Walt Disney: building options for Mickey Mouse
The Walt Disney Company
Founded by Walt and his brother Roy, the Walt Disney Company first made its name with brilliant and innovatory animated cartoons in the early 1920s and 1930s. In addition to characters such as Mickey and Minnie Mouse there were famous cartoons such as Snow White and the Seven Dwarfs , Fantasia and Bambi . The first theme park using such characters was opened in California in 1952. Subsequently, the com – pany branched out into other types of filmed entertainment and into the ownership of one of America’s major television broadcasters – the ABC television network. By the year 2005, the company was the second-largest media conglomerate in the world. Its interests included 70 radio stations, several cable TV channels such as ESPN (80 per cent owned), A&E television (38 per cent owned), Walt Disney Pictures, Touchstone, Miramax and Pixar. It also operated Walt Disney Parks and Resorts in the USA, in Japan (under licence), in Europe (majority share) and also in a new resort in Hong Kong. A new Disney resort will open in Shanghai, PRC, around the end of 2015. The company also owned an important and valuable range of brands, particularly those like Mickey Mouse and Winnie the Pooh, which were linked with children. The company used these to develop merchandise sold in its theme parks, Disney Shops and other direct marketing business activities. The main elements of its sales and profits are shown in Figure 8.2 . The figure also shows how these have changed over the three years 2011 to 2013: for example, the interactive business was growing in terms of sales but still making losses.
Need for profitable growth
For many years, the Walt Disney Company had been able to deliver consistent and profitable growth to its shareholders. However, in recent years, various problems arose and profits began to stagnate. Its media networks suffered from competition from all the other major television stations in the USA and its income from advertising declined, although there was a major recovery here in 2004. Its parks and resorts were hit by various problems – the Florida parks were hit by several hurricanes in 2004, resulting not so much in damage but people staying away; its European theme park had rarely made any profits since its launch in 1992: it was too far north for year-round sun and also competed with the company’s own parks in Florida; the Japanese theme park was profitable, but Disney was only a minority shareholder; the new Hong Kong park was still in its early stages.
However, Disney had successfully begun a new venture – family cruise ships to a Caribbean holiday location – as part of a holiday resort complex. Probably the biggest turn around in 2004 was in filmed entertainment: the company had major successes in 2003 with Finding Nemo (co-production with Pixar) and Pirates of the Caribbean . But 2004 included the film The Alamo , which cost $100 million and was unsuccessful at the box office. The branded consumer products increased steadily but would never be the major part of the business. The following years produced major profitable growth. The principal area was in its media networks, not just ABC television but also its dedicated sports channels, including ESPN. In addition, it produced a succession of quality films – called ‘studio entertainment’ in the company – including more Pirates of the Caribbean and the highly profitable High School Musical . Figure 8.2 also shows how sales and profits developed over 2011–2013.
New growth at Disney: what resources and what options?
Having survived a takeover attempt by a rival American media company – Comcast – in 2004, the Walt Disney Company had delivered new growth over the following years. It had been hampered by a considerable disagreement over strategy between some of the shareholders led by Roy E. Disney, son of one of the company’s founders. He was in dispute with the company’s dominant chief executive, Michael Eisner. Eisner had been with the company for 20 years and had been behind many of its recent major strategic moves. But Eisner had fallen out with some major shareholders who felt that he had become an obstacle to growth and did not recognise some of the major strengths of the Disney Company. For example, it was Eisner who decided that the remaining highly skilled studio animators should be asked to leave. He was criticised by Roy Disney, who commented: ‘It is not cost-effective to fire a lot of talented artists and make mediocre movies. The safe decision is always the most dangerous one.’ Disney even set up a website to fight the company’s management – www.SaveDisney. com . The outcome of this was that Eisner was stripped of his Disney chairmanship in 2004 and he finally left the company in September 2005. The competitive resources of the Disney company were formidable: its library of filmed material, its branded characters, its ownership of the method of delivering media, its theme parks and its experience in studio entertainment. It was particularly strong in family entertainment, with the Disney brand itself being particularly powerful in this area. For several years, it had also combined with the animation company Pixar to distribute its films – Finding Nemo , etc. – and eventually acquired Pixar in 2007. In spite of producing substantial growth over the years, Disney was under pressure to continue the good performance. It needed new strategies. Disney’s future strategic options included the following:
• Further development of its theme parks . It was negotiating a possible site in Shanghai, China. The problem with theme parks is that they are capital-intensive and take a lengthy period to develop: for example, the Hong Kong park on Lantau Island was first agreed in 1999.
• Media network development . This would be difficult in the saturated US market, but the company was looking to the increasingly fragmented European market, especially the UK.
• Studio filmed entertainment . This was essentially a risky business. There are good payoffs if the judgement is right but a strong downside if the film is unsuccessful.
Options in 2013
Arguably, Disney could also look more broadly at its strategic options. The company is already using its considerable resource-based advantages wisely. It has used recent acquisitions to enhance its media content portfolio paying $15 billion to acquire Pixar (above) and subsequently Marvel Comics (Spider-Man, X Men) and Lucas Films (Star Wars). Content strategy remains crucial to competitive advantage in global media. Disney has spent wisely but needs to continue exploiting its new brands.
1 What are the competitive advantages of the Disney group? Which, if any, are sustainable over time?
2 Using concepts from this chapter, what are the options available to Disney over the next five years?
3 Can companies in the media and travel industries, like television stations and theme parks, gain and retain competitive advantage simply by offering new products? Or do they need to rethink other aspects of their strategy? If so, which aspe
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