Under CEO Robert Iger, Disney has followed an acquisition-led growth strategy. T
ID: 421189 • Letter: U
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.
Questions
a. Why do you think Disney was so successful with the Pixar and Marvel acquisitions, while other media interactions such as Sony’s acquisition of Columbia Pictures or News Corp.’ s acquisition of MySpace were much less successful?
b. Given the “build-borrow-or-buy” framework discussed in the module, do you think Disney should pursue alternatives to acquisitions? Why or why not?
c. Do you think Disney’s acquisition-led growth strategy is sustainable? Are there sufficient “Mini Disneys” that Disney can acquire?
d. What effects do you expect from the continued disruption of the media industry on Disney? How should Disney respond?
e. 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]
Explanation / Answer
a. Disney was more successful with its acquisition of Pixar and Marvel than Sony or News Corp because:
-Disney was more diversified and stable company
-Disney has superior post merger integration capabilities
-Disney managed it's new subsidiaries more like alliances than full integration as in case of Pixar
-Their hands off approach towards new acquisition made them to work as before without any disturbance
b.I don't think Disney should pursue alternatives to acquisition because:
-It has becomes a diversified company and it does not matter much of it loses any acquisition.
- Also, the profits earned by the company are huge and it doesn't matter if it loses its money in any acquisition
- Also due to its developed popularity and fame, the acquisition turns out to give a positive result to the company
-Also, by acquiring it prevents any future risk from these companies due to their rising
c. Yes, I think Disney's acquisition led growth strategy is sustainable due to the similar reasons as stated above.
Yes there are sufficient 'mini Disneys' that Disney can acquire as the market of animation and filming is always on growth and new companys keep on coming.
d. The effects of continued disruption of media industry on Disney is that:
-They are losing their market demand due to rise of online platforms
-Online platforms provide at home entertainment hence people refrain from going to movies or amusement parks for leisure activities.
-Online platforms are available at cheaper prices than a movie or rides in a park.
Disney should respond by launching its own online streaming platform to give competition to other platforms such as Netflix or Hulu, or Disney can also take steps towards acquiring these platforms.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.