Business Model Analysis, Executive Summary

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An executive summary of The Walt Disney Company: A Business Model Analysis

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  • The Walt Disney Company (NYSE:DIS)
    A Business Model Analysis
    Erin Kurth, Journalism 7736
    July 27, 2011
  • Company Overview
  • Worlds largest media conglomerate by revenues in 2010
    With assets encompassing film, television, publishing, the Internet, music, and recreation, The Walt Disney Company was the worlds largest media conglomerate in terms of revenue in 2010 (Morningstar, 2011) recording revenues of $38.1 billion and a net income of $3.96 billion that easily outpaced the earnings of its primary competitors News Corp., Time Warner, and Viacom.
  • A multi-media empire
    Although it is known internationally for its princesses, pirates, and the iconic Mickey Mouse, Disneys holdings include:
    The ABC television network and 10 broadcast stations;
    A portfolio of cable networks including ABC Family, Disney Channel, ESPN, and others;
    Film studios Walt Disney Pictures, Disney Animation, Touchstone, and Pixar;
    Marvel Entertainment, a top comic book publisher and film producer; and
    Walt Disney World and Disneyland, a cruise line, and other parks and destination resorts around the world.
  • Lessons learned from its humble beginnings as a cartoon studio
    Disney still relies on some of the same business strategies it has employed since the 1930s.
    A consistent drive to find new and innovative ways to promote and sell its brands across numerous media sectors to increase revenues has helped Disney successfully fulfill its mission to position itself as one of the world's leading producers and providers of entertainment and information.
  • Current Financial Position
  • Overall success due to success of five business segments
    Disney has five business segments Media Networks, Parks and Resorts, Studio Entertainment, Consumer Products, and Interactive Media that were created to support and enhance its original business model as a studio producing animated shorts and full-length features.
    Each piece contributes to the Disney empire by forging new and additional paths to market that together ensure Disney fulfills its mission.
  • Performance and revenues
    The financial market crisis and resulting economic downturn of 2008 had an effect on Disney in fiscal year 2009, but the company has since started to recover and is doing so at a pace greater than those of other companies listed in the S&P 500 or the S&P Media Index.
    Disneys revenues increased by 5% between 2009 and 2010 to $38.1 billion.
  • Key financial indicators
    Disneys gross profit as a percentage of revenue decreased from 19.6% in 2008 to 15.7% in 2009, before increasing to 17.4% in 2010.
    Disneys operating profit decreased by 24% from 2008 to 2009, then increased by 17% to $6.6 billion in 2010.
    Disneys net income fell from $4.4 billion in 2008 to $3.3 billion in 2009, then increased to $4 billion in 2010.
  • Profit margins
    Disneys net profit margin decreased from 11.7% in 2008 to 9.1% in 2009, then increased to 10.4% in 2010.
    Disneys operating profit margin followed the same pattern, decreasing from 19.6% in 2008 to 14.4% in 2009, before increasing to 17.0% in 2010.
    This means Disney is slowly regaining the amount of money it keeps for every dollar of sales before interest and taxes, from just over 14 cents per dollar in 2009 to 17 cents per dollar in 2010.
  • Cash and cash equivalents
    Net cash provided by operating activities decreased from $5.7 billion in 2008 to $5.3 billion in 2009, then increased to $6.6 billion in 2010.
    The amount spent in investing activities decreased from $2.2 billion in 2008 to $1.8 billion in 2009, then increased to $4.5 billion in 2010.
    Disney was left with $3.0 billion in cash and cash equivalents at the end of 2008, $3.4 billion at the end of 2009, and $2.7 billion at the end of 2010.
  • Free cash and investments
    Using the gross method of calculation, Disney decreased its free cash from $3.9 billion in 2008 to $3.3 billion in 2009, then increased it to $4.5 billion in 2010.
    In 2010, Disney spent $4.6 billion on investing activities, which included the acquisition of Marvel and a $2.7 billion investment in common stock repurchases.
  • S.W.O.T. Analysis
  • Strengths and weaknesses
    Among Disneys greatest strengths are its strong financial background; its well-known brands and characters; its unique American Dream-like history; its strong Media Networks segment; its global presence; and its ability to blend new, innovative technologies with traditional stories and values.
    Major weaknesses include the number of employees it must maintain in order to sustain and grow its many holdings; and the dependence on the success of the Studio Entertainment segment by many of the companys other business segments.
  • Opportunities and threats
    International markets, new media technologies, and more sophisticated attractions are among Disneys biggest opportunities.
    Threats include the amount of external competition it faces in each of its five business segments; the increasing number of regulatory guidelines it must adhere to domestically and internationally; and the ability to consistently maintain its brand across so many different products and segments.
  • Disruptive/Open Innovation
  • A history as a disruptor
    Since it was founded in 1923, Disney has always been a force of disruptive innovation.
    Disney has disrupted:
    The traditional film studio model;
    The cartoon by adding sound;
    The movie by creating full-length animated features;
    Television by producing successful childrens programming;
    The amusement park industry by building attractions adults and children could enjoy together, and
    The family destination vacation industry by positioning Disney-branded theme parks around the world.
  • A history of listening to consumers
    Disney has spent as much time considering the social and emotional needs of its consumers as well as their functional needs to be entertained.
    By accepting that it does some things well and other companies do other things better, Disney has also applied the theory of open innovation to its business segments.
  • Examples of success
    In the 1990s, as a result of applying open innovation rather than trying to best Pixar, Disney was able to first partner with and then acquire the digital animation studio in 2006.
    Similarly, Disney realized the strengths of Apple and iTunes and chose to work with the company to make its television programming the first that was available to download through the Apple store.
  • Disney Business Model
  • Building revenues by exploiting original content across platforms
    Today, Disney operates under a reinvention of the companys original model that worked to increase revenues by repeatedly exploiting its innovative content across multiple platforms.
    This model encompasses all five of Disneys business segments Media Networks, Parks and Resorts, Studio Entertainment, Consumer Products, and Interactive Media business segments, and can be easily illustrated by following the myriad ways Disney injects original content into the public sphere through film or television and then uses technology, marketing, and sociological trends to capitalize on its innovation.
  • Recent examples
    Disney reclaimed the tween girl audience (8- to 12-year-olds) in 2006 when it launched the enormously popular live-action comedy Hannah Montana on Disney Channel, by packaging a television, film, and pop star into one teenager and selling CDs and concert tickets; creating new attractions at its theme parks; making films; marketing a range of consumer products; and developing game software and websites, Disney made millions from the Hannah Montana franchise.
    In a similar vein, Disneys recent purchase of Marvel Comics will help leverage the company with tween boys, as the live-action films it releases will spur cartoons and comic books, clothing and shoes, video games and websites, and new attractions at its theme parks worldwide.
  • Strategic differentiation
    Disney continues to differentiate itself as a classic entertainment company built on tradition with a clear vision of the future.
    This strategy is one that Porter recommends as profitable for a company facing competition, and is enhanced by the companys continued partnerships with digital technology leaders such as Apple, Facebook, Hulu (of which it is part owner), and Sprint and desire to sustain expansion in high-growth international markets like China, India, and Latin America.
  • Looking ahead
    Moving forward, Disney's solid financial profile will provide the company with continued financial flexibility, which will help it conti