SFU Walt Disney Company Diversification Strategy in 2018 Case Worksheet please take a look for the case and finish the worksheet 14. thank you very much! C

SFU Walt Disney Company Diversification Strategy in 2018 Case Worksheet please take a look for the case and finish the worksheet 14. thank you very much! CASE 24
.
The Walt Disney Company: Its
Diversification Strategy in 2018
M
HI
connect
John E. Gamble
Texas A&M University-Corpus Christi
Disney CEO Robert Iger commented on the
ability of the acquisition to further boost shareholder
value during an investor’s conference shortly after
the DOJ consent decree announcement in June 2018.
he Walt Disney Company was a broadly diver-
sified media and entertainment company with
a business lineup that included theme parks
and resorts, motion picture production and distribu-
tion, cable television networks, the ABC broadcast
television network, eight local television stations, and
a variety of other businesses that exploited the com-
pany’s intellectual property. The company’s revenues
had increased from $45 billion in fiscal year 2013 to
$55 billion in fiscal 2017 and its share price had regu-
larly outperformed the S&P 500. While struggling
somewhat in the mid-1980s, the company’s perfor-
mance had been commendable in almost every year
since Walt Disney created Mickey Mouse in 1928.
The company ended 2017 with a modest one
percent increase in revenues and four percent
increase in net income over the year prior. However,
its announcement in December 2017 that it would
acquire 21st Century Fox for $71.3 billion in cash
and stock had the potential to radically improve its
future financial performance. The transaction was
approved by the U.S. Department of Justice (DOJ)
Antitrust Division in June 2018 and was expected to
be finalized by year-end 2018. The acquisition of 21st
Century Fox would extend Disney’s impressive col-
lection of media franchises to include Fox, FX, Fox
News Channel, Fox Business Network, Fox Sports
Network, National Geographic Channel, Star India,
28 local television stations in the United States and
more than 350 international channels, Twentieth
Century Fox Film, and Twentieth Century Fox tele-
vision production studios. Twenty-First Century
Fox also held a 39.1 percent stake in Sky, Europe’s
leading entertainment company that served nearly
23 million households in five countries.
The acquisition of 21st Century Fox will bring signifi-
cant financial value to Disney and the shareholders of
both companies, and after six months of integration
planning we’re even more enthusiastic and confident in
the strategic fit of these complementary assets and the
talent at Fox.
Just to remind you of the incredibly valuable assets
that we’re acquiring-our deal includes such premier
entertainment properties as Twentieth Century Fox
Film and Twentieth Century Fox Television, FX and
National Geographic, Fox’s regional sports networks,
Fox Networks Group International, and Star India, as
well as Fox’s interests in Hulu and Sky. Since we first
announced our deal in December, the intrinsic value of
these assets has increased-thanks, in part, to the ben-
efits of tax reform and certain operating improvements.
As we’ve said before, the combination of Disney and
21st Century Fox is an extremely compelling proposi-
tion for consumers. It will allow us to create even more
appealing high-quality content, expand our direct-to-
consumer offerings and international presence, and
deliver more exciting and personalized entertainment
experiences to meet the growing demands of consum-
ers worldwide.
1
As the company entered the third quarter of
2018, it was coming off an impressive second quarter,
but faced several strategic issues. The company’s core
Parks and Resorts business continued to grow and
record healthy profit margins, but its larger Media
Copyright © 2018 by John E. Gamble. All rights reserved.
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PART 2 Cases in Crafting and Executing Strategy
Networks business had seen minimal revenue growth
in recent years and was experiencing declining oper-
ating profits as media consumers turned from cable
to direct-to-consumer (DTC) programming. The
company’s Studio Entertainment business unit had
also struggled to develop stable revenue and earn-
ings growth and its Consumer Products & Interactive
Media business unit had seen a decline in revenues
and operating profits in the past year. Going into
2019, Iger and Disney’s management team would
have to evaluate the corporation’s strategy to bolster
the performance of its existing business units and
develop new media delivery capabilities while prepar-
ing for the integration of the probable acquisition of
21st Century Fox.
action motion picture photography. Disney brought
Ub Iwerks from Kansas City to Hollywood to work
with Disney Brothers Studio (later to be named Walt
Disney Productions) to produce the Alice Comedies
series that would number 50-plus films by the series
end in 1927. Disney followed the Alice Comedies
series with a new animated cartoon for Universal
Studios. After Disney’s Oswald the Lucky Rabbit car-
toons quickly became a hit, Universal terminated
Disney Brothers Studio and hired most of Disney’s
animators to continue producing the cartoon.
In 1928, Disney and Iwerks created Mickey
Mouse to replace Oswald as the feature character in
Walt Disney Studios cartoons. Unlike with Oswald,
Disney retained all rights over Mickey Mouse and all
subsequent Disney characters. Mickey Mouse and
his girlfriend, Minnie Mouse, made their cartoon
debuts later in 1928 in the cartoons, Plane Crazy, The
Gallopin’ Gaucho, and Steamboat Willie. Steamboat
Willie was the first cartoon with synchronized sound
and became one of the most famous short films of
all time. The animated film’s historical importance
was recognized in 1998 when it was added to the
National Film Registry by the United States Library
of Congress. Mickey Mouse’s popularity exploded
over the next few decades with a Mickey Mouse Club
being created in 1929, new accompanying characters
such as Pluto, Goofy, Donald Duck, and Daisy Duck
being added to Mickey Mouse cartoon storylines,
and Mickey Mouse appearing in Walt Disney’s 1940
feature length film, Fantasia. Mickey Mouse’s univer-
arehole
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Walt Disney’s venture into animation began in 1919
when he returned to the United States from France,
where he had volunteered to be an ambulance driver
for the American Red Cross during World War I.
Disney volunteered for the American Red Cross only
after being told he was too young to enlist for the
United States Army. Upon returning after the war,
Disney settled in Kansas City, Missouri, and found
work as an animator for Pesman Art Studio. Disney,
and fellow Pesman animator, Ub Iwerks, soon left the
company to found Iwerks-Disney Commercial Artists
in 1920. The company lasted only briefly, but Iwerks
and Disney were both able to find employment with a
Kansas City company that produced short animated
advertisements for local movie theaters. Disney
left his job again in 1922 to found Laugh-O-Grams,
where he employed Iwerks and three other animators
to produce short animated cartoons. Laugh-O-Grams
was able to sell its short cartoons to local Kansas
City movie theaters, but its costs far exceeded its
LED
revenues-forcing Disney to declare bankruptcy in
1923. Having exhausted his savings, Disney had only
enough cash to purchase a one-way train ticket to
Hollywood, California, where his brother, Roy, had
offered a temporary room. Once in California, Roy
began to look for buyers for a finished animated-live
action film he retained from Laugh-O-Grams. The
film was never distributed, but New York distributors
Margaret Winkler and Charles Mintz were impressed
enough with the short film that they granted Disney
a contract in October 1923 to produce a series of
short films that blended cartoon animation with live
sal appeal reversed Walt Disney’s series of failures in
the animated film industry and became known as the
mascot of Disney Studios, Walt Disney Productions,
and The Walt Disney Company.
The success of The Walt Disney Company was
sparked by Mickey Mouse, but Disney Studios also
produced several other highly successful animated fea-
ture films including Snow White and the Seven Dwarfs
in 1937, Pinocchio in 1940, Dumbo in 1941, Bambi in
1942, Song of the South in 1946, Cinderella in 1950,
Treasure Island in 1950, Peter Pan in 1953, Sleeping
Beauty in 1959, and One Hundred-One Dalmatians
in 1961. What would prove to be Disney’s greatest
achievement began to emerge in 1954 when con-
struction began on his Disneyland Park in Anaheim,
California. Walt Disney’s Disneyland resulted from
an idea that Disney had many years earlier while
sitting on an amusement park bench watching his
young daughters play. Walt Disney thought that there
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CASE 24 The Walt Disney Company: Its Diversification Strategy in 2018
A Finand
C-279
his resignation in 2005.
and skirting board approval for many of his initia-
tives and his involvement in a long-running deriva-
tives suit led to his removal as chairman in 2004 and
The Walt Disney Company’s CEO in 2018,
Iger, became a Disney employee in
1996 when the company acquired ABC. Iger was
president and CEO of ABC at the time of its acqui-
sition by The Walt Disney Company and remained
in that position until made president of Walt Disney
ons are
ne sheets
should be a clean and safe park that had attractions
that both parents and children alike would find enter-
taining. Walt Disney spent years planning the park
and announced the construction of the new park to
America on his Disneyland television show that was
launched to promote the new $ 17 million park. The
park was an instant success when it opened in 1955
and recorded revenues of more than $ 10 million dur-
ing its first year of operation. After the success of
Disneyland, Walt Disney began looking for a site in
the eastern United States for a second Disney park.
He settled on an area near Orlando, Florida in 1963
and acquired more than 27,000 acres for the new
park by 1965.
Walt Disney died of lung cancer in 1966, but
upon his death, Roy 0. Disney postponed retire-
ment to become president and CEO of Walt Disney
Productions and oversee the development of Walt
Disney World Resort. Walt Disney World Resort
opened in October 1971-only two months before
Roy O. Disney’s death in December 1971. The com-
pany was led by Donn Tatum from 1971 to 1976.
Tatum had been with Walt Disney Productions since
1956 and led the further development of Walt Disney
World Resort and began the planning of EPCOT in
Orlando and Tokyo Disneyland. Those two parks
were opened during the tenure of Esmond Cardon
Walker, who had been an executive at the company
since 1956 and chief operating officer since Walt
Disney’s death in 1966. Walker also launched The
Disney Channel before his retirement in 1983. Walt
Disney Productions was briefly led by Ronald Miller,
It assets
cong-term oblige
Ostey shareho
Satements of
International by Alan Eisner in 1999. Bob Iger was
promoted to president and chief operating officer of
The Walt Disney Company in 2000 and was named
as Eisner’s replacement as CEO in 2005. Iger’s first
strategic moves in 2006 included the $7.4 billion
acquisition of Pixar animation studios and the pur-
chase of the rights to Disney’s first cartoon character,
Oswald the Lucky Rabbit, from NBCUniversal. In
2007, Robert Iger commissioned two new 340-meter
ships for the Disney Cruise Lines that would double
its fleet size from two ships to four. The new ships
ordered by Iger were 40 percent larger than Disney’s
two older vessels and entered service in 2011 and
2012. Iger also engineered the acquisition of Marvel
Entertainment in 2009 that would enable the Disney
production motion pictures featuring Marvel comic
book characters such as Iron Man, Incredible Hulk,
Thor, Spider-Man, and Captain America. In 2012,
Walt Disney acquired Lucasfilm in a $4 billion cash
and stock transaction. Lucasfilm was founded by
George Lucas and was best known for its Star Wars
motion picture franchise.
A financial summary for The Walt Disney
Company for 2013 through 2017 is provided in
Exhibit 1. Exhibit 2 tracks the performance of The
Walt Disney Company’s common shares between
July 2013 and July 2018.
Cash provided
hesting acti
Pendinga
ung. The
who was the son-in-law of Walt Disney. Miller was
ineffective as Disney chief executive officer and was
replaced by Michael Eisner in 1984.
Eisner formulated and oversaw the implementa-
tion of a bold strategy for Walt Disney Studios, which
included the acquisitions of ABC, ESPN, Miramax
Films, and the Anaheim Angels, and the Fox Family
Channel; the development of Disneyland Paris,
Disney-MGM Studios in Orlando, Disney California
Adventure Park, Walt Disney Studios theme park in
France, and Hong Kong Disneyland; and the launch
of the Disney Cruise Line, the Disney Interactive
game division, and the Disney Store retail chain.
Eisner also restored the company’s reputation for
blockbuster animated feature films with the creation
of The Little Mermaid in 1989, and Beauty and the
Beast and The Lion King in 1994. Despite Eisner’s
successes, his tendencies toward micromanagement
THE WALT DISNEY
COMPANY’S CORPORATE
STRATEGY AND BUSINESS
OPERATIONS IN 2018
In 2018, The Walt Disney Company was broadly
diversified into theme parks, hotels and resorts,
cruise ships, cable networks, broadcast television
networks, television production, television station
operations, live action and animated motion picture
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PART 2 Cases in Crafting and Executing Strategy
2013-2017 (in millions)
EXHIBIT 1 Financial Summary for The Walt Disney Company, Fiscal Years
2017
2016
2015
2014
2013
Revenues
$55,137
$55,632
$52,465
$48,813
$45,041
Net income
9,366
9,790
8,852
8,004
6,636
Net income attributable to Disney
8,980
9,391
8,382
7,501
6,136
Per common share
2
Earnings attributable to Disney
Diluted
$5.69
$5.73
$4.90
$4.26
ger’s fins
$3.38
Basic
$5.73
$5.76
$4.95
$4.31
$3.42
Dividends
$1.56
$1.42
$1.81
$0.86
$0.75
iversal. E
Balance sheets
Total assets
$95,789
$92,033
$88,182
$84,141
$81,197
ald double
new Shui
Long-term obligations
26,710
24,189
19,142
18,537
17,293
Disney shareholders’ equity
41,315
43,265
44,525
44,958
45,429
Disney
2011 and
Statements of cash flows
of Marne
he Disne
Cash provided by operations
$12,343
$13,136
$11,385
$10,148
$9,495
vel com
Investing activities
4,111
5,758
4,245
3,345
4,676
ble Hul
In 2012
Financing activities
8,959
7,220
5,801
6,981
4,458
lion casi
unded by
Source: The Walt Disney Company 2017 10-K.
Star II
Dis
vided i
production and distribution, music publishing, live
theatrical productions, children’s book publishing,
interactive media, and consumer products retail-
ing. The company’s corporate strategy was centered
on (1) creating high-quality content, (2) exploiting
about the company’s planned acquisition of 21st
Century Fox and Walt Disney Company’s strategic
priorities during a media, cable and telecommunica-
tions conference in February 2018, Bob Iger made
the following comments:
technological innovations to make entertainment
experiences more memorable, and (3) international
expansion. The company’s 2006 acquisition of Pixar
and 2009 acquisition of Marvel were executed to
enhance the resources and capabilities of its core
animation business with the addition of new ani-
mation skills and characters. The company’s 2011
acquisition of UTV was engineered to facilitate its
international expansion efforts. The acquisition of
Lucasfilm’s Star Wars franchise in 2012 not only
allowed the company to produce new films in the
series, but integrate Star Wars into its other business
units, including theme park attractions. When asked
We’ve been a company that has emphasized the value
of high-quality, branded entertainment. And the acqui-
sitions of Pixar, Marvel, and Lucasfilm/Star Wars,
obviously were a reflection of that core strategy.
This gives us a larger portfolio of high-quality
branded content. When you think about FX, when you
think about National Geographic, when you think about
a number of the franchises that Fox has created, includ-
ing their Marvel franchises and Avatar and other prod-
uct, we believe that this fits beautifully into a strategy
to continue to invest in entertainment, particularly in a
world that seems to be growing in terms of its appetite
to consume entertainment.
Strategic Management : Cases
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CASE 24 The Walt Disney Company: Its Diversification Strategy in 2018
C-281
Anaheims
EXHIBIT 2 Performance of The Walt Disney Company’s Stock Price, July 2013
Manapun and
The Walt
soydu
to July 2018
aleampied
(a) Trend in The Walt Disney Company’s Common Stock Price
120
certain’ver
California
110
V
ESPV3
n
f
100
90
Stock price ($)
we Wide
web host an
arjuny 2
waited at the
80
70
In 2018,
nized into a
60
2017
2018
2014
2015
2016
and Resorts,
Products &
Year
Media No
M
(b) Performance of The Walt Disney Company’s Stock Price Versus the S&P 500 Index
+90%
The Walt Disney
+80%
Company’s Stock
+70%
Price
+60%
+50%
+40%
The Walt D
ness unit i
)
change
2013 = 0)
Percen
(July
cable netwo
son produd
tons. The
+30%
+20%
r
S&P 500
+10%
+0%
-10%
imited to
tight local
2014
2015
2016
2017
2018
Year
Six of Dis
were locate
Source: The Walt Disney Company 2017 10-K.
hall, ABC
When
freship
metho
over the last decade deepening that penetration in
markets. You mentioned Shanghai Disneyland, which
would be an example of how we’ve done that in China.
This gives us the ability to have a far more global foot-
print and to diversify the company’s interest from a geo-
graphic perspective.
Secondly, we’ve been talking a lot about using tech-
nology to reach consumers in more modern, more effi-
cient, and effective ways. That certainly has changed
significantly. When I talk about a dynamic marketplace,
I think it’s most evident in how people access entertain-
ment, how they consume entertainment, and this acqui-
sition gives us the ability not only to have essentially
more product, more intellectual property, but to bring
it to the consumer in more compelling ways and ways
we think the consumer wants their entertainment more
and more. The Star and Sky assets and the Hulu assets
give us an opportunity to do that.
And then lastly, we’ve talked a lot about wanting to
grow our company globally. The Walt Disney Company
has been a global company for a long time, but in many
of the markets that we operate in our penetration was
relatively superficial. We spent a fair amount of time
Disney’s corporate strategy also called for suf-
ficient capital to be allocated to its core theme
parks and resorts business to sustain its advantage
in the industry. The company expanded the range
plus additions such as its new Toy Story Land attrac
of attractions at its theme parks with billion dollar
tions opened in 2018 at Shanghai Disneyland and
Disney’s Hollywood Studios and its Star Wars Land
scheduled to open in Disney’s Hollywood Studios

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