The Walt Disney Company – 2013

A. Case Abstract

The Walt Disney Company is an entertainment company with worldwide operations. Disney’s two
largest segments are Media Networks and Parks and Recreation. Media Networks consists of ABC,
ESPN, Disney films, newly acquired Lucusfilms, 35 radio stations, among others. Parks and
Recreation includes the world famous Disney theme parks and the more recent Disney cruise line.
Disney has theme parks in the USA, France, China, and Hong Kong. In addition, Disney operates
three other divisions: Studio Entertainment, Consumer Products, and Interactive Media. The
Interactive Media segment (aimed around smartphone game apps) has been struggling, recently
reporting a net loss for calendar 2012. Headquartered in Burbank, California, Disney reported
revenues of over $42 billion in 2012, up 3 percent from the previous year.

B. Vision Statement (actual)

To make people happy

(proposed)

To offer the best family entertainment in the world through theme parks, cruises, movies, and radio
and television coverage of news and sporting events globally.

C. Mission Statement (actual)

To be one of the world’s (3) leading producers and providers of entertainment and information (2).
Using our portfolio of brands to differentiate our content, services and consumer products we seek to
develop the most creative, innovative and profitable entertainment experiences and related products in
the world (5).

(proposed)

We are on a mission everyday to serve customers young and old (1) with outstanding family
entertainment. By offering popular theme parks and Disney TV programming to our newly acquired
ABC, ESPN, and cruise lines (2), we provide well-diversified family entertainment (5) worldwide (3).
We utilize many Disney characters such as Mickey Mouse and Donald Duck (7) to excite customers
globally. We produce apps for smartphones throughout Interactive Media division (4). We give back
generously to our communities (6) and offer many internships for deserving college students (8).
Everything we do at Disney could is possible because of our great employees (9) and fans worldwide.

1. Customers
2. Products or services
3. Markets
4. Technology
 5. Concern for survival, growth, and profitability
6. Philosophy
7. Self-concept
8. Concern for public image
9. Concern for employees

D. External Audit
Opportunities

1. There has been a 5.8% increase in amusement park attendance worldwide.

2. The USA is expected to see a 10% increase in population growth over the next 10 years.
3. Recent issues with Carnival Cruise ships mechanical malfunctions are leaving many customers
looking for a new cruise line.
4. Texas has a population of over 26 million, is half way between Disney parks in California and
Florida and an easy drive from Mexico.
5. 3D Box Office films are up 40% from 4 years ago
6. Mobile app market games have seen over 3 billion downloads and games can be brought to market
in half the time it takes to provide for a console system.
7. Online movie rentals are up 41% in 2012.
8. People are increasingly spending more time at home watching larger screen TVs.
9. Increasing use of smartphones with over 50% of the population in Europe and the USA owning a
smartphone.
10. The new college football playoff TV rights are available for bidding.

Threats

1. College conference realignments allow conferences to exit TV contracts and sign new more
lucrative TV contracts.
2. Disney competes directly with NBC Universal, Paramount Pictures, and CBS for TV
entertainment and sports.
3. Carnival Cruise Line reported revenues of $15.38 billion compared to Disney Parks and Resorts
revenue of $12.9 billion in 2012.
4. There are many competing theme parks across the USA and world with most having lower prices
than Disney.
5. Piracy in the Film and Music Industry.
6. Strikes in professional sports could severely impact revenues for ABC and ESPN.
7. U.S. consumer spending on DVDs was down about 20% in 2010 from 2009, to $7.8 billion. That
was 43% below a 2006 peak of $13.7 billion
8. Unemployment and gas prices both remain high around the world.
9. Universal Studios, Island of Adventure, and Wizarding World of Harry Potter has reported an
increase of 1.725 million in attendance over the past year.
10. People in the developed world are having fewer children and waiting later in life to have kids.
Competitive Profile Matrix

Disney CBS Carnival

Critical Success Factors Weight Rating Score Rating Score Rating Score
Differentiation 0.10 4 0.40 3 0.30 2 0.20
Market Penetration 0.08 4 0.32 3 0.24 1 0.08
Revenues 0.08 4 0.32 1 0.08 2 0.16
Income 0.10 4 0.40 2 0.20 1 0.10
Movie Titles 0.08 4 0.32 2 0.16 1 0.08
Cruise Ships Market Share 0.08 2 0.16 1 0.08 4 0.32
Reliance on Disposable Income 0.08 2 0.16 4 0.32 1 0.08
Product Quality 0.06 4 0.24 2 0.12 3 0.18
TV Market Share 0.12 4 0.48 3 0.36 1 0.12
Brand Awareness 0.07 4 0.28 3 0.21 2 0.14
Goodwill Impairment 0.05 1 0.05 2 0.10 3 0.15
Net Worth 0.10 4 0.40 3 0.30 2 0.20
Totals 1.00 3.53 2.47 1.81

Disney is substantially better than either CBS or Carnival, being more diversified and having
substantially more revenues.
EFE Matrix

Opportunities Weight Rating Weighted Score

1. There has been a 5.8% increase in amusement park attendance 0.04 3 0.12
worldwide.
2. The United States is expected to see a 10% increase in 0.04 4 0.16
population growth over the next 10 years.
3. Recent issues with Carnival Cruise ships mechanical 0.04 1 0.04
malfunctions are leaving many customers looking for a new
cruise line.
4. Texas has a population of over 26 million, is half way between 0.05 1 0.05
Disney parks in California and Florida and an easy drive from
Mexico.
5. 3D Box Office films are up 40% from 4 years ago. 0.05 2 0.10
6. Mobile app market games have seen over 3 billion downloads 0.03 3 0.09
and games can be brought to market in half the time it takes to
provide for a console system.
7. Online movie rentals are up 41% in 2012. 0.05 3 0.15
8. People are increasingly spending more time at home watching 0.03 3 0.09
larger screen TVs.
9. Increasing use of smart phones with over 50% of the population 0.03 3 0.09
in Europe and the USA owning a smart phone.
10. The new college football playoff TV rights are available for 0.05 4 0.20
bidding.

Threats Weight Rating Weighted Score

1. College conference realignments allow conferences to exit TV
0.05 3 0.15
contracts and sign new more lucrative TV contracts.
2. Disney competes directly with NBC Universal, Paramount
0.11 3 0.33
Pictures, and CBS for TV entertainment and sports.
3. Carnival Cruise Line reported revenues of 15.38 billion compared
0.06 3 0.18
to Disney Parks and Resorts revenue of 12.9 billion in 2012.
4. There are many competing theme parks spread across the USA
0.07 2 0.14
and world with most having lower prices than Disney.
5. Piracy in the Film and Music Industry. 0.08 3 0.24
6. Strikes in professional sports could severely impact revenues for
0.03 3 0.09
ABC and ESPN.
7. U.S. consumer spending on DVDs was down about 20% in 2010
from 2009, to $7.8 billion. That was 43% below a 2006 peak of 0.04 2 0.08
$13.7 billion.
8. Unemployment and gas prices both remain high around the
0.03 4 0.12
world.
9. Universal Studios, Island of Adventure, and Wizarding World of
Harry Potter has reported an increase of 1.725 million in 0.06 3 0.18
attendance over the past year.
10. People in the developed world are having fewer children and
0.06 2 0.12
waiting later in life to have kids.
TOTALS 1.00 2.72

Disney has an above average EFE score of 2.72.

E. Internal Audit
Strengths

1. Disney owns ABC, ESPN, Walt Disney Studios, and Pixar among other media outlets.
2. Disney owns theme parks in the USA, Japan, France, and Hong Kong. The firm also owns Disney
Cruise Line.
3. Net income rose 18% in fiscal 2012.
4. Media Networks segment accounted for 45% of 2012 revenues and 67% of income.
5. Parks and Resorts segment accounted for 31% of 2012 revenues and 15% of income.
6. Studio Entertainment produces Spider-man, The Fantastic Four, X-Men. This segment experienced
revenues declining 8% and income increasing 17% in 2012.
7. Disney channels worldwide consist of 94 kids channels; Disney’s profit margin ratio (12.40) is almost
half the industry’s (22.40). Family entertainment channels available in 169 nations and 33 languages.
8. Out of the top 25 amusement/theme parks worldwide, Disney holds 11 of the spots with 8 of them
being in the top 10.
9. Debt to Equity ratio of 0.4 suggests Disney is using debt to finance at an appropriate level while
revenues have increased for 9 of the last 10 years.
10. ESPN agreed to $15.2 billion, 8-year contract, with NFL “Monday Night Football.”

Weaknesses

1. Interactive Media, which delivers games to smartphones, has reported negative net income for each of
the last three years.
2. The firm has over $25 billion in goodwill accounting for 1/3 of total assets.
3. The firm has $2.5 billion of works-in-progress and is attempting to manage the building of the new
park in Shanghai, and integrating the new acquisition of Lucasfilm.
4. The firm’s revenue/employee is roughly half that of the industry average.
5. Theme park attendance increased only 3% in 2012, and 1% in 2011; revenues generated from
international theme parks are lagging substantially behind domestic theme parks.
6. Walt Disney currently only has 4 cruise ships.
7. Disney’s gross margin is 21% with the industry average being 31%.
8. Disneyland Paris saw operating income decrease by 25%.
9. Disney DVD market down 25% in unit sales.
10. Many of Disney’s parks traditional attractions have not received meaningful upgrades in decades.
Financial Ratio Analysis

Profit Margin Percent Disney Industry S&P 500

Gross Margin 21.18 30.99 38.38
Pre-Tax Margin 21.58 19.86 16.81
Net Profit Margin 14.82 14.37 12.45

Liquidity Ratios
Debt/Equity Ratio 0.4 0.56 1.11
Current Ratio 1.1 1.4 1.4
Quick Ratio 1 1.2 1

Profitability Ratios
Return On Equity 14.9 14.98 22.69
Return On Assets 8.3 7.6 7.6
Return On Capital 10.3 9.4 10

Efficiency Ratios
Income/Employee 39,066 77,063 125,200
Revenue/Employee 263,645 553,013 1.04 Mil
Receivable Turnover 6.5 5.7 13.9
Inventory Turnover 23.7 15.5 13.3
Asset Turnover 0.6 0.5 0.8

Disney is doing well financially on all the ratios presented above. The only area where Disney lags the
industry average is on revenue/employee which is half that of the industry average.

Net Worth Analysis (in millions)

Disney Company Worth Analysis

Stockholders' Equity - (Goodwill + Intangibles) $5,144
Net Income x 5 $29,850
(Share Price/EPS) x Net Income $116,678
Number of Shares Outstanding x Share Price $115,740
Method Average $66,853

CBS Company Worth Analysis

Stockholders' Equity - (Goodwill + Intangibles) $11,384
Net Income x 5 $8,650
(Share Price/EPS) x Net Income $32,257
Number of Shares Outstanding x Share Price $29,079
Method Average $20,343

Using methods 3 and 4, Disney is worth nearly four times CBS. However, using method one which takes
into account goodwill and intangibles, CBS is worth over twice Disney.
IFE Matrix

Strengths Weight Rating Weighted Score

1. Disney owns ABC, ESPN, Walt Disney Studios, and Pixar among
0.09 4 0.36
other media outlets.
2. Disney owns the Walt Disney Theme parks in the USA, Japan,
0.05 4 0.20
France, and Hong Kong. The firm also owns Disney Cruise Line.
3. Net income rose 18% in fiscal 2012. 0.07 4 0.28
4. Media Networks segment accounted for 45% of 2012 revenues
0.05 4 0.20
and 67% of income.
5. Parks and Resorts segment accounted for 31% of 2012 revenues
0.05 4 0.20
and 15% of income.
6. Studio Entertainment produces Spider-man, The Fantastic Four,
X-Men. This segment experienced revenues declining 8% and 0.05 3 0.15
income increasing 17% in 2012.
7. Disney channels world wide consists of 94 kids and Disney’s
profit margin ratio (12.40) is almost half of the industry’s (22.40).
0.05 4 0.20
Family entertainment channels available in 169 nations and 33
languages.
8. Out of the top 25 amusement/theme parks worldwide, Walt
0.05 4 0.20
Disney holds 11 of the spots with 8 of them being in the top 10.
9. Debt to Equity ratio of 0.4 suggesting Disney is using debt to
finance at an appropriate level while revenues have increased for 0.06 4 0.24
9 of the last 10 years.
10. ESPN agreed to $15.2 billion, 8-year contract, with NFL “Monday
0.06 4 0.24
Night Football.”
Weaknesses Weight Rating Weighted Score
1. Interactive Media segment which delivers games to smart
phones has reported negative net income for each of the last 0.03 2 0.06
three years.
2. The firm has over $25 billion in goodwill accounting for 1/3 of
0.04 1 0.04
total assets.
3. The firm has $2.5 billion of works in progress and is attempting
to manage the building of the new park in Shanghai and 0.04 2 0.08
facilitating the new acquisition of Lucasfilm for over $4billion.
4. The firm’s revenue/employee is roughly half that of the industry
0.02 1 0.02
average.
5. Theme park attendance increased only 3% in 2012, and 1% in
2011. With revenues generated from international theme parks 0.04 1 0.04
lagging substantially behind domestic theme parks.
6. Walt Disney currently only has 4 cruise ships. 0.04 2 0.08
7. Disney’s gross margin is 21% with the industry average being
0.05 2 0.10
31%.
8. Disneyland Paris saw operating income decrease by 25%. 0.04 1 0.04
9. Disney DVD market down 25% in unit sales. 0.04 1 0.04
10. Many of Disney’s parks traditional attractions have not received
0.08 1 0.08
meaningful upgrades in decades.
TOTALS 1.00 2.85
Disney is performing better than average on internal issues with an IFE score of 2.85. Disney is
capitalizing well on their strengths; however, several weaknesses are major in particular the $25 billion in
goodwill and the lack of upgrading many of the parks traditional attractions.