STRATEGIC MANAGEMENTEVALUATING DIVERSIFICATION AT

DISNEY

Michael Tjowari

01120120061

UNIVERSITAS PELITA HARAPAN

LIPPO KARAWACI

TANGERANG

2015

DIVERSIFICATIONDiversification talks about degree to which a firm conducts business in

more than on arena. Diversification is a corporate strategy to enter into a newmarket or industry which the business is not currently in, whilst also creating a newproduct for that new market. This is most risky section of the Ansoff's matrix, as thebusiness has no experience in the new market and does not know if the product isgoing to be successful.

The notion ofdiversification dependson the subjectiveinterpretation of “new”market and “new”product, which shouldreflect the perceptionsof customers ratherthan managers. Indeed,products tend to create or stimulate new markets; new markets promote productinnovation.

Product diversification involves addition of new products to existing products eitherbeing manufactured or being marketed. Expansion of the existingproduct line with related products is one such method adopted bymany businesses. Adding tooth brushes to tooth paste or toothpowders or mouthwash under the same brand or under differentbrands aimed at different segments is one way of diversification.These are either brand extensions or product extensions toincrease the volume of sales and the number of customers.

Type of Diversification1. Vertical integration: diversification into upstream and/or downstreamindustries2. Conglomerate: corporation consisting of many companies in differentbusinesses or industries3. Portfolio planning: practice of mapping diversified businesses or productsbased on their relative strengths and market attractiveness.

Company Profile

The Walt Disney Company, commonly known as Disney, is an Americandiversified multinational mass media corporation headquartered at the WaltDisney Studios in Burbank, California. It is the world's secondlargest broadcasting and cable company in terms of revenue,after Comcast. Disney was founded on October 16, 1923, by Walt Disney andRoy O. Disney as the Disney Brothers Cartoon Studio, and established itselfas a leader in the American animation industry before diversifying into live-action film production, television, and theme parks. The company alsooperated under the names The Walt Disney Studio, then Walt DisneyProductions. Taking on its current name in 1986, it expanded its existingoperations and also started divisions focused upon theater, radio, music,publishing, and online media. In addition, Disney has since created corporatedivisions in order to market more mature content than is typically associatedwith its flagship family-oriented brands. The company is best known for theproducts of its film studio, the Walt Disney Studios, which is today one ofthe large st and best-known studios in American cinema. Disney alsoowns and operates the ABC broadcast television network;

cable television networks such as DisneyChannel, ESPN, A+E Networks, and ABC Family;publishing, merchandising, music, and theatre

divisions; and owns and licenses 14 theme parksaround the world. The company has been a

component of the Dow Jones IndustrialAverage since May 6, 1991. An early and

well- known cartoon creation of thecompany, Mickey Mouse, is a primary symbol

of The Walt Disney Company.

In early 1923, Kansas City, Missouri, animatorWalt Disney created a short film

entitled Alice's Wonderland, which featured childactress Virginia Davis interacting with animated characters. After thebankruptcy in 1923 of his previous firm, Laugh-O-Gram Films, Disney movedto Hollywood to join his brother, Roy O. Disney. Film distributor Margaret J.Winkler of M.J. Winkler Productions contacted Disney with plans to distributea whole series of Alice Comedies purchased for $1,500 per reel with Disneyas a production partner. Walt and Roy Disney formed Disney BrothersCartoon Studio that same year. More animated films followed after Alice. InJanuary 1926, with the completion of the Disney studio on Hyperion Street,the Disney Brothers Studio's name was changed to the Walt Disney Studio.

After the demise of the Alice comedies, Disney developed an all-cartoonseries starring his first original character, Oswald the Lucky Rabbit, whichwas distributed by Winkler Pictures through Universal Pictures. The

distributor owned Oswald, so Disney only made a few hundred dollars.Disney completed 26 Oswald shorts before losing the contract in February1928, when Winkler's husband Charles Mintz took over their distributioncompany. After failing to take over the Disney Studio, Mintz hired away fourof Disney's primary animators (the exception being Ub Iwerks) to start hisown animation studio, Snappy Comedies.

Deciding to push the boundaries ofanimation even further, Disneybegan production of his first feature-length animated film in 1934. Takingthree years to complete, SnowWhite and the Seven Dwarfs,premiered in December 1937 andbecame highest-grossing film of thattime by 1939. Snow White wasreleased through RKO Radio Pictures,which had assumed distribution ofDisney's product in July 1937, after United Artists attempted to attain futuretelevision rights to the Disney shorts.

Using the profits from Snow White, Disney financedthe construction of a new 51-acre (210,000 m2)studio complex in Burbank, California. The new WaltDisney Studios, in which the company isheadquartered to this day, was completed and openfor business by the end of 1939. The following year

on April 2, Walt Disney Productions had its initial publicoffering.

The studio continued releasing animated shorts and features,such as Pinocchio (1940), Fantasia (1940), Dumbo (1941), and Bambi (1942).[4] After World War II began, box-office profits declined. When the UnitedStates entered the war after the attack on Pearl Harbor, many of Disney'sanimators were drafted into the armed forces. The U.S. and Canadiangovernments commissioned the studio to produce training and propagandafilms. By 1942 90% of its 550 employees were working on war-relatedfilms. Films such as the feature Victory Through Air Power and theshort Education for Death (both 1943) were meant to increase public supportfor the war effort. Even the studio's characters joined the effort, as DonaldDuck appeared in a number of comical propaganda shorts, including theAcademy Award-winning Der Fuehrer's Face (1943).

In 1954, Walt Disney used his Disneyland series to unveil what wouldbecome Disneyland, an idea conceived out of a desire for a place whereparents and children could both have fun at the same time. On July 18, 1955,

Walt Disney opened Disneyland to the general public. On July 17, 1955,Disneyland was previewed with a live television broadcast hosted by Art Linkletter and Ronald Reagan. After a shaky start, Disneyland continued to growand attract visitors from across the country and around the world. A majorexpansion in 1959 included the addition of America's first monorail system.

For the 1964 New York World's Fair, Disney prepared four separateattractions for various sponsors, each of which would find its way toDisneyland in one form or another. During this time, Walt Disney was alsosecretly scouting out new sites for a second Disney theme park. In November1965, "Disney World" was announced, with plans for theme parks, hotels,and even a model city on thousands of acres of land purchased outsideof Orlando, Florida.

Disney continued to focus itstalents on television throughout

the 1950s. Its weekdayafternoon children's televisionprogram The Mickey MouseClub, featuring its roster ofyoung "Mouseketeers",premiered in 1955 to greatsuccess, as did the DavyCrockett miniseries,starring Fess Parker andbroadcast ontheDisneyland anthology

show. Two years later, the Zorro series would prove just as popular, runningfor two seasons on ABC. Despite such success, Walt Disney Productionsinvested little into television ventures in the 1960s, with the exception of thelong-running anthology series, later known as The Wonderful World ofDisney.

Disney's film studios stayed busy as well. Averaging five or six releases peryear during this period. While the production of shorts slowed significantlyduring the 1950s and 1960s, the studio released a number of popularanimated features, like Lady and the Tramp (1955), Sleeping Beauty (1959)and One Hundred and One Dalmatians (1961), which introduced anew xerography process to transfer the drawings to animation cels. Disney'slive-action releases were spread across a number of genres, includinghistorical fiction (Johnny Tremain, 1957), adaptations of children's books(Pollyanna, 1960) and modern-day comedies (The Shaggy Dog, 1959).Disney's most successful film of the 1960s was a live action/animatedmusical adaptation of Mary Poppins, which was one of the all time highestgrossing movies[4] and received five Academy Awards, including BestActress for Julie Andrews.

The theme park design andarchitectural group became sointegral to the Disney studio'soperations that the studiobought it on February 5, 1965,along with the WEDEnterprises name.

On July 8, 2005, Walt Disney'snephew, Roy E. Disney returnedto The Walt Disney Company asa consultant and with the newtitle of Non Voting Director,Emeritus. Walt Disney Parks andResorts celebrated the 50thanniversary of Disneyland Park on July17, and opened Hong KongDisneyland on September 12. WaltDisney Feature Animation releasedChicken Little, the company's first filmusing 3-D animation. On October1, Bob Iger replaced Michael Eisner asCEO. Miramax co-founders BobWeinstein and Harvey Weinstein alsodeparted the company to form their own studio. On July 25, 2005, Disneyannounced that it was closing Disney Toon Studios Australia in October 2006,after 17 years of existence.

In 2006, Disney acquired Oswald the Lucky Rabbit, Disney’s pre-Mickey silentanimation star. Aware that Disney's relationship with Pixar was wearing thin,President and CEO Robert Iger began negotiations with leadership of PixarAnimation Studios, Steve Jobs and Ed Catmull, regarding possible merger. OnJanuary 23, 2006, it was announced that Disney would purchase Pixar in anall-stock transaction worth $7.4 billion. The deal was finalized on May 5; andamong noteworthy results was the transition of Pixar's CEO and 50.1%shareholder, Steve Jobs, becoming Disney's largest individual shareholder at7% and a member of Disney's Board of Directors. Ed Catmull took over asPresident of Pixar Animation Studios. Former Executive Vice-President ofPixar, John Lasseter, became Chief Creative Officer of Walt Disney AnimationStudios, its division DisneyToon Studios, and Pixar Animation Studios, as wellassuming the role of Principal Creative Advisor at Walt Disney Imagineering.

In April 2007, the Muppets HoldingCompany, LLC was renamed The MuppetsStudio and placed under new leadership inan effort by Iger to re-brand the division. There-branding was completed in September2008, when control of The Muppets Studiowas transferred from Disney ConsumerProducts to the Walt Disney Studios.

After a long time working in the company asa senior executive and large shareholder,Director Emeritus Roy E. Disney died fromstomach cancer on December 16, 2009. Atthe time of his death, he owned roughly 1%of all of Disney which amounted to 16 millionshares. He is seen to be the last member ofthe Disney family to be actively involved inthe running of the company and working inthe company altogether.

On August 31, 2009, Disney announced adeal to acquire Marvel Entertainment, Inc.for $4.24 billion. The deal was finalized onDecember 31, 2009 in which Disneyacquired full ownership on thecompany. Disney has stated that theiracquisition of Marvel Entertainment will notaffect Marvel's products, neither will thenature of any Marvel characters betransformed.

In October 2009, Disney Channel president Rich Ross, hired by Iger,replaced Dick Cook as chairman of the company and, in November, beganrestructuring the company to focus more on family friendly products. Later inJanuary 2010, Disney decided to shut down Miramax after downsizingTouchstone, but one month later, they instead began selling the Miramaxbrand and its 700-title film library to Filmyard Holdings. On March12, ImageMovers Digital, Robert Zemeckis's company which Disney hadbought in 2007, was shut down. In April 2010, Lyric Street, Disney's countrymusic label in Nashville, was shut down. In May 2010, the company soldthe Power Rangers brand, as well as its 700-episode library, back to HaimSaban. In June, the company canceled Jerry Bruckheimer's film project KillingRommel. In January 2011, Disney Interactive Studios was downsized. InNovember, two ABC stations were sold.[41] With the release of Tangled in2010, Ed Catmull said that the "princess" genre of films was taking a hiatusuntil "someone has a fresh take on it … but we don't have any other musicals

or fairytales lined up." He explained that they were looking to get away fromthe princess era due to the changes in audience composition andpreference. However in the Facebook page, Ed Catmull stated that this wasjust a rumor.

In April 2011, Disney broke ground on Shanghai Disney Resort. Costing $4.4billion, the resort is slated to open in 2015. Later, in August 2011, Bob Igerstated on a conference call that after the success ofthe Pixar and Marvel purchases, he and the Walt Disney Company arelooking to "buy either new characters or businesses that are capable ofcreating great characters and great stories." Later, in early February 2012,Disney completed its acquisition of UTV Software Communications,expanding their market further into India and Asia.

On October 30, 2012, Disneyannounced plans toacquire Lucasfilm, along withplans to produce a seventhinstalment in its StarWars franchise for 2015. OnDecember 4, 2012, the Disney-Lucasfilm merger was approvedby the Federal Trade Commission,allowing the acquisition to be

finalized without dealing with antitrust problems. On December 21,2012, the deal was completed with the acquisition value amounting toapproximately $4.06 billion, and thus Lucasfilm became a wholly ownedsubsidiary of Disney (which coincidentally reunited Lucasfilm under the samecorporate umbrella with its former spin-off and new sibling, Pixar).

One of the reasons why Disney has a reputation of delivering a seamless"magical" experience to its guests in all of its operations - theme parks,hotels, restaurants, retail stores, etc. - is because it has one overriding visionand mission for all of its business operations.

"The mission of The Walt Disney Company is to be one of the world's leadingproducers and providers of entertainment and information. Using ourportfolio of brands to differentiate our content, services and consumerproducts, we seek to develop the most creative, innovative and profitableentertainment experiences and related products in the world.

DISNEY’S BUSINESS SEGMENTSThe Walt Disney Company, together with its subsidiaries and affiliates, is a leadingdiversified and international family entertainment and media enterprise with five

business segments : media networks, parks and resorts, studio entertainment,consumer products and interactive media.

1. Media NetworksMedia Networks comprise a vast array of broadcast, cable, radio, publishingand digital businesses across two divisions, the Disney Group and ESPN Inc.The Disney Group is composed of The Walt Disney Company’s globalentertainment and news television properties, owned television stationsgroup and radio business.

2. Park and ResortsWalt Disney Parksand Resorts is one ofthe world’s leadingproviders of familytravel and leisureexperiences, givingmillions of guestseach year the chanceto spend time withtheir families andfriends, makingmemories that last alifetime.

3. Studio EntertainmentThe Studio Entertainment segment produces andacquires live-action and animated motion pictures,direct-to-video content, musical recordings, and livestage plays.

4. Disney Consumer Products Disney Consumer Products is the business segment of The Walt DisneyCompany and its affiliates that delivers innovative and engaging productexperiences across thousands of categories from toys and apparel to books

and fine art. Disney Publishing Worldwide (DPW) is the publisher of children'sbooks, magazines, and digital products.

5. Disney InteractiveDisney Interactive is a high-quality interactiveentertainment across allcurrent and emergingdigital media platforms.Products and contentreleased and operated byDisney Interactive includeblockbuster mobile andconsole games, and onlinevirtual worlds.

DIVERSIFICATION AT DISNEY

Entertainment and media conglomerate The Walt Disney Company hasmuch more than just animated films. One of Disney'smain strengths is its diverse group of incomestreams. By creating highly diversifiedoperating segments, the company has set itselfup for growth and opportunities for years tocome while facing less risk from a singlesegment declining.

The company's operations include fivesegments: media (involving movie production, ESPN Network, DisneyChannel, ABC Family, and others), parks and resorts (including theme parksand the Disney cruise line), studio entertainment (such as liveperformances), consumer products (including licensing), and interactive(involving all gaming).

Of Disney's $45.05 billion global revenue in 2013, only half came from thecompany's most well-known segment, media. This revenue diversificationmeans that Disney faces less risk because of an economic or competitivefactor that decreases revenue for a single segment, and results in morechances to expand in multiple markets.

Analyzing the segmentsMedia accounts for 49% of Disney's operating portfolio, which has come in part from the

company owning and growing diversified media

networks. For instance,

Disney purchased ESPN

(the

sports network, a big diversification from the classic Disney style of children and family entertainment) and Lucas Films in the last few years. With the purchase of Lucas Films, Disney is now taking advantage of the rights by creating a new TV series based on the popular Star Wars movies that is likelyto bring a large revenue stream to the company over the next few years.

Parks and resorts is the next-largest segment for Disney, and one that hasshown to be a great profit booster for the company. The company reported a7% overall revenue increase for 2013 year-over-year, while the parks andresorts segment reported a 9% gain individually. Part of this success comesfrom the company's ability to keep bringing families to the Disneyland andDisneyworld resorts, both in the U.S. and abroad.

Another highlight is the company's cruise line segment. The cruise industryhas seen massive growth over the last few years, with a market of 20.3million cruisers in 2013 alone. Disney is taking part in this growth, and withtravelers making arrangements sometimes as much as a year in advancejust to get their preferred spots on Disney cruises, it's clear that demand ishigh. In the 2013 earnings release call, CEO Iger talked about this growingdemand and said that, while the company isn't planning to build a new shipyet, it is continuing to increase routes and itineraries throughout the year toallow for more passengers.

Interactive is the one area in which Disney has not seen growth in 2013, andthe only segment reporting a loss in 2013 at $87 million. The loss was steadythroughout the year as few games were released, and the one sub-segmentof growth came from Japanese mobile gaming. A little help came from therelease of Disney Infinity, a console game, in August. However, the companyis planning to release Fantasia: Music Evolved, another console game, thisyear. This should bring a revenue payoff after Disney incurred an expense in2013 for developing the game. The interactive segment exemplifies howDisney's diversification works to decrease its risk. Even though this segmentdropped in 2013, the company as a whole was not majorly affected thanks toits four other strong segments. Whether or not Disney is able to turn thissegment around will be something to watch in 2014, but that should not turninvestors away from this stock.

Disney is by far the largest player in the industry by revenue and marketcap, nearly twice as large as the next-largest company, Time Warner . Theother competitors in the industry include Twenty-First Century Fox ,and DreamWorks Animation .

Company Name Revenues(ttm)

Market Cap.

P/EMultipl

e

SharePrice

The Walt Disney Co. $45.05 B $127.6 B 21.48 $72.61

Time Warner $29.39 B $56.84 B 15.31 $62.83

Twenty-First Century Fox $28.73 B $72.16 B 12.11 $31.24

DreamWorks $767.29 M $2.83 B N/A* $33.74

While Disney may seem to be the highest priced option based onP/E multiples, consider the growth that accompanies this price. Disney wasable to produce revenue growth of over 7% in 2013, which compares to 0.2%for Time Warner and -17% for Dreamworks. Or consider the broad amount ofrevenue streams this price buys investors. The risk that is mitigated forDisney with its five separate segments is something that Twenty-FirstCentury Fox will not be able to replicate with only two distinct segments,media and satellite broadcasting (though the company does have plans tobuild its first theme park in Malaysia in the coming years). Should aneconomic shift happen within the media segment, such as competition fromChina perhaps, Twenty-First Century Fox will face a much more challenginglandscape in regard to steady revenue.

Disney’s diversification didn’t start today. In 1928, its first cartoon wasreleased. One year later, it licensed a pencil tablet, then the Mickey MousClub (MMC) was formed as a vehicle for selling Disney’s products under oneroof. Within a short time, the membership of the club grew to 1millionmembers. In 1949, the company diversified into music was was even said tohave produced training and educational films during the war. Diversificationproduces synergy. Diversification strenghtens the existing business and theentire new business created. According to Strickland et al (2010),Diversification can be related or unrelated. It is related if the activities of thebusinesses complement those of the firm’s present business in a way thatincreases or adds to the competitive advantage. In order words, relateddiversification leads to strategic fit which itself creates opportunities.Opportunities to

a) Transfer technological know-how (that are competitively valuable) fromone business to another.b) Lower cost by combining the performance of common value chainactivitiesc) Leverage or exploit use of a well known brandd) Get valuable resource strength and capabilities across business

But if the businesses being diversified into have no competitive and valuablevalue chain that fits with the value chain of the present businesses,then the diversification is said to be unrelated as there isno strategic fit.Walt Disney understood the interrelation of new

industries to each other right from thebeginning, something that continues to be

the source of competitive advantage to thecompany till today. Encapsulated in the ‘Magic of Disney’, the story goesthus.Family take a trip to Disney, book into a hotel (owned by Disney) inside thepark.While in the park, the family eats at Disney-owned restaurants, buy Disneymerchandise. It doesn’t matter that they are paying higher foraccommodation and meals compared to other hotels.

Children meet the Disney characterseverywhere in the park which leaves a longlasting emotional experience. The childrenand their parents end up buying videos,books, TV broadcast which they take homewith them. All of these make them lookforward to another visit to the Disney andthe circle continues. The integration of thesecomplementary businesses is the ‘Magic ofDisney’.Ever since, Disney has expanded itsoperations to cover theatre, radio,publishing, online media etc. Until the early1980’s Disney focused on the familycreating entertainment for the home and thefamily. As a result, they were clearlydifferentiated in the market from theircompetitors. All of that was to changearound 1984 when Michael Eisner took overas CEO. Like Walt Disney, Eisner was aninnovative and intuitive leader and his era marked a turning point for thecompany that was hemorrhaging for cash and that soon became the targetof takeover by several companies.Eisner’s goal was to evolve a company that would grow by 20% a year. Toachieve this, Eisner followed these three principles which include keeping itscost down so it doesn’t erode its profit, operate the core business in aprofitable manner and find new businesses that could integrate with Disneyand guarantee an annual growth rate of 20% for the company (1). To achievea 20% growth rate, the business had to diversify, exploring synergies in newindustries, and overseas expansion. Overseas expansion is inevitable whenthe local domestic market has reached a near saturation point.

Some of the early businesses Einser was to add to Disney’s portfolio includethe Disney Store, Euro Disneyland and the purchase of KHJ-TV, Disney’s firstbroadcasting outlet. Also, the company established a major televisionpresence and increased the number of films released from 2 in 1984 to 15-18yearly.

Disney’s expansion anddiversification efforts wasdriven purely by theneed to attain aneconomy of scope thatwill give it the desiredmarket dominance aswell as the economies ofscale to bring down itscost of business. Itpursued this strategy

throughout the 90’using a combination of

diversification intoareas that were a natural extension oftheir current business as well as such other areas where they had lesssynergy but obviously had found potential opportunities. Both of these led tothe birth of Disney Cruises, Pleasure Island and the incorporation of themepark management into its business model.

Despite the huge successes recorded, it was questionable whether thediversification into some market or acquisition strategies pursued with somecompanies such as ABC actually enhanced the shareholders’ value. Thepresumption is that when two companies who are leaders in slightly differentfields combine, both would be better off by the synergy created between twoof them. But Disney and ABC are both leaders in providing entertainmentand both with extensive networks in creativity and production . When firmscannot leverage on their strengths following an alliance, then they stand therisk of diluting their brand to a point where they will not be able to make theprofits necessary to return good value to their shareholders.

Today Disney has grown beyond the traditional amusement parks, movies,television shows, clubs, or books business. Its stable of businesses includeDisney Cruise Line, Resort Properties, Radio Broadcasting, MusicalRecordings and sale of animation art, Anaheim Mighty Ducks NHL franchise,Interactive software and internet site, etc. Whether these businesses arerelated or unrelated to Disney’s core business is not an issue as long as itproduces synergy that strengthens Disney’s position in the market andcreates value for its shareholders. Throughout its history, Disney has, withminor exceptions, shown the true value to shareholders created by synergiesfrom thoughtful diversification . The company’s corporate strategy identifiesthe fact that while Disney may have some ‘magical’ products (its coreproducts), its strength is not in the products themselves, but instead in theway in which they interrelate and complement each other.

Disney’s diversification efforts further increased the ‘magic’ of Disney.Television advertised the movies, which advertised the hard-goods and whichadvertised the television shows. So instead of paying to advertise Disney’sproducts, people were charged to be exposed to advertisement.

When you consider its portfolio of businesses, it will be right to say thatDisney has pursued a combination of related and unrelated diversification.Take for instance Resort properties. That is real estate. But Disney has usedthis to make its customer live out the Disney experience right on Disney’sproperties as opposed to going to a third party environment to watch DisneyMovies or lodged in a different hotel and visiting Disney park.

The Result:

Is the diversification strategy working for Disney? The simple answer is thatthe numbers are there as proof. Since the coming of Eisner, revenues grewfrom $1.6 billion in 1984 to $2.9billion in 1987 largely as the result of thepursuit of diversification as a strategy for growth. One of Eisner’s greatestachievement was how he placed creativity as Disney’s most valuable assetand supported this as a leader to get the best out of his core innovationteam

THE INDUSTRY’S FIVE FORCES SCORE

• Threat of New Entrants (and Entry Barriers)It takes significant investment to enter the market.

Threats of new entry is medium because there are many industriesas competitors. Like today, there are some entertainment park offerthe same service and product like Disney , such as Universal Studio,Dunia Fantasi and Everland. But we have to look again, that they arenot easily to enter the market. It has high capital requirements. Theyneed a big effort to attract the attention of the visitor. As we know,Disney dominates the market , it already has their brand names andcustomer loyalty. Besides, Disney got the biggest revenue among itsrivalry (Merlin Entertainment Group, Six Flags, Parque Reunidos) at2010.

• Bargaining Power of BuyersBargaining power of

buyers is low. They involvecustomer into several segments oftarget market, so they can fit ineasily. The customers are alsoinfluences by the productdesign, brand strategy and also theprice. Walt Disney know how totreat the customers in eachsegments. Buyers are endconsumers. Their power will keeplow as prices are controlled by theme parks.

• Bargaining Power of SuppliersSuppliers include equipment manufacturers, construction

companies and vendors. Bargaining power of suppliers is still mediumbecause there are a lot of different revenue streams, so it will highlycost to change the suppliers continuously. Especially thetechnology is capital intensive and require support and maintenance.Whereas the bargaining power of suppliers of food, toys and clothingvendors are low.

• Threat of SubstitutesThreat of substitutes for Walt Disney is very low.

Substitutes such as museums and zoos do not match the theme parkexperience. In addition, media networks also do not match anything tobe changed. Everyone loves watching television. But the threat ofsubstitutes of Disney Interactive is high because video games is easilyto change with other toys such as monopoly, ludo, etc. StudioEntertainment is the most creative place which is highly to search thesubstitute for it.

• Degree of RivalryRivalry among existing firms is few but they are large

players such as Universal Studio and Merlin Group (LegoLand,Madamme Tussauds,etc). They have same segments in parks andresorts. Warner Bross and Picture Inc. also compete with MediaNetworks of Disney, even Disney Channel has lower ranking thanWarner Bross. Besides that, there is DOTA which is the most demandvideo games nowadays compare to Disney Interactive

Competitive Advantage of Disney

1. Great brand identity It gives Disney's parks an edge over its

competitors. Its ESPN business similarly enjoys abrand moat and has few competitors. Best of breedbrands are a huge advantage.

2. Talented and committed management teamDisney has a talented and committed management team, with "skinin the game," and that is an advantage.

3. Economic of scaleDisney has a media network and studio entertainment for movie making.