Strategy Disney

The Walt Disney Company: The Entertainment King Case Analysis

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ANKITA LAL ROLL NO: 5 PGDM-IB

ANSWER 1 The Walt Disney Company Key Recent Developments Apr 13, 2010 Walt Disney Signature and Cappellini unveils limited edition chairs Feb 03, 2010 Pollo Campero, Levy Campero To Open First Combined Restaurant At Downtown Disney Marketplace Jan 15, 2010 Sue Wong launches Disney's 'Alice in Wonderland' dress collection Dec 23, 2009 Disney, Chase Unveil Disney Rewards Visa Debit Card Nov 11, 2009 Disney Store to open a new outlet in Culver City ANSWER 2 COMPETITIVELY VALUABLE RESOURCES Walt Disney handles a lot of resources in its businesses, but we can consider that there is one main critical resource that it tries to leverage: creativity, and in a way, all the resources that are linked to it (intellectual property for instance). Actually, over the years, Walt Disney adopted different strategies, diversified its activity, always trying to manage creativity in the best way. Under Einer, creativity was handled through the brain-storming meetings, and when they were reduced or became useless, they were regretted. Furthermore, the only way to survive for the company was to keep being creative, which is why it had hard times when creativity was not sufficient or handled correctly. Diversification is also a way to expand creativity to many fields keeping the Walt Disney spirit and culture. Superior performance is based on developing a competitively distinct set of resources and deploying them in a well-conceived strategy. A valuable resource must contribute to the production of something customers want at a price they are willing to pay. There are 5 tests to see if a resource is competitively valuable or not: 1. Test of inimitability: Disney’s resources are hard to compete with. All its products are hard to imitate. The movies, the associated products, the characters and plus the digital effects are so unique. Inimitability doesn’t last forever. Competitors eventually find ways to copy most valuable resources. The resources should have atleast one of the following characteristics: a. Physical uniqueness b. Path dependency c. Causal ambiguity d. Economic deterrence Disney’s products have all these at high levels which gives it great competitive advantage.

2. Test of durability: how quickly does this resource depreciate? The longer lasting a resource is, the more valuable it will be. Disney’s brand name survived almost two decades of benign neglect between Walt Disney’s death and the installation of Michael D. Eisner and his management team. 3. Test of appropriability: who captures the value that the resource creates? Not all profits from a resource flow to the company that owns the resources. The value is always subject to bargaining among host of players, including customers, distributors, suppliers and employees. 4. Test of substitutability: threat of substitution is very low for Disney’s resources. Their products are one of a kind and they have been going on for generations. People love Disney and its products. And its customers also vary across all generations and all over the world. 5. Test of competitive superiority: whose resources are actually better? Disney’s resources are superior that its competitors. In fact, Disney’s competitors are so small that they don’t hold much competitive advantage in the market giving it all to Disney. ANSWER 3 CORE COMPETENCIES Walt Disney’s original core competence was cartoons and animated movies. By combining engineering with imagination Disney’s company reached success with the creation of the first full length animated movie. This success led to new ideas and one of them was to open a different kind of park. In Disneyland Walt used new technology to bring his characters to life. Together with unique storytelling and high quality of service Walt Disney created a magical environment for his guests which none of the competitors could quite duplicate. It became Walt Disney’s core competency. This competency is driven by superior Disney products and most of all by cast members and their renowned guest service. As the company developed, many new lines of businesses have been added such as retail, media, and sports. The danger has been to over extend and lose track of what the company does best. In order to stay competitive the company had to realign and shifted attention from retail to those which are the cornerstone of the company – intellectual property. To reinforce its animation business Disney purchased Pixar in 2006 Animation is the foundation upon which the Company was built and for years was a core competency. However, in recent years Disney placed less emphasis on animation and, as such; the Company was not at the forefront of the digital revolution and did not produce many animation movie hits. Another special strength of the company is diversification.

ANSWER 4 DISNEY’S STRATEGY: 

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The Disney and ABC merger was an extremely important development. Although many felt that it would not prove advantageous for these companies to do this, Eisner has been able to prove them wrong. By far the majority of mergers fail due to conflicts in corporate fit, conflicting management styles, and lack of a sound strategy. It seemed as though they would follow the path of AOL-Time Warner, however, Eisner’s models to develop the companies into a single machine through things such as his synergy boot camp was brilliant. Developing a total quality management process was important in furthering Disney. The management had groups of 8 people or less. Having smaller groups such as this gave upper management a greater ability to produce ideas and provide a reasonable amount of supporting evidence to conclude their ideas relative weighting in comparison to others in the think group. Concentrating on animated films increased Disney’s ability to increase potential markets. By creating these animated films they quickly developed them, translated them into every targeted language necessary, marketed them in a similar fashion, and saturated all potential markets with ease.This greatly reduce the costs of making different films for each area. Disney was based on a creative intelligence that many of their competitors lacked. Disney’s target market was the entire family, including grandparents, parents, and children. Disney marketed to children through different types of media such as advertising a new film/product platform in a current film’s video game is inexpensive and extremely effective. Seeking greater growth is not necessarily the best measure for Disney.

STRATEGIC INFLECTION POINTS 1919: With Ub Iwerks, Disney forms Iwerks-Disney Commercial Artists. 1923: The distributor M.J. Winkler purchases Disney's Alice Comedies for $1,500 per reel; Disney creates Disney Bros. Studios with his brother Roy. 1924: M.J. Winkler Productions debuts the Alice Comedy Series, with the film Alice's Day at Sea, in theaters. 1928: Mickey Mouse is "born"; Disney releases Steamboat Willie, its first film with sound. 1937: Snow White and the Seven Dwarfs, Disney's first full-length animated film, debuts. 1940: Pinocchio and Fantasia are released. 1955: The Mickey Mouse Club debuts; Disneyland opens in Anaheim, California. 1966: Walt Disney dies of lung cancer. 1971: Walt Disney World opens near Orlando, Florida; Roy O. Disney dies. 1982: EPCOT Center opens on the grounds of Walt Disney World.

1983: The first foreign Disneyland, Tokyo Disneyland, opens. 1984: Michael Eisner is named Disney's new CEO; Disney releases Splash under its new label, Touchstone Pictures. 1989: Disney-MGM Studios Theme Park opens near Orlando, Florida. 1992: Euro Disney (later named Disneyland Paris) opens. 1996: Disney acquires television station Capital Cities/ABC for $19 billion; Radio Disney debuts. 1998: Animal Kingdom opens in Walt Disney World, Florida. 1999: Disney Cruise Line begins operations with the Disney Magic. 2001: Disney's California Adventure opens next to Disneyland; Disney acquires Fox Family Worldwide for $5.3 billion. 2003: Roy E. Disney--son of Roy O. Disney, last of the founding family associated with the company--and Stanley Gold quit the Disney board and start Save Disney.com in an attempt to oust CEO Michael Eisner. ANSWER 6 VERTICAL SCOPE Walt Disney Company is a vertically integrated, company. Its major initiatives involve the Internet and TV. It processes its own movies. Disney saw Internet as the distribution channel for its film library. In TV, ABC developed more of its own content like movie studio. it produces its own movies, distributes them itself to cinemas and through its own TV networks (ABC and Disney Channel), and uses the movies’ characters to in its retail stores and theme parks. Major initiatives were of course the acquisitions of broadcast and cable television operations. Disney also early on realized the potential of the Internet as a further distribution channel for its brands and its theatrical and television content libraries. Disney's distribution status with regard to the Internet still represents its main weakness in its strategy towards digital convergence. GEOGRAPHIC SCOPE The company sought to generate greater international sales, especially in Europe and Japan. It planned to better integrate its overseas operations. In past each division had opened its own foreign office. Disney decided to consolidate its foreign offices under regional executives i.e. including CEO and brand manager. The reason behind it is save money by renting shared office space and coordinating advertising. But major reason was to create more synergy through cross promotion.

BACKWARD INTEGRATION Disney is currently in the works to merge with Pixar. Pixar makes pictures for Disney with some of their collaboration. By this merger, Disney can market the merchandise from Pixar films and have more creative control. Also Pixar does much of the animation for Disney films. If Disney has the innovative people from Pixar on their team, they save a step in their supply chain, so to speak.

ANSWER 7 DIVERSIFICATION The Walt Disney Company can be seen as a highly diversified company. Over the years, it has pursued a wide range of diversification strategies that can be seen Walt Disney has invaded several markets, diversifying its offer to many fields. In 2000, there were five big main fields of action where Walt Disney operates:  Media Network  Studio Entertainment  Theme parks and resort  Consumer products  Internet and direct marketing. Moreover, each of these categories is itself divided in other categories characterized by the horizontal diversification strategy. For instance, the media network category can be broken into two: broadcasting and cable network. • In a way, Walt Disney favored vertical integration: for instance, many of its products (books, magazines, VHS, audio and computer software, etc) were sold in stores simultaneously owned by Disney. The acquisition of ABC can also be considered as an expression of this strategy of vertical integration, to the extent that it was a way for Walt Disney to diffuse some of its programs on its own. • In 1954, Walt Disney started pursuing a strategy of financial economies: the ABC-produced television program Disneyland was actually destined to generate financing and stimulate public interest. The creation of the first park in 1955 pursued the same strategy. At the same time, the efforts made to maximize theme park profitability were the result of a revenue enhancement strategy by coordinating the businesses in order to increase to willingness to pay of the consumers. The retail-as-entertainment concept is coherent with this strategy. The calendar of promotional activities of the next six months, introduced in 1987, responded to this strategy too through the concept of cross promotion” .

The different strategies presented were used several times over the years, for different purposes. The main point is that Walt Disney relied on many logics of diversification to implement the introduction of new products on the market, and to diversify its activity, that is why its activity seemed to be so flourishing and so wide.

.ANSWER 8 CHALLENGES 1. TOO MUCH OUTSOURCING Today everything in Walt Disney World is outsourced, meaning Disney has an outside vendor/company do the things Disney used to do. When we look at everything that is outsourced, we find it shocking at where things have gone and also wonder what Disney actually does in house anymore. 2. HIGH PRICES At the end of the day, Disney World is a business and has to make profit. it seems that the prices for nearly everything at Walt Disney World over the last 5-10 years have grown to become out of touch for what they ought to be. Because of the "Disney Difference" and consumers are willing to pay a premium for it over competitors, but the premium Disney has put on its tickets, resorts, merchandise, restaurants and more is now bizarre. 3. HOMOGENIZATION OF MERCHANDISE Consumers tend to buy Disney stuff when they see it at Disney World and other places. Resorts had unique merchandise for each resort and the parks and attractions had their own brand of merchandise that you could only get there. All these different options gives a good reason to buy Disney World merchandise because among all the various items, we'd find something that struck a chord with us. Today, that's all but gone. Now, merchandise at Walt Disney World also doubles as merchandise in Disneyland (check the tags, they say Disney World and Disneyland) and the amount of unique merchandise items is way down. Now we can find Pirates of the Caribbean or Nightmare Before Christmas merchandise everywhere (like in Hollywood Studios) and when we find the same stuff everywhere, there's less incentive to warrant spending the money on the items. RECOMMENDATIONS The following are the recommendations by which Walt Disney would be benefited in terms of increased Market share, Higher Revenues and Profits and improved Goodwill.  Walt Disney should cater the needs of people belonging to different social classes, subcultures and age groups. This follows the consumer behavior and targeting strategy.  Walt Disney should position the expanded line of products using the lifestyle positioning method by conduction research to know the activities, interest and opinions of the

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targeted consumers and then by using the perceptual mapping software, positioning the products appropriately. After positioning, Walt Disney should price the expanded line of their products correctly. Prices should be set in a way that caters the needs of all the social classes. This means that it should be affordable for all lower and middle class as well as upper class When it comes to delivering the produced products and services to consumers, the channel distribution strategy is very important. Therefore, Disney should have its own distribution channel by opening its own specialty stores and providing logistics to its end users. This is in terms of the channel strategy. Rerelease past Disney classics to DVD as special editions or with new special features. Boos customer service in the parks as a way of besting competition without increasing expenses.