Disney CEO Michael Eisner accomplished much during his storied career: starting the Disney Channel, the Disney Stores, and Disneyland Paris, and acquiring ABC television, Starwave Web services (from Microsoft co founder Paul Allan), and Infoseek (an early Web search engine). But his strong personality and critical management style created a great deal of conflict with shareholders, creative partners, and board members, including Roy Disney, nephew of founder Walt Disney.
One of the most significant and damaging conflicts of Eisner’s tenure arose between Disney and Pixar Studios and its then-CEO Steve Jobs. Pixar produced computer-animated movies for Disney to distribute and market. But Disney maintained the right to produce sequels to Pixar Films, such as Toy Story, without Pixar’s involvement. Jobs argued that Pixar should have total financial and creative control over its films, and when Eisner disagreed, relations broke down, with Pixar seeking other partners.
When Eisner left Disney, new CEO Bob Iger immediately set about repairing the damaged relationship between Disney and Pixar. Iger approached Jobs about buying Pixar for $7 billion. More important than the price, however, was promising Jobs and Pixar’s President Ed Catmull and creative guru John Lasseter that they would have total creative control of Pixar’s films and Disney’s storied but struggling animation unit.
Although Pixar and Disney animation has thrived under the new arrangement, Disney still has a number of critical strategic problems to address. Disney is “too old” and is suffering from brand fatigue as its classic but aging characters, Mickey Mouse (created in 1928) and Winnie-the-Pooh (licensed by Disney in 1961), account for 80 percent of consumer sales. On the other hand, Disney is also “too young” and suffers from “age compression,” meaning it appeals to young children, but not really to preteens, who gravitate to Nickelodeon, and not to teens at all.
Finally, despite its legendary animated films, over time Disney products have developed a reputation for low-quality production, poor acting, and weak scriipts. More recent movies such as “High School Musical 3: Senior Year,” “Beverly Hills Chihuahua,” “Bolt,” “Confessions of a Shopaholic,” “Race to Witch Mountain,” and “Bedtime Stories” disappointed audiences and failed to meet financial goals. As Bob Iger told his board of directors, “It’s not the marketplace, it’s our slate [of TV shows and movies].”
With many of Disney’s brands and products clearly suffering, the company must make some critical decisions. Given the number of different entertainment areas that Disney has, what business is it really in? Is Disney a content business, creating characters and stories? Or is it a technology/distribution business that simply needs to find ways to buy content wherever it can, for example, by buying Pixar and then delivering that content in ways that customers want (e.g., DVDs, cable channels, iTunes, Netflix, social media, Internet TV, etc.)?
From a strategic perspective, how should Disney’s different entertainment areas be managed? Should there be one grand strategy (e.g., growth, stability, retrenchment) that every division follows, or should each division have a focused strategy for its own market and customers? Likewise, how much discretion should division managers have to set and execute their strategies, or should that be controlled and approved centrally by the strategic planning department at Disney headquarters?
Disney is an entertainment conglomerate with Walt Disney Studios (films), parks and resorts (including Disney Cruise lines and vacations); consumer products (i.e., toys, clothing, books, magazines, and merchandise); and media networks such as TV (ABC, ESPN, Disney Channels, and ABC Family), radio, and the Disney Interactive Media Group (online, mobile, and video games and products). If Disney elects to grow, it must carefully plan where, when. and how the company will grow. Disney must answer questions like, Is another strategic acquisition necessary? If so, with whom? If Disney elects a stability strategy, how could it improve quality to keep doing what Disney has been doing, but even better? Finally, retrenchment would mean shrinking Disney’s size and scope. If the company were to do this, what divisions could be shrunk or sold?
These are just some of the strategic decisions that Disney must make in order to maintain and advance its position in the entertainment industry.
Questions
Has Disney been able to maintain its competitive advantage?
Conduct a brief situational analysis to identify Disney’s internal strengths and weaknesses and determine external opportunities and threats.
Argue for a retrenchment strategy at Disney.
