The Walt Disney Company HBS 9-701-035Analysis by: Taposh Dutta RoyWhat did Michael Eisner do to rejuvenate Disney? Specifically, how did he increase net incomein his first four years?Michael Eisner joined Disney in 1984. At that time Disney’s financial performance had degraded. Disneywas on the verge of being sold and was saved by Oil Tycoon, Sid Bass. Bass group, nominated Eisner asthe Disney Chairman and Chief Operating Officer. Eisner came from Paramount pictures where he wasthe 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 productsincluding movies, made were targeting kids. In 1984, its share at Box-Office had fallen to 4%, lowestamongst major studios. Disney had received international presence in terms of its movies; there wereno theme parks or stores run by them internationally. Exhibit 2 shows the analysis of five elements ofstrategy prior to Eisner.After Michael Eisner joined, he made several changes to rejuvenate Disney. He recognized themovie projects the teams were working on at that time, were not going to make the revenue theyneeded and thus were not worth making. He added a new market segment to Disney Movies targetingadults. He moved quickly to prime time TV and produced TV serials such as Golden Girls for NBCfocusing adults. He ventured into the retail business and opened the first Disney store (1987) andplanned to start Disney theme park internationally. Exhibit 3 shows the strategy analysis of the first fouryears after Eisner joined. Here is a chronology of things he did.
The Walt Disney Company HBS 9-701-035Analysis by: Taposh Dutta Roy1984 Planned for creating movies for adults by creating Touchstone studios1985 Produced a TV serial for NBC1986 Began to syndicate TV programs1987 First Disney stores open1987 Started Night club – Pleasure Island1987 Purchased a TV StationIn 1984 Disney’s net income was 98 million, while in 1988 (four years after Eisner joined) was 522million. The total revenue 1984 was 1656 million while in 1988 was 3438 million. Eisner increased therevenue by diversifying into new target segment of adults, prime time TV, retail and international. Hekept 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 Valuecreation “essential tests”, we find all three work well for Disney.1. The attractiveness test – Eisner’s new ventures (Movies for Adults, Retail store, TVstation purchase) were attractive for Disney.2. The cost of entry test – The cost of entry for these businesses did not capitalize futureprofits of Disney3. 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 incomeincreased by a factor of five (table below). The value for share-holder increased (Exhibit 4) increasedimmensely.
The Walt Disney Company HBS 9-701-035Analysis by: Taposh Dutta Roy1984 1985 1986 1987 1988Total Revenue 1656 1701 2166 2877 3438Total OperatingIncome242 345 528 777 885Operating Margin 14% 11% 17% 21% 25%Net Income 98 174 247 445 522050010001500200025003000350040001983 1984 1985 1986 1987 1988 1989$inmillionsYearTotal RevenueTotal Operating IncomeExpensesOperatingMarginNet Income
The Walt Disney Company HBS 9-701-035Analysis by: Taposh Dutta RoyAppendixExhibit 1Exhibit 2:
The Walt Disney Company HBS 9-701-035Analysis by: Taposh Dutta RoyExhibit 3Exhibit 4