Management Case -DISNEY LAND / Business Finance – Operations Management
INTRO- Jordan
After entering the cartoon business at the early age of 17, brothers Walt and Roy Disney quickly established their dominance in the entertainment industry. Knowing that cartoon shorts could not sustain for much longer, Walt entered the industry of full length feature films. Releasing cinema blue-chips such as Snow White and Cinderella, Disney many times focused on short low budget products to quickly increase income to help fund other projects.
Wanting to further expand, Walt secretly purchased 27,000 acres of land to pair a theme park named after their new show, Disneyland. Passing away shortly after, Roy took over all of Disney’s enterprises and opened up the alluring entertainment complex. After palpable success over the first few years, Disney quickly expanded by opening theme parks in Tokyo and Paris, along with opening in-house travel agencies to promote their new parks. In the midst of quickly expanding, Disney channeled immense financial stress due to the heavy costs EPCOT and other expansions.
In 1984, Michael Eisner took over a languishing company that desperately needed a shake up, and that is exactly what he did. Committing himself a balance between creative and financial forces, Eisner took a new approach to maximizing shareholder wealth. He revitalized Disney TV, continued producing feature films that were consistently at the top of the box office, and built a new theme park in Paris. Along with this, Eisner stepped outside of the box and acquired the Anaheim Mighty Ducks, and purchased TV giant ABC and partner ESPN.
While Disney was thriving with exceptional income metrics at the turn of the century, in a way, it all came crashing down. Analysts were expecting a long slump for the company, which ended up being shorter than expected. However, it has become evidently clear that Disney’s unprecedented strategic plan of rapid expansion and a broad portfolio of products may be causing these volatile business cycles. The strategic issue in this case refers to Disney’s aggressive expansion strategy which once precipitated growth, may ultimately need to evolve to continue growing Disney’s entertainment oligopoly.
Strengths
· The Walt Disney brand reputation and popularity is a major strength for the company. Disney has prioritized “traditional family values” in almost all of its business ventures. The company’s wholesome image has been the foundation of Disney’s international success.
· Disney’s diverse portfolio of leading entertainment operations creates synergy through cross-promotion. The firm’s strong existence in a variety of business segments helps differentiate the brand and drive financial prosperity.
· Founded on the imagination of Walt Disney, the company prides itself on creating cutting-edge entertainment. Disney’s investment in theme parks, cruise lines, animated films etc. has made the company a leader in almost all entertainment channels.
Weaknesses
· Disney incurs high costs of operations. The company has invested billions in new business enterprises such as: theme parks, cruise ships, programming costs, animation production systems and acquisitions of other entities. This growth strategy is difficult to sustain in the long term.
· Human capital turnover, especially at the leadership position, has plagued Disney’s growth. Between 1994 and January of 2000, roughly 75 executives left the company. This type of drain on talent negatively affects the culture and management of Disney’s entertainment empire.
· Disney has been susceptible to negative media publicity. The company received backlash from the Protestant church community over the sexual orientation of ABC show host Ellen DeGeneres. Activists also protested Disney’s treatment of animals at the Animal Kingdom theme park, and the Arab-American community was displeased with the stereotypical portrayal of Aladdin.
Opportunities
· Enhance international presence, specifically within the European and Japanese markets. Disney only generates about 21% of its revenue abroad, indicating the massive opportunity for expansion overseas. Strengthening the firm’s movie production, theme park and merchandising positions would add significant long term value to Disney shareholders.
Threats
· Increasing strength of competition continues to pressure Disney’s business segments. Warner, Universal, Paramount, Six Flags, Cedar Point and other domestic entertainment competitors have persistently fought for market share. It is vital that Disney continues to innovate within all divisions of business.
· The evolution of technology is threatening to the overall media industry. As technology continues to advance, so will content consumption. Disney is extremely exposed to cable, radio, film production and other media syndication platforms. Technology advancement could soon make these media channels obsolete.
Porters 5 – Charles
Core competency of Disney
#1 Implementing a sustainable and profitable organic growth strategy (Ben)
Recommendation:
We recommend implementing a sustainable and profitable organic growth strategy. A strategy that focuses on Disney’s most profitable areas as well as ensuring efficient business operations throughout all aspects of the portfolio. Acquisitions Disney looks for should be easily integrated into Disney’s operations; this should help Disney make strides towards controlled profitable growth.
#2 Continue to Expand Disney Brand internationally (Jason)
#3
#1 (Ben):
In the Eisner era, Disney has seen a revitalization of its growth. Lofty expectations have accelerated growth and put Disney back on track. Disney has been growing rapidly in terms of revenue and assets; however, when looking at Net Profit Disney has been declining down below $1 Billion for the first time since 1994. Disney needs to take a step back and grow under control. To do this, it needs to grow slower with organic growth and easily integrated acquisitions. Disney has set itself up for success with its over $45 Billion assets and revenues over $6 Billion; however, the extreme growth felt by Disney is not sustainable especially when Net Income declines year over year. The goal of 20% growth is starting to hurt rather than help and needs to be replaced with slower more profitable growth to drive the bottom line of the business and return value to the shareholders. Disney needed to be revitalized and it has been, the issue now is to find how it can be profitable. Disney no longer needs to grow at such drastic levels, but must find how to expand efficiently. The extreme growth of revenue and assets sets Disney on a platform above its competitors. While Disney’s broad portfolio is useful and drives asset creation as well as increased revenue, a narrower perspective on growth will give it a profitable and sustainable growth strategy. Growth doesn’t need to stop completely, but the current revenue growth goals should transition into focused profitable growth goals. The updated goals Disney sets will be able to push them even further in front of its competition. Disney can grow while streamlining efficiencies throughout all areas of its portfolio, but should concentrate on growth in its most profitable areas. Two areas that show great potential are Disney’s animation and amusement park sections (which will be discussed later). Disney has the top 24 animated films, and can continue to grow this section of its business. Disney can continue to grow organically through continued development in areas such as its animation sector. It can also grow its profitable sectors through strategic acquisitions that can easily be integrated into its business and able to drive up the bottom line from the start. Through strategic acquisitions as well as organic growth, Disney can start to control its growth to grow profitably and deliver shareholder value.
