Disney Research Report

Xiaolan Liang
Yifei Xue
Frank Ng
Paul Yap

The Walt Disney Company Research Report
Abstract
This report aims to examine the investment viability of the Walt Disney Company and will assess its potential by first delineating the economic climate in which the company is operating in and interpolating our findings to ascertain its impact.
We then scrutinize the feasibility of its prevailing corporate strategies in an atmosphere of shifting consumer demand and increasingly challenging competition. We also investigate its adaptations to internal and external environments through the Porter five forces.
With our aggregated analysis of these performance aspects of the Walt Disney Company both tangible and intangible, we thus then evaluate the investment potential of its equity and make recommendations on the stock.
Macroeconomic Outlook
For the purpose of this report, we correlate economic sentiment with performance in financial markets – a key indicator of optimism in growth prospects of the economy and a strong determinant of demand.
The Walt Disney Company is a veritable media and entertainment (M & E) juggernaut, with critical profit generating lines of businesses across traditional cable networks, movies, music and theme parks. We have evaluated the demand profile of these goods on their likely status as luxury goods, for which demand rises more than proportionally as disposable income rises. Given the performance of the benchmark S & P 500 which has seen 13% compounded annual growth over the last 5 years, there are strong indications that the macroeconomic trend is improving with impetus. Given the strong growth in the economy, we expect demand for Walt Disney’s products to increase in a curvilinear fashion.
Industry Analysis
Based on Porter’s five forces analysis below, DIS has substantial competitive advantage in the industry.
Threat of New Entrants-low
Because of the large capital requirements and economies of scale, it is hard for new entrants to enter. The Walt Disney Company has already formed a strong brand with customer loyalty, so the threat of new entrants is very low. This competitive advantage can be kept for a long time.
Threat of Substitute Products or Services-low
In terms of Disney theme park, zoos or regular amusement parks cannot replace the experience in Disney theme park. Disney theme parks are sophisticatedly designed and the activities and shows in the park are unparalleled.
For entertainment business, the innovation from technology industry and music industry are the major threat of substitution. According to the PWC M&A activity report, “technology giants such as Google Inc. and Apple Inc. plan to continue to increase their pressure on the entertainment and media industry by driving convergence”(PWC, 2010).
Bargaining Power of Customers-low
Since customers have strong loyalty to Disney brand, their bargaining power is very low. Disney theme park tickets are charged at high price because customers are willing to spend more for the Disney experience. As does the merchandise products and box office. The Walt Disney Company can keep this competitive advantage for a long time as long as it keeps its good brand image and premium products.
Bargaining Power of Suppliers-low to medium
With its wide product portfolio, The Walt Disney Company has suppliers ranging from technology companies, construction companies, vendors. Consumer product vendors do not have much bargaining power because The Walt Disney Company has the right to sell license. Construction companies and equipment manufacturers have stronger bargaining power because they are capital intensive and may also have economies of scale. In addition, suppliers’ activity will affect the quality of theme park and films, so The Walt Disney Company is willing to spend more to ensure the high quality. Popular actors as “suppliers” of their specific talent or star power, help pull moviegoers into the theatres, theme parks, and