The Wall Street Journal published a good article this week about the Disney strategy under CEO Bob Iger. Writer Ben Fritz summarizes the shift in strategy that has taken place since Iger replaced Michael Eisner as CEO.
Mr. Iger has refocused Disney around what it calls “franchises”—or entertainment juggernauts that live on for many years as theme-park rides, toys, videogames, television shows, pajamas and just about anything else that keeps revenue rolling in. The consistent performance of those franchises is helping Disney outshine competitors by measurements ranging from stock-price growth to product licensing to ticket sales per movie. “Ten years ago, we were more like other media companies, more broad-based,” Jay Rasulo, then Disney’s chief financial officer, told analysts last fall. “Almost every aspect of the company” is now “oriented around brands and franchises.”
I have been teaching a corporate strategy case study about Disney for many years. I often show a series of charts that shows the Disney stock performance during three periods of time: Eisner's tenure pre-ABC acquisition (roughly his first decade as CEO), Eisner's tenure post-ABC acquisition, and Iger's tenure. What do you see when you examine these charts? Disney outperformed the S&P 500 by a wide margin during the first half of Eisner's tenure, underperformed during the latter stages of his time as CEO, and has outperformed the S&P during Iger's tenure. Several factors contribute to these performance changes, but I believe the shift in strategy over time plays a key role.
During Eisner's early tenure, he focused on cultivating economies of scope among the businesses at Disney (i.e. synergies). The company leveraged characters in the Disney vault, and it created great new characters in films such as Beauty and the Beast, Aladdin, and The Lion King. In the latter stages of Eisner's tenure, they diversified much more broadly. The company begin to define itself not as a company that was simply great at creating franchises based on great characters, but instead as a leading entertainment company. They were defining their capabilities more generally.... but of course, they were also less distinctive, and less clearly superior when talking in general about entertainment. The stretched definition of who they were and what they were good at served as justification for moving well beyond the core "characters" businesses at Disney.
What has Iger done? He's returned to character development and the building of franchises based on those characters as the heart of Disney's strategy. Look at the three major acquisitions of Iger's era: Pixar, Marvel, and Lucas Films. What do they all have in common? Powerful characters around which Disney can leverage economies of scope across its many businesses and platforms. Defining what Disney does best a bit more narrowly has limited the scope of the firm a bit, but it has elevated performance greatly. Why? Disney now competes in areas in which they are clearly world class and superior to the competition. They are not competing as much in areas of entertainment where they are less distinctive.