Open Case - Disney Adds Value Using A Related Diversification Strategy

Disney Adds Value Using a Related Diversification
Strategy
The Walt Disney Company has pursued a related diversification strategy by using its movies to
create franchises and platforms around its popular cartoon and action movie figures. It is the
second largest mass media producer after Comcast. While other more focused content providers
such as Discover Communications, CBS, and Viacom have seen decreasing revenues because of
lower ratings and TV ad weakness, Disney was strengthened through its other businesses based
on its diversification strategy. These other businesses include consumer products, interactive
consumer products, interactive parks and resorts, and studio entertainment parks. It also has
strong cable and TV franchises through ESPN and ABC. Although its ad revenues have
decreased like other more focused content producers and distributors, its other businesses are
growing and allow it to maintain higher earnings compared to other rival media producing firms.
Disney’s strategy is successful because its corporate strategy, compared to its business-level
strategy, adds value across its set of businesses above what the individual businesses could
create individually. In the literature this is often known as synergy, or in the more academic
literature it is known as economies of scope. First, Disney has a related set of businesses in its
studio entertainment, consumer products and interactive media; media network outlets, parks and
resorts, and studio entertainment parks. Within its studio entertainment businesses, Disney can
share activities across its different production firms: Touchstone Pictures, Hollywood Pictures,
Dimension Films, Pixar Films, and Marvel Entertainment (a fairly recent acquisition). By sharing
activities among these semi-independent studios, it can learn faster and gain success by the
knowledge sharing and efficiencies associated with each studio’s expertise. The corporation also
has broad and deep knowledge about its customers which is a corporate-level capability in terms
advertising and marketing. This capability allows Disney to cross sell products highlighted in its
movies through its media distribution outlets, parks and resorts, as well as consumer product
businesses.
Recently, Disney, for example, has been moving from its historical central focus on animation in
movies such as Cinderella, The Jungle Book, and Beauty and the Beast, into the same titles or
stories using a live action approach. The recent release of Cinderella, a live action version of the
original 1950 animated classic, stays particularly close to the “fairy tale version of the script.” This
approach comes from its understanding of its customers and what they prefer. Other approaches
such as this can be found in Alice in Wonderland with Johnny Depp and Maleficent, which was a
slight twist on the original Sleeping Beauty, starring Angelina Jolie as the wicked queen. The
action versions of these two movies grossed $1.3 billion and $813 million globally, respectively.
Although Disney has had some relatively unsuccessful pictures, John Carter, TheLone Ranger,
and The Sorcerer’s Apprentice, its action movies based on its animated fairy tales have been
relatively more successful. Disney will be promoting Cinderella products in its stores and in other
focused retail outlets and will be advertising its products along with the direct connections to Alice,
Maleficent, and Frozen. All of these have been consumer product successes, and Cinderella is
likely to have the same appeal. Disney is also seeking to produce action movies such as Beauty
and the Beast, The Jungle Book, and others in the near future. All of these feed products into its
Disney stores and Disney themed sections in department stores, such as J. C. Penney, as well as
promote resort themes and thus drive interrelated revenue through cross selling.
One of the downside problems for these fairy tale themes is that the stories are in the public
domain. As such, other competitors are seeking to follow Disney’s successful approach. For
example, Time Warner Inc.’s Warner Bros. Studio will release Pan, which seems to be beating
Disney to the punch on its former Peter Pan movie success. Likewise, Time Warner will release
Jungle Book in 2017 and has another script based on Beauty and the Beast. Comcast’s Universal
Pictures is developing the Little Mermaid. However, neither of these studios has marketing power
nor the franchising capability of Disney and its interrelated business and corporate skills. Although
they are seeking to build these skills, they cannot duplicate Disney’s corporate strategy and parent
added value because they are more primarily focused on content and distribution as well as
advertising. As such, Disney has a current corporate parental advantage over its more focused
movie and content producing and distribution competitors. Disney’s corporate strategy has put it in
the list of top 10 most admired firms in Fortune magazine.

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Disney Adds Value Using a Related Diversification

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