The Economic Model of Disney

The Economic Model of Disney

General Background

Disney is a multinational company show business company whose headquarters are located in California. The Disney brothers started the company in the early twentieth century as a cartoon studio. Over the next years, the company positioned itself as the best in the animation industry and, later diversified to live-action film, TV and theme parks (Collis, & Rukstad, 2009). The company has eight well-established studios, owns Disney World and Disneyland parks, possesses and manages ABC broadcast network and various television cable networks. The company produces products such as musicals, movies, TV shows, books and magazines. Disney has a strong brand position all over the world as a family-oriented business (Collis & Rukstad, 2009). The company takes advantage of its brand’s strength to advertise and sell their products to their target market, which includes children, tweens, teens and adults.  Disney uses repositioning to comply with the current trends and remain relevant in the market (Windsor, 2015). For instance, the company repositioned the original family-friendly Alice in Wonderland by producing a dark and exciting live and action remake in 2010.

Economic models use mathematics and other concepts to explain complex financial processes. They are useful because they foresee upcoming economic activities from which conclusions can be drawn. Economic models provide alternative guidelines that may alter prospect economic behaviours (Riky, 2014). They enable easier scheduling of resources and logistics and, management of the business. Porter’s five forces model is a business model that depicts a company’s competition, profit and attractiveness.  The model includes five concepts that shape the market and applies to any business or industry. Analyzing Porter’s five forces models, strengths and weakness, future and success of the Disney Company will provide a better understanding of the brand.

Porters Five Forces Model

Rivalry with existing industries

There are few competitors against Disney in the entertainment industry, including CBS, Time Warner, Viacom and Comcast. Their competitors are large firms; thus, any move that they make to gain competitive advantage is noticeable. Disney and its competitors rival to have higher shares and position in the market. Disney competitors are aggressive in producing high quality animation movies which influence to work harder in a bid to stay ahead of the competition. The fixed cost within the entertainment industry is high, which prompts the firms to push to full industry capacity. If demand for Disney’s products reduces then it has to reduce its prices to gain an advantage, thus, proving that intense rivalry in the industry. Disney competes effectively with other firms by producing unique products which reduce the competition for the consumer in the market.  Production industries like Disney are capital-intensive, which makes an exit almost impossible, thus prompting production when incurring low-profit margins. As a result, competition with other firms in the industry is, therefore, a potent force.

Bargaining power of the Suppliers

There are many suppliers in the industry, thus making the bargaining power of the suppliers a weak force. It means that one supplier cannot affect the industry. The supply provided by the suppliers is familiar with standard prices which makes it less costly for Disney to change its suppliers (Dobbs, 2012). The supply provided by the suppliers does not compete with other products within the show business and theme park industry. The absence of substitutes to the products makes the bargaining power of the suppliers a strong force(Dobbs, 2012). The firms within the entertainment and theme park industry are critical consumers for their suppliers which forces them to provide reasonable prices for their products, thus weakening their bargaining power.

Bargaining Power of the Disney’s Consumers

Companies within the industry produce less differentiated products, thus making it difficult for consumers to change from Disney to other firms in the market. This weakens the bargaining power of the customers in terms of influence on the price (Riky, 2014). The consumers of the products have a moderate sensitivity to the costs; thus, moderating their buying power in the economy. Disney experiences no threat to internally produce a section of their supply chain, which makes the bargaining of their consumers a weak force within the economy.

Threat of New Entry

Disney has to keep watch of any large firms that may enter the entertainment industry and disrupt their success. The capital required to build and develop a company like Disney is high, thus limiting the number of new firms entering the market (Dobbs, 2012). Disney is a strong world-known brand which makes it difficult for new entrants to compete with it at the same level. As a result, the threat of new entry of similar firms in the market is a weak force.

Threat of Substitutes

There are few substitutes for products produced by Disney. As a result, the cost of switching from Disney’s products to the alternative is high, weakening the force of the threat of substitutes (Dobbs, 2012). The prices of Disney’s Products are lower than some of their substitutes but still with high quality. This reduces the chances of their customers switching to their substitutes which in turn weaken the force of the threat of alternatives. The uniqueness of Disney’s products limits the presence of substitutes.

Strengths

Disney has established a strong brand reputation. The Disney Brand has existed for almost a century and, is widely known through its Disney channel and theme parks Disney world and Disney land (Windsor, 2015). Disney has established itself as a firm that produces high quality products gives the consumers value for their money. The Disney brand has positioned itself as the best firm providing products that can be enjoyed by families with educational and entertainment segments.  Disney is ranked number 8 during a survey of consumer perception of the products (Windsor, 2015). Secondly, the firm has a strong product portfolio. Their products include ABC TV network and cable networks like Disney Channel and ESPN, making them among the most viewed networks in the world.   The growth of Disney’s cable network (Disney channel has 250 million subscribers and ESPN 300million) gives the firm competitive advantage over its competitors (Windsor, 2015). The company has diversified its products allowing it to reach a broader market. For example, the company can sell on retail action figures and toys based on their movies or even create a demand for their amusement parks. Thirdly, Disney has high revenues from all its segments. According to Statistica, Parks, experience and products accounted for 24.83 billion dollars, studio entertainment brought 26.23 dollars, direct to consumer and international accounted for 11.13 billion dollars and media networks accounted for 24.83 billion dollars in 2019 (Statistica, 2019). Fourthly, Disney’s product is diverse including studio entertainment, amusement parks, retail products like toys and action figures, tv and cable networks which limits the effect of the external environment of the company as compared to their competitors. Fifthly, the company has a high social media presence with which it effectively engages with its customers. Their millions of followers of social media allow for easier marketing of their products.

Figure One: Disney’s high social media presence on Twitter and Instagram

Figure Two: Revenues of different segments of Disney in billions of dollars

Weaknesses

The main weakness of Disney is that it heavily depends on North America as the market of its products, with 70% of the revenues streaming for the USA.  This is a challenge since Disney operates in over 200 countries throughout the world (James, 2013). Depending on a section of the market puts Disney at risk of considerable losses in case inflation or economic crisis in Canada and the US. Secondly, Disney’s ability to grow through acquisition is limited.  The current size of the business limits its ability to acquire competitors because it has created a concentration of market (Windsor, 2015). For example, before purchasing their 21^st Century Fox, Disney had not obtained permission from the FTC.

Future of Disney

I think that the future is Disney is in the streaming world.  With their latest Disney Plus, the brand is going over to take over Netflix and Apple Prime. Since many people no longer watch TV shows, being totally into the streaming world will allow the firm gain vast amounts of revenue and, compete at the same level as their competitors (Windsor, 2015). By enabling people to stream, people will access Disney via their phones and tablets, making it more accessible throughout the world. Further development of Disney Plus to cover every region in the world in the future and, should be considered by the world.

Conclusively, Disney has been successful due to its strong brand position as a family-oriented business. Their significant social media presence through which they interact with their customers have also contributed to the success of the brand. Thirdly, the differentiation of Disney’s products such as creative amusement parks differentiates them from competitors enabling to maintain their consumer base.  Lastly, Disney’s continual movement with the current trends allows it to have the upper hand over its competitors.

References

Collis, D. J., & Rukstad, M. G. (2009). Walt Disney Co.: The entertainment king. Harvard Business School Cases.

Dobbs, M. E. (2012). Porter’s five forces in practice: Templates for firm and case analysis. In Competition Forum (Vol. 10, No. 1, p. 22). American Society for Competitiveness.

James, J. (2013). The heart makes the mouse: Disney’s approach to brand loyalty. Journal of Brand Strategy, 2(1), 16-20.

Ms W. & Mary, R. (2015). The Magic of the Mouse: An Exploration of Brand Personality in The Walt Disney Company.

Riky, A. (2014). Porter Five Forces Model Pada PT. RUCI GAS. Agora, 2(2), 1285-1296.

Statistica. (2019). Disney revenue by segment. Statista. https://www.statista.com/statistics/193140/revenue-of-the-walt-disney-company-by-operating-segment/