This case study discusses the actions of Walt Disney Company to acquire 21st Century Fox and in launching three streaming channels in competition with Netflix. It seeks to answer the questions on why Disney chose to acquire Fox and to what it resulted in.
David J. Collis
Harvard Business School (719-445)
January 2019. (Revised October 2019.)
Case questions answered:
- The analysis should focus on the following issues:
Strategic assessment of Walt Disney Company and its situation as of today
Strategic assessment of the entertainment industry
Disney history and evolution over the last years
Disney – the recent strategic decision of purchasing FOX’s assets, the rationale and the expectations,
Assessment of competitors
Outcomes and/or expected outcomes
- On top of that, you are expected do pose yourself some specific questions on the case and further develop your research based on that.
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Case answers for The Walt Disney Company: The 21st Century Fox Acquisition and Digital Distribution
The Entertainment Industry
History. Throughout the 20th century, the movie industry became one of the cheapest and most accessible ways to entertain, and the 2000s brought technological advancement and radical changes. Computers, already being used to create effects and animations in the previous decades, over time replaced traditional hand-drawn animation as the method of development for animated feature films. Several film genres began to rise in popularity, including fantasy and superhero films, a trend that continued well into the 2010s.
The movie industry as a whole grew significantly (see Exhibit 1), with box office sales of US$23.1 billion in 2005, US$31.6 billion in 2010 and US$38.7 billion in 2018, a slight decline from the historical record of 2018, with the US representing more than 24% of the worldwide box office of 2019.  
Exhibit 1. Box Office revenue in US$ billions
Despite growing figures and record profits, traditional movies are being challenged by a potential substitute industry. Since the first decade of the 21st century, the steady growth of the internet has influenced the supply of entertainment. In fact, in this period, a new concept of media service has started to appear as categorized by the US Federal Communication Commission: over-the-top (OTT) services.
OTT is a streaming media service that provides movies and TV series contents via the internet, with most of them being subscription-based platforms. Those services can be divided into two groups, according to USFCC: multichannel video programming distributors (such as Roku); and online video on demand distributors (such as Netflix and Apple TV).  For the sake of simplicity, this research will not analyze the industry based on this categorization. Indeed, it will focus on players that produce their own content (SVOD) rather than broadcasting channels.
OTT revenues and users represent the growing demand for new ways to entertain. The evolution of these figures is shown in Exhibits 2 and 3. Worldwide, OTT services grossed US$6 billion in 2010, and an estimated US$85 billion in 2019 with 1.1 billion subscribers, and a steady growth that is expected to reach US$159 billion and 1.3 billion subscribers by 2024. The VOD segment grossed US$48 billion in revenues in 2019 and is forecast to reach US$87 billion by 2025, with 627 million subscribers in 2019 and an estimated 950 million by 2025.  
The stable demand for online entertainment is also testified by piracy. Worldwide, it has been estimated that illegal online access to movies costs this sector a loss of US$37 billion. In 2022 it is expected to increase by 72% and reach a total market loss of US$51 billion. 
Given the attractive figures, giants such as Fox, Amazon, Apple, and WarnerMedia have decided to position themselves in the sector, creating synergies with their already established businesses. At the same time, Bob Iger, Disney’s President since 2000 and CEO since 2005, was tasked with figuring out a way to do the same.
In this case, the first part is an introduction to The Walt Disney Company. It is followed by descriptions of the leading competitors and the analysis of The Walt Disney Company’s strategic moves.
The Walt Disney Company
History. The Walt Disney Studios, formerly the Disney Brothers Cartoon Studio in 1923, was founded in 1926 by Walt Disney and his brother, Roy. The siblings performed parallel tasks: Walt was the creator, and Roy, the manager. Alice’s Wonderland was imagined by Walt Disney and triggered the success of his company. 
Walt Disney was a very resourceful man. After a tough start, he created a new character, Mickey Mouse, which has been the mascot of the company since 1928. He succeeded in making cartoons accessible by serving a niche. The company managed to impose itself through merchandising – they put the image of Mickey Mouse on pencil tablets, books, and newspaper comic strips.
The brand Disney became famous not only in the United States but also worldwide, by creating clubs and the Mickey Mouse Magazine. Nevertheless, the success of the Disney lay in its technological innovations, which led to the Oscar Academy, creating a category for cartoons.
The changes accompanied the success of the studio, Disney created the storyboard, the multiplane camera, the first sound cartoon (Steamboat Willie, which is still used as the opening scene in every Disney movie), then the first colored full-length cartoon with Snow White and the Seven Dwarfs in 1937, and the first stereo cartoon, Fantasia in 1940. The same year, to sustain the growth of Walt Disney Company, the company issued its first stock. 
Walt Disney embodied the myth of the self-made American man, from humble beginnings to founding a flagship company, enabled by his stubbornness, ambition, and pioneering spirit. His innovative ideas did not stop here, creating the world’s first theme park – Disneyland, in 1955 in California, and later expanding to Florida (1971) and Tokyo (1983).
Even after his death in 1966, he has continued to influence the culture of his company and its development. However, the value of the company was put into question due to lackluster innovations, as its conservatism impeded change within a more capitalistic structure with new customs.
The 80s were a difficult period for Disney, due to the decreasing audience, and the fierce competition with Spielberg and Lucas’s movies. The company decided to launch The Disney Channel in 1983, allowing it to address a new market segment. Three years later, Walt Disney Studio’s name changed to The Walt Disney Company. The first Disney Store opened a year later, a further step in diversification. The success continued with animated films in movie theatres, television, and VCR. 
Since the 90s, Disney has followed a strategy of acquisition – it first acquired the American entertainment company Miramax in 1993. The company diversified its business with the Disney Stores, the acquisition of the California Angels baseball team, and Capital Cities/ABC in 1996.
In 2005, Bob Iger became CEO and built a strategy on three fundamental pillars: “generating the best creative content possible, fostering innovation and utilizing the latest technology, and expanding into new markets around the world.”  To reach this goal, he decided to acquire – among other minor acquisitions: Pixar Animation Studios in 2006, Marvel Entertainment in 2009, Lucasfilm in 2012, Bamtech in 2017, and 21st Century Fox in 2019. 
Today. Recent years have been...
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