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External Forces Faced by Walt Disney Company

Disney is most notable known for theme parks. Having destinations around the world, Paris, China, Japan, and the United States, these theme parks play a critical role in Disney’s profitability. Currently, Disney is planning on laying-off, though the current number is undisclosed. They employ around 80,000 people in their parks; in the month of January they bought out 600 executives.

Overall Economic, Social, and Cultural Forces

1 1 Also, profits for the December 2007 were down 24% in the parks. Currently, the economic recession has limited families to expend much of their income on vacations. Oil and energy prices have also fluctuated, which contributes to the dwindling number of visitors. Disney has special interest in natural gas and petroleum, currently being partial shareholders of Bass Enterprises Production and Crude Petroleum and Natural Gas Extraction Company.2

Disney’s Media business is also connected, but not affected as greatly by current conditions, due to the diversification of Disney and box-office and TV successes. Pirates of the Caribbean grossing $2.79 billion worldwide, and the acquisition of Pixar and their first movie under the Disney label WALL-E grossed $521 million worldwide,

Currently, the economy is slowing down the sale of both of these goods, even though demand is still relatively high.

3

3 as well as the TV sector hit

shows such as Grey’s Anatomy and Desperate Housewives. The current economic situation has brought many companies to cut back on advertising.3 As a result, Disney’s advertising revenue has declined.3 In an attempt to fix this problem, job cuts were made in 2009 and ABC Studio will be combining with ABC Entertainment in order to streamline TV production.3 Despite ABC problems, Disney Channel and ESPN have had great success.3

Walt Disney Company has been integrated into Western Society, became a household necessity, and if one has not been to Disneyland or seen a movie production, the person is considered society misfits.4

3

Though this is not to say Disney is perfect, when opening up Euro Disney they failed to factor in the cultural and social differences, causing Euro Disney to greatly suffer. The lack of wine being offered with meals and no smoking are considered European necessities, with a host of other problems.

Analysis

Studio Entertainment3 Walt Disney Pictures Touchstone Pictures Hollywood Pictures Miramax Films Buena Vista International Buena Vista Theatrical Productions Buena Vista Music Group 1 (Garcia 2009) 2 (Reuters n.d.) 3 (Hoovers 2009) 4 (Chiang n.d.)

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Currently Walt Disney Company’s studio entertainment division has the narrowest operating margin when compared to the other segments.

Competition

3 There is a large amount of competition in this particular industry segment. Time Warner and News Corp both operate in this field under Time Warner, and 20th Century Fox.9 Respectively, other companies such as General Electric who own Universal Pictures, Viacom who own DreamWorks and Paramount,5 and abroad many country subsidies, Taiwan, Canada, and India are all examples.6

3

There is also copyright infringements’ and intellectual property theft that happen daily that Walt Disney and the governments that Disney operates must deal with. Studio Performance in 20097

Rank

Distributor Market Share Movies Tracked 2009 Movies

1 Warner Bros 19.1 14 5

2 Sony/Columbia 15.3 9 6

3 20th Century Fox 14.2 7 2 4 Paramount 9.9 5 2 5 Fox Searchlight 8.2 4 1 6 Liongate 7.2 5 3 7 Buena Vista 5.5 7 1 8 Universal 4.3 5 1 9 Focus Features 2.9 2 1 10 Paramount Vantage 2.7 3 0 11 Summit Entertainment 2.7 3 1 12 MGM/UA 2.5 4 0

There are many different forms of entertainment and Movies can be substituted with live theater, music, TV, books, magazines, video games, renting videos, sports and recreation, and many other activities.

Substitutes

The actual threat of new entries is quite high in terms of availability and ease of access. Technology has significantly lowered costs, which has been the main barrier for new entries in this market.

Threat of New Entry

6 Small and independent filmmakers have the ability to enter this market with ease. Though they rely heavily on film festivals and the Internet (such as YouTube) in order to make any profits, their low-cost movies produced very limitedly produced and very limited in terms of marketing budget.8

5 (Hoovers 2008)

Larger studios spend large amount of resources on advertising and

6 (Chiang n.d.) 7 (IMBD 2009) 8 (Iype 2005)

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distribution, thus their movies do have the advantage of mass people seeing the productions. For example, Disney spent $671 million in 2005 for advertising and distribution of movies.9

8

Though movies are judged by their story, pedigree, special effects, and acting, there is little brand identification or brand loyalty with the company towards any of these specifics. New entrants can easily establish themselves, and the only time this may faultier is in the case of film franchises where a fan base could establish.6 For studios, suppliers consist of writers, directors, new talent, and current talent. Each of these groups have the ability to make hefty demands, particularly actors or directors that have had past successes. Tom Hanks, Steven Spielberg, George Lucas

Suppliers

6 are all successful people that can hold out for more money or demand better profit-sharing deals.4 In return, all can affect the studio’s profitability for that particular movie.4 Though there is an excess of actors, directors, and writers, not all talent is equal or in high demand.10

4 This results in bargaining power for these

particularly popular or talented people to have greater weight in their favor. Finally, the talent could refuse to work, or even after production has begun, change their demands or decide not to finish the film, causing scheduling and budget problems.10

The general public is who the studios are selling the movies towards, or the audience. Poor reviews by film critics or friends can cause films to flunk. The tremendous starting cost to produce and publish a film is very risky.

Buyers

8 Ultimately, the audience decides the success of that risk, and there is no way to predict successful films.3 Other factors that can influence the buyer are exogenous such as, seasonality, economic conditions, and weather; or they could be endogenous, such as cultural or social, the films marketing message, and the perception of actors, directors, or writers.10 Finally the buyers are also the ones that pirate the films which undercut the ability for the film studio to sell directly to the audience, such as previews for future movies, or advertisements.10 It also hurts the overall sale of films which causes the studios to increase ticket price or DVD prices, thus deterring people further to see a film.10 Parks and Resorts3 Disneyland Resort Walt Disney World Resort Tokyo Disney Resort Disneyland Resort Paris Hong Kong Disneyland Disneyland Hong Kong Disney Cruise Line Disney Vacation Club Resorts ESPN Zone Walt Disney Imagineering

9 (Hoovers 2009) 10 (Wikipedia 2009)

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Domestically there are many theme parks that Disney must contend with, Six Flags, Sea World, Anheiser Busch, and Knott’s Berry Farm.

Competition

9 There are also many local single park operations throughout the United States. Globally Six Flags and Cedar Fair Entertainment, as well as small local theme parks operate successfully in competition with Disney.9 Conventions and convention centers hold another possible rivalry, hosting gun shows, golf exposes, and car shows, all cheaper then theme park entry fees.9

In this situation substitutes consist of events, activities, or destinations that are time based. Since people go to theme parks expecting to spend most of the day or longer there, then substitutes should consist of similar time frame. Cruises, museums, sporting event, spas, skiing, water recreations, hiking, and beaches could all be cauterized as a substitute for theme parks.

Substitutes

The extraordinary cost of building a new theme park and the ability to raise the capital needed limits new entry. For example Disney is going to revamp its southern California Park, California Adventures, and it is estimated that the cost will be $5 billion.

Threat of New Entry

11

11

This construction is for a new entry, new section of the park, revamp of the board walk games, installment of other new attraction (most likely around 3-4) and a new light show. This exceeded the cost to build Disney Hong Kong, which topped $3.5 billion. Finally government, environmental, and safety regulations further inhibit new entry.11

Designers, construction workers, maintenance teams and park operational employees are the main source of supply. Designers, maintenance teams and some construction workers have highly specialized degrees and thus are in limited supply.

Suppliers

3 Due to this limitation salary, benefits, and other perks are extremely important to keep these key people with Disney. Operational employees tend to be high school or college students easily replicable offering a steady stream of employees during peak seasons.3

The general public the main buyer, visitors to parks weigh the entertainment value of the theme park against the cost, time and travel distance that is required to attend.

Buyers

11 Large families may find it too costly to travel or purchase tickets, or even demands for vacation could impede traveling to Disney.11 Though Disney has created incentives, purchasing four night of vacation and receive three nights free, low monthly costs for theme park membership starting at around $6 a month, and free theme park admission on your birthday.11 Consumer Products3 Disney Hard-lines Disney Soft-lines Disney Toys Disney Publishing

11 (The Walt Disney Company 2009)

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Buena Vista Games Disney Stores Disney Online The Baby Einstein Company

Consumer products categories range from adults, children, babies, families, couples, singles, and so forth. Also the categories are arranged by their product type, house wares, technology, apparel, etc. This industry is very competitive, and there is sparse growth, extreme customer loyalty and profound customer segmentation.

Competition

9

Substitutes are high since product variants are easily attainable; many customers base decision on cost, location of the store, and ease of accessing the goods.

Substitutes

9 Though the diversification in the market by the major companies has mitigated the loss of the market share or revenues; meaning that few companies own many of the products produced.9 The only market that’s not controlled by this circumstance would be the high end consumer electronics sector, since technological standards are consistently changing and most companies only operate under a single brand name.9

Entry into this segment of the market is quite high, though success is difficult to attain. Economies of scale, price pressures, and fierce rivalry keep this segment intensely difficult to survive.

Threat of New Entry

9 For example large firms can temporarily cut prices or increase promotions to stifle new competition due to their economies of scale and deep pockets.12

12

Finally new entries require extremely effective marketing, which for the most part can be overshadowed by the larger firms. Their marketing budget is extensive, causing the new entries not to be noticed. If a company does succeed then large firms tend to buy them out, since new successful products in this industry are difficult to establish.12

Supplier’s threat can vary depending on economic situation and how the firm operates with suppliers. Some companies choose to manage brands and outsource production; if the firm is successful at this advantageous deal, then they will succeed.

Suppliers

12 Other companies choose to manage the entire supply chain; this is effective if the company is not good at the latter.12 Overall since companies all operate differently, the threat of suppliers is either weak or strong, but this depends on many circumstances, economy, labor trends, disasters, etc.12

Reuters says this about buyer’s power, “The development of information transparency in the modern consumer world has given consumers an unprecedented level of power. This has placed extreme pressure on personal and household product manufacturers, as any products or brands that are poorly received will generate high levels of negative converge, particularly on the internet.”

Buyers

12 Product lifecycles has been cut short by the increase in communication and social

12 (Reuters n.d.)

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networking, and consumers in small towns now can access products that are in large metropolitan areas, limiting the firm’s ability to limit or create special product lines.13 Finally inhuman trade practices and unfair labor practice has become president to the public particularly Western countries.14

14

With many of these product being produced in China or other Asian countries, firms need to make sure that in these other countries correct practices are being used; if not, boycotts or bad publicity could be the result. Media Networks3 ABC ESPN Radio Disney Disney Channel ABC Family Toon Disney Jetix Dinsey XD Playhouse Disney ABC News Disney Family Movies Disney’s One Saturday Morning

In the United States there are six main broadcasting networks, CBS, ABC, Fox, NBC, and CW (The WB and UPN).

Competition

3 Each of these broadcasting networks creates and distributes content throughout the United States. Each of these networks also owns individual broadcasting stations throughout the USA.3 Time Warner, Dish Network, and Cox Communication are the main broadcasters of cable TV throughout the United States.9 Many broadcasting networks fragment the market with dedicated channels, such as Disney’s ESPN, or Time Warner’s CNN.9 “Many industry analysts have decried the cable television business as local monopolies both domestically and internationally.”15

9

Expected growth for these networks is actually through the internet, and small networks actually have advantages over the larger networks, mainly due to bureaucracy of large networks. The continued improvement of bandwidth through the evolution of fiber optics and continuing advancement is making the internet a viable expansion option. Internet sites such as YouTube and Hulu have illustrated this expansion.9

In this situation, substitutes consist of events, activities, or destinations that are time based. Since people watch TV expecting to spend most of the day or very little of their day, then substitutes should consist of similar time frame. Museums, sporting events, spas, skiing, reading, movies, theater, hiking, and beaches could all be cauterized as a substitute for TV.

Substitutes

13 (Reuters n.d.)

Threat of New Entry

14 (Clean Clothing Campaign n.d.) 15 (Chiang n.d.)

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On February 19, 2002 the United State Federal Courts ruled to lift barriers on two specific regulations. The first was intended to limit the power of the media companies by limiting their span to only 35% of the country.16

16 The second stated they were not allowed to

own a TV station in addition to a cable company in the same area. The Federal Courts also changed the regulations to allow telephone companies to operate cable companies.17 With this said there is still a large barrier to enter this market, requiring large capita, property, plant and equipment.17

17

Content side of the business is easier to enter, but still to find a distributor is difficult, though the internet is changing this, where content can be developed, marketed and distributed at very low cost through the internet, with sites such as YouTube. Apple’s iTunes also sells full length TV shows, for extremely low prices, when compared to the cost of cable TV. Hulu is also similar to YouTube or Apples iTunes except free.17

Media networks own all or part of the distribution process, for example Disney’s ABC owns nine television stations, CBS owns thirty-nine stations, and NBC owns thirty.

Suppliers

9 The content that is produced is based on directors, producers, actors, and writers. Similar to studio entertainment, this allows the threat of writer strikes, actors pay, director problems and so-forth.

Broadcasters rely on high viewership since people do not purchase the TV station or show. In addition, broadcasters heavily rely on advertisement or commercials.

Buyers

9 To further this, broadcasters have teamed up with TV shows to implement advertisements within the show.9 This has a two folds approach; first, it reinforces to viewers the product and second, it increases revenues.9 Many broadcasters will pull a show based on viewership, for example ABC’s Commander in Chief.4 For the most part the majority of people in the United State have Cable TV, though Satellite is gaining ground.9 Many consumers are shifting towards HD programming, and with the new government law, analogue TV will be gone.18

19

16 (Cooper n.d.) 17 (Shah n.d.) 18 (Hoovers 2008) 19 (NA 2009)

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Disney’s Iconic Power The most visible international presence of Disney is their parks. Currently in Tokyo Japan, Paris France, and Hong Kong China, each park has specific cultural attributes, but the share similarities. Disney also attempts to underplay each culture and make sure the Disney “feel” is consistent between all parks.20

Disney markets their films and digital content very aggressively internationally. Through ESPN, they distributed to more than 190 countries, with a special agreement between the Asian markets for sports programming.

21

21 The Disney Channel has also gone international, Taiwan in

1995, Middle East in 1997, Brunei in 2000, Scandinavia in 2003, and India in 2004. Each of these Disney Channels is specific to the country. Locally produced programming is present as well as universally marketed shows.21 In recent news, there is a fear of Disney’s brand surpassing the indigenous brands of nations. Governments have stated worries about an impending “Disney-fixation” of local culture. Wired Magazine stated this,

“This has been most visible in France, where a new park continues to meet with staunch resistance from locals, and more recently in China, where the company has engaged in film production and Disney-brand retail stores. Indeed it is also the local governments who end up subsidizing much of the company’s international expansion. The Hong Kong government invested $3 billion, similar to the Japanese investment and the France investment.”22

In Hong Kong, Disney hired a Feng Shui master, whose recommendations prompted designers to rotate the park’s front gate and place several five-ton boulders on the grounds.

23

23

On its first day, the park opened at 1 p.m., a time determined by an ancient Chinese system of harmonizing with nature. In addition, Hong Kong’s Mickey Mouse dresses in local garb and bows. Hamburgers have been substituted for noodles and there is only one fast-food restaurant for seven Chinese ones.23 Also, the “American standard toilet” has been replaced by a more local type of toilet, considered more suitable.23 One of the park's main ballrooms measures eight-hundred eighty eight square meters because eight is a number of fortune.20 In Chinese, four is bad luck, so there are no fourth-floor buttons in the elevators at the Art Deco Hollywood Hotel, or other hotels in the park.23 Cash registers are close to corners or along walls, where their placement is believed to increase prosperity.23 In the parks upscale restaurant installation of a virtual koi pond where virtual fish dart away from guests when they walk near the glass screen. The pond is one of five feng shui elements in the restaurant, including wood, earth, metal and fire, which glows on a screen behind bottles in the bar.23

In Japan, riders on Splash Mountain plummet down the flume, but they don’t get wet, “It’s designed to keep them dry because the Japanese don’t like to get wet,” said a Disney executive.20 Disney has secured the rights to local studios to produce Japanese anime films.24

24

All the movies will be made using local animation creators and computer graphics specialists. Mariko Hisamitsu, a Disney spokesperson said, “We aim to provide products that match the taste

20 (The Walt Disney Company 2009) 21 (Wikipidia 2008) 22 (Wired n.d.) 23 (Forbes 2009) 24 (Chiang n.d.)

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of the local market.20 Disney characters are well recognized in Japan and we believe providing a content catering to consumers is necessary to expand the market."20

External Forces Matrix25

Opportunities Weight Rating Weighted Score

HDTV/Cable

.05 2

.10

Globalization .08 2 .16 New CEO .05 3 .15

Pixar/Media .15 4 .60 Internet .15 3 .60

Threat

Weight

Rating

Weighted Score

Economic Growth

.15

4

.60

Energy Prices .11 4 .44 Satellite Radio .05 2 .10

Piracy .11 3 .33 Internet .10 2 .20 Total 100 29 3.72

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Chiang, Ying-Ming. Globalization and Media. http://homepage.newschool.edu/~chakravs/YMCessay.html (accessed 2 26, 2009).

Chmielewski, Dawn C. A gloomier side of Disney. 2 23, 2009. http://www.orlandosentinel.com/business/chi-mon-disney-cuts-0223-feb23,0,2032894.story (accessed 2 24, 2009).

Clean Clothing Campaign. 10 Jan 2001, Labour rights violations at 12 China factories producing for Disney . http://www.cleanclothes.org/companies/disney01-01-10.htm.

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25 (Maxi-Pedia n.d.)

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