Financial Performance Analysis for the Period of 2012-2014
The current report presents the strategic case of the Walt Disney Company, based on the analysis of the recent sources on their strategic policy, external environment research and financial performance analysis for the period of 2012-2014. The study comprises the analysis of internal and external environment using the four-criterion test of the resources and competences, the Porter’s five forces model, and a SWOT analysis. The financial report includes analysis of the company’s performance for the three years, calculation of the ratios as well as the horizontal and vertical analysis of their performance. The balanced scorecard comprising key performance indicators of the business is elaborated based on the financial targets and other strategic metrics. Finally, the paper contains a list of Blue Ocean strategies based on the strategic positioning of the Walt Disney Company.
1. Major Industry Trends
Founded in 1923 as an animation film studio, the Walt Disney Company eventually diversified the business into a number of broad family entertainment and media segments, expanding its presence on all the continents and becoming a leading family brand. Currently, the company operates in five business segments: Media Networks, Parks & Resorts, Studio Entertainment, Consumer Products and Interactive Media (Forbes, 2015). The key trends of each industry segment are presented in the following sections.
1.1. Media Networks
The Media Networks segment of the company is comprised of a “domestic broadcast television network, television production and distribution operations, domestic television stations, international and domestic cable networks, domestic broadcast radio networks and stations, and publishing and digital operations” (Forbes, 2015). The main networks are ESPN, Disney Channels Worldwide, ABC Family as well as SOAPnet and UTV/Bindass networks in the TV, radio, and internet channels.
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Disney remains the leader in the U.S. TV industry. The Disney Channel, targeting the kids under 11, maintains the “current penetration levels of around 91% among the U.S. pay-TV households” (Trefis Team, 2015a). However, due to the growing competition from the alternative platforms, the subscriber base has declined during the last years. ABC Family targets the “becomers” of female audience aged 14-34 and was estimated as the “top-rated” ad-supported cable network (Poggi, 2015).
Due to the fact that the company does not use regular commercial advertising in the Disney Channel, the major drivers of the revenue growth are monthly subscription fees, which have been increased during the last years. The very high family customer affinity depends on the high quality content and the continued no-ads policy. The success of ESPN channels, which contribute to a large part of the company’s revenues, is determined by the effective strategy of live (online) content delivery.
1.2. Parks and Resorts
The Parks & Resorts segment includes “theme parks, resort hotels, retail, dining, and entertainment complexes, conference centers, campgrounds, water parks, and other recreational facilities” (Forbes, 2015). This sector features unique synergy benefits from the other Disney business segments. Strategically, the Walt Disney Company does not compete with the other hotel and recreation facilities; instead, the Parks & Resorts segment contributes to a comprehensive customer experience related to the guest journey in the Disney world across all the channels.
The key drivers that are expected to contribute to the growth of the segments are economic recovery and increased disposable personal income levels in the USA and worldwide. These factors should “give rise to the demand for luxuries including travel, leisure, entertainment etc.” (Trefis Team, 2015b). The U.S. disposable income has increased by 8% since January, 2014; the amount of travel and tourism in the USA rose by 7% in 2014 (ibidem). Both in the USA and internationally, the development of new themes, attractions, and other recreational facilities in the Disney’s resorts shall result in the increased number of visitors as well as contribute to the growth of the global hotel and resort business.
1.3. Studio Entertainment
The Studio Entertainment segment of the company “produces and acquires live-action and animated motion pictures for worldwide distribution to the theatrical, home entertainment, and television markets” (Forbes, 2015). The core production brands are Walt Disney Pictures, Touchstone Pictures, Pixar, Marvel, Disneynature, and LucasFilms. Considering the whole industry, the performance of the segment “can be erratic as it largely depends on the audience and box office response, which can be fickle and hard to anticipate” (Trefis Team, 2014). However, the company’s recent acquisitions provided an extraordinary boost to the studio production, resulting in the strong growth in 2014. The company has a strong plan of upcoming pictures, which shall provide the stable cash flow of the segment and contribute to the increased dependent areas of the business.
1.4. Consumer Products
The Consumer Products segment “licenses trade names, characters and visual and literary properties to various manufacturers, retailers, show promoters, and publishers throughout the world” (Forbes, 2015). It also includes the retail distribution in physical and online Disney Stores as well educational products and services worldwide. Due to the fact that this segment is uniquely tied to the performance of the studio and park business, the factors of the Disney business strategy described above affect the results of this segment more than competition pressure from other retailers. Another key factor affecting the segment revenues is the issues of property rights protection.
1.5. Interactive Games
The Interactive Media segment “creates and delivers branded entertainment and lifestyle content across interactive media platforms” (Forbes, 2015). Although mobile, online, and console games as well as online services feature unique growth rates, the company does not provide significant competition to the numerous technological and development companies. The organization launched a number of successful mobile applications in 2013, which were successful in the USA and Asia. However, the segment remains a small “niche” part of the business. Its further development shall be determined by the Disney’s successful integration of the new digital technologies in its core business.
1.6. Industry Trends: Conclusion
As outlined in the previous sections, the company’s performance in its five business segments is subject to intense competition and a number of industry challenges. It also depends on the successful execution of the Disney core strategy, aimed at providing the highest quality entertainment. In order to pursue this goal and maintain high profitability of the business, the company relies on the number of specific business competencies. These will be analyzed in detail in the next part of the paper.
2. The Analysis of Competencies
This part of the report elaborates the detailed analysis of the core competencies possessed by the Walt Disney Company. As described by McKinsey, the competitive advantage of the company “stems from two sources of scarcity: positional advantages and special capabilities” (Bradley, Hirt & Smit, 2011). The former scarcity benefits from entering the untapped markets as well as from entry barriers or high costs of the business. These advantages comprise the Disney’s strong diversification strategy and the solid scope of the business. The latter takes roots in the company’s internal capabilities, encouraged by its corporate culture, practiced in all the divisions and envisioned by its leaders. Consequently, the effective management of these scarcities results in the sustainable competitive advantage of the company. The ability to maintain the competitive advantage in the long term is measured via the four-criterion test, presented in the last section of this part in the paper.
2.1. Unique Innovation and Creativity Culture
From the early years, when the company functioned as a cartoon studio to the current enterprise, the Walt Disney business was grounded on the creativity spirit, entrepreneurship, and innovation. A great innovator Walt Disney started, practiced, and encouraged the striving for great discoveries. He urged the staff to review the outside industries, and many novelties were born from associating the previously unconnected elements, “including a string of industry firsts such as joining animation with full length movies and putting themes into amusement parks” (Dyer, Gregersen & Christensen, 2011).
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What started from the Walt Disney’s creative genius became the base for the corporate team management afterwards. Namely, Disney combined the three necessary elements of the creativity in one person. The presence of all the three elements in the company’s creative teams facilitated the business and enabled it to increase the profits it earns today.
Creativity as a total process involves the coordination of these three subprocesses: dreamer, realist and critic. A dreamer without a realist cannot turn ideas into tangible expressions. A critic and a dreamer without a realist just become stuck in a perpetual conflict. The dreamer and a realist might create things, but they might not achieve a high degree of quality without a critic. The critic helps to evaluate and refined the products of creativity. (From the “Strategies of Genius” book by Robert B. Dilts, in McGuiness, 2009).
Perhaps the ‘dreamer’ ability is the most rare to find in the modern organizations. As Steve Jobs was a board member and a major stakeholder at Disney, he transferred his “Think Different” campaign of Apple to the Disney’s business. Each of the company personnel aims to “dream bigger”, to redesign the business processes, products, and services in order to deliver more value to the customers (Dyer, Gregersen & Christensen, 2011). Today, the company makes great investments in order to ensure more diversity into the team, aiming to further inspire individualism, different point of views, problem solving creativity. Diversity in this broader innovational sense became a top management strategy: “We work very hard on getting diversity at the top of the organization, and like many organizations we still have room to improve. That will make us more creative” (Wetlaufer, 2000). The culture of long collaborative meetings is spread across the organization and many great ideas originated these team discussions. Several times a year, senior executives have an eight-day synergy training program encompassing all aspects and divisions of the organization. The environment for creativity “became institutionalized” in the company (Wetlaufer, 2000). Further, the organization aims at establishing the special attitude in all divisions, improve the employee satisfaction, and build a clear corporate culture. The corporate environment at Disney works effectively to fulfill its mission, which is to enhance the customer experience. For example, Disney uses the “business language to set the right tone” and create atmosphere in the company, calling the employees “cast members”, uniform “costumes”, and visitors “guests” (Coverly, 2013).
2.2. Brand Management and Diversification
Growing the Disney brand
The brand is considered as the greatest asset in the Walt Disney company. It was assessed as the #14 brand in the world by Forbes (Forbes, 2015) and ranked #13 in the Interbrand Best Global Brands list (Best Global Brands, 2015). An idea from Warren Buffett, interpreted by the Disney’s CEO, is that a brand resembles “a pointillist painting… Everything you do for your brand is a point on the canvas” (Wetlaufer, 2000). This explains the attention to the small details, which is typical for Disney. With the first Disneyland, Walt Disney tried to make the scenery and costume changing as seamless as possible, to create the really “magical” experience for the visitors. This attention to the smallest brand decision becomes critical for its success: “A brand takes a long time to build, and a long time to destroy, and both happen as a result of lots and lots of small actions. If you want to be strong, each point along the way has to be as close to perfect as possible” (Wetlaufer, 2000). The Disney theming in the resorts is comprehensive, seamless, and immersive. The visitors and viewers are involved in the Disney classic story, whereas this experience is enhanced in every point of their relationship with Disney products and services.
In the first decades of the Disney business, Walt Disney created a chart describing the strategic assets of his enterprise. This unique ability to identify inimitable opportunities and achieve synergy from valuable partnerships and acquisitions was pursued in the company since that time. The company possessed the “cross-sight — the ability to identify adjacent assets uniquely valuable to your firm or assets with value that others are simply unable to perceive” (Zenger, 2013).
In 1990-s, after the “Coca-Cola’s unsuccessful attempt to acquire Disney in 1982 (it acquired Columbia Pictures instead) and Saul Steinberg’s failed buyout in 1984”, the company began its fast track of expansion (Parr, 2012). New businesses were acquired in the existing and new industry segments. Miramax Films was acquired in 1993 (and subsequently sold), in 1990-s the company bought ABC and ESPN networks, Fox Family, Saban Entertainment. In 2006, there was a critically important acquisition of Pixar; New Horizon Interactive, Playdom, and Marvel Entertainment followed the same process. In 2012, the company made another incredible deal, when it acquired Lucasfilm to two exceptionally important franchises to its offering.
As described by the CEO Michael Eisner, after the ABC and ESPN networks were acquired by the Walt Disney Company, these acquisitions were intended to “keep us strong and help keep gatekeepers from diverting our products” (Wetlaufer, 2000). The diversification strategy was generally pursuing the main strategic goal in order to provide the families in the whole world with the best quality entertainment and to respond to the diverse needs of the targeted segments in the best possible way. The majority of the acquired assets brought a great boost to the cash flows and unique synergy effect to the company’s creative proposition.
2.3. Technological Expertise and the Multichannel Proposition
In order to tackle the industry challenges, evolve along with the changes in technology and meet the dynamic expectations of the new customer generation, the Walt Disney Company has been investing in the advanced technologies. As described by the CEO, the company embraced the challenge and started turning it into its strength:
Rather than watch technology grow threat after threat at us and disrupt our very valuable business models, we decided to embrace it and use it not only to enhance the quality of our product and the connection we have to our customers and make the company more efficient but, ultimately, to reach more people in more ways. (Gamble, 2012).
Actually, since the Pixar acquisition in 2006, when Steve Jobs was the largest single shareholder of the Walt Disney, the company has been partnering with Apple during the development of the technological innovations. In September 2013, Walt Disney launched the Apple’s innovative mobile payment system and introduced Apple Pay and Apple Watch capabilities “at the media company’s stores and theme parks to make life easier for guests and employees” (Fox, 2014).
The recent acquisition of the YouTube multichannel network, Maker Studios, is expected to deliver unique value for the company’s proposition in the Internet channel. As commented by the company’s CFO: “We want to be where these millennial eyeballs are moving and they are moving to the Internet, they’re moving to short form, they’re moving to YouTube. We want to have an incredibly strong presence there” (Fox, 2014).
2.4. Leadership and Management
Being a company focused on the content creation, Disney relies heavily on the corporate culture, professionalism, and charisma of its leaders. Since 2005, the organization has been managed by Robert (Bob) Iger, who upgraded the strategy and succeeded to develop the business to the unprecedented value with the large potential to sustain the growth. He facilitated a number of successful acquisitions to revive the animation as well as increase parks and resorts. Under his leadership, Disney’s technological innovations, envisioned in the Imagineering innovation factory by Walt Disney, reached a new level. Essentially, Iger combined the roles of the CEO and CTO as well as “helped Disney get a headstart on those trends by making big and early bets on new technologies, even some that were seemingly at odds with the company’s business model” (Lev-Ram, 2014). His visionary in this area is still a critical element of the company’s ability to meet industry challenges and mitigate competition threats. Iger’s management was duly acknowledged by the shareholders at the time his retirement was planned:
Under his tenure, Disney has reached unprecedented creative and financial heights, driving the stock price to record levels and creating extraordinary value for shareholders. He has transformed Disney’s culture and empowered its businesses to effectively capitalize on evolving markets and new technologies, making Disney a company that doesn’t merely embrace change, but leads it. (Grazer, 2014).
After the prolongation of Mr. Iger’s contract till 2018, he assigned the new Chief Operating Officer of the company in February 2015, who is expected to eventually succeed him in the CEO post. Thomas Staggs, the current chief of the company’s Parks and Resorts business division, was chosen among the two most expected candidates. Having worked in the company for 25 years, Staggs was described by the CEO “an incredibly experienced, talented and versatile executive who has led Parks and Resorts during a time of unprecedented growth and expansion” (Pallotta, 2015). The other candidate was the current CFO Jay Rusulo. It is worth noting that the two executives “swapped jobs” in 2009, an “out-of-the-box” move of the CEO, which allowed enhancing the managerial experience of the team (Finke, 2009).
In March 2015, shareholders re-elected the ten members of the board of directors after which that year was considered as the most successful in the company’s history: “Driven by extraordinary creativity, innovative technology and global expansion, 2014 was in fact the best year in our history” (Walt Disney Press Releases, 2015a). In line with the technology-driven strategy, “the addition of Jack Dorsey, Chairman of Twitter Inc. and CEO of Square Inc., to the Walt Disney Co. board signifies the company’s commitment to leveraging next generation media and platforms to increase relevance” (Best Global Brands, 2015).
2.5. Strong Corporate Responsibility Programs
In addition to its mission to be the leader in the family entertainment segment, Disney pays much attention to its corporate responsibility programs. The company was ranked #6 in the 2015 Reputation Institute’s Global RepTrak® 100 rating, which distinguishes “the world’s most reputable companies on innovation, governance, citizenship and more” (Reputation Institute, 2015).
Shaped around the two citizenship realms, “Act Responsibly” and “Inspire Others”, the Disney’s corporate responsibility programs contributed to “another exceptional year for both the company and its citizenship efforts” (Disney Citizenship, 2015). The company sets ambitious goals in the environmental stewardship, ethical and responsible conduct and production, community support, as well as education in creativity and innovations. These programs contribute to the unique brand value achieved by the Walt Disney Company during the 92 years of its operations.
2.6. The Four-Criteria Test of Distinctive Competencies
Whereas the Walt Disney Company continuously faces pressure from the market, it possesses a number of valuable capabilities that enable it to mitigate or reverse the impact of these factors. To summarize the observations of the previous sections, it should be noted that brand value and internal corporate culture form the distinctive competencies of the company. They are facilitated by the Disney’s strong executive team. The ability of the management to identify and pursue unique diversification opportunities, which have not been used by the competitors, influences as a stabilizing factor on the company’s performance risks and balances the large investments in the business. The international presence is both an opportunity and a major cost factor, which results in the average return when considering the effects of these factors. However, unique management of the customer experience practiced at Disney stems from the company’s corporate culture and, in addition to the high brand perception, enables the company to charge premium prices and still gain high customer affinity in the long term. Regarding the last competence, the organization has already begun developing the technology and channel expertise. This competence shall be critical to address the largest competition challenges and mitigate potential revenue reduction. However, this competency is easily aging; therefore, it is a continuous subject for the improvement. The evaluation of the competencies is presented in Table 1 below.
According to the four-criterion test, the core competencies presented in this section of the paper form the basis for Disney’s sustainable competitive advantage and allow the company to manage effectively the pressure of the external powers. The relevant environment factors are presented using the Porter’s five forces model in the following section.
3. The Porter’s Five Forces Model
This section presents the analysis of the key factors in the competitive environment faced by the company in its five business segments. Overall, the company’s competitive model evolves around the customers as the key market force. As an effect of the Disney’s unique content creation expertise, enhanced by successful diversification of the business, the company is protected from the attacks of the competitors in its core industry. The Disneyland facilities are unique and characterized by strong incumbency advantages. In fact, it is not feasible to repeat such offering in the market. The success of the segment relies more often on the company’s execution excellence, rather than on the external factors. However, the organization operates under a large threat of meeting highly dynamic technology challenges and growing consumer demands. In particular, it faces serious threats in the media industry, which can result in a significant loss of revenues and profits.
The company faces high competition from multiple rivals in the media industry. Disney competes with a number of other cable and broadcasting networks, multi-channel video providers, providers of online streaming services, etc. Increased competition with the digital channels poses the significant threat to the company’s viewer audiences and advertising revenues. The works connected with the distribution model for the Disney’s digital content are still in progress. However, the performance of the company remains good as compared to that of the competitors in the same business sector. Selected rivals from the Media Networks and Studio Entertainment industries will be examined in the financial analysis section of the paper.
3.2. Potential Entrants
As a result of the successful growth strategy, the company is strongly protected from the entrance of the new market players in its Studio Entertainment segment. There are a number of obstacles to the new entrants such as economies of scale and unique customer preferences and large capital expenditures of the industry. The performance of the Parks and Resorts segment as well as Disney Consumer Products is unique and closed to the competitors, which are closely connected with the Disney franchises, property rights and rely on the success of its films and entertainment products. However, the company has not gained any break-through dynamics in the Interactive segment, where its expertise is new and the results remain below average as compared to those of the numerous rivals.
Piracy and the weak protection of intellectual property rights present a major risk for the company’s position, in particular, in the emerging markets. This can challenge the company’s market share in the international markets as well as introduce additional costs related to the protection of property rights. Additionally, the Disney’s operations in media network face a serious threat posed by the online streaming services and online pay-TV products. The company addressed these issues by developing plans in order to offer online content. In addition, they “announced an exclusive deal to create Marvel programming for Netflix by 2015 and acquired YouTube network Maker Studios” as well as introduced several successful mobile applications to enable multiple-device access to the content and enhance user interactive and gaming experience (Best Global Brands, 2015).
The Disney’s business segments feature high level of costs and additional complexity related to the international management of the supply and distribution chain. This particularly refers to the segments involving the high volume of investments and physical assets: Studio Entertainment, Parks and Resorts, and Consumer Products. The company practices the total quality management and cost control programs in all areas. However, the organization does not fully control the majority of the distribution warehouses, which poses considerable risks, especially to the international projects. The respective contracts signed for international operations were typically formed with multiple vendors and often managed independently. However, there are issues, which require improvement in the areas of asset optimization and business synergy in the whole world. In the recent years, the company started to revisit its supply chain management policy in order to enhance its contribution to the customer experience and brand perception. In the Disney facilities, asset utilization was reviewed to maintain the high guest satisfaction, despite the fact it did not always relate to the direct financial benefits. The company also turned to address the quality issues: “To maintain the image of the Disney brand, the company works with suppliers it considers to be of high integrity”, reducing the number of vendors by 50% during the period of 2008-2012 (SupplyChainQuarterly, 2012).
The customers represent the key market force with the highest bargaining power over the Walt Disney operations. The company is highly customer-centric. Disney has been for years investing into its brand, strengthening it effectively with industry acquisitions and striving continuously for the unmatched customer experience. These programs allowed achieving correspondingly high level of the customer loyalty. However, the changes in the industry as well as the growing demands of the new generation of ‘millennial customers’ pose the high threat to the company’s long-term revenues.
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4. A SWOT Analysis
In this section of the paper, the previously described strategic competencies and the external environment drivers are summarized in a single analysis of the company’s internal and external factors (see Table 2 below). The SWOT analysis presents the strengths and weaknesses inherent to the company’s internal structure, as well as the opportunities and threats presented by its external environment. Despite a number of risks related to the company’s successful international expansion and the strong competition pressure, Disney possesses unique capabilities that allow the company to offset the negative impact of the external environment. The weaknesses of the business are rather side effects of its strong areas. For example, Disney is a unique family brand, which is effectively addressing traditional family values and providing high quality entertainment during the nine decades of its history. However, the perception of the brand might change dramatically, unless Disney manages to keep the customer experience standards high and evolve together with the changing audience.
The Walt Disney Company’s SWOT Factors
- Unique brand value and strong product portfolio
- Deep expertise in creative content provision, strengthened by successful acquisitions
- Diversified structure of the business, effects from volume and synergy worldwide
- Management challenges caused by the international structure (labor conditions, corporate culture, etc.)
- Underestimation of the park and resort capacity limits during the peak seasons
- Still strong reliance on the traditional family entertainment model
- Consumer Products revenues depend heavily on the film production
- International expansion, including densely populated regions and emerging markets
- Upgrading of the existing facilities to increase time of stay and visit frequency
- Mobile apps and multiple device strategy
- Online content and video streaming
- Multi-channel brand communication
- Weak macroeconomic conditions, in particular, decline in travel and tourism, currency exchange risks
- Poor protection of intellectual property rights worldwide
- Substitution of the licensed cable and broadcasting networks by online streaming and Pay-TV services
Overall, the balance of the SWOT elements resulted in the steady growth of the company during the last years. The overall financial performance metrics are presented in the next part of the paper (see part 5). A detailed examination of the segment results provides the base for a balanced scorecard, which represents critical metrics of the business performance (see part 6).
5. The Overall Financial Performance Evaluation
5.1. Overview of the Recent Financial Results
The company closed the fiscal year 2014 with excellent results both in revenue and in net profits. Consolidated revenues increased by 8% as compared to 2013 to reach $48.8 billion. The increase of expenses in theatrical production, TV programming, labor cost inflation, as well as growth of selling and administrative expenses did not exceed the strong sales performance. In 2014, net profits attributable to Disney increased by as high as “22% to $7.5 billion”, and a much lower 8% increase in 2013 as compared to 2012 (Walt Disney 2014 Annual Report, 2015).
The growth trend was maintained in the first quarter of the FY 2015: “Our results once again reflect the strength of our brands and high quality content and demonstrate that our proven franchise strategy creates long-term value across all of our businesses” (Walt Disney Press Releases, 2015b). The announcement of the FY 2015-Q2 performance shall take place on May 5, 2015.
Given the diversified business structure of the company, the comprehensive financial analysis should include the examination of the specific business segments. Key performance indicators of the Walt Disney’s businesses will be presented below in the balance scorecard section of the paper. A more specific analysis of the overall financial results, based on the ratio analysis, is elaborated in the following section.
5.2. Financial Ratio Analysis
The profitability ratios, which are calculated and based on the Walt Disney income statements and balance sheets for the fiscal years 2012-2014, reflect the successful results achieved by the company. The company has been growing its profitability margins by increasing sales and controlling the costs. The net profit margin made 15.4% in 2014, which demonstrates better results than the performance of the two largest competitors from the media and studio entertainment segments. Despite having significant costs invested in the projects in progress and the land for future resorts, the company managed to achieve the higher ROA than any of the competitors, and operated with good turnover ratios. The company maintained acceptable liquidity ratios and increased them in 2014. While not relying on the financial leverage from the borrowings, the company reinvested the earned cash flows, paid dividends, and implemented large share buy-back programs to improve further the shareholders incentives. The strong growth of the share prices during 2014 reflected the market value placed by the company’s shareholders in its recent performance and the CEO’s strategic actions. The stock price grew by 31% during the 2014 and soared in 2015, having reached the record mark and increased by 27% already since the end of the FY 2014.
5.3. Overall Financial Performance: Conclusion
During the last three years, the company featured stable financial performance and achieved an extraordinary growth of net profits in 2014. It significantly improved key business ratios such as profitability margins, ROE, ROA, while relying primarily on the effective cost management and the shareholder equity usage. The company have been enhancing the benefits provided to the shareholders and achieved spectacular growth of the market value. The key financial ratios provide the basis for a balanced scorecard template presented in the following section.
6. A Balanced Scorecard of the Company’s Performance
A balanced scorecard constructed for the Walt Disney Company reflects key performance areas of the enterprise such as overall performance as well as results by segments and territories, where applicable. In addition, the scorecard should track benchmark metrics and milestones for the strategic projects of the company. However, as the data is not publicly available, this part of the scorecard remains empty in the current report. The same situation relates to the budget performance, which is a key element of the scorecard. The reported data is taken from the last quarter available at the data of the report creation, which is FY 2015-Q1. The scorecard indicators are highlighted with graphical symbols and traffic light signs to demonstrate the levels of the budget performance. If applicable, the year-to-year comparison should be accompanied by the comparison with the previous quarter performance.
The overall profitability section of the scorecard reflects considerable improvements in operational revenues, profits, and share performance. These results are accompanied by the substantial growth of investments, which explain the relatively low increase of the ROE. The main part of the free cash flow is reinvested.
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The profitability indicators by business segments reveal the significant change of income and project structure in the Media Networks sector. In particular, broadcasting programs contributed more to the net income than in the same quarter of the previous year. Parks and Resorts maintained their share in revenues, incomes, while the investments grew significantly. The investments are primarily related to the “higher Shanghai Disney Resort preopening expenses” (Walt Disney Press Releases, 2015b).
Studio Entertainment and Consumer Products featured revenue and income growth, which was reflected in the increase of their contribution to total financial performance. Interactive segment remains a niche, but it is fast growing. The significant income increase is explained by the mobile games success.
7. Blue Ocean Strategies of the Walt Disney Company
Several decades ago, the Walt Disney Company started its never-ending journey into the ‘family fairytale’, a world unforeseen by any of the contemporaries. The creativity genius of Disney allowed him to shape the theme park, which until now remains a “Blue ocean” of the entertainment industry. Essentially, Disney expanded the boundaries and worked in the “untapped market space” (Kim & Mauborgne, 2005), creating the demand for previously non-existing products and services. In addition, he utilized this opportunity to provide highly profitable sustainable growth of the company few decades later. Today, it is virtually impossible to identify, which companies from the resort industry, or which production studios, are the actual competitors of the Walt Disney Company: in both segments, “the competition is irrelevant” to the Disney’s creation (ibidem). The high costs of running and maintaining the existing facilities as well as developing new projects are not the obstacle for the company. Given the synergy of the whole enterprise, the numerous franchises and property rights owned by this organization as well as the plan to produce four films per year on average shall contribute to the further growth of the profits in this segment.
As each Blue Ocean strategy, the theme parks development is subject to many risks. For example, during the last years the high popularity of the Disneyland parks, combined with the economic revival and tourism growth, challenged the capacities of the resorts. The parks were overcrowded, and people had to wait in the queues for hours. Disney managers produced several solutions aimed to improve the situation. In particular, they made the queuing areas interactive and interesting as well as developed alternative facilities. Recently, they introduced a new Blue Ocean solution to the problem trying to eliminate the queues via the interactive reservation and Magic Bands. The Disney journey is personalized and connected: “through MyMagic+, plans can now be made online or via mobile and new RFID ticketing technology opens up access to the Disney experience of one’s design” (Best Global Brands, 2015).
The company has been experimenting with interactive technologies and virtual reality in its Imagineering labs. It has already addressed the diverse interests of the customers in the theme parks, while staying primarily in the family-with-kids segment. The new Blue Ocean strategy would address the new generation of the young customers and develop the physical theme offerings based on the new technologies, interconnected closely with the customized gaming and communication platforms. With its mature executive team, partnerships with Facebook, Twitter, YouTube, and Apple, and effective innovation culture, the company is well equipped to present the viable Omni-channel entertainment strategy.
The Walt Disney Company embodies the best industry practices in the wide range of family entertainment services and products. It possesses valuable and sustainable competitive advantages by maintaining and growing the unique Disney brand and a number of strong acquired brands. The company’s innovation and creativity culture, high quality standards, and customer-centric orientation serve to secure Disney’s position in the dynamic market environment. In addition, the company derives value by designing a unique set of Blue Ocean market offerings, including the further expansion of the theme parks, technological novelties aimed at enriching customer experience, and development of multi-channel platforms to reach the new generation of the clients. This successful strategy execution is reflected in the excellent financial performance in 2014, with the most optimistic forecasts for 2015-2016.
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