The Walt Disney Company: The Entertainment King

Introduction

The Walt Disney Company has truly been “the entertainment king” in the 83

years since its founding. This is largely due to the vision of Walt Disney, as well

as the strategic management skills of Michael Eisner. The work of these two

men, as well as countless others at The Walt Disney Company has created an

innovative business model with universal appeal.

A History of Disney

The Disney Brothers Cartoon Studio was founded in California in 1923 by Walt

and Roy Disney. The brothers had a contract to produce “Alice Comedy” films

about a live girl in an animated world. Over the next four years, around 55 films

are produced in the series. In 1927, The Disney Studio began indirect production

for Universal Pictures’ films “Oswald the Lucky Rabbit.” The brothers produced

26 films in their first year. In 1928, Universal took the contract from the Disney

Studio, and Walt Disney created Mickey Mouse by widening Oswald’s ears and

changing his clothes slightly. Mickey’s film debut was also in 1928 in the film

“Steamboat Willie.”

1937 saw the release of Disney’s first feature-length animated film, Snow White

and the Seven Dwarfs. In 1940 the company made its initial public stock

offering, and ten years later, Treasure Island, Disney’s first entirely live-action

film was released. Walt Disney himself also appeared on television for the first

time in 1950. In 1955, Walt Disney realized his dream for a family-based theme

park with the opening of Disneyland in Anaheim, California. Eleven years later,

Walt Disney died of lung cancer, and his brother Roy became the new chairman

of The Walt Disney Company. The company opened its second theme park,

Walt Disney World, in Orlando, Florida in 1971.

Walt Disney World’s EPCOT Center was opened in 1982, with a central globe

based on the Unisphere from the 1964 World’s Fair in New York City. EPCOT

features pavilions representing eight countries. Disney expanded its international

focus with the opening of Tokyo Disneyland in 1983. Tokyo Disneyland was

designed by the creators of Walt Disney World and features a similar look and

many of the same attractions. A shift in the company occurred with the board of

directors unanimous decision to elect Michael Eisner as chairman and chief

executive officer and Frank Wells as president and chief operating officer in

1984. Roy Edward Disney, son of Roy Disney became head of the animation

division.

The Reason for Disney’s Success

The Walt Disney Company’s success up until the selection of Michael Eisner was

due to Disney’s ability to create unique characters with universal appeal and then

truly bring those characters to life. In addition to Mickey Mouse, the company

created such well-known characters as Minnie Mouse, Goofy, and Donald Duck.

The company’s family appeal has also had a large influence on its success. The

theme parks and retail stores are based on the popularity of the original

animations. In addition to the company’s success with consumers, its films have

also received critical acclaim, winning six academy awards. Walt Disney’s vision

still influences the company’s strategies, and causes it to continuously search out

creative new ideas.

The Michael Eisner Years

The Walt Disney Company saw many changes under the command of Michael

Eisner. Disney made a large entrance into the retail market in 1987 with the

opening of the first Disney Store. In 1988, Disney-owned Touchstone Pictures

released the first live-action and animated feature film. Who Framed Roger

Rabbit cost over $80 million to create and market and received four of Disney’s

six Academy Awards. Another addition to Walt Disney World, Disney-MGM

Studios Theme Park, opened in 1989 further increasing the pull of the Orlando

Park. After this success and the overwhelming popularity of Tokyo Disneyland,

The Walt Disney Company decided to open The Euro Disney Resort and Euro

Disneyland in Marne-la Vallée, France.

In 1992, Beauty and the Beast became the first animated picture nominated for

best picture, a major milestone in the animation industry. The death of CEO

Frank Wells in 1994 created a void in the company, and Eisner took over many

of Wells’ duties, distributing very few among other members of top management.

In 1995, Disney purchased the ABC TV network for $19 billion, making it one of

the largest players in the television and radio industry. In 1998, Disney further

expanded its reach by launching its first cruise ship, the Disney Magic. A further

expansion to Walt Disney World was the opening of Animal Kingdom, also in

1998.

Key Issues in the Case

The case covers four key issues other than the management of Michael Eisner.

These issues are the revitalization of TV and movies, expanding into new

businesses, regions, and audiences, maximizing theme park profitability, and

coordination among businesses.

Revitalization of TV and Movies

After the creation of the Disney Channel, Disney stopped production of network

television shows. Michael Eisner decided to renew their quality network

programming. In 1986, the Disney Sunday Night Movie premiered on ABC.

Disney also created independent shows such as the Golden Girls, Regis and

Kathy Lee, and later, Who Wants to be a Millionaire. A syndication operation

was begun to sell TV programming accumulated over 30 years of production.

Disney’s movie department saw a 4 percent drop in box office shares in 1984. In

Eisner’s first week, Touchstone had brought him the script to Down and Out in

Beverly Hills, the first rated R movie that they had produced. Beginning with that,

27 of the next 33 movies produced by Disney Studios were profitable with six

earning over $50 billion each. By 1988, Disney held 19% of box office shares

and led the industry in ticket sales. Disney began a program of releasing 15–18

films per year.

The animation department took longer to revive than television or movies. When

Eisner took over, the animation was averaging a new film every four to five years.

Eisner expanded the department, and reduced the time it took to release a film to

12-18 months. $30 million was invested in the Computer Animated Production

System (CAPS), which was used to create movies such as Who Framed Roger

Rabbit. This investment quickly paid for itself, as Who Framed Roger Rabbit

earned $220 million in box office sales and also sold large amounts of related

merchandise.

Expanding into New Businesses, Regions, and Audiences

An extremely beneficial move for Disney was the operation of its consumer

products division as a “retail-as-entertainment” concept. This helped Disney

generate sales per square foot at twice the average rate for retail stores. Disney

also incorporated high-end collectors’ items to target a more mature consumer.

In the late eighties to early nineties, Disney founded Hollywood records (a pop

music label), Disney Press (publisher of children books), and Hyperion Books (an

adult publishing label). Each of these divisions proved to be successful because

of their low start up costs and huge profits.

Disney believed that in the creation of Euro Disney, it should follow the same

format as Disneyland, Walt Disney World, and Toyko Disneyland, rather than

adapting to the French Culture. This proved to be a mistake, and the cultural

differences almost caused the park to fail. This problem could have been avoided

by greater market research in Europe. However, Disney had the foresight to sell

Euro Disney S.C.A. shares on several European exchanges. Disney held 49

percent ownership of the park, with the other 51 percent owned by outside

shareholders. Michael Eisner was forced to focus in particular on the

revitalization of this park.

Disney began releasing a series of highly profitable and successful animated

features. Some of these animated movies include The Little Mermaid (1989),

Beauty and the Beast (1991), and Aladdin (1992). Disney also produced big-

budget, live-action films through their Touchstone label. The film Splash, which

featured partial nudity, caused an out roar among Disney customers, eventually

leading to a public apology by the company. The purchase of Miramax proved to

be a good acquisition because it is an independent production studio with a

history of success with low-budget art films.

Maximizing Theme Park Profitability

The Walt Disney Company broadened its scope with the opening of Walt Disney

World in 1971 on land secretly purchased by Walt Disney. Walt Disney World

became the top-grossing park in the world, with $139 million in sales and 11

million visitors the first year. Disney made its park into a full-service travel

destination with the creation of hotels and an in-house travel company that

coordinated vacation with travel agencies, airlines, and tour companies.

The company added $1 billion worth of new attractions to keep up with cultural

changes over the next few years. These attractions included water-based

attraction Typhoon Lagoon, Disney-MGM Studios, and Toontown. The constant

addition of new attractions not only increased the length of customer visits, but

also the number of return visitors. By the year 2000, Walt Disney World qualified

as a destination resort, as the average tourist visit lasted three days.

Disney raised ticket prices and lowered restrictions on the maximum number of

park visitors. Overcrowding and high prices could have caused a loss of

customers. Luckily for Disney, guests still felt that they were receiving an

incredible value for their money.

Disney’s first international theme park was in Japan. Tokyo Disneyland was

solely owned by a Japanese partner and designed by WED Enterprises to

closely resemble Disney World. Disney received 10% of gate receipts and 5% of

other sales as well as ongoing consulting fees.

Euro Disney nearly proved to be a disastrous decision for The Walt Disney

Company. Cultural clashes as well as weather issues shocked a company which

had previously experienced only success. A professor of French literature was

recruited to oversee the park’s development and integrate the company’s culture

into the culture of France. Disney made the decision to allow wine in on-site

restaurants; but male cast members were still required to shave. The changing

weather caused numbers of guests that the park could barely handle in summer

and also the near-desertion of the park in the cold winter months. Disney is still

forced to lay off employees and reduce hotel and admission prices as well as

management fees during the winter months to keep the park open. Again, these

problems could have been avoided simply through market research on Disney’s

part.

Coordination Among Businesses

Overlaps necessitated the need for coordination among Disney’s various

businesses. Campaigns with outside corporate sponsors had to be arranged

through all aspects of the business. Conflicts also arose over the Disney-owned

minute of advertising during The Disney Sunday Movie. This could be resolved

by using general company advertising and only using specific advertising for

large events.

Disney used internal transfer prices for activities that one division performed for

another. For example, when any division wanted to use material from the Disney

film library, it paid a price to the Disney film studio.

If a conflict arose between division executives, Eisner and Wells encouraged

them to resolve it among themselves, but they also provided the option of

arbitration for difficult problems. Management focused on quick resolution,

allowing more time to focus on important business matters.

In 1987, a corporate marketing function was installed to stimulate and coordinate

company-wide marketing activities. A marketing calendar was introduced to

coordinate marketing across the company and was updated at weekly meetings

with divisions across the company. All divisions were responsible for the

generation of new ideas, and a monthly meeting of 20 divisional marketing a

promotional executives was initiated to discuss inter-divisional issues.

Conclusion

The Walt Disney Company has been extremely successful in the past 83 years

due to both the vision of Walt Disney himself, and the strategic management

skills of Michael Eisner. Eisner took a profitable company and revitalized and

expanded it until it truly became “The Entertainment King.” It is possible that the

immense diversification within the company will be its downfall, as it may simply

become too large to manage. However, it has managed to stay strong and will

most likely continue on its upward path.