Disney Case Study

Elliott Pierron
MGMT 478

Question 1:

Disney is facing several problems, primarily due to the rapid decline in its traditional linear TV
business and the difficulty in making its streaming service profitable. Key challenges include:
1. Declining Linear TV Revenue: The operating income from linear TV which includes
ESPN and other channels, has dropped 35% in the latest quarter. This is mainly because
cord-cutting and a shift away from cable subscriptions, coupled with a weak advertising
market.
2. Mounting Streaming Losses: Disney’s streaming division particularly Disney+ has
accumulated losses of over $10.3 billion since its launch. While the company has made
steps to reduce these losses, they are still significant.
3. Heavy Dependence on Theme Parks: The parks and experiences business has surpassed
linear TV in profitability. While this helps cushion losses in other divisions, Disney is still
heavily reliant on this segment, which is vulnerable to economic downturns.
4. Challenges in Global Markets: Revenue per user for Disney+ in India has fallen,
significantly lowering the global average for subscriber revenue.

I think that if these issues are not addressed, Disney risks a further decline in profitability. The
continued deterioration of linear TV income, combined with streaming losses, could lead to
weaker stock performance and reduced investor confidence. A failure to make streaming
profitable by 2024 may further depress the company’s financial outlook.

Question 2:

Several external factors have contributed to the decline in Disney’s operating income:
1. Cord-Cutting Trend: The ongoing shift away from traditional cable and satellite TV
subscriptions, as more consumers opt for streaming services, has significantly reduced
revenue from cable subscriptions and advertising.
2. Soft Advertising Market: A downturn in the overall advertising market has worsened the
profitability of linear TV. Advertisers are spending less across the board, particularly on
traditional TV channels, which rely heavily on ad revenue.
3. Streaming Competition: Disney faces stiff competition from other streaming giants like
Netflix and Amazon Prime, which impacts its ability to raise subscription prices without
risking subscriber loss.
4. Global Economic Conditions: Economic pressures, such as inflation, have made it
harder for consumers to spend on discretionary entertainment services, impacting revenue
from theme parks and potentially limiting streaming subscriptions.
Disney has attempted to increase profit margins by cutting costs, including laying off workers
and evaluating the direct-to-consumer model for ESPN. Additionally, it has raised streaming
prices and introduced an ad-supported tier, aiming to increase revenue per user.
Question 3:

1. Partnerships with Telecom and Internet Service Providers: Disney could form
strategic partnerships with telecom companies or internet service providers to bundle
Disney+ with broadband or mobile plans. This would create a more integrated offering
for customers and could drive subscription growth.
o Counterargument: Bundling with other services might worsen Disney’s brand
and make it dependent on the success of third-party companies. Consumers may
not want to pay for additional services in tight economic conditions.
2. Live Interactive Content and Experiences: Disney could offer exclusive live,
interactive streaming events tied to its biggest franchises, such as live behind-the-scenes
tours of theme parks, virtual meet-and-greet with characters, or live fan discussions with
creators.
o Counterargument: Producing and maintaining such interactive experiences
could be costly. It also risks being a niche product that appeals to a l imited
portion of the audience making it hard to scale profitably.
3. Global Expansion of Premium Services: Instead of focusing on lower-revenue markets
like India, Disney could concentrate on expanding premium services in regions with
higher disposable income, like Europe and North America. This could involve rolling out
more premium tiers of Disney+ with exclusive content.
o Counterargument: Focusing only on premium services might alienate price-
sensitive customers, limiting overall growth. Disney risks losing market share in
emerging markets if it shifts its focus away from them.

Question 4: Prioritized Idea and Benefits

I would prioritize partnerships with telecom and internet service providers to bundle Disney+
with broadband or mobile plans.

Benefits:
 Increased Subscriber Base: Bundling provides an opportunity to expand Disney+
subscriber numbers rapidly, especially in developed markets where broadband
penetration is high.
 Guaranteed Revenue: The partnership model would provide Disney with a steady,
predictable stream of revenue, as payments would likely come directly from telecom
providers.
 Enhanced User Experience: Integrating streaming with existing services like broadband
could enhance the user experience, reducing friction in subscribing and retaining users.
While this approach may make Disney more reliant on external partners, the potential increase in
subscriber numbers and a more stable revenue stream make it a worthwhile strategy to boost
both the linear TV and streaming business.