Diversification at Disney Case Study Essay
read the following excerpt and watch the following video then answer this question on the PowerPoint file attached. Make sure that the answer you provide relates to the excerpt and video provided below.
What are the pros and cons for Disney of operating television and cable networks? (such as ABC, ESPN, Disney Channel)
I am only responsible for this single question on the PowerPoint so disregard the other slides
Diversification at Disney In his 2014 annual statement, Robert Iger, chairman and chief executive officer of the Walt Disney Company, took pleasure in announcing that the company had, for the third year running, surpassed its previous performance records and that its share price was hovering at an all‐time high.46 In recent years, the company has had a stream of hit movies including Tangled, Frozen, The Avengers and its acquisition of Lucasfilm in 2012 had added further creative momentum with fans eagerly awaiting the release of a new Star Wars movie that was scheduled for 2015. Success in the movie business was having positive spin‐off effects for Disney consumer products and theme parks and its new TV channel, Disney Junior, and games platform, Disney Infinity, were also riding high. This was quite an achievement for the leader of such a large and complex organization, particularly given that Disney had been a troubled company when Iger took over from his predecessor, Michael Eisner, in 2006. The background to the Walt Disney Company the Walt Disney Company, founded by Walt and Roy Disney, started life as The Disney Brothers Cartoon Studio producing the cartoon series which brought the world such memorable characters as Mickey Mouse and Donald Duck. Having achieved success with short films, the Disney Studio quickly moved into the production of feature‐length animated films, including Snow White and the Seven Dwarves, Pinocchio and Fantasia. The brothers were introduced early in the company’s existence to opportunities for diversification when a businessman, who wanted to use the image of Mickey Mouse to promote sales of a drawing tablet for children, approached them.
The establishment of the Mickey Mouse Club for fans soon after this encounter suggests that the Disney brothers recognized immediately the potential for selling toys, books and other products linked to their animated characters. Over time, Disney added more and more businesses to its portfolio and by 2014 had transformed itself into a multinational media and entertainment company, ranked in Fortune magazine’s top 50 companies. The scope of the firm’s business activities in 2014 The Walt Disney Company grouped its activities into five main areas: Media Networks, Parks and Resorts, Studio Entertainment, Consumer Products and Interactive Media, but beneath these five titles lay a multiplicity of different business activities.
- Media Networks: Disney’s Media Network segment comprised the US television and radio stations, international cable networks and distribution and publishing operations through which it distributed its media content to households. Having access to distribution channels was (and remains) a key success factor in the media industry because the high fixed costs of making films and television programmes mean that profitability depends on gaining as broad an audience as possible. If a company controls both content and distribution, it can promote its own content and shape how and when its content is broadcast.
As the media industry became more concentrated with large conglomerates like Time Warner and Bertelsmann dominating scheduling, the position of independent content providers became more precarious. In 1995, Disney acquired the TV and radio broadcasting company Capital Cities/ABC for the sum of $19 billion. Disney paid a lot to acquire the company but the deal was of particular strategic importance because it secured Disney’s access to media channels for its creative content.
- Parks and Resorts: Amongst the first areas of business developed by Disney outside its animation and merchandising base were theme parks. The company opened Disneyland in California in 1955 and went on to establish the Walt Disney World Resort in Orlando, Florida in 1971. Disneyland resorts were subsequently developed in Tokyo (Japan in 1983), Paris (France in 1993), Hong Kong (in 2005) and most recently Shanghai (China, currently under construction). The theme parks were a natural extension of Disney’s core business because the themes and characters that appeared in its films provided the basis for the rides and fantasy settings. A virtuous circle was created whereby the films promoted the parks and the parks promoted the films. Over time, the development of the theme parks took Disney into a new area. Visitors to the theme parks needed accommodation so Disney built and ran hotels; Disney became skilful in managing travel arrangements and the tourist experience and subsequently founded the Disney Vacation Club and the Disney Cruise Line. Disney also planned and built retail, entertainment and dining complexes, which led to the establishment of the Disney Development Company.
- Studio Entertainment: At the heart of the Disney operation lay its creative content. The early success of the company was based on its animated cartoons and the characters who populated them, but as audiences’ tastes changed so Disney needed to move with the times by acquiring new content and embracing new animation technologies. To that end, in 2006, it acquired Pixar, a computer animation studio best known for films such as Toy Story and Finding Nemo. It purchased Marvel Entertainment, the owner of comic book characters such as Spider Man and the Hulk, in 2009, and, in 2012, bought Lucasfilm, the production company behind the Star Wars movies. In addition, Disney acquired the rights to other film, direct‐to‐video, musical and theatrical content.
- Consumer Products: the consumer products division was the vehicle that Disney used to exploit its intellectual property by awarding licences to third parties to produce and sell merchandise based on its characters; publishing children’s book, magazines and learning devices; and operating both physical and online Disney Stores. Its stores were generally located in shopping malls or retail complexes; by 2014, Disney owned and operated 214 stores in the US, 88 in Europe and 46 in Japan.
- Interactive Media: this division focused on developing console, mobile, social and virtual world games that were marketed on a worldwide basis. While most of the game development activity took place in‐house, Disney also licensed some third‐party developers to develop games based on Disney material. From small beginnings the division grew relatively rapidly.
What drives success? Unlike many other large conglomerates, Disney has, in recent years, been able to maintain momentum and improve its performance in all its major segments, raising the question of what drives success. Iger has suggested that there are three main elements underlying Disney’s performance. First, he argues that, under his leadership, the company has made the production of high‐quality, family‐orientated content its priority with the ongoing development of creative content driving all parts of the business.
Much of the creative impetus has come from acquiring companies but, once acquired, Disney has allowed these businesses to operate quasi‐autonomously and has encouraged innovation. Second, he suggests that Disney is future‐orientated and has succeeded by making its content more accessible and engaging through the use of digital technology. The company has been willing to learn from its mistakes, for example restructuring its interactive division and moving away from console games when this segment failed to make money. Finally, he places emphasis on building a portfolio of brands. Disney’s continuing success depends on its ability to consistently create and distribute films, broadcast and cable programmes, online material, electronic games, theme park attractions, hotel and other resort facilities, travel experiences and consumer products that meet the changing preferences of a wide range of consumers, a growing number of whom are located outside the US.
The linkages between businesses mean that success or failure in one part of the business can affect other parts. For example, if entertainment offerings like Who Wants to be a Millionaire or High School Musical cease to be popular with audiences then revenue from advertising, which is based in part on programme ratings, falls and so does revenue from merchandising. In the worst‐case scenario if the firm experiences successive content failures then viewers might cancel their subscriptions to cable channels or reduce their visits to entertainment parks where the themed rides are seen as passé.
Disney has had its fair share of flops as well as hits, for example the Lone Ranger and John Carter failed to make it at the box office. At the same time, changes in technology and different delivery formats such as television, DVDs, computer and Web‐based formats are affecting not only the demand for the company’s entertainment products but also the cost of producing and distributing them.
Disney faces a fundamental tension, namely in expanding to exploit the benefits of scale and scope present in its business activities, the size and complexity of its organization increases and makes it more difficult for the company to be agile and innovative. The challenge for Iger remains that of maintaining creative impetus while putting in place the structures and systems necessary to manage such a large and complex organization.