Identify and Critically Evaluate the Competitive Advantages of the Disney Group. Which, If Any, Are Sustainable over Time?

Question 1

Identify and critically evaluate the competitive advantages of the Disney Group. Which, if any, are sustainable over time?

Introduction

The Walt Disney Company founded in 1923, together with its subsidiaries and affiliates, is a leading diversified international family entertainment and media enterprise with four business segments: media networks, parks and resorts, studio entertainment and consumer products. Each segment consists of integrated, well-connected businesses that operate in concert to maximize exposure and growth worldwide. Disney is a Dow 30 company, had annual revenue of more than $35 million in its most recent fiscal year, and a market capitalization of more than $61 million as of February 15, 2008.

What is Michael Porter Five Forces Model

Michael Porter described a concept that has become known as the "five forces model". This concept involves a relationship between competitors within an industry, potential competitors, suppliers, buyers and alternative solutions to the problem being addressed.

The Porter's 5 Forces tool is a simple but powerful tool for understanding where power lies in a business situation. This is useful, because it helps an organization understand both the strength of your current competitive position, and the strength of a position that an organization is looking to move into.

Figure 1.0 Michael Porter's Five Forces Model

Threat of New Entrants

Disney Group has been able to find a very distinctive niche in the industry, the entrance barriers are relatively high. The company has been able to grow over a long period of time, and has developed from within the departments of Research and development, marketing, and finance. By relying on past experience, company officials know to a large extent what the target customer wants. As Disney pretty much dominates the family entertainment market, it will be very difficult for such a new organization to develop brand recognition/identification, and product differentiation. Disney has focused of market diversification for years and the company covers a wide array of products and services. Being a market leader has made it possible for the company to practice effective economies of scale in production. For example, Walt Disney Pictures' phenomenal Pirates adventure continue to show its seaworthy legs across the entire entertainment spectrum as Pirates of the Caribbean became the year's top grossing film at worldwide box office. The film shattered records with close to $960 million in box office receipts and becoming the fifth biggest worldwide release of all time and has 20-30 million visitors to its theme parks every year. In addition, an extremely large amount of capital investment is required for new entrants into the industry. The capital requirements are extremely high. For instance, Disney spent USD3.6 billion in its European theme park (Euro Disneyland). Only very large companies can meet such large capital requirement. Lastly, the government policy towards the industry appears to be very favorable. The French government invested USD 1.2 billion (40%) in Euro Disneyland, provided public transportation facilities, provided a large tax relief (from 18.6% to 7%) on the cost of goods sold.

Bargaining Power of Buyers

The bargaining power of customers is high in the service and in the entertainment industry. Since a large number of customers are needed to make Disney's operations run smoothly, the customers have certain powers. For instance, if the price on a particular home video is too high, customers may be reluctant to spending the money needed to purchase the product. Another example is the entrance fee charged at Disney's theme parks. It is stated in the case that the maximum amount of money that customers are willing to pay is USD 33. Furthermore,