The Walt Disney Company was started in 1923 by the two Disney brothers Walt and Roy as The Disney Brother Studio. It deals in Entertainment Company with a specialty in Media Networks, Parks and Resorts, Studio Entertainment, and Consumer Products & Interactive Media. The deeply rooted multi-billion companies and the high cost of starting off in the industry make it hard for new entrants to the market. Since the power of other stakeholders is also high coming from unionists, the government, shareholders, and creditors.
1. Value Chain Analysis and Porters Six Forces Model
In value chain analysis, the primary and support activities show value is added in the business process. The inbound logistics entail the reception, storage, and dissemination of inputs within the organization. Operations refer to the process of converting inputs into outputs. Outbound logistics refer to the activities that facilitate the movement of goods from the industry and into the market. Marketing and sales are the activities that the company undertakes to persuade customers to buy their goods. Service refers to the after sale services given to customers. The support activities complement the primary activities and include; procurement which is the process of resource acquisition. Human resource management refers to the hiring process and overseeing of the workforce in the production process. Technological development refers to activities that facilitate the processing and management of information while the infrastructure refers to the company’s support systems.
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An examination of the Disney’s television industry’s external environ using Porter’s six forces shows that bargaining power of suppliers is relatively low because they are many in the industry. The bargaining power of buyers is high due to the many options in the entertainment industry. The threat of substitution is exponentially high from competitors in the industry as well as the internet. The threat of rivalry is high for companies like AT&T and Verizon who are making TV programs accessible via the Internet. The power of other stakeholders is also high coming from unionists, the government, shareholders, and creditors.
2. Benefits and Costs of Diversification
The Disney Company employs a growth strategy aimed at maximization of stakeholders’ wealth through managing creativity. When Walt Disney died, Eisner took over and introduced new diversification and integration strategies. These moves were aimed at spurring growth while maintaining the team work spirit, creativity, and entrepreneurship. The Company embarked on asset class diversification which entailed the expansion of the original animation business into theme parks, entertainment, cruise lines, resorts, planned residential communities, TV broadcasting, and the asset retail business. The Disney Company embarked on horizontal integration in the media industry where they acquired broadcasting and cable network into their business. The integrated stations included the ABC television and radio networks, ESPN and Soapnet. The diversification into the recreational industry from animations came with significant benefits. It increased the level of profitability for the company and strengthened their credit worthiness. The integration and diversification strategies have also increased the market share of the company because the former customers of the acquired companies are now Disney’s. The diversification and integration also helped the company to spread risks since they now deal in different types of products and services. Disney is creating value through the diversification strategies. The theme park attracted over its targeted 11 million customers in its first year and had continued to increase the profitability of the business. The diversification has also increased the brand visibility and led to the cultivation of a strong brand name since it has enabled the production of award winning movies and prestigious facilities like Disney land. The benefits, therefore, surpass the costs of implementing the diversification and integration strategies.
3. Disney’s expansion modes
The Disney Company has utilized the acquisition of new assets in its expansion plans. Walt Disney purchased a 27000-acre farm in 1965 with the plan of putting up Walt Disney Worlds an expansion that was established after his death in 1971.The establishment made $139 million dollars with its opening cost being estimated at $17 million dollars. The expansion, therefore, has been a benefit to the company since its inception and continued to contribute to the enterprise's profitability. Disney also expanded into TV and movies which saw them produce 27 successfully profitable movies out of the total 33 they produced. Under Eisner’s leadership, the Disney development company was established to oversee expansions into Orlando and the building of a $375 million dollar convention center. The benefits of this expansion were increased capacity of the Disney land holdings and a rise in ticketing due to the additional facilities which raised the profitability of the company. The expansion strategy also included crossing into new target markets. Disney stores were launched in 1987 which primarily targeted kids but drew even adult collectors since they gave a Disneyland-like experience to the customers. Consumer product services were also expanded to publishing and the founding of a music label at the cost of less than $20 million dollars. These expansions benefited Disney through increasing the market share and attraction of new customers.
The Walt Disney Company, therefore, used asset based diversification and horizontal integration strategies into the recreation and media industries in their corporate development strategy. The benefits include increased profitability, strong brand name and visibility and increased customer attraction and overall company growth. The strategy has therefore increased the company value.
