Understanding Business Models
An Analysis of The Walt Disney Company’s, commonly known as Disney’s Business Model, Competitive Forces, Strategies, Business Model Evolution and Best IT-Supported Proposal.
INTRODUCTION
The Walt Disney Company was developed and established in 1923 under the name Disney Brother Cartoon Studio, and it operates in the animation sector. The company’s expansion has been a key pillar in the global expansion of the entertainment sector. As a result, the expansion of the entertainment industry has significantly contributed to the economic prosperity of the country. Before its growth to become the world’s renowned and profitable entertainment company, currently valuing at over 203 billion dollars, Walt Disney was closely linked with nobleman’s vision and mission, whom the company was named after (The Wealth Record, 2021). Now, the company has expanded to become one of the world’s major mass media corporations today. Parks and Resorts, Media Networks, Consumer Products and Interactive Media, and Studio Entertainment are the company’s four main segments (The Walt Disney Company, 2018). The company’s objective is to become a global leader in the production and distribution of entertainment and information. Walt Disney has a diverse portfolio of brands that support the company’s aim of distinguishing its goods by creating inventive, creative, and lucrative entertainment throughout the world. The corporation now owns and runs theater divisions, cable and broadcast television networks, a music division, publishing, amusement parks, and merchandise (Citi.columbia.edu, 2013). These are the important categories that have helped the company’s outstanding performance throughout the years.
BUSINESS MODEL
Disney creates brands based on its characters and tales. Disney movies are distributed to audiences through cinemas and entertainment venues that pay distribution fees. Once a film is a success, Disney leverages its brands and gives licensing rights to businesses so that they may utilize Disney characters on their products. The enchantment of Disney movies may be relived in theme parks. Everything from the programs which available to watch, to the souvenirs available, is centered on the Disney brands. Disney’s business strategy is scalable: it’s brands power a wide range of value propositions and income sources. Disney’s business is on developing and preserving brands, not simply making movies. Actually, Disney was in the process of overhauling its business strategy. They have expanded their product line, income streams, distribution, and, of course, geographical coverage. We’ll go over the major events discussing the different types of models concisely, since its inception. (Disney’s Business Model)
In 1923, when Disney started developing his first cartoons, he was not aiming for the end user. Rather than individual moviegoers, he was generating good cartoons for movie studios. His major resources at the time were essentially the individuals who were generating the cartoons, the animators, and he would earn remuneration for the movies they produced. He would thereafter mostly focus on making cartoons based on other people’s stories, but the great change occurs in 1928 when his first original character, Mickey Mouse, was established, and he began creating his own movies already with sound and, in fact, to have extra expense. So, at that moment, we can claim he was producing the finest animated stories. He certainly began with short animation films, but he later added long feature animated films. Customers included children, teenagers, and families, and he would make most of his money by receiving a portion of the proceeds from movies screened in theaters. He was earning royalties and licensing fees by having his heroes and brand appear on other things. Nonetheless, it was a rather simple model at the time. The next major shift occurs in the 1950s. First and foremost, he began making feature films as well as animated films. As a result, we might claim that the value proposition has shifted. Here the idea was to tell the finest story possible. The second major difference was that he began airing his program on TV networks, which obviously became a feasible distribution method at that time since he moved a little bit farther. As a result, he broadened the client base.
In 1955, he also opened the first Disneyland. It was a significant event and we can see that his value proposition has changed. As a result, he was not only focused on telling stories, but also on delivering the finest entertainment for children and families. And the stories were not only a portion of it. It obviously had a significant influence on revenue and expense structure. Thus, on the income side, we have extra items coming from park and resort revenues, as well as various advertising fees on the cost structure. Obviously, he had to handle the construction and management of parks and resorts. So, he was no longer reliant on third-party distribution and instead had his own channel. As a result, he received subscription fees as an income source.
Obviously, the cost of running on channel would be included in the cost structure. You’ll notice that he has been growing naturally so far. However, in 1995, Disney began a highly active phase of Mergers and acquisitions, M&A, during which he accomplished two things. So, first and foremost, he would purchase TV networks, including ABC and ESPN stations. But, on top of that, to get a lot of amazing brands and content, he acquired Marvel, Lucasfilm, and Pixar. So, this plainly suggests that he suddenly had a lot of money associated with running TV stations and not only advertising payments, but also membership fees, product placements, and other monetary costs. Additionally, with the ABC and ESPN stations, as well as the other channels, he has a lot of control over the TV channels.
In 2011, they began a more aggressive pursuit of a DevOps strategy. This was as much about rethinking about the communication infrastructure and organization hierarchy as the technology. Reaching families and children, but also people of all ages, especially with companies like Marvel and Lucasfilm, and the final major transition comes at the end of 2019 when he goes all in on streaming. So, by 2019, he was really providing a significant amount of material to the other three platforms, particularly Netflix. However, in 2019, he quit doing that and began developing his own platforms. So, ESPN was the first. Disney also had a significant investment in Hulu, and he began developing Disney Plus. Movies Anywhere, a recently unveiled offering from Walt Disney Studios, allows customers to explore, buy, and watch movies across many platforms. Users may use the app to digitally construct a library of movies that they have previously purchased and can redeem from their DVD collection. Infinity, a game developed by Disney’s video game division, allowing players to mix and match iconic Disney and Pixar characters in self-contained video game experiences. Today, Disney uses digital to engage, amuse, and educate its audiences. Every day, its theme parks, studio entertainment, interactive media platforms, and retail stores connect with customers. As, a result of controlling the streaming platforms, he became more integrated and had greater influence over the channels.
The Walt Disney Company is constantly looking for innovative methods to improve its business infrastructure while pushing the boundaries of a wonderful customer experience. With theme parks throughout the world that draw millions of visitors each year, the corporate behemoth must stay innovative and cutting-edge. The Walt Disney Company uses Hewlett Packard Enterprise, HPE’s technology for its internal cloud, despite employing Amazon Web Service, AWS for the Disney+ streaming service. Analytics helped improve Disney’s accuracy in managing labor resources at its parks by 20%. Disney has invested over a billion dollars in its MyMagic+ technology initiative which helped Disney to accommodate 3,000 additional daily visitors. Disney’s store redesigns, including the usage of digital kiosks, helped it boost sales and profit margins by 20%. This obviously implies two significant changes in the income and expense structures. So, we have extra fees on the revenue structure. However, there are costs associated with creating, expanding, and streaming platforms and utilizing technologies. (HPE)
The image below shows the flowchart about Disney’s evolving marketing model that includes people who seek leisure and entertainment, families who seek family-friendly entertainment, kids and young people seeking relatable entertainment and information.
The image below shows the flowchart about Disney’s evolving financial model that includes sales of merchandise, movies revenue, advertising park entrances and subscription.
COMPETITIVE FORCES AND CHALLENGES
Understanding a company’s industrial environment is critical for implementing strategies that assure its long-term viability and success using Porter 5 factors.
Competition in the Industry
The Walt Disney Company is up against severe competition in each category. Six Flags, Universal Parks and Resorts, and Merlin Entertainment are among the top rivals for amusement parks and resorts. Since prices are not considerably different so companies fight on theme distinctions and distinctive consumer experiences. Competitors employ new attraction locations, restaurants, infrastructure, and rides to differentiate their services and goods in the sector. Few renowned examples of Disney’s competitors in all other segments are as follows:
· CBS: Creates and delivers content to worldwide audiences across several media.
· Time Warner Inc.: They provide cinematic entertainment, cable networks, etc.
· Lionsgate is a film production company that also offers video entertainment, TV programming, and digital distribution.
· Sony Pictures began as a technology corporation, but has since expanded into the media and entertainment, gaming, music, and motion picture industries.
· Netflix is a streaming service that provides award-winning TV episodes, movies, animation, documentaries, etc. to thousands of internet-connected devices.
The Threat of substitute products
The threat of substitute to Walt Disney Company can be considered to be relatively high due to cheaper alternatives in entertainment where consumers can opt to use other entertainment options such as movies and zoos among other entertainment scenes. However, the corporation maintains relevance owing to the supply of unique services distinctive from the rivals in the sector and so, clients cannot receive experience supplied by Disney from rivals. Moreover, Audiences may also become weary of watching streaming video and switch to other hobbies, therefore the platform is continuously delivering fresh content in a significant marketing budget.
Bargaining power of suppliers
Due to limited supplies and high switching costs, the company’s supplier bargaining power is medium. There are a few organizations that develop or maintain the amusement rides. As the suppliers are international, Disney can source supplies in the markets where it operates. So, suppliers have a lot of leeway when it comes to bargaining with Disney. The switching costs differs because the corporation can only acquire its rides from a specific provider, moving suppliers entails hefty switching costs. However, the switching cost is reduced for character related items or toys. In case of streaming service, procuring a service agreement and acquiring the license to share the content involves bargain on the cost. That can be a problem for Disney because the suppliers have a lot of negotiating power.
Bargaining Power of Buyers
Disney, Universal, Seawood, and Six Flags are the four major players in the parking and entertainment industry. Walt Disney Company is the leader in this oligopolistic market structure; hence the negotiating power of suppliers is low. Because demand is substantially greater than supply, Disney has the potential to charge higher prices. Buyers have much less bargaining power. Buyers have significant bargaining power over suppliers in the streaming business. If the user wants to change the platforms Disney plus can therefore not increase costs as the possibility of losing its customers and shifting to another platform are high. This limits Disney’s flexibility since consumers will not accept a reduction in quality from the platform and will want more of it without the platform’s ability to drastically raise its rates.
The Threat of New Entrants
Given that the markets are mature, the threat of new entrants is generally minimal, particularly in Western markets. For example, the United States boasts over 400 amusement parks, but Europe has only a few. Furthermore, the cash necessary to build a new park is substantial. Disney, for example, has invested over $5.5 billion in Shanghai Disney, a huge investment (The Walt Disney Company 2022). Additionally, Disney has been responding to changes in technology (from DVD to streaming) and fashions in the audiovisual production. Disney has a lot of experience in the industry, but its greatest strength is the size of its portfolio. As a novice to the streaming sector, the financial resources, suppliers’ relationships, and the network in this area are not that easy to get. But Disney has all its tracks covered.
Competitive challenges the company faces due to changes in the business environment
Politically, you may have noticed that, while Disney plus is available in many countries and it is not in many others. These limits can be imposed for a variety of reasons. For example, if North Korea and Syria are unable to access Disney plus, because the US government prohibits American companies from doing business with these nations. Other nations, such as China, cannot access Disney Plus, despite the fact that it is a massive market with over 1 billion Chinese due to the local government as well as the censorship that is widespread in China.
Economic variations in the United States or other significant parts of the world might diminish demand for Disney’s products/services, reducing revenue and profitability. On a global basis, Disney Plus is used. As a result, it is less expensive in certain nations, which may have an influence on the company’s results.
Socially, the Disney brand name and emblem have been around for nine decades and are well recognized across the world. According to Forbes’ ranking of the world’s most valuable brands, Disney is rated eighth, with a brand value of $52.2 billion. Disney doesn’t have many societal issues: practically everyone likes Disney. They are concerned about their public image. One of the only things they may be faulted for is that their industry is quite polluting, despite its appearance. Many countries around the world are becoming more aware, which could lead to a change in model to cater to more ecologically conscious users.
Technological development is accelerating, and the introduction of new technology has an impact on the demand for Disney products. Disney’s profitability is dependent on its ability to adopt new technology and react to evolving customer demand patterns. Disney is using a traditional cloud infrastructure and its abilities to support a newly advanced idea such as feet tracking sensors, magic bands, etc. However, pirated content is now widely and easily available for a fraction of the original price, or even for free. This presents a significant hurdle for innovative content providers such as Disney.
COMPETITIVE STRATEGIES AND APPROACHES
Growth Strategy via innovation
A growth plan is used by Disney to stay ahead in the competition by increasing their production capacity, extending their client base, entering new markets, expanding into global markets, or diversifying their product/service range. In order to swiftly increase market share, Disney often combine this with innovation strategy. Most people equate the term “magic” with on-stage performances. However, when digital technology is applied in the appropriate place and with the proper aims, magic may occur. Disney uses digital technology to enhance the consumer experience in a variety of ways, including theme parks. When guests make reservations, they are given a MagicBand, which is a wristband equipped with radio frequency identification (RFID) chips. Visitors may use websites to make bookings, pick a place to stay, make dinner reservations, and arrange visit timings using FastPass+ (a system that offers tourists a one-hour window to return to their favorite attractions without having to wait in line). The band can be used for entering the park, riding the attractions, or staying in a hotel room, or making purchases, to name a few. The bracelets are all different colors and monogrammed with each family member’s name so they don’t get mixed up. Visitors may use their MagicBand to link photos taken at the park and view them after their visit. (Making Magic, pg. 4)
Additionally, to provide a more customized experience for its customers, Disney applied for a patent for a sensor system that allows Disney to identify people based on the form and size of their feet. Shoes have should be left on the guests’ feet to ensure hygiene. Robots across the park may welcome parkgoers when they become identified. These robots can recognize passengers by name and remember their birthplace, favorite attractions, Disney characters, and meals. Using the cloud’s capabilities, robots can swiftly access data for each guest to increase the number of park visitors who benefit from this revolutionary technology. (Rackware)
Differentiation Strategy
Walt Disney Company uses differentiation strategy for competitive advantage against its substitutes. The differentiation approach entails creating distinct items in diverse market categories. For example, the corporation offers entertainment items to practically everyone on the planet, with a special emphasis on families. Disney delivers stories that touch and inspire people. Disney creates Disney World and Disneyland as holy places. Disney uses the nostalgia effect to increase client loyalty. Disney constantly stays true to its themes. The Jungle Book relaunch, for example, and Mickey Mouse’s 90th birthday display. Furthermore, strategic acquisition of other firms is a significant aspect in the company’s product mix variety. Walt Disney has succeeded in diversifying its products and services which has enabled the company to grow both horizontally and vertically. Once they had a difficult time during the COVID-19 epidemic, as its theme parks were shuttered and movie projects were suspended, drastically reducing income. On the other hand, its streaming business grew rapidly, causing the corporation to reorganize the business, putting the direct-to-consumer sector at the forefront ( Mageplaza).
Business Model Evolution
Cost Leadership Strategy
Disney’s profitability is determined by its ability to meet rapidly changing customer wants and tastes. If Disney+ is priced cheaper than its competitors, it will be able to attract the most members. It must include a large amount of Disney content and compete with Amazon Prime Video and Netflix. To begin with, how Disney decides to release its films in the future might be extremely different. We’ve already seen how it chose to distribute films during the epidemic and after the pandemic shutdown, allowing it to capitalize on pricing fluctuations. Even it may use its strong financial position, such as land holdings, and its real estate business to lower the manufacturing cost or service supply, providing reduced costs, thus, attracting more clients.
Alliance Strategy
Disney is unquestionably a way of life, with a vision of the metaverse as “next-generation narrative” technology. Disney intends to leverage data gained from theme park visits and customer streaming habits to provide individualized entertainment experiences, including those from the company’s Marvel and Lucasfilm studios. After Meta Platforms Inc CEO Mark Zuckerberg announced that his company’s future would be devoted to creating a robust, 3D, persistent environment where users’ digital avatars would work, hang out, and pursue their hobbies, entertainment, and technology companies rushed to secure a position in the metaverse.
Innovation Strategy
When a business produces something completely unique in the market, whether it is a product or service or an altogether new market, that is truly creative. Because today’s consumers have become accustomed to speed and ease, keeping them interested requires assuring consistency throughout the attraction’s numerous touchpoints. The entire place will be billed as a “digital city” with interactive experiences, games, hands-on activities, and Disney characters in both virtual and actual versions thanks to Augmented Reality. Layers of technology and storytelling are likely to be included. Another possibility for Disney’s future is greater inclusion of individuals of other cultures, ethnicities, genders, sexual orientations, and so on. The Living Character Initiative was a project that aimed to construct ultrarealistic characters such as digital puppets, and ghost trains that could freely interact with guests using mixed reality.
Best IT-Supported Proposal
Disney’s revenue for the quarter ending June 30, 2022 was $21.504B, a 26.33% increased year-over-year cumulatively from all the segments. With the inclusion and support of Information Technology, the performance can be improved to a large extent.
As previously said, Disney employs Amazon Web Services, AWS, and one of the major benefits is that it will help Disney swim with the current as it is easily expandable to company’s developmental target. Extending the activity to a new sort of audio music streaming such as Disney Music with the same partner (AWS) should not be too difficult. It may deliver interactive instruction and classes online, in addition to games. Disney laboratories should work on areas such as speech and sound processing, artificial intelligence, machine learning, data mining, materials, displays, sensors, and embedded systems. AWS offers several more services, such as AWS security, which Disney may utilize to protect their environment, content privacy, and so on from hostile assaults, as Disney will be working with a large amount of information when it joins forces with Meta. Furthermore, digital marketing platforms like Facebook, Twitter, and others are low-cost solutions to increase brand awareness among existing and prospective customers. Disney may use technology to minimize costs by switching from analog to digital marketing. Investing in more acquisitions can also bring more cost synergies specifically in the Media Network division. Upon analyzing the Walt Disney Company’s Business Strategy, I truly support the following words of the CEO. (AllEars.Net)
“Businesses are challenged left and right and if we did not get on board and challenge ourselves, we were going to get swept away. So, we had to swim with the current.”
- Bob Iger, Chairman & CEO, Disney
References
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from https://allears.net/2020/07/21/seven-technologies-we-cant-wait-for-disney-to-bring-to-its-parks/
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https://www.strategyzer.com/blog/posts/2015/3/17/disneys-business-model-a-scalable-dream-factory
“HPE: Disney uses HPE for private cloud — DCD (datacenterdynamics.com)”. Retrieved from
https://www.datacenterdynamics.com/en/news/disney-uses-hpe-for-private-cloud/
“Mageplaza: Disney’s 4 Main Marketing Strategies”. Retrieved from
https://www.mageplaza.com/blog/disney-marketing-strategy.html
“Making Magic — with Digital Technologies, page 4”. Retrieved from
https://capgemini.com/consulting/wp-content/uploads/sites/30/2017/07/disney_0.pdf
“Rackware: Disney’s Unique Use of the Cloud”. Retrieved from
https://www.rackwareinc.com/disneys-unique-use-of-the-cloud
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https://www.reuters.com/business/media-telecom/disney-ceo-lays-out-early-plan-digital- future-2022–09–11/
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