TheWaltDisneyCo.TheEntertainmentKing

9-701-035REV:JANUARY5,2009________________________________________________________________________________________________________________ProfessorMichaelG.Rukstad,ProfessorDavidCollisoftheYaleSchoolofManagement,andResearchAssociateTyrrellLevinepreparedthiscase.Thiscasewasdevelopedfrompublishedsources.HBScasesaredevelopedsolelyasthebasisforclassdiscussion.Casesarenotintendedtoserveasendorsements,sourcesofprimarydata,orillustrationsofeffectiveorineffectivemanagement.Copyright©2001,2005,2009PresidentandFellowsofHarvardCollege.Toordercopiesorrequestpermissiontoreproducematerials,call1-800-545-7685,writeHarvardBusinessSchoolPublishing,Boston,MA02163,orgoto—electronic,mechanical,photocopying,recording,orotherwise—withoutthepermissionofHarvardBusinessSchool.MICHAELG.RUKSTADDAVIDCOLLISTheWaltDisneyCompany:TheEntertainmentKingIonlyhopethatweneverlosesightofonething—thatitwasallstartedbyamouse.—WaltDisneyTheWaltDisneyCompany’srebirthunderMichaelEisnerwaswidelyconsideredtobeoneofthegreatturnaroundstoriesofthelatetwentiethcentury.WhenEisnerarrivedin1984,Disneywaslanguishingandhadnarrowlyavoidedtakeoveranddismemberment.Bytheendof2000,however,revenueshadclimbedfrom$1.65billionto$25billion,whilenetearningshadrisenfrom$0.1billionto$1.2billion(seeExhibit1).Duringthose15years,Disneygenerateda27%annualtotalreturntoshareholders.1AnalystsgaveEisnermuchofthecreditforDisney’sresurrection.Describedas“morehandsonthanMotherTeresa,”Eisnerhadareputationfortoughness.2“Ifyouaren’ttough,”hesaid,“youjustdon’tgetquality.Ifyou’resoftandfuzzy,likeourcharacters,youbecometheskinnykidonthebeach,andpeopleinthisbusinessdon'tmindkickingsandinyourface.”3Disney’slaterperformance,however,hadbeenwellbelowEisner’s20%growthtarget.Returnonequitywhichhadaveraged20%throughthefirst10yearsoftheEisnererabegandroppingaftertheABCmergerin1996andfellbelow10%in1999.Analystsattributedthedeclinetoheavyinvestmentinnewenterprises(suchascruiseshipsandanewAnaheimthemepark)andthethird-placeperformanceoftheABCtelevisionnetwork.Whileprofitsin2000hadreboundedfroma28%declinein1999,thisincreasewaslargelyduetotheturnaroundatABC,whichitselfstemmedfromthesuccessofasingleshow:WhoWantsToBeaMillionaire.Analystswerestartingtoask:HadtheDisneymagicbeguntofade?TheWaltDisneyYears,1923–1966At16,theMissourifarmboy,WalterEliasDisney,falsifiedtheageonhispassportsohecouldserveintheRedCrossduringWorldWarI.Hereturnedatwar’send,age17,determinedtobeanartist.WhenhisKansasCity-basedcartoonbusinessfailedafteronlyoneyear,4WaltmovedtoHollywoodin1923wherehefoundedDisneyBrothersStudio5withhisolderbrotherRoy(seeExhibit2).Waltwasthecreativeforce,whileRoyhandledthemoney.Quicklyconcludingthathewouldneverbeagreatanimator,Waltfocusedonoverseeingthestorywork.6Aseriesofshortsstarring“Oswald,theLuckyRabbit”becameDisneyBrothers’firstmajorhitin1927.Butwithinayear,Waltwasoutmaneuveredbyhisdistributor,whichhiredawaymostofThisdocumentisusedwithpermissionandisavailabletoJinghaoYan,inthecourse:UGBA115:CompetitiveStrategy(Spring2010),UniversityofCalifornia,Berkeley,forpersonaluseonlyfrom1/12/2010to5/14/2010.Unauthorizeduse,reproductionand/ordistributionarestrictlyprohibited.701-035TheWaltDisneyCompany:TheEntertainmentKing2Disney’sanimatorsinabidtoshutDisneyoutoftheOswaldfranchise.7WaltinitiallythoughthecouldcontinuemakingOswaldshortswithnewanimatorsandanewdistributor,butafterreadingthefineprintofhiscontract,hewasdevastatedtolearnthathisdistributorownedthecopyright.Desperatetocreateanewcharacter,WaltmodifiedOswald’searsandmadesomeadditionalminorchangestotherabbit’sappearance.TheresultwasMickeyMouse.WhenMickeyfailedtoelicitmuchinterest,Walttriedtoattractadistributorbyaddingsynchronizedsound—somethingthathadneverbeenattemptedinacartoon.8,9HisgamblepaidoffhandsomelywiththereleaseofSteamboatWilliein1928.10Overnight,MickeyMousebecameaninternationalsensationknownvariouslyas“Topolino”(Italy),“RatonMickey”(Spain),and“MussePigg”(Sweden).However,thecompanywasstillstrappedforcash,soitlicensedMickeyMouseforthecoverofapenciltablet—thefirstofmanysuchlicensingagreements.Overtime,asshort-termcashproblemssubsided,Disneybegantoworryaboutbrandequityandthuslicenseditsnameonlyto“thebestcompanies.”11TheDisneybrothersrantheircompanyasaflat,nonhierarchicalorganization,inwhicheveryone,includingWalt,usedtheirfirstnamesandnoonehadtitles.“Youdon’thavetohaveatitle,”saidWalt.“Ifyou’reimportanttothecompany,you’llknowit.”12Althoughataskmasterdriventoachievecreativityandquality,Waltemphasizedteamwork,communication,andcooperation.Hepushedhimselfandhisstaffsohardthathesufferedanervousbreakdownin1931.13However,manyworkerswerefiercelycommittedtothecompany.DespitewinningsixAcademyAwardsandsuccessfullyintroducingnewcharacterssuchasGoofyandDonaldDuck,Waltrealizedthatcartoonshortscouldnotsustainthestudioindefinitely.Therealmoney,hefelt,layinfull-lengthfeaturefilms.14In1937,DisneyreleasedSnowWhiteandtheSevenDwarfs,the