An Analysis of The Walt Disney Company. Kendall Forward TELE October 29, 2013

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1 1 An Analysis of The Walt Disney Company Kendall Forward TELE 3310 October 29, 2013

2 2 Overview & History The Walt Disney Company is a leading American diversified multinational entertainment and mass media conglomerate, headquartered in Burbank California. Founded on October 16, 1923 by Walt Disney and his brother Roy as a small cartoon animation studio, the company struggled through years of unsuccessful creations but turned around after the debut of Mickey Mouse, the official mascot of the company. Now headed by CEO Robert Iger, Disney is one of the largest entertainment corporations in the world with approximately 166,000 employees and annual revenues approaching the $45 billion mark (Walt Disney). For eight decades, Walt Disney has entertained people around the world with its theme parks, resorts, cruises, movies, TV shows, radio programming, and memorabilia. Before diversifying into live-action film production, television and travel, the company established itself as a leader in the American animation industry. The company went public in 1940 and was reincorporated under its current name in 1986 and expanded operations and also started divisions focused on theatre, radio, music, publishing and online media (Cohesion Case). Mission Statement The mission of The Walt Disney Company is to be one of the world's leading producers and providers of entertainment and information. Using our portfolio of brands to differentiate our content, services and consumer products, we seek to develop the most creative, innovative and profitable entertainment experiences and related products in the world (Walt Disney). Organizational Structure Walt Disney operates using a strategic business unit (SBU) organizational structure that consists of five diverse family-entertainment segments: Media Networks, Parks and Resorts, The Walt Disney Studios, Disney Consumer Products and Disney Interactive.

3 3 (Cohesion Case) The Walt Disney Company s globally known consumer brands include: Disney, ABC, ESPN, Pixar, Marvel and Lucas Films (Walt Disney). Media Networks Disney s Media Networks segment includes domestic broadcast television, television production and distribution operations, domestic television stations, international and domestic cable networks, domestic broadcast radio networks and stations and publishing and digital operations. The Disney/ABC Television Group comprises Disney s global entertainment and news television properties, owned television stations group and radio and publishing businesses. Disney/ABC Channels creates programming and franchise benefits for all of Disney s businesses. The group s portfolio includes: ABC Television Network ABC Owned Television Stations Group, ABC Studios, Disney Channels Worldwide, ABC Family, SOAPnet, Disney ABC Domestic Television, Disney Media Distribution, Hyperion and Radio Disney Network. The ABC television Station Group Operates more than 220 affiliated stations and the ABC Owned Television Stations Group owns ten television stations, six of which are in top ten rated markets, across the U.S. (Cohesion Case).

4 4 Disney also produces and distributes live action and animated television programming under the ABC Production Studios label. ABC Studios develops, produces and distributes entertainment content across broadcast and cable television and digital platforms (Cohesion Case). This includes many prime time programs and dramas, such as Castle, Criminal Minds, Desperate Housewives, Grey s Anatomy, Private Practice and a variety of syndicated programming. Two of Disney s major TV networks (ABC and ESPN) have an arrangement with Cox Communication where the companies now offer hit shows and football games on demand. In this deal, Cox, the nations third largest cable operator, agreed to stop the fast forwarding of commercials to gain access to the content (Marketwatch). Studio Entertainment This is regarded as the most visible business within the Disney Company (Battikh). It is also the most extensive with the integration of ten production branches: Walt Disney Pictures and Television, Miramax Films, Buena Vista Home Entertainment, Buena Vista Theatrical Productions, Wald Disney Records, Buena Vista Records, Touchstone Pictures, Hollywood Records, Lyric Street Studios and Pixar Studios (Strategic Management). Disney produces liveaction and animated motion pictures, direct to video programming, musical programming, and live stage plays (Cohesion Case). Disney licenses the rights to produce and distribute feature films to third party studios. Disney earns a licensing fee on these films, while the third-party studio incurs the cost to produce and distribute the film. The company distributes motion pictures produced by DreamWorks under the Touchstone Pictures name (Cohesion Case). Disney s cable network group provides national programming networks and licenses television programming both domestically and internationally. The majority of the revenue comes from fees charged to cable, satellite and telecommunication service providers who operate

5 5 under multi-year agreements. This helps Disney sell time for commercial announcements (Marketwatch). Certain programming developed by cable networks is also distributed: in DVD format by the home entertainment division in the Studio Entertainment segment, online via Disney s Internet sites such as ESPN.com, and on third party services such as itunes. Radio Disney, a 24/7 network for kids, teens and families, also operates under this licensing model (Walt Disney). It is available on 37 radio stations, 31 of which the company owns. It is also available on radiodisney.com, SiriusXM satellite radio, itunes Radio Tuner, XM/DIRECTV and mobile phones (Cohesion Case). Interactive Media Disney s Interactive Media segment creates and delivers Disney-branded entertainment across interactive media platforms, particularly through gaming and online platforms (Cohesion Case). This branch serves as the online, mobile and social media gateway (Walt Disney). Disney Interactive Games creates and distributes console, handheld, online and mobile games worldwide based on Disney created features. They also produce online and interactive games for social networking websites and Smartphone platforms (Cohesion Case). Children are making the switch to gaming earlier and earlier, so the market for video games is growing. Disney does not however, have a large presence in the rapidly growing video game market, though the company is making large investments in this area, such as a $350 million investment to develop its own inhouse video game capabilities (Forecasts). In 2010, the company acquired Playdom, Inc., one of the largest developers and publishers of online social games (Chmielewski). This move was made to enhance the brand s previously insignificant presence across social media platforms, as they became a more integral component of interactive entertainment. Playdom broadens Disney s portfolio of games with

6 6 new and diverse titles such as Market Street, Sorority life, and Bola, which the company estimates, draws around 42 million players a month (Chmielewski). Disney s Online business develops, publishes and distributes content of Disney-branded online services primarily intended for family entertainment. This includes Disney.com and Disney Family Network. Disney Online creates lifestyle and parenting websites, online virtual worlds for global audiences and entertainment content for the Web (Walt Disney). A new division of the online sector was created in 2006 when Disney bought kaboose.com, babyzone.com and six other parent-oriented sites. Disney recently launched Disney Xtreme Digital, a networking site aimed at children under 14. This platform competes against websites like MySpace (owned by News Corp.) (StrategicManagement). As people increasingly consume their media through online platforms, Disney changed its model to adapt to demand; consumer spending on DVDs and home videos dropped 2% in the past year. Disney recently began distributing its content in new ways, such as video-on demand and online and television shows formatted for ipod users (Forecasts). In 2012, it sold exclusive streaming rights to Netflix to show Disney programming. But, Disney s CEO says they are willing to work with other Internet TV providers (Spangler). Although distribution through these new channels comes with higher risk of piracy, the migration of Disney s core younger audiences to the Internet makes finding new ways to reach out this demographic critical (Forecasts). Competition Disney s competitors differ in each segment of business. Walt Disney is classified as Entertainment-Diversified and over the years has created a unique portfolio and niche position that is not matched by a single company in all its areas (Battikh). However, in the Media

7 7 Network segment, Disney competes directly with Time Warner, Inc. and News Corporation. Time Warner is a major competitor to Disney and is composed of three divisions: Cable, Filmed Entertainment Networks and Publishing. It owns Time Inc., Warner Brothers, and TBS Networks (Strategic Management). Like Time and Disney, News Corp is a diversified international media and entertainment company that operates in several segments: Filmed Entertainment, Television, Cable Network Programming, Direct Broadcast Satellite Television, Magazines and Inserts, Newspapers, Book Publishing, and others (Strategic Management). The company also faces competition from NBC Universal (owned by Comcast) in TV and with their Universal studio entertainment, theme parks and resorts sector and Paramount Pictures. Though the Walt Disney Company is an entertainment leader, these other competitors pose definitive difficulties because they are all diversified conglomerates with a solid presence in the global market. In many cases, Disney has dealt with new competition my buying and integrating emerging competitors. Disney bought Pixar in 2006, as it emerged as a highly profitable animation giant. In July 2011, Disney s ESPN acquired television rights to air the Wimbledon tennis tournament for 12 years, thus replacing NBC which previously showed the annual event. In 2011, for the first time ever, ESPN offered the NBA finals in 3-D (Cohesion Case). However, with the increasing success of ESPN, more stations are coming into the sports mix as competitors. ESPN now competes with NBC Sports and 21 st Century Fox s Fox Sports West cable channels. If this trend persists in the future, as expected, it may drive up programming costs (Hellman). Products &Target Audience

8 8 It may appear that Disney s target audience is primarily children, but with its vast assets Disney s products reach the full spectrum of audiences from preschoolers to adults. Disney products include television programs, books, magazines, musical recordings and movies (Walt Disney). Disney Channels Worldwide is comprised of 94 kid and family entertainment channels available in 169 countries(walt Disney). ABC Family is a mixture of TV series and movies targeted towards young adults and families. SOAPnet owns character driven soapy drama from daytime and primetime soaps to reality shows and movies, targeted at women and adults. Hyperion publishes fiction and nonfiction titles for adults (Cohesion Case). Radio Disney is available in more than 40 U.S. markets and on satellite radio, mobile apps and the web. Disney s Consumer Products segment includes worldwide licenses, manufacturers and retailers who design and sell a variety of products based on Disney characters. These products include character merchandise and publications licensing, books, magazines and the Disney Store (Strategic Management). Merchandise Licensing Disney Consumer Products is the business licensing segment of Walt Disney and its affiliates (Walt Disney). Disney offers licenses for retail sellers of toys, apparel, home décor and furnishings, stationery, accessories health and beauty products, food, footwear and consumer electronics. This includes many major brand names for which royalties are earned, including Marvel properties Spiderman and Iron Man. The licensing business is aligned around five brand priorities: Disney Media, Classics & Entertainment, Disney & Pixar Animation Studios, Disney Princess & Disney Fairies, Lucasfilm and Marvel (Walt Disney).

9 9 Publishing Disney Publishing Worldwide (DPW) publishes books, magazines and digital products in 85 countries and in 75 languages (Walt Disney). The company publishes a range of children s magazines and books globally, mostly related to Disney s characters. DPW also distributes digital products like ebook titles and original apps. This branch includes Disney Book Group in the U.S. and Disney Libri in Italy. Disney English is DPW s English language learning business, which includes Disney English learning centers in China and a worldwide retail-licensing program (Walt Disney). Retail The Disney Store retail chain debuted in 1987 (Walt Disney). Disney owns and operates numerous stores throughout North America, Europe and Japan, and online. It is the retail merchandising branch of Disney Consumer Products, the business segment of Disney and its affiliates, extending the brand to product tie-in merchandise. Management Strategies Media integration is one of the most distinctive features of the film industry over the past several years. Disney has expanded its investment both domestically and globally through corporate integration. Like their competitors, Disney has aggressively acquired other film corporations using their vast capital resources (Jin). To replace lost revenues and respond to industry changes, movie studios have shifted their primary focus from show quality and content to distribution, licensing, marketing, and merchandising arrangements. Seeking alternative sources of revenue and taking advantage of emerging technological opportunities, traditional studios have extended their reach more broadly into other forms of entertainment. It is hard to classify the company in a single industry because it is a conglomerate with diversified business

10 10 industries (Battikh). The company s main competitive theory statement is constructed of six parts: - Globalization: Walt Disney Products and Services are found all over the world in different forms and areas. Disney has focused on growth internationally in the last few years. As a global brand, Walt Disney International provides oversight of the company s activities outside the United States and aims to increase the company s globalization to ensure it is locally relevant to consumers worldwide. The company s recent focus has been on establishing the foundations for long-term growth in the emerging markets of Latin America, Russia, India and China. Recently more focus has been placed on Japan, Europe, the Middle East and Africa, where the company is well established, yet there is substantial room for growth (Walt Disney). - Horizontal Integration: Walt Disney owns many studio entertainment companies, consumer product companies, and media networks. Disney uses horizontal integration to promote products, gain more interest and separate itself from competitors. Disney also applies this strategy to increase its presence and market awareness through crosspromotions. In addition, Disney continually expands beyond the family entertainment base, to many more mainstream outlets (Jin). - Vertical Integration: Walt Disney s many sub-companies allow it to plan, produce, advertise, and distribute all of its products on its own, without relying on other companies services, thereby better controlling quality, content and costs. Collaboration among business sectors with the same corporate culture & value make the communication and production more efficient and effective (Strategic Management).

11 11 - Media Synergy: Through the companies owned by Disney, it can both produce and distribute its products. Also, Disney creates media that extends beyond one product into multiple other tie-ins, such as online games that play off their feature films (Battikh). An important factor of its success is the integrated nature of its products with synergies between film, television, media, theme parks and resort operations (Laws). - Diversification: Walt Disney has focused on market diversification for years. The company covers a wide variety of products and services; its movies, shows, themes parks, music, TV, radio and merchandise offer a range for all tastes, cultures and ages. - Distribution: Through its licensing and marketing and diverse business outlets, when Disney produces a new image or brand, such as a movie character, it continues to capitalize on the characters long after it has left the box office. Before the movie leaves theatres, Disney already releases a line of toys and products through its stores and other outlets. This is followed by the DVD release and often the character s presence in theme parks (Forecasts). Financial Situation Disney holds $80.5 billion of assets (E*trade). The company s overall revenue has continued to increase yearly from 2008 to Media Networks makes up the largest part of

12 12 the company financially. The major sources of revenue for the company stem from advertising spending, largely driven by the economy, and the presence of large-scale TV events. Disney s success here is driven by the quality of programming on its various channels and the audience size. A stable source of revenue also stems from affiliate fees for cable and satellite programming, and they are expected to grow in virtually any economic environment (Forecasts). Disney generates the highest affiliate fees in the industry, largely due to the popularity of ESPN. Film and DVD syndication and merchandising are both more unpredictable forms of revenue and success in this area is determined by Disney s ability to produce hit movies. Market Performance Walt Disney is a publicly held company listed on the New York Stock Exchange (NYSE) under the symbol DIS. Over the last five years, late 2008 until today, October 27, 2013, the stock of the Walt Disney Company (DIS) has appreciated from a price of $25.91 to its current price of $69.26, an increase of 167%. During those five years from 2008 to the present the company s gross revenues have risen from $37.8 Billion to an estimated $45.05, an increase of 19%. Their earnings per share of stock outstanding has risen from $2.28 a share to $3.34 (estimated) for all of 2013, an increase of 46%. Since 2008 DIS has raised the dividend that it pays annually to shareholders from 35 cents a share to 75 cents, a 114% increase (E*Trade).

13 13 The company has a strong balance sheet (the accounting of its assets and liabilities) with over $6.5 billion in cash, $80.5 billion in total assets versus just $37 billion in total liabilities, leaving it with a net worth of $43.5 billion (E*Trade). In addition to raising its dividend every year for the last five, DIS has executed a share buyback program to repurchase 400 million shares that has allowed it to keep its number of shares outstanding (1.8 billion) fairly stable while acquiring, for stock, Marvel Entertainment as well as 40 million shares in the acquisition of Lucas Films. Using corporate cash to purchase company stock is considered good for current shareholders as it helps to decrease the supply of shares via increasing the demand (Walt Disney). Financial Table (In Terms of Millions) Revenue % Change In Revenue Operating Profit % Change in Operating Profit Operating Profit Margin 11.7% Increase % Increase Net Profit % Change Net Profit Net Profit Margin % Increase

14 14 Growth Potential Disney continues to expand to new markets and develop internationally. In 2011 the company launched a free-to-air Disney Channel in Russia, reaching over 40 million homes, around 75% of Russian viewers (Walt Disney). This was followed by free satellite Disney Channel in Turkey, expanding the market from 1.5 million homes in the country to 11 million. Disney also continues to take advantage of new potential markets in India, where it acquired UTV to become India s leading film studio and TV producer and making it one of India s premier broadcasters reaching 100 million viewers per week. This deal also increased Disney s advantage in the digital media space, which thus far has been a lagging section, with the inclusion of Indiagames, a top mobile gaming company in the market. There are now 108 Disney Channels in 34 languages reaching more than 426 million homes in 166 different markets around the world. With the extended reach of the conglomerate s partners around the world, Disney and Marvel branded kids television content is now available in almost one billion homes (Forecasts). The end of the last fiscal year (2012), Disney achieved record net income, revenue and earnings per share. Overall, Walt Disney is poised to do very well in the future (Russell). With strong movie franchises (Disney, Lucas, Pixar and Marvel) TV properties (ABC and ESPN) Theme Parks and Broadway Plays, Disney is a major player in the entertainment business and is expected to continue to grow internationally and continue its financial success.

15 15 S.W.O.T. Analysis Table STRENGTHS Strong diversification. Responsiveness to markets. Brand recognition/ loyalty. Size of operations. Largest worldwide licensor of character based merchandise. Global standardization. Well established divisions. Increasing trends in overall revenues and profits. OPPORTUNITIES Growth through further diversification. International growth and new markets. Recent acquisitions in India (UTV) and Russia gives more room for development. Increased media Networks/ online presence. Changes in technology and consumer consumption. Increase Disney Music Channel. Growth from cable and satellite networks. Marvel and Lucasfilm. International cable. Disney school of management and training. WEAKNESSES High costs. o Sunk costs. o Research and development costs. o Costs of entertainment production. Frequent change in top management positions. Parks and Resorts are not easily accessible leading to a costly trip for visitors. Parks and Resorts success unpredictable. o Travel trends o Leisure time o Seasonal Interactive Media- overall unprofitable. Company s name still highly associated with specific target audience- children THREATS Employee retention- retaining and recruiting innovative people. o Competition on finding and affording the most creative human resources. o Increasing salaries and labor costs. Changing consumption behavior. Switch from physical to digital and online. More concern with content over quality. Piracy/ protection of intellectual property. Decrease of DVD sales. Maintaining product differentiation. Economic recession. Change of how people choose to spend their entertainment moneynot as willing to spend on a park or resort. o Uncontrollable changes in travel and tourism. Viacom s upcoming animation studio in 2014.

16 16 Working for Walt Disney After careful analysis of The Walt Disney Company, I believe that it would be a good company to work for. The number of diverse businesses and platforms that Disney has acquired create a huge number of jobs opportunities. Disney s holdings infiltrate a broad spectrum of markets, which is continuing to expand. Additionally, the company s financial stability would make it a stable job with little risk. In particular, looking at the Disney Company s financial table from the past five years makes the idea of working there even more appealing. The resilience the company has after such a dramatic loss in 2009 shows its stability and ability to prosper after any kind of loss it may suffer. Therefore I think that The Walt Disney Company would be a good company to work for.

17 17 Works Cited Battikh, Sara O. Walt Disney Company Report. Sarabattikh.com, 13 May Web. Chmielewski, Dawn C. "Disney to Buy Playdom Inc. for $563.2 Million." Los Angeles Times. Los Angeles Times, 28 July Web. David, Fred R. "The Cohesion Case: Walt Disney Company." Strategic Management Concepts: A Competitive Advantage Approach. Boston: Pearson, Print. David, Fred R. "Strategic Management Cases: Walt Disney." Strategic Management Concepts and Cases. 13th ed..: Prentice Hall, n.d. N. pag. Francis Marion University. Web. E*TRADE Financial. N.p., Web. "Forecasts: Walt Disney." TradeForecast. N.p., Web. Hellman, Justin. "Research Hub." The Walt Disney Company: A Short SWOT Analysis., 01 Oct Web. Jin, Dal Y. "Transforming the Global Film Industries: Horizontal Integration and Vertical Concentration amid Neoliberal Globalization." The International Communication Gazette (2012). Web. Laws, Eric, H. W. Faulkner, and Gianna Moscardo. Embracing and Managing Change in Tourism: International Case Studies. London: Routledge, Print. Marketwatch. "Video on Demand Deal Bars Ad Skipping: WSJ." Marketwatch. Wall Street Journal, n.d. Web. Russell, Christina L. Walt Disney Finance. Rep. Strategic Financial Management, n.d. Web. Spangler, Todd. "Disney CEO Iger: Netflix Will Not Be Able to Corner Internet Video Market." Variety., 24 Sept Web. Walt Disney. "Investor Relations." The Walt Disney Company. Walt Disney. Web. 25 Oct