James Ambrose Courtney E. Hamm Brandy O’Neal Joseph Rendon MGMT 428-Summer 1 Case Presentation Chart re: The Walt Disney Company: The Entertainment King HBS Case #2Introduction The Walt Disney Company has truly been “the entertainment king” in the 83years since its founding. This is largely due to the vision of Walt Disney, as well as thestrategic management skills of Michael Eisner. The work of these two men, as well ascountless others at The Walt Disney Company has created an innovative business modelwith universal appeal.A History of Disney The Disney Brothers Cartoon Studio was founded in California in 1923 by Waltand Roy Disney. The brothers had a contract to produce “Alice Comedy” films about alive girl in an animated world. Over the next four years, around 55 films are produced inthe series. In 1927, The Disney Studio began indirect production for Universal Pictures’films “Oswald the Lucky Rabbit.” The brothers produced 26 films in their first year. In1928, Universal took the contract from the Disney Studio, and Walt Disney createdMickey Mouse by widening Oswald’s ears and changing his clothes slightly. Mickey’sfilm debut was also in 1928 in the film “Steamboat Willie.” 1937 saw the release of Disney’s first feature-length animated film, Snow Whiteand the Seven Dwarfs. In 1940 the company made its initial public stock offering, andten years later, Treasure Island, Disney’s first entirely live-action film was released.Walt Disney himself also appeared on television for the first time in 1950. In 1955, WaltDisney realized his dream for a family-based theme park with the opening of Disneylandin Anaheim, California. Eleven years later, Walt Disney died of lung cancer, and his
James Ambrose Courtney E. Hamm Brandy O’Neal Joseph Rendon MGMT 428-Summer 1brother Roy became the new chairman of The Walt Disney Company. The companyopened its second theme park, Walt Disney World, in Orlando, Florida in 1971. Walt Disney World’s EPCOT Center was opened in 1982, with a central globebased on the Unisphere from the 1964 World’s Fair in New York City. EPCOT featurespavilions representing eight countries. Disney expanded its international focus with theopening of Tokyo Disneyland in 1983. Tokyo Disneyland was designed by the creatorsof Walt Disney World and features a similar look and many of the same attractions. Ashift in the company occurred with the board of directors unanimous decision to electMichael Eisner as chairman and chief executive officer and Frank Wells as president andchief operating officer in 1984. Roy Edward Disney, son of Roy Disney became head ofthe animation division.The Reason for Disney’s Success The Walt Disney Company’s success up until the selection of Michael Eisner wasdue to Disney’s ability to create unique characters with universal appeal and then trulybring those characters to life. In addition to Mickey Mouse, the company created suchwell-known characters as Minnie Mouse, Goofy, and Donald Duck. The company’sfamily appeal has also had a large influence on its success. The theme parks and retailstores are based on the popularity of the original animations. In addition to thecompany’s success with consumers, its films have also received critical acclaim, winningsix academy awards. Walt Disney’s vision still influences the company’s strategies, andcauses it to continuously search out creative new ideas.
James Ambrose Courtney E. Hamm Brandy O’Neal Joseph Rendon MGMT 428-Summer 1The Michael Eisner Years The Walt Disney Company saw many changes under the command of MichaelEisner. Disney made a large entrance into the retail market in 1987 with the opening ofthe first Disney Store. In 1988, Disney-owned Touchstone Pictures released the firstlive-action and animated feature film. Who Framed Roger Rabbit cost over $80 millionto create and market and received four of Disney’s six Academy Awards. Anotheraddition to Walt Disney World, Disney-MGM Studios Theme Park, opened in 1989further increasing the pull of the Orlando Park. After this success and the overwhelmingpopularity of Tokyo Disneyland, The Walt Disney Company decided to open The EuroDisney Resort and Euro Disneyland in Marne-la Vallée, France. In 1992, Beauty and the Beast became the first animated picture nominated forbest picture, a major milestone in the animation industry. The death of CEO Frank Wellsin 1994 created a void in the company, and Eisner took over many of Wells’ duties,distributing very few among other members of top management. In 1995, Disneypurchased the ABC TV network for $19 billion, making it one of the largest players inthe television and radio industry. In 1998, Disney further expanded its reach bylaunching its first cruise ship, the Disney Magic. A further expansion to Walt DisneyWorld was the opening of Animal Kingdom, also in 1998.Key Issues in the Case The case covers four key issues other than the management of Michael Eisner.These issues are the revitalization of TV and movies, expanding into new businesses,
James Ambrose Courtney E. Hamm Brandy O’Neal Joseph Rendon MGMT 428-Summer 1regions, and audiences, maximizing theme park profitability, and coordination amongbusinesses.Revitalization of TV and Movies After the creation of the Disney Channel, Disney stopped production of networktelevision shows. Michael Eisner decided to renew their quality network programming.In 1986, the Disney Sunday Night Movie premiered on ABC. Disney also createdindependent shows such as the Golden Girls, Regis and Kathy Lee, and later, Who Wantsto be a Millionaire. A syndication operation was begun to sell TV programmingaccumulated over 30 years of production. Disney’s movie department saw a 4 percent drop in box office shares in 1984. InEisner’s first week, Touchstone had brought him the script to Down and Out in BeverlyHills, the first rated R movie that they had produced. Beginning with that, 27 of the next33 movies produced by Disney Studios were profitable with six earning over $50 billioneach. By 1988, Disney held 19% of box office shares and led the industry in ticket sales.Disney began a program of releasing 15–18 films per year. The animation department took longer to revive than television or movies. WhenEisner took over, the animation was averaging a new film every four to five years. Eisnerexpanded the department, and reduced the time it took to release a film to 12-18 months.$30 million was invested in the Computer Animated Production System (CAPS), whichwas used to create movies such as Who Framed Roger Rabbit. This investment quicklypaid for itself, as Who Framed Roger Rabbit earned $220 million in box office sales andalso sold large amounts of related merchandise.
James Ambrose Courtney E. Hamm Brandy O’Neal Joseph Rendon MGMT 428-Summer 1Expanding into New Businesses, Regions, and Audiences An extremely beneficial move for Disney was the operation of its consumerproducts division as a “retail-as-entertainment” concept. This helped Disney generatesales per square foot at twice the average rate for retail stores. Disney also incorporatedhigh-end collectors’ items to target a more mature consumer. In the late eighties to early nineties, Disney founded Hollywood records (a popmusic label), Disney Press (publisher of children books), and Hyperion Books (an adultpublishing label). Each of these divisions proved to be successful because of their lowstart up costs and huge profits. Disney believed that in the creation of Euro Disney, it should follow the sameformat as Disneyland, Walt Disney World, and Toyko Disneyland, rather than adaptingto the French Culture. This proved to be a mistake, and the cultural differences almostcaused the park to fail. This problem could have been avoided by greater market researchin Europe. However, Disney had the foresight to sell Euro Disney S.C.A. shares onseveral European exchanges. Disney held 49 percent ownership of the park, with theother 51 percent owned by outside shareholders. Michael Eisner was forced to focus inparticular on the revitalization of this park. Disney began releasing a series of highly profitable and successful animatedfeatures. Some of these animated movies include The Little Mermaid (1989), Beauty andthe Beast (1991), and Aladdin (1992). Disney also produced big-budget, live-action filmsthrough their Touchstone label. The film Splash, which featured partial nudity, caused an
James Ambrose Courtney E. Hamm Brandy O’Neal Joseph Rendon MGMT 428-Summer 1out roar among Disney customers, eventually leading to a public apology by thecompany. The purchase of Miramax proved to be a good acquisition because it is anindependent production studio with a history of success with low-budget art films.Maximizing Theme Park Profitability The Walt Disney Company broadened its scope with the opening of Walt DisneyWorld in 1971 on land secretly purchased by Walt Disney. Walt Disney World becamethe top-grossing park in the world, with $139 million in sales and 11 million visitors thefirst year. Disney made its park into a full-service travel destination with the creation ofhotels and an in-house travel company that coordinated vacation with travel agencies,airlines, and tour companies. The company added $1 billion worth of new attractions to keep up with culturalchanges over the next few years. These attractions included water-based attractionTyphoon Lagoon, Disney-MGM Studios, and Toontown. The constant addition of newattractions not only increased the length of customer visits, but also the number of returnvisitors. By the year 2000, Walt Disney World qualified as a destination resort, as theaverage tourist visit lasted three days. Disney raised ticket prices and lowered restrictions on the maximum number ofpark visitors. Overcrowding and high prices could have caused a loss of customers.Luckily for Disney, guests still felt that they were receiving an incredible value for theirmoney. Disney’s first international theme park was in Japan. Tokyo Disneyland wassolely owned by a Japanese partner and designed by WED Enterprises to closely
James Ambrose Courtney E. Hamm Brandy O’Neal Joseph Rendon MGMT 428-Summer 1resemble Disney World. Disney received 10% of gate receipts and 5% of other sales aswell as ongoing consulting fees. Euro Disney nearly proved to be a disastrous decision for The Walt DisneyCompany. Cultural clashes as well as weather issues shocked a company which hadpreviously experienced only success. A professor of French literature was recruited tooversee the park’s development and integrate the company’s culture into the culture ofFrance. Disney made the decision to allow wine in on-site restaurants; but male castmembers were still required to shave. The changing weather caused numbers of gueststhat the park could barely handle in summer and also the near-desertion of the park in thecold winter months. Disney is still forced to lay off employees and reduce hotel andadmission prices as well as management fees during the winter months to keep the parkopen. Again, these problems could have been avoided simply through market researchon Disney’s part.Coordination Among Businesses Overlaps necessitated the need for coordination among Disney’s variousbusinesses. Campaigns with outside corporate sponsors had to be arranged through allaspects of the business. Conflicts also arose over the Disney-owned minute ofadvertising during The Disney Sunday Movie. This could be resolved by using generalcompany advertising and only using specific advertising for large events. Disney used internal transfer prices for activities that one division performed foranother. For example, when any division wanted to use material from the Disney filmlibrary, it paid a price to the Disney film studio.
James Ambrose Courtney E. Hamm Brandy O’Neal Joseph Rendon MGMT 428-Summer 1 If a conflict arose between division executives, Eisner and Wells encouraged themto resolve it among themselves, but they also provided the option of arbitration fordifficult problems. Management focused on quick resolution, allowing more time tofocus on important business matters. In 1987, a corporate marketing function was installed to stimulate and coordinatecompany-wide marketing activities. A marketing calendar was introduced to coordinatemarketing across the company and was updated at weekly meetings with divisions acrossthe company. All divisions were responsible for the generation of new ideas, and amonthly meeting of 20 divisional marketing a promotional executives was initiated todiscuss inter-divisional issues.Conclusion The Walt Disney Company has been extremely successful in the past 83 years dueto both the vision of Walt Disney himself, and the strategic management skills of MichaelEisner. Eisner took a profitable company and revitalized and expanded it until it trulybecame “The Entertainment King.” It is possible that the immense diversification withinthe company will be its downfall, as it may simply become too large to manage.However, it has managed to stay strong and will most likely continue on its upward path.