Disney Case Analysis

Executive Summary

Disney is a huge conglomerate entertainment business that came from a humble start. They have core competencies that make up who they are and what their culture is about. They had an expansion strategy that grew vertically, horizontally, and globally to maximize shareholder value. Disney was all about controlling every aspect of the experience. This need for control was sometimes a very good strategic move while other times a very costly mistake. In Disney’s growth, they began to diversify horizontally through the purchase of ABC, creation of online websites, and multiple production studios that created risqué content. Through this expansion, Disney lost sight of whom they were and where they started. The next phase for Disney is to sell of non-strategic assets, reevaluate their corporate culture and core competencies, research global markets before entering, and expand vertically through the expansion of resorts, multiple attractions at theme parks, and cruise lines.

Background

Walter Disney moved to California in 1923 to create a cartoon based business called Disney Brothers Studio with his elder brother Roy. They were the perfect combination because Walt was the creative mind and Roy was the logical, financial mind. Together their first hit was “Oswald, the Lucky Rabbit”; however, they lost the rights to the distributor and were left with nothing. Walt took to editing Oswald and the end result was Mickey Mouse. The Steamboat Willie was the first animation that was synchronized with sound and it became a hit overnight. Mickey Mouse began to be licensed to companies to put him on products like pencil tablets. Their business structure was very flat and organic. Everyone was on first name basis with no titles in the corporation.

They began to introduce new characters to use in their cartoon shorts; however, these shorts were not able to solely sustain the business. The brothers realized that full-length animated movies is where the money was at, releasing “Snow White and the Seven Dwarfs” in 1937. It was a hit and to this day is the highest-grossing animated movie of all time.

Disney began to grow and expand with a goal of two films per year. This goal was not attained due to WWII. Disney survived this era by doing government training and educational cartoons to receive a profit. Cinderella was the next animated film released in 1950. Diversification began to take root and they created “Walt Disney Music Company” which controlled Disney’s music copyrights. BY 1965, Disney was releasing an average of 3 films per year and most were live-action films. The next diversification came in 1953, when Disney created Buena Vista Distribution, which eliminated spending 1/3rd of gross revenues to distributors. In 1954, they began expanding in to TV through the popular “Mickey Mouse Club”. The next huge expansion for Disney was building and designing Disneyland. After many millions taken out in loans, the park opened in 1955. The park offered the competitive advantage of appealing to the whole family- kids and adults alike. Disney at first licensed all food and merchandising concessions; however, they quickly bought back the control once enough revenue was generated.

In 1965, Walt had a dream of opening another park in Orlando, FL. He died in 1966 after purchasing over 27,000 acres of land to build the park. Disney was a company that enjoyed having control over every bit of the entertainment experience. Roy took over and opened Walt Disney World in 1971. The company expanded into the resort and hotel business as well as an in=house travel company. In 1976, Tokyo Disneyland was announced and Disney held 10% of the gate receipts and 5% of the sales. Epcot opened in 1982.

During the expansion into building parks, the film business was in the background. Creativity was at a low with the release of multiple sequels rather than new movies. In the late 1970’s, Disney decided to open a new label called Touchstone which catered to the teen and adult market. In 1983, Disney expanded even more into TV by creating “The Disney Channel”. After months of stagnation Roy Disney resigned from the board and many individuals sought to buy Disney. The end result was the rescue by Sid Bass, an oil tycoon, who invested $365 million and reinstated Roy on the board as Vice Chairman.

In 1984, Eisner was named CEO and chairman of Disney and Frank Wells was named the president and COO. Through many connections, many high quality executives came to work for Disney. Eisner made a goal of “maximizing shareholder wealth through an annual revenue growth target and return on stockholder equity exceeding 20%.” A top priority was to rebuild Disney’s TV and movie business. They, in 1986, created “The Disney Sunday Movie” as well as producing Golden Girls, Sikel and Ebert at the Movies, and Live with Regis and Kathie Lee. Next, Touchstone made their first R-rated movie. From here, Disney began to release 15-18 new films per year. Katzenberg began to hire well-known actors who were in a slump or TV actors, moderately budget films, and created a “financial box” which held budgets to a target amount.

Disney also expanded their technology to produce animated films in 12-18 months versus 4-5 years. The creation of Who Framed Roger Rabbit was a huge hit at the box office as well as Disney’s first effort to “cross-promotion” with large increase in merchandise sales. Another Disney expansion was to maximize the land use in Orlando by building a hotel expansion as well as a convention center worth $375 million.

In 1987, a marketing department was created to help with the promotional activities between all of Disney’s business endeavors and how to best maximize marketing to expand profits. There was a 6 month marketing calendar that was created to help reduce fighting over marketing time and to strategically plan marketing for all of Disney’s endeavors.

Disney expanded even more into the consumer products division through the Disney Stores, books, CD soundtracks, high-end collector items, magazines, etc. The Hollywood Records company was founded in 1989, Disney Press in 1990, and Hyperion Books in 1991. In 1992, Disney decided to expand their global business again through the creation of Euro Disney in Paris. Disney had 49% ownership and received 10% ticket sales and 5% merchandise sales. Due to Disney not fully understanding the French culture, Eisner hired a French expert to help them be more cultural sensitive. Disney caved and allowed alcohol to be in the park through wine offered at restaurants. Disney expanded their other parks through hotels, resorts, new attractions that appealed to both kids and parents. 1988-1884 over 1 billion was invested into theme park expansion.

Disney next began