The Walt Disney Company: Its Diversification Strategy in 2012

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STRATEGIC MANAGEMENT ASSIGNMENT

THE WALT DISNEY COMPANY: ITS DIVERSIFICATION STRATEGY IN 2012

KENIA RITKA AYUTIMUR

1606851106

MAGISTER MANAGEMENT

UNIVERSITAS INDONESIA
JAKARTA

2017

1. EXECUTIVE SUMMARY

The Walt Disney Company is one of the largest media and entertainment conglomerates just a step behind AOL Time Warner. The Walt Disney Company operates in several areas of the media and entertainment industry; it is a broadly diversified media that covers five key businesses such as Media Networks, Studio Entertainment, Theme Parks and Resorts, Consumer Products and Interactive Media. The Walt Disney Company show minimal sign of slowing down, it is such dubiousness because in this rough economic time the company still has it hands on everything.  In their ventures of Media Networks, Disney runs both broadcasting and cable networks, includes the ABC Television Network, ESPN, and Disney Channel. Their business on studio entertainment segment produces a wide variety of movies, television animation programs, musical recordings and live stage plays. It also engages in the theatrical, home video and television distribution of Disney’s film and television library along with that Disney also delivers a high-quality interactive entertainment experiences across all current and emerging digital media platforms.

We can say that branding is the reason why Disney is so successful. Their iconic Disney Characters like Mickey Mouse is such a trademark that will never be lost in the pages of time, kids and adults alike will always want to participate in what company has to offer regarding these icons. Disney does their direct retail using The Disney Stores then licenses the characters to consumer manufacturers, retailers, and publishers throughout the world. Even more, they acquired Pixar and Marvel which consistently provides box office record sales and also opening up theme parks and resorts all over the world, in an economic downturn, you would expect them to hold back but Disney just keeps on expanding and people keep on attending. Walt Disney World resort in Florida is the number one park in United States, with over 15.4 million visitors per year. They also generates royalties and management fees from Tokyo Disneyland and Disneyland Paris, they have their own Cruise Line operated out of Port Canaveral Florida and invest on the expansion of a theme park in China.

The company’s revenues increased from $35.5 billion in fiscal 2007 to $40.9 billion in fiscal 2011, and its share price had consistently outperformed the S&P 500 since 2003. As the company entered its fourth quarter of 2012, it was coming off of a record-setting third quarter, but faced several strategic issues. The company had invested nearly $15 billion in capital in its businesses during the past five years, including a 43 percent investment in a $4.5 billion theme park in China, the construction of two new 340-meter ships for its Disney Cruise Line, and the acquisitions of Pixar and Marvel. The company had also funded an aggressive share buyback plan that had placed demands on its cash reserves (Gamble et al., 2013). In addition, not all of the company’s business units were providing sufficient returns on invested capital and some business units competed in challenging industry environments and the management team planned to reevaluate the company’s diversification strategy.

1. ANALYSIS

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. Disney has approximately $1.8 billion shares outstanding and is worth approximately $90 billion. With annual revenue of $41 billion in 2011, the company balances rewarding shareholders through dividends, share buybacks and investing in current operations. According to Jay Rasulo, Disney’s CFO, about 67% of the cash generated is reinvested in current operations (Carillo et al., 2012).

Currently, Disney together with its subsidiaries is a leading diversified international family entertainment and media enterprise. The company’s strategy is based around high quality family entertainment, technological innovations in order to make their entertainment experiences memorable to consumers and expanding internationally. The strength of the family brand industry is not just to be animation based but to incorporate other things like media network, theme parks and resorts, studio entertainment, consumer products, and interactive media. This allows Disney to be more diverse. This is not just a popular brand for kids; it’s for the whole family even the adults. By venturing their business to other segments they have established a strong family brand in the industry. Their touch on expanding internationally manifests in their international expansion efforts that largely directed at exploiting opportunities in emerging markets. They build a global brand that available in 100 countries then expanding their theme parks around the globe.

Disney has a decent long-term attractive business portfolio because how diverse it is. Disney is so diverse that each and every segment of the company’s businesses is attractive, and they create quite a bit of revenue. We can see that Disney has proven its success and stability through the company's intense diversification strategy and they continue this acquisition process in both current and new markets, dynamic industry like entertainment requires change management strategies (Gamble et al., 20113) and business models that are consumer-centric. The company’s competitive strengths of its different business unit are shown in their incredibly strong competitive advantage of other companies in the same market. Disney’s strengths consist of strong product portfolio, brand reputation, competency in acquisitions, and diversified business.

Disney’s ability to integrate the different business units is one important key strength to dominate the industry, their ability to acquire technologically advanced companies and companies that complement Disney’s weakness in each individual unit and industry is also becoming their strength. The Walt Disney Company’s portfolio exhibit good strategic fit, strategically. Disney has such an influence in entertainment industry that they are able to advertise all their business segments. Even though interactive media is such a loss compared to the other ventures, Disney can still prove that it is a good thought process. Another one they seem to be doing about average in is their consumer products but then seeing that their leverage in branding is at an all-time high and their consumer goods mostly are about their trademark Characters and it has been so goodly branded, it does not even matter. Financially speaking from the given data in the year of 2011, The Walt Disney Company’s financial and operating performance did significantly better compared to 2010. The company increased its net income by $1 million and working capital increased by $400 thousand. The company even lowered their debt-to-equity and they decreased their inventory turnover, so overall the company did pretty well compared to the previous year.