Trinity University of Asia

Marketing Management
Midterm Examination

PATRICIA ANNE S. LOPEZ

MBA
 The Walt Disney Studios

Preliminaries – Building the Facts of the Case

1. Examine Disney’s hit-making and risk-taking in the context of the Hollywood film
industry and how leading content producers are increasingly shifting to a
“blockbuster” strategy that resolves around making huge bets.

The Walt Disney Company led by chief officer Bob Iger was the world’s largest
entertainment conglomerate, head quartered in Burbank, California. It employed
over 185,000 people across four business segments such as Media Network that
covered cable and broadcast television network, television production operations,
radio networks and radio and television stations. Parks and Resorts that are known
worldwide and are operated in the US such as the Walt Disney World Resort in
Florida, Disneyland Resort in California and in Hong Kong, Paris, Shanghai and Tokyo,
as well as cruise line. Studio Entertainment where it produced and acquired films
and direct-to-video content, musical recording and live stage plays. Lastly is
Consumer products and interactive that engaged with license, publishers, and
retailers to design, develop and market variety of consumer products based on
Disney’s characters, stories and produced films.

From its combined business segments, the Walt Disney Company has a combined
Revenue from of $48,813 million in 2014 and increases to $52,465 million by year
2015. This does not include the operating income that’s almost $13,005 by 2014 and
$14,581 by 2015.

In the Film Industry, films are distributed by Six (6) major and independent studios
that are owned by large entertainment conglomerates which are the (1st) 20th
Century Fox, a subsidiary of the 21st Century Fox, (2nd) Paramount Pictures owned by
Viacom, (3rd) Sony Pictures, a division within Sony, (4th) Universal Pictures owned by
NBC Universal, (5th) Warner Bros. Entertainment, a subsidiary of Time Warner and
(6th) Disney Studios owned by The Walt Disney Company.
Disney Studios chairman Alan Horn bets on big production movies since his arrival in
Disney Studios last 2012. In fact, Disney primed to pursue what called Horn a
“Tentpole Strategy” that revolved around at least eight big movies each year. Some
is from Disney Live Action Movies which includes movies like the Pirates of the
Caribbean that became a big hit and followed by four sequel, the John Carter which
both movies were budgeted with $250 million. The Prince of Persia: Sands of Times
and Tim Burton’s Alice in Wonderland which both movies were budgeted with $200
million and Oz the Great and Powerful and the Long Ranger, both budgeted with
$215 million. This movies were release from the year 2010 to 2014.

Disney Studio Animation also released a Tentpole movies such as Meet the
Robinsons with accumulated budget of $195 million and Tangled with $260 million
budget in which both movies became a blockbuster movies.

There were insignificant risks involved in Disney’s tentpole strategy. In a given year,
Disney Studios produced nearly twice as many tentpole movies as any other major
Hollywood film studio, but fewer movies overall than its rival. This strategy comes
with the risk of having a big return of investment in terms the movie released
became hit but also takes the bigger risk of losing large amount of investment in case
it does not become blockbuster.

Disney must consider balancing its movie release in terms of the quantity of the
tentpole movies being released annually to the small movies. Given the fact that
Disney own its well known and loved movies from way back, it comes with the legacy
that movie goers will still patronize like the Star Wars movie. They may consider
releasing small production budgeted movies but surely targets the attention of its
market. This day, indi movies are being patronize by movie goers, they just have to
have the good and right story for the right market.

As shown in exhibit 3, in 2014 and 2015, over 93 movies were released by various
studios including the six major studios. From the top ten, four of which were
produced by Disney such as Avengers, Tomorrow Land, Inside Out and Big Hero 6.
Out of top 10 movies, two movies were highly budgeted movie, the Avengers as top
1 and The Hobbit, produced by Warner Bros. is top 2 and both were budgeted with
$250 million, but The Avengers earning is more than $500 million higher in Global
Box Office, and almost half higher in the combine revenue of U.S, foreign and Global
Blockbuster.
As stated, Disney released more than as twice Tentpole films but lesser movies both
tentpole and small budgeted movies compare to other Film Studios, this shows that
Horn and Disney are taking the risk of releasing movies in the belief of getting higher
revenue than the small not well known movies.

It is also important to consider the value of small time studios as they start to expand
on the film industry. It was shown in Exhibit 3 the some of the small budget movies
released by small studios and small budgeted ones earned higher revenue as its
production budget. Sample of which is the movie Best of Me, a movie released by
Relativity Studio with an allotted budget of $26 million dollar and had a combined
revenue of $36 million. The movie John Wick is also a big hit by earning $86 million
compared to its production budget of $20 million. This small studio can now be
considered mini major studios now and may in the future be a major studio if
continuously released good and well received movies.

In the Business segment of Walt Disney, it is also important to focus on their

Consumer products and interactive since most of Disney Movies are famous with
their movie characters like Cinderella, Frozen and Star Wars.

They must consider that the market of this movies comes from all generation.
Sample, Star Wars was a huge and truly a big movie back in the days and this movie
markets ages from its first year of release and the generation now who adapted on
the idea of the movie. Disney may release merchandise that may add on the revenue
of the movie like collectors/limited edition items, shirts, toys and other merchandise
that usually movie fans buy and collect.
 They may also put additional attractions or mini museum for such movies on their
worldwide known Parks and Resort where movie fans may come in and experience.
This activities are attractive to movies fans and may put additional revenue for them
and helps to keep the movie well known just in case sequel are to be made.

There were significant risks involved in Disney’s strategy. Box-office failures yet
despite the risk on making a highly budget / tentpole movies, the Walt Disney
choose not to enlist the help of financing partners.

By 2015, Disney Studios employed about 6,500 employees, and spent close to $2
billion producing films annually and hundreds of millions of dollars more distributing
and marketing them. Without any financial partners, Disney takes a high risk
shouldering all the financial concerns for all their business segments. Box-
Blockbuster failure causes big impact and loss for Disney.

Seeking partners for every investment will never be a bad choice for any business
because less risk of losing much more investment will always be better on earning
less than losing much alone.

2. Analyze Disney’s product portfolio strategies and the need to balance bigger versus
smaller bets as well as the need to balance investments in existing versus new
properties.

Disney being one of the major biggest studio known in the world gives them the
advantage in the movie industry. As a movie goer, it has been a good idea for me to
watch a Disney movie knowing that every Disney movie has first, good story that
most movie goers prioritize when choosing a movie. Second, it’s marked in releasing
good quality movies especially on their animated movies. It has always been eye
catchy.
Additional to this is the merchandise I can collect in each movies which I believe
many movie goers do as well.
As stated, Walt Disney Studios Chairman, Horn bets on big production movies that
revolved around eight big movies each year. Some came from Disney Live Action
such as Pirates of the Caribbean and Disney Animation which had scored a mega hit
in 2013 with the movie Frozen. But just as many big productions came from three
studios that after multi-billion-dollar acquisitions now also operated under the
Disney umbrella. These are Pixar, known for the movies Toy Story and Finding Nemo,
Marvel Studios with so much superhero movies and Lucas film that gave the Disney
the right release one of the biggest movie of all time, Star Wars. In 2016, Disney
planned to release twelve films, including four that had production budget of around
$200 million.

Tentpole movies has the advantage of earning bigger and be a blockbuster movies
since bigger amount of money is invested in promoting such films. Disney is U.S
based, tentpole movies has the capacity to promote around the world just to
introduce the movie to its market. They sometimes launch multiple international
screening just to attract more movie goers. TV and Radio guesting and sponsorship
to different related events for the movie. This additional marketing strategy may add
additional expense and budget but this is all the key in getting higher income for the
producers and the movie makers.

Disadvantage of this Tentpole movies is the high risk of losing investment especially
if the movie does not work out and do not earn. This loss gives a big impact to any
studios in case a movie does not click on the market.

In addition to this advantage and disadvantage, Disney choose not to have a co-
finance partner in producing films that gives them the advantage to have more profit
in return for a block buster movie but also takes them to the risk of losing bigger
amount of investment by shouldering all the expenses for such tentpole and non-
tentpole movie then does not click and earn as a blockbuster movie.

In making animation movies, Disney always has its advantage in making a tentpole
movie given the fact that they are one of the biggest studios internationally known,
 they have all the capacity in terms of the machineries, software and all equipment
needed in making such movie.

Over the years, the costs involved in making animated movies had gone up
substantially. Disney made Toy Story in the 1990s with 120 people and it cost $30
million to make. The movie The Good Dinosaur was made with over 300 people and
had a production budget of $200 million, both movies were a success but the
difference was the budget due to the latest and developed technologies purchased
and used by Disney in creating both movies. It has cause them more in creating both
movies but Disney believes that they works hard to stay in the budget but this
expense will always be worth it because movies has to be at their best.

3. Evaluate Disney’s product development and product launch strategies by

describing in detail how Disney Studios develops, produces and releases films in
both the live-action and animated categories.

In making and releasing movies, Disney defines it by developing the movie ideas,
producing it and then releasing. According to Chairman Horn, the entities come
together is in the green light decision with the approvals of budget, in distribution
and in marketing. It all happens centrally at his level as a chairman and at that Alan
Bergman, the President of Disney Studios. Chairman Horn knows everything about
the business side, but he is also very focused on the creative materials. He said they
can have the best studio structure and the best distribution and marketing, but if the
movies are not great then all of that does not matter.

In developing and Producing Live Action Movies, Disney studios structure process in
roughly the same way. It starts with an idea where each studio has a development
department that finds ideas, they create original screenplays, they produce or locate
materials that can be the basis of the film or have screenplays written on their own
original properties. The funnel of ideas comes a series of potential projects to be
reviewed, brought to professional committee. It sometimes comes with a certain like
if they can make the movie in a certain budget or make it if it is stars a certain actor.
Depending on the story and condition to make the movie be approved and produce
and release.

Disney’s creative executives invests a lot of their time and efforts in each project
before submitting it and be reviewed and be approved or rejected. After reviewing
each project, it will then be put into script and be worked on the best way possible
that will suit the idea. This will involve Disney’s creative team giving the writer
extensive notes outlining their reactions and possible solutions to issues they may
encounter while reading different iterations of the script.

Along the way, Disney then may have exploratory conversations with actors and
directors but normally they draft in hand what Disney thinks the great. It actually
takes long a very long time, long conversation with directors about the filmmaking
process, also the budgeting before a film is finally approved.

As Chairman, Mr. Horn will always have the last words whether a movie idea is
approved or rejected. Regardless the efforts, but he also contribute and made his
own suggestions in creating ideas for each movie, especially on budgeting. Example
of this is the Cinderella movie wherein the creative team proposed for a $60 million
budget but he insisted to raise it to $100 million just because he wanted to put
additional effects on the movie that also added additional attraction for the movie
and made it blockbuster.

The development process is different, Disney used a 5 year plans that describe what
movies they plan to release and why it out on particular order. For each film, a 15-20
pages story document is being prepared that contains the main story lines and the
characters and the artwork except the lines and dialogue.
Disney seeks the minds and fresh eyes from its development team which is very
good in terms of creating a movie because they get to see different angles of each
movies from different professionals that can access each movie ideas and helped to
make each movie so beautiful. They believe that creativity is driven by a point of
view because if you make decision by committee, you often get diluted outcomes.
Once a film is given with green lights, it will then put into production in which the
studio loses it control because by then, all lies in the hands of the movie director,
production team and actors. Shooting a tentpole movie could take anywhere
between 75 to 125 days. Unedited footage shot of each movies is being reviewed by
the Chairman and executives daily for assessing before its final edit and for
additional suggestions which a good strategy for them to lessen waste efforts and
physical production are assessing if they got the shots they wanted for the money
being spent, while creative executives are looking at the performances – as if they
have cast the movie well or if they are shooting the script as it read. This detailed
strategy is what’s making each Disney movie beautiful and fits the expectation of its
market. They see each rooms for improvement from time to time and manage to
correct it.

Making an Animation movies could take at least four to six years that starts with the
filmmakers. They first pick the person who they think can direct an animated movie.
They ask that director to come up with three ideas and develop those ideas for up to
a year before pitching it to them. They usually plaster their artwork all along the
walls. Seeing the time frame given to each ideas, Disney can easily foresee how
many movies they could make a year.

Each movie takes hours and hours of research in making it and so Disney encourages
their film makers not to even think about the story and the characters until they
have done exhaustive amounts of research because a single mistake may cause a lot
of bad effect and feedback to a movie. All efforts will be put into waste if such
mistake is made. Such mistake is in terms may be the background of an individual
character, history related to the story, etc. Filmmakers are encourage to go outside
their boxes to conduct research. Example of this is the movie Ratatouille, the team
went into the best restaurants in France and did work in their kitchens. After the
trip, the filmmakers then started to layout the arc of the story. Script writers are
brought in to help the directors create the script. After four drafts, the team now
starts to release ideas for production and bring on the artists who can figure out how
 the characters are going to be animated and what the look of the film will be. Using
special software, animators then created scenes by manipulating three-dimensional
models of characters.

At Disney Animation, there is what they called the Story Trust. These are made up of
directors, heads of story, writers and others involved in the creation of the films. This
teams are those behind in creating the movies for Disney and all throughout all
years, their ways of creating the movies from scratch to the big screens has caused
success to each movies. Regardless of the budget allotted. Creativity will always be
their key.

4. Describe Disney Studio’s culture of creating creative products through

collaboration and innovation. How does Alan Horn orchestrate the integration and
collaboration of all studios to improve the success of Disney Studios as a whole?

Sometimes a company buy another company or form a new company from scratch.
When that happens, the second company usually becomes a subsidiary company.
Disney began a strategic reorganization that consolidated its consumer products and
interactive media business under the parks and resort umbrella and carved out a
separate business segment for direct-to-consumer operations.

Disney, after being partner to other studios like Pixar, Marvel and Lucas films has
gain them the advantage not only on the profitable aspects of it but the opportunity
to gain access on their known piece and also the opportunity for franchise and
collaboration on their movies.

After a production partnership with Pixars, it has led Pixar’s first full-length animated
movie Toy Story, released in 1995. It went on earn three Academy Award
nomination and became the highest grossing movie of that year. The companies
then amended their agreement turning it into a ten year, five picture deal that
specified that both parties would equally share the costs and profits from Pixar’s
films. After this the movie Finding Nemo has been their biggest success earning them
over $940 million on its global box office.
On this situation, it shown that Disney gained profits from the ideas of other studio
such as Pixar with their movie ideas. Disney known for not acquiring co financers on
their own movies yet collaborated with Pixar by sharing finance on their movie. This
strategy lessen Disney’s efforts on creating the movie and just put all the task on
making sure that the movie will hit but yet earn equal share on its profit.

By the time Disney acquired Lucas film in 2012, Disney collaborated with them in re-
launching the Star Wars, one of the most known and loved movie of all time. This
collaboration gave Disney the opportunity to gain access on profiting on the owned
movie of Lucas Films by investing and co-financing the film with an equal share in
return to its profit.

The advantage of having a structure with multiple label is by having more

opportunity on investing on their own movies, it is much less effort for Disney for not
needing additional effort on creating and developing such movies paying its own
people. They spend half of the total budget in return they gain half yet half effort.

Also, Disney was given the chance to collaborate ideas with other studios in making
such movies which they may use as future reference on their upcoming movies. Not
the idea itself of the movie but the idea of making it, strategies that may help them.