Walt Disney Company Business and Competitors - Case Study Example

19th November Introduction The Walt Disney Company is a US based firm which was founded in 1923. Being headquartered in Burbank, California, the company services are undertaken at the global level. Major products that Disney has established include cable television, web portals, films, theme parks, publishing, and broadcasting among others. Having being founded by Roy Disney and Walt Disney, the company whose Chief Executive Officer is Bob Iger, has effectively penetrated the US market despite the stiff competition in the country. This paper seeks to discuss some of the notable aspect of Disney that has made it to remain competitive locally and globally. Disney business and competitors Businesses As noted earlier, Disney Company has a diversified product portfolio that has made it to effectively face off its competitors in the market. The company is a major diversified family entertainment that undertakes it businesses in various segments. The first segment is the Media Networks. Media Networks involves various products such as broadcast, radio, digital businesses, and cables that are provided by two divisions of the company which are ESPN Inc and ABC Television Group. The second segment is Parks and Resorts. Parks and Resorts which is a well built unique destination that was established in 1955. Walt Disney Parks and Resorts has become one of the leading providers of family leisure in the globally. The loyalty that families have for Walt Disney Parks and Resorts is based on the world-class 11 theme parks and more than 40 resorts that are not comparable with those of the competitors. The third Disney’s segment is the Walt Disney Studios. The studios, which form the base on which the Disney Company was built, provides quality music as well as movies to the consumers locally and internationally. The company releases films through various banners that include Touchstone Pictures, Walt Disney Animation Studios, Marvel Studios, Disneynature, and Lucasfilm among others (David 23). The fourth segment is Disney Consumer Products DCP. DCP is focused at providing innovative consumer products that comes in thousands of categories. With more than 350 stores globally, Disney Company is known for producing high quality and unique brands that meet the needs of its consumers in the international market. The fifth segment, Disney Interactive is one of the largest creators of high quality interactive entertainment in the world. Some of the notable products that are provided by Disney Interactive include console games, blockbuster mobile, Disney.com, and online virtual worlds. Competitors Disney Company major competitor is Comcast Corporation. Comcast is the world largest cable and broadcasting company. Just like Disney Company, Comcast has a vey wide product portfolio that makes it to generate high amount of revenue in the international market. Other 3 major competitors in the US market include Twenty-First Century, Inc, NBC Universal Media, LLC, and TIME Warner Inc. With the increased profit in the entertainment industry, various firms are now entering the industry implying growth in the level of competition. Macro factors that may affect Disney Company Political factors As country with a democratic government, US support the companies that operate in line with the government regulations. The country’s laws that are made in parliament cover matters that relates to standard of businesses and service delivery. As a company with a wide product portfolio, Disney Company is likely to be affected by government laws for instance that touch on broadcasting, entertainment and film production. Economic Factors Employment is one of the macro factors that may affect Disney. As the country with increased employment opportunities based on the expansive level investment, more people will be employed in US resulting to an increase in household income. As a result, the consumers will have higher purchasing power resulting to an increase in demand for Disney Company brands. Another economic aspect that may impact on the company is availability of economic resources in the country. For example, adequate space where Disney can establish more premises in the country or availability of skilled labor. Socio-Cultural factors Socio-Cultural factors must be considered by Disney Company not only in US but also in foreign countries. Some of the major aspects that the company must consider include education level of its consumers, customs, taste and preferences, and traditions (Aayush 6). This implies that before the company establishes a local or a foreign outlet it should study the socio-cultural factors of the region. Other factors that Disney must consider are environmental pollution, consumption of products, role of women, changing lifestyle patterns, and family structures. Technological factors Technology is one of the most important aspects that may affect Disney Company. As a company that utilizes high level of technology in its operations, Walt Disney must take into consideration the innovations that have emerged and which improves the marketability of its brands. Environmental factors With the increased demand that companies adopt effective and environment friendly methods of production, Disney must ensure that its activities are inline with the environmental laws that are adopted locally and globally. Legal factors Changes in legal factors for example establishment of new investment regulations and business registration process, may impact of the Disney Company operations. This implies that a legal analysis of the target markets must be done by the company prior to entering the country. Effect of current US economic environment on Disney Company Apart from global economic environment, Disney Company may also be affected by the current US economic development. For example, with the creation of more than 300,000 job opportunities per month in the US economy, it has resulted to increased income for households. As a result, more US families are in a position to acquire services and products being produced by Disney Company. However, US gross domestic product reduced from 4.6% to 3.5% within the first 3 quarters of 2014. This implies that if the trend in the reduction continues, it may negatively impact of the demand for the company brands in US market. Similarly, the reduction of personal income from 0.3% in August 2014 to 0.2% in September 2014 is an indication that most of the consumers may allocate most of their financial resources to purchase basic goods before turning to Disney brands. This may lead to reduction in sales for the company. However, with the reduction current account deficit in US by 3.6% in the 2nd quarter in 2014, it is an indication that the economy is still improving. If this trend is maintained, the demand for the company products in the 5 segments is likely to improve. Risks in Walt Disney Company industry and the risks the company faces Just like other industries, broadcasting and film industry is faced with various risks. For example, during the production the possibility of death for the parties involved is high. An example was the death of one of the actors of Channel 4’s Time Team. Similarly, Conway Wickliffe died during the rehearsal of Batman film, The Dark Knight when his 4x4 hit a tree. Falling from high heights is another risk for instance when installing the broadcasting equipments. Such accidents may occur regardless of the expertise of the personnel. It is thus vital for the firms within this industry to come up with risk management policies. The carbon and other dangerous rays that are emitted by companies if not managed properly may not only affect the employees but also the consumers. Specifically, Disney Company is faced with a number of risks. For example, the management realized that changes in the global and regional markets may affect the company profits. For instance, due to the 2007/2008 economic recession the company experienced reduced spending in the parks, decreased demand for its products and decreased advertising (Nancy 13). Another risk is the ever changing technology. Even though the company adopts high technology, new technological developments may involve Disney brands that are not fully developed. Other risks includes changing intellectual property laws that entails large amount of Disney brands, invasion of electronically stored data, and high costs of new investments. Disney Company financial trends One of the major aspects that led to expansion of Disney and improved financial performance in 2013 was the acquisition of Lucasfilm Ltd in 2012. The company distributed 37.1 shares while the acquisition cost $2.2 billion in cash. The net income attributable to the Disney financial performance was impacted by 5 major issues. First, a $321 million charge related to cedar litigation. Secondly, a $ 214 million used for restructuring and impairment charges. Thirdly, a $55 million charge for the company’s share of expense related to the Hulu Equity Redemption. Fourthly, a tax adjustment of $207 million. Fifthly, a $219 million gain after the sale of the company’s 50% interest in ESPN STAR Sports in addition to a $33 million on the sale of certain businesses (Kim 36). The five issues impacted on EPS in 2013 and 2012 as indicated below. Figures in million USD, except per share data Pre-tax income/loss Tax Benefit/Expense After-tax Income/Loss EPS Favorable/ Adverse Celador litigation charge (321) 119 (202) (0.11) Restructuring and impairment charges (214) 78 (136) (0.07) Hulu redemption charges (55) 20 (35) (0.02) Gain on sale of businesses 252 (48) 204 0.08 Favorable tax adjustment - 207 207 0.12 Total (338) 376 38 (0.01) Disney ratio analysis from 2011 to 2013 Ratio 2011 2012 2013 Gross margin 19.03 20.95 20.97 Earnings per share 2.52 3.15 3.39 Payout ratio 15.82 19.23 22.14 Book value per share 20.15 22.09 25.24 Operating margin 18.89 20.73 20.52 EBT margin 19.67 21.90 21.35 Financial leverage 1.94 1.88 1.78 Return on equity 12.85 14.73 14.43 Return on assets 6.81 7.75 7.88 Return on invested capital 19.48 20.62 28.55 Disney cash flow 2011 to 2013-figures in USD 2011 2012 2013 Net Operating Income 6.99B 7.97 B 9.45B Net Investment Activities (3.29B) (4.76B) (4.68B) Net Financing Activities (3.23B) (2.99B) (4.21B) Free Cash Flow 3.44 B 4.18B 6.65B Based on the above analysis, it is clear that in 2012, Disney financial performance was better as compared to 2011. Based on the increased investment and extensive marketing strategies as well as the improved US economy, the company further experienced financial improvement in 2012. Given the expansion strategies and the improvement in business operations, Disney financial performance in 2014 is expected to improve further. Likewise, the company cash flow increased by 21.5% in 2012 and further by 59% in 2013. This is an indication with the company expansion of the operations; the company cash flow is expected to increase by a higher percentage in 2014. Walt Disney beta Disney Company beta is 1.22. This implies that the company’s security is theoretically 22% more volatile than the market. On the part of the shareholders this indicates that even though the high beta poses more risks, there is a possibility of high returns. With a market capitalization of 154.63B, Disney Company will generate adequate returns that will make the shareholders become loyal to Disney while more investors will be attracted to invest in the company. In providing the performance of Walt Disney Company in the New York Stock Exchange, there is disparity between agencies. For example, while some indicate a beta of 1.22 others show it as 1.19. This is based on the methods that are used for rating by the agencies as well as the preferred stock investors. One of the major factors that have made US economy to be developed is the well established bond market and stock market. For instance, the US bond market is valued at more than $34 trillion while the stock market is valued at more than $25 trillion Companies such as Disney participate in the bond as a way of getting the funds that is used in their expansion programs as well on research and development. One of the notable aspects of bonds is that they help to lower costs of infrastructure renovation as well replacement of public works in addition to expanding businesses. Disney participation in the bond market is essential in the sense that it enables the company to get extra financial resources to undertake its activities such as construction of plants, and factories among others. The borrower, who is the issuer of the bond, makes a promise which is legal in nature to repay the amount borrowed to the holder in particular future date. Another point to note is that to the issuer or the borrower the cost of borrowing represents the interest expense. On the other hand, the dependable interest income is the compensation for giving the money for the investors. Major examples of outstanding bonds in US market includes municipal, mortgage related, asset-backed, treasury, federal agencies, and corporate. Weighted cost of capital Walt Disney Company weighted cost of capital which includes equity and borrowings as well as capital lease stands at 14.25%. Based on the company WACC analysis, the company weighted cost of capital has changed substantially. For example, in2010 the company WACC stood at 5.22% while in 2014 it reached 14.25%. This is due to the increased equity as well as improved company activities in the US market and foreign countries. Based on the fact that Disney has multiple companies within the conglomerate and is widely diversified, WACC is not a sensible discount rate. It is worth to note that a market segment such as media networks which generates significant amount of profit requires more capital. Similarly, parks and resorts need more capital to make regular updates as well as in research and development. Thus, Walt Disney needs a different discount rate that is in a position to provide a proper way of determining the breakdown of equity and debt. Specific events that have affected their Walt Disney market prices Being a company that puts emphasize on product diversification and brand quality, Walt Disney has attracted many investors resulting to fair market prices. In addition, the company has adopted new ways of distributing its contents. For example, it has adopted video-on-demand online as well as television shows an aspect that has resulted to investor’s confidence. The company has also established itself as a strong firm that is focused at generating higher returns for its shareholders. For example, by acquiring firms such as Marvel for $4 billion it was able to acquire key Marvel characters such as Iron Man, Spider Man as well as X-Men among others. This resulted to a higher demand for the company stock in the New York Stock Exchange as well as good market prices. Conclusion Based on the above discussion, it is clear that Walt Disney success has been achieved by diversification of product in its five market segments that include Media Networks, Parks and Resorts, Walt Disney Studios, Disney Consumer, and Disney Interactive. During its operations, Disney is faced with stiff competition from companies such as Comcast Corporation, Twenty-First Century, Inc, NBC Universal Media, LLC, and TIME. As indicated in the paper, Disney activities are not only positive affected by aspects such as economy, socio-cultural, environment, and political factors but also by US economic factors such as employment and improved gross domestic product. Notable risks that can affect Disney operations include changes in regional markets and ever improving technology. As the result of improved global activities, Disney financial performance has significantly improved as indicated in the ratio analysis and cash flows sections of the paper. Works Cited Aayush, V. 2014. Macro factors affecting business environment. http://www.slideshare.net/aayush30/macro-factors-affecting-business-environment David, K. Mouse Tales: A Behind-the-Ears Look at Disneyland. London: Sage, 1994.Print. Information on Walt Disney Financial performance. Available from http://thewaltdisneycompany.com/ Kim, M. The Keys to the Kingdom: How Michael Eisner Lost His Grid. New York: Macmillan publishers. Nancy, M. 2013. The Disney Company: Success Strategies and Risk Factors. Available From http://simondixie.hubpages.com/hub/The-Disney-Company-Success-Strategies-and-Risk-Factors Read More