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The Story of Walt Disney

If your company is like the grand majority of companies, it might have buried assets that await creative use.

Michael Jordan, Richard Branson, Martha Steward, Dilbert and the Walt Disney Company have one extraordinary thing in common: a highly elastic business design definition. They own a brand that transcends any particular business or industry. For instance, the Walt Disney Company’s definition is based on what it knows and owns, and not on what it does. Characters like Snow White, Cinderella, Bambi, Pinocchio, or Lion King work more than anyone else in the company, and not only twice or three times as much, but 10 to 15 times on TV, through videocassettes, in retail stores, and all over the theme parks. Recently, they even started to perform in Broadway musicals and work on cruises ships.

Walt Disney had no formal education –no high school or bachelor degree in modern art–, and he started out by drawing ads for small businesses. A few years later, when he began to produce short advertising movies for products through the new art of animation, he found his calling. He loved to bring his drawings to life through the magic of animation, and in 1923, he went to Hollywood in order to create his own studio. Wisely, he developed his niche: animation.

Soon thereafter, the company began to make money and showed great potential; however, Walt Disney’s unethical distributor from New York stole his idea, hired his best employees and even used his animated characters that he had yet to copyright. Fortunately, for millions of children and adults around the world, Disney quickly learned from his mistake, and he soon became the well-known author of Alice in Wonderland, the Complete Works of William Shakespeare, and the Encyclopedia Britannica, –to name a few– licensing his or other creative minds’ oeuvres under the Disney name to the greatest extent commercially imaginable.

Snow White and the Seven Dwarfs –Hollywood’s first feature-length animated film –was followed by Pinocchio, Fantasia, and Bambi. Mickey Mouse not only became a movie star, but also a top-notch marketer with products and other paraphernalia. Within a decade, the company was producing 30 movies a year, operating theme parks, and licensing consumer products, while earning a hefty return on investment. The universal law of business, ROA (Return on Assets) = Profit Margin x Velocity (Sales divided by Assets), worked magically for the Walt Disney Company since the same assets –the animated characters– continued to produce more and more sales over and over again.

The magical success story had significantly changed, however, when Michael Eisner was named CEO in 1984. The company was still making movies, operating theme parks and licensing consumer products, but it was loosing money in all three of its businesses. Therefore, Eisner’s first challenge consisted of finding a way to recover profitability, which he achieved by looking to the company’s core –its animated film production. He quickly assembled the best executive team in the entertainment industry and instilled an intense work ethic in all of Disney’s employees. His motto was simple and straightforward: if you would not come into the office on Saturday, do not bother to come on Sunday either. Furthermore, Eisner exercised draconian control over the budget in an attempt to restore profitability fast and to ensure that costs were kept to a minimum.

Soon, the company began to produce profitable films. Nonetheless, that was not enough for Eisner, and he created a system of developing consistent blockbusters, which were eminently more profitable than average films. A blockbuster movie that has $ 300 million in revenues and $ 150 million in costs brings in $ 150 million, and most of Disney’s movies became blockbusters. As a result, the Walt Disney Company, under its new CEO, became a well-oiled blockbuster machine. The Little Mermaid, Beauty and the Beast, Aladdin, The Lion King, Pocahontas, the Hunchback of Notre Dame, and Hercules all generated significant profit. From 1987–1990, Disney’s desire to restore its profitability fast led it to re-release Snow White, Cinderella, Bambi, The Fox and the Hound, Peter Pan, and The Jungle Book, generating substantial profit all over again.

Eisner knew that content was key, but in order to become increasingly profitable, the company had to create superb content and retain the right to distribute it. This strategy provided an additional area where high value could be captured. Under Eisner, Disney changed its focus from a primarily content creator to a creator and distributor. He moved the company further along the value chain –closer to the end-consumer– to capture more profit, taking control of the channels through which Disney products flowed. He decided to take the Disney Company into the retailing industry and opened 630 retail stores worldwide. Moreover, he bought a large part of Buena Vista (one the primary distribution channels of Disney’s films and products), and he also purchased ABC/Capital Cities (a major U.S. TV network), in an attempt to reuse his assets in a variety of ways. This move was mutually reinforcing, and allowed Disney to move closer and closer to the end-consumer.

Twenty years ago television networks were a bit like Time magazine –broad and shallow, with something for everyone. Now, television is like a 10-meter-long magazine rack filled with niche publications –the Classic Movie Channel, the Discovery Channel, the Golf Channel, Animal Planet, to name a few. Additionally, the media landscape has experienced remarkable changes in recent years. The good old media icons have recently been swallowed up, one by one, by a handful of media conglomerates: Paramount Pictures (Viacom), RCA (Bertelsmann), Motown (Vivendi), Columbia (Sony), Warner Brothers (AOL Time Warner), 20th Century Fox (News Corp). In these new acquisitions, just like in the case of Disney and the ABC Network, it is about a new profit pattern: content and distribution. This leads us to ask ourselves: what will the future bring? Maybe full video Web casting –what you want, when you want it. Therefore, in order to remain on the cutting edge of the industry, Disney must be aware of this before its competitors.

Customers want to make more and more choices and Disney will have to anticipate new patterns early. The recession and the drop in air travel –as a result of September's terrorist attacks– have cut into the profits at Disney's theme parks, where typical occupancy rates at hotels have fallen from 90% to 70%, as well as on cruise ships. Nonetheless, financial analysts are more bullish with Disney than with any other media conglomerate. The feeling is that Disney's stable set of assets –including not only Mickey, Minnie, and pals, but also its movie and TV production, theme parks as well ESPN and ABC– is poised to rebound once the economy turns around and people start traveling again.

Disney’s business design is a good model for managers in almost any industry, especially those with buried assets that await creative use. The story of Walt Disney seems at first glance like pure magic, but as we noticed from its capacity to identify profit patterns, it had a good dose of both –magic and a very high degree of profit-centric thinking. Did you know that the marketing of Mickey products generated far more revenues than the Mickey movies themselves? Mickey is an animated mouse, a cartoon. Do you have buried assets in your company that await creative use? As for the Walt Disney Company, it continues to benefit, with unbeaten expertise, from the stock of its intellectual property. For example, “Snow White and the Seven Dwarfs”, made in 1937, was the most profitable release on video and DVD Christmas 2001.

Bibliography:
Brands, H. W., Masters of Enterprise, The Free Press, 1992, pp. 182–194.
Charan, Ram. What the CEO wants you to know, Random House, 2001, pp. 35–45.
Connellan, Thomas K., Inside the Magic Kingdom: Seven Keys to Disney's Success
by Bard Press, May 1997.
Gross, Daniel: Forbes Greatest Business Stories of All Time, John Wiley & Sons, 1997.
Hamel, Gary. Leading the Revolution: How to Thrive in Turbulent Times by Making Innovation a Way of Life, Plume, 2002.
Klein, Gary. Intuition at Work: Why Developing Your Gut Instincts Will Make You Better at What You Do, Doubleday, 2002.
Slywotzky, Adrian. The Profit Zone, Times Business, 1997, pp. 193–216.
Thomas, Bob. Building a Company: Roy O. Disney and the Creation of an Entertainment Empire, Hyperion, 1998.

Josef Schinwald is consultant in Performance Measurement and professor in Business Strategy at the University of Belgrano, Buenos Aires, Argentina. He also runs several online stores, one of them sells Neon, Neon Signs, Neon Lights, and Neon Clocks. His didactic material must not be replicated without the given permission to do so. Copyright © 2003-2005 Business Design Innovation.

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