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The Walt Disney Company’s Strategy in Context Case Study

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Updated: Jul 10th, 2021

Introduction

The case study selected for the investigation of strategic management and planning is devoted to the Walt Disney Company. It is one of the leading mass-media and entertainment corporations with the central office in the Walt Disney Studios in Burbank, California (Cieply, 2012). At the moment, it is considered the world’s largest conglomerate that is focused on the production of movies, cartoons, and entertaining products such as theme parks that are popular among the population globally. It is an American company headed by its president, Robert Iger who is considered a successful CEO because of a number of effective solutions contributing to the development of the company and it’s becoming a leader in the selected market segment (The Walt Disney Company announces, 2018). The company also owns other famous franchises and studios such as 21st Century Fox which contributes to the generation of the competitive advantage and significant empowerment of the corporation.

Decision

The decision that is discussed in terms of this case is the purchase of Lucasfilm for $4 billion by Disney. The given strategic solution became a surprise for the media world because of the popularity of the legendary Star Wars franchise and multiple opportunities related to its possible utilization to create new products such as movies, theme parks, or cartoons (Cieply, 2012). Despite stakeholders’ fears associated with this deal and high risks, the decision turned out successful because of the stable revenue generated due to the licensing agreements, sales of merchandise apparel, toys, and more than $4,8 billion income at the box office (Cowley, 2012). It also improved Disney’s position in the market providing new ways to evolve and broadening the target audience. For this reason, this purchase is selected for discussion and in-depth analysis.

In such a way, the deal between Lucasfilm and Disney is taken as the basis for the provided case study. Being one of the leaders in the market segment devoted to entertainment and movie making, Disney accepted the decision to buy the famous franchise regardless of the potential risks and possible negative attitudes from fans. The positive effect of this strategic move provided the corporation with new opportunities for its development and growth via the distribution of products associated with the Star Wars brand. Analysis of this decision will help to acquire an improved understanding of how strategic planning was impacted by internal and external factors and what aspects were considered by CEOs.

Structure

The following case study has a particular structure that contributes to a better comprehension of the discussed issue. There is the introduction of the central actors who planned the strategic decision and its details. This part is followed by the detailed evaluation of external and internal factors impacting this step with the application of stakeholder theory. Furthermore, the power of rivals and ideological constructs is investigated to determine the degree to which they preconditioned the change. The value created due to the given move is also analyzed. Finally, there is a conclusion summarising all meaningful details and discussing the importance of strategic management.

Analysis

When it Happened

October 30, 2012, Disney announced that it would buy Lucasfilm company and rights for a famous franchise Star Wards. The established price of the deal was $4,05 billion in cash and stock which became one of the most significant agreements in the world of cinema (Baidawi, 2016). The given news became astonishing for the business sector because it signalized the new era of Star Wars and the Disney conglomerate. Today, specialists consider the purchase one of the smartest acquisitions ever made in the corporate world of America because of its critical impact on the market and companies’ position in it (Baidawi, 2016). However, the given solution was not spontaneous as it was preceded by complex negotiations both between Lucasfilm and Disney’s CEOs and within these very companies. The high price along with the existence of numerous complications associated with the utilization of the franchise stipulated significant risks.

Key People

Robert Iger, Disney’s CEO, insisted on the given strategic decision as one of the possible ways to improve the state of the company and create the basis for its further evolution. One of the main elements of his strategy was the focus on significant acquisitions and exploration of the well-known franchises to return Disney to its leading positions and reconsider the functioning of the corporation (Whitten, 2018). Since his appointment in 2005, Iger has adhered to a particular strategy that presupposes the acquisition of powerful and recognizable trademarks that will be able to diversify products offered by Disney and increase income (Harmanci, 2012). For this reason, Pixar’s purchase became the first significant deal offered by Iger regarding the suggested course. It became a successful strategic decision as the corporation earned about $1 billion for Toy Story 3 (Baidawi, 2016). The positive outcomes associated with this solution make the discussed deal possible as the acquisition of Lucasfilm was expected to contribute to the corporation’s growth.

Preliminary Work

At the same time, the complexity and large scope of the problem meant that the company’s CEO had to consider all possible options for analyzing both the advantages and disadvantages of the given strategic decision. For this reason, before October 2012, the analysis of the market situation, external and internal factors was performed with the primary aim to determine if the company can afford this deal and utilize the franchise effectively (Goldsby & Mathews, 2018). Another problem was to keep the agreement secret to avoid interference of rivals or the negative impact of the important financial information’s disclosure. For this reason, by the end of June 2012, the company managed to accumulate $4,4 billion in cash and short-term investments to make the deal, which helped to benefit from this strategic decision and overcome the closest rivals (Krantz, Sinder, Cava, & Alexander, 2012).

In such a way, it was a planned decision that demanded the utilization of all resources available for Disney at that moment. Moreover, Iger and Lucas’s participation was critical as they both represented their companies and acted regarding the existing interests and goals. Due to the effective negotiation and cooperation, The Walt Disney Company managed to acquire Lucasfilm, one of the most recognizable brands of the modern entertainment industry which significantly contributed to the further evolution of the conglomerate.

Impacting Factors

The scope of the given strategic decision means that there was a set of factors impacting the company at that period of time and preconditioning the emerging need for this step. These include both internal and external aspects that have an essential impact on the development and functioning of the organization (Kotler & Armstrong, 2015). The roots of this strategic decision can be found analyzing all forces that are relevant and unique features of Disney’s problems or strategic planning (McPhail, 2014). For this reason, the strategy utilized by the corporation while buying the rights for using the famous franchise comes from the existing issues and problems that should be solved or improved to achieve success and contribute to the further evolution of the conglomerate.

External

Cogitating about the purchase of Lucasfilm, it is critical to understand external factors that preconditioned this decision. First of all, Disney had to struggle against the closest rivals such as Sony, CBS, and Comcast who mainly provided products for TV, cable, DVD, video games, and Internet markets (Segal, 2018). Their position was strong due to brands’ unique peculiarities, Disney had no alternative products that would be able to compete with these. For this reason, the focus on making content resting on the popular franchise was made. Previously, Marvel studio was bought by Disney as one of the ways to introduce new heroes and attract a wide public audience. Lucasfilm became another brand bought because of the growing pressure of rivals.

The stable popularity of Star Wars and the growing interest in a new movie about this Universe became another factor that impacted this strategic decision. Correctly realizing the tendency towards the increasing attention to fantastic movies and superheroes, Disney decided to relaunch one of the most successful franchises in history. This factor had an essential impact on decision-making because of the opportunity to generate high income and acquire a competitive advantage (Sylt, 2018). Moreover, the target audience of Star Wars had a high level of expectations because of multiple rumors about the creation of a new episode of a famous movie which contributed to the high box office sales.

Finally, another significant external factor that preconditioned the given decision was George Lucas’s readiness to sell the brand. Analyzing the market and the functioning of the most important actors, Disney concluded that Lucasfilm experiences a period of stagnation because of the lack of new products and the impossibility to engage in competition (McLauchlin, 2015). For this reason, negotiations were successful, and parties managed to come to an agreement. George Lucas was provided with high compensation while Disney became able to make products belonging to the Star Wards universe.

Internal

Nevertheless, there are also internal factors impacting decision-making and this strategic step. Regardless of visible successes and the company’s value of $180 billion, there was a set of internal problems. First of all, its televised sports network ESPN failed and lost about seven million subscribers which can be considered a significant problem for the company (Cowley, 2012). Additionally, shares of the corporation fell more than 9% which also became a great disappointment for the company (McLauchlin, 2015). The combination of these factors evidenced the existence of a need for the introduction of an effective solution that would help to improve the situation and make the position of Disney stronger. The company’s CEO, Robert Iger, also correctly realized the danger of the given situation because of the possibility to lose leadership in the sphere and connection with the target audience because of the inability to follow the popular trends (McLauchlin, 2015). For this reason, the purchase can be considered regarding the reconsideration of Disney’s functioning and attempts to select a new course that would satisfy the new demands.

Another internal problem that preconditioned the purchase of Lucasfilm was a limited diversity of products and demographics affected by Disney’s products. In the last two decades, the corporation has been successful at creating material for children (Russel, 2012). Disney princesses and fairies were popular among girls while some other characters such as Pixar’s cars inspired boys. However, there was a critical need to extend the target audience to attract male and female consumers of all ages. Acquisition of Marvel was the first step to achieve this goal, but having bought Lucasfilm, Disney created the basis for capturing new market segments characterized by a broad sweep of demographic appeal (Kober, 2017). That is why today Disney’s target population is characterized by the increased diversity as all people regardless of their age or sex are interested in Star Wars globally and wait for new movies or products labeled by the famous trademark.

The company’s CEO Robert Iger was also sure that to reacquire the leading positions, the company should create a new value. Speaking about Disney’s purchase of Lucasfilm, he outlined the necessity to ensure both the publicity and corporation’s employees the conglomerate can launch large scale projects that will attract public attention and alter the balance of power in the world of media and movies (The Walt Disney Company, 2018). For this reason, the deal promoted by Iger also resulted from the internal need for a new project that would serve as the stimuli for further improvement and achievement. The inclusion of Lucasfilm into the company’s structure also meant the emergence of new ideas due to the diversification of the staff composition and new CEOs who will be responsible for supporting the project and monitoring the state of the market.

Finally, the decision to buy Lucasfilm can also be explained by the necessity to create a new ideology and utilize it to overcome the closest rivals. The fact is that regardless of Disney’s leading positions at that moment, there was no clear understanding of how the company should evolve and what qualities cultivate. At the same time, the major competitors managed to create a successful concept that devoted significant attention and promoted as one of the factors guaranteeing better positions (Bondic, 2012). That is why, the strategic decision to make this deal can be a result of Iger’s attempts to create the atmosphere and ideology of exclusiveness as the conglomerate acquired the unique rights for the distribution of popular products and their utilization to interest the target audience, which can be considered a serious advantage resulting in a better position at the market.

Stakeholders’ Theory

In such a way, a set of factors mentioned above, both external and internal, shows that Disney’s strategic incentive to buy Lucasfilm was not spontaneous. It was preceded by the in-depth investigation of the market, main competitors, company’s main goals, and stakeholders’ interests. For this reason, the application of Stakeholders’ theory can help to understand the nature of this solution better. In accordance with this perspective, the functioning of any company and its decisions can be taken as a result of the impacts of all actors affecting its rise and evolution (Bernstein, 2015). In other words, the nature of all strategic solutions is preconditioned by the assemblage of current aspects associated with stakeholders and their needs (Freeman, Harrison, & Zyglidopoulos, 2018). The ground for the introduction of change lies in the necessity to satisfy their interests and contribute to the further development of the company.

Applying the model to the investigated case, the decision to purchase Lucasfilm comes from both internal and external stakeholders:

Internal Stakeholders External Stakeholders
Employees Suppliers
Society
Managers Disney Government
Owners Creditors
Shareholders
Customers

As it has already been mentioned, the impact of internal stakeholders such as the owners’ demand for increased income, managers’ need for the generation of new value and better functioning, and the necessity to provide employees with a new ideology that will help to promote the further rise became critical aspects preconditioning the solution (Duyne, 2016). At the same time, external shareholders’ impact such as the ability of creditors to provide the needed sum, customers’ interest in new products, and the tendency towards the alteration of the societal demands also contributed to the decision to buy a franchise.

Conclusion

Altogether, Disney’s decision to purchase Lucasfilm can be considered one of the most significant deals in the sphere of entertainment and media as the company acquired the rights for the production and distribution of products belonging to the Star Wars Universe. The investigation of the main aspects preconditioning this change and application of the stakeholders’ theory shows that the deal was made because of the need for the further expansion, diversification of products, and such factors as a high level of rivalry, the decrease of the popularity of brand’s products, narrow target audience, lack of value and new ideology to cultivate the competitive environment.

References

Baidawi, A. (2016). InTheBlack. Web.

Bernstein, G. (2015). Understanding the business of entertainment. New York, NY: Routledge.

Bondic, M. (2012). Forbes. Web.

Cieply, M. (2012). The New York Times. Web.

Cowley, S. (2012). CNN. Web.

Duyne, K. (2016). Strategic analysis of The Walt Disney Company. New York, NY: Kris Van Duyne.

Freeman, E., Harrison, J., & Zyglidopoulos, S. (2018). Stakeholder theory: Concepts and strategies. New York, NY: Cambridge University Press.

Goldsby, M., & Mathews, R. (2018). Entrepreneurship the Disney way. New York, NY: Routledge.

Harmanci, R. (2012). BuzzFeed News. Web.

Kober, J. (2017). Disney, leadership & you: House of the mouse ideas, stories & hope for the leader in you. New York, NY: Performance Journeys Publishing.

Kotler, P., & Armstrong, G. (2015). Principles of marketing (16th ed.). New York, NY: Pearson.

Krantz, M., Sinder, M., Cava, M., & Alexander, B. (2012). USA Today. Web.

McLauchlin, J. (2015). Wired. Web.

McPhail, T. (2014). Global communication: theories, stakeholders and trends (4th ed.). New York, NY: Wiley-Blackwell.

Russel, J. (2012). The Guardian. Web.

Segal, R. (2018). Web.

Sylt, C. (2018). Forbes. Web.

The Walt Disney Company. (2018). Web.

(2018). Web.

Whitten, S. (2018). CNBC. Web.

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