A Comparative Analysis of the North American Media and Entertainment Industry:

The Walt Disney Company and Viacom, Inc.

Authors:
Arya Khanal (212087060)
Sara Kong (212181855)
Janoshan Kiritharakuhan (212270781)
Christine Shahverdian (212104725)
Harveer Sohi (212116737)
Zhengran (Max) Zhu (212140000)

SGMT 3000 R
Instructor: Hamed Tajedin
April 2, 2015

EXECUTIVE SUMMARY
This analysis was commissioned to examine the underlying factors that ended
Nickelodeons 17-year reign as the undisputed leader in the childrens programming space in
2012 and to explain the strengths of the Disney Channel, its successor. The report also provides
recommendations for the leading firm (Disney) to reinforce its competitive advantage.
The research draws attention to the nature of the consolidated media and entertainment
(M&E) industry and highlights the macroeconomic and competitive forces that have shaped
them in the last seven years. The industry is shaped by a handful of major players, namely Time
Warner, Viacom and the Walt Disney Company. Their fight for market share pushed companies
to compete on cost and product differentiation, ultimately evolving the industry. The analysis
then distinguishes seven qualitative and quantitative factors that differentiates the operating
strategies of Nickelodeon and the Disney Channel: i) brand; ii) organizational design; iii) crosspromotion strategies; iv) efficiency; v) quality; vi) consumer responsiveness; and vii)
internationalization. In many instances, the failure of Nickelodeon to deliver a strong value
proposition to Viacom, invest in high-quality content, and leverage synergies across its multibusiness model has adversely affected their relative market position in recent years.
Today, the Disney Channel has emerged at the forefront of this industry segment as a
result of its culture, brand image awareness and its deeply-embedded goal of bringing happiness
to its audiences. To sustain this advantage, it is recommended that they further develop their
brand awareness and product consistency.
INTRODUCTION
The media and entertainment industry in America is dominated by two main players The Walt Disney Company ("Disney") and Viacom. One of the segments the two conglomerates
2

compete in is the preschoolers to adolescent age group. They compete for market share with their
two famous channels, Disney Channel and Nickelodeon.
Walt Disney Company is composed of five segments: media networks, parks and resorts,
studio entertainment, consumer products, and interactive media. Over the past nine decades,
Disney has developed as a well-known brand around the world. It currently owns over eleven
theme parks, spread across three continents. In 1995, Disney acquired Capital Cities/ABC for
$19 billion, allowing Disney to gain access to the cable networks of ABC Television Group and
ESPN Inc.1 In 2006, Disney purchased Pixar in a stock and cash transaction for $7.4 billion.2
Viacom, Inc. produces and distributes motion pictures, TV programming and
entertainment content along with other media related products and services, with operations
worldwide. The company operates in two business segments of media networks and filmed
entertainment, providing related content and products for consumers via Internet, mobile devices
and the TV. They have four channel groups for media networks including Music & Logo,
Nickelodeon, Entertainment and BET Networks that it uses to reach approximately 700 million
households worldwide.
Walt Disney Corp. and Viacom Inc. both pursue a differentiation strategy to increase the
perceived value of its brand. Both corporations provide quality network channels to their
demographic to increase viewership. By increasing viewership, Disney and Viacom earn
revenues from advertising and merchandise sales. By adding more value, both companies can
charge premium prices to advertisers resulting in an increase in profitability.

New York Times. The Media Business: The Merger; Walt Disney To Acquire ABC in $19 Billion Deal To Build A
Giant For Entertainment. http://www.nytimes.com/1995/08/01/business/media-business-merger-walt-disneyacquire-abc-19-billion-deal-build-giant-for.html (accessed April 1, 2015).
2
New York Times. Disney Agrees to Acquire Pixar in a $7.4 Billion Deal.
http://www.nytimes.com/2006/01/25/business/25disney.html?_r=0 (accessed April 1, 2015).

The two companies compete in a consolidated industry, and have similar performance
when focusing on Disney Channel and Nickelodeon. Nickelodeon has been the leading TV
channel for 17 consecutive years, and has only recently given up its title to Disney in 2012.
Disney's increased viewership and profitability are lagging indicators. To understand what
caused the difference in financial performance of the two companies, an external analysis is
conducted and then 7 key factors driving the difference are identified. Finally, relevant
recommendations are made.

EXTERNAL ANALYSIS: INDUSTRY

The media and entertainment industry is a dynamic industry that must respond quickly to
disruptive technological changes and customer preferences. Creation of quality content is
imperative, as is a business strategy to fit the digital age. Many players in industry are struggling
to adapt their traditional business model to one that prioritizes online participation and mobile
streaming. New streaming platforms provide enhanced distribution channels and greater
interaction with customers; however, piracy and the control of content are significant risks that
must be addressed. Advertising accounts for a major portion of profit and thus the industry is
vulnerable to changes in advertising, particularly as those dollars have slowly moved online.
Fortunately, demand for entertainment content remains high. Improved U.S. consumer
confidence have increased recreational spending in the past few years, boosting the M&E
industry by 6.3% since 2009.3 Falling production costs and high growth prospects have also
contributed to its recovery. (Please see Appendix C for a tabular form of the external analysis.)

Bidness Etc. Disney (DIS) Industry Analysis. http://www.bidnessetc.com/business/walt-disney/industry-analysis/

(accessed April 1, 2015).

EXTERNAL ANALYSIS: PORTER'S 5 FORCES

1) Buying Power: Buyers are categorized into (i) customers paying subscription fees and (ii)
advertisers purchasing screen time. Most customers have little power as their options are limited.
They may switch to web-based streaming services such as Netflix, for instance, but lose the
option of newly-released television programming. Many consumers feel timely viewing of
leading dramas are a necessity and this increases both companies power in the M&E landscape.
Advertisers have high power over Nickelodeon as ads constitute a major source of total
revenues.4 The same is not extended to Disney as they do not broadcast any form of outside
advertising.
2) Supplier Power: This is typically dictated by the production company. Since both Disney and
Nickelodeon create their own content and manage their own costs, power of suppliers is low.
However, there are labour disputes (such as the 2008 Writers Strike), which could disrupt
internal production. This is a risk that affects both companies
3) Threat of New Entrants: Threat of new entrants in the traditional channel formats are low
due to high transmission costs and challenges related to securing broadcasting rights for hit
shows. As the Internet becomes a larger platform for content sharing, YouTube and Netflix
increase the threat of entry as players with little capital investment are able to produce and
distribute content. Overall, the threat is moderate5.
4) Threat of Substitutes: While substitutes such as PC and video games are available,
consumers - particularly young children - have still maintained steady interest in television.
Again, this threat is moderate.

4
5

Media in the United States. Industry Profile. Marketline. 9 Jan. 2014. Web. 30 Mar. 2015.
Ibid.

5) Degree of rivalry: The dominant companies in the industry, namely Walt Disney, Viacom,
and Time Warner, dictate the competitive landscape with vast resources and distribution
channels. There is significant competition for viewing figures, in part to recover the high fixed
costs of the industry, as well as high exit costs. Overall, competition is strong.6

INTERNAL FACTOR # 1: BRAND

A major factor that explains the difference between Disney and Nickelodeon is their
brand identity; the two companies have different brands despite targeting a similar market.
Disneys brand is built on providing decent, family-oriented entertainment. Unlike Nickelodeon,
Disney has a clear moral reputation. This stems in part from its history; prior to MPAAs
founding in 1968, Disney implemented self-censorship in the form of a Motion Picture
Production Code. Thus, Disney has always been wary of potentially controversial material, even
specifying required behavior of its child celebrities, such as to not be seen buying cigarettes and
liquor. Zac Efron, a former child star affiliated with Disney, continues that [i]t wouldn't be a
smart move to be out doing promiscuous things.7
Another aspect of the Disney brand is its artistic innovation, and its sense of timelessness.
This is in part from its founder Walt Disney who is heralded as innovative, artistic, and
entrepreneurial. Walt Disneys pioneering efforts in animated films (which many thought could
not be profitable) established the company. As a first mover, Disney then created a portfolio of
memorable characters, which they strategically revamped and replayed, so that each generation
would be familiar with its content.

Media in the United States. Industry Profile. Marketline. 9 Jan. 2014. Web. 30 Mar. 2015.
Newsweek. Disney's Star Machine. http://www.newsweek.com/disneys-star-machine-112497 (accessed April 1,
2015).
7

In contrast to Disney, Nickelodeon focuses on youth culture, representing Kids as Kids.

Its former president, Geraldine Laybourne, said in 1984 that her goal was to entertain children,
not to educate them, a perspective the channel has maintained.8 Nickelodeon portrays kids as
sophisticated and independent while showing parents to be clueless, creating a boundary between
adults and kids. Therefore, Nickelodeons brand is seen as authentically representing kids. This
is reinforced by the Nickelodeons viewership engagement (such as the Kids Choice awards,
which allows interactive voting across Facebook and Twitter).
Both Disney and Nickelodeons brands are profitable in spite of their distinct brand
personalities. The two brand personalities sometimes clash, with Nickelodeon mocking Disneys
goody-two-shoes image, suggesting that Disney is too patronizing and infantilizing. Both
brands appeal to different groups of kids, depending on the television show offered.9

INTERNAL FACTOR # 2: ORGANIZATIONAL DESIGN

Another factor that differentiates Nickelodeon and Disney are the culture, control
systems, and structures that form their organizational designs.
The culture at Disney is one that outwardly values innovation, storytelling, optimism, and
respect. In particular, it focuses on a collaborative, forward-thinking culture while
simultaneously celebrating its history. Disney says it fosters entrepreneurship, enabling people to
be more creative and take risks. Disney strives to be informal employer, addressing all
employees by their first name regardless of rank (which, in the past, would have been a

8
9

Weiser, Sarah. Kids Rule!: Nickelodeon and Consumer Citizenship. Durham: Duke UP, 2007. Print.
Ibid.

significant display of community).10 Other sources, however, describe a different culture. While
many former employees agreed that Disney's staff was talented and generally optimistic, they
disagreed with the supposed creativity encouraged by Disney. Disney employees were frustrated
that everything they produced while at the studio belonged to the company. This left little room
for experimentation and individual creative touches as all TV shows and drawings had to
replicate the Disney style rather than constructively challenging it.11
In contrast to Disney, Nickelodeon's culture focuses more on entertainment value. The
logo ("slime") is a reflection of Nickelodeon's kid-focus. Their corporate office even has a "Bill
of Rights" for kids on display, a reminder of the type of mindset the creators ought to have.
Nickelodeon's office are designed to be purposefully anticorporate, with no obvious hierarchy of
control, to promote creativity and cooperation. The toys and games around headquarters make
the corporate offices look like clubhouses.12 Nickelodeon's culture values interaction and
cooperation; many employees have said their skills are valued, and that their voices are heard in
important discussions. Employees have noted a strong work-life balance at Nickelodeon, even
though there is an emphasis on productivity and multitasking. Diversity and inclusion are an
important values at Nickelodeon, and are explicitly outlined in their hiring process.13
Disney's overall structure is decentralized (see Appendix A), with various segments
connected to each other.14 The cross-functional nature of the structure is at times at odds with the
large scale of Disney. As a conglomerate, Disneys best attempt at decentralization still leaves
10

The Walt Disney Corporation. Culture & Diversity. http://disneycareers.com/en/working-here/culture-diversity/

(accessed April 2, 2015).
11
Glassdoor. Working At Walt Disney Animation Studios. http://www.glassdoor.com/Overview/Working-at-WaltDisney-Animation-Studios-EI_IE17212.11,40.htm (accessed April 1, 2015).
12
Weiser, Sarah. Kids Rule!: Nickelodeon and Consumer Citizenship. Durham: Duke UP, 2007. Print.
13
Glassdoor. Nickelodeon. http://www.glassdoor.com/Overview/Working-at-Nickelodeon-EI_IE23136.11,22.htm
(accessed April 2, 2015).
14
Inc. No Hierarchy Here: Walt Disney's Wild Org Chart. http://www.inc.com/the-build-network/no-hierarchyhere-walt-disney-org-chart.html (accessed April 1, 2015).

each segment with a tall hierarchical structure. It is promoted as a community where employees
share in decision making and promotions are made from within the company. However, many
employees find dictation from the top for creative work and promotions based off a complaisant
attitude towards management transgressions.
Nickelodeon's structure is different from Disney's. Viacom is split into two divisions,
with Nickelodeon falling under the Viacom Media Networks (VMN) division of Viacom. VMN
is initially divided by market, and then further segregated by type of television (with branches
like MTV and Nickelodeon). This structure facilitates greater localization. It is likely that
Nickelodeon is following a localization or transnational strategy, as opposed to Disney which is
routinely criticized for simply exporting its products (following a global standardization strategy
is easier given its structure, though Disney does localize some of its TV shows).
In terms of control systems, Disney employs both output control and behaviour control.
Output control is mainly targeted to executives, who have bonuses and additional compensation
through stock options (with the assumption that a well-performing TV show will drive up
Disney's share price). Behaviour control is more common, and includes operating budgets and
standardization. Employees face standardization in three ways - inputs, conversion activities, and
outputs. Disney is highly selective with its hiring process, only picking artists with talent and the
ability to work in a cooperative environment. Next, conversion activities, such as planning and
drawing, are regulated by norms and history. Outputs are then regulated by the team of
employees working on a TV show, and feedback can come from colleagues or managers. Apart
from its executives, Disney does not control employees behaviour by linking it to reward
systems. In fact, the pay at Disney is about 10 to 15% lower than market on average and raises

are slow and erratic. Instead, Disney expects its brand equity to be a sufficient motivation for
employees.
Control systems at Nickelodeon are similar to Disney's, combining behavioural and
output control. Output control is mainly for executives, whereas behavioural control is achieved
through standardization.
Although competing in the same industry, the two companies have different
organizational designs. From this preliminary analysis, it appears that Nickelodeons
organization design enables greater creativity, happier workers, and a stronger community that
helps it maintain its competitive advantage.

INTERNAL FACTOR #3: CROSS-PROMOTION STRATEGY

Furthermore, Disney and Nickelodeon have implemented the strategy of cross-promotion
to different extents. At Disney, cross-promotion is the crux of its success. Disney uses its many
venues (amusement park, TV, film, etc.) to cross-promote each other, with a particularly
reflective example in Disneyland, a TV series that appeared as a special on the Disney Channel
in the 1990s which promoted its theme park. This strategy capitalized on the familiarity of
Disney characters and the Disney brand as wholesome family entertainment, to induce customers
to purchase other products.
Nickelodeon has attempted a similar strategy, using iconic characters like SpongeBob to
sell movies and products - but with less success (i.e. Nickelodeons theme park is considerably
less profitable). Unlike Disney, Nickelodeon has ventured into other distribution channels to
cross-promote (particularly in online streaming, with a Netflix partnership).

10

A major reason for Disney's successful cross-promotion of TV material is its financing

strategy. Disney uses internal capital markets (called a "capital allocation strategy") in which
two-thirds of the cash generated from Disney's operations are reinvested in segments that need
more capital.15 This allows Disney to support underperforming TV shows by reallocating the
profits from its hit shows. No similar strategy exists at Nickelodeon, meaning that
underperforming but potentially profitable shows are cut earlier. Without the plethora of
memorable characters, the cross-promotion strategy is limited to a few star TV shows. For
example, one of Nickelodeon's hit shows is SpongeBob. Yet Nickelodeon has tried to crosspromote it so intensely that parents have complained about SpongeBob's reuse as indicative of no
new original content.

INTERNAL FACTOR #4: EFFICIENCY

Efficiency is important for both Disney and Nickelodeon. Efficiency is analyzed by
considering costs and shows produced by the two companies.
Under Disneys media network segment, which includes the Disney Channel, expenses
include production and programming costs, technical support costs, distribution costs, and
operating labor. In 2013, Walt Disney Corp.s production costs had increased by a total of $712
million, totaling $9,703 million. Costs regarding the cable network division of Disney had
increased by $468 million.16Costs had increased due to the increase in contract rates which had
resulted from an increase in episodes at the domestic level of Disney Channel. Disney has also
produced a number of new shows which gained rising popularity over the years. New shows
15

Hitt, Michael A., and R. Duane Ireland. Strategic Management: Competitiveness and Globalization. 3rd ed.
Cincinnati: South-Western College Pub., 1999. Print.
16
The Walt Disney Company. Fiscal Year 2013 Annual Financial Report And Shareholder Letter.
http://cdn.media.ir.thewaltdisneycompany.com/2013/annual/10kwrap-2013.pdf (accessed April 1, 2015).

11

such as Jessie, Dog with a Blog, and I Didnt Do It have increased Disney Channels popularity
and future growth. Disney also aims to increase the number of shows by continuing with the
second season of other popular shows such as Gravity Falls. Increasing episode production and
overall number of new shows helps Disney reduce reruns and continuously provide new content.
Viacom Inc. also operates in many different segments that incur its own profits and
expenses. The two major industries, film and television, have incurred costs of $2,830 million.
Large production costs in the companys cable network segment comes from producing an
additional episode. It costs roughly $300,000 to produce one episode of SpongeBob simply
because of the advanced technology that is used to create the animated episode. Most episodes
that run on Nickelodeon, however, are reruns and fewer new shows have appeared as it has not
sustained its investment in content development. Nickelodeons newest shows include Henry
Danger, Breadwinners, and Every Witch Way.17
When comparing the costs of production between Viacom and Disney it is evident that
Disney incurs higher production costs. In 2013, Disney incurred $6,873 million more in
production costs than Viacom as a result of releasing higher quality network shows and an
increase in the contract rates. Nickelodeon, on the other hand, still incurs high production costs
even as the majority of their shows are reruns. This may be one indicator that signifies Disneys
superior efficiency in producing quality TV shows, albeit the greater cost overall.

INTERNAL FACTOR # 5: QUALITY

Quality of TV shows is analyzed by considering the number of viewers. Many adults
believe that the quality in Disney Channels programming has declined over time, but the
17

Market Watch. Viacom Inc. http://www.marketwatch.com/investing/stock/via/financials (accessed April 1, 2015).

12

companys ratings have proven otherwise. In fact, Disney reported a 5-month high in viewership
in January 2015. The company had received a 1.8 rating in children 2 to 11, a 2.1 rating in youth
6 to 11, and a 2.0 rating in tweens 9 to 14. Disney Channel had received a total viewership of
937,000 kids in 2015 and is the market leader for children's television programming in North
America.
Contrary to Disney, advertising is the main stream of Nickelodeons revenues and ratings
are pertinent to how much they will receive (higher ratings, higher prices). Ratings and
viewership have increased since its downfall in 2012, fuelled by classics such as SpongeBob,
Sanjay and Craig, and Teenage Mutant Ninja Turtles as well as its new shows. Breadwinner, for
instance, increased viewership by 934,000 in 2014. Nickelodeon currently reaches 300 million
households across 110 countries.
After 2012, the Disney Channel has been an undisputed week-by-week leader for its
dominance in children and preteen programming. On average, it received a total viewership of
937,000 kids between 2 and 11 in 2013 (which is above the 934,000 average for Nickelodeon)
and is the top cable television network for children.18 While Nickelodeons jewel is SpongeBob,
Disney has a broader range of television shows that children enjoy including Phineas and Ferb,
Jesse, and Shake It Up. But it has not always been successful - Nickelodeon had led this industry
for 68 straight quarters between 1995 and 2013. A large reason of their recent success can be
attributed to the launch of Disney Jr. in 2012, a channel aimed at children aged 2 to 11.
Positioning directly against Nick Jr., Nicks viewership dropped over 50 percent in 2012.

18

Rick. Kissel, Disney Channel Finishes as Top Net in Kid Demos for Second Straight
Year.<http://variety.com/2014/tv/news/disney-channel-finishes-as-top-net-in-kid-demos-for-second-straight-year1201031641/>

13

Finances also played a big part in Disneys recent success as its subscribed user base
grew by 5 million users between 2007 and 2013. In 2013, Disney charged $0.96 per month in
subscription fees compared to Nickelodeon which had only charged $0.52. This partially offsets
the cost of commercial-free programming, which generated roughly $700 million for
Nickelodeon in 2013.19 Viewership is a measurement of quality. Thus, Disney has surpassed its
competitors, including Nickelodeon, as they have a larger audience (though the difference is
small).

INTERNAL FACTOR #6: CUSTOMER RESPONSIVENESS

Customer responsiveness is a key core competency for both companies. Considering their
customer base, the most relevant way to assess customer responsiveness was through analyzing
social media engagement. In the world of media and entertainment, engaging and promoting
interaction with consumers has become essential to holding a captive market share. Thus, Disney
Channel and Nickelodeon have both increased their efforts to stay connected to its target
audiences.
Disney operates its social media presence through the Disney Consumer Products (DCP)
division under several names such as Disney Living and Disney Baby.20 Across the Walt Disney
Company as a whole, there are over 250 Facebook pages and more than 300 million page likes. 21
The strategy Disney utilizes is to create a line of communication, sharing casual content focused
on creating discussions from fans rather than on advertisement. For example, social media allows
19

What is Driving The Growth For Disney Channel? <http://www.nasdaq.com/article/what-is-driving-the-growthfor-disney-channel-cm367569>

20
Christina Warren, Disney Marketing: The Happiest Social Media Strategy on Earth.
<http://mashable.com/2011/08/03/disney-social-media/>
21
Christina Warren, Disney Marketing: The Happiest Social Media Strategy on Earth.

14

the company to connect with its most ardent fans to show items such as behind the scenes or indepth insider aspects, deepening the fan base. Disney is also active in the online gaming segment
with leading games including Disney Club Penguin and Disney Fairies, games that allow users to
customize their avatar and interact with other players.
Nickelodeon aims to incorporate social media into all aspects of the channels operations.
Its strategy is to encourage conversation and create opportunities for consumer involvement
around their programming. Since 2011 they have used Facebook voting for its popular Kids
Choice Awards, and recently mobilized Twitter to further engage audiences. As well,
Nickelodeon allows audiences to influence programming, best displayed by the 90s Are All
That programming block on TeenNick catering to the generation that grew up on Nick shows
wherein the audiences can vote on Facebook for programming they would like to see.22
Entertainment Weekly called it the viewer-driven ratings powerhouse and rated it as one of the
industrys outstanding achievements of 2011.23 On its debut, the block was the top trending topic
on Twitter. As well, its websites Nick.com, NickJr.com and NickMom.com garner 5.7, 3.7 and
2.8 million unique visitors per month.24
Although Disney is adept at using social media in its operations as a whole company,
there is nothing specific relating to the Disney channel that stands out whereas Nickelodeon has
effectively engaged its target audiences at every level using social media. Thus, Nickelodeon
better couples its television content with social media, engage its viewers more and, effectively,
has a stronger marketing strategy.

22

Jack Daley Nickelodeons The 90s Are All That for Best Social Media Campaign for Television.
<http://industry.shortyawards.com/nominee/ 4th_annual/e3/nickelodeons-the-90s-are-all-that-for-best-social-mediacampaign-for-television>
23
Jack Daley Nickelodeons The 90s Are All That for Best Social Media Campaign for Television.
24
Viacom, Inc., Marketline.

15

INTERNAL FACTOR #7: INTERNATIONAL AND EXPANSION

The parent companies Walt Disney and Viacom are heavily reliant on North America
with 75.5% and 73.6% of revenues coming from this market. 25

26

However, the Disney channel

and Nickelodeon also have global reach. The Disney Channel has 100 channels available in 34
languages in 166 countries.27 It has a subscriber base of 271 million globally which allows it to
gain higher margins from its operations. This is because both companies use considerable
technology; their cost structure is similar to a high tech company. This means that their marginal
costs are essentially 0 with increasing output, and average cost is reduced with increased
quantity.
Emerging markets have the highest potential for growth with current growth rates around
20% for the Middle East and Africa, 15% for Latin America and 10% for Asia pacific.28
However, these markets only represent 10% of revenues for the Disney Channels Group,
meaning these areas have potential for growth. Disney has adopted both a multinational and
localization strategy wherein it airs some of its most popular American programming directly in
emerging markets but also develops programs catering to the local culture and demand. For
example, in entering the Indian market, the group took one of the concepts from its American
series Good Luck Charlie and reshot the series into Best of Luck Nikki featuring a Sikh family
and other relevant cultural references. Disney also produces original programming adapted to

25

The Walt Disney Company, Marketline.

Viacom, Inc., Marketline.
27
The Walt Disney Company, Marketline.
28
Armaud Miquel, Disney Channels out to conquer emerging markets,
<http://www.inaglobal.fr/en/television/article/disney-channels-out-conquer-emerging-markets>.
26

16

local culture such as Violetta, an Argentinian program which has become popular all over Latin
America.
The Nickelodeon group has 80 channels worldwide and has reached 300 million
households in over 110 countries. Of the 300 million, 100 million are from the United States.29
The group expanded its channels to the Middle East and North Africa in January 2015 creating
the only international kids TV channel available in Arabic.30 However, Nickelodeon has been
slower in expanding internationally and has less brand recognition compared to the Disney
Channel Group which can benefit from its effective cross-promotion strategies to receive a
premium from advertisers overseas.
Furthermore, Disney has obtained more synergies from its acquisitions. Viacom, for
example, owns four channel groups with each targeted toward a different age group and
audience. BET Networks (Black Entertainment Television), a division of Viacom, targets mainly
African-American adults, which is on the complete opposite spectrum of Nickelodeons target
market. Although Viacom is spanning its operations within the industry, its broad positioning
strategy is causing it to fall behind Disney which is more structured and focused. Disney
positions itself as a reputable and renowned brand in the marketplace through its vision of
providing families with happiness. For example, Disneys acquisition of Pixar Animation
Studios was directly in line with its film and TV channels, giving Disney the opportunity to
reduce industry rivalry, increase product differentiation, and leverage a competitive advantage.
Overall, international expansions and acquisitions will determine which company is most
profitable, and so far Disney Channel has been able to accomplish that goal more effectively.
29

Viacom, Inc., Marketline.

Georg Szalai, Viacom Expands Middle East Presence With Three Channel Launches,
<http://www.hollywoodreporter.com/news/viacom-expands-middle-east-presence-759197>
30

17

RECOMMENDATION
It can be concluded that Nickelodeon is the lagging firm when compared to Disney
Channel. Disneys objective is to be one of the world's leading producers and providers of
entertainment and information, using its portfolio of brands to differentiate its content, services
and consumer products. The company's primary financial goals are to maximize earnings and
cash flow, and to allocate capital toward growth initiatives that will drive long-term shareholder
value.31 Although both companies are key competitors in the M&E industry, Disneys brand
(and brand management) is more developed, leading to a significant barrier of entry. It is
Disney's greatest point of differentiation, serving to link higher quality shows with Disney.
Enhancing brand is built on two foundations (i) awareness and (ii) consistency. More
awareness of Disney's brand is achieved through value-adding marketing campaigns, including a
continuation of its cross-promotion strategies. In particular, cross-promotions through informal
TV promotions are highly effective and should be continued. This includes the Disney-related
commercials that are broadcasted before, during, and after episodes as well as any
advertisements posted in its theme parks that encourage viewership of its own movies. This
child-targeted strategy successfully encourages parents to invest in Disneys characters,
attracting revenue from the box office, toys and numerous visits to Disneys theme parks. We
recommend that the cross-promotion be taken a step further, with more fictional crossovers
among TV characters from different shows. For example, the three-part TV series "Wizards on
Deck with Hannah Montana" featured characters from Hannah Montana, Wizards of Waverly
Place, and Suite Life of Zack and Cody. The crossover series received a rating of 8.7 in a 10
point scale, significantly higher than episodes of the shows individually (which ranged from 4.1
31

"Investor Relations | The Walt Disney Company." Investor Relations | The Walt Disney Company. N.p., n.d. Web.
30 Mar. 2015.

18

to 6.7 in rating).32 Crossover TV series are more creative and entertaining, thus should be further
explored.
Disney is also recommended to exercise stronger brand management with its most
important brand ambassadors -- child celebrities (i.e. Debby Ryan, Olivia Holt). A failure to
monitor their off-screen behaviours have deterred the success of its strategies. For instance, the
rocky relationship between Miley Cyrus and the Hannah Montana (HM) franchise hurt Disneys
ability to cross-promote HM on its other platforms.33 According to Mara Wilson, a former child
star, a major reason child celebrities damage their reputation is due to the lack of parental
support in the media industry. Rather than being able to rebel healthily and make mistakes, child
stars are scrutinized and mocked as if they were adults. Accordingly, Disney's extensive
contracts with child celebrities are not fully effective. An environment and culture should be
created that allows children to grow up. A simple yet effective way to establish this culture is to
have more parental involvement in the TV creation process; parental input and presence on the
TV set can be very symbolic in demonstrating Disney's commitment in the growth of their child
celebrities. Alternatively, behaviour control systems could also be implemented, where each
infraction (from a set of prohibited activities) would lead to pay cuts in the stars salary. .
The second factor to brand is consistency. Disneys brand depends on high quality
(both quality as excellence and reliability) and innovation (related to creativity in the form of
novel storylines as well as new mediums to tell the stories). At the moment, the substance of
Disneys organizational design does not facilitate increased quality nor innovation as effectively
as it could. Disney is encouraged to examine how Nickelodeon integrates strong work cultures
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IMDB. Double-Crossed. http://www.imdb.com/title/tt1368381/ (accessed April 1, 2015).

McKay, Hollie. Did Miley Cyrus' VMAs performance hurt the Disney brand?
http://www.foxnews.com/entertainment/2013/08/27/miley-cyrus-vmas-performance-hurt-disney-brand/ (accessed
April 2, 2015).
33

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that foster creativity, and internalize them in their own culture and systems. Cooperation, for
instance, is encouraged but employees do not feel empowered. To address this, Disney should
implement new linking mechanisms between management and employees that are less centered
on control relationships and more on informal ones. The simplest linking mechanism would
involve a liaison, who would be a neutral, trustworthy individual. The liaison's task would be to
convey employee concerns to management, and to monitor and ensure that the concerns are
addressed.
Ideally, Disney's management should take a page from Pixar's book, and act in ways that
builds employee respect for them. In Pixar, there is a cultural myth that President Edwin Catmull
and cofounder Alvy Ray Smith often put their jobs at risk to save employees from being fired.
This cemented eternal respect for the two managers and helped build trust in the company.
However, at Disney no similar stories or shows of respect between employees and managers
exist. This may arise from Disneys mindset that new talent will always flow to the company. It
ignores the value of experience or learning effects with the long-term retention of teams and
individuals. To address this, employees should be compensated more and have a better work-life
balance (which many employees highlighted as key at Nickelodeon), possibly by having fewer,
more flexible hours. Next, innovation could be better encouraged by preventing employee
burnout. Google is well-known for its 20% free time rule, which gives employees the chance to
take a break and be more creative. A similar rule could be adopted by Disney to encourage
creativity.
Disney's acquisitions should also be limited -- it is recommended that they slow their
acquisition growth. While acquisitions may be a necessity in the M&E industry to be a large
conglomerate, Disney may soon suffer from a diversified discount - meaning that it will be
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valued lower in their relevant market segments as analysts find it more challenging to understand
Disney's financial statements and investors feel the multibusiness model is not adding sufficient
value. Long-term relationships and strategic alliances ought to be explored. This would enable
Disney to have access to specialized assets without having to incur the heavy costs of an
acquisition (and the resulting distortion in financial statements due to consolidation, and too
many intangibles or goodwill).
Disney is currently excelling at its international expansion strategy. Just by leveraging its
world-renown brand, Disney is able to gain a greater presence in countries outside the United
States. This is because Disney's brand has been established already through the international
films it releases. In addition, Disney provides localized programming suited to the culture of
each country or region. Disney's remakes of American shows into more culturally accessible
shows is more relatable to consumers, increasing the rate of adoption. This allows Disney to gain
a greater market share as they better cater to customer needs. Although producing new
programming for foreign markets increases cost, it is recommended that Disney continue this
strategy as it is a major point of differentiation. Many TV channels try to expand their market,
but few have succeeded as they do not provide relatable, engaging content to their new market.
In the long run, Disney ought to maintain its classic Disney image. Analysis of Disney
concludes that "Classic Disney" television shows featured light entertainment, music, and humor.
The storylines tended to have formulaic heroes, heroines, villains; themes emphasized include
optimism; escape, magic, fantasy; romance, happiness; the triumph of good over evil. There is
pressure on Disney to release more controversial content (seeing the success of controversial
reality television on MTV, for example). Yet, Disney should focus on supporting its brand, and
should "stick to (its) knitting".
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CONCLUSION
The industry outlook for the media and entertainment industry points to further
consolidation through acquisitions in the saturated national market and expansions through both
acquisitions and the launch of new products internationally. This market will continue to be
highly competitive and sensitive to trends as exemplified by the close race between Disney
Channels and Nickelodeon in the preschooler to adolescent segment. In the last few years,
Disney was able to overtake Nickelodeon by focusing on the wants of its target market and
sticking to its core competencies.
Internal analysis of both firms highlighted several factors that contributed to the success
of a firm in this industry, with the most important being brand awareness and loyalty. The value
of a companys brands and characters in the eyes of the market dictates the position of the firm
within the industry and Disney was able to achieve the top spot through its well-known and
loved classic characters and new programming offerings. Brands are established through several
company strategies, such as cross-promotion and social media engagement, contributing to the
firms distinctive competence.
When considering Disneys future, the firm should focus on what it knows best, which is
providing consumers with family-friendly programming and cross-promoting. By staying true to
the firms strategy, Disney was able to maintain its position in a constantly changing market.
While there are changes recommended (such as better employee treatment, and a more
innovative culture), it is clear Disney is a leader in the industry, and will maintain its position for
the foreseeable future.

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APPENDICES
Appendix A: Organizational Structure of Walt Disney Inc.

Appendix B: M&E Industry Composition

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Appendix C External Analysis

Opportunities
Strong growth prospects in industry
Vast customer reach with M&E
Improving economy has resulted in
more disposable income for consumers
Technological innovations like online
distribution channels and others has
resulted in new distribution channels
Falling costs of production and
resulting higher revenues
Shifting consumer preferences for
online streaming

Threats
Disruptive technologies for companies
not proactive in using them
User-generated content like a popular
YouTube series
Online piracy
Inability for new and old business
models to co-exist effectively
Social media monetization (taking
away advertising on TV)

Appendix D: SWOT Analysis - Disney Channel

SWOT ANALYSIS OF THE DISNEY CHANNEL
Strengths

Disney is among the most popular brand names in the world, giving it a significant
competitive advantage in the industry due its established brand loyalty for more than ninety
years. Disneys high brand awareness among people is one of its most important strengths.
In addition, Disneys popular characters are seen throughout the shows on Disney Channel,
which are not found on any other network. Walt Disneys cable network Disney Channel is
one of the most watched cable networks in the world, with 240 million subscribers. Disney
Channel is innovative and attracts great talent.

Weaknesses

Although Disney operates internationally, it greatly relies on the United States and Canada
for the majority of its revenues. Over 70% of the revenues come from the US alone, while
the News Corporation, its major competitor, receives less than 50% of its revenues from the
US. This indicates that Disney is extremely vulnerable to changes in the North American
market. Disneys limited range of target audience may be considered as a weakness as
many believe that it is solely targeted towards children and mothers.

Opportunities

Disney Channel has the opportunity to expand its network outside of North America,

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allowing its shows to air internationally. In addition, Disney Channel has the opportunity to
create online websites and on demand services for its viewers. Disney Company has
already entered the markets in China and India, and should strive to strengthen its position
in such high growth markets.

Threats

Disney Channel faces the threat of increasing competition in the media industry. News and
TV shows often go online, drawing viewers away from the actual channel and more toward
other third party websites. Subscription to online television costs far less than cable
television providers, thus the cable network providers face the threat of their power being
taken away due to the increasing growth in the online market. In addition, the seasonality of
advertising patterns and changes in viewership levels is a constant threat to Disney
Channel, alongside the high human resources and advertising costs.

Appendix E: Implementation Plan

Stage 1: Employee (Length: 2 weeks)
1) Increase Employee Salaries - greater connection of compensation incentives to profit (ink to
stage 2 - encourage innovation)
2) Reduce Employee Hours - create an environment where employees on the creative side have
flexibility (ie ability to work from home, flexible hours - as in google)
3) Introduce 20% Free Time
To begin, target the employees. Since employees will benefit from these changes, employees will
"buy-in" and be committed to the subsequent changes. It also signals that many changes will
follow.
Stage 2: Encourage Innovation (Begin after Stage 1; Length: 1 month)
1) Introduce Liaison to link to management - ensure the creative and management sides have an
effective flow of communication.
2) Encourage more teamwork and work on crossover series
Next, make a few structural changes to Disney, so as not to overwhelm members with rapid
changes.
Stage 3: Cultural Change (Length: 2 years to see true improvement; Begin concurrently
with two previous stages)
1) Encourage greater parent participation on TV sets
2) Encourage better quality through goal-setting and budgeting - one of the failures of
Nickelodeon in recent years was the lackluster performance of its new shows. Production costs
are a major portion of costs for M&E firms, therefore Disney should ensure quality and
responsiveness of shows by conducting thorough market research before production.
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Then, set about to shape the culture of Disney. Promote a more child-friendly atmosphere and
increased quality coupled with increased innovation.
Stage 4: Corporate Level (Begin after stage 2; discussions should continue until Stage 3
complete)
1) Discuss limiting future acquisitions - as the market becomes more saturated, conduct due
diligence to acquire only investments that will add value to the companys valuation.
2) Discuss further adopting a localization strategy - key differentiation factor is localization. /this
strategy is only possible until the market gets saturated, upon which a multinational or
transnational strategy will become necessary, thus Disney should prioritize localization when
possible.
Finally, discuss the ramifications of the 3 previous stages on the corporate-level activities.
Strategies for Disney's expansion ought to be discussed.

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