Core Competences at the heart of success - The Walt Disney

Company*

Miklós Stocker, Ph.D. Habil.†

Zoltán Stokinger†

It was a sunny Wednesday at the end of March, 2024 in Orlando when Bob Iger, CEO of The
Walt Disney Company walked from the Bibbidi Bobbidi Boutique to the Seven Dwarves Mine
Train in the Disney Magic Kingdom Theme Park. He was thinking about the success of the
Experience segment of the company and was very satisfied with what he has seen in the daily
operation of the customer packed theme park and wasn’t surprised at all that this was his most
profitable segment at the company.
His mind wandered off to next Wednesday’s meeting when he will deliver his presentation about
the results of the last financial year. Although the company was growing and the experience
segment performed very well, he was worried about the performance of the entertainment
segment as well as the new challenges from the competitors in the sports segment. Which
resources and capabilities is the entertainment segment, or the whole company based on? How
could he strengthen these resources and capabilities in a way that the other segments could
increase their performance to match the experience segment? Should he focus on increasing the
efficiency of the entertainment segment in the short run or strengthen its core competences to
(re)gain competitive advantage? How should he respond to the rumour that Warner Bros is in
talks with AEW after Netflix announced its deal with WWE?
Then he was startled as a little boy in Captain America dress cried out “that is injustice” when
his father refused to buy him another corndog. Bob thought that after all, Disney has an amazing
industry, loyal customer base, financial success and a huge influence worldwide. The only
question is how to go forward to even more success.

*
The case has been created from public sources for the sake of class discussion by the authors.
†
Strategic and International Management Research Centre, Corvinus University of Budapest

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History
Disney Brothers Studio was founded in 1923 by the well-known Walt Disney and his brother
Roy O. Disney, whose first creation was Alice Comedies, a combination of animated characters
and live-action. Disney went all-toon series with Oswald the Lucky Rabbit and produced
Oswald 26 cartoons in 1927 alone. However, a turning point for the company was in 1928 when
Walt Disney, unfortunately, lost the rights over Oswald, as their distributor went behind their
back. Due to its loss, Disney and its chief animator Ub Iwerks were pushed to create a new
character, with full legal protection and “Mickey Mouse” was born. Mickey became an iconic
character not only to the audience but also for the industry, by being the first ever synchronized-
sound cartoon presented to the world. The innovation was so groundbreaking it immediately
pushed Disney as a leader in the animation industry with many more years to go.1
After the success of “Mickey Mouse” Disney decided to aim higher, and in 1937, it produced
“Snow White and the Seven Dwarfs,” which was the first feature-length animated film in the
world. The project was considered so ambitious for its time most of the critics called it
“Disney’s Folly”. Nonetheless, the movie did not only become the highest-grossing film of the
time, but it also demonstrated animation’s potential as a serious cinematic medium. The huge
success offered Disney the opportunity for shooting other classics like “Dumbo”, “Bambi”, and
“Pinocchio”.2,3
The first Disneyland opened in 1955 in Anaheim, California, revolutionizing the entertainment
industry with the first-ever theme park designed as a complete, immersive experience. This
allowed the audience to furthermore indulge in the fantasy world Disney has carefully crafted,
leaving such a great impression on them that it set fully new standards for theme parks all over
the world. The television channels reporting the event estimated that 90 million American
viewers stayed in front of their TVs to capture the opening of the “Happiest Place on Earth”. At
that time, the population of the USA was around 166 million, meaning more than half of it was
in anticipation of the grand opening of Disneyland.4
In 1983, Disney extended its reach to the television industry by bringing forth the Disney
Channel as a cable network targeting children and their families. It used to air movies, cartoons,
and family-friendly shows round the clock. Early programs on the channel also included The
Adventures of Ozzie and Harriet; The Mickey Mouse Club; and other educational programs
that would host full service in association with Disney's mission for wholesome entertainment.
Gradually, during the years Disney Channel became popular and shifted its profile from super
or premium cable to normal cable channel in the late 1990s, hence it reached more substantial
markets after the most iconic productions via TV, such as "High School Musical", "Hannah
Montana", and even more..5,6
The acquisition of Pixar in 2006, Marvel in 2009, and Lucasfilm in 2012 marked an even greater
leap forward in ecosystem development for Disney. Evidently, Pixar introduced new, innovative
animation technology with narration and made the original animation techniques of Disney
alive with Toy Story. Meanwhile, the Marvel Cinematic Universe was launched with Iron Man
to send its genre through the roof as a global phenomenon. And the Star Wars saga from
Lucasfilm continued a legacy begun in the 1970s to bring Disney into a new era of science
fiction and fantasy storytelling. 7

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Disney started its streaming service, Disney+ in 2019. This gave the company control over the
distribution of its massive libraries, including Pixar, Marvel, and Star Wars, right into the hands
of viewers globally. The success of Disney+ has not only brought it new revenue streams but
given Disney the ability to create exclusive shows like The Mandalorian, expanding its
capabilities in storytelling and reaching out to new generations. It proved to the audience that
Disney is capable of innovation and adapting to the digital age while maintaining its capability
of providing trendy and engaging content.

Competitors
Companies which create interconnected ecosystems usually face different types of competition
from players positioned differently or competing only in smaller areas of the cleverly assembled
ecosystem. Disney faces several competitors, some even with very similar strategy.

Warner Bros. Discovery

One of the giants in the industry, Warner Bros. Discovery, first entered the market on the 4th of
April 1923, and has kept its strong presence ever since. The company is best known for its
unforgettable creations, such as the Harry Potter series, which, as of this moment, has managed
to collect a total of 1.3 billion views from all over the world. Another segment Warner Brothers
has developed is the DC Universe containing some of the most memorable and iconic characters
out there (including Superman, Batman, and Wonder Woman). Warner Bros. Discovery's impact
on the entertainment industry extends beyond films and television; it also plays a significant
role in the development of streaming platforms. The launch of HBO Max happened in 2020,
which has since been rebranded as Max.8 Thus the company has been able to capture the
interests of a great proportion of comic and fantasy fans from around the globe. Additionally,

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Warner Bros. Television Group produces a significant amount of popular television content
further solidifying its presence in the sphere of entertainment. By its constant effort on
diversifying its portfolio, expansion on product variety and investment into new original
programming Warner Brothers has kept on gaining market share in this diverse and dynamic
industry.9

Sony Pictures
Sony Pictures, a company created in 1987, may not be fully familiar to the audience by its name,
however its productions are globally praised and loved by billions of people. Sony Pictures is
the creator of one of the biggest blockbusters known to the cinematic industry such as, Spider
Man, Jumanji and Man in Black. Yet, Sony didn’t feel fully satisfied, it needed to prove its
capabilities even more, therefore started experimenting and substantially succeeded in the
animation segment. Moreover, Sony Animation Picture has proved its competency by further
solidifying its presence with the releases of “Hotel Transylvania” and “Spider Man: Into the
Spider Verse”. After all what has been seen from Sony Pictures’ work and production it was
truly believed that it was time for the company to settle down on innovations, nonetheless it
proved the market wrong. It took an unexpected turn by choosing to cross integrate itself
through Play Station, creating a surprising synergy between the two, opening doors for cross-
promotions, developing an ecosystem enhancing all different kinds of entertainment.10
Additionally, Sony Pictures has embraced the potential of virtual reality (VR) and augmented
reality (AR) in enhancing the viewing experience, exploring new ways to engage audiences.
These forward-thinking strategy positions the company as a leader in blending traditional
filmmaking with the latest technology. By this action Sony proved to be a major participant in
the entertainment industry, and one that shall not be underestimated. 11

Netflix
Netflix is a company name that almost everyone owning a connected electronic device is
familiar with, either because they are active consumers or just because of its strong presence on
the market. Netflix has created the most significant presence in the streaming industry as of
nowadays, leveraging on first mover advantage on direct rivalry with Disney+. The global
streaming service, first introduced in 1997, has mainly based its product portfolio on films,
series, documentaries and original content that’s focused to grasp the attention of the
international audience. The brand is responsible for the production of some of the most streamed
series of the last decade, such as “Stranger Things”, “The Crown” and some award-winning
movies like “Roma” and “The Irishman”. Something Netflix has become particularly skilled at
is creating diversified content that manages to generate discussion groups and a community
around it, through its provocative lines and unexpected plot twists. This has put the pressure on
Disney+ to further integrate its products, leading the brand away from its main core.
Another core competency that Netflix possesses is the introduction of international movies and
series, which hasn’t been a very popular practice for an American business until nowadays.
Some of the most famous productions being “Money Heist” (Spanish) or “Dark” (German), but

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there are many more. Through this practice Netflix has developed products that are racially and
culturally diverse, attracting yet another target audience, to increase customer numbers across
190 countries, putting even more pressure on Disney+ or Max.12

Paramount Global
Paramount is a major competitor of Disney, stretching across multiple platforms and forms of
media. In the terms of the movie industry, Paramount Pictures created the following franchises:
Transformers, Mission Impossible and Star Trek. Paramount's presence can also be seen when
browsing TV channels: CBS, Showtime, MTV, Nickelodeon are all channels that millions of
people tune into every day to watch and enjoy. In particular, Nickelodeon, with its cartoons
especially SpongeBob has held a strong grip on this type of entertainment. The streaming
service of Paramount called Paramount+ is remarkably similar to Disney+ in terms of naming,
and this isn't a coincidence as it’s a direct competition to Disney's platform. Paramount+'s
variety in terms of content can come as some serious leverage when attracting customers. To
this day, Paramount is making great investments into maintaining the relevance of its streaming
service's content as to attract more and retain old consumers. Paramount Global's growth and
presence in the entertainment industry shouldn't be underestimated, as they have built a well-
known and maintained platform for their content across multiple forms of media. Paramount
also tried its luck with entertainment theme parks, although with moderate success as they sold
Paramount Parks to Cedar Fair in 2006 after 13 years of operation.13

Universal Studio
Universal Studio Florida was first founded in 1912, mainly producing short movies with less
engagement for the audience, however, a few years later in the 1930s it produced one of the
most memorable horror films “Dracula"," Frankenstein” and other iconic projects like “Jurassic
Park” and “Jaws”. The company also tested its skills in animation and had a substantial success
with movies like “Minions” and “Sing”. 14 Apart from that, Universal Studios penetrated the
movie and television industry with one of the most famous and well-known movie studios
located in Hollywood, Universal Pictures. In 2011, Comcast acquired NBCUniversal, bringing
new investment and focus to Universal's theme parks, film studios, and TV networks.
NBCUniversal also owns major TV networks (NBC, USA Network, Syfy, and Bravo, including
a streaming service through Peacock.15 Furthermore, Universal Studios took a step towards the
theme park and entertainment market. The company wanted to create an immersing experience
for its consumers, therefore opening its first theme park in 1964, which revolved around the
idea of people getting a better view at how a movie is being produced from behind the scenes.
This expanded into fully realized theme parks when Universal Orlando Resort opened in 1990
and it’s offering to the public some of the most enticing places up to this date, like ”Harry
Potter” park, ”Minions” and many more. Throughout all these years Universal Studios has
managed to integrate itself into the cinematic, streaming and theme park industry. 16

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Segments of operation
Walt Disney Company had five divisions up until 2015, which were Media Networks, Parks
and Resorts, Studio Entertainment, Consumer Products and Interactive. 17 From 4th June 2015
the Consumer product and interactive segments merged, and the company started operating
with four business units.18
In October 2020, the Company announced a strategic reorganization of the media and
entertainment businesses to accelerate the growth of the company’s direct-to-consumer (DTC)
strategy.19 As a result, the company was organized into two divisions in 2021, the Disney Media
and Entertainment Distribution (DMED) and Disney Parks, Experiences and Products (DPEP).
From 2023, as the importance of sport constantly increased in entertainment, the company was
restructured again. Three strategic business units were formed, the entertainment, the
experiences and the sports divisions.20
The Entertainment Division encompasses the Company’s non-sports focused global film,
television and direct-to-consumer (DTC) video streaming content production and distribution
activities. This includes domestic and international linear networks, like ABC, Disney, Fox,
National Geographic, A+E, etc; direct-to-consumer, like Disney+ and Hulu; and content sales
and licensing, like video-on-demand, theatrical distribution, DVDs and magazines, music
distribution, etc.
Disney has got 71 million domestic subscribers in the United States and with operating 285
general entertainment and family channels outside the U.S. in approximately 40 languages and
190 countries/territories, it has an approximated 270 million unique subscribers in general
entertainment and 225 million unique subscribers in the family segments as of 2023.
In September 2023, Disney+ has got an approximated 113 million Core and 38 million Hotstar
subscribers with Hulu adding approximately 49 million subscribers as well.
The Sport Division encompasses the Company’s sports-focused global television and DTC
video streaming content production and distribution activities. This includes international and
domestic ESPN and Star. Number of domestic ESPN subscribers are approximated as 71
million, with international ESPN adding addition 59 million, and Star approximately 82 million
subscribers.
The Experiences Division encompasses domestic theme parks and resorts & experiences like
the Disney Cruise Line or Disney Vacation Club, international theme parks and resorts and
consumer products, like branded merchandise and licenced trade names.

Financial performance
Disney’s revenue has grown steadily in the past decade, from $40,893 million to $88,898
million with a steady profitability, except for the COVID struck year, 2020 (See Appendix 1.
for more details). In 2023 the company could increase their product- and service-related
revenues as well, increasing with 7.47% in total. Although operating income also increased
(6.12%), net income dipped due to the significant restructuring and impairment charges. (See
Appendix 2. for more details)

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Disney’s revenues are dominantly coming from their extended domestic market (Americas),
whereas Europe and Asia Pacific can only contribute 20% to the company’s revenues (see
Figure 1).

Figure 1. Geographical distribution of revenues in 2023

Geographical distribution of revenues in 2023

(million $)

8 160
9 533

Americas
Europe
71 205
Asia Pacific

Source: Disney Annual Report 2024

In 2024, Disney increased the retail prices of International Disney+, which resulted an increase
in average monthly revenue per paid subscriber from $6.66 to $6.78.21
As of 30th September 2023 Disney operates with a steady ratio of liabilities and equity of around
1:1. Retained earnings from its successful history takes more than 44% of the equity, whereas
current liabilities are around 30% of liabilities. Disney’s cash reserves increased with $2.5
million from 2022, but current assets still do not exceed 16% of the total asset portfolio. (See
Appendix 3. for more details).
Although Disney’s financial results are good, they are lagging far behind its financial
performance from the last decade. In the new decade, serious disruptions happened in the global
economy, business models changed and the competition intensified for the attention of
customers.

Success and Challenges

Iger thought one of the main reasons Disney has achieved such remarkable results in the
entertainment industry can be linked to its strongly developed business strategy. The company
did not stay simple by just creating animated pictures for the screen; it aimed to immerse its
audience into new worlds their minds could have never even imagined, developing a culture
surrounded by childhood dreams, memories, and so much more. And the more fictional
characters meant for the customer the more offerings Disney created for them.

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The company established an ecosystem from characters, films and series, theme parks and
holiday resorts, streaming services and sports broadcasts all to bring a full experience to its
audience. People have the ability to touch, talk, and even become some of their favourite
characters, seeing worlds they had never seen before, creating a community, and being part of
something so much bigger. However, something Disney had to understand was that the higher
you aim, the harder you have to fight. The more its ecosystem grew, the more competition it
gained, and the more difficult it became for Disney to keep up with its vision.
His thoughts turned back to the sports division. In sports, Disney moved ahead of Netflix and
Warner, but now they seem to be shifting to sports entertainment. Should Disney turn to sports
entertainment as well? How could they leverage the sports division to be able to unleash more
revenue related synergies? What do the different target customers value and which potential
synergies would be good for which target segment?

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Appendix 1: Income statement from 2012-2023
million $ 2023 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012
Revenues of Services 79 562 74 200 61 768 59 265 60 579 50 869 46 843 47 130 43 894 40 246 37 280 34 625
Revenues of Products 9 336 8 522 5 650 6 123 9 028 8 565 8 294 8 502 8 571 8 567 7 761 7 653
Total Revenues 88 898 82 722 67 418 65 388 69 607 59 434 55 137 55 632 52 465 48 813 45 041 42 278
Cost of services 53 139 48 962 41 129 39 406 36 493 27 528 25 320 24 653 23 191 21 356 20 090 18 625
Cost of products 6 062 5 439 4 002 4 474 5 568 5 198 4 986 5 340 5 173 5 064 4 944 4 843
Selling, general,
administrative and other 15 336 16 388 13 517 12 369 11 549 8 860 8 176 8 754 8 523 8 565 8 365 7 960
Depreciation and
amortization 5 369 5 163 5 111 5 345 4 167 3 011 2 782 2 527 2 354 2 288 2 192 1 987
Total Costs and expenses 79 906 75 952 63 759 61 594 57 777 44 597 41 264 41 274 39 241 37 273 35 591 33 415
Restructuring and
impairment charges 3 892 237 654 5 735 1 183 33 98 156 53 140 214 100
Other income/expense, net 96 -667 201 1 038 4 357 601 78 0 0 -31 -69 239
Interest income/expense,
net -1 209 -1 397 -1 406 -1 491 -978 -574 -385 -260 -117 23 -235 -369
Equity in the income of
investees 782 816 761 651 -103 -102 320 926 814 854 688 627
Income before income
taxes 4 769 5 285 2 561 -1 743 13 923 14 729 13 788 14 868 13 868 12 246 9 620 9 260
Income taxes 1 379 1 732 25 699 3 026 1 663 4 422 5 078 5 016 4 242 2 984 3 087
Net income 3 390 3 553 2 536 -2 442 10 897 13 066 9 366 9 790 8 852 8 004 6 636 6 173

Source: Annual Reports from 2012-2024

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Appendix 2: Selected items of the income statement and its divisional distribution in 2022 & 2023
The Walt Disney
2023 (in $ millions) Company Entertainment Sports Experiences Eliminations
Revenues 88 898 40 635 17 111 32 549 -1 397
Operating income 12 863 1 444 2 465 8 954
Content License Early Termination 0
Corporate and unallocated shared expenses 1 147
Restructuring and impairment charges 3 836
other income (expense) net 96
Interest expense, net 1 209
TFCF and Hulu acquisition amortization 1 998
Income from continuing operations before tax 4 769
income tax 1 379
net income 3 390

The Walt Disney

2022 Company Entertainment Sports Experiences Eliminations
Revenues (in $ millions) 82 722 39 569 17 270 28 085 -2 202
Operating income 12 121 2 126 2 710 7 285
Content License Early Termination 1 023
Corporate and unallocated shared expenses 1 159
Restructuring and impairment charges 237
other income (expense) net -667
Interest expense, net 1 397
TFCF and Hulu acquisition amortization 2 353
Income from continuing operations before tax 5 285
income tax 1 732
net income 3 505
Source: Annual Report 2024

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Appendix 3: Balance Sheet
Balance Sheet (in $ millions) 30.09.2023 01.10.2022
Assets
Current Assets 32 763 29 098
Cash and cash equivalents 14 182 11 615
Reveivables, net 12 330 12 652
Inventories 1 963 1 742
Content advances 3 002 1 890
Other Current Assets 1 286 1 199
Produced and licenced content costs 33 591 35 777
Investments 3 080 3 218
Parks, resorts and other property 34 941 33 596
Attractions, buildings and equipments 70 090 66 998
Accumulated depreciation -42 610 -39 356
Projects in progress 6 285 4 814
Land 1 176 1 140
Intangible assets, net 13 061 14 837
Goodwill 77 067 77 897
Other assets 11 076 9 208
Total Assets 205 579 203 631
Liabilities and Equity
Current liabilities 31 139 29 073
Accounts payable and other accrued
liabilities 20 671 20 213
Current portion of borrowings 4 330 3 070
Deferred revenue and other 6 138 5 790
Borrowings 42 101 45 299
Deferred income taxes 7 258 8 363
Other long-term liabilities 12 069 12 518
Redeemable noncontrolling interests 9 055 9 499
Equity 103 957 98 879
Common stock, $0.01 par value 57 383 56 398
Retained earnings 46 093 43 636
Accumulated other comprehensive loss -3 292 -4 119
Treasury stock, at cost, 19 million shares -907 -907
Total Disney Shareholders’ equity 99 277 95 008
Noncontrolling interests 4 680 3 871
Total liabilities and equity 205 579 203 631
Source: Disney Annual Report 2024

11
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AEW to Stream on Max Following New Deal With Warner Bros. Discovery (variety.com)
Netflix to Become New Home of WWE 'Raw' Beginning 2025 - About Netflix
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Third Quarter and Nine months earnings for fiscal 2024
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