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1 Walt Disney Company — 2009

Mernoush Banton
Adjunct Faculty/Consultant

DIS
www.disney.com
High unemployment, lingering recession, slow economic growth, and reduced consumer
spending all contributed to a 7 percent drop in revenue and a 46 percent drop in Walt
Disney’s profitability for the first quarter of 2009. For eight decades, the Walt Disney
Company has captured the attention of millions of people, offering family entertainment
products and services such as theme parks, resorts, recreations, movies, TV shows, radio
programming, and memorabilia. Walt Disney brought Mickey Mouse and Donald Duck to
the world. Walt Disney offers a variety of family entertainment all around the world.

History
Mr. Walt Disney and his brother Roy arrived in California in the summer of 1923 to sell his
cartoon called Alice’s Wonderland. A distributor named M. J. Winkler contracted to distrib-
ute the Alice Comedies on October 16, 1923, and the Disney Brothers Cartoon Studio was
founded. Over the years, the company produced many cartoons, from Oswald the Lucky
Rabbit (1927) to Silly Symphonies (1932), Snow White and the Seven Dwarfs (1937), and
Pinocchio and Fantasia (1940). The name of the company was changed to Walt Disney
Studio in 1925. Mickey Mouse emerged in 1928 with the first cartoon in sound.
In 1950, Disney completed its first live action film, Treasure Island, and in 1954, the
company began television with Disneyland anthology series. In 1955, Disney’s most suc-
cessful series, The Mickey Mouse Club, began. Also in 1955, the new Disneyland Park in
California was opened. Disney created a series of releases from 1950s through 1970s,
including The Shaggy Dog, Zorro, Mary Poppins, and The Love Bug. Mr. Walt Disney died
in 1966. In 1969, the Disney started its educational films and materials. Another important
time of Disney’s history was opening the Walt Disney World project in Orlando, Florida,
on October 1, 1971. In 1982, the Epcot Center was opened as part of Walt Disney World.
And, on April 15, 1983, Tokyo Disneyland opened.
After leaving the network television in 1983, the company was ready to get into its
cable network, The Disney Channel. In 1985, Disney’s Touchstone division began the suc-
cessful Golden Girls and Disney Sunday Movie. In 1988, Disney opened Grand Floridian
Beach and Caribbean Beach Resorts at Walt Disney World along with three new gated
attractions: the Disney/MGM Studios Theme Park, Pleasure Island, and Typhoon Lagoon.
At the same time, filmmaking hit new heights as Disney for the first time led Hollywood
studios in box-office gross. Some of the successful films were: Who Framed Roger Rabbit,
Good Morning Vietnam, Three Men and a Baby, and later, Honey, I Shrunk the Kids, Dick
Tracy, Pretty Woman, and Sister Act. Disney moved into new areas by starting Hollywood
Pictures and acquiring the Wrather Corp. (owner of the Disneyland Hotel) and television
station KHJ (Los Angeles), which was renamed KCAL. In merchandising, Disney pur-
chased Childcraft and opened numerous highly successful and profitable Disney Stores.
By 1992, Disney’s animation began reaching even greater audiences with The Little
Mermaid, The Beauty and the Beast, and Aladdin. Hollywood Records was formed to offer
a wide selection of recordings ranging from rap to movie soundtracks. New television
shows, such as Live with Regis and Kathy Lee, Empty Nest, Dinosaurs, and Home
2 MERNOUSH BANTON

Improvement, expanded Disney’s television base. For the first time, Disney moved into
publishing, forming Hyperion Books, Hyperion Books for Children, and Disney Press,
which released books on Disney and non-Disney subjects. In 1991, Disney purchased
Discover magazine, the leading consumer science monthly. As a totally new venture,
Disney was awarded, in 1993, the franchise for a National Hockey League team, the
Mighty Ducks of Anaheim.
In 1992, Disneyland Paris opened in France. Disney successfully completed many
projects throughout the 1990s by venturing into Broadway shows, opening up to 725
Disney Stores, acquiring the California Angels baseball team to add to its hockey team,
opening Disney’s Wide World of Sports in Walt Disney World, and acquiring Capital
Cities/ABC. From 2000 to 2007, Disney created new attractions in its theme parks, pro-
duced many successful films, opened new hotels, and built Hong Kong Disneyland.

Internal Issues
Organizational Structure and Mission
As indicated in Exhibit 1, Disney operates using a strategic business unit (SBU) type orga-
nizational structure. Note that Disney’s four SBUs consist of (1) Disney Consumer
Products, (2) Studio Entertainment, (3) Parks and Resorts, and (4) Media Networks and
Broadcasting.
Disney’s mission statement is “To be one of the world’s leading producers and
providers of entertainment and information. Using our portfolio of brands to differentiate
our content, services and consumer products, we seek to develop the most creative, innov-
ative and profitable entertainment experiences and related products in the world.” Disney
does not have a vision statement.

EXHIBIT 1 Disney’s Corporate Structure

Walt Disney
Company

Disney Consumer Studio Entertainment Parks and Resorts Media Networks


Products Broadcasting
1. Walt Disney Pictures 1. Walt Disney World
1. Disney Hard_Lines 2. Touchstone Pictures 2. Disneyland 1. Disney-ABC Television
2. Disney Soft_Lines 3. Tokyo Disney 2. ESPN Inc.
3. Miramax Films
3. Disney Toys 4. Disneyland Paris 3. Walt Disney
4. Buena Vista Home
4. Disney Publishing Entertainment 5. Hong Kong Disneyland Internet Group
5. Disney Press 6. Disney Cruise Line 4. ABC-Owned Television
5. Buena Vista
6. Disney Editions Theatrical Stations
7. Disney Vacation Club
Productions 5. ABC Radio
6. Walt Disney Records
7. Buena Vista Records
8. Hollywood Records
9. Lyric Street Records
10. Pixar Studio
CASE 1 • WALT DISNEY COMPANY — 2009 3

EXHIBIT 2 Consolidated Income Statement (in millions, except per share data)

2008 2007 2006


Revenues $ 37,843 $ 35,510 $ 33,747
Costs and expenses (30,439) (28,681) (28,392)
Other (expense)/income (59) 1,004 88
Net interest expense (524) (593) (592)
Equity in the income of investees 581 485 473
Income from continuing operations before income
taxes and minority interests 7,402 7,725 5,324
Income taxes (2,673) (2,874) (1,837)
Minority interests (302) (177) (183)
Income from continuing operations 4,427 4,674 3,304
Discontinued operations, net of tax — 13 70
Net income $ 4,427 $ 4,687 $ 3,374
Diluted Earnings per share:
Earnings per share, continuing operations $ 2.28 $ 2.24 $ 1.60
Earnings per share, discontinued operations — 0.01 0.03
Earnings per share $ 2.28 $ 2.25 $ 1.64
Basic Earnings per share:
Earnings per share, continuing operations $ 2.34 $ 2.33 $ 1.65
Earnings per share, discontinued operations — 0.01 0.03
Earnings per share $ 2.34 $ 2.34 $ 1.68
Weighted average number of common and
common equivalent shares outstanding:
Diluted 1,948 2,092 2,076
Basic 1,890 2,004 2,005

Source: Walt Disney Company, Annual Report (2008).

Consolidated Financial Statements


Disney’s recent income statements and balance sheets are provided in Exhibits 2 and 3,
respectively. Note the increase in profit from 2006 to 2007, and the decline from 2007 to 2008.
The most recent Disney’s Consolidated Balance Sheet, shown in Exhibit 3, reveals
over $22 billion in Goodwill and nearly $11.1 billion in Long Term Debt.

Financials by Segment
Exhibit 4 demonstrates the company’s revenue and operating income by each business seg-
ment. Note that Disney’s Media Networks brings in the most revenues and operating
income for the company. This division, as well as the Parks and Resorts segment, is grow-
ing. However, the company’s Studio Entertainment business segment and their Consumer
Products businesses have experienced declining revenues in the last three years.
As shown in Exhibit 5, Disney derives 76 percent of its revenue and 77 percent of its
operating income from businesses in the United States and Canada. The company’s rev-
enues and income are growing in all regions of the world, with Europe being second
behind the United States/Canada in both revenues and income.

Disney Business Segments


In percentage terms, Disney revenues in 2008 were derived from Media Networks
(43 percent), Parks and Resorts (31 percent), Studio Entertainment (20 percent), and
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EXHIBIT 3 Consolidated Balance Sheets (in millions, except per share data)

September 27, September 29,


2008 2007
ASSETS
Current assets
Cash and cash equivalents $ 3,001 $ 3,670
Receivables 5,373 5,032
Inventories 1,124 641
Television costs 541 559
Deferred income taxes 1,024 862
Other current assets 603 550
Total current assets 11,666 11,314
Film and television costs 5,394 5,123
Investments 1,563 995
Parks, resorts and other property, at cost
Attractions, buildings and equipment 31,493 30,260
Accumulated depreciation (16,310) (15,145)
15,183 15,115
Projects in progress 1,169 1,147
Land 1,180 1,171
17,532 17,433
Intangible assets, net 2,428 2,494
Goodwill 22,151 22,085
Other assets 1,763 1,484
Total Assets $ 62,497 $ 60,928

LIABILITIES AND SHAREHOLDERS’ EQUITY


Current liabilities
Accounts payable and other accrued liabilities $ 5,980 $ 5,949
Current portion of borrowings 3,529 3,280
Unearned royalties and other advances 2,082 2,162
Total current liabilities 11,591 11,391
Borrowings 11,110 11,892
Deferred income taxes 2,350 2,573
Other long-term liabilities 3,779 3,024
Minority interests 1,344 1,295
Commitments and contingencies
Shareholder’s equity
Preferred stock, $.01 par value Authorized–100 million shares,
Issued–none — —
Common stock, $.01 par value Authorized–3.6 billion shares,
Issued–2.6 billion shares 26,546 24,207
Retained earnings 28,413 24,805
Accumulated other comprehensive loss (81) (157)
54,878 48,855
Treasury stock, at cost, 777.1 million shares at September 27, 2008,
and 637.8 million shares at September 29, 2007 (22,555) (18,102)
32,323 30,753
Total Liabilities and SE $ 62,497 $ 60,928

Source: Walt Disney Company, Annual Report (2008).


CASE 1 • WALT DISNEY COMPANY — 2009 5

EXHIBIT 4 Revenue and Operating Income by Segment (2008 vs. 2007)

Percentage of change
2008 2007
vs. vs.
(in millions) 2008 2007 2006 2007 2006
Revenues:
Media Networks $ 16,116 $ 15,104 $ 14,186 7 6
Parks and Resorts 11,504 10,626 9,925 8 7
Studio Entertainment 7,348 7,491 7,529 (2) (1)
Consumer Products 2,875 2,289 2,107 26 9

Total Consolidated Revenues $ 37,843 $ 35,510 $ 33,747 7 5

Segment operating income


Media Networks $ 4,755 $ 4,275 $ 3,481 11 23
Parks and Resorts 1,897 1,710 1,534 11 11
Studio Entertainment 1,086 1,195 728 (9) 64
Consumer Products 718 631 607 14 4
Total segment operating income $ 8,456 7,811 $ 6,350 8 23

Source: Walt Disney Company, Annual Report (2008).

Consumer Products (8 percent). Operating income was derived from Media Networks (57 per-
cent), Parks and Resorts (23 percent), Studio Entertainment (13 percent), and Consumer
Products (9 percent). These percentages reveal a bit of a weakness in Studio Entertainment
because this segment creates 20 percent of revenues but only 13 percent of operating income.

Media Networks/Broadcasting
Disney owns ABC Television Network, which includes ABC Entertainment, ABC
Daytime, ABC News, ABC Sports, ABC Kids, Touchstone Television, and ABC Radio.
Also included in this segment, Disney owns ESPN, Disney Channel, ABC Family, Toon
Disney, SOAPnet, and Buena Vista Television. Disney has equity interest in Lifetime

EXHIBIT 5 Revenue and Operating Income by Region

(in millions) 2008 2007 2006


Revenue
United States and Canada $ 28,506 $ 27,286 $ 26,027
Europe 6,805 5,898 5,266
Asia Pacific 1,811 1,732 1,917
Latin America and Other 721 594 537

$ 37,843 $ 35,510 $ 33,747

Segment operating income


United States and Canada $ 6,472 $ 6,026 $ 4,797
Europe 1,423 1,192 918
Asia Pacific 386 437 542
Latin America and Other 175 156 93
$ 8,456 $ 7,811 $ 6,350

Source: Walt Disney Company, Annual Report (2008).


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Entertainment Services, A&E Television Networks, E! Entertainment, ESPN, History


Channel, The Biography Channel, Hyperion Books, and Disney Mobile.
The increase in revenue in this segment was primarily due to growth from cable and
satellite operators, which are generally derived from fees charged on a per subscriber basis,
contractual rate increases, and higher adverting rates at ESPN. The increase in broadcasting
revenue was due to growth at the ABC Television Network and increased sales of Touchstone
Television series as well as an increase in prime-time advertising revenues. Increase in sales
from Touchstone Television series was as a result of higher international syndication and DVD
sales of hit dramas such as Lost, Grey’s Anatomy, and Desperate Housewives, as well as higher
third-party license fees led by Scrubs, which completed its fifth season of network television.
Two major TV networks of Disney (ABC and ESPN) recently struck a deal with
cable operator Cox Communication whereby these companies now offer hit shows and
football games on demand. Although advertising in the network is a source of additional
revenue for the broadcasters, it requires selectivity for charging for each episode. Video-
on-demand is a major industry and is expected to grow to $3.9 billion by 2010.
Disney recently unveiled Disney Xtreme Digital, a networking site aimed at children
younger than 14 years of age. This service will be competing against MySpace (owned by
News Corporation). Disney has reported an increase in fiscal 2009 second-quarter net
income mostly as a result of strong gains at cable network ESPN. Higher advertising rev-
enues are reflected due to NASCAR programming at ESPN, an increase at ABC Family
primarily due to higher rates, higher other revenues by DVD sales primarily from High
School Musical, and a favorable settlement of a claim with an international distributor.
Exhibit 6 provides specific segment information for the Media Networks division.
Disney’s domestic broadcast television stations are listed in Exhibit 7. Disney’s international
media network operations are described in Exhibit 8. In prime time, higher advertising rates
and sold inventory were partially offset by lower rating from some of the problems. Increased
sales of ABC Studios productions reflected higher international and DVD sales of hit drams
such as Desperate Housewives, Grey’s Anatomy, and Ugly Betty.

Parks and Resorts


Disney owns and operates Walt Disney World Resort & Cruise Lines in Florida,
Disneyland Resort in California, ESPN Zone facilities in many states, 17 hotels at the Walt
Disney World Resort, Disney’s Fort Wilderness Camping and Recreation, Downtown
Disney, Disney’s Wide World of Sports, Disney Cruise Line, 7 Disney Vacation Club
Resorts, Adventures by Disney, and 5 resort locations with 11 theme parks on three conti-
nents. With theme parks, Disney has 51 percent ownership in Disneyland Resort Paris,

EXHIBIT 6 Media Network Segment: Revenue and Operating Income

Change
2008 2007
vs. vs.
(in millions) 2008 2007 2006 2007 2006
Revenues:
Cable Networks $ 10,041 $ 9,167 $ 8,159 10% 12%
Broadcasting 6,075 5,937 6,027 2% (1)%

$ 16,116 $ 15,104 $ 14,186 7% 6%

Segment operating income:


Cable Networks $ 4,100 $ 3,577 $ 3,001 15% 19%
Broadcasting 655 698 480 (6)% 45%

$ 4,755 $ 4,275 $ 3,481 11% 23%

Source: Walt Disney Company, Annual Report (2008).


CASE 1 • WALT DISNEY COMPANY — 2009 7

EXHIBIT 7 Disney’s Domestic Broadcast Television Stations

Television
Analog Market
Market TV Station Channel Ranking
New York, NY WABC-TV 7 1
Los Angeles, CA KABC-TV 7 2
Chicago, IL WLS-TV 7 3
Philadelphia, PA WPVI-TV 6 4
San Francisco, CA KGO-TV 7 6
Houston, TX KTRK-TV 13 10
Raleigh-Durham, NC WTVD-TV 11 28
Fresno, CA KFSN-TV 30 55
Flint, MI WJRT-TV 12 66
Toledo, OH WTVG-TV 13 72

Source: Walt Disney Company, Form 10K (2008).

EXHIBIT 8 Disney’s International Cable Satellite Networks and Broadcast Operations

Estimated Estimated
Domestic International Number
Subscribers Subscribers of Ownership
Property (in millions)(1) (in millions)(2) Channels %
ESPN
ESPN(1) 98 — 80.0
ESPN2 97 — 80.0
ESPN Classic 63 — 80.0
ESPNEWS 67 — 80.0
ESPN Deportes 4 — 80.0
ESPNU 20 — 80.0
Disney Channels Worldwide
Disney Channel 97 78 30 100.0
Playhouse Disney — 32 19 100.0
Toon Disney 71 19 9 100.0
Jetix Europe — 52 25 73.3
Jetix Latin America — 20 4 100.0
Hungama — 7 1 100.0
ABC Family 97 — 1 100.0
SOAPnet 70 — 1 100.0
A&E
A&E 97 — 1 37.5
The History Channel 97 — 1 37.5
The Biography Channel 52 — 1 37.5
History International 52 — 1 37.5
Lifetime
Lifetime Television 97 — 1 50.0
Lifetime Movie Network 66 — 1 50.0
Lifetime Real Women(2) 11 — 1 50.0

(1) Estimated U.S. subscriber counts according to Nielsen Media Research as of September 2008.
Source: Walt Disney Company, Form 10K (2008).
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EXHIBIT 9 Disney’s Offerings Under Parks and Resorts

Hong
Disneyland Kong Tokyo Disney
Walt Disney Disneyland Resort Disneyland Disney Cruise ESPN Walt Disney
World Resorts Resort Paris Resort Resort Line Zone Imagineering
Epcot Disneyland Disneyland Hong Tokyo
Park Kong Disneyland
Disneyland
Disney-MGM Disneyland’s Walt Resort Tokyo
Studios California Disney Facilities DisneySea
Adventure Studios
Park
Magic Kingdom Resort
Facilities
Disney’s
Animal
Kingdom
Resort Facilities

Source: Walt Disney Company, Form 10K (2008).

43 percent ownership in Hong Kong Disneyland, 100 percent ownership in Tokyo Disney
Resort as well as Disneyland in both California and Florida. Exhibit 9 summarizes
Disney’s key parks and resort holdings.
Disney revenues at its Parks and Resorts division increased 7 percent in 2008, or
$701 million, to $10.6 billion due to increases of $483 million and $218 million at its
domestic and international resorts, respectively. Domestic Parks and Resorts revenues
increased due to increased guest spending, theme park attendance, and hotel occupancy, as
well as higher sales at Disney Vacation Club. Higher guest spending was due to a higher
average daily hotel room rate, higher average ticket prices, and greater merchandise spend-
ing at both resorts.
Disneyland Resort Paris experienced increased revenues, offset by a decrease at
Hong Kong Disneyland Resort due to lower theme park attendance. Some of the increase
in revenue was due to favorable impact of foreign currency translation (weakening of
the U.S. dollar against the euro). Operating income from the Parks and Resorts
segment increased 11 percent, or by $524 million, to $1.897 billion. Exhibit 10 presents
Disney’s attendance, per capita theme park guest spending, and hotel statistics for its
domestic properties:

EXHIBIT 10 Disney Parks and Resorts Data (2008 vs. 2007)

East Coast West Coast Total Domestic


Resorts Resorts Resorts

FY FY FY FY FY FY
2008 2007 2008 2007 2008 2007
Increase in Attendance 6% 5% (1)% 6% 3% 5%
Increase in Per Capita 3% 1% 2% 8% 3% 3%
Guest Spending
Occupancy 89% 86% 92% 93% 89% 87%
Available Room Nights 8,614 8,834 810 810 9,424 9,644
(in thousands)
Per Room Guest Spending $217 $211 $309 $287 $225 $218

Source: Walt Disney Company, Annual Report (2008).


CASE 1 • WALT DISNEY COMPANY — 2009 9

The company also has been hosting VIP tours (additional fees applies), offering
added-value services such as number of attractions being covered along with personal
guide tours, preferred seating, and front-of-line access to rides. The company also offers
package deals for major corporations and schools.
Disney has plans to change its concept of the theme parks from the masses to a more
concentrated perspective. This move allows Disney to offer more stand-alone theme parks
and resorts in cities and beach resorts, as well as Disney-branded retail and dining districts,
and smaller and more sophisticated parks. This permits the company in using the Disney
brand name to expand in other areas of the travel business. The company has built time-
share vacation homes in popular places in the United States. Some of the challenges in this
marketing strategy have been tailoring the niche attractions to the local markets while
keeping the Disney brand reputation. However, there is a challenge of avoiding
cannibalization of existing parks and attractions. The goal would be entering into new mar-
kets without harming or cannibalizing Disney’s brand.

Studio Entertainment
Disney produces live-action and animated motion pictures, direct-to-video programming,
musical recordings, and live-stage plays. Disney motion pictures are distributed under the
names Walt Disney Pictures and Television, Touchstone Pictures, Hollywood Pictures,
Miramax Films, and Buena Vista Home Entertainment International, which includes Walt
Disney Records, Buena Vista Records, Hollywood Records, Lyric Street Records, and
Disney Music Publishing. Disney owns Pixar, a computer animation leader, and produces
feature animation films under both the Disney and Pixar banners. The company also pro-
duces stage plays, musical recordings, and live entertainment events. As of September
2008, Disney had released 928 full-length movies, 80 full-length animated features, and
546 cartoon shorts. Product offerings include Pay-Per-View, Pay Television, Free
Television, Pay Television 2, and International Television.

Consumer Products
The Consumer Products segment includes partners with licenses, manufacturers, publish-
ers, and retailers worldwide who design, promote, and sell a wide variety of products
based on new and existing Disney characters. The product offerings are Character
Merchandise and Publications Licensing, Books and Magazines, Buena Vista Games,
DisneyShopping.com, and The Disney Store. Products include books, interactive games,
food and beverages, fine art, apparel, toys, and even home decor.
In 2008, the revenues from this segment increased 26 percent to $2.9 billion. Sales
growth at the Disney Stores was due to the acquisition of the Disney Stores North
America. Sales growth at Merchandise Licensing was driven by higher earned royalties
across multiple product categories.
Operating income of this segment increased 14 percent to $718 million, mostly due
to growth at Merchandise Licensing partially offset by a decrease at the Disney Stores due
to the acquisition of the Disney Stores North America. In April 2008, Disney acquired
inventory, leasehold improvements, and certain fixed assets of the Disney Stores North
America for approximately $64 million. The acquisition included the assumption of the
leases of 229 stores.

Competition
Disney’s competitors differ in each segment of business. Time Warner is a major competi-
tor to Disney and is composed of five divisions: AOL, Cable, Filmed Entertainment,
Networks, and Publishing. Time Warner owns Time Inc., AOL, Warner Brothers, and TBS
Networks. Walt Disney generally is classified as Entertainment-Diversified, which directly
competes with Time Warner, Inc. (as shown in Exhibit 11).
CBS Corporation and News Corporation directly compete with the Walt Disney
Company in the Media Network segment, but they are not rivals in the Consumer Products
and Parks and Resorts segments. CBS Corporation was a part of Viacom, Inc., but now
operates independently under CBS Corp. News Corporation is a diversified international
media and entertainment company that operates in eight segments: Filmed Entertainment,
10 MERNOUSH BANTON

EXHIBIT 11 Disney vs. the Industry: Comparative Data

DIS CBS TWX Industry


Market Cap 39.00B 4.31B 26.28B 499.59M
# of Employees 150,000 25,920 87,000 7.51K
Qtrly Rev Growth -8.20% -6.20% -2.70% 5.10%
Revenue $ 36.99B 13.95B 46.98B 930.87M
Gross Margin 17.81% 37.99% 41.92% 41.92%
EBITDA $ 8.18B 2.69B 13.34B 166.44M
Oper Margins 17.81% 15.48% 18.62% 10.39%
Net Income $ 4.02B -11.67B -13.40B N/A
EPS $ 2.100 -17.428 -11.224 N/A

DIS = Walt Disney Company


CBS = CBS Corporation
TWX = Time Warner Inc.
Source: Based on finance.yahoo.com (April 2009).

Television, Cable Network Programming, Direct Broadcast Satellite Television, Magazines


and Inserts, Newspapers, Book Publishing, and Other. Due to recent corporate restructuring
for both CBS Corporation and News Corp., there are no industry data available for compar-
ison purposes. Next we discuss the competition for each segment of Walt Disney.

Competition: Media Networks/Broadcasting


The global media industry is a $1 trillion business that includes advertising, cable firms,
newspapers, radio, and television. This industry is dominated by conglomerates Walt
Disney, Time Warner, Inc., New York Times, News Corp., and CBS Corporation.
Typically, these companies prosper during election years due to heavy advertising revenue
invested by the politicians. Special events such as the Olympics also generate additional
advertising revenue for such companies.
Disney competes for viewers primarily with other television networks, independent
television stations, and other video media such as cable and satellite television program-
ming services, DVD, video games, and the Internet. Radio networks likewise compete
with other radio network stations and programming services. Disney also competes with
other advertising media such as newspapers, magazines, billboards, and the Internet.
Exhibit 12 reveals some major competitors to Disney in this segment of business, as
well as percentages that indicate attractiveness of that venue to consumers ages 18 to 24.
CBS Corp. is composed of five segments: Television, Radio, Outdoor, Interactive, and
Publishing. CBS Television is composed of CBS Network and its own television stations,

EXHIBIT 12 Disney Rival Firms in Media Networks/Broadcasting

Major Competitors % Attractiveness*


Discovery Networks 72%
Disney/ESPN Media Networks 68%
MTV Networks 52%
Turner Entertainment Networks 48%
Scripps Networks 43%
NBC Universal Cable 39%
Comcast Cable Networks 34%
Fox Cable Networks 31%
*To consumers ages 18 to 24.
Source: Based on Multichannel News 28, no. 10 (2007): 30; ISSN: 0276-8593.
CASE 1 • WALT DISNEY COMPANY — 2009 11

television production, and syndication, Showtime, and CSTV Networks. In 2008, the
Television segment of CBS contributed 64 percent of company’s total revenue (approximately
$8.99 billion). The Radio segment derives revenue primarily from advertising sales. In 2008,
the Radio segment generated 11 percent of CBS’s total revenue (approximately $1.5 billion).
News Corp., with $33 billion in revenue, operates in eight industry segments: Filmed
Entertainment, Television, Cable Network Programming, Direct Broadcast Satellite
Television, Magazines and Inserts, Newspapers, Book Publishing, and Other. For the fiscal
year 2008, the Filmed Entertainment, Television, Cable Network Programming, and Direct
Broadcast Satellite Television contributed approximately 65 percent or $21.2 billion to the
company’s total revenue. The company has been moving aggressively toward digital
technologies such as broadband, mobility, storage, and wireless. News Corp. owns
MySpace.com, one of the Internet’s most popular social networking site, and IGN.com (a
gaming and entertainment site). Fox TV, owned by News Corp., ranks as one of the most
popular networks on television with an average audience of 7.6 million every night, fol-
lowed by CBS with 6.7 million viewers during each prime time, Walt Disney Company’s
ABC with 5.4 million viewers per night, and finally NBC (owned by General Electric
Company) with 4.8 million viewers during each prime-time period. News Corp. recently
acquired Dow Jones & Company and Liberty Media Corporation, which included approxi-
mately 41 percent interest in the DIRECTV Group, Inc.
Time Warner’s media and entertainment segments include AOL, Cable, Filmed
Entertainment, Networks, and Publishing. The Cable segment services primarily analog
and digital video services, and advanced services such as VOD and HDTV with set-top
boxed equipped with digital video recorders. The Filmed Entertainment segment produces
and distributes theatrical motion pictures and television shows. The Network segment con-
sists of HBO and Cinemax pay television programming services. The Publishing segment
publishes magazines and Web sites in a variety of areas and has a strategic alliance with
Google, Inc. Exhibit 13 demonstrates Time Warner’s revenue by segment.

Competition: Parks and Resorts


Disney’s theme parks and resorts compete with all other forms of entertainment, lodging,
tourism, and recreational activities. Many uncontrollable factors may influence the prof-
itability of the leisure-time industry such as economic conditions, including business cycle
and exchange rate fluctuations; travel industry trends; amount of available leisure time; oil
and transportation prices; and weather patterns. Seasonality is another concern for this seg-
ment because all of the theme parks and the associated resort facilities are operated year-
round. Peak attendance and resort occupancy generally occur during the summer months
when school vacations take place and during early winter and spring holiday periods.
According to a survey conducted by the International Association of Amusement Parks
and Attractions (IAAPA), there are more than 400 amusement parks in the United States, gen-
erating approximately $11.5 billion in revenues. The Magic Kingdom at Walt Disney World in
Florida was the most visited amusement park in the world. The amusement parks in the
United States employ approximately 500,000 year-round and seasonal employees.

EXHIBIT 13 Time Warner, Inc., Revenue (in millions) by Segment (2007)

Percentage of Operating
Segment Revenue Total Sales Income
Cable $ 17,200 35.44 $ (11,782)
AOL 4,165 8.58 (1,147)
Filmed Entertainment 11,398 23.49 823
Networks 11,154 23.00 3,118
Publishing 4,608 9.49 (6,624)
Total 48,525

Source: Time Warner Inc., Form 10K (2008).


12 MERNOUSH BANTON

The second largest amusement park company after Disney is Six Flags, Inc., based
in Oklahoma City, Oklahoma, with 20 parks across the United States, Mexico, and Canada
and soon in Dubai and Qatar with more than $1 billion in revenue (2008). Six Flags
recently acquired Dick Clark Productions, which owns television hits such as the
American Music Awards, The Golden Globe Awards, the Academy of Country Music
Awards, Dick Clark’s New Year’s Rockin’ Eve, and So You Think You Can Dance.
Ocean Park in Hong Kong has been aggressively competing with Disney. Ocean
Park is a theme park that covers over 870,000 square meters and receives more than
5 million tourists each year. In March 2009, Ocean Park launched two new sightseeing
locations in Shanghai to attract tourists from regions such as the Yangtze River Delta.
Ocean Park has the advantage of understanding the local market because they have been in
business for more than 30 years. They offer a range of transportation facilities to link Hong
Kong with major cities in the Pearl River Delta. In 2008, Ocean Park established an office
in Shanghai. Ocean Park plans to complete construction of four new themed travel attrac-
tions between 2010 and 2013. It also seems that the residents in Hong Kong are not very
impressed with the small version of Disney built there because many have visited
Disneyland in Tokyo or Anaheim, California. Disney in mid-2009 reached an agreement
with the Hong Kong government to enlarge Hong Kong Disneyland. That city government
owns 57 percent of that Disney theme park.

Competition: Studio Entertainment


The success of Studio Entertainment operations depends heavily on public taste and pref-
erences. Operating results fluctuate due to the timing and performance of releases in the
theatrical, home entertainment, and television markets. Release dates are determined by
competition and the timing of vacation and holiday periods. Many companies produce
and/or distribute theatrical and television films, exploit products in the home entertainment
market, provide pay television programming services, and sponsor live theater. Disney also
competes to obtain creative and performing talents, story properties, advertiser support,
broadcast rights, and market share.
Movies have historically been a reasonable priced entertainment for families, and
comprise more than $150 billion in revenues annually. The most important regions con-
tributing to this industry are the United States (49.8 percent), Europe (33 percent), and
Asia and developing countries (14 percent). Consolidation has been very common in the
movie and entertainment industry. As such, a few companies dominate the industry and
control the production and distribution of most movies, including: Warner Brothers
(17.10 percent), Walt Disney (11.70 percent), Twentieth Century Fox (10.3 percent),
Viacom (6.3 percent), and other (54.6 percent).

Competition: Consumer Products


Leading competitors to Disney in this segment are Warner Brothers, Fox, Sony, Marvel,
and Nickelodeon. Disney competes in its character merchandising and other licensing,
publishing, interactive, and retail activities with other licensors, publishers, and retailers of
character, brand, and celebrity names. Disney is perhaps the largest worldwide licensor of
character-based merchandise and producer/distributor of children’s film-related products
based on retail sales. Operating results for the licensing and retail distribution business are
influenced by seasonal consumer purchasing behavior and by the timing and performance
of animated theatrical releases.

Risk
A wide range of factors could materially affect the future and the performance of the
Disney, such as:

1. A prolonged recession in the United States and other regions of the world could
have an adverse affect on the company’s business.
2. The success of the business depends on the ability to consistently create and
distribute programs/products (movies, films, programs, theme park attractions,
resort services, and consumer products) that consumers want. As such, heavy
CASE 1 • WALT DISNEY COMPANY — 2009 13

investment is required in such product/service offerings in order to earn consumer


acceptance and attention.
3. Changes in technology and in consumer consumption.
4. Technologies such as peer-to-peer, high-speed digital transmission, illegal digital
video recorders, and so on are vulnerable to piracy. Disney must devote substantial
resources to protect its intellectual property.
5. Changes in travel and tourism could impact the company’s business, such as adverse
weather conditions, natural disasters, terrorist attacks, health concerns, international
concerns, political or military developments, and war.
6. High unemployment rates.

Source: The Walt Disney Company, Form 10K (2008).

Conclusion
Walt Disney’s net income fell 26 percent for the third quarter (2009) with no division or
segment of the company reporting an increase. The worst performing division for the quar-
ter was Movie Studio, which reported an operating loss of $12 million on a revenue drop
of 12 percent. Disney’s DVD sales slowed dramatically.
As the economic recession lingers and consumers still spend money on what the
need rather than what they want, Disney needs a clear strategic plan for the future.
Shareholders do not want to see a repeat of the firm’s third-quarter type results. Let’s say
Disney asks your assistance in developing a strategic plan. Help Disney reverse its slipping
revenues.

References
Datamonitor Industry Market Research
finance.yahoo.com
Investor’s Business Daily
Multichannel News, available from www.multichannel.com
News Corporation, available from www.newscorp.com
The Wall Street Journal, available from www.wsj.com
The Walt Disney Company, available from www.disney.com
TheStreet.com, available from www.thestreet.com
Time Warner, Inc., available from www.timewarner.com
Standard & Poor’s, available from www.standardandpoors.com
USAToday.com, available from www.usatoday.com