SEPTEMBER 27, 2018

The Walt Disney Company: The

Entertainment King
Abigail Bolaños Baez ID:153448
Ana Lorena Ortiz Zehenny ID:153595
Joseline Krystel Milla Novelo ID:150359
Nora Gabriela Martínez Lozada ID:147421

Executive Summary
The purpose of this report is to offer a deep analysis of Disney´s competitive
advantages through the evaluation of its business model and its financial
performance over the years. This report also includes an analysis of the
measures taken by Michael Eisner in order to increase the company´s net
income, as well as an assessment of Disney´s policy of acquisition. Methods
of analysis include KFS of family entertainment, VRIO analysis, interpretation
of financial data, etc. Results of the data analyzed show that the strategic
decisions and the correct management of their capital made Disney the king
of entertainment. Even though it has had difficult times as well as negative
financial spreads, the diversification of Disney´s activities and sectors as well
as the key management of Eisner have granted it a great success.

CORPORATE STRATEGY
UDLAP
 The Walt Disney Company: The Entertainment King
1. What are Disney´s competitive advantages?
Key Factors of success of Media Networks and Family Entertainment industry

Disney´s Business Model Canvas

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Hambrick’s Diamond Analysis

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Value/ Rarity/ Imitability/ Organized to capture value/ Analysis (VRIO):

Resources and Valuabl Rare Difficult to organized to NO=

Capabilities e imitate capture
value
Brand awareness YES YES YES YES Sustainable
competitive
advantage

Intellectual Property YES YES YES YES Sustainable

competitive
advantage
Brand and subsidiary YES YES YES YES Sustainable
portfolio competitive
advantage
Consumer Products YES YES NO YES Temporary
Development competitive
disadvantage
Technology YES YES YES YES Sustainable
competitive
advantage
Innovation in YES NO YES NO Competitive
service/Products disadvantage
Good management of YES YES YES YES Sustainable
the firm competitive
advantage
Capital/ finance YES NO NO YES Sustainable
competitive
advantage

Financial performance of Disney over time:

Walt Disney Co. has been since its beginnings one of the main players in the entertainment sector not
only for children but for entire families. Although the company passed tough times in the early years, it
managed to grow and stay in the industry, but it was not until 1937 when the launch of its first animated
film Snow White gave the company that strong economic boost that was needed to start producing new
animated material and diversify very astutely investment in different sectors within its same industry as
it was the opening of thematic parks, acquisition of networks and the creation of Walt Disney Music
Studios where they were responsible for managing the copyright of music of their productions as well as
talent managing of new celebrities.

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 These strategic decisions and the correct management of their capital made Disney the
king of entertainment with a potential growth, it was even said that for the year 1990 the
shareholders of the company could have a retiree without any problem.

Because the case study already presents a lot of detailed information about the financial
situation of the company over time, we looked for other factors that provide us other perspectives
on the financial performance of the corporation and we present it right ahead.

1. Risk profile

Source: http://people.stern.nyu.edu/adamodar/New_Home_Page/project/disney.htm

To begin the risk analysis we found this table with the prices of the Disney shares in the period of the 90's
as well as the earnings of them, and, as it can be appreciated, these earnings have been increasing from
the study period to the now a days, which shows us that in this period, which was when Disney began to
raise significantly more than in previous years their numbers in both income, revenue and other economic
indicators. The prices of the shares also increased significantly and this also shows us the strong stability
and presence of the company in the market, indicating that the company did not present significant risk
to shareholders.

Things changed after the years that appear in the figure due to the acquisition of the ABC chain,
which consumed a strong amount of the capital of the company, the acquisition also turned Disney from
a company with a 20% debt ratio to one with a 34% debt ratio ($12.5 billion) after the takeover along with

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the investment in the cruise lines and other sectors. For this period it could be said that the company had
a better performance than others, but in fact, we need to identify which external factors affect the
situation and which internal factors are attributed to the result to provide a better analysis of the
performance.

2. Investment diversification Analysis

Due to the diversification of the Disney’s business mix, we categorized and divided the activities with the
financial characteristics that represent them, with this, we attempt to show how some characteristics are
shared and how some are specific to the business lines.

Business Line Money Flow Characteristics

Creative content  Short term-oriented projects
 The money outflows for almost all lines
are generally in dollars, because the
majority of digital productions are made in
the United States, but the company is also
operating in foreign currencies for sales
abroad.
 The income and expenses in this area are
highly volatile, since it depends a lot on
whether the creative material is "a
success" or not, which is never easy to
forecast.

Broadcasting of animated material  Short term oriented

 Seriously affected by the advertising
revenues and the success of the
broadcasted material
Theme Parks  Long term-oriented project
 Income comes primarily in dollars
 Success of movies and digital productions
affect seriously the traffic in the facilities

Retail of brand products  Medium term oriented- this is fixed to the

stores’ life.
 Most of the income is in dollars because
almost all the stores are inside the U.S.A and
theme parks.
 It has followed a cyclic retail sale development
taking its products from a low cost base to a
more expensive and developed setting.

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We believe that the previous activities will always generate a lot of value for the company, not only
because they are the main ones that have generated success for the brand, but for other inferences
that can be concluded from them, such as:

 Thanks to the strong recognition of the brand, prices can be raised both in tickets to the parks and
in retail merchandise without problem, because customers despite the price rise feel that their
money has been worthwhile for the experience, which is a factor from which the company can
get an advantage that is reflected in the margins.
 The strong investment in the theme parks is already done, Walt Disney Co. only have to make
small contributions compared to the excessive capital in acquisitions and infrastructure of the first
years, meanwhile the company can enjoy the profits they already provide.
 The sector that represents the most risks in the future is the broadcasting area, since currently,
thanks to the impact of other media such as the Internet, the broadcasted material may lose
popularity.

As we have seen in class, another performance indicator is debt, throughout the case, some
information along with with Disney's characteristics and the pros and cons of the use of debt, we offer
the following conclusions:

Factor Disney
Discipline of payment Disney is a strongly established company with
margins and exorbitant income volumes, so this is
not a problem, the firm should make more
constant use of its debt capacity.

As we have explained before, some sectors of the

bankruptcy risk company's income are unstable, such as the the
broadcasting area, however, great part of the
profits come from stable sources, (for example
the theme parks), so the company presents a
bankruptcy risk very low relative to the size of the
company.

Agencies The use of agencies that help the firm to carry

out their activities is crucial. Agency costs are
likely to be large for loans from the creative

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 content and broadcasting divisions, and smaller
for retailing and theme parks
Future economic adaptation It is very necessary to have financial flexibility in
these times due to the fast technological
development and globalization.

With the previous information we can conclude that Disney like any other company has had difficult
starts as well as negative financial spreads, however the diversification of its activities and sectors as well
as a key management in specific periods as it was in the case of Eisner stewardship, have allowed Disney
to position itself as the long term king of entertainment.

Use this data as base for argumentation, make some points over the analysis

Use the data in the case as historical and then provide an updated version of the status of the
company.

Acquisitions impact the sales volume( rationale of the acquisitions:

Was the acquisition of ABC profitable, did it make sense?

Debt ratios: acquisitions

Show the evolution of this ratio over time

*sales, profit, debt ratios

2. What did Michael Eisner do to rejuvenate Disney? How did he increase net income
in his first four years?
Eisner in the first 4 years implemented measures that helped the growth of their net income, these
measures are going to be divided into three areas that are the main ones of the company, these areas
are TV and movies, Parks and consumer products. To analyze it better we put it in a comparative table of
a before and after Eisner

Before 1984 1984-1988(Eisner)

Tv &Movies  It was decided to release two  Rebuild Disney’s TV and movie
long short films per year. business
 Feature films for the Second  Created a syndication
World War operation to sell to
 1965: three films per year but independent stations some of
combined between real and the TV programming of Disney.
animated action  Disney began releasing 15 to
 1954: A television program 18 new films per year, up from
was created two new releases in 1984.

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  In the years of construction of Releases under the Touchstone
the theme parks there was a label
reduction in film production  Under Katzenberg, Disney
 Touchstone creation produced moderately
 1983 Disney Channel release budgeted films rather than big-
that was a high cost for Disney budget, special effects-laden
blockbusters
 Disney decided to expand its
animation staff and to
accelerate production by
releasing a new animated
feature every 12 to 18 months.
 Disney also invested in a
computer animated
production system (CAPS) that
digitized the animation process
Parks  The new management team
 1955: Disneyland was updated and expanded
inaugurated attractions at the parks.
 1965: Hectares are purchased  First time national television
in Orlando ads, as well as special events,
 Resort hotels retail tie-ins, and media
 Creation of an internal travel broadcast events.
company  Disney also lifted restrictions
 Creation of Tokyo Disneyland on the numbers of visitors
permitted into its parks
 Opened Disneyland on
Mondays
 Raised ticket prices
 It proceeded to aggressively
expand its activities, which
included a several-thousand-
room hotel expansion at
Disney World
Consumer products  Creation of Walt Disney music  In the consumer products
company but only to have division, the Disney Stores
copyright on the songs pioneered the “retail-as-
 At the beginning of the park, entertainment” concept,
concessions of food and generating sales per square
merchandise were given. foot at twice the average rate
for retail.
 The consumer products
division also entered book,
magazine, and record
publishing.
 Hollywood Records, a pop
music label, was founded in

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 1989 for less than $20 million,
the cost of making a single
Hollywood movie.

All those measures implemented by Eisner helped Disney's financial situation in the long term up to 10
years before ABC's acquisitions. During the first four years financially speaking there was a high growth
in net income, mainly attributed to the excellent work in films and television that previous years was
falling drastically by various factors as can be seen in the table and that with the proposals Eisner began
to recover quickly. As we can see in the annex of financial data of the case, the revenues related to
Studio Entertainment increased in the first year of Eisner, in fact, after the operative income they went
from negative numbers to positive ones and later only from 1984 to 1985 in the income on the part of
movies and TV there was an annual variation of 3300% positively, which was when increased the making
of films.

During the first year, given the new policies, there was a decrease in revenue from the parks, which,
although it was only 2.2% negatively in the percentage change, was mainly due to the debt and large
investment made in the previous years, like the new Disney Tokyo and that did not stop but the
opposite continued betting on the parks. In the following year of 1985 it recovered with an increase of
37% and for 1986 when the new attractions were implemented, the increase was 58% with respect to
the previous year.

In the case of consumer products, although in the first year there was a decline in revenues with respect
at this division, from 1985 began a recovery that continued to grow up to 28%, thanks mainly to the fact
that in these years Disney bet in this area taking advantage of the entire industry.

As we can see the financial situation of Disney improved in many aspects, the return on assets was
improving that, although it was not negative previous years and it was an acceptable situation the
increase was notorious and likewise with respect to the return on capital.

In conclusion, Eisner took fundamental measures for the growth of Disney that mainly was to activate all
divisions of the company, recover those that were lost, grow those with high potential as parks and add
new divisions taking advantage of the entire industry as are the consumer products.

3. How do you assess their policy of acquisitions? What is the value they add as a
corporate parent, to all their divisions, to improve the competitive position of those
divisions? How does that translate into financial performance?
The corporate offices of The Walt Disney Studios are in Burbank CA is in the Stock Market of
New York since 1991, They have grown since Walter Disney created the famous Character
Mickey Mouse to a second biggest Media conglomerate in the world.
In the Eisner era, the commitment with the company and the shareholders was to have an
annual growth of 20% every year, his objective was to create the Disney brand, Eisner
diversified and acquired ABC, ESPN, The Disney Channel, They acquired their own software for
animation movies, and they seek for the profitability of the parks, raising the price of the

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 entrance, opening Sundays, They opened Euro Disney, to obtain European market, and the
divisions of the products in the Disney stores(retail-as-entertainment), also published books
and magazines, recording studios like touchstone, and Miramax, they acquire a hockey team
and a theater in Broadway etc. They have grown in all aspects they are a multinational media
conglomerate.
However, there were problems to coordinate the actions between the Disney companies
because of the high diversity, the company was not profitable, the employees were 28000 and
growth to 110.000 because of the acquisition of new companies and business and fusions all
over the world. Disney decided to reduce the number of their licensed products by half, to be
able to productively manage relationships.
Disney company was not so fun as it used to be, Disney acquired too much, and markets they
were not from their core business, probably sports are not the best business for Disney and
they do not add value to the company.
Added Value
1) Selling to their existing clients
Parks, resorts, sports, tv, cable, broadcasting, films, recording, theater, distribution, licensing,
publishing, Disney stores, art classics, Disney interactive,
Disney on line, ABC, ESPN etc.
2) Expanding into new business
Opening new business and investments, property, real state in different parts of the world.
3) Marketing and Promotion
They manage a budget for marketing and promotion for all their products all year long, via e-
mail, on-line, web, in site, brochures, tv, cable, and all media.
4) Continuous improvement
Going to Disney University, developing new products, developing new ideas, new ways of
training employees.
5) Keeping track of their companies and all their divisions  Creating synergy between the
different business and all their divisions.
Walt Disney’s philosophy was to create universal timeless family entertainment. A strong
believer in the importance of family life, the company was always oriented to fostering an
experience that families could enjoy together. As Walt Disney said, “You’re dead if you aim only
for kids. Adults are only kids grown up, anyway.”

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