STRAT
The Walt Disney Company
4/14/11
CMJ
Discussion Questions
Key Players / People
Course Platform
Description: Based at first on little but an animated mouse, Walt Disney had grown to be one of the largest and best known media companies in the world by the mid-2000s. Most of our cases in the course so far focus on strategy at the level of the individual business unit. In this module, we shift perspective to “corporate level strategy”. The Disney case provides our first close look at how diversified, multi-business organizations create a corporate advantage.
Questions
1. Why has Disney been so successful for so long?
“The Walt Disney Years, 1923-1966”and “The Post-Walt Disney Years, 1967-1984”
The company pioneered ideas in film and ultimately would use its brand as a producer of family-style entertainment to further expand into other media outlets. Additionally, the company attempted to minimize costs by integrating specific functions of the channels involved in its various lines of business. The company had a philosophy to create universal timeless family entertainment and aimed to control the complete entertainment experience. The company essentially created an entertainment ecosystem around its brand, providing multiple touch points for the consumer to interact with the Disney franchise.
· Movies
· Short Films and Mickey Mouse
· Created when the Disney Brothers’ successful series of short films starring “Oswald, the Lucky Rabbit” were commandeered by their distributor
· The company attracted distributors by adding synchronized sound, something that had never been attempted in a cartoon. Resulted in “Steamboat Willie” in 1928.
· Full-length films
· In Walt’s mind, real money lay in feature films
· “Snow White and the Seven Dwarfs” in 1937
· First full-length, full-color animated feature
· Highest grossing animated movie of all time
· Branched into live-action with such classics as “Old Yeller” and “Mary Poppins”
· Created Buena Vista Distribution in 1953, eliminating distribution fees (savings of 1/3 of a film’s gross revenues)
· Further saved costs by developing internal talent
· Touchstone
· Introduction of a new label in the early 1980s aimed at the teen/adult market in an effort to stem the decline in the film division
· Television
· Produced first TV special, “One Hour in Wonderland,” in 1950, reaching 20MM viewers (only 10.5MM TV sets)
· Later worked with ABC to produce “Disneyland” and “Mickey Mouse Club” for television audiences
· Launched the Disney Channel in 1983
· Theme Parks
· Disneyland opened in 1955
· Disney World and EPCOT in 1971
· $139MM from 11MM visitors in year one
· Created two on-site resort hotels, the first for the company
· Expanded internationally with Tokyo Disney and later Euro Disney
2. What did Michael Eisner do to rejuvenate Disney? Specifically, how did he quintuple net income in his first three years as CEO?
“Eisner’s Turnaround, 1984-1993”
Eisner took over the company with a plan “to build the Disney brand while preserving the corporate values of quality, creativity, entrepreneurship and teamwork.” He was very good at “managing creativity,” pitting creative teams against financial forces, with an expectation that all projects have potential for profitability in the long run. He was able to quintuple net income by focusing on the company’s main business lines (i.e. theme parks and studio films) and driving increased volume and profitability (see below for specifics). His major strategic moves were the following:
Revitalizing TV and movies
· Relaunched the concept of a “network show” in 1987, “The Disney Sunday Movie” on ABC, creating demand by highlighting the company’s renewed focus to deliver quality programming
· Also produced the “Golden Girls,” “Siskel & Ebert at the Movies” and “Live with Regis & Kathie Lee”
· Created a syndication operation to sell to independent TV stations, leveraging Disney’s 30 years’ worth of existing titles
· Renewed focus on live-action films
· Touchstone produced its first R-rated movie, “Down and Out in Beverly Hills”
· 27 of Disney’s next 33 movies were profitable
· Increased share of US box office from 4% in 1984 to 19% in 1988
· Released 15-18 new films/year, up from two new films/year in 1984
· Disciplined approach to movie-making by creating a “financial box” (Katzenberg)
· Pursued strong scripts from lesser known writers and well-known actors in career slumps. Also stayed away from big-budget, special effects movies
· Turned around animation division
· Expanded staff and accelerated production by releasing a new film every 12-18 months, instead of every 4-5 years
· Achieved efficiency and cost savings through investment in CAPS (computer animated production system) which reduced animators need to draw every frame by hand
· “Who Framed Roger Rabbit” was a success
· Expensive to produce at $45MM, but paid off with $220MM at the box office
· First major effort at cross promotion, where movie-related merchandise was produced via licensing agreements with Disney
Maximizing theme park profitability
· Updated and expanded attractions at the parks
· Increased spending on “attendance-building strategies”
· National TV ads, special events, retail tie-ins, media broadcast events
· Additionally, increased number of allowable visitors, opened on Mondays, and raised ticket prices
· Created the Disney Development Company to maximize the value of its real estate at Disney World
· Expanded its hotel by several thousand rooms and created a convention center
Coordination among businesses
· Created a corporate marketing function in 1987
· Given increasing overlap of different businesses, internal coordination became increasingly important
· Creation of a marketing calendar that included promotional plans for each of the US divisions
· Meetings were set up to discuss interdivisional issues and determine how to allocate the Disney film library among the various divisions
· Focus on “Disney synergies”
· Created a divisional meeting to generate novel ideas, coordinate schedules and build commitment and excitement
Expanding into new businesses, regions and audiences
· Disney Stores pioneered the “retail-as-entertainment” concept in 1987
· Generated sales/sf at twice the average rate for retail
· Expanded into book, magazine and record publishing with Disney Press, Hyperion Books and Hollywood Records
· Established new distribution channels through direct-mail and catalogs
· Opened Euro Disney and added attractions to its other parks, beefing up hotel expansion to encourage longer stays and to draw conference business
· Incredible success with films such as “The Little Mermaid,” “Beauty and the Beast,” “Aladdin” and “Pretty Woman.”
· Entered the home video market as Buena Vista Home Video pioneered a “sell through” approach where they bypassed video rental stores and went straight to the consumer
· Acquired an NHL expansion team
· Used the Mighty Ducks for traditional sports marketing purposes, but also cross-marketing opportunities
· 80% of the money spent on NHL merchandise went for “Duckwear” in 1993
· Branched out to Broadway in 1993 with a stage version of Beauty and the Beast
· Restored the New Amsterdam Theater on West 42nd Street in a $29MM deal
3. To what extent does Disney’s expansive corporate scope in Eisner’s later years (geographic spread, vertical integration, range of businesses) leverage and contribute to Disney’s key sources of advantage?
Given the scale of Disney’s business in Eisner’s later years, the company has an ability to create synergies from its different businesses through cross-promotion. Because it has its fingers in many related fields, the company can use its presence in one arena as a means of supporting and promoting products in other arenas, in addition to leveraging its products to expand its existing footprint.
Geographical spread
· Potential to generate greater international sales
· If per capita spending internationally can be grown to match that of the US, $2Bn a year in incremental annual revenue would flow to the bottom line
· Consolidation of foreign offices under regional executives would allow the company to cross-promote its products from the company’s central hub
Vertical integration
· Ability to control the entirety of its content and its brand image
· Initiatives with the internet would allow Disney to control the distribution channel for its film library and sports and news content
· ABC began to develop its own content, relying less on purchasing shows created by other studios
· Good ideas from Disney could find airtime through ABC
· Vertical integration saves on costs and increases cooperation
· Merger of Touchstone Television saved ~$50MM/year
Range of businesses
· Ability to enter new types of entertainment markets by leveraging its existing media properties
· ESPN Zone – sports bars with interactive sports attractions
· DisneyQuests – multistory facilities with a range of virtual and interactive attractions for kids and adults
· Cruise ships – vacation business, while serving as feeders to Disney World
· Disney Institute – facilities focused on fitness and “adventures in learning”
· Walter Elias Disney – Founder and visionary behind Walt Disney
· Michael Eisner – Chairman and CEO. Brought in after hostile takeover attempts failed
· Frank Wells – President and COO. Would later die unexpectedly in a helicopter crash, creating a void in the company that was difficult to fill
· Jeffrey Katzenberg – Chairman of Disney’s motion picture and television division. Would later leave to form Dreamworks
Key Facts/Terms
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Additional topics
Please include page numbers and references wherever possible, especially for key players, terms, and dates
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