Facilities and infrastructure costs
- Costs of goods sold
- Retail occupancy costs
- Game development costs

Disney’s belongs to those businesses that are more Value Driven, as profit maximization is not their dominant driving force or primary objective (ibd.).

2.1.6. Channels

Disney uses multiple channels to reach their customers. These are TV/ Cable, Internet, Print Media, Theaters and Retail. Like this Disney leverages its platform to reach their customers no matter where they may be. Furthermore they offer personal assistance complimented with self-service and automated services.

2.1.7. Customer Segments

Disney is creating value for the wide Mass Market. Their most important customers are those who are interested in leisure and entertainment as well as sports fans. So their target market ranges from children and teens to parents and families.

2.1.8. Customer Relationships

Disney emphasized the importance of creating an authentic relationship with their customers, and continually renewing that relationship in meaningful ways. To do so, they try to establish a true brand-loyalty. Disney delivers a superior brand experience consistently over time and always tries to exceed customers’ expectations by being perfectionist with a keen eye for detail. Some examples of offering such benefits are providing their customers with attractive offers if they stay for a longer time in their parks or by awarding a “Guest of the Hour”.

Disney uses the strategy of Customization by creating personalized experiences for their customers as they understand how important the customer experience is to its business. Their customers no longer receive standardized experiences, shows and entertainment. In their parks for example, with a new card technology rides and experiences can be tailored individual to every customer (Walt Disney Company FY 2014 Annual Financial Report).

2.2. Revenue Streams

In 2014 Disney had a total revenue of USD 48,813, which consists on Media Networks, Park & Resorts, Studio Entertainment, Consumer Products and Interactive Components as demonstrated in figure 2.

2.2.1. Media Networks (Total revenue: USD 21,152)

The main revenues are generated by the Media Networks which accounted for USD 21,152. The various businesses in this segment generate revenue from fees charged to cable, satellite and telecommunications service providers (Multi-channel Video Programming Distributors or MVPDs) and television stations affiliated with our domestic broadcast television network, from the sale to advertisers of time in programs for commercial announcements and from other sources such as the sale and distribution of television programming (Walt Disney Company FY 2014 Annual Financial Report).

2.2.2. Parks & Resorts (Total revenue: USD 15,099)

The business division of Parks & Resorts generates it revenues mainly from the sale of admissions to theme parks, sales of food, beverage and merchandise, charges from hotel overnight stays, sales of cruise vacation packages, and sales of rentals of vacation club properties.

Concerning Disney’s Parks & Resorts their pricing strategy is not to milk out profits out of their theme parks but to react to market pressure and prices. This was reflected by their raise in prices from $89 to $95 in 2013, just shortly after Universal announced a similar price hike at its parks. As they have an inelastic demand curve, they are able to raise their prices without losing customers (ibd.).

2.2.3. Studio Entertainment (Total revenue: USD 7,278)

The Studio & Entertainment segment derives its revenues from the distribution of films in the theatrical, home entertainment and television markets, the distribution of recorded music, stage play ticket sales and licensing revenues from live entertainment events (ibd.)

2.2.4. Consumer Products: (Total revenue: USD 3,985)

The licensing of characters from their film, television and other properties to third parties for use on consumer merchandise together with wholesale revenue from publishing children’s books and magazines and comic books accounted for USD 2,538. Other significant revenues in this segment are generated by sales of merchandise at their retail stores and wholesale business as well as sales of merchandise at internet shopping sites (ibd.)

2.2.5. Interactive: (Total revenue: USD 1,299)

Disney’s interactive segment generates revenues from the development and sale of multi-platform games, subscriptions to and micro transactions for online and mobile games, licensing content for Disney-branded mobile phones in Japan, and online advertising and sponsorships (ibd).

2.3. Core Competencies & Competitive Advantage

As the Walt Disney Corporation is a diversified worldwide entertainment company with operations in five business segments they are having more than one core competencies. Its main competency lies in its development of new characters and their art of storytelling along with ability to animate them and like this bringing their characters to life. Moreover, their core competency also lies in designing amazing shows, as well as the efficient and productive operations of its successful theme parks (Hill 2010).

One significant competitive advantage is its well established world-class brand name together with its iconic mouse ears which gives it an edge over its competitors, due to the high brand-loyalty of their customers.

Another important factor is their culture, which is unique in every operation. Employees are called “associates,” visitors are called “guests,” and creative designers are called “Imagineers”. They also care about people first, focus on a purpose that makes people feel proud and encourage self-expression and diversity of thought.

But their main core competency can be seen in the diversification. The Walt Disney Co. uses a related diversification strategy to simultaneously create economies of scope through operational and corporate relatedness. Here are only some few examples how the four corporate entities surrounding the Disney figures and worlds are closely interlinked and create large synergies, since they are all dealing with related businesses. One example is that production facilities can be used for both producing DVD’s for Miramax, but also Walt Disney Pictures and Touchstone Pictures. Another benefit of their Economies of scope can be seen in the large network of TV and Radio channels that makes it possible to advertise products across the whole global company. Concerning their Studio Entertainment division, Disney can gain economies of scope by sharing activities among its different movie distribution companies such as Touchstone Pictures, Hollywood Pictures, and Dimension Films. It also is able to create economies of scope through cross-selling their products. Characters created in their movies become figures that are distributed through Disney’s retail stores, which are part of which of its Parks and Resorts and Consumer Product businesses. Besides, new rides in its Parks and Resorts are created with the themes established in movies. This synergy between the various divisions facilitates The Walt Disney Company to support each other, and thereby creating larger profit margins. By combining their different divisions, they leverage its multiple divisions to promote its products and create new revenue generating opportunities. Due to its diversified businesses, Disney is also less affected by changes in the environment than its competitors are and like this reduce their financial risks. So what mainly puts Disney at a great competitive advantage is its differentiation method, by which Disney tries to stand out from other cartoons and TV channels and experience parks (ibd.).

Finally, we are applying the VRIO Framework on Disney’s resources. As we already explained above, Disney uses both operational and corporate relatedness to increase its firm’s value. By sharing activities between businesses and transferring its core competencies into Businesses, it is improving its overall performance. Through their Value-Creating Diversification Disney creates Economies of scope, Market power and Financial economies.

Disney’s vast organizational and human resources are rare, as there are almost no competitors that are providing such a diversified offer.

Referring to the Imitability Disney is positioned at a huge competitive advantage as the costs to offer such a diversified business are high and there is a lot of time required for implementing a comparable brand image and such a huge supply chain. Most difficult for its competitors thereby is the creation of economies of scope, from which Disney profits a lot. Sharing activities and transferring core competencies is very hard for competitors to understand and even more difficult to imitate. Many companies that try to simultaneously obtain operational and corporate relatedness may achieve the opposite of what they seek: diseconomies of scope.

At last, Disney’s procedures of every business division are perfectly matched by its diversification strategy which we already mentioned above. So with the interlinked business organization the exploitation of its valuable, rare, and difficult to imitate resources is supported. To sum it up, as Disney’s performance is above normal and as all the components of the VRIO Framework are matching, Disney has a sustained competitive advantage.

3. Rejuvenation of Disney between 1984 and 1988 und Michael Eisner

In October 1984, Michael Eisner became Disney´s chairman and chief executive officer. As a former president and chief operating officer of Paramount Pictures standing for successful films and television shows, he was contracted in order to overcome the company´s financial crisis illustrated by Disney´s stock price around $ 1.40.

Eisner´s plan was to build Disney´s brand while preserving the corporate values of quality, creativity, entrepreneurship and teamwork. He viewed especially the “managing creativity” as Disney´s most distinctive corporate skill. Nevertheless, his general focus was to reach his financial objectives and maximizing shareholders wealth through an annual revenue growth target and return on stockholder equity exceeding 20%. He wanted to establish this culture encouraging expansive and innovative ideas, but also wanted to focus more on financial issues and profitability. Therefore, he had changes the company´s strategy without destroying the company´s key value – the creativity (Rukstad and Collis 2009).

To reach his goal, he wanted to orient Disney´s business strategy more on diversification. His new strategy of diversification was mainly driven by the following 5 points:

1. Revitalizing TV and movies
2. Maximizing theme park profitability
3. Coordination among business
4. Improving marketing activities
5. Expanding into new businesses, regions and audiences

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