The Walt Disney Company has made a historical move by deciding to acquire 21st Century Fox for an astounding amount of $52.4 billion. This is one of the largest deals in the entertainment history. The deal includes acquisition of Twentieth Century Fox movie, TV studios, majority of their cable networks and global assets and excludes the Fox News and Fox network (Economist.com., 2017). The aim of the deal is to make an entry into the video streaming business by Disney. The following report will focus on various aspects of the deal by Disney through its external and internal analysis and will also provide some recommendations based on the analysis to highlight the potential opportunities for the company.
External analysis of a company refers to the analysis of the exogenous factors that have a significant impact on the operation of the company. These factors cannot be controlled by the management of the company. Markets, trends and patterns of consumer behavior, competitors, and demographic factors are some of the external factors that have a considerable impact on the operations of an organization (Ebert & Griffin, 2016).
According to the analysis of the deal, there are some external factors that Disney has to deal with. The Walt Disney Company utilizes the strong brand value to combat with the industry competition with other video streaming companies, such as, Netflix and Amazon, while making the acquisition deal with Fox. To analyze the external factors, Porter’s Five Forces model can be applied (Dinnie, 2015).
Bargaining powers of the buyers
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Buyers have the major power in determining the fate of the companies in the entertainment industry (E. Dobbs, 2014). Disney has become a household name for its products, such as, movies, videos, amusement parks, merchandise products etc. and there is a dedicated customer base for Disney for any of its venture. With this new deal with Fox, Disney is acquiring a large base of loyal customers of Fox, along with that of Hulu, National Geographic partners, Star India, Sky Plc of UK and thus, merging of all these customer base helps Disney in gaining an advantage in the industry. |
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Bargaining powers of the suppliers |
The producers of the movies, videos and other type of merchandised products and operations are the suppliers of Disney. Large population of the suppliers and high level of supply of products making the bargaining power of them weak. The company supports the products of variety of suppliers and if one supplier bargains for high price, the company will replace it with another with a lower price. No supplier would want to lose the support of Disney and Fox as those are big brands and give huge boost to their business (Brown, 2017). |
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Threat of entrants |
The Walt Disney Company and 21st Century Fox are hugely established companies in the entertainment industry of the world for a long time. Disney faces the threat of new entrants along with low switching cost. On the other hand, high cost of developing brand is a barrier for the entrants against Disney (Brown, 2017). New entrants must be having a strong source of funds to support the R&D, long period time to capture the market share and build a brand, which becomes quite costlier for a new organization in this industry. The acquisition of 21st Century Fox by Disney is a step towards reducing the threat of the new entrants in the entertainment industry and a step towards entering the market of video streaming, challenging the existing players, such as, Netflix and Amazon. |
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Threat of substitutes |
The Walt Disney Company faces a continuous threat of potential substitutes. There are many firms that are developing different techniques of animations and animated products, which is the main business line of Disney. There are other activities also, such as, amusement parks, where the company needs to make continuous changes and improvements to capture new customers as well as retain the existing customers. However, the variety of substitutes is less in case of the products of Disney, making it a weak threat to the company, although the company must be making improvements in the operational strategies for high quality of the products and performances (Littleton & Steinberg, 2017). By acquiring Fox, Disney makes a move to achieve an upper position in the market by reducing the threat of substitutes. |
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Industry competitiveness |
The Walt Disney Company faces industry competition from various companies in various segments in the business. It is facing rivalry in the video streaming from Amazon and Netflix. In the theme parks business, it faces rivalry from the Universal Studios, Sea World and Six Flags Entertainment. There are many other companies that throw challenges in the mass media entertainment and marketing, such as, competing against the Pixar Animation Studio for high level of animation (Brown, 2017). These companies also compete in the business of merchandised products. Thus, Disney has been facing challenges in many areas of business. As it acquired 21st Century Fox, it not only acquired the existing market of Fox, but also acquired the rivals of Fox in the industry of movie making. However, as it got the stakes in Hulu and National Geographic partners, it got the comparative advantage in the video streaming business, but in needs to develop its own technology rapidly to face the challenges from Netflix and Amazon (Pouliagkos, 2017). |
Another external analysis is done by using Porter’s Diamond model. It shows the competitive advantage of a nation or an organization (Porter & Heppelmann, 2014).
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Firm strategy and rivalry |
Disney has entirely focused on the family and children centric entertainment, which has been exclusive in this industry, and rivals firms exist in other fields but not in the family oriented entertainment (Feldman, 2017). |
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Demand conditions |
There is a huge demand for the products and services of Disney, which gives it a competitive advantage in the country in the entertainment industry. |
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Related and supporting industries |
Disney has been supporting many other industries that are required to produce a movie successfully. For example, Pixar Animation Studio is leading the animation. The studio rentals, lighting, editing, sound recording, special effects, writers, lawyers, talent agencies and market research are all separate industries that are related in the productions of Disney and supported by it (Tran, 2016). |
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Factor input conditions |
Disney has the support of almost 2,00,000 employees all around the nation and a huge amount of capital to back all of its production. |
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Government |
The government of the country does not interfere into its business and encourage them to operate freely, making it helpful for the company to take new ventures easily. |
Internal analysis of an organization refers to the analysis of the endogenous factors of the organization that determines the activities and performances of it (Rothaermel, 2015). These factors are internal and can be controlled by the company to make new strategies or making changes to the existing strategies for improving the organizational performance. With this analysis, the management of the organization can focus on the much needed areas to earn above average return (Brooks, Heffner & Henderson, 2014)
SWOT analysis represents the Strength, Weakness, Opportunities and Threat of an organization by analyzing the internal characteristics and factors that have an important impact on the performance of the organization (Grant, 2016). The SWOT for Disney is as follows.
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Strength |
· Strong brand value: Disney has been able to develop a strong brand value across the world for itself over the years, since its establishment in 1923. It has been able to capture the child audience, and hence, the family audience through its cartoons and animated films, which displays good values and ethics and with highly creative and imaginative products over the years, Disney has become a household name and one of the best global brands (Dalavagas, 2016). · Strong financial support: With a strong brand value, Disney was able to create to very strong financial support for its diversified business across the world and in 2017, the company had 4.02 billion cash and 15.89 billion current assets (Vuru.com, 2018). The huge amount of financial support helped it to grow its business across the world. · Diversified business: Disney grew from a small animation producing company to one of the biggest entertainment and media conglomerate of the world. Apart from animation, it diversified its business into theme parks, resorts, mechanized stores and products, movies, acquisition of brands, production studios, toys and accessories, giving a huge boost to its business and capturing a huge share of the market. · Wide coverage of cable network: It has a huge cable network spread across the globe. The company operates ABC family of networks, Disney channels across the world and ESPN in more than 60 countries and almost in all local languages. It has earned them more than millions of viewers (Dalavagas, 2016). |
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Weakness |
· Business volatility: The entertainment industry is highly volatile as it heavily depends on the tastes and preferences of the customers, and that is very unpredictable. Meeting customers’ expectations is greatly challenging. · Loss of ESPN subscriptions: The level of subscription to the sports channel ESPN has gone down by around 8 million since 2010. Higher programming cost is a weakness for ESPN. · Dependence on a single region: The company is heavily dependent on the revenues from North America, as it earns almost 77% of its total revenue from the USA and Canada. Thus, regulations of these regions can make the business vulnerable to any shock (Littleton & Steinberg, 2017). |
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Opportunities |
· International growth and expansion: Disney is going for further expansion in all over the world through diversified business. · Investment ventures in new media partnerships: Disney is making new investments in the media partnerships, as it did with 21st Century Fox to increase its market share. · Rise in demand for online media: In the age of smartphones and tables and high speed mobile internet, there is a huge market for online movie, video and sports streaming. Disney has made the attempt to enter into the online world by acquiring Fox (Feldman, 2017). |
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Threats |
· Rising piracy: Advanced technology has increased the rate of piracy of the movies and videos, which affects the business of Disney from the DVDs. The company must also improve their own technology to maintain the high quality of products delivered by Fox. · Competition in all entertainment areas: Disney has diversified its business into many segments of the entertainment business and there are many competitors in each of the field (Dalavagas, 2016). |
Another type of analytical technique for internal analysis of an organization is the VRIO analysis. This is helpful for evaluation of the resources and thus the competitive advantage of the organization (Cardeal & Antonio, 2012). VRIO stands for Value, Rareness, Imitability and Organization, that is, arrangement system of the company. The VRIO for Disney is as follows.
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Resources and capabilities |
Valuable (V) |
Rare (R) |
Imitability (I) |
Organization (O) |
Competitiveness |
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Studio entertainment |
Yes |
Yes |
Yes |
Yes |
Long term competitive advantage |
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Media and networks |
Yes |
Yes |
No |
Yes |
Temporary competitive advantage |
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Merchandized products |
Yes |
Yes |
No |
Yes |
Temporary competitive advantage |
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Theme parks and resorts |
Yes |
Yes |
Yes |
Yes |
Long term competitive advantage |
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Disney interactive |
Yes |
No |
Yes |
Yes |
Competitive parity |
Value: According to Forbes (2017), the value of Disney is around $179.5 billion and its annual profit is around $49.7 billion. Other than that, the company has a high level of brand value across the world.
Rareness: Disney has been presenting unique products, such as, cartoons and animated movies for the children for more than 90 years. Hence, they present a complete different experience through the characters of the movies and cartoon series, from the consumer products of other companies.
Imitability: Apart from the merchandized products and the capabilities for media and networks, none of the resources of Disney is imitable, giving it the status of temporary competitiveness.
Organization: Disney has been managing their resources in an excellent manner for a long time. Its huge employee base, theme parks and resorts in multiple cities around the world, and huge amount of media and networks are handled in a well organized manner by the management.
From the above analysis, it can be said that over the years, Disney was able to create a competitive advantage for itself through its capabilities and resources, which will help them to move in the right direction for the new venture with Fox.
Based on the above external and internal analysis, few things can be recommended to Disney in their new venture.
Conclusion
From the above report, it can be said that, The Walt Disney Company has taken a big step towards foraying into a new world of business by acquiring the 21st Century Fox. It is now focusing on the business of online video streaming. Disney has the strength of brand value and strong financial base, which it can use for developing own technology and use the assets and market share of Fox to make an entry into this market. It also has competitive advantage for its resources and capabilities. At the same time, it can turn the threats of competition and substitutes turning the weakness into strength with the use of strategic moves and improving the quality of products and services and introducing new services. Acquisition of Fox can be hugely beneficial to Disney if it can utilize the combined resources in the right direction.
References
Brooks, G., Heffner, A., & Henderson, D. (2014). A SWOT analysis of competitive knowledge from social media for a small start-up business. The Review of Business Information Systems (Online), 18(1), 23.
Brown, L. (2017). Walt Disney Company Five Forces Analysis (Porter’s) & Recommendations – Panmore Institute. Panmore Institute. Retrieved 29 January 2018, from https://panmore.com/walt-disney-company-five-forces-analysis-porters-recommendations
Cardeal, N., & Antonio, N. S. (2012). Valuable, rare, inimitable resources and organization (VRIO) resources or valuable, rare, inimitable resources (VRI) capabilities: What leads to competitive advantage?.
Dalavagas, I. (2016). Disney: A Short SWOT Analysis. Valueline.com. Retrieved 29 January 2018, from https://www.valueline.com/Stocks/Highlights/Disney__A_Short_SWOT_Analysis.aspx#.Wm7z366WbIV
Dinnie, K. (2015). Nation branding: Concepts, issues, practice. Routledge.
Ebert, R. J., & Griffin, R. W. (2016). Business Essentials, 11/E. Prentice Hall.
Economist.com. (2017). Disney’s purchase of Fox’s entertainment assets is a gamble on media’s future.. Economist.com. Retrieved 29 January 2018, from https://www.economist.com/news/business-and-finance/21732649-ceding-ground-rupert-murdoch-pivoting-pivotal-moment-disneys-purchase-foxs
Feldman, D. (2017). What The Disney-Fox Merger Means For Consumers. Forbes.com. Retrieved 29 January 2018, from https://www.forbes.com/sites/danafeldman/2017/12/15/what-the-disney-fox-52-4b-merger-means-to-the-consumer/#5a61141417c8
Forbes.com. (2017). Value of The Walt Disney Company. Forbes. Retrieved 30 January 2018, from https://www.forbes.com/pictures/591c87fc31358e03e5593101/7-disney/#45339bb74518
Grant, R. M. (2016). Contemporary strategy analysis: Text and cases edition. John Wiley & Sons.
Littleton, C., & Steinberg, B. (2017). Disney to Buy 21st Century Fox Assets for $52.4 Billion in Historic Hollywood Merger. Variety.com. Retrieved 29 January 2018, from https://variety.com/2017/biz/news/disney-fox-merger-deal-52-4-billion-merger-1202631242/
Porter, M. E., & Heppelmann, J. E. (2014). How smart, connected products are transforming competition. Harvard Business Review, 92(11), 64-88.
Pouliagkos, V. (2017). Analysis of the global amusement industry.
Rothaermel, F. T. (2015). Strategic management. McGraw-Hill Education.
Tran, P. (2016). Strategy 1: Porter’s Diamond explained with an example. Linkedin. Retrieved 29 January 2018, from https://www.linkedin.com/pulse/strategy-1-porters-diamond-explained-example-peter-tran
Vuru Inc. (2018). Walt Disney Company (The) (DIS) Stock Analysis | Value Investing in Seconds – Vuru.co. Vuru.co. Retrieved 29 January 2018, from https://www.vuru.co/analysis/DIS/financialStrength
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