Question

Under CEO Robert Iger, Disney has followed an acquisition-led growth strategy. This corporate strategy turned Disney into a more diversified company. Revenue streams from its various activities (box office, home entertainment, theme parks, cable TV, toys, licensing, and so on) have become more stable and predictable. Being more diversified also allowed Disney to compensate more easily for losses from flops such as the sci-fi movie John Carter. Disney has also shown superior post-merger integration capabilities after acquiring Pixar, Marvel, and Lucas-film. Disney managed its new subsidiaries more like alliances rather than attempting full integration (which could have destroyed the unique value of the acquisitions). In Pixar’s case, Disney kept the entire creative team in place and allowed them to continue to work in Pixar’s headquarters near San Francisco with minimum interference. The hands-off approach paid huge dividends: Although Disney paid a steep $7.4 billion for Pixar, it made some $10 billion on Pixar’s Toy Story 3 franchise revenues alone. As a consequence, Disney has gained a competitive advantage over its rivals such as Sony, and has also outperformed the Dow Jones Industrial Average over the last few years by a wide margin.

There are clouds on the horizon, however. The media industry is being disrupted: People spend much less time and money watching movies on the large screen, and spend more time consuming content online via You-Tube, Netflix, Hulu, and other streaming services. The only large-screen movies that have done well recently are sequels in existing franchises such as Sony’s Skyfall, the 23rd installment in the James Bond saga, Warner Bros.’ Batman sequel The Dark Knight Rises, and Disney’s own sequels in the Pixar and Marvel brands. Soon Disney will be adding the next installment in the Star Wars trilogy.

4. What effects do you expect from the continued disruption of the media industry on Disney? How should Disney respond?

5. Alliances and acquisitions can sometimes lead to less access or higher prices for consumers. Com-cast bought NBC Universal (from GE). When one content provider and the Internet access provider are the same, will this lead to some content being favored over others on the Internet? For example, will Comcast want to send Universal movies (which it owns) with faster download capabilities than it sends, say, a Harry Potter movie from Warner Brothers (which it doesn’t own)? If you were a Comcast executive, would you want to favor the speed of your own content delivery versus other content providers, including Netflix?[4]

Answer 1

Answer 4:

The effect that I expect from the continued disruption of the media industry on Disney is the immense loss in market share. Other than this, this disruption of the media industry can hammer Disney’s brand image that is developed in long duration.

Disney should respond by participating in the disruption. In this way Disney can save its brand image and be on winning side rather than losing. In this way Disney can gain huge market share.

Answer 5:

I believe that even if one content provider and the Internet access provider are the same, this must not lead to some content being favoured over others on the Internet. The reason I believe so is that there are codes of honours and codes of ethics in every company. However, in changing business environment where competition is intense and ethics are practiced only on papers, it depends on the leaders what decision they make.

However, if I were a Comcast executive, I would not want to favor the speed of my own content delivery versus other content providers, including Netflix , because I strongly believe in ethics, values and morality and I will never take a decision that is not justified ethically.