Disney as a Business

Disney has grown exponentially over its history due to its acquisitions  of movie studios such as Pixar, Lucas Films, and Marvel. Each film studio acquisitions brought unique benefits, but the one thing they all brought to Disney is revenue. Disney acquired the rights to use these movie studios for their film making, but got the added benefit of having the rights to their characters and themes. Disney has mastered the art of acquiring companies so well that it has seen its market cap nearly triple over a decade to reach $90 billion.

One strategy that Disney uses is called horizontal integration. This means that Disney acquires a company that exists in the same value chain as itself. This strategy is most effective when:

• The organization operates in a competitive market. For example, the film market is general is highly competitive. Consumers have many choices when they go to the box office, so film makers are constantly under pressure to produce the next greatest film. When Disney can acquire other film studios, it gets a bigger market share in return.
• The organization possesses a skill or competency that Disney does not. For example, when Disney acquired Pixar, it gained access to 3D animation capabilities that it previously did not have. Additionally, when Disney acquired Marvel, it gained the capability to market to boys which was an area that it was previously lacking in.
• The organization has the resources to effectively manage the new company. In the case of Pixar, Lucas Films, and Marvel, Disney paid top dollar for these companies and has managed each of them quite efficiently.

Some benefits to Disney using this strategy include:

• Increased Differentiation- One great example of this is when Disney acquired Marvel. The company gained access to 5,000 additional characters. One could say that is differentiation taken to the max because it gave Disney opportunities to branch off in areas where it hadn’t previously had the capability to do so.
  
• Reduced Competition- Whenever Disney buys a competing company, it gains the right to not only use the products/characters in new ways, but also to gain the profits that result from whatever the newly acquired company produces.
• Access to New Markets- In addition to being able to appeal to boys with the Marvel acquisition, all the acquisitions gave Disney access to new markets both domestically and internationally.

Read on as we explore in further depth how Disney has successfully utilized the horizontal integration strategy.

Mickey and Nemo Become Cousins…

In January 2006 (and just three months into his tenure, Disney CEO Robert Iger announced that the company would buy Pixar from Steve Jobs, former CEO of Apple, for $7.4 billion. This would be the first example of horizontal integration as Disney was now gaining the ability to produce 3D animation (a capability that it did not previously possess). Previously, Disney played the distributor role with Pixar’s films. Disney had a lot of success with it’s distribution deal with Pixar as evidenced in the image below. These films brought in a total gross revenue of over $3.2 billion dollars worldwide according to CNN Money. It also made Jobs “nonindependent director at Disney as well as its largest individual shareholder.” When the deal was complete, Iger was quoted saying “The addition of Pixar significantly enhances Disney animation, which is a critical creative engine for driving growth across our businesses.”

This image demonstrates the revenue that Pixar was able to bring in off its animated film releases.

For more information on mergers and acquisitions (especially with Disney and Pixar), view this Prezi by Delano Muthra:

A “Marvel-ous” Acquisiton

In 2009, Disney announced that it would buy Marvel Entertainment for a price of $4 billion. In this example of horizontal integration, Disney gained the rights to the Marvel movie studio and all 5,000 characters including Spider-man, Thor, Iron Man, X-men and the fantastic four. When the deal was made, Disney CEO Robert Iger was quoted saying ““Marvel’s brand and its treasure trove of content will now benefit from our extraordinary reach.” Clearly, Disney was not only looking to capitalize on the film power of the movie studio, but also the powerful marketing that goes behind it. While Disney had previously done a fantastic job of appealing to girls with it’s princess themed films, they were sorely lacking in their marketing efforts to boys. This deal and it’s huge cast of super heroes remedied that problem fairly easily. Another benefit of this deal was that it gave Disney much needed partnerships with other motion picture studios such as “Paramount Pictures, Sony Pictures Entertainment and 20th Century Fox, all of which have long-term deals to make or distribute movies based on superhero characters.” So as one can see, this “Marvel-ous” merger was a win on many fronts.

This video is a CNBC news clip is from 2009 where CEO Robert Iger is interviewed and discusses the intentions behind the Marvel deal.

Lucasfilm worth $4 billion? Disney thinks so…

The latest acquisition of Disney, and arguably the most popular, was that of Lucasfilm which took place in October 2012. Film producer George Lucas is best known for his “Star Wars” movies and was 68 when Disney acquired the movie studio. Already having stepped down from the day-to-day operations of the film studio, he was able to ensure the legacy of “Star Wars” would live on.  He was quoted in saying “It’s now time for me to pass ‘Star Wars’ on to a new generation of filmmakers.” Lucasfilm is 100% owned by George Lucas and he stands to gain all the proceeds from the sale.  In addition to ensuring that the legacy of “Star Wars” continues, Disney announced that it would continue to build on the prior success of Lucasfilm by releasing a new “Star Wars” movie in 2015 and sequels every 2-3 years following that release. In addition to expanding the existing franchise, Disney was also able to expand its presence in Northern California where Pixar and Lucasfilm both being located there. In this example of horizontal integration, Disney strengthened its presence in an existing market and gained access to many more by being able to produce future “Star Wars” films.

In this video, a critic discusses the acquisition and how excited he is that future Star Wars movie will be directed by someone other than George Lucas. He said he can’t wait to compare the quality and style.

So What Was The Result of All These Acquisitions?

So you might be wondering what the result of all these acquisitions was? Was it really worth it for Disney to spend millions and billions of dollars to purchase other companies?

As for Pixar, John Lasseter weighs in and responds to the fear that Pixar would changed after the buy out. Watch the video below to here more:

Watch here as Kevin Mayer of Walt Disney Company shares his thoughts on the mergers and acquisitions (particularly with Pixar):

Some other highlights include:

• In Quarter 3 Fiscal Year 2012, Marvels “The Avengers” was released and Disney recorded its best quarter in company history. 
• In Quarter 4 Fiscal Year 2010, increased revenues of 6% over the prior year were largely attributed to the release of “Toy Story 3” and continuing success of “Iron Man 2” which are Pixar and Marvel films respectively.
• In Quarter 2 of Fiscal year 2010, “The incredible box office performance of Disney’s Alice in Wonderland and acquisition of Marvel, whose Iron Man 2 has grossed $334 million in global box office in its first two weeks, clearly show the benefits of investing in high quality branded content,” said Robert A. Iger, President and CEO, The Walt Disney Company.

It is clear that Walt Disney has mastered a brilliant horizontal merger and acquisition strategy given its previous success. Furthermore, it is well positioned to capitalize on its acquisition of LucasFilms.