Case analysis:

Walt Disney Company (2009)

By Polozhay Anton
Group 32-1/17

Foundation Course International Strategic Management

Professor: E.E. Makhnovskaya
Plekhanov Russian University of Economics
International Business School

28th September 2017

Problem Identification/Key Strategic Issue

In 2009 the Walt Disney Company has experienced consequences of the financial crisis. Many
factors, such as lingering recession, slow economic growth, high unemployment and reduced
customer spending affected the financial state of the company. All together these factors led to
7% drop in revenue and 46% drop in profitability for the 1st quarter of 2009. The company
ineffectively maneuvered in the situation of a market recession. The lowered purchasing power
parity of the customers should be taken into account, otherwise the company has the risk of
continuous market and income loss.

Walt Disneys income fell 26% for the 3rd quarter (2009) and no segment or division reported
positive increase. The worst performing one was Movie Studio, which reported 12mln. USD
operating loss and 12% revenue drop. Additional problem was that Disneys DVD sales slowed
dramatically.

Alternatives

1. To lower the companys prices to more affordable ones.

+ Making the companys prices more affordable for people in the time of lowered paying
ability of the population will encourage people to spend more money on what they want, show
that the company is customer-oriented and attract additional customers. By all those means the
increase in revenues is guaranteed. Besides, that may even lead to the increase in the market
share.

- However, we already know that there are steel enough of people who want and can afford
products and services of the company. Lowering the prices can also influence the image of the
company aimed for quality and exclusivity. However, if the company does not implement the
new pricing strategy, there is possible decrease in customers, loss of a part of the market share
and net income reduction.

2. To Restructure the Movie Studio division and decrease a production of DVDs.

+ As we have seen, the Movie Studio was a weak point that brought significant losses to the
business being one of the main competences of the Walt Disney Company. It should be fixed in
order not to suffer losses, but bring profit and be competitive. Additional spending on a big
output of DVD products led to it stagnation in sales and losses the decrease of DVD production
is significant, as it will create a sense of exclusiveness. Besides, the Companys TV department
and Web site, internet development in general, are cannibalizing it there is no more need in big
amounts of created DVDs.

- The position of the company is not changed in a short run prices are at the same level, the
crisis is still influencing the business.

3. To Expand through penetration of untapped markets of emerging economies.

+ Diversification and risk lowering through such expansion, profits from new markets may
save the company and bring more profit increasing net income. The advantages of the first
mover and economies of scale are on the side of the company.

- The company had losses and market penetration during the time of financial problems is
irrational. Besides, there are too many problems connected to this activity, including all cultural,
legal and other financial issues. It will lead also to additional spending and wont fix the main
problem inside the company. Walt Disney is already a very diversified and large company,
which makes inflexible and difficult to maneuver during the crisis.

Recommendation

The most suitable decision during the current situation is to restructure the movie studio
division and decrease the production of DVDs.

The core competence of the company is based on the creative and productive abilities of this
division. In order to be more competitive, get rid of losses, connected to this unit and gain more
profit this is the best choice. It is dangerous for business to penetrate new markets having inner
operational problems and this issue creates even more risk for the company. Further
diversification seems to be a kind of madness because the company is already very diversified
and it is difficult eve to manage what is already existing. Such a great size makes company
unable to be flexible in terms of maneuvers in difficult situations like crisis or competition on the
market. Also, there is no such a great need in that, because the companys results in most
spheres, especially in terms of parks are really good. So, the best way is to focus firstly on inner
issues and remain a leading position on the markets the company has already penetrated.
Implementation/Action Plan

To come to the desired result firstly we need to manage with personnel, invite more competent
individuals and cancel the worst performing ones.

After that, the new team should be established, trained to work as one unit to achive highest
possible results. According to the pricing in the industry, that wont cost much, but bring even
more results and possible profit.

New performing team may create new perspective projects and optimize the work of the unit,
which will result in the outcomes in terms of revenues and net income.

Decreasing the production of DVDs will make them an exclusive product for true fans and
create more demand on it. The need for disks goes down, as the internet develops and the
company already has a site with sustainable content. Another reason is that less number on disks
on hands will also push people to watch out TV channels, which also results in profits for the
enterprise. The idea is that the channels are showing the products created by Movie Studio
division will increase their rating with showing new content competitive, fresh one.

However, the time is needed. Teambuilding and training together with finding appropriate
labor force will take about 4 months and 50 000 USD. But after that the possible gains from
16 166 mln. USD may increase 1,3 times to 20 950,8 mln. USD. That will move them
significantly, give more potential to grow and compete and cut most of costs and losses the
company has suffered.