One important element of Disney’s success was the extent to which they integrated and expanded into different business areas, far beyond simple licensing deals and agreements with distributors. Examples of this include: Horizontal Integration: successfully diversified Into different movie genres by acquiring several production companies (helping them reach wider audiences); creation of Disney theme parks (a huge success In terms of profit); music production; book publishing; consumer merchandising (retail outlets); family- oriented cruise packages and venues and educational retreats and more.
Vertical Integration: created Buena Vista Distribution in 1953 (saving one-third of film gross revenues); in-house talent development; creating the Disney channel to increase brand exposure on TV; brought theme park support services, such as a travel agency, in-house (to be in control of more tourist dollars); and acquired TV monolith BBC – a risky downstream move that offered them direct links to their consumers, and advertising revenues.
Geographic Diversification: moved Into the E and Japan with theme parks; international distribution of movies and re-releasing of classic Disney ivies; cruises; Disney-owned venues (ESP. and others) In a wider range of locations; traveling Ice shows, etc. Overall, the International of businesses that were strategy-related has helped them maximize profits, achieve better cost control and continue to be successful. What did Michael Eisner do to rejuvenate Disney? How did he increase net income in his first four years?
In 1984, Eisner took the lead and became CEO. His legacy was the belief that corporate synergy was the key to leveraging the Disney brand and creating value. He decided to diversify Disney’s activities and set an ambitious 20% growth strategy target per year and a return on stockholder equity exceeding 20%. He revalidated Disney’s corporate culture and managed to diversify and create synergies between different business units. Here is what he did: 1) Revitalization TV and movies: Eisner and Wells started to rebuild the TV and movie businesses.
At first, they reshaped the TV business by focusing on a new network show that helped to support the demand they forecasted. Furthermore, Eisner created a syndication operation to sell to Independent TV stations which were not profitable. Eisner and Wells also accelerated the production of movies. They released 2 new movies until 1984, and then increased the production to 15-18 new to 19% in 1988 total U. S box office sales, in a market where 60% of all movies lost money.
Disney also decided to expand its animation staff and to accelerate production by releasing new animated features every 12-18 months, instead of every 4-5 years. Guttenberg, who was in charge of film division, mastered the art of controlling both the cost and the quality of the production. He accepted low-cost scripts performed by well-known TV actors. For instance, the innovative animation- vie Who framed Roger Rabbit? Which $mm invested reached $mm. 2) Maximizing theme park profitability: In 1984, Disney’s theme parks were very popular and profitable.
But, Eisner decided to maximize their profitability through the expansion of their activities and price increases. Average adult admission price at WAD almost doubled from $20 in 1985 to $39 in 1995 (See Exhibit 6). This pricing decision aimed at limiting the number of visitors so that they could also increase their margin per ticket sold and get closer to the “willing to pay’ price level. After a market survey, it became clear that guests felt that they got value for money.
After Eisner invested tens of millions of dollars to update and expand attractions and park facilities, Disney recovered its investment with attendance-building strategies. By creating a range of complementary services and entertainment at the park, customers stayed longer and spent more money. A plan was also put in place to develop Disney’s unused acreage and further maximize the profitability of these assets. One result of the above measures was that attendance at Tokyo Disneyland increased by 50% from 10. Mm in 1983 to 15. Mm in 1991. ) Coordination among businesses: Disney set implemented transfer pricing between divisions so that they loud share company resources, measure cash flows between their business units, optimizing resource allocation and improved interdepartmental coordination. This helped to create value by driving synergies and creating business for different Disney businesses. To improve coordination within the company, Eisner also introduced a company-wide marketing calendar that planned promotional activities, and a monthly meeting of 20 divisional marketing executives.
This kind of cross-department event gave further motivation to create synergies and bolster creativity. 4) Expansion not new businesses, regions and audiences: Well-managed distribution and marketing divisions permitted Disney expanded into new markets aggressively. Their consumer products division launched Disney stores, pioneering the “Retail-as- entertainment” concept. These stores generated twice the sales per square foot of regular retail stores. Disney expanded its products lines into books, magazines and record publishing by creating companies such as Hollywood Records, Disney Press and Hyperfine.
In the theme park division, they managed to adjust for cultural differences to ensure success in Europe and Asia. As mentioned above, they also rated new businesses within their parks to capture more visitor dollars. Furthermore, they successfully sold millions of videos with titles such as ‘Aladdin’ and ‘The Beauty and The Beast’. 3. Has Disney diversified too far in recent years? As of 2011, the Walt Disney Company is the largest media conglomerate in the world in terms of revenue with $40. Mm and a net income of $4. Mm, with 156,000 employees. Disney’s success has come from its acquisitions, mergers and investments, which have provided ever-increasing opportunities for synergies Ducks’, which was an expensive and risky investment that ended up driving reconsidering sales, and inspired a feature film with the same name (and a sequel), featuring music from Queen that was produced by Disney’s Hollywood Record Label. This shows how adept Disney is at creating value through cross-marketing and synergistic opportunities for their complementary product offerings.
Was there a point when Disney seems to have gone too far and stepped out of their area of competitive advantage? Yes, perhaps. There definitely comes a point when a company has diversified too much and over extends themselves. Many naysayer pointed to Disney’s acquisition of BBC as a case in point, and poor performance at BBC made it look as if it could pull down the empire. However, by 2000, due to the success of BBC programming and the cost structure of the TV business in general, it was Abs’s success that pulled Disney’s outlook back up.
It is good that Disney has the leading position in theme parks, but the next strategy might be to focus on what they have now, instead of Just scaling up the business. We also believe that Disney may need to rearrange their financial statement, as a 20% growth is not feasible in the long run. At the time this case study was written, Disney perhaps needed to slow own and focus on further integrating their divisions, concentrate on production and sales, increase the amount of revenue derived from international sales (only 21% of overall sales).
We believe that Eisner lost focus when he started to take decisions influenced by personal motives instead of the sound corporate governance, and lost the trust of important people, such as Guttenberg and Roy Disney (the last nephew of company’s founder); and strategic alliances, for example the one with Paxar in 2004, that made the company lost profit in both the short- and long-term, and finally cost IM his position as the CEO of Disney. In 2005, the new CEO, Robert A. Gear, added value to the brand by acquiring Paxar in 2006, Marvel Entertainment in 2009 and most recently Localism, all moves that are considered strategic to maintaining Disney’s Group leadership in the entertainment and media markets. Plus, Disney’s NIL team, The Mighty Ducks, while earlier profitable, was sold in 2005 when it was no longer seen as a strategy-related marketing and merchandising vehicle. Looking at Disney’s revenue from 2009-2011, we see an increase in net income from $3,mm in 2009 and 4,mm in 2010, to $5,mm in 2011.
