Analysis of The Walt Disney Company: Corporate Strategy, Scope of Firm and Strategic Position.
This assignment will define “Corporate Strategy” and outline what The Walt Disney Company corporate strategy is. It will then proceed to discuss the vertical boundaries, if there are vertical integrations and, if so, what their motives for these are. It will outline what mergers, acquisitions and divestments are and analyse these activities with regards to The Walt Disney Company. Lastly, this assignment will focus on the company's generic strategy, it will be explained and evidence will be given to support it.
2. Corporate Strategy:
“Corporate Strategy is concerned with how companies, like Disney, create value across different businesses. This requires the corporation to invest in a valuable set of resources, craft the business portfolio, and design the organization structure, systems and corporate functions to share activities or transfer skills across businesses.” (Sudan, R. (2018)
Founded in 1923, by Walter Elias Disney, The Walt Disney Company corporate strategy 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 , innovative and profitable entertainment experiences and related products in the world.” (The Walt Disney Company. (2018))
The Walt Disney Company is the world's largest media company. Their strategic direction is to use the latest technology to create the best possible content, while expanding into new markets around the globe. In 2016, Disney and their assets, were worth over 92 billion US dollars. In 2017, they generated a total revenue of 55.63 billion US dollars. (Refer to figure 1)
Disney goes beyond satisfying one of their main objectives, fulfilling the financial needs of shareholders. They emphasise heavily on ethical behaviour that impacts families and the environment. Disney distributes their entertainment through five market segments, media networks, parks and resorts, Walt Disney studios, Disney consumer products, Disney interactive. (Refer to figure 2 and 3)
3. Scope of the Firm:
Vertical Boundaries can be defined as a means of economising on transaction costs. The firm expands to the point where the marginal cost of an extra transaction carried on by the firm is equal to the marginal costs of the same transaction carried on in the market by another firm. For each step in the vertical chain, the firm has to make a decision. They can either make it themselves (Vertical Integration) or buy it using the market (Market Exchange).
3.1 Vertical Integration:
Vertical integration is when a company controls more than one stage of the supply chain.
Disney can profit from every aspect of making movies by using only Disney owned companies. They can produce them, market them, distribute them around the world and produce merchandise for them. For example, the production process for High School Musical 3 was done under the “Disney umbrella”. For production, Walt Disney Pictures was used. Walt Disney Studios Motion Picture was used for distribution. The pre-launch marketing televised High School Musical 3 using ABC, an acquisition. They played songs from the film on Radio Disney and a preview of the singles were premiered on Disney Channel also. They also released merchandise such as the ”High School Musical: Senior Year using Nintendo DS which included an integration with DGamer (Disney Gamer- an online game and social network service developed by Disney for use with Nintendo DS)” (Rogers, E. (2018).
By eliminating distribution fees, they saved one-third on a films gross investment, by owning all elements of the theme park value chain, Disney made sure that all possible revenue streams were channelled into the group and by opening Disney Stores they were able to control distribution for their merchandise products. Their motives are simple and reasonable, they had more power and were cutting costs, whilst making profits.
3.2 Mergers & Acquisitions:
Mergers and acquisitions are concerned with the combination of two or more organisations. An acquisition is achieved by purchasing a majority of shares in a target company. A merger is the combination of two previously separate organisations in order to form a new company. The Walt Disney Company is not a merger, however, they have acquired 27 organisations. To name a few Fox Family Worldwide, Lucasfilm, Pixar, Marvel, Muppets, Mirmax Entertainment, ESPN, ABC and their most recent acquisition, Fox. (Refer to table 4)
Since acquiring Miramax Ent in 1993, Miramax's profits have increased every year. “The merger presented substantial benefits for both sides: Miramax gained guaranteed access to Disney's national and international distribution network, and Disney could increase its content product diversity by securing content of the type that it lacked in its Disney” (UNISG, 2018). Miramax film output increased from 18 new films in 1988 to 68 new films in 1994.
Disney bought Fox for $71.3 billion dollars, the deal will be finalised in 2019. Disney will acquire 20th Century Fox, FX Networks and rights to films such as, X-Men and Fantastic 4. As a result of this acquisition, Disney will gain more than 300 hundred channels, control over Hulu and a significant portion of Roku.
“Divestment is the opposite of an investment, and it is the process of selling an asset for either financial, social or political goals” (Staff, I. (2018). The American Cable Association (ACA) were concerned with Disney's acquisition of Fox's 22 Regional Sports Networks, so they raised this issue to the Department of Justice (DOJ). The DOJ conditioned that Disney must divest the 22 Regional Sports Networks. As a result of the programme networks Disney already has, they could be bundled with other national and local programming to “harm consumers in many markets, particularly because Disney would control so much key national and regional sports programming rights” (ACA Applauds DOJ, 2018).
4. Generic Strategy:
A firm's generic strategy describes how it positions itself to compete in the market it serves. There are three different types, cost leadership, differentiation and focus. Firms must make a trade-off in order to succeed. They cannot be all things.
Disney use product differentiation as their generic strategy. This strategy “capitalizes on the uniqueness of products offered in the entertainment, mass media and amusement park industries.” (Williams, A. 2018). Their strategy is based on making their films, merchandise and amusement parks different to their competitors. Disney's competitors include, Viacom Inc, Time Warner Inc and Comcast Corporation . Disney grows through creativity and originality, which ultimately allows them to compete so effectively. The company's products are great quality and unique, they are produced through innovation and that is what differentiates them from their competitors.
Disney also uses diversification to help strengthen their strategy to allow for better growth. The company established the Disney Cruise line which allowed them to enter into the cruise line market. This targeted tourists and hospitality industries. Once again, the differentiation generic strategy develops the competitiveness of Disney against their competitors. They managed their competitors challenges by growing the company's presence and popularity.
This assignment has defined “Corporate Strategy” and outlined what The Walt Disney Company corporate strategy is. It then continued to discuss vertical integration and how the Walt Disney Company can produce and market films, distribute them and produce merchandise using their own chain of power. It outlined their acquisitions, by going into detail on Mirmax Entertainment and their recent purchase of Fox. The divestments of Disney were analysed and how they will have to divest 22 regional sports networks, which were previously owned by Fox. Lastly, this assignment focused on the company's generic strategy. It was discussed that Disney use the product differentiation strategy to successfully compete and retain their status as one of the world's leading producers and providers of entertainment and information to families around the globe and the environment.
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