8.2 Corporate-Level Strategy Defined

What’s the Big Picture at Disney?

Disney’s Avengers: Endgame movie, released in 2019, was Disney’s highest grossing movie of all time. With revenues of over $2 billion, it is one of seven Disney movies to gross over $1 billion. Frozen II was the highest grossing animated movie at $1.37 billion (Clark, 2020).

Although Walt Disney was a visionary, even he would have struggled to imagine such enormous numbers when his company was created. In 1923, Disney Brothers Cartoon Studio was started by Walt and his brother Roy in their uncle’s garage. The fledgling company gained momentum in 1928 when a character was invented that still plays a central role for Disney today—Mickey Mouse. Disney expanded beyond short cartoons to make its first feature film, Snow White and the Seven Dwarves, in 1937.

Following a string of legendary films such as Pinocchio (1940), Fantasia (1940), Bambi (1942), and Cinderella (1950), Walt Disney began to diversify his empire. His company developed a television series for the American Broadcasting Company (ABC) in 1954 and opened the Disneyland theme park in 1955. Shortly before its opening, the theme park was featured on the television show to expose the American public to Walt’s innovative ideas. One of the hosts of that episode was Ronald Reagan, who twenty-five years later became president of the United States. A larger theme park, Walt Disney World, was opened in Orlando in 1971. Roy Disney died just two months after Disney World opened; his brother Walt had passed in 1966 while planning the creation of the Orlando facility.

The Walt Disney Company began a series of acquisitions in 1993 with the purchase of movie studio Miramax Pictures. ABC was acquired in 1996, along with its very successful sports broadcasting company, ESPN. Two other important acquisitions were made during the following decade. Pixar Studios was purchased in 2006 for $7.4 billion (Stewart, 2011). This strategic move brought a very creative and successful animation company under Disney’s control. Three years later, Marvel Entertainment was acquired for $4.24 billion. Marvel was attractive because of its vast roster of popular characters, including Iron Man, the X-Men, the Incredible Hulk, the Fantastic Four, and Captain America. In addition to featuring these characters in movies, Disney could build attractions around them within its theme parks.

With annual revenues in excess of $38 billion, The Walt Disney Company was the largest media conglomerate in the world by 2010. It was active in four key industries. Disney’s theme parks included not only its American locations but also joint ventures in France and Hong Kong. A park in Shanghai, China opened in 2016. The theme park business accounted for 28% of Disney’s revenues.

Disney’s presence in the television industry, including ABC, ESPN, Disney Channel, and ten television stations, accounted for 45% of revenues. Disney’s original business, filmed entertainment, accounted for 18% of revenue. Merchandise licensing was responsible for 7% of revenue. This segment of the business included children’s books, video games, and 350 stores spread across North American, Europe, and Japan. The remaining 2% of revenues were derived from interactive online technologies. Much of this revenue was derived from Playdom, an online gaming company that Disney acquired in 2010.

Disney continued with more acquisitions, buying Lucasfilm in 2012, Maker Studios in 2015, BAMTech in 2017, and 21st Century Fox in 2019. With the exception of 2017, when there was a slight revenue decline, Disney’s revenues have shown consistent, strong growth (Macrotrends, n.d.). Can Disney maintain this trend? Is Disney getting too large to manage effectively? With the COVID-19 pandemic of 2020 shutting down many of Disney’s business lines temporarily, should Disney diversify into other industries, and not be so dependent on the entertainment industry for its future success?

Business-level strategy deals directly with how a firm competes in the marketplace. How does the firm get buyers to purchase their products and services as opposed to those of their competitors? Corporate-level strategy considers issues at a broader level of analysis. The word “corporate” does not refer to the legal entity of a corporation, but to the level of strategy higher than direct head-to-head competition. Any size firm can develop corporate-level strategy. The owner of a McDonald’s franchise can pursue a corporate strategy, as can the owner of a local plumbing company.

Corporate Strategy –Specifies actions taken by the firm to gain a competitive advantage by selecting and managing a group of different businesses in several industries and/or product markets.

In corporate-level strategy, executives seek to answer two basic questions, and then three more detailed questions.

A. What business(es) should we be in?

B. How should we manage the portfolio to achieve synergy/create value?

With respect to the first question A above, what business(es) should we be in, firms must ask:

1. In what stage of the industry value chain should we participate?
2. What range of products and services should we offer?
3. Where geographically should we compete?

All three of these questions should be answered within the context of question B above, how can synergy be achieved?

Synergy in the business context means the cooperation or interaction of two or more business units so that they perform more effectively together than they would if independent. For example, if a larger company acquires a similar smaller company, some of the administrative overhead expenses such as accounting or human resources can be combined and operate more efficiently. Another synergy produced is overall reduced marketing expenses since they can market their products together.

The foundational issue in corporate-level strategy is diversification: how can the organization diversify, and in doing so, create synergy? Diversification can address geographic questions, such as how Disney established theme parks in France, Japan, and China. Also, moving a firm into other industries, outside the home industry, is another way to diversify. Warren Buffet’s company Berkshire Hathaway owns businesses as diverse as real estate, insurance, and a railroad. Additionally, a firm may expand into business areas within its value chain, by acquiring suppliers upstream in the supply chain or distributors or retailers downstream. For example, when Disney launched its streaming service Disney+, it diversified downstream in its value chain to control and provide an outlet for the movie content it produced.

The executives in charge of a firm such as The Walt Disney Company must decide whether to remain within their present domains or venture into new ones. In Disney’s case, the firm has expanded from its original business (films) and into television, theme parks, cruise lines, and several others. In contrast, many firms never expand beyond their initial choice of industry. Disney executives could consider further diversifying geographically, diversifying into additional industries, and diversifying deeper into its value chain, for example, by acquiring some of its suppliers. In all these considerations, Disney needs to evaluate if and how synergy can be produced.

References

Clark, T. (2020, January 15). The 7 Disney movies of 2019 that made over $1 billion at the box office. Business Insider. https://www.businessinsider.com/disney-movies-with-1-billion-at-box-office-2019-8

Macrotrends. (n.d.). Disney revenue 2006-2020 | DIS. https://www.macrotrends.net/stocks/charts/DIS/disney/revenue.

Standard and Poors. (n.d.) Walt Disney Company. https://www.standardandpoors.com.

Stewart, J. B. (2011, June). A collision of creativity and cash. New York Times. http://www.nytimes.com/2011/07/02/business/02stewart.html.

Image Credits

Figure 8.1: Unknown author. “Walt Disney introduces each of the Seven Dwarfs in a scene from the original 1937 Snow White theatrical trailer.” Public Domain. Retrieved from https://en.wikipedia.org/wiki/File:Walt_Disney_Snow_white_1937_trailer_screenshot_(13).jpg.

Figure 8.2: Genin, Nicolas. “John Lasseter for Up at the 66th Mostra.” CC BY-SA 2.0. Retrieved from https://commons.wikimedia.org/wiki/File:John_Lasseter-Up-66th_Mostra.jpg.