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573
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TEACHING NOTE
CASE 22
The Walt Disney Company
Overview
The Walt Disney Company was started in 1919 by Disney after his return from WWI. Disney spent his
first post-war year working as an animator for Pesman Art Studio. Disney and a friend, Ub Iwerks, left
Pesman in 1920 and founded Iwerks-Disney Commercial Artists, which lasted only a short time. Disney
then founded Laugh-O-Grams in 1922 and produced animated cartoons. Expenses exceeded revenues and in
1923, Disney went bankrupt. Disney moved to Hollywood and lived with his brother while trying to find work.
He founded Disney Brothers Studio (later named Walt Disney Productions). In 1927, Disney created a series of
cartoons, Oswald the Lucky Rabbit, for Universal Studios. The cartoons and the character quickly became a hit:
Universal fired Disney Brothers Studio and hired most of Disney’s animators to continue producing the cartoon.
One year later, Disney created Mickey Mouse as the feature character in Disney’s cartoons. Mickey Mouse and
his girlfriend Minnie were in the first cartoon with synchronized sound. Mickey Mouse’s popularity soared and
reversed Disney’s series of losses in the animated film industry, and he became the mascot of Disney Studios,
Walt Disney Productions, and the Walt Disney Company.
Micky Mouse was joined by several other successful characters, including Pluto, Goofy, Donald Duck, and Daisy
Duck. Although Mickey Mouse and the successful cartoon characters sparked Disney’s success, there were highly
successful animated films, including Snow White and the Seven Dwarfs Pinocchio, Dumbo, Bambi, Song of the
South, Cinderella, Treasure Island, Peter Pan, Sleeping Beauty, and One Hundred and One Dalmatians. One of
Disney’s greatest achievements was the Disneyland Park in Anaheim, CA, which Disney began constructing in
1945. This park was an instant success and Disney followed it with Walt Disney World Resort in Orlando, FL.
After Walt Disney’s death in 1966, his brother Roy became president and CEO until his death in 1971. He was
replaced by Don Tatum who began planning EPCOT in Orlando and Tokyo Disneyland. Tatum was replaced
with Esmond Walker, who launched the Disney Channel. After Walker’s retirement, Walt Disney’s son-in-law,
Ronald Miller led the company for about a year. Miller was replaced by Micheal Eisner who started a massive
diversification strategy at Disney.
Under Eisner, Walt Disney Studios acquired ABC, ESPN, Miramax Films, the Anaheim Angels, and FOX Family
Channel. He was also responsible for the development of Disneyland Paris, Disney–MGM Studios in Orlando,
FL, Disney California Adventure Park, Walt Disney Studios theme park in France, Hong Kong Disneyland, and
the Disney Cruise Line. The Disney Interactive game division and the Disney Store retail chain were added
during Eisner’s term as chief executive officer. Eisner was responsible for restoring the company’s reputation
for blockbuster animated feature films with The Little Mermaid (1989), Beauty and the Beast (1991), Aladdin
(1992), and The Lion King (1994). Eisner’s micromanagement, skirting board approval for many initiatives,
and involvement in a long-running derivatives suit led to his removal as chairman in 2004 and his resignation
in 2005.
*This teaching note reflects the thinking and analysis of Professor David L. Turnipseed, University of South Alabama. We are most
grateful for his insight, analysis and contributions to how the case can be taught successfully
:
Its Diversification Strategy in 2014*
Case 22 Teaching Note The Walt Disney Company
574
Bob Iger replaced Eisner as CEO of the Walt Disney Company in 2005. Igor’s first strategic move in 2006
was the acquisition of Pixar animation studios: he also purchased the rights to Disney’s first cartoon character,
Oswald the Lucky Rabbit from NBC Universal. Iger doubled the size of the Disney Cruise Lines from two to
four, by adding two ships that were 40% larger than the two older ships. He also acquired Marvel Entertainment
in 2009, which was important because that enabled Disney to produce movies with the Marvel comic book
characters such as Captain America, Iron Man, the Incredible Hulk, Thor, and Spider Man. Disney’s Marvel
movies performed very well: The Avengers (2012) had box office receipts of more than $1 billion. Iger divested
the Miramax Film Production Company and Dimension film in 2010 for $630 million.
As Disney entered 2014, it was earning record profits; however there were strategic issues that required attention.
The company had invested nearly $15 billion in capital in its operations over the past five years including, most
recently, Maker Studios, for $500 million plus a $450 million performance-based payment. The company had
initiated a stock repurchase plan that was putting demands on the cash reserves. Although the company was
earning record profits, some of the business units were operating in challenging industries and not providing
adequate returns on invested capital. Disney experienced layoffs from its media units in March of 2014, and as
the company moved into 2015, Igor and his management team would be faced with layoffs at Maker Studios and
the need to evaluate the corporation’s diversification strategy.
Suggestions for Using the Case
This case is ideally assigned during your module on corporate strategy and diversification since it was written to
illustrate such Chapter 8 concepts as related diversification, strategic fit, and financial resource fit. In addition, a
proper analysis of the case prepares students to make recommendations concerning the company’s next strategic
and financial moves. You should find students eager to discuss the case because of their familiarity with Disney’s
iconic characters, feature films, and theme parks. Students are also likely to be regular viewers of the company’s
cable and broadcast networks.
There is ample information in the case for students to prepare a 9-cell industry attractiveness/business strength
matrix, and to go through the steps of analyzing the business portfolio of a diversified company, as discussed
in Chapter 8. Based on their analysis of strategic fit and the historical financial performance of the businesses
included in Walt Disney Company’s portfolio, students should make recommendations about the best strategic
and financial actions that Disney’s management should take to improve the company’s financial and market
performance.
The assignment questions and teaching outline presented below reflect our thinking and suggestions about
how to conduct the class discussion and what aspects to emphasize.
To give students guidance in what to think about and what analytical tools to utilize in preparing The Walt
Disney Company case for class discussion, we strongly recommend providing class members with a set of study
questions and insisting that they prepare good notes/answers to these questions in preparing for class discussion
of the case.
To facilitate your use of study questions and making them available to students, we have posted a file of the
assignment questions contained in this teaching note for The Walt Disney Company case on the instructor
resources section of the Connect Library.
The Connect-based Exercise for The Walt Disney Company Case. The auto-graded exercise for
The Walt Disney Company case requires that students answer a series of multiple choice questions related
to Assignment Questions 1–6. Question 7 is left as an open ended question that allows students to fully discuss
recommendations for addressing strategic issues confronted by the company.
Case 22 Teaching Note The Walt Disney Company
575
It should take class members roughly 35–45 minutes to complete the exercise, assuming they have done a
conscientious job of reading the case and absorbing the information it contains. All 6 questions in the Nucor
case exercise on Connect are automatically graded and entered in your electronic grade book that is part of the
Connect platform, which makes it easy for you to evaluate each class member’s ability to utilize the associated
analytical methods.
You may also find it beneficial to have your class read the Guide to Case Analysis that immediately follows Case
31 in the text. Students will find the content of this Guide particularly helpful if this is their first experience with
cases and they are unsure about the mechanics of how to prepare a case for class discussion, oral presentation,
or written analysis.
Video for Use with The Walt Disney Company Case. There is an accompanying 11:39 Bloomberg Businessweek
video that you might want to show the class (or have students watch on their own). It is titled “Bob Iger: No One
Rivals Disney Studio Slate.” The link to the video is http://www.businessweek.com/ videos/2014-11-06/bob-
iger-no-one-rivals-disney-studios-slate#r=search_ result.
Suggested Assignment Questions for an Oral Team Presentation or Written Case Analysis
This case works very well for oral team presentations and for written assignments. We suggest the following
questions:
1. As a consultant to Walt Disney Company’s management, you have been asked to prepare an assessment of
the company’s diversification/acquisition strategy over the past 31 years, beginning with Michael Eisner’s
term as CEO in 1984, and continuing to its present business line-up in 2014. Do the present business units
exhibit good strategic fit? Should the present portfolio be kept or should it be adjusted? Your report should
2. You have been hired as a consultant to the Walt Disney Company. The Board of Directors has asked for
your evaluation of Disney’s diversification strategy. Specifically, the board is interested in your opinion of
the competitive strength of the business units, their strategic and resource fit, and the portfolio management
Assignment Questions
1. What is Walt Disney Company’s corporate strategy?
2. What is your assessment of the long-term attractiveness of the industries represented in Walt Disney
Company’s business portfolio?
3. What is your assessment of the competitive strength of Walt Disney Company’s different business units?
4. What does a 9–cell industry attractiveness/business strength matrix displaying Walt Disney Company’s
business units look like?
5. Does Walt Disney’s portfolio exhibit good strategic fit? What value chain match-ups do you see? What
opportunities for skills transfer, cost sharing, or brand sharing do you see?
6. What is your assessment of Walt Disney Company’s financial and operating performance in fiscal years
2010–2013? What is your assessment of the relative contribution of each business unit to the financial
strength of Disney based on the 2012 and 2013 fiscal year financial data?
Case 22 Teaching Note The Walt Disney Company
576
7. What actions do you recommend that Walt Disney Company’s management take to improve the company
and increase shareholder value? Your recommended actions must be supported with a convincing, analysis-
based argument.
Teaching Outline and Analysis
1. What is Walt Disney Company’s corporate strategy?
Disney’s corporate strategy is based upon related diversification and includes the following elements:
n Acquisition of intellectual properties (IP) that are under-exploited and underused by the owners, or
buying new capabilities that enable the company to reach consumers in new ways or new places,
2. What is your assessment of the long-term attractiveness of the industries in Walt
Disney’s business portfolio?
Students will likely be customers of, or at the least, familiar with several of Disney’s industries. There
is ample anecdotal and empirical evidence for students to correctly evaluate the industries in which the
Walt Disney Companies compete. With the exception of interactive media, Disney’s business units present
TABLE 1. Industry Attractiveness Assessment for Walt Disney
Company’s Businesses
(Scale: 1=very low attractiveness 5=average attractiveness 10=very strong attractiveness
Attractiveness Measure Weight
Media
Networks
Parks and
Resorts
Studio
Entertainment
Consumer
Products
Interactive
Media
Market Size and growth rate .20 9/1.8 8/1.6 6/1.2 7/1.4 7/1.4
Industry Profitability .20 9/1.80 6/1.2 7/1.4 9/1.8 3/.60
Intensity of Competition .10 3/.30 7/.70 4/.40 6/.60 6/.6
Emerging opportunities and threats .10 7/.70 8/.80 6/.60 8/.80 8/.80
Case 22 Teaching Note The Walt Disney Company
577
3. What is your assessment of the competitive strength of Walt Disney’s different business
units?
The industries represented in Disney’s portfolio are above average to highly attractive, and Disney’s business
units have strong positions in their industries with the exception of the interactive media unit (See Table 2).
The television stations in the media networks unit are number one or strong number two in their markets. Six
of Disney’s eight stations are located in markets categorized as the ten largest U. S. television markets. The
parks and resorts units have the most recognizable theme parks in the U.S. and the world; also the characters
created by Disney Studios are the most loved and recognizable in the world (e.g., Mickey Mouse, Minnie
TABLE 2. Competitive Position/Business Strength Calculations for
Walt Disney Company’s Business Units
(Scale 1= very weak, 5 = average, 10 = very strong)
Strength Measure Weight
Media
Networks
Parks and
Resorts
Studio
Entertainment
Consumer
Products
Interactive
Media
Relative market size .20 9/1.8 9/1.8 8/1.6 9/1.8 4/.80
Marketing and promotion .20 8/1.6 10/2.0 10/2.0 10/2.0 7/1.4
4. What does a 9-cell industry attractiveness/business strength matrix displaying Walt
Disney’s business units look like?
Constructing a 9-cell industry attractiveness/business strength matrix for Walt Disney Companies requires
students to prepare an industry attractiveness rating for each industry in which Disney’s SBUs operate,
and a competitive strength assessment for each of Disney’s business units. The scores for the industry
To encourage students to practice applying the tools in Chapter 8, the professor should consider spending
class time to go through the development of industry attractiveness and competitive position/business
Of course, students will have judgmental differences regarding the choice of attractiveness measures,
strength measures, and the weights assigned to each. In the case of Walt Disney Company’s portfolio, the
Case 22 Teaching Note The Walt Disney Company
578
All of Walt Disney Company’s businesses have strong positions in their respective categories. Interactive
The business unit circle areas should be calculated as the percent contribution of each business to the total
revenue of Walt Disney Companies. This data can be obtained from Table 2. Placing the Disney businesses
on the 9-cell matrix, each at the intersection of the industry attractiveness and competitive strength ratings,
will locate the center of the business’ circle. Then drawing a circle around each point equal to the percent
FIGURE 1. Assessment of Strategic Fit Potentials Between
Walt Disney Company’s Business Units
Low
Business Strength
Industry Attactiveness
High
Interactive
Media
Parks
and
Resorts
High
Low
Media
Networks
Studio
Entertainment
Consumer
Products
Case 22 Teaching Note The Walt Disney Company
579
Disney’s media networks, parks and resorts, consumer products, and studio entertainment are all firmly in
the “grow and build” area of the matrix. The interactive media business is in the second tier and should be
5. Does Walt Disney’s portfolio exhibit good strategic fit? What value-chain match-ups do
you see? What opportunities for skills transfer, cost sharing, or brand sharing do you
see?
Media networks, parks and resorts, studio entertainment, and the consumer products are good strategic fits.
There are significant opportunities for cost savings and skills transfer among the business. Advertising and
promotion costs and cross-selling opportunities can be shared across consumer products, park and resorts,
There are several opportunities for value chain match-ups—skills transferring and cost sharing—in purchasing,
operations, and sales and marketing for media networks, parks and resorts, studio entertainment, consumer
FIGURE 2. Assessment of Strategic Fit Potentials Between
Walt Disney Company’s Business Units
Value Chain Activities
Business Unit Purchasing Operations Distribution
Sales &
Marketing
Advertising/
Promotion
Media Networks CS/ST among
stations
ST among
stations
None CSST among
stations. Cross-
selling among
stations.
Join promotions
among non-
competing
stations. Joint
promotions
among all
businesses
Parks & Resorts CS/ST among
stations
CS/CT among
stations
None CS/ST among
stations. Brand
sharing
Joint promotions,
brand sharing
with all
businesses
Case 22 Teaching Note The Walt Disney Company
580
The huge commonality among all of the companies that comprise Walt Disney Companies is the powerful
name and the world recognized mouse ears logo (some stations in the media networks group are not branded
6. What is your assessment of Walt Disney Company’s financial and operating performance
in fiscal years 2010–2013? What is your assessment of the relative contribution of the
Disney SBUs to the financial strength of Disney, based on the 2013 fiscal year financial
data?
Walt Disney Company’s financial condition was solid. An examination of the ratios presented in Table 3
indicates that liquidity is very good and the company is not heavily in debt. Also, the company has good and
Disney’s SBUs contributed differentially to Walt Disney Company’s financial situation in 2013 (Table 4).
Media provided the greatest contribution to revenue (45%) and provided the largest contribution of profit
TABLE 3. Selected Financial Ratios for Walt Disney Company, 2010–2013
2013 2012 2011 2010
Net profit margin 14.7 14.6 12.9% 10.4%
Return on assets 8.2 8.2 6.7% 5.7%
Return on equity 13.8 14.7 13.3% 10.1%
Calculated from case Exhibits 9 and 10.
TABLE 4. Comparative Business Unit Contribution to Walt Disney
Company’s Income: 2010–2013 (Dollars in millions)
Media
Networks
Parks
and Resorts
Studio
Entertainment
Consumer
Products
Interactive
Media
2013
Sales/% contribution $20,356/45% $14,087/31% $5,979/14% $3,555/ 8% $1,064/2%
Profit/% contribution $6,146/71% $1,553/23% $618/ 7% $816/ 11% $(87)/-00.1%
2012
Sales/% contribution $19,436/45% $12,920/31% $5,825/14% $3,252/ 8% $845/2%
Profit/% contribution $6,146/71% $1,553/20% $618/ 4% $816/ 11% $(216)/-2%
Calculated from case Exhibits 4–8.
Case 22 Teaching Note The Walt Disney Company
581
7. What actions do you recommend that Walt Disney Company’s management take to
improve the company and increase shareholder value? Your recommended actions
must be supported with a convincing, analysis-based argument.
nDisney’s interactive media business unit should be sold, and the proceeds invested in the high-profit
business units such as media networks, parks and resorts, and consumer products (calculating profit as
a percent of revenues indicates that these business units are the most profitable). In addition to earning
a greater ROA, these business units have a better strategic fit with each other than with interactive
media. Interactive media has had poor performance and has less strategic fit with the other business
nDisney’s parks and resorts, as well as the cruise ships, have been very successful. Perhaps Disney’s
management should investigate building another resort or theme park in the U. S. based on a unique
concept. Another park in the U. S. would reduce the crowding in the existing parks, and if based on
a different theme, the resort could grow its own market. The traffic at the two resorts (Orlando and
nSome students will recommend that Disney investigate construction of a theme park and resort in the
Middle East and/or South America. Brazil is one of the fastest growing and largest nations in the world,
and other Central and South American countries have segments of population that can afford vacations
and the price of the Disney parks. Similarly, many people of the Middle East have sufficient income
Epilogue
The Walt Disney Companies reported record profits for the first six months of fiscal 2014 . In period-over-period
reporting, the media networks profit increased by 17%; parks and resort had a 18% increase; studio entertainment
had 250% increase; and consumer products had a 29% increase. The interactive business uni earned $69 million
for the six months ending March 29, 2014, versus a loss of $45 million during the same period in 2013.
In mid 2014, Disney’s CEO, Bob Iger reflected on Disney’s past twelve months, which included record profit,
and remarked,
“We’re extremely pleased with our performance in Q2, with revenues up 10%, net income up 27%, and
adjusted EPS up 41% to $1.11—the highest in the history of our company. And, once again, all of our
business segments achieved double-digit increases, or more, in operating income. Our continued strong
performance reflects the strength of our brands and the quality of our content, the extraordinary creative
success we’re having, and our unique ability to leverage it across the entire company.”
Case 22 Teaching Note The Walt Disney Company
582
Disney’s Media Networks—both the Cable and Broadcast businesses—had a good second quarter, 2014. The
company felt that ESPN had tremendous potential, and had a great line-up including NBA post-season, with the
finals on ABC; the World Cup from Brazil; a very promising Monday Night Football schedule; and ESPN’s first
foray into the NFL post-season. Chairman Igor was optimistic about the new line video network, Maker Studios.
He thought that entering the short-form video space in a much more assertive manner, would boost the presence
of Disney brands and franchises in this increasingly valuable and fast-growing arena. Maker’s production talent
and leadership was expected to create exciting new opportunities to drive value from the company‘s content and
create new content as well.
Chairman Iger pointed out that Disney Animation’s Frozen was the world’s highest-grossing animated film of
all time and the best-selling title ever released on Blu-Ray and digital. The demand for Frozen merchandise was
extremely high, and the soundtrack was the #1 album in the U.S. for several weeks. Frozen was also scheduled
to appear on Broadway. Disney’s Captain America: The Winter Soldier far surpassed the first Captain America in
total global box office, which obviously would result in good fortunes for the Avengers franchise. Also, Disney
had great success releasing Marvel movies on the first weekend of May—including the two biggest domestic
openings of all time with hopes for continuing the tradition with The Avengers: Age of Ultron in 2015 and
Captain America 3 in 2016. Disney planned to introduce more Marvel features with a new cast of characters in
Guardians of the Galaxy, which was released in fall of 2014. Other Marvel releases planned for fall 2014 were
the Interactive Infinity 2 which would feature The Avengers as well as Marvel and Disney characters. Since the
first version of the game was launched, more than three million Infinity starter pack were sold, making it the
U. S.’s best- selling interactive gaming toy of 2013. Also, Disney planned to release Episode VII of Star Wars.
Disney’s Parks and Resorts had a record second quarter in 2014. Internationally, Hong Kong Disneyland set new
attendance and occupancy records in Q2, and construction was underway on Shanghai Disney Resort. There was
an estimated 330 million potential guests within a three-hour travel radius of the Shanghai resort, and by the time
the park opened in late 2015, China’s travel market was expected to be 34% larger than in 2012. The number of
upper middle-class and affluent households was expected to grow by 18% a year for most of the next decade.
These population trends factored into Disney’s decision, with its partners in Shanghai, to accelerate expansion
with an additional $800 million investment.
Chairman Igor’s assessment of Disney’s second quarter, 2014 was:
By any measure, we had great success in Q2—creatively, financially, and strategically. In addition to our
unique ability to leverage content across the entire company to create maximum value, our unparalleled
portfolio of incredibly strong brands is a clear strategic advantage that we expect will be evident in our
results for years to come.”
