DISNEY: BUILDING BILLION-DOLLAR FRANCHISES

CASE ANALYSIS
BUSINESS STRATEGY & ENTERPRISE MODELLING

By Group 2
Ulin Noor Rahmani – 29318002
Shyla Shakira – 29318061
Najla Claryssa – 29318095
Dwi Winarno – 29318071
Zulfikar Idris – 29318131
(Master of Business Administration - Jakarta Campus)

INSTITUT TEKNOLOGI BANDUNG

JULY 2019
I Synopsis and Problem Identification
I.1 Synopsis

Disney became the world’s leading media company to a large extent by pursuing a
corporate strategy of related-linked diversification. It is active in a wide array of
business activities –movies, amusement parks, cable and broadcast television
networks (ABC, ESPN, and others), cruises and retailing.
Disney executes its corporate strategy by entering alliances and acquiring other media
businesses to create theme-based franchises. Their focus is creating billion-dollar
franchises through diversification. Their strategy around building billion-dollar
franchises is certainly paying off: Disney has seen a steady growth to its top line, and
it earned some $10 billion in profit in 2016. Its stock rose more than 350 percent
between 2010 and 2017, outperforming rival such as Time Warner, Sony’s Columbia
Pictures and 21st Century Fox.
One of successful strategy of growing through acquisition is when Disney acquired
Pixar, and then built a number of billion-dollar franchises around it.

I.2 Problem Identification

1) Before announcing its streaming services, what type of corporate strategy was Disney
pursuing? Which core competencies were shared and how?
Disney try to make diversification of their product, they have several business
line that relatively close to their core business activities. Disney have strong
compentency in media and entertainment, they acquire and alliance with
several company that make them stronger. With the facilities that they have,
they can easily publish their product since it already well-known by its
customer.
2) Why do you think Disney’s acquisionns of Pixar, Marvel, and Lucasfilm were so
successful, while other media interactions such as Sony’s acquisition of Columbia
Pictures and News Corp.’s acquisition of Myyspace were much less successful?
There are some reason that may answer this question, first disney might have
been popular on europe and america. The second is they are the first company
 that applied this strategy, it is well known that the first mover can reach the
customer efficiently rather than the follower.
3) Do youu think focusing on billion-dollar franchises has been a good corporate
strategy for Disney? What are pros and cons of this strategy?
This is good strategy, this can be seen by the rose of stock in a decade, Disney
should take care of the company that they want to acquire since it will affect to
Disney reputation.
4) Given the build-borrow-or-buy framework, do you think Disney should pursue
alternatives to acquisitions? Why or why not?
Yes, since the industry face a threat from other industry that can substitute
their product, Disney should try to apply other strategy since the competitor or
threat come from another industry.
5) Given Disney’s focus on creating and monetizing billion—dollar franchises, some
industry observers now view Disney more as a global consumer products compay like
Nike rather than a media company. Do you agree with this persperctive? Why or why
not? What strategic implications would it have if Disney is truly a global consumer
products company rather than a media and marketing company?
Yes, Disney now is close to products company, they should change their
strategic business to adapt with their new business model, competitor, and
customer. It is a opportunity for disney to take benefit from their new activities
and capitalize it for bigger profit. Disney should change its strategy from
strategic level to functional level.
II Related Theories
II.1 The Build-Borrow-Framework

The build-borrow-or-buy framework provides a conceptual model that aids firms in

deciding whether to pursue internal development (build), enter a contractual arrange-
ment or strategic alliance (borrow), or acquire new resources, capabilities, and compe-
tencies (buy). Firms that are able to learn how to select the right pathways to obtain
new resources are more likely to gain and sustain a competitive advantage. Note that
in the build-borrow-or-buy model, the term resources is defined broadly to include
capabilities and competencies (as in the VRIO model).

Exhibit 9.1 provides a schematic of the build-borrow-or-buy framework. In this

approach executives must determine the degree to which certain conditions apply,
either high or low, by responding to up to four questions sequentially before finding
the best course. The questions cover issues of relevancy, tradability, closeness, and
integration (Rothaermel, 2017):

1. Relevancy. How relevant are the firm’s existing internal resources to solving the
resource gap?
2. Tradability. How tradable are the targeted resources that may be available
externally?
3. Closeness. How close do you need to be to your external resource partner?
 4. Integration. How well can you integrate the targeted firm, should you determine you
need to acquire the resource partner?

II.2 Strategic Alliances

Strategic alliances are voluntary arrangements between firms that involve the sharing
of knowledge, resources, and capabilities with the intent of developing processes,
products, or services. The use of strategic alliances to implement corporate strategy
has exploded in the past few decades, with thousands forming each year. As the speed
of technological change and innovation has increased, firms have responded by
entering more alliances. Globalization has also contributed to an increase in cross-
border strategic alliances.

Firms enter many types of alliances, from small contracts that have no bearing on a
firm’s competitiveness to multibillion-dollar joint ventures that can make or break the
company. An alliance, therefore, qualifies as strategic only if it has the potential to
affect a firm’s competitive advantage. A strategic alliance has the potential to help a
firm gain and sustain a competitive advantage when it joins together resources and
knowledge in a combination that obeys the VRIO principles. The locus of competitive
advantage is often not found within the individual firm but within a strategic
partnership.

According to this relational view of competitive advantage, critical resources and

capabilities frequently are embedded in strategic alliances that span firm boundaries.
Applying the VRIO framework, we know that the basis for competitive advantage is
formed when a strategic alliance creates resource combinations that are valuable, rare,
and difficult to imitate, and the alliance is organized appropriately to allow for value
capture. In support of this perspective, over 80 percent of Fortune 1000 CEOs
indicated in a recent survey that more than one-quarter of their firm’s revenues were
derived from strategic alliances.

To affect a firm’s competitive advantage, an alliance must promise a positive effect on

the firm’s economic value creation through increasing value and/or lowering costs.
This logic is reflected in the common reasons firms enter alliances (Rothaermel, 2017).
They do so to:
 § Strengthen competitive position.
§ Enter new markets.
§ Hedge against uncertainty.
§ Access critical complementary assets.
§ Learn new capabilities.

II.1 Merger and Acquisition

A popular vehicle for executing corporate strategy is mergers and acquisitions

(M&A). Hundreds of mergers and acquisitions occur each year, with a cumulative
value in the trillions of dollars. A merger describes the joining of two independent
companies to form a combined entity. Mergers tend to be friendly; in mergers, the two
firms agree to join in order to create a combined entity. In the live event-promotion
business, for example, Live Nation merged with Ticketmaster.

An acquisition describes the purchase or takeover of one company by another.

Acquisitions can be friendly or unfriendly. As discussed in the case of Disney’s
acquisition of Pixar, for example, was a friendly one, in which both management
teams believed that joining the two companies was a good idea. When a target firm
does not want to be acquired, the acquisition is considered a hostile takeover. British
telecom company Vodafone’s acquisition of Germany-based Mannesmann, a
diversified conglomerate with holdings in telephony and Internet services, at an
estimated value of $150 billion, was a hostile one.

In defining mergers and acquisitions, size can matter as well. The combining of two
firms of comparable size is often described as a merger even though it might in fact be
an acquisition. For example, the integration of Daimler and Chrysler was pitched as a
merger, though in reality Daimler acquired Chrysler, and later sold it. After emerging
from bankruptcy restructuring, Chrysler is now majority-owned by Fiat, an Italian
auto manufacturer.

Why do firms merge with competitors? In contrast to vertical integration, which

concerns the number of activities a firm participates in up and down the industry
value chain (as discussed in Chapter 8), horizontal integration is the process of
merging with a competitor at the same stage of the industry value chain. Horizontal
integration is a type of corporate strategy that can improve a firm’s strategic position
in a single industry. As a rule of thumb, firms should go ahead with hori- zontal
integration (i.e., acquiring a competitor) if the target firm is more valuable inside the
acquiring firm than as a continued standalone company. This implies that the net
value creation of a horizontal acquisition must be positive to aid in gaining and
sustaining a competitive advantage (Rothaermel, 2017).

There are three main benefits to a horizontal integration strategy:

• Reduction in competitive intensity.

• Lower costs.
• Increased differentiation.

Why do firms acquire other firms? we noted that an acquisition describes the purchase
or takeover of one company by another. Three main reasons stand out:

§ To gain access to new markets and distribution channels.

§ To gain access to a new capability or competency.
§ To preempt rivals.
III Case Analysis and Solution
III.1 Identify

The competitor is limited, there are several player in this industry since the barriers to
entry is high. Disney may not worry about the new competitor that try to enter the
market, it takes billion dollar and many years to establish the reputation. The only
things that disney should keep on eye is the growing of content creator on youtube. It
probably become massive on the future to use an internet to publish the movie
efficiently. The business model could probably change in the future, Disney should
think about other Industry that can substitute or provide another entertainment to their
customer.

The industry is not easily entered by competitor, the huge capital is needed to enter
the market. It takes time for company to build reputation to compete, existing player
has their own fans that always wait for new movie from the companies. New
competitor needs both time and capital to settle in this industry.

The supplier may come from professional animator, artist, and others professional in
entertainment industry. since they skill are rare, they have big bargain power to offer
their price otherwise they will move to other company.
The market structure most likely close to oligopoly structure, the price is driven by
several companies. Customer does not have power to determine the price, they can
not ask for lowering the price. The cost may be differ from one movie to another, but
the price is determined by third parties.

The business industry is changing since internet era, people now can watch the movie
from internet by using their gadget. Content creator now become popular, they have
media to publish their own film or movie and easily get watched by poeple. The
content ,on youtube for example, can easily become popular. Movie indusrty still
strong enough compare to content creator on youtube, but the business model of
youtube more efficient. In the future it may probably become new business model to
publish their movie on youtube.
III.2 Problem Identification & answer

Before announcing its streaming services, what type of corporate strategy was Disney
pursuing? Which core competencies were shared and how?
Disney try to make diversification of their product, they have several business line
that relatively close to their core business activities. Disney have strong compentency
in media and entertainment, they acquire and alliance with several company that make
them stronger. With the facilities that they have, they can easily publish their product
since it already well-known by its customer.

Why do you think Disney’s acquisionns of Pixar, Marvel, and Lucasfilm were so
successful, while other media interactions such as Sony’s acquisition of Columbia
Pictures and News Corp.’s acquisition of Myyspace were much less successful?
There are some reason that may answer this question, first disney might have been
popular on europe and america. The second is they are the first company that applied
this strategy, it is well known that the first mover can reach the customer efficiently
rather than the follower.

Do youu think focusing on billion-dollar franchises has been a good corporate

strategy for Disney? What are pros and cons of this strategy?
This is good strategy, this can be seen by the rose of stock in a decade, Disney should
take care of the company that they want to acquire since it will affect to Disney
reputation.
Given the build-borrow-or-buy framework, do you think Disney should pursue
alternatives to acquisitions? Why or why not?
Yes, since the industry face a threat from other industry that can substitute their
product, Disney should try to apply other strategy since the competitor or threat come
from another industry.

Given Disney’s focus on creating and monetizing billion—dollar franchises, some

industry observers now view Disney more as a global consumer products compay like
Nike rather than a media company. Do you agree with this persperctive? Why or why
not? What strategic implications would it have if Disney is truly a global consumer
products company rather than a media and marketing company?
 Yes, Disney now is close to products company, they should change their strategic
business to adapt with their new business model, competitor, and customer. It is a
opportunity for disney to take benefit from their new activities and capitalize it for
bigger profit. Disney should change its strategy from strategic level to functional
level.

IV Conclusion and Recommendation

The competitor is limited, there are several player in this industry since the barriers to
entry is high. Disney may not worry about the new competitor that try to enter the
market, it takes billion dollar and many years to establish the reputation. The only
things that disney should keep on eye is the growing of content creator on youtube. It
probably become massive on the future to use an internet to publish the movie
efficiently. The business model could probably change in the future, Disney should
think about other Industry that can substitute or provide another entertainment to their
customer.

Disney now is close to products company, they should change their strategic business to
adapt with their new business model, competitor, and customer. It is a opportunity for
disney to take benefit from their new activities and capitalize it for bigger profit. Disney
should change its strategy from strategic level to functional level.

V Lesson Learned
Business environment is changing day by day, a company should anticipate the
changing in industry. If they are success in seeing the opportunity from it, they could
take a benefit by adopting new strategic, business, and functional strategy.
 REFERENCES

Rothaermel, F.T. 2017. Strategic Management. (e-book) New York: McGraw-Hill Education,
3rd edition.