2. Introduction
The Walt Disney Company is a monumental company composed of five broadly
diversified business units including: media networks, parks and resorts, studio
entertainment, consumer products, and interactive media. When consolidating the
revenues of these 5 strategic business units, they earned the Walt Disney Company an
astounding 40.9 billion dollars in 2011. The Walt Disney Company (Disney) uses
quantitative and qualitative analysis to assess the competitive strength, industry
attractiveness, and financial performance of their business units. The analyses will allow
the Walt Disney Company’s business units to focus their strategies to fit the needs of
their specific markets (Gamble, Peteraf, & Thompson, 2015).
Corporate Strategy
“The company’s corporate strategy was centered on (1) creating high-quality
family content, (2) exploiting technological innovations to make entertainment
experiences more memorable, and (3) international expansion” (Gamble et al., 2015).
Disney continues to acquire intellectual property, such as Marvel and Pixar, which
enhances its core animation business by adding new characters and animation skills.
Theme parks and resorts require a sufficient amount of capital to retain their competitive
advantage in the industry. New attractions at various theme parks affect the competitive
advantage as well as financial performance. Disney used two of their highest grossing
films to create features at the theme parks creating advertisement and profitability.
Technology innovations made digital content an attractive market, and Disney made
strides to make the majority of its content available digitally. The focus on international
expansion has allowed Disney to capitalize on theme park opportunities in emerging
3. markets. Disney’s broad differentiation strategy has been executed successfully offering
profitable long-term growth and a dominant competitive advantage over rivals (Gamble
et al., 2015).
Industry Attractiveness
The following tables represent the industry attractiveness for each of Disney’s
business units as well as the competitive strength they possess in those units.
Industry Attractiveness Measure
Importance
Weighted
Media
networks
Parks
and
Resorts
Studio
Entertainment
Consumer
Products
Interactive
Media
Market size and
projected growth
rate
0.1 0.9 0.8 0.8 0.8 0.7
Intensity of
competition
0.25 2 1.75 1.5 1.75 2.25
Emerging
opportunities and
threats
0.1 0.5 0.6 0.4 0.6 0.8
Cross-industry
strategic fit
0.2 1.4 1.6 1.6 1.8 1.8
Resource
requirements
0.1 0.9 0.8 0.9 0.8 0.8
Seasonal and
cyclical influences
0.05 0.4 0.45 0.35 0.35 0.25
Societal, political,
regulatory, and
environmental
factors
0.05 0.35 0.4 0.35 0.45 0.4
Industry
profitability
0.1 1 1 1 1 0.5
Industry
uncertainty and
business risk
0.05 0.35 0.25 0.4 0.35 0.25
Sum of the
assigned weights
1
Overall weighted
industry Score
7.8 7.65 7.3 7.9 7.75
4. Weighted Competitive Strength
Calculated Weighted Competitive Strength
Competitive Strength
Measure
Importance
Weight
Media
Networks
Parks and
Resorts
Studio
Entertainment
Consumer
Products
Interactive
Media
Relative market share 0.15 1.35 1.05 1.5 1.5 0.75
Costs relative to
competitors' costs
0.2 0.6 0.6 0.8 1 0.4
Ability to match or beat
rivals on key product
attributes
0.05 0.35 0.4 0.4 0.45 0.25
Ability to benefit from
strategic fit with sister
businesses
0.2 1.6 1.8 1.8 1.8 1
Bargaining leverage
with suppliers/buyers;
caliber of alliances
0.05 0.45 0.45 0.45 0.45 0.25
Brand image and
reputation
0.1 1 1 1 1 1
Competitively valuable
capabilities
0.15 1.35 1.35 1.35 1.35 1.35
Profitability relative to
competitors
0.1 0.9 0.9 0.9 0.9 0.9
Overall weighted
competitive Strength
scores
1 7.6 7.55 8.2 8.45 5.9
5. 9-Cell Industry Matrix
High
Medium
Low
Strong Average Weak
6.7 3.3
3.3
6.7
Media
networks
18,700,000,000
Park
and
resorts
11,800,000,000
Consume
products
3,000,000
,000
Studio
entertainm
ent
6,400,000,0
00
Interactive
1,000,000,0
00
Competitive
Advantage
Industry
Attractiveness
High
priority
for
resource
allocation
Medium
priority
for
resource
allocation
Low
priority
for
resource
allocation
7.8
7.6
7.55
7.65
8.28.45 5.9
7.3
7.9
7.75
Media
Networks
Disney’s media networks business unit is their most profitable business unit. The
nine-cell matrix shows the attractiveness of the media network industry. The media
networks category is generally classified as broadcasting and cable networks. The list of
domestic and international cable networks Disney operates include: ESPN, Disney
Channels Worldwide, ABC Family, SOAPnet, A&E, Lifetime, television production, and
6. domestic television stations. ESPN, which accounts for approximately half of Disney’s
profits, might be considered their cash cow. This business unit also includes Radio
Disney, which airs family-oriented programming. Radio Disney is not only broadcast in
the United States, but also in most of South America. In 2011, Disney acquired UTV,
which would expand broadcasting and production capabilities into India. The media
networks division faces competition not only with other networks, but also other
categories of entertainment. While advances in technology provide opportunities to
Disney, it also contributes to the competition, such as online gaming and streaming
devices (Gamble et al., 2015) (Nielson 2014).
The media networks division has factors that could affect its profitability if not
considered when developing and implementing strategies. Disney must consider, that
while ESPN is extremely dominant, networks such as FOX and Comcast are introducing
new sports channels. Television is somewhat seasonal in that consumers are more likely
to watch TV during the winter months than spring and summer. Introducing or airing a
new series during the fall might be more successful than in the middle of spring. The
industry is a good fit with other business units because having TV networks allows them
to advertise other Disney products and attractions. Disney has managed to be dominant in
this attractive industry (Gamble et al., 2015).
Resorts and Parks
The Walt Disney Company is successful in the resort and theme park industry and
this is their second most profitable business unit. Parks and resorts are where Disney
makes the emotional connection with consumers, which builds brand loyalty. This
business unit includes the Disneyland Resort, the Walt Disney World Resort, the Aulani
7. Disney Resort and Spa, the Disney Vacation Club, and the Disney Cruise Line. Disney
also maintains ownership in the parks and resorts that have been built in emerging
international markets. The revenue in this unit is generated from park admission fees,
hotel charges, food and beverage sales, merchandise, sales and rentals of vacation
properties, and fees for cruise line vacations. Their resorts also include tennis courts, golf
courses, spas, water skiing, and two water parks (Gamble et al., 2015).
While Disney dominates the theme park market, their theme parks are extremely
pricey and are located across the country from each other. Theme park competition is
located all over the United States and the market is somewhat saturated. Competition
includes local theme parks such as Hershey Park and Dollywood. Universal also operates
theme parks that open new attractions to compete directly with the Walt Disney
Company. Six Flags operates 16 theme parks in the United States, which provides a
regional theme park destination for families that cannot afford the Walt Disney
experience. Cedar Fair and Comcast also have a chain of theme parks that present Disney
with competition. Although Disney is not the best-cost provider among the theme park
industry, they have an exponential amount of brand recognition that offers a competitive
advantage (Gamble et al., 2015).
This industry has many safety regulations that it must follow to ensure guest
safety, and to avoid fines or possible closure. Having an incident where someone suffered
an injury or even death could cause an extreme conflict with Disney’s brand and with
governmental agencies. The theme park and resort industry faces seasonal variation,
since families are likely to go on vacation during the summer months. The Cruise Line
also faces the same variation due to weather and school vacation. Economic conditions
8. could affect the theme park and resort industry since admission, food, and lodging are
expensive. This industry has its challenges, however, Disney has been extremely
successful in maintaining guest count, brand loyalty, and profitable growth (Gamble et
al., 2015).
Studio Entertainment
“The Walt Disney Company’s studio entertainment division produces live-action
and animated motion pictures, pay-per-view and DVD home entertainment, musical
recordings, and Disney on Ice and Disney Live! live performances” (Gamble et al., 2015).
Disney’s studio entertainment business unit has benefited immensely from the company’s
acquisition of Pixar and Marvel. The acquisition of Pixar offered Disney the opportunity
to restore their animation division, which has previously been suffering. Disney was able
to capitalize on the characters that Marvel entailed with the production of Thor, Iron
Man, Captain America, and one of the highest grossing movies of all time, The Avengers.
Disney also acquired Lucasfilm, which will offer the opportunity to revive the Star Wars
series. Nurturing these strong brands and expanding their creative content allows Disney
to maximize their value. Utilizing these brands to their full potential allows Disney to
capitalize on them not only in the studio entertainment division, but also in its theme
parks and merchandise division (Nielson, 2015).
The studio entertainment industry is extremely profitable and will continue to
grow due to the enjoyment movies offer consumers. Disney does face competition from
Time Warner, Universal, and Lions Gate. However, Disney continues to be extremely
successful in maintaining their market share and building their brand. This division of
Disney’s company is a great strategic fit for their sister businesses. The theme parks will
9. be able to construct new attractions built around characters they have gained from the
Marvel acquisition. Pixar has also developed characters the theme parks will be able to
capitalize on. Due to a successful strategic fit, the consumer product division will be able
to offer a variety of merchandise based on the innovations from Pixar and Marvel. This
business unit does not face much variability from seasonality or from economic
conditions. Movie theaters have variability on a weekly scale, but overall new attractions
will continue to motivate consumers to view the latest production. Disney and Netflix
announced a deal that will enhance the amount of consumers viewing Disney
productions, which will only increase the brand recognition leading to long-term
profitable growth (Nielson 2014).
Consumer Products
This division of the Walt Disney Company operates their retail chain and
specializes in merchandise licensing in addition to children’s books and magazine
publishing. Disney sells its merchandise direct to consumer via e-commerce, and in retail
stores they own and operate domestically and internationally. Licensing allows Disney to
generate revenues from royalties from the use of different characters. The licensing
covers a wide range of products such as toys, apparel, home-décor, furnishings, footwear,
and electronics. “In 2011, Disney was the largest licensor of character-based merchandise
in the world” (Gamble et al., 2015). Disney also publishes children’s books, magazines,
and learning products, which are available printed or digitally (Nielson 2014).
The consumer product industry is extremely competitive due to a very saturated
toy market. Disney also faces safety regulations in regards to toys to ensure children are
safe. The industry does not face a large amount of variation in regards to seasonality,
10. however, revenue will spike during the holiday season. The strategic fit with Disney’s
other divisions is extremely successful. Disney utilizes the characters from its films to
make various products as well as licensing it out to other companies. The merchandise
only reinforces brand recognition. Disney has the capability to produce economies of
scale lowering their costs and increasing profitability. The consumer product division
maintains a competitive advantage due to their strong brand recognition and the
characters that are in popular demand (Gamble et al., 2015).
Interactive Media
The interactive media division competes by producing video games for handheld
devices, games consoles, and smartphone platforms. Disney.com and the parks and
resorts are also areas the division produces games for. This division also provides
maintenance and design for other business units. Providing maintenance and design
shows the strategic fit that Disney has created by diversifying into this industry. This
competitive industry is affected by seasonality, as well as the release of new gaming
consoles. This division of Disney has experienced operating losses for the years 2009
thru 2011, but Disney claims this division is small and will remain small. However, the
strategy is to diversify their gaming efforts and to focus on the Disney and Marvel
branding (Gamble et al., 2015).
Strategic Fit
The business diversification that Disney has achieved exhibits an extremely
successful strategic fit among the divisions. The brand sharing across the spectrum is
tremendously successful and beneficial to Disney’s overall brand recognition. The
characters that Disney has been able to exploit, by the acquisition of Pixar and Marvel,
11. have added significant value to not only their studio entertainment division but also
consumer products. These characters enable Disney to introduce new attractions to their
various theme parks. New attractions increase ticket sales and hotel stays, but they also
increase the chances for merchandise sales. The interactive media division, while not
generating a profit, adds value to other segments. The media division provides design and
maintenance for theme parks, which adds value. The studio entertainment division could
offer some skill to the interactive media division to enhance their graphics. The studio
entertainment division adds value to the media network division, because those networks
will have first rights to film productions when it is time to release them on TV (Gamble
et al., 2015).
Financial Analysis
Gross Revenues (in millions) Gross Profit (in millions)
2011
2010
2009
2011
2010
2009
$40,893
$38,063
$36,149
$7,781
$6,726
$5,697
Return on Investment Net Profit (in millions)
2011
2010
2009
2011
2010
2009
9.54%
8.02%
7.12%
$5,258
$4,313
$3,609
The financial state of the Walt Disney Company is extremely attractive for
shareholders, and has steadily increased over the past few years. Gross revenues have
increased 13.12 percent from 2009 to 2011. Return on Investment, a measure of the
return shareholders are receiving on their monetary investment, has been trending upward
with a 2.42 percent increase. Gross profit represents sales minus cost of goods sold and
should trend upward. Disney’s gross profit has increased 36.6 percent over a three-year
period. Net Profit, showing the companies income after all expenses and taxes, should
trend upward to increase shareholder value. Net profits have increased 45.7 percent from
12. 2009 thru 2011. These upward trends represent a company that is attractive for investors
and creditors, due to increasing shareholder value and profitability. The profitable growth
that Disney has demonstrated is a direct result of great leadership and implementation of
strategy. Maintaining financial stability allows Disney to invest money back into the
company for future innovation and expansion (Gamble et al., 2015).
The financial performance of Disney’s business units vary, but the media
networks division is by far the most profitable. ESPN accounts for a major portion of the
Walt Disney Company’s profits. Trailing the media networks is the parks and resorts
division, which brings in billions of dollars in revenue every year with admission and
hotel fees. Studio entertainment and consumer products also contribute a sufficient
amount of operating profit every year. However, interactive media has suffered operating
losses in these years, and Disney must find a way to turn this division around (Gamble et
al., 2015).
-‐1000
0
1000
2000
3000
4000
5000
6000
7000
Operating
Income
(in
millions)
Media
Networks
Parks
and
Resorts
Studio
Entertainment
Consumer
Products
Interactive
Media
Disney's
Business
Units
Financial
Performance
2009
2010
2011
13. Recommendations
The Walt Disney Company should maintain their current strategy focusing on
entertainment and information. Continuing to produce creative family content is Disney’s
foundation, and as technology advances they must continue to innovate. Acquiring Pixar,
Marvel, and Lucasfilm has offered Disney the opportunity to advance their animation
capabilities and character base. Focusing on research and development is important not
only for innovations in technology, but also for the development of new attractions in the
company’s theme parks. The Star Wars series will be a huge revenue generator and
Disney should focus on capitalizing on all aspects of that brand. Expanding the brand into
merchandise, theme parks, and their interactive media division will allow Disney to fully
capitalize on that acquisition. Disney has been expanding internationally, but they should
continue developing theme parks in emerging markets. Walt Disney was built on
animation and that should continue being their main focus because it will continue to
excite children (Gamble et al., 2015).
The brand loyalty and recognition that Disney has developed since the 1920s is
extraordinary, and as long as they maintain that same experience for children they will
continue to be successful. Based on their current financial performance, Disney’s current
operating strategies are efficient. The executives Disney has in place must continuously
reevaluate their strategic plans to ensure each business unit is operating to its full
potential. Each business unit also must exploit the strategic fit it has with the other
divisions to ensure the greatest profitability. The Walt Disney Company, while operating
in competitive industries, will maintain profitable long-term growth if they focus on the
mission and core values that Walt Disney envisioned (Gamble et al., 2015).
14. References
Gamble, J., Peteraf, M., Thompson, Jr. A. (2015). Essentials of strategic
management: The quest for competitive advantage. New York: McGraw
Hill Education.
Nielson, S. (2014, January 8). Investing in Disney: a comprehensive primer and analysis.
Retrieved July 30, 2015, from
http://marketrealist.com/2014/01/walt-disney-company/
