2. The Walt Disney Company HBS 9-701-035
Submitted by: Taposh Dutta Roy | (Word Count 469)
What did Michael Eisner do to rejuvenate Disney? Specifically, how did he increase net income
in his first four years?
Michael Eisner joined Disney in 1984. At that time Disney’s financial performance had degraded. Disney
was on the verge of being sold and was saved by Oil Tycoon, Sid Bass. Bass group, nominated Eisner as
the Disney Chairman and Chief Operating Officer. Eisner came from Paramount pictures where he was
the president and chief operating officer.
When Eisner joined, Disney was publicly traded with a stock price of around $1.40 (Exhibit 1).
Disney had a very well known brand with children as its target market segment. Thus all products
including movies, made were targeting kids. In 1984, its share at Box-Office had fallen to 4%, lowest
amongst major studios. Disney had received international presence in terms of its movies; there were
no theme parks or stores run by them internationally. Exhibit 2 shows the analysis of five elements of
strategy prior to Eisner.
After Michael Eisner joined, he made several changes to rejuvenate Disney. He recognized the
movie projects the teams were working on at that time, were not going to make the revenue they
needed and thus were not worth making. He added a new market segment to Disney Movies targeting
adults. He moved quickly to prime time TV and produced TV serials such as Golden Girls for NBC
focusing adults. He ventured into the retail business and opened the first Disney store (1987) and
planned to start Disney theme park internationally. Exhibit 3 shows the strategy analysis of the first four
years after Eisner joined. Here is a chronology of things he did.
3. The Walt Disney Company HBS 9-701-035
Submitted by: Taposh Dutta Roy | (Word Count 469)
1984 Planned for creating movies for adults by creating Touchstone studios
1985 Produced a TV serial for NBC
1986 Began to syndicate TV programs
1987 First Disney stores open
1987 Started Night club – Pleasure Island
1987 Purchased a TV Station
In 1984 Disney’s net income was 98 million, while in 1988 (four years after Eisner joined) was 522
million. The total revenue 1984 was 1656 million while in 1988 was 3438 million. Eisner increased the
revenue by diversifying into new target segment of adults, prime time TV, retail and international. He
kept the operating expense to a low level and created new brands such as Touchstone Studios.
Thus, Eisner followed diversification as a strategy for Disney. Analyzing this strategy using Porter’s Value
creation “essential tests”, we find all three work well for Disney.
1. The attractiveness test – Eisner’s new ventures (Movies for Adults, Retail store, TV
station purchase) were attractive for Disney.
2. The cost of entry test – The cost of entry for these businesses did not capitalize future
profits of Disney
3. The better of test – These new units were making Disney better of.
Thus, Eisner used economies of scope to create Synergy, make Disney profitable. The net income
increased by a factor of five (table below). The value for share-holder increased (Exhibit 4) increased
immensely.
4. The Walt Disney Company HBS 9-701-035
Submitted by: Taposh Dutta Roy | (Word Count 469)
1984 1985 1986 1987 1988
Total Revenue 1656 1701 2166 2877 3438
Total Operating
Income
242 345 528 777 885
Operating Margin 14% 11% 17% 21% 25%
Net Income 98 174 247 445 522
0
500
1000
1500
2000
2500
3000
3500
4000
1983 1984 1985 1986 1987 1988 1989
$inmillions
Year
Total Revenue
Total Operating Income
Expenses
OperatingMargin
Net Income
5. The Walt Disney Company HBS 9-701-035
Submitted by: Taposh Dutta Roy | (Word Count 469)
Appendix
Exhibit 1
Exhibit 2:
6. The Walt Disney Company HBS 9-701-035
Submitted by: Taposh Dutta Roy | (Word Count 469)
Exhibit 3
Exhibit 4
