Disney’s Strategic Ambitions
Part 2 of the four-part series, Diversification as Business Strategy.
Today, I want to present my theories about strategic aspects that corporations would have considered in their diversification strategy.
- Disney’s business at a glance.
- Key purposes in their strategy. Retrace the steps to find key decisions that helped pave the way.
Earlier in Part 1 of this series, I started asking “why” business wants to diversify before “Mission & Goals”.
Moving on, I want to first reference this graph from HBR’s article Demystifying Strategy, where Michel D. Watkins illustrated the 4 pillars for company’s overall strategic direction.
Knowing “why” is not sufficient to me, I am curious to brainstorm the key decision points that brought them up another scale, also see if the business side got stronger through resolving past mistakes. It may serve us well trying to imagine what kind of metrics they looked to before any major decision.
Case of Disney- Acquisition and New Products
Do you know the majority of Disney’s revenues comes not from the studio productions but from their media networks business?
Overview of Segments
In Disney, Media network segment contributes to more than 40% of its revenues and consistently remains so for years. Studio production however contributes to around 15% surprisingly- which seemed against our intuition.
The first chart is from 2012 data, and the revenue distribution between top 3 earning segments: Media Networks, Parks And Resorts, Walt Disney Studios are still relevant in the past few years.
That’s up to change due to company’s shift in strategic direction, since they already launched a new streaming services, Disney+ in 2019. Disney plus falls under the Direct-to-Consumer and International segment, mainly Disney+ & ESPN+ & Hulu, as stated in their earnings report.
Related Diversification as Core Strategy
Many of Disney’s diversifications are done through acquisitions or merger. For a company this large, I will attribute its invincible presence in M&E industry to an employment of related diversifications.
The proof being that Disney not only re-routes investments to the rising Direct-to-Customer segment, they have majority control over networks that broadcasts their production works such as ABC, as part of the broader vertical integration. The stakes in Hulu is another example, even if the network does not hold the same brand gravity or value to viewers outside of US- therefore, more difficult to scale the business to fit within the overall big picture.
At a brief glance, we can see these efforts are consistent with their origin or the motivation- to provide better entertainment for consumers.
In my perspective, Disney’s partnerships with peers or competitors as of late have showcased the pressure for growth. For a mature corporation, it stands as one major motive prompting the company to diversify over the years.
(read my post about diversification motives)
Disney’s diversification in recent years showcased the desire for growth.
How they achieve their strategic goals
1. Know your strategic assets. Buy or Develop areas that are lacking- Disney’s majority stake in BAMTech
- Concluding Disney’s diversification and acquisition efforts, I find that Disney’s decision showcased they have clear understanding of what they have or don’t have- clear understanding of their strategic assets, which we can think of their superpower too. What is a strategic asset? Harvard Business Review’s to-diversify-or-not-to-diversify said it best: it forces an organization to identify how it might add value to an acquired company or in a new market. I interpret it as looking internally to take account of what are the strengths that provided a superior market position.
- Further, what does knowing strategic assets have to do with BAMTech? BAMTech was previously owned by Major League Baseball and provided back-end streaming technologies. Disney now own 75% stakes in the company. I think the move showcased a sense of urgency and determination in their change in growth strategies.
Here is why- my understanding of what Disney does well- production capabilities (e.g.product development) and the libraries of IP, cost reduction through vertical integrations, brand value. But it still begs the question of whether they have the necessary strategic assets, or, let’s say competitive strengths, to providing new streaming services including
(a) ESPN+, under ESPN brand
(b) Disney+, self-branded, the rising star in direct-to-consumer segment
The answer is they lacked expertise in streaming technology. It is the clear understanding of the key driver for growth in the wave of business transition, and being quick to decide whether to DEVELOP technologies in-house, or to BUY established services, which led Disney to the decisions afterwards.
2. Synergies through vertical integration as a strategy- Case of ABC Networks & is synergy sustainable
- The operational process of the industry, in this case networks distribution and the costs incurred, affects Disney’s strategy as well.
I want to take a look at how bottom line is affected in Media & Entertainment (M&E industry)-
According to the study done for Disney, production and broadcasting is inherently expensive. It makes sense as a result when Disney had set to purchase ABC, to vertically diversify by acquiring networks that provide broadcasting channels/resources at lowered costs. However, that does not mean its end of story for Disney (pun intended). - Disney’s intention to use ABC as an additional channel source to broadcast production works. It was not entirely successful, due to ABC not attracting as many viewers as expected. Taking a step back, I am very curious about if Disney had planned about the priorities in the synergy. For example, holding stakes over a network originated from its need to provide accessibility, and to increase the reach to consumer. If that were truly Disney’s original aim, the top priority during their due diligence prior to acquiring, should be to examine the fit (with ABC) closely. Because at the end of day, what can be broadcast through ABC can go through multiple other peer channels too.
- First principle thinking
ABC was going to be utilized as an access/only as a platform. If we take a step back to peel back what ABC is capable of, or what it was fundamentally built for, was there more that Disney could have taken away from through this partnership. Or, given the nature of the industry, was it simply too costly to try?
Current market landscape should be taken into consideration too. When the climate reads that consumers are shifting focus to on-demand streaming, then re-thinking the future profitability levers (instead of compromising with ABC) that helps to transform the company may be the smarter move at the end of the day.
I like to think that Disney have learned their lessons from the failure in ABC’s deal, which is why it now attempts to have more control over another network that they have control over- Hulu, perhaps attempting a better fit.
However, their partnership with Hulu may still be up in the air.
After thought
Something I’ve been taught during my postgraduate, is to look for consistency to evaluate business behavior as well as the leadership’s conducts. And it stands especially impactful now to me than before.
This series of discussion on diversification, with Disney as example, includes many topics I want to touch on.
Before continuing on to part 3 to discuss Disney vs Hulu, I want to give it a rest to celebrate the Olympic games- about empathizing with underdogs, being reminded of Ireland, and how much origin means to me.
References
The-Walt-Disney-Company-to-Acquire-Majority-Ownership-of-BAMTech
Demystifying Strategy, Harvard Business Review
To Diversify or Not To Diversify, Harvard Business Review
The Walt Disney Company a Corporate Strategy Analysis viewcontent.cgi
Disney 10-Q, with descriptions on segments sec-show.aspx
what-disney-means-for-the-future-of-television
is-walt-disney-giving-up-on-hulu.aspx
from-competitive-advantage-to-corporate-strategy
