Assignment 1 - Disney PDF

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PARRAMATTA CITY1500+/-10% 11/09/20 11/09/ASSESSMENT 1: INDIVIDUAL CASE STUDY REPORT (30%)MARION CORNISHMONDAY 6PMSTRATEGIC MANAGEMENT 200587BUSINESSDISNEY D.T.C. ANALYSISDISNEY+JOSHUA REGALADO2 Findings2 Internal Analysis2 Analysis of Disney’s Resources and CapabilitiesDisney utilises the core compo...

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BUSINESS

STRATEGIC MANAGEMENT

200587 MONDAY 6PM

MARION CORNISH

ASSESSMENT 1: INDIVIDUAL CASE STUDY REPORT (30%) 1500+/-10%

11/09/20 PARRAMATTA CITY

11/09/20

DISNEY D.T.C.I. ANALYSIS DISNEY+ JOSHUA REGALADO

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Table of Contents

1.0 Executive Summary The Walt Disney Company, or Disney, is an American multinational mass media and entertainment conglomerate. It has its roots in its first black and white animated film in 1928 to being a giant in media production in 2020. Today, the company is worth an estimated $130 billion USD with its reach spanning globally. In this report I would like to discuss my findings from an internal and external analysis while mainly focusing on Disney’s DTCI media distribution. Disney has developed their technology over time to introduce their Direct-to-Consumer-International media production that has been successful in its infancy but has many ways to go to be a dominating force in the streaming industry. Disney has utilised the core components of a business model extremely well and allowed their resource base, activity system and value proposition to allow them to be capable of controlling a large share of the industry going forward. Disney has also undertaken the inside-out perspective, highlighted by De-Wit & Meyer (2014), that capitalises on the strengths of their exclusive, sought after product and brings that to internet video streaming. Disney’s CEO, Bob Iger, has also shown how he can identify Disney’s strategic capabilities to be successful in the streaming industry. The external analysis has shown that Disney has taken advantage of current technological, political, and socio-cultural drivers in their industry. Disney has also adapted to the current economy which has suffered due to the global pandemic; they have improved their service to be attractive to consumers that are now under lockdown. Recommendations have been made to Disney to rectify its issues to sustain a large share of the streaming industry in their competitive environment.

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2.0 Findings 2.1 Internal Analysis 2.1

Analysis of Disney’s Resources and Capabilities

Disney utilises the core components of a business model to ensure that their inputs, throughputs and outputs create value for their consumers and ensure they can continue to pursue dominance of the ever-evolving direct to consumer streaming industry. Disney has a growing and developing activity system that strongly believes in the importance of both primary and secondary activities; mainly marketing and sales, service and technology development. (See Appendix 1: Components of a Business System Model – Activity System). Inbound and outbound logistics are orchestrated effectively through Disney’s partnership with ESPN, Hulu and other media networks and studios to create a more streamlined product (See Appendix 1: Components of a Business System Model – Activity System). Disney has also recognised the major draw of online streaming with the ease of access to content and has such taken strides to ensure they invest in technology development and quality service. Disney’s resource base is the driving force behind their success and the development of their intangible resources has been the key to this. The relationships they have developed with other companies and the reputation they have garnered over the years has only increased their capabilities to be successful. Their core competences are also extremely impressive as they have shown their market knowledge and expertise that allows them to be capable of thriving in a very competitive environment (See Appendix 1: Components of a Business System Model – Activity System). Disney’s value proposition that they have created has given them a strong competitive advantage against other popular streaming services such as Netflix. The Disney+ service combined with its low standalone price or a featured bundle which includes live sports through ESPN+ further shows Disney’s capability of dominating the industry. Disney has taken strides to ensure they can achieve their goals of competitive advantage by having a low price, many available features, bundling options, quality content and user interface, availability at any time/anywhere and ensuring they maintain a good image and relationship with their customers (See Appendix 1: Components of a Business System Model – Product Offering / Value Proposition). 3|Page

De Wit & Meyer (2017) identified a paradox that stated that for companies to maintain their competitive advantage they must do so through adapting to the current market or leveraging their resources. Disney has maintained and continued to increase their competitive advantage through their adaption to the current streaming video-on-demand services (S-VOD). Disney has clearly undertaken the inside-out perspective as they are building upon their main strengths of exclusive and beloved content and capitalising on the market opportunity of video streaming. This perspective is also typically undertaken by a company that emphasises the importance of its competences over its tangible resources, which Disney evidently does. The Disney+ service has definitely been a successful market adaptation as their subscribers have grown to over 50 million in less than one year and increased their revenue by four times to $4.1 billion (Iqbal 2020) (See Appendix 1: Components of a Business System Model).

2.1.2

Disney’s Capacity to Identify Strategic Capabilities

Disney has shown their capacity to identify strategic capabilities and ensure they can profit from the opportunities that have arisen in their industry. A large share of Disney’s success today can be attributed to, Disney’s CEO at the time, Bob Iger. Since taking over as CEO, Iger has been responsible for Disney purchasing major studios such as Pixar, Marvel, Lucasfilm and recently 20th Century Fox (Whitten 2019) (See Appendix 1: Components of a Business System Model – Procurement). This has been an extremely successful expansion for Disney with the Marvel film Avengers: Endgame earning a record breaking $2.789 billion USD globally in 2019 (See Appendix 1: Components of a Business System Model). These undertakings by Disney and Iger have transformed their business in the last ten years dramatically for the better (De Wit 2018).

2.2 External Analysis 2.2.1

Context of the entertainment industry

Technology developments in recent years have revolutionised the movie and media industry. Evolving from renting physical copies of movies and TV shows from stores like Blockbuster to now streaming content over the internet from anywhere and at any time (See Appendix 2: Drivers of Industry Development – Technological Drivers). The rise of the internet and the excessive development of new technology with access to the internet has largely made old ways of viewing media, such as VHS, obsolete (Keating 2016). The rise of this technology has also changed the way everyday people want to consume their media with increasing numbers of people across the world choosing to subscribe to Subscription Video-on-Demand (SVOD) services as opposed to pay TV like Foxtel, due to both price and convenience (B.T.N.C 2019) (See Appendix 2: Drivers of Industry Development – Socio-Cultural Drivers). The current global pandemic has also seen an enormous growth of demand for SVOD services as people are seeking entertainment while they are under lockdown (Thomson 2020). Global SVOD subscriptions are expected to grow by an estimated 81% by the year 2025 with Disney+ expected to see the largest growth in that time period (See Appendix 2: Drivers of Industry Development – Economic Drivers). Furthermore, the Australian government and many others around the world have taken strides to ban piracy-focused websites for consumption in Australia (Biggs 2020). This is a major win for the SVOD services as the government is intervening to make their product more desirable (See Appendix 2: Drivers of Industry Development – Political/Regulatory Drivers). The 4|Page

banning of torrent sites as well as a saturation in the market of SVOD services has seen competitive pricing come into effect, with many services undercutting each other in prices to attract new subscribers in an environment with very little loyalty (See Appendix 2: Drivers of Industry Development – Buyers).

2.2.2

Disney’s Competitive Landscape

The competition is Disney’s industry within its streaming service has never been more severe. The current global pandemic forcing people to stay home and the growing number of players in the streaming industry have created a serious level of rivalry for Disney. In Australia, Disney has to face the streaming giant of Netflix that holds approximately 42% of all SVOD subscriptions in Australia in 2019 (B.T.N.C 2019). Netflix also has the pleasure of being one of the first players in the industry and has attained a large degree of customer loyalty (See Appendix 2: Drivers of Industry Development – Incumbent Rivals). Although, Disney has managed to have a growing number of subscribers since its foundation. This has occurred largely due to Disney’s acquisition of Pixar, Lucasfilm, Marvel and 20 th Century Fox that has changed their product range and taken content away from its rivals (See Appendix 2: Drivers of Industry Development – Substitutes & Complementors). Disney has also made the business decision to undercut its rivals in pricing which diversifies their product offering and lowers the threat of new entrants competing with them (MarketLine 2019) (See Appendix 2: Drivers of Industry Development – New Entrants).

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Findings and Recommendations

Disney has shown that their implementation of their Direct-to-Consumer International (DTCI) program is showing strong signs of success with growing subscription numbers each quarter and an increasing demand due to the global pandemic. However, Disney faces issues in their industry that they must address head on in order to sustain their competitive advantage. A clear and abundant issue facing Disney is the competitive environment of their streaming services. Netflix, Amazon prime and Stan are some of their global competitors that they must differentiate from. Netflix contains a larger pool of content to draw from with their exclusive shows and movies being extremely popular in many countries (Alba 2017). Whereas Amazon bundles a vast amount of services into one small cost; music, books, video streaming and free & fast delivery on products are all available to Amazon Prime subscribers for $12.99 per month (Sekar 2018) (See Appendix 2: Drivers of Industry Development – Incumbent Rivals). To overcome this issue, Disney should seek to continue to expand their internationalisation of their products so they can differentiate their products. Netflix has found dramatic success in India due to creating programs suited to that demographic environment. Disney should seek to do the same whilst they expand their programs to new countries. A second issue faced by Disney is their streaming service not currently being profitable. To start their streaming services in the DTCI, Disney had to spend $2 billion alone on Disney+ in order for it to be appealing against Netflix. Hulu and ESPN+ have also been unprofitable in recent years, losing more than $2 billion combined. The DTCI program is not expected to turn a profit until the end of fiscal 2024 (Levy 2019). Disney plans to overcome this by increasing their subscriber numbers across the board. A recommendation for Disney to achieve this is to take advantage of the current market segmentation taking place in Australia. Foxtel has seen a dramatic fall in subscriber count in the last 5|Page

year losing 27% of its customers due to small offerings of live sport, TV shows and a high price. Disney already has the Disney+ and ESPN+ bundle available in the United States and expanding hat same product to the Australian market can capitalise on an ever-increasing gap in the industry. Rectifying both of the above issues by incorporating and strengthening their inside-out approach can ensure that Disney can continue to expand their product internationally and take a firm hold of the streaming industry globally.

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Reference list

Alba, D 2017, Netflix Is Killing It—Big Time—After Pouring Cash Into Original Shows, Wired, viewed 10 September 2020, . Alexander, J 2020, Streaming remains lone bright spot as Disney prepares for an unprecedented fight, The Verge, viewed 10 September 2020, . Baysinger, T 2019, Disney+ to Invest $1 Billion Into Original Content by 2020, TheWrap, viewed 10 September 2020, . BBC News 2020, ‘Disney ends the historic 20th Century Fox brand’, BBC News, 12 August, viewed 10 September 2020, . Biggs, T 2020, Federal Court orders another 86 piracy sites blocked, The Sydney Morning Herald, viewed 10 September 2020, . Bob De Wit 2017, Strategy synthesis : for leaders, Cengage Learning, Andover, Hampshire, United Kingdom. Bob De Wit & Meyer, R 2014, Strategy, Cengage Learning, Andover, pp. 20–23. Bookman, S 2015, Where Netflix, YouTube and HBO Now fit in the OTT industry, FierceVideo, viewed 10 September 2020, . BROADBAND TV NEWS CORRESPONDENT 2019, Ampere Analysis: The rise and rise of SVOD in Australasia, Broadband TV News, viewed 11 September 2020, . Brown, L 2017, Walt Disney Company Five Forces Analysis (Porter’s) & Recommendations - Panmore Institute, Panmore Institute, viewed 10 September 2020, . Clement, J 2020, Mobile percentage of website traffic 2019 | Statista, Statista, Statista, viewed 10 September 2020, . Contributors to Wikimedia projects 2018, video streaming service, Wikipedia.org, Wikimedia Foundation, Inc., viewed 10 September 2020, . Dickey, MR 2019, Thanks to Hulu, Disney lost $580 million last fiscal year, TechCrunch, viewed 10 September 2020, . Disney 2020, Disney+ Australia: Everything You Need to Know, Disney Australia, viewed 10 September 2020, . Dybek, M 2018, Walt Disney Co. (DIS) | Analysis of Property, Plant and Equipment, Stock Analysis on Net, Stock Analysis on Net, viewed 10 September 2020, . Faughnder, R 2019, Disney profits top Wall Street estimates as streaming wars begin, Los Angeles Times, viewed 10 September 2020, . Finbox 2020, The Complete Toolbox for Investors | finbox.com, Finbox.com, viewed 10 September 2020, . Fogg, B 2020, Netflix Australia: Prices, features and content | Finder, finder.com.au, viewed 10 7|Page

September 2020, . Gramenz, J 2019, Mistake to avoid on Disney+ sign-up, NewsComAu, viewed 10 September 2020, . Hoffower, H 2019, A family feud over a $400 million trust fund, a massive fortune that left one heiress with an inferiority complex, and a sprawling media empire. Meet the Disney family., Business Insider Australia, viewed 10 September 2020, . Kaitlyn 2020, All Marvel Studios Movies Have Been Removed From Netflix, Chip and Company, viewed 10 September 2020, . Keating, L 2016, VHS Tapes Are Finally Dead: The Last-Ever VCR Will Be Made This Month, Tech Times, viewed 10 September 2020, . Krantz, M 2012, Disney buys Lucasfilm for $4 billion, USA TODAY, USATODAY, viewed 10 September 2020, . Levy, A 2019, Disney Is Willing to Lose Billions to Compete With Netflix, The Motley Fool, viewed 10 September 2020, . Lovely, S 2019, Does Netflix Have a Pricing Problem?, The Motley Fool, viewed 10 September 2020, . MacroTrends 2019, Disney: Number of Employees 2006-2019 | DIS, Macrotrends.net, viewed 10 September 2020, . ― 2020, Disney Goodwill and Intangible Assets 2006-2019 | DIS, www.macrotrends.net, viewed 10 September 2020, .

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MarketLine 2019, New entrants intensifying competition in SVOD market: Influx of services could pose problem for Netflix, Marketline, viewed 10 September 2020, . McKinley Marketing Partners 2019, 4 Content Marketing Lessons from the Launch of Disney Plus, McKinley Marketing Partners, viewed 10 September 2020, . Official Data Foundation 2020, Internet services price history from 1997 through 2020, www.in2013dollars.com, viewed 11 September 2020, . Pash, C 2019, The streaming media battle for second place after Netflix in Australia - AdNews, Adnews.com.au, viewed 10 September 2020, . PCMag Australia 2020, Amazon Prime In Australia: Everything You Need To Know, PCMag Australia, viewed 10 September 2020, . Raab, M 2020, How Will Disney+ Grow from Here?, Medium, viewed 10 September 2020, . Sekar, A 2015, What Is Amazon Prime? The Cost and Whether It’s Worth It, NerdWallet, viewed 10 September 2020, . Shaw, L & Palmeri, C 2020, Disney takes tighter control of Hulu, Los Angeles Times, viewed 10 September 2020, . The Associated Press 2006, ‘Disney to Buy Pixar for $7.4 Billion’, The New York Times, 24 January, viewed 10 September 2020, . Thomson, S 2020, Coronavirus accelerates global SVOD growth, Digital TV Europe, viewed 10 9|Page

September 2020, . Walt Disney Company 2020, About DTCI, DTCI Media, viewed 9 September 2020, . Watson, A 2019, Walt Disney revenue worldwide, Statista, viewed 10 September 2020, . Whitten, LF, Sarah 2020, Disney reports 58% drop in operating income from parks and cruises, its worst-hit segment, CNBC, viewed 10 September 2020, . Wikipedia 2020, Marvel Entertainment - Wikipedia, en.m.wikipedia.org, viewed 10 September 2020, . Wilkie, D 2014, Disney Motto: Treat Employees Like Customers, SHRM, SHRM, viewed 10 September 2020, .

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5.0

Appendix 1: Components of a Business System Model

Resource Base / stock of Assets Tangibles 

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“Walt Disney's tangible book value decreased in 2015 (9.527 billion, -1.2%), 2016 (8.506 billion, -10.7%), 2017 (2.894 billion, -66.0%) and 2019 (-14.631 billion, -236.8%) and increased in 2018 (10.692 billion, +269.5%).” “Disney total number of employees in 2019 was 223,000, a 10.95% increase from 2018.” “Most of Disney’s tangible assets are there parks and resorts, which have increased in value to a net of $31,603 million USD.” Disney’s total net worth was also estimated to be $130 billion (Hoffower 2019).

Intangibles 

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Disney has an enormous reliance on their intangible assets with their vast range of licences that contain their TV shows and movies. These intangibles have been developed over time through acquisitions of other studios as well as their own productions “Disney goodwill and intangible assets for the quarter ending June 30, 2020 were $96.822B, a 5.92% decline year-over-year.”

Relational Resources  

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Disney has established a strong level of business relationships over time by acquiring the studios Lucasfilm, Pixar, Marvel, and 20th Century Fox. Bob Iger, the CEO, ensured that when Disney purchased the studios, he offered to extend the relationship between the two companies even further. Iger made both George Lucas and Steve Jobs members if the board at Disney In the acquisition of Pixar, Iger brought in Pixar’s president, Ed Catmull, and its creative executive, John Lasseter, to overtake Disney’s struggling animation studios. (De Wit 2018).

Competencies 

“The mission of The Walt Disney Company’s Direct to Consumer & International (DTCI) segment is to provide consumers around the world with the entertainment and sports

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content they want most, with more choice, personalization, and convenience than ever before.” Disney has realised the potential of their streaming services as they have many popular productions that people have enjoyed over the years. “Disney Plus is also being very aggressive with adding highly anticipated new Disney movies to its library relatively soon after they leave the theatre’s.” Disney’s ESPN+ service is also a strong showing of Disney’s market knowledge by identifying the trend of consumers moving away from network TV in favour of streaming anytime and anywhere

Activity System / Value Chain Primary Activities Inbound Logistics...