In order to rejuvenate its floundering product lineup, disney

Disney: Building Billion-Dollar Franchises This activity is important because, as a manager, you must be able to identify the growth and diversification goals your organization hopes to achieve and choose the most successful ways in which to meet them, whether through mergers, alliances, or acquisitions. The goal of this exercise is to demonstrate your understanding of different growth and diversification strategies by applying concepts to recent actions by Disney and evaluating the challenges it faces. Read the case below and answer the questions that follow. Case With $55 billion in annual revenues in 2017, Disney is the world’s largest media company and is renowned for its Walt Disney Studios and the popular Walt Disney Parks and Resorts. Over the past decade, Disney has grown through a number of high-profile acquisitions, including Pixar (2006), Marvel (2009), and Lucasfilm (2012), the creator of Star Wars. All this was done with the goal of building billion-dollar franchises based on movie sequels, park rides, and merchandise. But midsummer 2017 revealed even bigger ambitions. Disney’s Corporate Strategy Going into 2017 As a diversified media company, Disney is active in a wide array of business activities—movies, amusement parks, cable and broadcast television networks (ABC, ESPN, and others), cruises, and retailing. It became the world’s leading media company to a large extent by pursuing a corporate strategy of related-linked diversification. That is, some, but not all, of Disney’s business activities share common resources, capabilities, and competencies. Disney executes its corporate strategy by entering alliances and acquiring other media businesses to create theme-based franchises. The corporate strategy of creating billion-dollar franchises is Disney’s main focus, and CEO Bob Iger leads a group of about 20 executives whose sole responsibility is to hunt for them. These senior leaders decide top-down which projects are a go and which are not. They also allocate resources to particular projects; Disney has even organized its employees in the consumer products group around franchises such as Frozen, Toy Story, Star Wars, and other cash cows. The corporate strategy around building billion-dollar franchises is certainly paying off: Disney has seen steady growth to its top line, and it earned some $10 billion in profits in 2016. Its stock rose more than 350 percent between 2010 and 2017, outperforming its rivals such as Time Warner, Sony’s Columbia Pictures, and 21st Century Fox. Disney and Pixar: “Try Before You Buy” To understand Disney’s corporate strategy of growing through acquisition, let’s look at one of the most successful deals in recent history: Disney acquired Pixar and then built a number of billion- dollar franchises around it. It all started with a strategic alliance. Pixar began as a computer hardware company producing high-end graphic display systems. One of its customers was Disney. To demonstrate the graphic display systems’ capabilities, Pixar produced short, computer-animated movies. Despite being sophisticated, Pixar’s computer hardware was not selling well, and the new venture was hemorrhaging money. To the rescue rode not Buzz Lightyear, but Steve Jobs. Shortly after being ousted from Apple in 1986, Jobs bought the struggling hardware company for $5 million and founded Pixar Animation Studios, investing another $5 million into it. The Pixar team, led by Edwin Catmull and John Lasseter, then transformed the company into a computer-animation film studio. To finance and distribute its newly created computer-animated movies, Pixar entered a strategic alliance with Disney. Disney’s distribution network and its stellar reputation in animated movies were critical complementary assets that Pixar needed to commercialize its new type of films. In turn,

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Disney was able to rejuvenate its floundering product lineup, retaining the rights to the newly created Pixar characters and to any sequels. Pixar became successful beyond imagination as it rolled out one blockbuster after another: Toy Story (1, 2, and 3), A Bug’s Life, Monsters, Inc., Finding Nemo, The Incredibles, and Cars, grossing several billion dollars. Given Pixar’s huge success and Disney’s abysmal performance with its own releases during this time, the bargaining power in the alliance shifted dramatically. Renegotiations of the Pixar–Disney alliance broke down in 2004, reportedly because of personality conflicts between Steve Jobs and then-Disney Chairman and CEO Michael Eisner. After Robert Iger was appointed CEO, Disney acquired Pixar for $7.4 billion in 2006. The success of the alliance demonstrated that the two entities’ complementary assets matched and gave Disney an inside perspective on the value of Pixar’s core competencies in the creation of computer-animated features. Integrating Pixar allowed Disney to transfer and apply some of its own unique competencies including marketing, brand building, and product extensions. Acquisitions Ever After… In 2009, Disney turned to acquisitions again. The acquisition of Marvel Entertainment for $4 billion added Spider-Man, Iron Man, The Incredible Hulk, and Captain America to its lineup of characters. Marvel’s superheroes grossed a cumulative $15 billion at the box office, with The Avengers bringing in some $2 billion. In 2012, Mickey Mouse’s extended family was joined by Darth Vader, Obi-Wan Kenobi, Princess Leia, and Luke Skywalker when Disney acquired Lucasfilm for more than $4 billion. In 2014, Disney acquired Maker Studios, a YouTube-based multichannel network, for $675 million. Under Disney, Maker Studies is no longer focused on providing some 60,000 YouTube creators with support by promoting their channels and selling ads. Rather, Maker now has marching orders to focus on no more than the top 250 YouTube content creators with large followings. The goal is to build billion-dollar franchises in the new on-demand TV space. One of Maker Studios’ early success stories was YouTube megastar PewDiePie, who at one point had the most successful YouTube channel and for many years was one of the highest-profile stars on YouTube. In 2017, however, Disney cut ties with PewDiePie following his posting of videos in which he made inflammatory remarks, not in line with Disney’s values. Building Billion-Dollar Franchises After taking the reins, CEO Iger transformed a lackluster Disney following a decade or so of inferior performance by refocusing it around what he calls franchises, which generally begin with a big movie hit and are followed up with derivative TV shows, theme park rides, video games, toys, clothing such as T-shirts and PJs, among many other spin-offs. Rather than churning out some 30 movies per year as it did before Iger, Disney now produces about 10 movies per year, focusing on creating box-office hits. Its annual movie lineup is dominated by such franchises as Stars Wars and Marvel superhero movies and by live-action versions of animated classics such as Cinderella and Beauty and the Beast. The biggest Disney franchises that started with a movie hit include the Pirates of Caribbean (grossing more than $4 billion), Toy Story (over $2 billion), Monsters, Inc. (close to $2 billion), Cars (over $1 billion), and, of course, Frozen (over $1.5 billion). The 2013 animated movie Frozen (made by Walt Disney Animation Studios run by Pixar execs Catmull and Lasseter) has grossed over $1.5 billion, making it the most successful animated movie ever. To further build its Frozen franchise, Disney is working on a sequel of its animated movie hit for release in late 2019. It has spun off several shorter films and is now also a Broadway musical. It offers much merchandise and is a dreamlike ride through the fictional world of Arendelle at Disney World’s Epcot Center, replacing a previous attraction that had grown stale. The Star Wars franchise, however, is clearly the crown jewel in Disney’s lineup of billion-dollar franchises. The 2015 Star Wars sequel The Force Awakens grossed over $2 billion on the big screen, making it the third-highest grossing movie ever, after Avatar and Titanic. Intergalactic Finance: The Star Wars Franchise Is Worth $10 Billion The numbers generated by the Star Wars franchise do seem fantastic. First, consider just the movies. Although The Force Awakens grossed over $2 billion in box-office receipts on a budget of about $260 million, NYU finance professor Aswath Damodaran estimates the final gross receipts of the 2015 Star Wars sequel to be $10 billion. https://www.coursehero.com/file/32276402/MGMTNotes803pdf/

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