Walt Disney Company:
Reaching out to the World
1 May 2005
T A B L E O F C O N T E N T S
Walt Disney.................................................................................................................................... 1
The Walt Disney Company........................................................................................................... 3
Business Lines.......................................................................................................................... 3
Financial Review....................................................................................................................... 5
International Reach........................................................................................................................ 8
Global Strategy.......................................................................................................................... 8
Alliances and Acquisitions..................................................................................................... 11
Human Creativity and Business Acumen................................................................................. 12
Management Conflict Issues amidst Global Expansion......................................................... 15
This report attempts to examine the Walt Disney Company as an organization whose international operations play a vital role in the company’s continuing existence. This report seeks to present a review and analysis of the company’s global strategy by analyzing the key internal and external factors that impact on the company and how it has used alliances and acquisitions as part of its global strategy. As a human technology-intensive company, this paper seeks to understand how Disney was able to leverage its resources to create a competitive advantage. As an important aspect of its operations, relevant management issues are reviewed to see how it has affected the company’s global expansion strategy.
The Walt Disney Company is a multi-billion dollar enterprise that controls and maintains vast interests in various multimedia companies in the United States and around the world. What started as a simple love for children’s entertainment of a sample cartoonist soon became a revolutionary icon in the world of entertainment and business.
Walt Disney was born on December 5, 1901 in Chicago, Illinois of mixed Irish, Canadian, German and American roots. Although born in the city, Walt grew in the farm counties of Marceline in Missouri with four older brothers and a young sister. As a young child, Walt Disney was already interested in drawing cartoons. He was able to nourish this gift when the family moved back to the city where he attended classes at the Chicago Academy of Fine Arts. (Schatz, 2001).
After a short stint in France during WWI, Walt soon came to work in advertising as a cartoonist while earning extra money selling animated cartoon advertisements. In 1923, Walt paired with his brother Roy to set up their own production company in their uncle’s garage in California. In 1928, Walt Disney created the Mickey Mouse character in the silent cartoon called "Plane Crazy." Minnie Mouse first appeared in the first Mickey Mouse cartoon “Steamboat Willie" released November 1928 at the Colony Theater in New York. In 1938, Walt Disney created the first full-length animated movie "Snow White and the Seven Dwarfs" in 1938. Soon thereafter, Pinocchio, Fantasia, Dumbo and Bambi emerged within the next five years. (Schatz, 2001).
With the increasing popularity of television and movies beginning in the early 1940s, Walt Disney’s success in animated movies soon followed one after the other.
It was in 1955 when the Walt Disney Company took on huge leap of faith with the launch of the first ever Disneyland in Anaheim, California. Originally, Walt had in mind a family theme park where kids and parents could have fun together. In order to entice families to travel to his Disneyland, Walt used television to invite families to his Magic Kingdom with his show Disneyland. Walt’s faith didn’t fail him. The Walt Disney Company took on many animated cartoon projects in the following years, which included Pinocchio, Cinderella, and Jungle Book. In 1966, Walt died a happy man despite his illness. He died of lung cancer in December 1966, giving many happy memories to the children of the world. (Schatz, 2001).
Walt Disney left the world a legend. He created the world famous Mickey Mouse and can be considered as one of the leaders of the revolution of the American motion picture industry. Despite the recognition and accolades the world had given to Walt Disney, he was simply a man who wanted to make children happy. He did make the world happy, with his imagination, optimism and selfless ambition.
The Walt Disney Company's (Disney) objective is to become “one of the world's leading producers and providers of entertainment and information, using its portfolio of brands to differentiate its content, services and consumer products” (Disney 2005b). To support its corporate vision, Disney has striven to maximize earnings and cash flow, and to allocate capital profitability toward growth initiatives that will drive long-term shareholder value (Disney 2005).
From simple production enterprise, the Walt Disney Company has evolved to become a multimedia corporation that encompasses both traditional entertainment media to leading technology-based entertainment using visual, audio and digital media. Disney has four major business lines catering to diverse entertainment media: Media Networks, Parks and Resorts, Studio Entertainment, and Consumer Products.
The Media Networks segment encompasses almost all communication media – television, cable, radio and the Internet. The ABC Television Network includes ABC Entertainment, ABC Daytime, ABC News, ABC Sports, ABC Kids and the Disney-owned production company Touchstone Television. In the airwaves, ABC Radio operates over 70 stations in the United States offering Radio Disney, ESPN Radio and ABC News Radio. Media Networks also incorporates several cable networks which include ESPN, Disney Channel, ABC Family, Toon Disney, and SOAPnet. Disney also operates Walt Disney Television Animation and JETIX. Disney also holds equity interests in networks such as Lifetime Entertainment Services, A&E Television Networks and E! Networks. Buena Vista Television produces and distributes its syndicated programming, while Buena Vista Television International distributes Disney’s series and telemovies outside the US market. The Walt Disney Internet Group is the newest member of the Media Networks segment, leading corporate Internet business and technology strategy and manages Disney’s Internet properties. (Disney 2004).
Disney Parks and Resorts trace its roots to the 1952 Walt Disney Imagineering which operates the original Disneyland in California. Today, Walt Disney Parks and Resorts operates or licenses 10 theme parks on three continents with an 11th park currently under construction in Hong Kong. The most famous of the Disney parks include Disneyland Resort in California, Walt Disney World Resort in Florida, Tokyo Disney Resort and Disneyland Resort Paris. Disney Parks and Resorts also operate Disney Cruise Line, Disney Vacation Club, Disney Regional Entertainment and Mighty Ducks/Disney ICE. Disney Regional Entertainment runs eight ESPN Zone sports dining and entertainment locations, while the Mighty Ducks/Disney ICE manages Disney’s National Hockey League franchise, the Mighty Ducks of Anaheim. (Disney 2004).
Studio Entertainment is the umbrella category for the motion picture business of the company. The Walt Disney Studios distributes motion pictures under Touchstone Pictures, Hollywood Pictures, Miramax Films, Dimension Films and Walt Disney, which includes Walt Disney Feature Animation and DisneyToon Studios. The Walt Disney Studios has an international distribution arm in Buena Vista International. Buena Vista Home Entertainment and Buena Vista Home Entertainment International together distribute Disney and other film titles to the rental and sell-through home entertainment markets worldwide. Buena Vista Theatrical Productions is one of the largest producers of Broadway musicals, and the Buena Vista Music Group distributes original music and motion picture soundtracks under its four record labels: Walt Disney Records, Buena Vista Records, Hollywood Records and Lyric Street Records. (Disney 2004).
Disney, as the largest licensor in the world, exclusively owns the Disney name lent to its diversified Consumer Products, which extends primarily to Disney merchandise ranging from apparel, toys, home décor and books to interactive games, foods and beverages, electronics and fine art. The brands and subsidiaries that Disney owns include Disney Hardlines, Disney Softlines, Disney Toys, and Disney Publishing which covers Hyperion Books for Children, Disney Press, Disney Editions and Disney Adventures.” Business affiliates that fall under the Disney Consumer Products are
Buena Vista Games, The Baby Einstein Company™ and Disney Direct Marketing, which
includes DisneyDirect.com and the Disney catalog. (Disney 2004).
Disney’s most recent financial performance results and corporate developments are testaments to the company’s focus towards growth initiatives that will drive long-term shareholder value. The two charts below shows the comparative profitability performance of Disney on a quarterly and annual basis.
For the first quarter of company operations for the fiscal year 2004-2005, revenues rose 1% to $8.67 billion, driven by strong growth in worldwide home entertainment, higher affiliate revenue and improved operating margins. Net income increased 5% to $723 million, as lower debt levels helped improve the company’s financial health. (Yahoo! Finance 2005a).
Disney has also shown improving annual performance in the past three years. For the fiscal year ending September 30, 2004, Disney earned $30.75 billion, increasing 13% from P27.06 billion in 2002. Net income for 2004 was an outstanding $2.35 billion, increasing by over 85% from 2002’s $1.27 billion net income.
In the next chart, it shows that operating income from Parks & Resorts and Media Networks traditionally take a lion’s share in the company’s annual operating income. However, changes in the macroenvironment and the technological environment has led to the increased percentage contribution of media networks to the company’s annual consolidated operating income, as discussed in later sections.
Admittedly, Disney’s operations for the past years have been significantly affected by local and foreign events. As shared by former Disney CEO Michael D. Eisner in his 2004 letter to shareholders (Disney 2004) in the company’s 2004 Annual Report, Disney’s operations has only started on the road towards recovery from the 9/11 terrorist attacks and the ensuing homeland war against terrorists, a worldwide recession, the US-Iraq war, a downturn in both local and international tourism. Disney has also faced some considerable challenges to its management team, as the evolving international business environment brought on dynamic changes to Disney’s position in the world media scene.
While Disney segregates its revenue line according to business segment, the company’s revenues can still be segmented based on geography – domestic and international operations. As any homegrown company, Disney’s primary concern is growing, or at least maintaining, domestic profitability. However, in the 21st Century’s global commerce, international operations contribute significantly to the company’s earnings.
Revenues from its North American business contribute 78% of Disney’s current total revenues. However, Disney predicts that revenues from foreign business can bring in as much as 50% of total revenues into the company, once Disney has been able to establish the cornerstones for its international expansion (Reuters 2005).
The Walt Disney Company is famous for its zeal in enforcing a corporate image that is clean, wholesome, family image. The company was able to build on this image by enforcing the strictest standards over all aspects of business operations, in order to promote and protect the Walt Disney brand as a fun, safe, family-oriented organization. (Morrow 2003).
The Disney cartoons and movies are the anchor business entities of the Walt Disney Company. Nevertheless, from these emerged the parks and resorts, the merchandise, the movies, the games and the services that epitomize the magical Disney experience. Having the magical Disney experience brings to mind the kind and creative image of the man behind the name that lures the world to the magical world of Disney. Having Walt Disney as family implies that customers can expect to trust Disney and Disney can expect loyal customers. That is the image that Disney the cartoonist had been able to build on as the magical wizard that brings happiness to hundreds of children and adults alike.
Disney’s newest CEO Bob Iger pledges to accelerate the drive towards international expansion, new technology and content creation. This three-pronged strategy is seen to catapult the company towards its next phase of growth (Burt & Chaffin 2005) that will allow Disney to use its newfound strength in its media networks business, in addition to the resilient and growing strengths of its other business lines.
The company projects double-digit earnings growth in 2005, driven by the resurgence in ratings at ABC, the outstanding performance of ESPN and the recovery at Disney’s theme parks that led the company to open new parks in untapped markets (Reuters, 2005). Disney says the growing tourism market in Asia offers huge opportunities for resorts and theme parks in this region (Cher 2005). In the emerging race among leading economies to be the next tourist destination, Disney has taken a step back to reevaluate its position, but will not back out of the race.
In view of Singapore’s bid to become the next top tourist destination with its plans for integrated resorts within in the country, management of Hong Kong Disneyland takes a defiant stance, saying that it does not see Singapore's plan to build integrated resorts as a threat to its business (Cher 2005). While Disney’s rival Universal Studios is attempting to get a foothold in the Singapore integrated resorts by partnering with a casino operator setting up in the Singaporean resort, Disney is not considering Universal Studio’s entry as a major threat, confident that both theme parks can co-exist in the same region (Cher 2005).
After Hong Kong, Disney is targeting China next, as the company has already started on plans for a Shanghai theme park (Reuters 2005). The company believes that there won’t be significant competition between the HK and China Disneylands, as both territories have significant market populations. Hong Kong Disneyland is to open as planned in September 2005, and is expected to attract as many as 5.6 million visitors in the first year primarily coming from Southeast Asia.
Disney’s anchor business lies beyond the Parks and Resorts business which was Walt Disney’s dream. In recent years, theme parks have seen visitors and revenues dwindle down despite the increased introduction of new attractions and games. Visitors are discouraged to travel to distant theme parks as rising fuel costs and increased terrorist threats makes travel a chore. The emergence of alternative family entertainment such as malls, home entertainment appliances and the internet have replaced traditional fun that can be enjoyed in theme parks. The rising popularity of alternative tourist destinations have put the Disney Parks and Resorts on the defensive edge, as rising economies threaten to eat up on the US’s and Disney’s lure as the Magical World.
The primary reasons for the emergence of business environmental threats to Disney’s Parks and Resorts business have now emerged to be catalysts for change in Disney’s other business lines. Studio Entertainment is now tapping advanced technology to create better movies for right price (Disney 2004). Consumer Products are now introducing new product lines that cater to traditional toys and new educational toys that endear themselves to both parents and kids. Economic difficulties have lead to consolidation and innovation in Disney’s diversified media network entities to become unified business solutions that will further drive the company’s success, as we shall see in later discussions. The physical and economic challenges that hinders Disney’s plan of global expansion has become the primary reasons for Disney to tap technological innovation that promise of greater reach to customers and lead to tremendous opportunity for global expansion (Disney 2004).
Disney has recognized the vast market that highly populated and upwardly mobile China and India can offer to the media conglomerate (Rose & Szalai 2005). Disney recently presented its plans for international expansion, which it has identified as the cornerstone of long-term growth. International expansion plans will include television networks and theme parks in China and India (Reuters 2005). Already, Disney has set up an increasing presence in the Asia Pacific region for its television network. In 2004, Disney Television Channels was able to penetrate the Asia Pacific market with the launch of its Disney Television Channels in Singapore and Hong Kong. To date, Disney has launched its Disney Channel in several Asian countries which include Malaysia, Thailand and the Philippines. Disney has set up the Walt Disney Television International - Asia Pacific (WDTVI-AP) to pave the way for Disney Channel’s expansion in the pay-TV market of the Asia Pacific region. This has allowed Disney to gain a foothold in the region, which can lead to future expansion into the Greater China market (Johnson 2004).
For market economies such as Hong Kong, Malaysia, Thailand and the Philippines, setting up business is not as difficult as setting up in China, where regulatory requirements can impose significant impediments for foreign investors. As China started to open up to international business in recent years, regulatory impediments are seen to lessen. While details are scarce, Disney may currently be talking with Chinese businessmen in order to set up the Shanghai theme park. Shanghai can be considered as the most advanced of microeconomies in China. Shanghai businessmen are open to foreign investors and the local government supports such foreign business ventures.
Disney is all about imagining the unimaginable, and that – Imagineering – is the foundation of the creative spirit and the foundation of growth for the Walt Disney Company (Disney 2004). This the driving spirit among Disney people that leads them to create immortal characters and timeless stories, both of which brings to life the Disney’s spirit through the company’s creations.
As the main driving force in the company, the Disney Imagineering is inspired by this one quote by Disney himself: "All I want you to think about, is when people walk through or have access to anything you design, I want them, when they leave, to have smiles on their faces. Just remember that. It's all I ask of you." (Schatz, 2001). The task of putting smiles on peoples’ face is the main driving force that enlivens Disney. The challenge of putting smiles on people's faces is just one of the tasks that the Imagineers are faced with today. But the work of an Imagineer does not end with just creating the character. They have to actually build the Disney dream for other people to enjoy it.
However, imagining and creating are not the sole keys to Disney’s success. As with any relationship, it is important there are two parties involved with each other, and there has to be an indomitable bond between the two. The most important components in Disney’s success formula after the Imagineering spirit are the company’s most vital stakeholders – the family, the bond between the family and Disney, and Disney’s constant evolution in order for the company to have that close connection with the family.
Apart from the creation of exciting theme park attractions, irresistible merchandise lines, and moving story lines for TV, radio and movies, Disney keeps up with the fast-paced technology-driven lifestyle to cater to all members of the Disney family. Disney is not letting itself fall behind in the latest development among Internet-based media companies. Disney will soon launch a blog site and will soon allow RSS feeds, as disclosed in a Disney’s presentation of blog and RSS plans (Rubel 2005). The Disney presentation will discuss how the Disney Internet Business Group is leading the Disney revolution towards product creation and content syndication while generating data that will help in Disney’s marketing strategy.
Disney has long started to establish its foothold in the Internet business when it created its Internet group during the late 1990s. As the dotcom boomed during those times, Disney merged its Internet group Buena Vista Internet Group (BVIG) with Infoseek Corp. (D'Amico 1999) to take advantage of Infoseek’s popularity among internet denizens. The consolidation of Disney’s Internet group, which includes Disney.com, ABC.com and ABCSports.com, with Infoseek's Go Network, will help Disney take advantage of Infoseek’s strengths as a search engine and e-commerce (Datamonitor 2001). Internet-based operations will become more efficient with the creation of cost advantage centers. More importantly, this merger provided a launching pad for Disney’s increased presence in cyberspace.
In 2001, Disney bought the ownership rights to the Fox Family Worldwide children's television network for $5.3 billion (Datamonitor 2001). This acquisition provided a platform for Disney to set up and expand its domestic and international TV networks. With Disney’s success in the media network, Disney is now aggressively expanding into new non-traditional markets posed in Asian region, specifically targeting India, China and the rest of Southeast Asia.
Amidst rising operating costs, business process outsourcing has become the trend among many US- and Europe-based companies. For cost-intensive companies such as Disney, it can be considered prudent for Disney to outsource some aspects of its creative operations to countries with considerable cost advantages. Relevant business processes that have already been outsourced to BPO countries such as India and the Philippines include animation, cinematronics, back office operations, call centers and others. While Disney may consider creative operations such as animation as vital operations that it cannot give other companies to handles, cost considerations may encourage Disney to outsource some of its non-core operations.
As a global company, Disney adheres to a single corporate vision and mission while instilling the unique Disney spirit and smile in its over 100,000 employees in over 11 countries. While each separate subsidiary and business affiliate follows its individual corporate policies, the Walt Disney Company follows the highest standards of corporate responsibility in terms of business ethics and governance. As a family-oriented organisation, Disney dedicates itself to fulfill the dreams of families and children through public service initiatives, community outreach and volunteerism. Disney respects the dignity of the human spirit and the sanctity of the Earth, taking strict measures to protect both man and environment in the company’s daily business dealings. (Disney 2005).
Beginning early 2004, Disney’s top management was in turmoil. Then Disney Chairman and CEO Michael Eisner was under fire from shareholders and directors. Corporate governance advocates among the stakeholders sought for the separation of the roles of the chief executive and chairman of the Walt Disney Company (WebProNews 2005). In January 2005, the Board of Directors replaced Mr. Eisner with former senator George Mitchell as independent director and Chairman of the Board. Following the controversy, Mr. Eisner stepped down as Disney CEO soon thereafter, to be replaced by then Chief Operating Officer Robert Iger will be taking his place.
The separation of the roles of the Chairman of the Board and the Chief Executive Officer of the company seeks to ensure that conflicts of interest will not emerge, given the sensitivity and importance of these two roles in Disney’s existence. Immaculate corporate governance will ensure that the company will run by a chief executive that will do all his effort to increase stakeholder value, separate from a Board of Directors Chairman who may potentially have conflicts of interest in deciding the course of Disney’s global expansion.
To date, the Walt Disney Company will have to adjust to having a new CEO, but plans for global expansion are still in place (WebProNews 2005). With the fresh perspective on the corporate helm, Disney’s top management has decided to realign its global expansion plans to maximize the strengths of its home and regional offices in order to execute a comprehensive international expansion plan that will tap all available resources of the company in all regions.
In the home front, Disney announced a restructuring of the company's Corporate Strategic Planning Division in March 2005. The division will be restructured to become more closely aligned with the company's growth priorities, including creativity and innovation, new technologies and international expansion. The new Corporate Strategic Planning Division will incorporate the domestic and international activities of the four business segments – Studio Entertainment, Parks and Resorts, Consumer Products and Media Networks – to allow the company to develop and enhance its core business activities. Strategic business development will be handled separately by a smaller corporate group in order to focus on acquisition opportunities and emerging businesses that can create and add value into Disney’s company's existing portfolio and new technologies (Webpronews 2005b).
This move to restructure Disney’s strategic planning approaches will allow two separate departments of the company to focus on two important aspects of business expansion – core expansion and external expansion. The Corporate Strategic Planning Division can create specific expansion plans that consider the existing resources of the company in its four business segments. A separate New Business Group can bring in new business opportunities primarily via acquisitions or creation of new business lines. This approach will allow the two departments to work on their own respective strengths and avoid possible conflict of interest (or attention) that may distract or delay the company from acquiring emerging business opportunities.
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