Walt Disney Case

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A. SUMMARY

High economic intensity, such as high unemployment, recession, the slowdown in growth and

reduced customer costumer spending contributed to a 7% drop in revenues and a 46 % drop in

Walt Disney's profitability for the first quarter of 2009. The company has been inspiring and

have captured the attention of millions of customers for more than 8 decades by offering family

entertainment, theme parks, recreations, movies TV shows. Walt Disney created the Mickey

Mouse and Donald Duck characters that took the world as sheer entertainment.

Mr. Walt Disney and his brother Roy arrived in California in the midst of 1923 to sell their

cartoon known as Alice's Wonderland. A distributor contacted them for the distribution of Alice

Comedies in October 16, 1923 and that is how Disney Brothers Cartoon Studio came into being.

They never looked back after this event by creating many popular cartoons like Oswald the

Lucky Rabbit, Snow White and the Seven Dwarfs, Pinocchio and the very popular Fantasia.

After some time they changed the name of the company to the Walt Disney Studio.

The studio started reaching its heights by making the first ever live action film Treasure Island.

Then came Disney's most successful series the Mickey Mouse Club in 1955 and cartoons like

The Shaggy Dog, Zorro, Mary Poppins and Love Bug kept coming the entertaining millions.

Big day in the history was the opening of the Walt Disney World project in Orlando, Florida and

opening of Tokyo Disneyland in 1983. Soon after leaving network television the company

started its own cable network "The Disney Channel". Meanwhile they started many theme parks

globally. Filmmaking started hitting new heights with Hollywood studios in box-office gross.

Disney's animations started reaching new heights and greater audience with The Little Mermaid,

The Beauty and the Beast and Alladin. Many other TV series like Home Improvement and

Dinosaurs expanded Disney's television base. They also moved into publishing Books for

children after starting the new Disney Press. In 1992, Disneyland Paris opened in France.

They completed many projects throughout the 1990s. From acquiring Baseball team to acquiring

Capital Cities/ABC to opening 725 Disney stores from 2000 to 2007.

Now moving towards the issues of Walt Disney, firstly the structure of Walt Disney is SBU

based with SBUs like Disney Costumer products, Studio Entertainment, Parks and Resorts,

Media Networks and Broadcasting. Disney has a very inspiring and comprehensive mission

while they do not possess a formal vision statement lacking their strategic focus on what to

2achieve in the future. Disney's recent income statements and balance sheets indicated profit

decline from 2007 to 2008. Disney's Media Networks brings the most revenues for the company.

However, Studio Entertainment and Customer Products have experienced declining revenues.

In percentage terms the Disney revenues in 2008 could be split up in numbers like Media

Networks 43%, parks and Resorts 31%, Studio Entertainment 20% and Costumer Products 8%.

Disney owns the ABC Television Network, which includes ABC Entertainment, ABC Daytime,

ABC News, ABC Kids and many more. This segment grew probably because of the growth in

cable sector and satellite operations. Advertising on the network is another source of additional

revenue for Walt Disney. Video on Demand is a major industry expected to grow by 2010.

Disney owns and operates many parks and resorts globally. Disneyland Resort in California,

ESPN Zone facilities in many cities and 17 Hotels at the Walt Disney World Resort are a few

examples of Disney's largest network and expansion. Disney revenues increased 7% in 2008.

There was higher guest spending, theme park attendance and hotel occupancy in this sector.

Disneyland Resort Paris also experienced increased revenues due to the favorable impact of

foreign currency translation, i.e. weakening of the US$ against the Euro.

The Consumer products segment has many partners, manufacturers, publishers and retailers

worldwide who design, promote and sell a variety of products for Disney. Revenues from this

segment increased 26% also due to sales oat Disney Stores North America acquired by Walt

Disney. Disney in each segment has major competitors like Time Warner, which has five

divisions and CBS Corporation in Media Network Segment. They compete domestically and

globally. This global media industry is dominated by conglomerates of Disney and Time Warner.

The success of Studio Entertainment operations totally depends upon public taste and preference.

As such, few companies dominate the industry and control the production and distribution of

most of the movies, including Warner Brothers, Walt Disney, Twentieth Century Fox, Viacom

and others. Disney is also the largest worldwide licensor of character-based merchandise and

producer/distributor of children's film related products based on retail sales. Leading competitors

in this segment are Warner Brothers, Fox, Sony, Marvel and Nickelodeon. There are also many

risks involved in such diversified business that can affect the future operational plans of Disney.

3B. STRENGTHS-WEAKNESSES-OPPORTUNITES-THREATS (SWOT)

a) STRENGTHS Disney Media Network with most revenue of 43% & operating income of 57%.

26% increase in revenue from consumer products.

Acquisition of Disney Stores North America.

Magic Kingdom at Disney World the most visited amusement park.

Largest Worldwide licensor of character based merchandise & product distributor of

children's film related products.

Vast & Diverse portfolio of products.

Acquisition of Pixar animation studios in 2006.

b) WEAKNESSES

No formal Vision statement.

A 5.5 % decrease in profits from 2007 to 2008.

A 26 % decrease in net income for the 3rd quarter (2009).

Movie Studio the worst performing division with $12 million losses.

Diversity in products leading to reduced strategic focus.

c) OPPORTUNITIES

Major growth potential in Video on Demand Industry up to $3.9 billion by 2010.

Transition of concept of theme parks from mass audience to more concentrated

perspective.

A 10 % increase in investment in theme parks & hotels to enhance attendance and

occupancy respectively.

Overhaul of attractions in theme parks and hotels due to increase in profits.

Can also target new consumer group.

d) THREATS

Unemployment, recession & reduced spending, contributing to 7% drop in revenue.

Threat of cannibalization of Disney's brands.

Presence of major competitors like Time Warner & CBS corporation in Media Network

industry.

Rapidly changing media & technology.

Increased difficulty in protection of intellectual property.

C. PROBLEM STATEMENT

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The problem currently Walt Disney has to avoid is the cannibalization of its brands as it is

already expanding globally in diversified businesses that result in the lack of strategic focus.

Other issues involve the major economic slowdown, changes in technology and consumer

preference, change is travel and tourism trends and high unemployment. Their income fell 26%

in the first quarter (2009). The Major segment of Walt Disney that requires a breakthrough is the

Movie Studio unit. So, Disney requires a clear strategic plan and hard decisions to stop letting

the revenues slip.

D. EXTERNAL FACTOR EVALUATION MATRIX (EFE)

Key External Factors Weight Rating WeightedScore

Opportunities 1. Major growth potential in Video on Demand Industry up to $3.9

billion by 2010.0.15 4 0.60

2. Transition of concept of theme parks from mass audience to more concentrated perspective.

0.08 3 0.24

3. A 10 % increase in investment in theme parks & hotels to enhance attendance and occupancy respectively.

0.1 2 0.2

4. Overhaul of attractions in theme parks and hotels due to increase in profits.

5. Can also target new consumer group.

0.09

0.1

1

3

0.09

0.3

Threats

1. Unemployment, recession & reduced spending contributing to 7% drop in revenue.

0.15 1 0.15

2. Threat of cannibalization of Disney's brands. 0.11 2 0.22

3. Presence of major competitors like Time Warner & CBS corporation in Media Network industry.

0.1 3 0.3

4. Rapidly changing media & technology. 0.08 3 0.24

5. Increased difficulty in protection of intellectual property. 0.04 3 0.12

Total 1.00 2.46

5E. INTERNAL FACTOR EVALUATION MATRIX (IFE)

Key Internal Factors Weight Rating WeightedScore

Strengths 1. Disney Media Network with most revenue of 43% & operating

income of 57%.0.11 3 0.33

2. 26% increase in revenue from consumer products. 0.07 3 0.21

3. Acquisition of Disney Stores North America. 0.08 3 0.24

4. Magic Kingdom at Disney World the most visited amusement park. 0.1 4 0.4

5. Largest Worldwide licensor of character based merchandise & product distributor of children's film related products.

0.14 4 0.56

6. Vast & Diverse portfolio of products. 0.07 3 0.21

7. Acquisition of Pixar animation studios in 2006. 0.05 3 0.15

Weaknesses

1. No formal Vision statement. 0.06 2 0.12

2. 5.5% decrease in profits from 2007 to 2008. 0.05 2 0.10

3. 26% decrease in net income for the 3rd quarter (2009). 0.1 1 0.10

4. Movie Studio the worst performing division with $12 million losses. 0.13 1 0.13

5. Diversity in products leading to reduced strategic focus. 0.04 2 0.08

Total 1.00 2.63

6F. COMPETITIVE PROFILE MATRIX (CPM)

Walt Disney CBS Time WarnerCritical Success

FactorsWeight Rating Score Rating Score Rating Score

Advertising 0.15 4 0.6 3 0.45 3 0.45

Market Share 0.2 3 0.6 1 0.2 2 0.4

Company Image 0.11 3 0.33 3 0.33 3 0.33

Expansion 0.09 3 0.27 2 0.18 2 0.18

Diversification 0.13 4 0.52 3 0.39 3 0.39

Market Capital 0.15 4 0.6 2 0.3 3 0.45

Revenues 0.17 2 0.34 4 0.68 3 0.51

Total 1.00 3.26 2.23 2.71

7G. STRENGTHS-WEAKNESSES-OPPORTUNITIES AND THREATS MATRIX

(SWOT)STRENGTHS-S

1. Disney Media Network with most revenue of 43% & operating income of 57%.

2. 26% increase in revenue from consumer products.

3. Acquisition of Disney Stores North America.

4. Magic Kingdom at Disney World the most visited amusement park.


6. Vast & Diverse portfolio of products.

7. Acquisition of Pixar animation studios in 2006.

WEAKNESSES-W1. No formal Vision statement.2. 5.5% decrease in profits from

2007 to 2008.3. 26% decrease in net income

for the 3rd quarter (2009).4. Movie Studio the worst

performing division with $12 million losses.

5. Diversity in products leading to reduced strategic focus.

OPPORTUNITIES-O1. Major growth potential in

Video on Demand Industry up to $3.9 billion by 2010.


3. 10% increase in investment in theme parks & hotels to enhance attendance and occupancy respectively.


5. Can also target new consumer group.

SO STRATEGY1. Investment to innovate attractions

in Theme Parks & Resorts. (S4,O3)

2. Launch a new channel with specific focus on Video On Demand feature. (S1,O1)

WO STRATEGY1. To create new hit movies using

the IMAX 3D latest trend technology. (W4,O5)

THREATS-T1. Unemployment, recession &

reduced spending contributing to 7% drop in revenue.

2. Threat of cannibalization of Disney's brands.

ST STRATEGY1. Reduce entrance fees at Theme

parks and introduce discounts on hotels. (S4,T1)

WT STRATEGY1. Reduce non-performing

products to reduce cannibalization & enhance strategic focus. (W5,T2)

83. Presence of major

competitors like Time Warner & CBS corporation in Media Network industry.

4. Rapidly changing media technology.

H. STRATEGIC POSITION & ACTION EVALUATION MATRIX (SPACE)

Financial Position rating 1 (worst) to 6 (best) Ratings

1 Liquidity 42 Earnings per share 5

93 Working Capital 44 Return on Investment 5

Industry Position rating 1 (worst) to 6 (best) FP Total 18

1 Technology 52 Ease of Entry 53 Growth Potential 44 Financial Stability 4

Stability Position rating -1 (best) to -6 (worst) IP Total 18

1 Recession -52 Competitive Pressure -33 Price Range of Competing Products -34 Technological Changes -2

Competitive Position rating -1 (best) to -6 (worst) EP Total -131 Market Capitalization -12 Technological Know-How -33 Customer Loyalty -24 Competition's capacity utilization -4

CP Total -10

SP Average = -3.25, IP Average = +4.5CP Average = -2.5, FP Average = +4.5Directional Vector Coordinates: x-axis: -2.5+(+4.5) = +2 y-axis: -3.25+(+4.5) = +1.25

I. INTERNAL-EXTERNAL (IE) MATRIX

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Total IFE Weighted Scores

The internal and external intersection point lies in the (V) Quadrant Cell in Average category and

the best strategies for this quadrant are "hold and maintain strategies" i.e. market penetration and

product development. So, Walt Disney in the future should hold and maintain their position

using Market Penetration and Product Development strategies if they do not want their last

quarter revenues to drop. Although the estimations are based on approximation, but are not far

from the case.

11J. QUANTITATIVE STRATEGIC PLANNING MATRIX (QSPM)

Alternative StrategiesKey Internal Factors

Weight

Launch a new channel with specific focus on Video On Demand feature

Create new hit movies using the IMAX 3D latest trend technology

Strengths AS TAS AS TAS8. Disney Media Network with most

revenue of 43% & operating income of 57%.

0.11 4 0.44 4 0.44

9. 26% increase in revenue from consumer products.

0.07 3 0.21 2 0.14

10. Acquisition of Disney Stores North America.

0.08 - -

11. Magic Kingdom at Disney World the most visited amusement park.

0.1 - -


0.14- 2 0.28

13. Vast & Diverse portfolio of products. 0.072 0.14 2 0.14

7. Acquisition of Pixar animation studios in 2006.

0.05 - 4 0.20

Weaknesses

6. No formal Vision statement. 0.06 - -

7. 5.5% decrease in profits from 2007 to 2008.

0.05 3 0.15 3 0.15

8. 26% decrease in net income for the 3rd quarter (2009).

0.1 1 0.1 1 0.1

9. Movie Studio the worst performing division with $12 million losses.

0.13 1 0.13 3 0.39

5. Diversity in products leading to reduced strategic focus.

0.04 1 0.04 -

1.00

12 Alternative StrategiesKey External Factors

Weight

Launch a new channel with specific focus on Video On Demand feature

Create new hit movies using the IMAX 3D latest trend technology

Opportunities AS TAS AS TAS6. Major growth potential in Video on

Demand Industry up to $3.9 billion by 2010.

0.15 4 0.6 -


0.08 - -

8. 10% increase in investment in theme parks & hotels to enhance attendance and occupancy respectively.

0.1 - -


0.09- -

5. Can also target new consumer group. 0.1 3 0.3 3 0.3

Threats

5. Unemployment, recession & reduced spending contributing to 7% drop in revenue.

0.15 2 0.3 2 0.3

6. Threat of cannibalization of Disney's brands.

0.11 1 0.11 -

7. Presence of major competitors like Time Warner & CBS corporation in Media Network industry.

0.1 1 0.1 -

8. Rapidly changing media & technology. 0.08 3 0.24 2 0.16

5. Increased difficulty in protection of intellectual property.

0.04 - -

TOTAL1.00 2.86 2.6

QSPM indicates that the first alternative strategy is the comparatively more viable to execute as

determined by the total scores. The strategy is to Launch a new channel with specific focus on

Video On Demand feature. As this industry is the most growth oriented $3.9 Billion by 2010 and

holds vital importance resulted in a higher score for this strategy.

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K. CONCLUSION

It is quite clear from the above analysis on the Walt Disney company that they lack a strategic

focus with so many diversifications. Adapting to changing trends and continuously meeting

expectations of their consumers in various parts globally with different cultures is not a piece of

cake for any large organization of such magnitude. But for any organization that has lasted 8

decades could carry on and prevent slipping of revenues if they open themselves to change and

concentration on markets. It was apparent from the results of above analyses that ever-changing

Walt Disney has to make another change in strategy to retain its position in the global market.

L. ANNEXURE

PRO-FORMA INCOME STATEMENT:

Disney Inc. Consolidated Income Statement (in millions)%age of Sales Increase Forecasted for year 2009 15.00%

Income Statement & Projected Statement for the Year 2009 Tax Rate 36.00%Cost and Expenses %age of Sales 80.00%

2006 2007 2008 2009Sales 33,747 35,510 37,843 43,519Cost and Expenses 28,392 28,681 30,439 34,816Other Expenses 88 1,004 59 68Net Interest Expenses 592 593 524 603Equity in the income of investees 473 485 581 668

Taxable Income Before Income Taxes and Minority Interests 5,324 7,725 7,402 8,702Income Taxes 1,837 2,874 2,673 3,133Minority Interests 183 177 302 347Net Income 3,374 4,687 4,427 5,222

14ASSUMPTIONS:

The above is a pro-forma income statement projection for the year 2009. A 15 % increase in

sales is assumed to cost of goods sold to be 80% of sales and 36% tax rate. Retained earnings

and dividend ratio has not been used because no such sort of policy was discussed in the case.

Increase in sales can still render the first three quarters of declining profit to be changed into

increased profit in the last quarter of the year. Simple financial terms have been used to elucidate

that increasing net income figure. All the above figures used are in millions.

Documents

Walt Disney Case