PART 2

Cases in Crafting and

Executing Strategy
CASE 21

The Walt Disney Company: Its

Diversification Strategy in 2020 ®

John E. Gamble
Texas A&M University-Corpus Christi

T
he Walt Disney Company was a broadly diversi- and a 39.1 ­percent stake in Sky, Europe’s leading
fied media and entertainment company with a entertainment company that served nearly 23 ­million
business lineup that included theme parks and households in five countries. The Fox broadcast net-
resorts, motion picture production and distribution, work, 29 local television stations, Fox News, and Fox
cable television networks, the ABC broadcast tele- Sports were not included in the merger and make
vision network, eight local television stations, and a up a new independent, public company named Fox
variety of other businesses that exploited the com- Corporation.
pany’s intellectual property. The company’s revenues Disney CEO Robert Iger commented on the
had increased from approximately $52.5 ­billion in ability of the acquisition to further boost share-
fiscal 2015 to approximately $62.6 ­billion in fiscal holder value.
2019 and its share price had regularly outperformed The acquisition of 21st Century Fox will bring signifi-
the S&P 500. While struggling somewhat in the mid- cant financial value to Disney and the shareholders of
1980s, the company’s performance had been com- both companies, and after six months of integration
mendable in almost every year since Walt Disney planning we’re even more enthusiastic and confident in
created Mickey Mouse in 1928. the strategic fit of these complementary assets and the
Much of the company’s growth in revenues had talent at Fox.
resulted from acquisitions of leading motion picture The combination of Disney and 21st Century Fox
production companies. In 2006, the Walt Disney is an extremely compelling proposition for consumers.
Company completed the $7.4 ­billion acquisition of It will allow us to create even more appealing high-­
Pixar, the producer of Toy Story—the highest gross- quality content, expand our direct-to-consumer offerings
and international presence, and deliver more exciting
ing film of 1995. In 2009, Disney acquired Marvel
and personalized entertainment experiences to meet the
Entertainment for $4.2 ­billion, which had produced growing demands of consumers worldwide.1
highly successful Iron Man, Spider-Man, and Incredible
Hulk films. Walt Disney acquired Lucasfilm in 2012 Just weeks after releasing impressive first quarter
in a $4 ­billion cash and stock transaction. Lucasfilm fiscal 2020 results for the combined company, Walt
was founded by George Lucas and was best known Disney Company announced the retirement of CEO
for its Star Wars motion picture franchise. However, Bob Iger—the architect of the series of acquisitions that
the company’s 2019 acquisition of 21st Century Fox had compounded the company’s revenues and drove
for $71.3 ­billion in cash and stock had the potential shareholder value for nearly 15 years. The February 25,
to radically improve its future financial performance. 2020 announcement stated that Mr. Iger would
The acquisition of 21st Century Fox extended remain Executive Chairman and direct the com-
Disney’s impressive collection of media franchises to pany’s creative endeavors through 2021, with Mr. Bob
include 20th Century Fox, FX, National Geographic
Channel, and Star India. Twenty-First Century Fox
also held a 30 ­percent ownership interest in Hulu Copyright ©2021 by John E. Gamble. All rights reserved.
C-280 PART 2 Cases in Crafting and Executing Strategy

Chapek becoming the Walt Disney Company’s sev- series with a new animated cartoon for Universal
enth CEO. Mr. Chapek, a 27-year veteran of the com- Studios. After Disney’s Oswald the Lucky Rabbit car-
pany had most recently held the title of Chairman of toons quickly became a hit, Universal terminated
Disney Parks, Experiences, and Products and would Disney Brothers Studio and hired most of Disney’s
not only be required to fully integrate the 21st Century animators to continue producing the cartoon.
Fox creative assets and operations into the Disney In 1928, Disney and Iwerks created Mickey
organization, but would also have to contend with the Mouse to replace Oswald as the feature character in
effects of the novel Coronavirus (COVID-19), which Walt Disney Studios cartoons. Unlike with Oswald,
were just becoming known to the world. Disney retained all rights over Mickey Mouse and all
subsequent Disney characters. Mickey Mouse and
COMPANY HISTORY his girlfriend, Minnie Mouse, made their cartoon
debuts later in 1928 in the cartoons, Plane Crazy, The
Walt Disney’s venture into animation began in 1919 Gallopin’ Gaucho, and Steamboat Willie. Steamboat
when he returned to the United States from France, Willie was the first cartoon with synchronized sound
where he had volunteered to be an ambulance driver and became one of the most famous short films of
for the American Red Cross during World War I. all time. The animated film’s historical importance
Disney volunteered for the American Red Cross only was recognized in 1998 when it was added to the
after being told he was too young to enlist for the National Film Registry by the United States Library
United States Army. Upon returning after the war, of Congress. Mickey Mouse’s popularity exploded
Disney settled in Kansas City, Missouri, and found over the next few decades with a Mickey Mouse Club
work as an animator for Pesman Art Studio. Disney, being created in 1929, new accompanying characters
and fellow Pesman animator, Ub Iwerks, soon left the such as Pluto, Goofy, Donald Duck, and Daisy Duck
company to found Iwerks-Disney Commercial Artists being added to Mickey Mouse cartoon storylines,
in 1920. The company lasted only briefly, but Iwerks and Mickey Mouse appearing in Walt Disney’s 1940
and Disney were both able to find employment with a feature length film, Fantasia. Mickey Mouse’s univer-
Kansas City company that produced short animated sal appeal reversed Walt Disney’s series of failures in
advertisements for local movie theaters. Disney the animated film industry and became known as the
left his job again in 1922 to found Laugh-O-Grams, mascot of Disney Studios, Walt Disney Productions,
where he employed Iwerks and three other animators and The Walt Disney Company.
to produce short animated cartoons. Laugh-O-Grams The success of The Walt Disney Company was
was able to sell its short cartoons to local Kansas sparked by Mickey Mouse, but Disney Studios also
City movie theaters, but its costs far exceeded its produced several other highly successful animated
revenues—forcing Disney to declare bankruptcy in feature films including Snow White and the Seven
1923. Having exhausted his savings, Disney had only Dwarfs in 1937, Pinocchio in 1940, Dumbo in 1941,
enough cash to purchase a one-way train ticket to Bambi in 1942, Song of the South in 1946, Cinderella
Hollywood, California, where his brother, Roy, had in 1950, Treasure Island in 1950, Peter Pan in 1953,
offered a temporary room. Once in California, Roy Sleeping Beauty in 1959, and One Hundred-One
began to look for buyers for a finished animated-live Dalmatians in 1961. What would prove to be Disney’s
action film he retained from Laugh-O-Grams. The greatest achievement began to emerge in 1954
film was never distributed, but New York distributors when construction began on his Disneyland Park
Margaret Winkler and Charles Mintz were impressed in Anaheim, California. Walt Disney’s Disneyland
enough with the short film that they granted Disney resulted from an idea that Disney had many years
a contract in October 1923 to produce a series of earlier while sitting on an amusement park bench
short films that blended cartoon animation with live watching his young daughters play. Walt Disney
action motion picture photography. Disney brought thought that there should be a clean and safe park
Ub Iwerks from Kansas City to Hollywood to work that had attractions that both parents and children
with Disney Brothers Studio (later to be named Walt alike would find entertaining. Walt Disney spent
Disney Productions) to produce the Alice Comedies years planning the park and announced the construc-
series that would number 50-plus films by the series tion of the new park to America on his Disneyland
end in 1927. Disney followed the Alice Comedies television show that was launched to promote the
 CASE 21 The Walt Disney Company: Its Diversification Strategy in 2020 C-281

new $17 ­million park. The park was an instant suc- and CEO of ABC at the time of its acquisition by The
cess when it opened in 1955 and recorded revenues Walt Disney Company and remained in that position
of more than $10 ­million during its first year of oper- until made president of Walt Disney International by
ation. After the success of Disneyland, Walt Disney Alan Eisner in 1999. Bob Iger was promoted to presi-
began looking for a site in the eastern United States dent and chief operating officer of The Walt Disney
for a second Disney park. He settled on an area near Company in 2000 and was named as Eisner’s replace-
Orlando, Florida in 1963 and acquired more than ment as CEO in 2005. Iger’s first strategic moves in
27,000 acres for the new park by 1965. 2006 included the $7.4 ­billion acquisition of Pixar
Walt Disney died of lung cancer in 1966, but upon animation studios and the purchase of the rights to
his death, Roy O. Disney postponed retirement to Disney’s first cartoon character, Oswald the Lucky
become president and CEO of Walt Disney Productions Rabbit, from NBCUniversal. In 2007, Robert Iger
and oversee the development of Walt Disney World commissioned two new 340-meter ships for the Disney
Resort. Walt Disney World Resort opened in October Cruise Lines that would double its fleet size from
1971—only two months before Roy O. Disney’s death in two ships to four. The new ships ordered by Iger were
December 1971. The company was led by Donn Tatum 40 ­percent larger than Disney’s two older vessels and
from 1971 to 1976. Tatum had been with Walt Disney entered service in 2011 and 2012. Iger also engineered
Productions since 1956 and led the further develop- the $4.2 ­billion acquisition of Marvel Entertainment in
ment of Walt Disney World Resort and began the plan- 2009 that would enable the Disney production motion
ning of EPCOT in Orlando and Tokyo Disneyland. pictures featuring Marvel comic book characters such
Those two parks were opened during the tenure of as Iron Man, Incredible Hulk, Thor, Spider-Man, and
Esmond Cardon Walker, who had been an executive Captain America. In 2012, Walt Disney acquired
at the company since 1956 and chief operating offi- Lucasfilm in a $4 ­billion cash and stock transaction.
cer since Walt Disney’s death in 1966. Walker also Lucasfilm was founded by George Lucas and was best
launched The Disney Channel before his retirement known for its Star Wars motion picture franchise. The
in 1983. Walt Disney Productions was briefly led by $71.3 ­billion ­acquisition of 21st Century Fox in 2019
Ronald Miller, who was the son-in-law of Walt Disney. was Iger’s most ambitious merger and would create
Miller was ineffective as Disney chief executive officer tremendous ­market expansion opportunities and dif-
and was replaced by Michael Eisner in 1984. ficult integration challenges.
Eisner formulated and oversaw the implementa- Bob Chapek became The Walt Disney Company’s
tion of a bold strategy for Walt Disney Studios, which seventh CEO on February 25, 2020. Chapek had been
included the acquisitions of ABC, ESPN, Miramax a Disney employee for 27 years and produced strong
Films, and the Anaheim Angels, and the Fox Family results in several of the company’s businesses, including
Channel; the development of Disneyland Paris, its Theme Parks, Disney Resorts, Consumer Products,
Disney-MGM Studios in Orlando, Disney California and Walt Disney Studios Home Entertainment. His
Adventure Park, Walt Disney Studios theme park in most recent position prior to being named CEO was
France, and Hong Kong Disneyland; and the launch serving as Chairman of the Parks, Experiences and
of the Disney Cruise Line, the Disney Interactive Products since the segment’s creation in 2018 and as
game division, and the Disney Store retail chain. Chairman of its predecessor, Parks and Resorts, since
Eisner also restored the company’s reputation for 2015. Among the most notable accomplishments of
blockbuster animated feature films with the creation Bob Chapek was overseeing the opening of Shanghai
of The Little Mermaid in 1989, and Beauty and the Disney Resort, the creation of Start Wars: Galaxy’s
Beast and The Lion King in 1994. Despite Eisner’s Edge lands at Disneyland and Walt Disney World, the
successes, his tendencies toward micromanagement expansion of Disney Cruise Line with the construction
and skirting board approval for many of his initia- of three new ships, and the addition of Marvel-themed
tives and his involvement in a long-running deriva- attractions around the world.
tives suit led to his removal as chairman in 2004 and A financial summary for The Walt Disney
his resignation in 2005. Company for 2015 through 2019 is provided in
The Walt Disney Company’s CEO in 2018, Exhibit 1. Exhibit 2 tracks the performance of The
Robert (Bob) Iger, became a Disney employee in 1996 Walt Disney Company’s common shares between
when the company acquired ABC. Iger was president March 2013 and March 29, 2020.
C-282 PART 2 Cases in Crafting and Executing Strategy

EXHIBIT 1 Financial Summary for The Walt Disney Company, Fiscal Years
2015–2019 (in ­millions)
2019(1) 2018(2) 2017(3) 2016(4) 2015(5)

Statements of income
Revenues $69,570 $59,434 $55,137 $55,632 $52,465
Net income from continuing operations 10,913 13,066 9,366 9,790 8,852
Net income from continuing operations
   attributable to Disney 10,441 12,598 8,980 9,391 8,382
Per common share
   Earnings attributable to Disney
   Continuing Operations–Diluted $6.27 $8.36 $5.69 $5.73 $4.90
   Continuing Operations–Basic 6.30 8.40 5.73 5.76 4.95
  Dividends (6) 1.76 1.68 1.56 1.42 1.81
Balance sheets
Total assets $193,984 $98,598 $95,789 $92,033 $88,182
Long-term obligations 60,852 24,797 26,710 24,189 19,142
Disney shareholders’ equity 88,877 48,773 41,315 43,265 44,525
Statements of cash flows
Cash provided (used) by - continuing
  operations:
  Operating activities $5,984 $14,295 $12,343 $13,136 $11,385
  Investing activities (15,096) (5,336) (4,111) (5,758) (4,245)
  Financing activities (464) (8,843) (8,959) (7,220) (5,801)

(1) On March 20, 2019, the Company acquired TFCF for cash and Disney shares (see Note 4 to the Consolidated Financial Statements).
TFCF and Hulu’s financial results have been consolidated since the date of acquisition and had a number of adverse impacts on fiscal
2019 results, the most significant of which were amortization expense related to recognition of TFCF and Hulu intangible assets and fair
value step-up on film and television costs ($0.74 per diluted share), an impact from shares issued upon the TFCF acquisition ($0.74 per
diluted share), restructuring and impairment charges ($0.55 per diluted share) and TFCF and Hulu operating results ($0.27 per diluted
share). Additional impacts included a non-cash gain from remeasuring our initial 30% interest in Hulu to fair value ($2.22 per diluted share),
equity investment impairments ($0.25 per diluted share) and a charge for the extinguishment of a portion of the debt originally assumed in
the TFCF acquisition ($0.24 per diluted share). Cash provided by continuing operating activities reflected payments for tax obligations that
arose from the spin-off of Fox Corporation in connection with the TFCF acquisition and the sale of the RSNs acquired with TFCF and cash
used in continuing investing activities reflected a cash payment of $35.7 b­ illion paid to acquire TFCF, offset by the $25.7 ­billion in cash and
cash equivalents assumed in the TFCF acquisition.

(2) Fiscal 2018 results include a net benefit from the Tax Act ($1.11 per diluted share) and the benefit from a reduction in the Company’s
fiscal 2018 U.S. federal statutory income tax rate ($0.75 per diluted share) (see Note 10 to the Consolidated Financial Statements). In addi-
tion, fiscal 2018 included gains on the sales of real estate and property rights ($0.28 per diluted share) and an adverse impact from equity
investment impairments ($0.11 per diluted share).

(3) Fiscal 2017 results include a non-cash net gain in connection with the acquisition of a controlling interest in BAMTech ($0.10 per diluted
share) (see Note 4 to the Consolidated Financial Statements).

(4) Fiscal 2016 results include the Company’s share of a net gain recognized by A+E in connection with an acquisition of an interest in
Vice ($0.13 per diluted share).

(5) Fiscal 2015 results include the write-off of a deferred tax asset as a result of a recapitalization at Disneyland Paris ($0.23 per
diluted share).

(6) In fiscal 2015, the Company began paying dividends on a semiannual basis. Accordingly, fiscal 2015 includes dividend payments
related to fiscal 2014 and the first half of fiscal 2015.

Source: The Walt Disney Company 2019 10-K.

 CASE 21 The Walt Disney Company: Its Diversification Strategy in 2020 C-283

EXHIBIT 2  Performance of The Walt Disney Company’s Stock Price, March 2013
to March 29, 2020

(a) Trend in The Walt Disney Company’s Common Stock Price

165
150

135
Stock Price ($)

120

105
90

75

60

45
2014 2015 2016 2017 2018 2019 2020
Year

(b) Performance of The Walt Disney Company’s Stock Price Versus the S&P 500 Index
+180%
Percent Change: March 2013 = 0

The Walt Disney +160%

Company’s
Stock Price +140%
+120%
+100%
+80%
+60%
+40%
S&P 500
+20%
+0%
2014 2015 2016 2017 2018 2019 2020
Year

Source: Bigcharts.com

THE WALT DISNEY and distribution, music publishing, live theatrical

productions, children’s book publishing, interactive
COMPANY’S CORPORATE media, and consumer products retailing. The com-
STRATEGY AND BUSINESS pany’s corporate strategy was centered on (1) creat-
ing high-quality content, (2) exploiting technological
OPERATIONS IN 2020 innovations to make entertainment experiences
In 2020, The Walt Disney Company was broadly more memorable, and (3) international expansion.
diversified into theme parks, hotels and resorts, cruise The company’s 2006 acquisition of Pixar and 2009
ships, cable networks, broadcast television networks, acquisition of Marvel were executed to enhance the
television production, television station operations, resources and capabilities of its core animation busi-
live action and animated motion picture production ness with the addition of new animation skills and
C-284 PART 2 Cases in Crafting and Executing Strategy

characters. The company’s 2011 acquisition of UTV and a 43 ­percent interest in Shanghai Disney Resort.
was engineered to facilitate its international expan- Disney also licensed the operation of Tokyo Disney
sion efforts. The acquisition of Lucasfilm’s Star Wars Resort in Japan. Revenue for the division was primar-
franchise in 2012 not only allowed the company to ily generated through park admission fees, hotel room
produce new films in the series, but integrate Star charges, merchandise sales, food and beverage sales,
Wars into its other business units, including theme sales and rentals of vacation club properties, and fees
park attractions. The company’s 2019 acquisition of charged for cruise vacations.
21st Century Fox was made to further expand Disney’s Revenues from hotel lodgings and food and
portfolio of high-quality branded content with new beverage sales were a sizeable portion of the divi-
cable channels such as National Geographic, FX and sion’s revenues. For example, at the 25,000-acre Walt
accelerate its direct-to-consumer (DTC) strategy by Disney World Resort alone, the company operated
giving the company a 60 ­percent controlling interest 18 resort hotels with approximately 22,000 rooms.
in Hulu. Hulu was made the official streaming ser- Walt Disney World Resort also included the 127-acre
vice for FX Networks in 2020. Disney Springs retail, dining, and entertainment com-
Disney’s corporate strategy also called for suffi- plex where visitors could dine and shop during or after
cient capital to be allocated to its core theme parks park hours. Walt Disney World Resort in Orlando also
and resorts business to sustain its advantage in the included four championship golf courses, full-service
industry. The company expanded the range of attrac- spas, tennis, sailing, water skiing, two water parks,
tions at its theme parks with ­billion-dollar plus addi- and a 230-acre sports complex that was host to over
tions such as its new Toy Story Land attractions 200 amateur and professional events each year. In
opened in 2018 at Shanghai Disneyland and Disney’s 2019, Disney announced plans to build a Star Wars-
Hollywood Studios and its Star Wars Land opened themed hotel at Walt Disney World Resort.
in Disney’s Hollywood Studios and Anaheim’s Walt Disney’s 486-acre resort in California
Disneyland in 2019. Expansions were also underway included two theme parks—Disneyland and Disney
at Tokyo Disney Resort and Hong Kong Disneyland. California Adventure—along with three hotels and
The Walt Disney Company’s corporate strategy its Downtown Disney retail, dining, and entertain-
also attempted to capture synergies existing between ment complex. Disney California Adventure was
its business units. Two of the company’s highest gross- opened in 2001 adjacent to the Disneyland property
ing films, Pirates of the Caribbean: On Stranger Tides and included four lands—Golden State, Hollywood
and Cars 2 were also featured at the company’s Florida Pictures Backlot, Paradise Pier, and Bug’s Land. The
and California theme parks. The company had lever- park was initially built to alleviate overcrowding at
aged ESPN’s reputation in sports by building 230-acre Disneyland and was expanded with the addition of
ESPN Wide World of Sports Complex in Orlando that World of Color in 2010 and Cars Land in 2012 to
could host amateur and professional events and boost strengthen its appeal with guests.
occupancy in its 18 resort hotels and vacation clubs Aulani was a 21-acre oceanfront family resort
located at the Walt Disney World resort. located in Oahu, Hawaii. Disneyland Paris included
In 2020, the company’s business units were two theme parks, seven resort hotels, two conven-
organized into four divisions: Parks, Experiences and tion centers, a 27-hole golf course, and a shopping,
Products, Media Networks, Direct-to-Consumer & dining, and entertainment complex. The company’s
International, and Studio Entertainment. Hong Kong Disneyland, Shanghai Disney Resort,
and Tokyo Disney Resort them parks were highly
popular with ambitious expansion plans.
Parks, Experiences and Products The company also offered timeshare sales and rent-
The Walt Disney Company’s parks and resorts division als in 15 resort facilities through its Disney Vacation
included the Walt Disney World Resort in Orlando, Club. The Disney Cruise Line operated four ships out
the Disneyland Resort in California, Disneyland of North America and Europe. Disney’s cruise activ-
Paris, the Aulani Disney Resort and Spa in Hawaii, ities were developed to appeal to the interests of chil-
the Disney Vacation Club, the Disney Cruise Line, dren and families. Its Port Canaveral cruises included
and Adventures by Disney. The company also owned a visit to Disney’s Castaway Cay, a 1,000-acre private
a 47 ­percent interest in Hong Kong Disneyland Resort island in the Bahamas. The popularity of Disney’s
 CASE 21 The Walt Disney Company: Its Diversification Strategy in 2020 C-285

cruise vacations allowed its fleet to be booked to full and two stores in China. Its publishing business
capacity year-round. included comic books, various children’s book maga-
The company’s consumer products division zine titles available in print and eBook format, and
included the company’s Disney Store retail chain and smartphone and tablet computer apps designed for
businesses specializing in merchandise licensing and children. The division’s sales were primarily affected
children’s book and magazine publishing. In 2020, by seasonal shopping trends and changes in con-
the company owned and operated approximately 200 sumer disposable income.
Disney Stores in North America, approximately 80 The division’s operating results for fiscal years
stores in Europe, approximately 50 stores in Japan, 2018 and 2019 are presented in Exhibit 3.

EXHIBIT 3 Operating Results for Walt Disney’s Parks, Experiences and Products
Business Unit, Fiscal Years 2018–2019 (in millions)
2019 2018

Revenues
Theme park admissions $7,183 $6,504
Parks & Experiences merchandise, food and beverage 5,674 5,154
Resorts and vacations 5,938 5,378
Merchandise licensing and retail 4,249 4,494
Parks licensing and other 1,657 1,494
Total revenues 24,701 23,024
Operating expenses 13,326 12,455
Selling, general, administrative and other 2,930 2,896
Depreciation and amortization 2,327 2,161
Equity in the loss of investees 23 25
Operating Income $6,095 $5,487

Source: The Walt Disney Company 2019 10-K.

Media Networks to us how people get those channels. . .but what’s more
important to us is the quality of the brand and intellec-
The Walt Disney Company’s media networks busi- tual property that fits under that brand umbrella. And
ness unit included its domestic and international cable our intention is to. . .migrate those brands and those
networks, the ABC television network, television pro- products in the more modern direction from a distribu-
duction, and U.S. domestic television stations. The com- tion and consumption perspective.2
pany’s television production was limited to television
Exhibit 4 provides the market ranking for
programming for ABC and its eight local ­television
Disney’s local stations and its number of subscrib-
stations were all ABC affiliates. Six of Disney’s
ers and ownership ­percentage of its cable networks
eight domestic television stations were located in the
for 2013, 2017, and 2019. The exhibit also provides
10 largest U.S. television markets. In all, ABC had
a brief description of its ABC broadcasting and
240 affiliates in the United States.
television production operations. The division also
When asked about the decline in cable television
included ESPN Radio, which aired sports-oriented
viewership, Bob Iger suggested that content deliv-
radio programming on 400 terrestrial radio stations
ery method was less important than the quality and
(4 of which were owned by Disney) in the United
appeal of content.
States. Operating results for Disney’s media net-
Well, for the most part, we’ve looked at channels less as works division for fiscal 2015 through fiscal 2019 are
channels and more as brands. And it’s less important presented in Exhibit 5.
C-286 PART 2 Cases in Crafting and Executing Strategy

EXHIBIT 4 The Walt Disney Company’s Media Network Subscribers, 2013, 2017,
and 2019 (in ­millions)
Estimated Estimated Estimated
Subscribers Subscribers Subscribers
(in ­millions)(1) (in ­millions)(1) (in ­millions)(1)
Cable Networks 2013 2017 2019

ESPN
ESPN 99 88 83
ESPN–International n.a. 146 65
ESPN2 99 87 83
ESPNU 72 67 61
ESPNEWS 73 66 58
SEC Network(2) n.a. 60 59
Disney Channels Worldwide
Disney Channel–Domestic 99 92 86
Disney Channels–International(3) 141 221 227
Disney Junior–Domestic 58 72 66
Disney Junior–International(3) n.a. 151 162
Disney XD–Domestic 78 74 68
Disney XD–International(3) 91 127 65
Freeform n.a. 90 85
Fox
FX n.a. n.a. 87
FXM n.a. n.a. 56
FXX n.a. n.a. 84
Fox International n.a. n.a. 220
National Geographic
National Geographic–Domestic n.a. n.a. 86
National Geographic Wild n.a. n.a. 59
National Geographic - International n.a. n.a. 316
Star n.a. n.a. 221
A+E and Vice
A&E 99 91 85
Lifetime 99 91 85
HISTORY 99 92 86
Lifetime Movie Network 82 73 63
FYI n.a. 58 51
Viceland n.a. 70 64
Broadcasting
ABC Television Network (240 local affiliates reaching nearly 100 p
­ ercent of U.S. television households)
Television Production
ABC Studios, Twentieth Century Fox Television (TCFTV) and Fox 21 Television Studios (Fox21) (Daytime, primetime,
late night and news television programming)
 CASE 21 The Walt Disney Company: Its Diversification Strategy in 2020 C-287

Domestic Television Stations

Market TV Station Television Market Ranking(3)

New York, NY WABC-TV 1

Los Angeles, CA KABC-TV 2
Chicago, IL WLS-TV 3
Philadelphia, PA WPVI-TV 4
Houston, TX KTRK-TV 7
San Francisco, CA KGO-TV 8
Raleigh-Durham, NC WTVD-TV 25
Fresno, CA KFSN-TV 54

(1) Estimated U.S. subscriber counts according to Nielsen Media Research, except as noted below.

(2) Because Nielsen Media Research does not measure this channel, estimated subscribers are according to SNL Kagan.

(3) Based on Nielsen Media Research, U.S. Television Household Estimates, January 1, 2019.

Source: The Walt Disney Company 2019 10-K.

EXHIBIT 5 Operating Results for Walt Disney’s Media Networks Business Unit,
Fiscal Years 2015–2019 (in ­millions)
Revenues 2019 2018 2017 2016 2015

Affiliate fees $11,907 $11,324 $12,659 $12,259 $12,029

Advertising 6,586 6,938 8,129 8,509 8,361
TV/SVOD distribution and other 3,429 3,037 2,722 2,921 2,874
Total revenues 21,922 21,299 23,510 23,689 23,264
Operating expenses 13,197 12,754 14,068 13,571 13,150
Selling, general, administrative and other 1,899 1,909 2,647 2,705 2,869
Depreciation and amortization 199 206 237 255 266
Equity in the income of investees (711) (766) (344) (597) (814)
Operating Income $7,338 $7,196 $6,902 $7,755 $7,793

Source: The Walt Disney Company 2017 and 2019 10-Ks.

delivery platforms. For example, ­consumers might

Direct-to-Consumer & International prefer to watch videos, movies, or other content on
Among the most significant challenges to Disney’s the Internet or Internet streaming services rather
media networks division was the competition for view- than watch cable or broadcast television. The effect of
ers, which impacted advertising rates and revenues. the Internet on broadcast news had been significant
Not only did the company compete against other and the growth of streaming services had the poten-
broadcasters and cable networks for ­viewers, but it also tial to affect the advertising ­revenue potential of all of
competed against other types of entertainment and Disney’s media businesses.
C-288 PART 2 Cases in Crafting and Executing Strategy

The combat competing streaming content pro- Studio Entertainment

viders and capitalize on such opportunities, Disney
launched two direct-to-consumer (DTC) stream- The Walt Disney Company’s studio entertainment
ing services and Over-the-Top (OTT) services that division produced live-action and animated motion
delivered content without a distributor. Disney’s pictures, direct-to-video content, musical recordings,
ESPN+ DTC video streaming service was launched and Disney on Ice and Disney Live! live performances.
in 2018 and its Disney+ DTC subscription service The division’s motion pictures were produced and
that included Disney, Pixar, Marvel, Star Wars, distributed under Walt Disney Pictures, 20th Century
and National Geographic branded programming Fox, Pixar, Marvel, Lucasfilm, Fox Searchlight
was launched in the United States and four other Pictures, and Blue Sky Studios banners. The division
countries in 2019. Within its first year, ESPN+ planned to release approximately 25 feature films in
had attracted more than 3.5 ­million paid subscrib- 2020 had Disney produced more than 1,000 feature
ers. The company expected Disney+ to also have films and 100 full-length animated films through-
strong appeal with media consumers and intended out its history. The company’s complete library of
to launch Disney+ in additional countries in 2020 Disney-produced and acquired films stood at 2,300
through 2024. titles as of September 2019. Disney’s most financially
Disney+ users would have immediate access to successful films in 2019 included The Lion King, Toy
500 movies and 7,500 episodes of television content. Story 4, Frozen 2, Star Wars: The Rise of Skywalker,
Disney+ also launched with 10 original movies, and and Aladdin. The company’s largest grossing films
the company planned to increase Disney+ content in 2018 were the Incredibles 2 and Ant-Man and the
to include 630 movies and 10,000 television episodes Wasp. All of the company’s best-grossing films in
by 2024. Disney also planned to add 60 original ser- both years were either remakes or sequels of previous
ies, specials and movies each year to the Disney+ Disney, Lucasfilm, or Marvel blockbusters.
library by 2024. Programming was priced at $6.99 Most motion pictures typically incurred losses
per month for Disney+ or ESPN+ or at a $12.99 during the theatrical distribution of the film because
bundle price that included both DTC subscription
services and ad-supported Hulu.
The company’s acquisition of a controlling inter- EXHIBIT 6 Operating Results for
est in Hulu was an integral component of its overall
DTC strategy, both domestically and internationally.
Walt Disney’s Direct-to-
Hulu was planned as the official streaming service Consumer & International
for all FX Networks programming as well as support- Business Unit, Fiscal Years
ing ESPN+ and Disney+. 2018–2019 (in ­millions)
The company’s international channels produced
local programs or delivered Disney produced content 2019 2018
to cable providers operating in countries through-
out the world. Disney branded television channels Revenues
were broadcasted in approximately 35 languages in Affiliate fees $1,372 $1,335
165 countries. Fox programming was broadcasted in Advertising 1,311 1,293
40 languages in 95 countries. National Geographic Subscription fees and other 731 447
was available in 80 countries, while ESPN program- Total revenues 3,414 3,075
ming was available in 15 countries outside the United Operating expenses 2,384 1,983
States. Star operated approximately 80 channels in Selling, general, administrative
ten languages in India, Asia, the United Kingdom, and other 1,003 861
Europe, the Middle East, and parts of Africa. The Depreciation and amortization 185 94
division also operated UTC, Bindass and Hungama Equity in the income of
branded channels in India. Operating results for investees 580 421
Disney’s Direct-to-Consumer & International div- Operating Income $(738) $(284)
ision for fiscal year 2018 and 2019 are presented in
Exhibit 6. Source: The Walt Disney Company 2019 10-K.
 CASE 21 The Walt Disney Company: Its Diversification Strategy in 2020 C-289

of production costs and the cost of extensive adver- channels such as Showtime and Starz might also pur-
tising campaigns accompanying the launch of the chase ­telecast rights to movies long after its theatri-
film. Profits for many films did not occur until the cal release. Similarly, subscription video on demand
movie became available on DVD or Blu-Ray disks (SVOD) services such as Netflix might acquire distri-
for home entertainment, which usually began three bution rights to a film for a 12- to 19-month window.
to six months after the film’s theatrical release. Telecast right fees decreased as the length of time
Revenue was also generated when a movie moved from initial release increased. Operating results for
to pay-per-view (PPV)/video-on-demand (VOD) the Walt Disney Company’s Studio Entertainment
two months after the release of the DVD and when division for fiscal 2015 through fiscal 2019 are pro-
the motion picture became available on subscrip- duced in Exhibit 7.
tion premium cable channels such as HBO about The company’s consolidated statements of
16 months after PPV/VOD availability. Broadcast income for fiscal 2017 through fiscal 2019 are pre-
networks such as ABC could purchase telecast rights sented in Exhibit 8. The Walt Disney Company’s
to movies later as could basic cable channels such as balance sheets for fiscal 2018 and fiscal 2019 are pre-
Lifetime or the Hallmark Channel. Premium cable sented in Exhibit 9.

EXHIBIT 7 Operating Results for Walt Disney’s Studio Entertainment Business

Unit, Fiscal Years 2015–2019 (in ­millions)
2019 2018 2017 2016 2015

Revenues
Theatrical distribution 4,726 $4,303 $2,903 $3,672 $2,321
Home entertainment 1,734 1,647 1,798 2,108 1,799
TV/SVOD distribution and other 4,667 4,115 3,678 3,661 3,246
Total revenues 11,127 10,065 8,379 9,441 7,366
Operating expenses 5,187 4,449 3,667 3,991 3,050
Selling, general, administrative and other 3,119 2,493 2,242 2,622 2,204
Depreciation and amortization 135 119 115 125 139
Operating Income $2,686 $3,004 $2,355 $2,703 $1,973

Source: The Walt Disney Company 2017 and 2019 10-Ks.

EXHIBIT 8 Consolidated Statements of Income for The Walt Disney Company,

Fiscal Years 2017–2019 (in ­millions, except per share data)
2019 2018 2017

Revenues
Services $60,542 $50,869 $46,843
Products 9,028 8,565 8,294
  Total revenues 69,570 59,434 55,137
Costs and expenses:
Cost of services (exclusive of depreciation and amortization) 36,450 27,528 25,320
Cost of products (exclusive of depreciation and amortization) 5,568 5,198 4,986
Selling, general, administrative and other 11,541 8,860 8,176
Depreciation and amortization 4,160 3,011 2,782
   Total costs and expenses 57,719 (4,597) 41,264
C-290 PART 2 Cases in Crafting and Executing Strategy

2019 2018 2017

Restructuring and impairment charges 1,183 33 98

Other income, net 4,357 601 78
Interest expense, net 978 574 385
Equity in the income (loss) of investees, net (103) (102) 320
Income from continuing operations before income taxes 13,944 14,729 13,788
Income taxes from continuing operations 3,031 1,663 4,422
Net income from continuing operations 10,913 13,066 9,366
Income from discontinued operations (includes income tax
expense of $35, $0 and $0, respectively) 671 — —
Net income 11,584 13,066 9,366
Less: Net income from continuing operations attributable to
noncontrolling and redeemable noncontrolling interests 472 468 386
Less: Net income from discontinued operations attributable to
noncontrolling interests 58 — —
Net income attributable to Disney $11,054 $12,598 $8,980
Earnings per share attributable to Disney:
Diluted
  Continuing operations $6.27 $8.36 $5.69
  Discontinued operations 0.37 — —
$6.64 $8.36 $5.69
Basic
  Continuing operations $6.30 $8.40 $5.73
  Discontinued operations 0.37 — —
$6.68 $8.40 $5.73
Weighted average number of common and common equivalent
shares outstanding:
  Diluted 1,666 1,507 1,578
  Basic 1,656 1,499 1,568

Source: The Walt Disney Company 2019 10-K.

EXHIBIT 9 Consolidated Balance Sheets for The Walt Disney Company, Fiscal
Years 2018 and 2019 (in ­millions, except per share data)
September 28, 2019 September 29, 2018

ASSETS
Current assets
Cash and cash equivalents $5,418 $4,150
Receivables 15,481 9,334
Inventories 1,649 1,392
Television costs and advances 4,597 1,314
Other current assets 979 635
   Total current assets 28,124 16,825
Film and television costs 22,810 7,888
Investments 3,224 2,899
 CASE 21 The Walt Disney Company: Its Diversification Strategy in 2020 C-291

September 28, 2019 September 29, 2018

Parks, resorts and other property

Attractions, buildings and equipment 58,589 55,238
Accumulated depreciation (32,415) (30,764)
26,174 24,474
Projects in progress 4,264 3,942
Land 1,165 1,124
31,603 29,540
Intangible assets, net 23,215 6,812
Goodwill 80,293 31,269
Other assets 4,715 3,365
Total assets $193,984 $98,598
LIABILITIES AND EQUITY
Current liabilities
Accounts payable and other accrued liabilities $17,762 $9,479
Current portion of borrowings 8,857 3,790
Deferred revenue and other 4,722 4,591
   Total current liabilities 31,341 17,860
Borrowings 38,129 17,084
Deferred income taxes 7,902 3,109
Other long-term liabilities 13,760 6,590
Commitments and contingencies
Redeemable noncontrolling interests 8,963 1,123
Equity
Preferred stock — —
Common stock, $.01 par value, Authorized–4.6 ­billion shares,
   Issued–1.8 billion shares at September 28, 2019
   and 2.9 ­billion shares at September 29, 2018 53,907 36,779
Retained earnings 42,494 82,679
Accumulated other comprehensive loss (6,617) (3,097)
 Treasury stock, at cost, 19 ­million shares at September 28, 2019
and 1.4 ­billion shares at September 29, 2018 (907) (67,588)
   Total Disney Shareholders’ equity 88,877 48,773
Noncontrolling interests 5,012 4,059
  Total equity 93,889 52,832
    Total liabilities and equity $193,984 $98,598

Source: The Walt Disney Company 2019 10-K.

UNCERTAINTY AS THE WALT the company’s earnings per share experienced a

73 ­percent year-over-year decline during the first
DISNEY COMPANY ENTERS six months of 2020. The company’s strong revenue
THE SECOND HALF OF 2020 growth was a result of the inclusion of 21st Century
Fox business units into the company’s financial
The Walt Disney Company reported a revenue reports, but the steep 73 ­percent decline in EPS
increase of 29 ­percent during its first six months of signaled the difficulty of the effective integration
2020 compared to the same period in 2019. However, of Fox businesses into the Disney organization.
C-292 PART 2 Cases in Crafting and Executing Strategy

The dramatic decline in net income from operations to the company’s necessary response to the pandemic. A
from $8.2 ­billion for the six months ending March 30, summary of The Walt Disney Company’s second quar-
2019 to $2.6 ­billion for the six months ending ter revenue and operating income by division for Fiscal
March 28, 2020, also reflected the early costs of 2019 and Fiscal 2020 is presented in Exhibit 10.
the novel coronavirus pandemic on the company. Walt Disney Company CEO Bob Chapek, com-
The greatest impact of COVID-19 on the company’s mented on the Company’s Q2 2020 performance
divisions occurred in its Parks, Experiences and Products and its long-term prospects as it entered the second
division, which saw a year-over-year declines in Q1 half of Fiscal 2020.
2020 revenue and operating income of 10 ­percent and
While the COVID-19 pandemic has had an appreciable
58 ­percent, respectively. Disney had closed its domestic financial impact on a number of our businesses, we are
parks and resorts, cruise line business and Disneyland confident in our ability to withstand this disruption and
Paris in mid-March 2020. The company’s theme parks emerge from it in a strong position. Disney has repeat-
and resorts in Asia were closed earlier in 2020. The edly shown that it is exceptionally resilient, bolstered
company estimated that approximately $1 ­billion of the by the quality of our storytelling and the strong affinity
company’s operating profit decline could be attributed consumers have for our brands.3

EXHIBIT 10 Revenues and Operating Income by Division for The Walt Disney
Company, First Six Months 2019 and First Six Months 2020
(in ­millions, except per share data)
Quarter Ended Six Months Ended

March 28, 2020 March 30, 2019 March 28, 2020 March 30, 2019

Revenues
Media Networks $7,257 $5,683 $14,618 $11,604
Parks, Experiences and Products(1) 5,543 6,171 12,939 12,995
Studio Entertainment(1) 2,539 2,157 6,303 3,981
Direct-to-Consumer & International 4,123 1,145 8,110 2,063
Eliminations(2) (1,453) (234) (3,103) (418)
$18,009 $14,922 $38,867 $30,225
Segment operating income (loss):
Media Networks $2,375 $2,230 $4,005 $3,560
Parks, Experiences and Products(1) 639 1,506 2,977 3,658
Studio Entertainment(1) 466 506 1,414 815
Direct-to-Consumer & International (812) (385) (1,505) (521)
Eliminations (252) (41) (473) (41)
$2,416 $3,816 $6,418 $7,471

(1) The allocation of Parks, Experiences and Products revenues to Studio Entertainment was $117 m ­ illion and $126 ­million for the quarters
ended March 28, 2020 and March 30, 2019, respectively, and $301 m ­ illion and $280 ­million for the six months ended March 28, 2020
and March 30, 2019, respectively.

Source: The Walt Disney Company Form 10-Q, March 28, 2020.

ENDNOTES
1 2 3
As quoted by Bob Iger, Chairman and Chief As quoted by Bob Iger, Chairman and Chief As quoted by Bob Chapek, Chief Executive
Executive Officer of The Walt Disney Company, Executive Officer of The Walt Disney Company, Officer of The Walt Disney Company, “The Walt
during Investor Conference Call, June 20, during the Morgan Stanley Technology, Media Disney Company Reports Secon Quarter and Six
2018. and Telcom Conference, February 26, 2018. Months Earnings for Fiscal 2020,” May 5, 2020.