CASE STUDY – WALT DISNEY COMPANY
Founded in 1923 and headquartered in Burbank, California, Disney is a diversified entertainment conglomerate, with approximately 166,000 employees and annual revenues fast-approaching the $45 billion mark. The company, headed by CEO Robert Iger, operates in five business segments, including Media Networks (about 46% of the top-line mix), Parks and Resorts (30%), Studio Entertainment (14%), Consumer Products (8%), and Interactive (2%). And among its most valuable, cash-generating properties are the ABC broadcast network, the ESPN and Disney Channel cable networks, the Walt Disney World Resort, the Marvel, Pixar, Walt Disney, and Lucasfilm movie studios, and The Disney Store retail concept.
The Walt Disney Company, commonly known as Disney, is an American diversified multinational mass media corporation headquartered inWalt Disney Studios, Burbank, California. It is the largest media conglomerate in the world in terms of revenue.Disney was founded on October 16, 1923, by Walt and Roy Disney as the Disney Brothers Cartoon Studio, and established itself as a leader in the American animation industry before diversifying into live-action film production, television, and travel. Taking on its current name in 1986, it expanded its existing operations and also started divisions focused upon theater, radio, music, publishing, and online media. In addition, Disney has created new divisions of the company in order to market more mature content than it typically associates with its flagship family-oriented brands.
The company is best known for the products of its film studio, the Walt Disney Studios, and today one of the largest and best-known studios inHollywood. Disney also owns and operates the ABC broadcast television network; cable television networks such as Disney Channel, ESPN,A+E Networks, and ABC Family; publishing, merchandising, and theatre divisions; and owns and licenses 14 theme parks around the world. It also has a successful music division. The company has been a component of the Dow Jones Industrial Average since May 6, 1991. An early and well-known cartoon creation of the company, Mickey Mouse, is a primary symbol of The Walt Disney Company.
Competitors of the Company
The monarch of this magic kingdom is no man but a mouse: Mickey Mouse. The Walt Disney Company is the world’s largest media conglomerate, with assets encompassing movies, television, publishing, and theme parks. The major competitors of the company in this business are:
* Twenty-First Century Fox, Inc. Company Profile
This media company is crazy like a fox. Twenty-First Century Fox (formerly known as News Corporation) owns and operates a portfolio of cable, broadcast, film, pay television, and satellite assets spanning the globe. The company’s massive portfolio of cable and broadcasting networks and properties includesFOX, FX, Fox News, Fox Business Network, Fox Sports, National Geographic Channels, Fox Pan American Sports, MundoFox, STAR, and 28 local television stations; film studio Twentieth Century Fox Film; and television production studios Twentieth Century Fox Television and Shine Group.
* Time Warner Inc. Company Profile
Even among media titans, this company is a giant. Time Warner is the world’s third-largest media conglomerate behind Walt Disney and News Corporation, with operations spanning television, film, and publishing. Through subsidiary Turner Broadcasting, the company runs a portfolio of popular cable TV networks including CNN, TBS, and TNT. Time Warner also operates pay-TV channels HBO and Cinemax. Its Warner Bros. Entertainment, meanwhile, includes films studios (Warner Bros. Pictures, New Line Cinema), TV production units (Warner Bros. Television Group), and comic book publisher DC Entertainment. In the magazine world, venerable Time Inc. is the top publisher of consumer titles including People, Time, and Fortune.
* NBCUniversal Media, LLC Company Profile
Television, movies, and more fill the vastness of this entertainment company. NBCUniversal Media is a leading media conglomerate anchored by its broadcast network NBC, with more than 200 affiliate stations (including 10 that are company-owned), and its Universal Studios feature film division. Other broadcasting operations owned by NBCUniversal include Spanish-language network Telemundo and a portfolio of cable TV channels that includes Bravo, E! Entertainment, Syfy, G4, USA Network, Oxygen, and news channel MSNBC. It also owns online portal iVillage and has a stake in video site Hulu. Comcast, the country’s #1 cable systems operator, owns 51% of NBCUniversal and has agreed to acquire General Electric’s 49% stake.
Market Segment of the Company
The Walt Disney Company operates as five primary units and segments:
* The Walt Disney Studios-For more than 85 years, The Walt Disney Studios has been the foundation on which The Walt Disney Company was built. Today, the Studio brings quality movies, music and stage plays to consumers throughout the world. Feature films are released under the following banners: Disney, including Walt Disney Animation Studios and Pixar Animation Studios; Disneynature; Marvel Studios; and Touchstone Pictures, the banner under which live-action films from DreamWorks Studios are distributed.
The Disney Music Group encompasses the Walt Disney Records and Hollywood Records labels, as well as Disney Music Publishing. The Disney Theatrical Group produces and licenses live events, including Disney on Broadway, Disney On Ice and Disney Live!
* Parks and Resorts, fWhen Walt Disney opened Disneyland on July 17, 1955, he created a unique destination built around storytelling and immersive experiences, ushering in a new era of family entertainment. More than 55 years later, Walt Disney Parks and Resorts (WDP&R) has grown into one of the world’s leading providers of family travel and leisure experiences, providing millions of guests each year with the chance to spend time with their families and friends making memories that will last forever.
At the heart of WDP&R are five world-class vacation destinations with 11 theme parks and 43 resorts in North America, Europe and Asia, with a sixth destination currently under construction in Shanghai. WDP&R also includes the Disney Cruise Line with its four ships – the Disney Magic, Disney Wonder, Disney Dream and Disney Fantasy; Disney Vacation Club, with 11 properties and more than 500,000 individual members; and Adventures by Disney, which provides guided family vacation experiences to destinations around the globe.
* Disney Consumer Products – Disney Consumer Products (DCP) is the business segment of The Walt Disney Company (NYSE:DIS) and its affiliates that extends the Disney brand to merchandise ranging from apparel, toys, home décor and books and magazines to foods and beverages, stationery, electronics and fine art.
This is accomplished through a franchise-based licensing organization focused on strategic brand priorities, including: Disney Classic Characters & Disney Baby; Disney Live Action Film; Disney Media Networks & Games, Disney & Pixar Animation Studios; Disney Princess & Disney Fairies; and Marvel. Other businesses involved in Disney’s consumer products sales are Disney Publishing Worldwide, the world’s largest publisher of children’s books and magazines, and www.DisneyStore.com and www.DisneyStore.co.uk, the company’s official shopping portals. The Disney Store retail chain, which debuted in 1987, is owned and operated by Disney in North America, Europe, and Japan.
* Media Networks -Media Networks comprise a vast array of broadcast, cable, radio, publishing and digital businesses across two divisions – the Disney/ABC Television Group and ESPN Inc. In addition to content development and distribution functions, the segment includes supporting headquarters, communications, digital media, distribution, marketing, research and sales groups.
The Disney/ABC Television Group is composed of The Walt Disney Company’s global entertainment and news television properties, owned television stations group, as well as radio and publishing businesses. This includes the ABC Television Network, ABC Owned Television Stations Group, ABC Entertainment Group, Disney Channels Worldwide, ABC Family as well as Disney/ABC Domestic Television and Disney Media Distribution. Hyperion publishing and the Company’s equity interest in A&E Television Networks round out the Group’s portfolio of media businesses.
* Disney Interactive – Founded in 2008, Disney Interactive Media Group (DIMG) entertains kids, families and Disney enthusiasts everywhere with world class products that push the boundaries of technology and imagination.DIMG creates high-quality interactive entertainment across all digital media platforms, including blockbuster mobile, social and console games, online virtual worlds, and #1-ranked web destinations Disney.com and the Moms and Family network of websites.
Its main entertainment features and holdings include Walt Disney Studios, Disney Music Group, Disney Theatrical Group, Disney-ABC Television Group, Radio Disney, ESPN Inc., Disney Interactive Media Group, Disney Consumer Products, Disney India Ltd., The Muppets Studio, Pixar Animation Studios, Marvel Entertainment, UTV Software Communications, and Lucasfilm.
Its resorts and diversified holdings include Walt Disney Parks and Resorts, Disneyland Resort, Walt Disney World Resort, Tokyo Disney Resort, Disneyland Paris, Euro Disney S.C.A., Hong Kong Disneyland Resort, Disney Vacation Club and Disney Cruise Line.
Different Strategies taken by the Company to Compete in the Market
The business strategy behind Disney’s magical experiences
On 07 March 2013, 250 GTA business professionals participated in “Disney’s Approach to Business Excellence,” an all day workshop offered through the Disney Institute and organized by McMaster University’s DeGroote School of Business in partnership with the Certified General Accountants of Ontario (CGA).
Workshop attendees watched case studies, answered questions, and participated in several group exercises led by Bryan Tabler and Amy Rossi, two facilitators from the Disney Institute and veteran employees of Disney. The goal of the day was to learn the strategies Disney believes are key to the successful maintenance of The Walt Disney Company. These strategies are regarded as Disney’s five universal assets of a successful business – also known as the Disney Chain of Excellence – made up of leadership excellence, cast excellence, guest satisfaction and financial results/repeat business.
* Leadership Excellence
According to the Disney Institute, the foundation for successful leaders is communication. To foster an engaged and collaborative company culture, the leader must encourage the creativity of his/her employees and create an environment in which it is safe and comfortable for them to share those ideas.
“The word ‘no’ shuts down hopes,” said Bryan Tabler, Disney Institute facilitator. “Leaders must use positive language such as “yes if…” and “yes and…” if they want to foster a collaborative culture.”
Sylvia Scott is the donor relations representative for the Salvation Army. While she is not a manager within her organization, Ms. Scott said the workshop empowered her to act like a leader.
I am learning there is no wrong answer and that provides me with the confidence to share ideas and be more of a leader within my role
“I came here thinking it would be primarily about customer service,” said Ms. Scott. “I am learning there is no wrong answer and that provides me with the confidence to share ideas and be more of a leader within my role.”
Leadership excellence is the first link in Disney’s Chain of Excellence because leaders are responsible for the work environment. Success here leads to employee satisfaction, employee retention, and subsequently a more positive experience for customers.
According to Disney, employee satisfaction – not customer satisfaction – should be a leader’s first priority.
“If your customers are happy but your employees aren’t, what does that say about your company culture?” said Mr. Tabler. “Your employees must be first. Trust me, their satisfaction will trickle down to your customers.”
* Cast Excellence
Disney uses its own unique business language to set the right tone amongst those within the company. For example, rather than using the word “employees,” Disney uses “cast members”. Similarly, customers are referred to as “guests” and jobs are “roles”. Those who work at Disney don’t wear a uniform; they don a “costume”.
It is an intentional element of the company culture, a culture that is well defined, clear to all, and is goal-oriented.
While experiencing a period of rapid growth and numerous personnel changes within her organization Yvonne Stefanin, vice-president of the Holland Bloorview Kids Rehabilitation Foundation, came to the Disney Institute workshop looking for some management advice that would help her effectively lead while her business is in a state of flux.
“We have 21 employees and one-third of them have been with us for a month or less,” she said. “This is a period of huge change for us.”
Disney’s advice on differentiating a cast member from an employee and what that means within the company culture peaked Ms. Stefanin’s interest.
“Like Disney says, everyone has a role in the show,” she said. “It is my job to make sure our employees are finding their role in the organization.”
Disney calls this “selecting for the culture,” which requires leaders and those involved in hiring to effectively communicate the company culture to all applicants.
“We hire attitude versus aptitude,” said Amy Rossi, Disney Institute facilitator. “We can teach someone to drive a bus. We can’t teach them to smile and be happy.”
Ramona Breton-McGuire is the controller at Incom Manufacturing Group and a member of CGA. As an employee responsible for a lot of the company’s hiring, Ms. Breton-McGuire came to the workshop to learn hiring tips from a company with more than 156,000 employees (or cast members) worldwide.
* Everyone has a role in the show
“Disney is known for their hiring methods,” she said. “I do a lot of hiring in my role and I see now how important it is to make our company culture known to applicants.”
Ms. Breton-McGuire said the workshop inspired her to share the owner’s story with applicants and prospective customers on her company’s website.
“We’ve had the same ownership since 1975,” she said. “Its important for applicants to understand the owner’s journey and use it as inspiration to see where you can go within our company.”
* Guest Satisfaction
Disney uses a process known within the company as “Guestology”. This is the process of understanding your customer’s needs, wants, emotions, and the preconceived notions they may have about your company. By understanding these elements, leaders can establish their company’s unique quality standards that can be used to measure the customer’s level of satisfaction.
“Wants are where you can differentiate from your competition,” said Mr. Tabler. “This is where you create customer loyalty.”
* Financial Results/Repeat Business
Earlier in the workshop, attendees discussed the Loyalty Profit Chain, a business model developed by a group of researchers at Harvard University in the 1990s. The Disney Institute shared this model and encouraged attendees to understand how internal service quality leads to employee satisfaction, employee retention, customer value, revenue, growth and profitability, and finally to shareholder value.
In the closing section of the workshop, the Disney Institute facilitators reiterated how when all of the other links in the Disney “Chain of Excellence” are working, that is when the company sees financial results and is able to foster repeat business.
Final piece of advice from the Disney Institute:
“In order to attain growth, an organization must be willing to take risks that test the organizational identity and push its products and/or services to new levels. These risks succeed when they allow the previous organizational identity to remain, while expanding into new territory.”
The Walt Disney Company incorporates best-in-class business standards as a key pillar of its business practices.
* Business Standards and Ethics Training
Business Standards and Ethics training is provided by the company through its Business Conduct Training Center, which provides education and training to domestic and international employees through web-based tutorials via the My Disney TEAM internal portal, regarding the company’s Standards of Business Conduct and related areas. It is the company’s intent, through the Business Conduct Training Center, to ensure that all of its employees have the knowledge and training to act ethically and legally, in compliance with the company’s Standards of Business Conduct.
* Hiring Practices
It is the policy of The Walt Disney Company to provide equal opportunity for all employees and applicants for employment without regard to race, religion, color, sex, sexual orientation, national origin, age, marital status, covered veteran status, mental or physical disability, pregnancy, or any other basis prohibited by state or federal law.
* Human Resources
The Walt Disney Company’s employees and cast members are essential to fulfilling our business goals. Our mission is to drive the people dimension of our business, consistent with Disney’s culture and values.
* Harassment Prevention and Discrimination Policies
The Walt Disney Company’s policy prohibits employees from harassing any other employee, guest or other person in the course of the company’s business for any reason prohibited by law, including, but not limited to, race, religion, color, sex, sexual orientation, national origin, age, marital status, covered veteran status, mental or physical disability, pregnancy, or any other basis prohibited by state or federal law.
Strategies for Reaching Global Markets
The Walt Disney Company, started in California more than eight decades ago, occupies today the tenth position in the rank of the Best Global Brands. In order to achieve this position, it was necessary that the focus of Disney was not only in the market inside the United States, but in the Global Market. The company today has their worldwide known amusement parks in three different continents, stores in United States, United Kingdom, France, Italy, Spain and Portugal; and licensed shops in nearly every country in the world.
The Strategies used by The Walt Disney Company for Reaching Global Markets are Foreign Outsourcing, Licensing, and Direct Investment.
Due to the higher wages in the United States when compared to developing countries, Disney adopted the strategy of Foreign Outsourcing to reduce the cost of production. The main factories are located in Asian countries, especially in China, and then have their products distributed to all the stores.
In order to have Walt Disney products available worldwide, Disney not only opened Disney Stores outside of the United States, but also authorized Licensees to resell their products. This approach is very beneficial for the company, in view of the low need of investment or no investment sometimes.
As said before, Disney also opened Disney Stores around the world, as well as amusement parks and resorts. This type of Strategy is called Direct Investment. This represents a high cost investment for the company; however, their control over how their business operates is maximized. As of today, Walt Disney Company has Direct Investment Stores in five different countries and amusement parks and resorts in United States, France, Tokyo, Hong Kong and an upcoming one in Shanghai.
According to Disney International website, for the past few years, their main focus has been “establishing the foundations for long-term growth in the emerging markets of Latin America, Russia, India and China.” (Walt Disney International, 2009). This focus has mainly been because of the economic growth of the country and consequently growth of the purchasing power of the population. Due to the change in the CEO of the company in 2005, Disney has also renewed their focus in Europe and in Japan, with the intention of serve their guests better and incorporate more local values while providing entertainment.
Walt Disney’s strongest competitors are News Corporation, Viacom, NBCUniversal and Time Warner. All of them are in the international market largely by Licensing. They compete with Disney in all the branches, from television to amusement park, such as Universal Studios by NBCUniversal in Hollywood, Orlando and Japan.
The Barriers to International Trade faced by Disney are all kinds. Being an American company and reflecting American values and ways of life, Disney had to adapt to the Sociocultural and Economic Differences in each of their host countries. Also, Political and Legal Differences, especially Laws and Regulations, were also an obstacle to International Trade.
Sociocultural Differences and Economic Differences are the easiest to perceive. The Walt Disney Company genuinely reflects American values but, in order to succeed in other countries, the company had to incorporate local customs, where appropriate, as well as stories and history of the host place. Economic Differences are also a barrier for Disney’s expansion. It is important to consider the population, economic growth, per capita income, and stage of economic development, in order to determine the potential success of the business. The two newest parks (Hong Kong, opened in 2005, and Shanghai, that will open in about five years) are both located in China. China is a country that just recently acquired a high rate of economic growth and has been working on increasing the per capita income, which allows the population to spend more money in entertainment. I believe that, in the beginning of the Walt Disney Company, opening an amusement park in China was not a top priority. However, after the rise on China’s economy, The Walt Disney Company, like many others, turned their attention to the Chinese market.
Another barrier for Disney’s expansion were Laws and Regulations of their host countries. Each country has different laws and policies that differs, and sometimes contradicts, American laws. In order to be in Japan, France or China territory, The Walt Disney Company has to follow not only American rules, but also Japanese, French or Chinese rules, following their standards and paying their taxes. As I see, the Walt Disney Company also deals well with this barrier, printing, for example, the Disney’s Code of Conduct in Chinese, trying to balance the regulations of both countries.
Barriers for International Trade will always be present, in different degrees of intensity. In order for a Company to succeed, Strategies for Reaching Global Market need to be set, taking into account the obstacles of each target.
A SWOT (Strengths, Weaknesses, Opportunities, and Threats) overview can be useful in determining whether a company is a worthwhile investment. Walt Disney (NYSE: DIS) had a solid year in its fiscal 2012 (ended in September), growing per-share earnings 21%. The shares followed suit, climbing nearly 30% in calendar 2012. We will take a look at what drove the improved showing, what we anticipate in terms of internal initiatives, and what actions by its competition are likely to be consequential.
* ESPN and other Cable Networks
Cable television remains a growing and highly lucrative sector within the entertainment landscape and Disney owns the perennially most-watched network in ESPN. In addition to the healthy advertising revenues this attracts, Disney has the leverage to boost affiliate contract rates significantly. As a result, operating income has increased nicely at ESPN, as well as Disney’s other wholly-owned networks, Disney Channel and ABC Family.
Disney’s cable networks, especially the ESPN sports channels, are cash cows, earning high ratings in key demographic segments and generating the lion’s share of the company’s profits. And recent distribution deals, like last year’s multiyear contract with Comcast (CMCSA), suggest that the profits will keep rolling in – even as competition intensifies and sports programming costs continue to rise sharply.
* Investments in Parks and Resorts panning out
Disney usually, and particularly within the past several years, spends heavily to upgrade and build vacation properties. In fact, related capital expenditures were $2.9 billion in fiscal 2012. Along with rising guest spending and attendance at its U.S.-based resorts, profits are benefiting from strength at newer operations including cruise lines, Hong Kong Disneyland and Aulani resort in Hawaii. New attractions should continue to keep the theme parks’ visitation increasing.
This business has faced headwinds from higher investment activity and an uneven macroeconomic environment. But pricing remains healthy, and recent attendance and guest spending trends have been pretty encouraging. What’s more, the aggressive investments of late, highlighted by a new “Avatar Land” themed area to be added to the Florida park, a major expansion in Hong Kong, and a $4.4 billion Shanghai Disney Resort that is scheduled to open in 2015, should begin to garner substantial benefits during the latter stages of the decade. And renewed strength across the U.S. economy, where the rebound in the housing sector has been surprisingly sharp, should help matters in the near term, and lead to a further uptick in domestic attendance.
* Strategic Acquisitions
Disney, particularly during the Bob Iger era, has an excellent track record of inking accretive deals that enhance its growth profile. Following its purchases of Pixar (for $7.4 billion in 2006) and Marvel (for $4.2 billion in 2009), the company bought Lucasfilm, owner of the hugely successful “Star Wars” franchise, late last year for about $4.1 billion. This transaction should not only shore up Disney’s (recently shaky) studio operations, but it ought to be good news for the consumer products and retail businesses. The first Disney-produced “Star Wars” feature is set to hit theaters in the summer of 2015.
* Returning cash to shareholders
After spending for the parks, Disney had enough cash left to repurchase about 4% of outstanding shares and pay a $0.60 per share dividend, amounting to a modest yield. The enormous cash flows brought in by Disney’s Media businesses facilitate these measures.
* Excellent Free Cash Flow
This, along with a first-rate balance sheet (Financial Strength: A++), allows the company to pay a modest dividend and stay active on the stock-buyback front. It also supports M&A pursuits, and we would anticipate that Disney will keep adding to its entertainment arsenal via acquisitions going forward.
* The ABC broadcast network
Traditional broadcast TV, in general, is giving way to cable and other new forms of media. ABC, specifically, is currently trending third among its peers, behind CBS (NYSE: CBS) andComcast’s (NASDAQ: CMCSA) NBC, and its ratings are falling on a year-over-year basis.
CBS consistently tops the ratings chart, thanks to numerous popular primetime programs such as NCIS. The company overall is faring well, as earnings are also benefiting from a burgeoning cable TV unit. Its positive momentum approaching 2013 adds appeal to CBS shares.
* Declining DVD market
Disney’s Home Entertainment revenues declined 9% in fiscal 2012. Still a large and wide-margined business for Disney, the ongoing slowdown stems from the rollout of low-priced DVD rental kiosks and alternative media outlets. Home Entertainment, for reference, contributed only 5% of total revenue in 2012, though.
* Uneven Box Office Receipts
Disney has had its share of movie flops lately, such as The Lone Ranger and last year’s big-budget John Carter. (The latter prompted a huge write-down, and the former Johnny Depp-led Western may eventually require one as well.) These misfires, should they persist, will likely keep future growth in check, though the film operations account for less than 15% of total revenues, and the company has sought to reduce risk by releasing fewer titles and making more sequels of proven franchises, like the Iron Man and Pirates of the Caribbean series.
* Soft Broadcast Segment
This segment has been a mediocre performer in recent times, with programming costs on the rise and ratings (and advertising revenue) at ABC being rather underwhelming. Plus, broadcast television continues to lose viewers to cable channels and interactive content. And more Americans are getting involved with social media, which means that fewer hours are being spent in front of the tube. While the company insists that ABC is among its core assets, we would not be surprised to see a sale of the broadcast network before too long. This would allow Disney to solidify its cable empire at a time when competition is heating up.
* Interactive Losses
The interactive business has operated in the red over the past several years, mainly because of weak video game sales and a failure of social network gaming to take off. Still, management expects the unit to turn profitable shortly, and has high hopes for a new “Infinity” platform that lets animated Disney and Pixar characters be synthesized into the gaming experience.
Disney paid $4 billion to purchase Lucasfilm, approximately the same amount it shelled out for Marvel at the end of 2009. The Marvel purchase has spurred a slew of films, many high grossing, including 2012’s top box office earner, The Avengers. Lucasfilm is certain to encourage the creation of further such blockbusters, with Star Wars: Episode 7 slated for 2015 followed by a sequel every two or three years. The integration should also support growth in Disney’s consumer products segment through the marketing of acquired characters.
* International cable
ESPN and the Disney Channels are already available across the globe. Indeed, ESPN operates 27 international sports networks spanning 190 nations and 11 languages, while Disney Channel is available in 35 languages. The potential for profit expansion may well be considerable, nevertheless.
On that note, each of Disney’s major business lines has overseas possibilities. The recent buyout of UTV Software Communications should allow it to gain a presence in India’s film industry. Plus, it is in the process of developing Shanghai Disney Resort, on tap for 2015.
We see China as the biggest external opportunity for Disney, as it looks to enter new overseas markets and leverage its iconic entertainment properties. With this in mind, we’ll be closely watching developments at the new Shanghai Disney Resort, which has been fifteen years in the making and is expected to be a runaway hit with China’s rising middle class. We have every reason to believe that the new resort will be successful, thanks, in part, to the company’s learning experience with Hong Kong Disneyland, which opened its doors in 2005. That important project taught Disney how best to adapt its theme parks to the preferences of its new Asian customers.
* New Media
Disney, like other entertainment conglomerates, has been unprofitable with its Interactive assets and, in fact, downsized its video game operation to some degree. Yet, games and interactive websites are apt to capture an incremental share of consumers’ attention. While Disney should effectively broadcast its programming online, its interactive businesses could well struggle persistently. Exclusive deals for film streaming, such as the recent agreement with Netflix, help to broaden distribution through these channels somewhat, however.
* Viacom’s upstart animation studio
Disney counts on gaining a large proportion of the young audience partly through its often very well-received animated films. Viacom (NASDAQ: VIA), owner of Paramount, is exiting its distribution arrangement with DreamWorks Animation and plans to launch an internal animated studio in 2014. The first film, The SpongeBob SquarePants Movie 2, is scheduled for that year. Viacom has access to characters through its Nickelodeon unit and should thus gain on Disney a bit. That said, its previous forays into full-length animation, namely Rango in 2011, have been lukewarm and Disney should still have a sizable edge.
* Falling Cable Fees
With cable being Disney’s primary cash generator, a material drop in fees from the likes of Comcast and Time Warner Cable (TWC) would likely spell trouble for the company’s bottom line. At the very least, we expect some moderate pricing pressure to eventually emerge, in light of the maturity of the pay-TV market and the decision by many young consumers to bypass cable television in favor of cheaper alternatives.
* Costly Sports Rights
The battle for sports distribution rights remains cutthroat, and is likely to push programming costs markedly higher in the years to come, something that could result in a profit squeeze. Most of ESPN’s existing distribution agreements, like the one it has with the NBA, are quite lengthy, however, so costs are unlikely to skyrocket anytime soon. Plus, fee growth remains decent enough at this juncture to offset any new cost headwinds.
* Heightened Competition
Given the smashing success of ESPN, it’s not surprising that rivals are entering the sports fray. In fact, ESPN is now competing for viewers with NBCUniversal’s NBC Sports (NBCUniversal is owned by Comcast) and 21st Century Fox’s (formerly News Corp.) (FOXA) Fox Sports West cable channels. And we expect this trend to persist well into the future, which may well drive up programming costs.
Major Findings of the Company
Disney is reliant on healthy profitability from its cable TV and theme park/resort businesses, two units where results have been improving. Its film unit is dependent on timing of releases and a quality slate. Management should take the correct initiatives to keep earnings on the upturn over the long run. DIS stock may well therefore be a good buy and hold selection.
In sum, while the road ahead is sure to have some pitfalls, we believe that Disney’s strengths and opportunities far outweigh its weaknesses and threats at present. Moreover, considering the global power of the ESPN and Disney brands, we think that the stock’s premium valuation is warranted. There may well be upside to our 3- to 5-year estimates, too, as aggressive stock buybacks and accretive acquisitions bolster share net, and as the company makes inroads in the huge Chinese market. In view of this, and the likelihood of consistent hikes to the annual cash dividend, we think that it’s not too late to accumulate Disney shares. A DIS stake may, in fact, prove to be very entertaining for long-term investors.
* Financial Position (FP)The financial position for The Walt Disney Company scored an average rating 3.5 out of a possible 7 (with 7 being the best possible score and 1 being the worst possible score.) Its middle-of-the-road rating can mostly be attributed to the Company’s marginal increase in the current ratio from 2007 to 2008 and a meager 12% increase in gross revenues in the last three reported years. A company of Disney’s stature should arguably have better financial ratios. The economy, no doubt, is a major reason the Company has underperformed financially over the last few years, but sufficient strategic planning should allow us to minimize such threats.
* Competitive Position (CP) The competitive position of The Walt Disney Company is nothing short of stellar. The Company scored an average rating of -1.75 out of 7 (with -1 being the best possible score and -7 being the worst possible score.) The fact that Disney’s product life cycle has literally been around for almost a century is very significant in determining the Company’s competitive position. Couple with that the Organization’s almost cult-like fan base and the sheer size of the Company and The Walt Disney Company has scored an almost perfect score in the competitive position test.
* Stability Position (SP) The stability position for The Walt Disney Company, much like their financial position, is middle-of-the- road. The Company garnered a high score when focusing on the barriers to entry associated with potential competitors, but generated a low rating when accessing the risk of such a high-risk industry. When the fact that fresh and successful content is needed regularly but is priced at industry rates, the stagnancy of the stability position rating is expected. In the end, The Walt Disney Company scored an average rating of -3.25 out of -7 (with -1 being the best possible score and -7 being the worst possible score.)
* Industry Position (IP) The industry position for The Walt Disney Company mirrors its competitive position in that it reflects a high score. The Company earned high scores for the reusing of its past portfolio and the fact that the ease of entry into the entertainment industry is difficult to say the least. When one considers the fact that the Company’s leverage position has increased in the last year, a great score is both what is deserved and what was given. In the end, The Walt Disney Company scored an average rating of 5.25 out of 7 (with 7 being the best possible score and 1 being the worst possible score.)
The current Mission Statement for The Walt Disney Company is listed below.
To be the world’s leading producers and providers of entertainment and information. Using our portfolio of brands to differentiate our content, services and consumer products, we seek to develop the most creative, innovative and profitable entertainment experiences and related products in the world.
Though the Company’s current Mission Statement is adequate, there are a few components of the current Mission Statement that were neglected. Firstly, Disney makes no mention of their customers. An organization must never loose focus on their customer, seeing as without the customer business ceases. In the altered Mission Statement, we have made note of to whom The Walt Disney Company is selling their products. The remaining neglected components of a sufficient Mission Statement are corporate philosophy, concern for public image, and concern for employees. All of the neglected components of a successful Mission Statement were corrected.
The new Mission Statement for The Walt Disney Company should read as follows:
To produce and provide entertainment and information to all citizens of the world, regardless of ages. Using our portfolio to differentiate our content, services and consumer products, we seek to develop the most creative, innovative and profitable entertainment experiences and related products in the world, doing so responsibly as it relates to our stakeholders and our world.
Short-term goals are considered goals achievable within a year’s time. After completing and analyzing the several strategic management tools and matrices contained within this analysis, the following short- term goals have been recommended for The Walt Disney Company:
* Rerelease past Disney classics to DVD as special editions or with new special features. This goal is one that could without question be completed in a year’s time. Too, this goal is a “cash cow” of sorts for the company-the products are already produced and completed so that a marketing push would be the only serious movement by the company to get this cheap option underway and a success.
* Boost customer service in the parks as a way of besting competition without increasing expenses. The great thing about exceptional service is that it is no more expensive than adequate service. Already in place is a series of managers that supervise Disney employees who have direct contact with guests. This goal is as simple as developing a new standard for customer service and ensure that managers implement them to perfection. If an employee, then, has a negative attitude toward a guest, either the employee needs reprimanding because they know the customer service standards and are not living up to them or they are his/her direct supervisor needs reprimanding because the new standards were not properly explained. This new (and almost free) goal is a sure way to increase vacationing experiences with all of the Company’s guests.
* More heavily market cheaper entertainment options rather than pricier choices. In times of economic difficulty for all members of our global economy, a $5,000 weeklong Walt Disney World Vacation might not be in the budget. Thus is the reasoning behind this short-term goal. The Walt Disney Company should aim marketing dollars at cheaper entertainment options rather than pricier ones with the idea of involving more individuals in the “revenue generating” process. Much like the “lowering taxes and closing loopholes” argument, the idea would bring more people out of the woodwork in which to purchase Disney products.
Long-term goals are goals considered unachievable within a year’s time. After completing and analyzing the several strategic management tools and matrices contained within this analysis, the following long- term goals have been recommended for The Walt Disney Company:
* Develop current Disney Channel actors into musicians with their multitalented abilities. In a time where the American Idol and America’s Got Talent television programs are at the forefront of pop culture, now is as good as time as any for The Walt Disney Company to develop their actors into music stars as well. Disney has had success with this in the past, but an increased focus should be made on the goal to drive the Company into the music industry as a main player rather than just a novelty act.
* Place increasing focus on radio channels and programming. As a follow up to the above listed long- term goal, The Walt Disney Company should look for every outlet on which to feature the music of their new music stars, and what better way to manage that than to own radio channels and control the programming on those channels. Much like Disney has done with The Disney Channels and ABC, the Company does not worry about what station will air the shows that their studios have produced-the Company owns their own channels on which to show their content.
* Plant cheaper entertainment options in smaller markets and emerging economies. The Walt Disney Company is done a fantastic job of placing their parks and resorts where the masses are. California, Florida, Tokyo, Paris, Hong Kong, and Shanghai are all points on the global with higher than normal populations. This long-term goal suggests that the Company look at smaller markets in which to place cheaper entertainment options such a solitary water park, one amusement park, or a single resort. A Disney-quality water park in Indianapolis would surely draw considerable more people than if the consumers living in that area had to fly to Anaheim for their summer vacation. Cheaper entertainment options in emerging markets too (such as Brazil, India, and South Korea) should be examined too, especially as The Walt Disney Company currently has no footing whatsoever in South America.
When brothers Walt and Roy Disney moved to Los Angeles in 1923, they went there to sell their cartoons and animated shorts. One could only dream that their name would one day be synonymous with entertainment worldwide. But then again, that is how The Walt Disney Company has made their fortunes over the last several decades: making “dreams” come true.
The Disney brothers began creating countless cartoons (some successful and others not so much), and in 1928, introduced Mickey Mouse to the world in the animated short, Steamboat Willie-widely described as the first animated film to be synchronized with post-produced music. The Mickey Mouse character gained enormous popularity, and Walt and Roy enjoyed incredible success thereafter with feature films both related and unrelated to the Mickey Mouse character.
The Walt Disney Company produced several of its animated classics throughout the 1940s such as Pinocchio, Fantasia, Dumbo, and Bambi; and in 1955, Disneyland opened its doors as the Disney brother’s first amusement park. In 1966, Walt Disney died leaving Roy as the new President, CEO, and Chairman of the Board of The Walt Disney Company. Walt never had the opportunity to witness his namesake creation (Roy rebranded Disney World as Walt Disney World in honor of his late brother) as Walt Disney World opened five years later on October 1, 1971.
Since that first day of October in ’71, The Walt Disney Company has expanded exponentially. The Company owns media networks such as ABC, ESPN, the Disney Channels, SOAPnet, and A & E (television networks); ABC Radio and The Radio Disney Network (online and satellite radio station); and Hyperion Books (literary publishing company). The Company has spread its parks across the world to Paris, Hong Kong, and Tokyo and has taken to sea with four Disney ocean liners.
The Walt Disney Company continues to grow with a major expansion to Walt Disney World currently underway and several feature films currently in production in the Disney-Pixar Animation Studio (the result of the Company’s 2006 acquisition of Pixar Animation Studios.) Though profits have been stagnant for the last two fiscal years, the company’s revenue continues to increase
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