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The Disney Company: Success Strategies and Risk Factors
Success and RIsks: The Walt Disney Company
Awhile back one of my hubs, “Walt Disney Company's Mission Statement and Vision: Formula for Success,” focused on the success of the Disney Company, particularly how the Disney Mission Statement and Vision Statement set the tone for Disney’s success as far back as the 1920s. But even other factors have contributed to the Walt Disney Company’s success from the company’s inception, and the Disney tradition of success continues today.
The Disney story is not only one of success, but it is also a story of a company overcoming its limitations. The company’s 10k for 2012 lists these limitations and provides the Disney plan for dealing with each. Throughout the company’s lifespan, the Disney growth and success have brought new challenges and new hurdles. Anyone who owns a business of any size can learn from the Disney strategies for dealing with success as well as its methods for overcoming its limitations.
From its inception, the Disney Company has implemented certain critical strategies that contributed to its success. Its Mission Statement and Vision Statement set the tone for much of the Disney success. The expansion of innovative technology and a global market have affected the business strategies of the Disney Company; therefore, the company’s strategies have changed with the times. When Walt Disney first founded the business, a major strategy was “to bring Disney’s great storytelling to life with immersive experiences never before imagined” (Iger, R., 2012 Annual Report and Shareholder Letter, p. 1).
In 2012, CEO and President Robert Iger identified three particular strategies that have been effective for Disney over the years. He declared that these three strategies have been especially instrumental in the company’s success over the past seven years. Iger stated that Disney’s three major strategies have been to “create high-quality content for families, making that content more engaging and accessible through the innovative use of technology, and growing our brands and businesses in markets around the world” (Iger, 2012, p. 1).
Future Strategies: Foreign Markets
The Disney Company’s plans are to continue with the strategies outlined by CEO Robert Iger and to remain ready to adapt to the changing consumer wants and needs (Walt Disney Company Annual Report and Shareholder Letter, 2012). In addition to adapting as needed to meet the needs and wants of consumers, Disney has plans to adapt to meet growing consumer interests in foreign countries. Today, Disney has their worldwide known amusement parks in three different continents, stores in United States, United Kingdom, France, Italy, Spain and Portugal.
In addition, they have licensed shops and products all over the world. They are using the strategy of Foreign Outsourcing to meet the company’s growing demands and at the same time, keep costs down. With the company’s foreign markets, they are adapting well in other countries because they are adopting many of the local customs, while maintaining Disney’s American flavor. In addition, the company will continue to follow the rules and regulations of the foreign countries where they build businesses. This expense is one that Disney has included as a necessary one. Finally, a plan Disney will continue is to build their strategies for reaching their global markets by following the standards of those countries and paying the taxes of those countries (The Walt Disney Company 2012).
Management Concerns or Risks (10K)
The management of the Disney Company acknowledges that a company has large as Disney could have several potential risk factors, and the company’s leadership identifies several of these concerns in their Annual Report and Shareholder Letter in September 2012.
Changing Global or Regional Economic Markets
One of the first concerns mentioned is the changing in global or regional economic markets could affect the profits of some of the Disney businesses. The company reported that during recent economic downturns, spending at the parks at decreased, as well as decreased spending on advertising. The company also noted a decrease in spending on Disney products. The Disney Company also noted that decreased attendance at the parks could also result from continued economic downturns. A change in energy costs could result in a decrease in spending on Disney products as well as an increase in costs for the company. Finally, foreign exchange units fluctuate, and these changes could result in a devalued U.S. dollar and increases in labor costs in foreign markets as well as markets at home.
Entertainment Tastes Subject to Change
Another risk noted by the Disney Company is that its markets are primarily entertainment, and this industry depends largely on the tastes of the public. Those preferences can change suddenly and without warning, causing a change in trends that could take the company by surprise. Since Disney markets many of its products outside the United States, the company’s success depends on the company being able to predict the tastes of consumers in other countries and adapt to these changing tastes and preferences. The company often invests heavily in hotels, entertainment, and other markets before knowing to what extent these investments will appeal to the consumers.
Dependence Upon Rapidly Changing Technology
In addition, the company’s success is highly dependent upon technology, which changes rapidly. The success of the Disney Company depends largely on how well the company expands, exploits, acquires, develops, and adopts these new technologies to distinguish the Disney products from their competitors. New technological developments may involve Disney products not yet fully developed or in some cases, products that do not yield a high return for the money it costs the company to invest. Therefore, the profits from these products may fluctuate widely.
Changing Laws Governing Intellectual Property
Laws governing the use of intellectual property, which compose a large amount of the Disney products, may change. Disney’s ability to have full legal authority to use intellectual property may be costly. Certain laws regarding the use of intellectual property can change or officials in some countries may not fully enforce these laws, in foreign countries. The company invests a considerable amount of company money in protecting Disney’s rights to the use of intellectual property. This protection may be more costly in foreign countries where the laws are weak or not defined clearly.
Expense of Electronically Stored Data Protection
Another concern of the Disney Company is that data stored electronically is subject to invasion, and the company spends a considerable amount of money to protect this data. This protection is essential because if the privacy of the company’s business or the employees’ privacy happen to be compromised, the results would be extremely costly; therefore, the company has a high expense in protecting this data.
Expense of Unforeseen Events
Other unforeseen events, natural disasters and seasonal changes, can result in excessive costs, and these expenses are from a variety of sources. The company cannot predict most of these events, especially those related to nature, such as hurricanes, tornadoes, floods, and other weather-related events. Besides the unexpected events of nature, seasonal changes affect the popularity of many of Disney’s events, especially the theme parks.
Cost of New Investments
In addition, many new investments are costly and do not yield a high rate of return, which we may not be able to expect ahead of time. Unpredicted turmoil in financial markets can cause a rise in the cost of borrowing, which would lead to a higher cost for operating our businesses, especially when we have to borrow money. Increased competition in all business areas require that we continue to provide the highest quality and attempt to offer a better quality product than our competitors. The competition may change rapidly, requiring that we compete with human resources, programming, and other resources to maintain the highest standard at the lowest cost.
Costs of Human Resources
Other substantial costs related to our employees, such as our contracts with media production companies, and changes in regulation, affect our businesses. For example, in terms of human resources, post-retirement medical costs continue to rise, and these costs can reduce our finances as we now have 166,000 employees worldwide. With regard to media production, we enter into long term contracts; however, when these contracts have to be renewed, we may not always be able to renew with favorable terms. If that happens, then we have to pay a price in costs when we renew the contracts. Finally, a number of regulations may change and appreciably affect the Disney Company. For example, FCC regulations govern television and radio broadcasting, environmental regulations affect a number of our businesses, and state and federal privacy regulations affect all aspects of our company.
Laws and Regulations in Foreign Countries
Changing laws and regulations in foreign countries and in the United States can affect the Disney Company. Foreign countries may impose any number of a variety of restrictions---trade restrictions, ownership restrictions, or currency exchange controls, any of which could affect the Disney Company. The company’s businesses in foreign countries is subject to the laws of those countries, and those may change at any time as the company may have to spend additional money to comply with that country’s regulations. In the United States, labor disputes involving any of the Disney employees could disrupt the operations of the company (Fiscal Year 2012 Annual Report and Shareholder Letter, 2012, pp. 17-22).
The Path Forward
Vision Statement of the Walt Disney Company has served it well. Most people take for granted that this giant is alive and well into the twenty-first century, and it continues to be a strong company. However, in recent years, the company financial statements have revealed some inconsistencies as regards to cash flows, margins, and gains on investments than most media organizations of similar size. In 2012, analysts at Caris downgraded Disney from a status of above average to a status of average. Some reasons for this downgrade include the opinion that has limited upside potential and that “it is fairly valued at $54.63, with their target price set at $55. However, the stock has risen 40% since the start of the year and is trading near $51 after recently reaching a 52-week high of $53.40” (Qineqt, 2012). One reason for the lower Disney revenues was the deferred affiliate fees for its cable TV networks, fees that will not be a cost factor now or again in the near future. The position of some analysts is that Disney’s diversification insulates the company from economic downturns (Qineqt, 2012).
The Disney Company’s fiscal reports for the first quarter of 2013 appear strong with a 5% increase in revenue, and multimedia networks were particularly strong with a revenue increase of 7% (Letter to Stockholders, 2012). The company generates revenue is balanced among its five business segments with the media network segment leading at 45.1% of the Disney revenue in 2010. The next highest revenue came from parks and resorts at 28.3%, and the next business segment was parks and studio entertainment (17.6%), consumer products (7%), and interactive media reported the lowest revenue percentage at 2.0% of the overall revenues. Since Disney reports a broad and diversified revenue base, that diversification protects the company to some degree from economic downturns that may hit one industry. In other words, Disney’s diversification of products and services protects the company---five business segments share the risks among themselves. (Marketing Mix, 2012).
The recent SWOT Analysis indicates that Disney must pay close attention to the potential threats that can inhibit the company’s continued growth and threaten its financial security. The Disney Company identifies these threats in its Fiscal Year 2012 Annual Report and Shareholder Letter.
Most predictions for the future destination of the Disney Company are positive ones. The Walt Disney Company’s Fiscal Year Annual Report and Shareholder Letter addressed the risk factors facing the media giant (2012, pp. 17-26). One of Disney’s strongest assets is its diversification. If the company continues to address potential threats to the company and remains focused on its mission and vision, which have served the company well for over 90 years, then the prospects for the future for the Walt Disney Company appear promising, and the future may be even more promising for the organization.