Parenting Advantage
Disney’s latest acquisitions have proven an unparalleled parenting advantage and Pixar, Marvel and Lucasarts are a prime example of this. By 2006 Disney had developed a diversified yet, integrated entertainment business with global reach. It had in place a comprehensive value chain that included content creation, distribution, merchandising, tourism, broadway and so on. This, alongside Disney’s strong brand equity meant they were in the best position to acquire and generate greater value than anyone out of the most renowned Computer-generated Imagery animation studio in the market and the biggest superhero and sci-fi franchises in the world.
This advantage is clear for movie studios, but it also exists for other businesses like theme parks & resorts. In parks such as Tokyo Disney or EuroDisney, Disney did not hold majority stake, but it was an important stakeholder giving the Disney Brand. This parenting clearly helped to reach to a specific kind of customer, over which Disney would give a clear advantage with regard to other theme parks.
However, this parenting advantage may not be very clear for businesses where the synergies are not carried out well. When Disney acquired ABC in 1995, there was a theoretical synergy since ABC would give Disney global access. The problem was that ABC and Disney company cultures did not merge very well, and a culture clash took place. After the acquisition, ABC had to break some business agreements that they had with some Disney competitors, and substitute them for some Disney campaigns. One of them was promoting the movie The hunchback of NotreDame, which had not been a block-buster. This made ABC executives to feel uncomfortable.
All these facts made that at first, Disney’s financial performance deteriorated, getting to the bottom at 1998 and 1999. However, Disney gave ABC an incredible access to talent, and in the year 2000 they could recover thanks to the show who wants to be a Millionaire?. This talent transfer is one of the main skills that Disney transfer to all its subsidiaries, which allows the subsidiaries to improve and perfection their projects.
Corporate Resources
The most important resource that Disney had is its Brand, which comes together with a series of licenses of characters created by the natural talent that Disney owns. This Brand is unique and makes any movie production to be more successful than what it would be under any other Brand. A clear example of this are the Toy Story movies. It is clear that Pixar (before being acquired by Disney in 2006) had the means to create incredible animation movies. But the scripts and the characters had been created by Disney talent. First Toy Story movie in 1995 was already a great success, and the movie was advertised as a Disney movie, which had had other successful movies at that time such as Little Mermaid (1989), Aladdin (1992), and The Lion King (1994). Under this Brand, people went to theatres in crowds and Box Office sales was higher than it would have been the same movie under another brand.
The distribution network is also another very important resource that Disney has. In 1953 disney created Buena Vista distribution, in a Vertical Integration movement, which allowed to save on distribution fees to third parts. Same thing they did for the talent, avoiding paying enormous salaries.
Also, with the acquisition of ABC in 1995, Disney acquired a television network, radio network and 10 television stations. This gave Disney access to advertising, with the regarding savings in television fees. This resource gave the ability to promote any park, movie, or toy through their media network.
Synergies
Disney’s synergies are founded in Disney Dimensions, “a program held every few months for 25 executives from every Disney division”. New executives are taken to the company headquarters in Orlando and also to New York offices for 8 days to perform day to day park staff duties such as cleaning bathrooms, trimming bushes and even playing characters. This helps management to bond with the company and with one another, ultimately creating a strong camaraderie which is important in an entertainment company. Eisner described it as the synergy boot camp and told executives that it would help them to communicate better and make sure important decisions are made in face-to-face meetings rather than by teleconferences. He attributed himself a lot of mistakes because of this fact.
The company also has a synergy group composed by business units representatives that report directly to the CEO. They fill monthly operating reports where they should discuss new cross-divisional projects and progress on current ones. To foster synergies, at the end of each year a performance evaluation is done and the most committed executives receive financial rewards.
Cross-promotion is an example on how Disney creates synergies between its divisions and how they boosted revenues through structure, systems and processes. Before a new movie is released, its creators present it to the leaders of the consumer products, theme parks and home video divisions to brainstorm ideas and plan strategies during prior release months. After this is done, they approach their exclusive licensing partners to deploy the strategy and make sure it is followed coherently throughout all divisions.
Synergy affected the scope of business geographically, horizontally and vertically. Geographically, the company purpose would be to increase sales internationally, 21% of revenues come from abroad, planning also to integrate its overseas operations and consolidating its foreign offices under regional executives to create more synergy through cross-promotion. Additionally related to synergy revenues, moviemakers used to obtain high royalty rates from licensees of toys, clothing, and other goods. In order to have a better payoff, Disney reduced the number of licensed products by half, to 2,000, to productively manage them and more effectively build merchandise campaigns, placing more emphasis on products featuring its core characters, such as the well established Winnie the Pooh or Mickey Mouse, instead of the latest film releases.
Horizontally, the company would seek to enter new types of entertainment such as virtual and interactive attractions in DisneyQuests, cruise ships and educational retreats or Disney Institute focused on fitness and adventures in learning, courses on animation, landscape design, and culinary arts.
Vertically, major initiatives involved Internet and TV. The goal would be to lead Internet as a possible distribution channel for its film library, sports and news programming and other content as soon at home entertainment will be consolidated.
Related to cost synergies, Disney could save in costs merging Touchstone Television into a division of ABC to save an estimated $50 million a year and increase cooperation. With regards to theme parks, synergies drove costs as well, as stages for plays can be the same for every new city open and attractions can be shared from close Studios, such as in the new Disney Studios Park next to Disneyland Paris which included popular attractions from Disney-MGM Studios.
Corporate Style
Disney has a headquarters centralized style with 5 business units run by chairmen that report directly to the CEO. However, 2 of the media business unit holdings (ESPN and ABC) are run by presidents that report directly to the CEO. From the beginning Disney was a nonhierarchical company, where everyone knew each other. They were like a group of friends, which felt identified and committed to the company. However, this did not mean that there was no pressure. Walt Disney wanted to achieve creativity and quality through teamwork, communication and cooperation, and pushed himself and his staff to the limit. The style of the company is what is known as micromanagement, with a very high attention to small details. The history and culture of the company and the legacy of Walt Disney were inculcated in a three-day training program at Disney’s corporate university.
Walt Disney’s philosophy was to create universal timeless family entertainment. The company was always oriented to fostering an experience that families could enjoy together, being a strong value the importance of family life, creating a high-quality family content, around traditional family values around the key brand philosophy “make people happy”. Thus, Eisner viewed managing creativity as Disney’s most important distinctive corporate skill, so that one of his traditional techniques as part of their processes called the “gong show,” a weekly meeting in which Disney employees in each division would brainstorm for new ideas, examples such as The Little Mermaid and Pocahontas came out of those meetings. On the other hand, Disney had a strategic planning unit that was a financial check on Disney’s various divisions. The system encouraged conflict by pitting division managers against the strategic planning department. Strategic planners were assigned to each of Disney’s business units and reported to the head of strategic planning, who reported to Eisner. Some insiders felt that too much conflict was built into Disney’s culture.
Exploiting technological innovation to make entertainment experiences more memorable (such as in amusement parks and movies combining animation and live action), gaining expertise and creating value through acquisitions, such as with Pixar.
One of Disney’s main shared activities is international and division cross-promotion. When a new movie franchise or a sequel is being launched, the corporation aligns to make the best out of it and generate greater value. This is possible by integrating divisions strategies and aligning them with the movie or character development, distribution and promotion.
Business scope
Disney is currently participating in 5 business segments; Media Networks, Parks & Resorts, Studio Entertainment, Consumer Products and Interactive Media. All of the current businesses are a result of shaping the corporation through almost a century. Without never losing scope of becoming the biggest entertainment company in the world, Disney has acquired several businesses through history and divested some (real estate, fast food), to build a highly valued asset company based on its characters. Thanks to them, Disney has been able to create the most successful animated movie franchises in history as well as amusement parks, resorts and cruises.
Media Networks is its largest segment. It covers television and radio operations. The main lines of revenues came from ABC, ESPN (sports events television) and oversea revenues from all Disney Channels around the world.
Parks and Resorts is the second biggest segment. It comprises the iconic assets that Disney builds. As described by Tom Staggs, Disney is in the guest experience business. It makes money through ticket sales to attractions, hotels near to the parks, and the cruise ship businesses. This business started in Anaheim, California, but now it is around the world (EuroDisney, Tokyo Disney, Orlando, Shanghai, HongKong, etc.)
Walt Disney Studios is not the largest but the most known of the businesses Disney is in. These studios create, produce, promote, sell and acquire diverse projects through several studios under the Disney Brand (Marvel, Pixar, Touchstone..). This segment is key since it allows Disney to introduce Disney Products to underdeveloped countries and markets.
Moreover, Disney is in the consumer products, selling toys licensed from all the movies and characters created by its talent. This business was benefited from the acquisition of Marvel, for example, and the launch of movies like Cars.
The last business where Disney is in is Disney Interactive. This segment comprises electronic games, some advertising, sponsorships and subscriptions.
Recommendations to CEO
Walt Disney’s current value is around $150B. Having said this, there
Recognise new technology trends and develop plans to minimize the risks associated with technology
Sell ESPN. Disney hasn’t proven to have a parenting advantage on this holding.