Has the Walt Disney Corporation gone too far in product diversification?

Justify your argument based on the case data.

Walt Disney Corporation is a leading diversified family entertainment and media
conglomerate. It has diversified into five main business segments: media networks,
theme parks and resorts, studio entertainment, consumer products and interactive
media. It employs a related diversification corporate strategy and builds upon its core
competencies to achieve its success today. These core competencies are creativity,
strong branding and a competent upper management led by Eisner and Frank Wells.
Through its diversification, Disney was able to grow and generate value for its
shareholders. However, this diversification strategy comes with its own set of risks
which has compromised Disneys value at times previously.
The related diversification strategy has proved successful in generating profits for
Disney. Disney seeks operational and corporate relatedness simultaneously.
Operational relatedness is achieved through sharing of activities among its five
business units. One of these initiatives is a corporate marketing function which
coordinates companywide events across all its business units. It also established an
in-house media buying group to purchase media for the entire company. The sharing
of company resources helps Disney to cut costs.
Corporate relatedness is achieved by transferring core competencies among its
business units. Its strong Disney branding is often leveraged through advertisements
by its media networks and interactive media business units. This increases public
interest in Disney theme parks, films, and merchandise sold through the Disney
Consumer Products unit. This translates to higher merchandise sales as well as film

revenue. For example, The Lion King franchise was able to generate $2billion
revenue in film and merchandise revenue.
Through this related diversification strategy, Disney was able to build synergy among
its business units. Few competitors have the ability to achieve both operational
relatedness and corporate related, which contributes to Disneys competitive
advantage over its competitors.
The synergy between its business units allows Disney to attain economies of scope
that gives it the desired market dominance in various business segments.
Economies of scope include an extensive global product distribution system which
gives Disney the ability to reach various customer touch points. For instance, Disney
often leverages upon its Disney franchise films through cross promotions. Film
merchandise is sold through distribution channels utilized by parks and resorts and
consumer products business units. Theme park rides are often based on Disney
films to help drive ticket sales. Riding on that popularity, these movies are then
distributed by Buena Vista Home Videos on video to local and all major foreign
markets where it was able to achieve a market leader position.
However, it is questionable whether some diversification efforts taken by Disney
were too much and compromised their shareholders value. Examples include the
creation of Go.com. Walt Disney had hoped this portal would be able to compete
with major search engine sites such as Yahoo and Google. However, due to intense
rivalry within this industry and a weak competitive position from Disney due to its
inexperience in the area, Go.com was shut down and 400 Internet employees were
retrenched. Employing the BCG matrix, Go.com had a low competitive position as its
traffic had lagged behind its competitors and it was unable to gain a market

leadership position. Market attractiveness was also low due to the high
competitiveness of the market.
There were also rivalry and friction among existing business units as Disney
expanded. When Disney acquired ABC, there was a cultural conflict between ABCs
management and Disneys management. This led to 75 high level executives leaving
Disney. The core competency of Disney was compromised with the loss of these
creative talents, since the creativity of the company on the whole was affected.
Disney also faces the threat of erosion of its core competencies. The dilution of its
branding through diversification was such a threat. Disneys image was at stake
when the ABC show Ellen was acquired along with ABC. Protestants boycotted
Disney products as they felt Disney had departed from its traditional wholesome
image. Disneys branding became one of its core rigidities instead of core
competencies when it was rated behind Nickelodeon and Time-Warners Cartoon
Network. As Disney tried to stay true to its branding, it risked losing touch with
children, who were one of their primary target audiences.
Overall, Disneys diversification efforts has brought value to shareholders with a few
choice exceptions. By sticking to its core competencies and making careful
investments, Disney will be able to grow through its diversification strategy.