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Walt Disney – SWOT Analysis

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Walt Disney is one of the world’s leading producers and providers of entertainment and information. It owns media networks as well as parks and resorts.The company also makes movies and markets consumer products.Walt Disney operates in North America, Europe, Asia Pacific and Latin America. It has strong portfolio of brands in entertainment business. Strong brand image helps the company attract consumers to its entertainment products. The company also has the option to leverage its strong brand image to enter new businesses. Intense competition, however, could lead to pricing pressures, which may negatively impact the company’s margins.

Strengths

Weaknesses

Broad product portfolio

Strong brand image

Strong cable and satellite networks

Weak performance of studio entertainment Negative opinion for Hong Kong Disneyland resort

Opportunities

Threats

International markets Expansion of cruise business New attractions

Intense competition Piracy Regulatory risks

Strengths

Broad Product Portfolio
The breadth and depth of Walt Disney’s product portfolio provides it with considerable strength.The company operates through four business segments: media networks, parks and resorts, studio entertainment, and consumer products. The media networks segment owns television, radio and cable properties in the US and other countries.Through the parks and resorts segment, the company owns and operates the Walt Disney World Resort and Disney Cruise Line in Florida, the Disneyland Resort in California and ESPN Zone facilities in several states.
The studio entertainment segment produces and acquires live-action and animated motion pictures, animated direct-to-video programming, musical recordings and live stage plays. The consumer products segment partners with licensees, manufacturers, publishers and retailers to design, promote and sell products based on existing and new Disney characters and other intellectual property. A broad product portfolio reduces the business risk of the company.

Strong Brand Image
Walt Disney has one of the most powerful brands in the entertainment business.The company was ranked 9th in the Top 100 Global Brands ranking of the BusinessWeek magazine and Interbrand, a branding consultancy, in 2007. Apart from a strong corporate brand, the company has several other brands such as ESPN within its portfolio. ESPN, for instance, is one of the largest and popular sports channels in the world. Miramax, Touchstone, and Pixar are other brands of Walt Disney, which have strong brand equity. Strong brand image helps the company gain consumer acceptance of new products easily.The company also has the option to leverage its strong brand image to enter new businesses.

Strong Cable and Satellite Networks
The company has strong cable and satellite networks. The company’s cable and satellite networks and international broadcast operations are principally involved in the distribution of television programming, the licensing of programming to domestic and international markets, and investing in foreign television broadcasting, production, and distribution entities. The cable networks produce their own programs or acquire programming rights from other producers and rights holders for network programming. Some of the company’s most significantly penetrated cable properties as of 2007 include ESPN with 97 million subscribers; ESPN Classic with 63 million subscribers; ESPNEWS with 62 million subscribers; Disney Channel with 94 million subscribers; Toon Disney with 66 million subscribers; and ABC Family with 95 million subscribers.

The company has various other international investments in broadcast and cable properties. ESPN operates six television sports networks: ESPN, ESPN2, ESPN Classic, ESPNEWS, ESPN Deportes (a Spanish language network) and ESPNU (a network devoted to college sports). ESPN also operates two high-definition television simulcast services, ESPN HD and ESPN2 HD. The investments in cable and satellite networks help the company boost revenues, which lend greater stability to the company’s operations and allows for further growth.

Weaknesses

Weak Performance of Studio Entertainment
Revenues of studio entertainment and consumer products segment have declined in the past three years.The studio entertainment segment recorded revenues of $7,491 million in FY2007, a decrease of 0.5% over FY2006. The percentage contribution have to total revenues have also declined from 24.2% in FY2005 to 21.1% in FY2007.The segment’s revenues have declined from compounded annual rate of interest of 1%. Continued weak performance of the studio entertainment segment would adversely affect the company’s overall revenues and profitability.
Negative Opinion for Hong Kong Disneyland Resort
The Hong Kong Disneyland Resort has yet to live up to expectations. It includes one theme park and two themed hotels. The $1.8 billion theme park has only 16 attractions, only one of which is a classic Disney thrill ride (Space Mountain), compared to 52 at Disneyland Resort Paris. A recent study of Hong Kong Polytechnic University showed that 70% of the local residents had a negative opinion of Hong Kong Disneyland Resort. As a result, revenue growth at Hong Kong Disneyland Resort decreased due to lower theme park attendance during FY2007.The company has also faced ticketing and employee relations issues at this Resort. Continued weak performance of Hong Kong Disneyland Resort would tarnish Disney’s image and prospects in Asia.

Opportunities

International Markets
The company is aggressively trying to enter growing international markets. Disney has launched its 23rd international Disney Channel and Toon Disney in India in FY2005. Disney’s Asian television service is available in seven countries in the Asia Pacific region: Australia, Korea, Malaysia, South Korea, Singapore, Brunei and the Philippines. At the end of 2007, the company entered into Russian market. Walt Disney’s international TV licensing arm, Disney-ABC International Television, signed a multi-year partnership with Russian state broadcaster Channel One. This follows strong growth of Disney’s Russian TV business in general, where its total distribution revenues for the market have increased by more than 400% in the last three years (2005-07).

During FY2007, the company derived nearly 23% of operating income from outside the US and Canada. The Walt Disney brand drives around $10 billion of international retail consumer products sales annually. The growth of ESPN in Europe, Latin America and Asia, coupled with international syndication of successful ABC TV shows, which puts Disney in a good position to take advantage of the opportunities available in international markets.

Expansion of Cruise Business
The company announced plans to expand its cruise business in February 2007 by adding two 122,000-ton new cruise liners, which will be two decks taller than the existing 83,000-ton ships, the Disney Magic and the Disney Wonder. The company intends to launch these two cruise liners by 2011 and 2012.These ships are more than double the passenger capacity for a typical Disney cruise line.The Disney cruise business has boosted the company’s top line growth and improved its margins. Expansion of cruise business will make further contribution to the company’s revenues and profits.

New Attractions
Walt Disney Parks and Resorts announced new attractions and entertainment in FY2006-07. In 2006, Walt Disney Parks and Resorts launched Where Dreams Come True, an initiative to fully integrate Disney’s entire worldwide portfolio of parks and resorts. From 2007, Under the Dreams umbrella, each international Disney resort presents specially tailored celebratory themes, such as the 15th anniversary of Disneyland Resort Paris, the start of the celebration of Tokyo Disney Resort’s 25th anniversary, and the continued introduction of the Disney experience to a new region of the world at Hong Kong Disneyland.
Walt Disney Parks and Resorts intend to unveil new attractions, entertainment shows and experiences in 2008. Finding Nemo Submarine Voyage, for instance, allows visitors to look out through the submarine’s portholes to see Nemo and his animated friends swimming and interacting nearby. In June 2007, the company increased its online assets by the acquisition of Club Penguin, one of the fastest-growing online virtual worlds for kids.The addition of Club Penguin to Disney’s existing online assets would further strengthen the company’s objective of establishing clear leadership in online virtual worlds for kids and families. At the new DisneyParks.com website, an online feature helps visitors customize their vacations with specific styles of entertainment. New attractions will enable Walt Disney Parks and Resorts to increase customer traffic, which would translate into higher revenues and profits for the company.

Threats

Intense Competition
There is strong competition in many of Disney’s key industries. Its broadcasting services compete for viewers with other television networks, cable television, satellite television, videocassettes and DVDs. This high level of competition is particularly important with respect to advertising revenues, where it also competes with other media such as newspapers, magazines, radio and billboards. Disney’s broadcasting division competes with organizations such as CBS and Fox, with strong market presence and technical expertise to challenge it in every aspect of business. The parks and resorts segment competes with other large parks like Paramount Parks and smaller local US based amusement parks for visitors. Intense competition threatens to erode the company’s market share in its different lines of business.

Piracy
Piracy of programming is increasing due to technological advances, allowing conversion of programming and other content into digital formats. This facilitates the creation, transmission and sharing of high quality unauthorized copies of Disney’s content. The proliferation of unauthorized copies and piracy of these products has an adverse effect on the company’s businesses and profitability as these products reduce the revenue that the company could potentially receive from legitimate sale and distribution of its products and services. Increasing piracy would have an adverse effect on the company’s businesses and profitability.

Regulatory Risks
The company’s broadcast networks and television stations are highly regulated, and each of its other businesses is subject to a variety of US and overseas regulations. These regulations include the US Federal Communications Commission (FCC) regulation of its television and radio networks and owned stations, including licensing of stations, ownership limits, prohibitions on ‘indecent’ programming and restrictions on commercial time in children’s programming and regulation of its broadcasting businesses in non-US markets. These regulations are also in the form of federal, state and foreign privacy and data protection laws and regulations and regulation of the safety of consumer products and theme park operations. Changes in any of these regulatory areas may require the company to spend additional amounts to comply with the regulations