The Walt Disney Company: The Entertainment King
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R E V : J A N U A R Y 5 , XXXXXXXXXX
HBS Professor Michael G. Rukstad; Professor David Collis (Yale School of Management,); and Research Associate Ty
ell Levine prepared this
case. This case was developed from published sources. Funding for the development of this case was provided by Harvard Business School and
not by the company. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of
primary data, or illustrations of effective or ineffective management.
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M I C H A E L G . R U K S T A D
D A V I D C O L L I S
T Y R R E L L L E V I N E
The Walt Disney Company: The Entertainment
King
I only hope that we never lose sight of one thing—that it was all started by a mouse.
— Walt Disney
The Walt Disney Company’s rebirth under Michael Eisner was widely considered to be one of the
great turnaround stories of the late twentieth century. When Eisner a
ived in 1984, Disney was
languishing and had na
owly avoided takeover and dismemberment. By the end of 2000, however,
evenues had climbed from $1.65 billion to $25 billion, while net earnings had risen from $0.1 billion to
$1.2 billion (see Exhibit 1). During those 15 years, Disney generated a 27% annual total return to
shareholders.1
Analysts gave Eisner much of the credit for Disney’s resu
ection. Described as “more hands on
than Mother Teresa,” Eisner had a reputation for toughness.2 “If you aren’t tough,” he said, “you just
don’t get quality. If you’re soft and fuzzy, like our characters, you become the skinny kid on the beach,
and people in this business don't mind kicking sand in your face.”3
Disney’s later performance, however, had been well below Eisner’s 20% growth target. Return on
equity which had averaged 20% through the first 10 years of the Eisner era began dropping after the
ABC merger in 1996 and fell below 10% in 1999. Analysts attributed the decline to heavy investment in
new enterprises (such as cruise ships and a new Anaheim theme park) and the third-place performance
of the ABC television network. While profits in 2000 had rebounded from a 28% decline in 1999, this
increase was largely due to the turnaround at ABC, which itself stemmed from the success of a single
show: Who Wants To Be a Millionaire. Analysts were starting to ask: Had the Disney magic begun to
fade?
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This document is authorized for use only by Yutong Nie in XXXXXXXXXXSummer XXXXXXXXXXtaught by TOM KOHN, American University from May 2020 to Nov 2020.
XXXXXXXXXXThe Walt Disney Company: The Entertainment King
2
The Walt Disney Years, 1923–1966
At 16, the Missouri farm boy, Walter Elias Disney, falsified the age on his passport so he could serve
in the Red Cross during World War I. He returned at war’s end, age 17, determined to be an artist.
When his Kansas City-based cartoon business failed after only one year,4 Walt moved to Hollywood
in 1923 where he founded Disney Brothers Studio5 with his older
other Roy (see Exhibit 2). Walt was
the creative force, while Roy handled the money. Quickly concluding that he would never be a great
animator, Walt focused on overseeing the story work.6
A series of shorts sta
ing “Oswald, the Lucky Ra
it” became Disney Brothers’ first major hit in
1927. But within a year, Walt was outmaneuvered by his distributor, which hired away most of
Disney’s animators in a bid to shut Disney out of the Oswald franchise.7 Walt initially thought he could
continue making Oswald shorts with new animators and a new distributor, but after reading the fine
print of his contract, he was devastated to learn that his distributor owned the copyright.
Desperate to create a new character, Walt modified Oswald’s ears and made some additional minor
changes to the ra
it’s appearance. The result was Mickey Mouse. When Mickey failed to elicit much
interest, Walt tried to attract a distributor by adding synchronized sound—something that had never
een attempted in a cartoon.8,9 His gamble paid off handsomely with the release of Steamboat Willie in
XXXXXXXXXXOvernight, Mickey Mouse became an international sensation known variously as “Topolino”
(Italy), “Raton Mickey” (Spain), and “Musse Pigg” (Sweden). However, the company was still strapped
for cash, so it licensed Mickey Mouse for the cover of a pencil tablet—the first of many such licensing
agreements. Over time, as short-term cash problems subsided, Disney began to wo
y about
and
equity and thus licensed its name only to “the best companies.”11
The Disney
others ran their company as a flat, nonhierarchical organization, in which everyone,
including Walt, used their first names and no one had titles. “You don’t have to have a title,” said Walt.
“If you’re important to the company, you’ll know it.”12 Although a taskmaster driven to achieve
creativity and quality, Walt emphasized teamwork, communication, and cooperation. He pushed
himself and his staff so hard that he suffered a nervous
eakdown in XXXXXXXXXXHowever, many workers
were fiercely committed to the company.
Despite winning six Academy Awards and successfully introducing new characters such as Goofy
and Donald Duck, Walt realized that cartoon shorts could not sustain the studio indefinitely. The real
money, he felt, lay in full-length feature films.14 In 1937, Disney released Snow White and the Seven
Dwarfs, the world’s first full-length, full-color animated feature and the highest-grossing animated
movie of all time.15 In a move that would later become a Disney trademark, a few Snow White products
stocked the shelves of Sears and Woolworth’s the day of the release.
With the success of Snow White, the company set a goal of releasing two feature films per year, plus
a large number of shorts. Next, the company scaled up. The employee base grew sevenfold, a new
studio was built in Bu
ank, and the company went public in 1940 to finance the strategy.
Disney survived the lean years of World War II and the failure of costly films like Fantasia XXXXXXXXXXby
producing training and educational cartoons for the government, such as How Disease Travels.16 Disney
made no new full-length features during the war, but re-released Snow White for the first time in 1944,
accounting for a substantial portion of that year’s income.17 Subsequently, reissuing cartoon classics to
new generations of children became an important source of profits for Disney.
After the war, the company was again in difficult financial straits. It would take several years to
make the next full-length animated film18 (Cinderella, 1950), so Walt decided to generate some quick
For the exclusive use of Y. Nie, 2020.
This document is authorized for use only by Yutong Nie in XXXXXXXXXXSummer XXXXXXXXXXtaught by TOM KOHN, American University from May 2020 to Nov 2020.
The Walt Disney Company: The Entertainment King XXXXXXXXXX
3
income by making movies such as Song of the South XXXXXXXXXXthat mixed live action with animation.19
Further diversification included the creation of the Walt Disney Music Company to control Disney’s
music copyrights and recruit top artists. In 1950, Disney’s first TV special, One Hour in Wonderland,
eached 20 million viewers at a time when there were only 10.5 million TV sets in the U.S.20
With the release of Treasure Island in 1950, Disney entered live-action movie production and, by
1965, was averaging three films per year. Most were live-action titles, such as the hits Old Yeller (1957),
Swiss Family Robinson (1960), and Mary Poppins (1964), but a few animated films like 101 Dalmatians
(1961) were also made. To bolster the film business, Disney created Buena Vista Distribution in 1953,
ending a 16-year-old distribution agreement with RKO. By eliminating distribution fees, Disney could
save one-third of a film’s gross revenues. And to further improve the bottom line, Disney avoided
paying exo
itant salaries by developing the studio’s own pool of talent. Observed one writer: “Disney
himself became the box office attraction—as a producer of a predictable family style and the father of
a family of lovable animals.”21
Disney expanded its television presence in 1954 with the ABC-produced television program
Disneyland (followed the next year by the very popular Mickey Mouse Club, a show featuring pre-teen
“Mouseketeers” as hosts). Walt hoped Disneyland would both generate financing and stimulate public
interest in the huge outdoor entertainment park of the same name, which he had started designing two
years earlier at WED Enterprises (WED being Walt’s initials). This was kept separate from Disney
Productions to provide an environment where Walt and his “Imagineers” could design and build the
park free of pressure from film unions and stockholders.
The park was a huge risk for the company, as Disney had taken out millions of dollars in bank loans
to build it. But the bet paid off. The enormous success of Disneyland, which opened in 1955, was a
product of both technically advanced attractions and Walt's commitment to excellence in all facets of
park operation. His goal had been to build a park for the entire family, since he believed that traditional
parks were “neither amusing nor clean, and offered nothing for Daddy.”22 Corporate sponsorship was
exploited to minimize the cost of upgrading attractions and adding exhibits.23 To conserve capital,
Disney also licensed the food and merchandising concessions. Once the park had generated sufficient
evenue, the company bought back virtually all operations within the park.24 Disneyland’s success
finally put the company on solid financial footing.25
With Disneyland still in its infancy, Walt dreamed of