Oligopoly and the Disney Company Essay Sample

1. Introduction

Oligopolies have been around of all time since there is trade. However. it has merely late gained evidences in this age of globalization. Never before has oligopolistic competition been so ferociously contested across so many industries.

The media industry in the United States of America ( US ) is one such industry. As a powerful communicating tool. the media has attracted many companies but merely a smattering has grown large. These media giants have dominated the local market and are presently seeking to suppress the planetary media industry in hunt of better net incomes.

One of these media giants is the Walt Disney Company ( Disney ) . Its dramatic growing from a little company to go an oligopolist in the media industry offers an interesting instance survey.

This study surveies Disney’s nature of concern in the US media market. It starts with an lineation of the media oligopoly in the US. which is imperative to appreciate the nature of Disney’s concern. Traveling on to the following subdivision. it briefly describes the history and corporate construction of Disney.

Following that. the survey analyses Disney’s nature of concern in relation to oligopoly. Here. it correlates the features of oligopoly with the nature of Disney’s concern.

The subsequent subdivision returns to discourse the influence that oligopoly has on Disney’s schemes. It demonstrates how Disney develops these schemes under the oligopoly construction to stay competitory.

In the concluding subdivision. this study discusses the influence of oligopoly on Disney’s behavior. It assesses how Disney behaves and responds towards an oligopolistic market construction.

2. THE MEDIA OLIGOPOLY

When a smattering of large corporations dominate an industry. the industry is said to be concentrated ( McCain n. d. ) . The concentration ratio ( entire end product from the four largest houses ) is used to mensurate the grade of concentration in the market. By and large. if the concentration ratio is more than 40 % . the market is considered an oligopoly ( O’Sullivan & A ; Sheffrin 2003 ) .

The USA media industry is an oligopoly because it is concentrated with five large companies. Harmonizing to McChesney ( 1998 ) :

The US media industry covers a really wide spectrum of related concerns. Any concern that is related to the media such as movie production. broadcast medium. distribution. film theaters. telecasting. book publication. newspaper publication. recorded music. etc. belongs to the media industry.

Traditionally. these concerns were all single oligopoly markets with a smattering of houses seeking to command as much production in their ain Fieldss as possible. In general. these houses were different houses ruling each of these concerns ( McChesney 1998. 1999 ) .

For old ages the US Torahs and ordinances prohibited perpendicular integrating and mass ownership in the media industry ( McChesney 1999 ) . However. some of these limitations have been relaxed or eliminated late. Media companies instantly capitalised on this chance to get down conglobation of media ownership ( McChesney 1998. 1999 ) .

Figure 1 shows the rate of market concentration and conglobation over the last two decennaries. By 2000. there are merely six of these media giants viing among themselves. Some media perceivers said that the media market is going non-competitive because of these media giants’ domination.

( beginning: Baum 2003 )

Figure 1: The media market concentration

Their frights materialised when the Federal Communications Commission removed all staying media ownership limitations in June 2003. It opened the manner for even more media consolidation and truly showed how non-competitive the media market became ( Kaufman 2003 ; Gangadharan 2003 ) .

Today. five media pudding stones have emerged to rule and command the media market. cementing the US media economic environment with striking oligopoly characteristics such as mutuality. barriers to entry. perpendicular integrating and economic systems of graduated table ( Martin 2001 ; McChesney 1998 ) . Figure 2 shows the five media pudding stones ( delight refer to Appendix A for inside informations of conglobation ) .

( beginning: Martin n. d. )

Figure 2: The Media Conglomerates

These five media giants are involved in the production and distribution of media merchandises targeted towards the consumers ( Rohn 2004 ) . Figure 3 shows that together they dominated 75 % market portion of the US media industry in 2003 and make 80 % of the prime-time Television audience through their combined broadcast and overseas telegram mercantile establishments ( Hannaford 2004 ; Peers 2003 ) .

( beginning: Hannaford 2004 )

Figure 3: The media conglomerates market portion

Of the five. Disney is possibly the most celebrated because coevalss of kids have grown up with its sketch characters.

3. THE WALT DISNEY COMPANY ( DISNEY )

Walt Disney started out by bring forthing short animated movies in 1922 and in 1928 introduced Mickey Mouse. the universe most celebrated sketch character shown in Figure 4 below ( Olsson 1996 ; Kramer 2002 ) . Following this discovery. Kramer ( 2002 ) found that Disney proceeded innovatively with new movie engineerings of sound and coloring material that resulted in the first successful animated characteristic Snow White and the Seven Dwarfs in 1937.

( beginning: Disney. com 2004 )

Figure 4: Paddy Mouse

There was no turning back after that. Disney went on to go a major international corporate giant in the US media industry and a theoretical account for other media companies. After geting the ABC telecasting web in 1995. Disney eventually became a to the full diversified media corporation and was the most recognizable trade name in the amusement universe ( Kramer 2002 ) .

Today. Disney furnishes our Television plans. films. picture. wireless show. music. books and other recreational activities through its assorted media retentions shown in Figure 5 ( please refer to Appendix B for inside informations ) . It has built its full concern such as the Disneyland amusement park. around its sketch characters.

Retention

publication

broadcast and overseas telegram

films

fiscal and retail

multimedia

music

theatre & A ; athleticss

subject Parkss and resorts

( beginning: Columbia Journalism Review 2004 )

Figure 5: Disney corporate construction

4. DISNEY’S NATURE OF BUSINESS

Since oligopoly is a market construction dominated by a few media participants. these corporate giants control the demand. supply and pricing of the industry merchandises. Disney entirely has a market portion of 25 % and accounted for 21 % of the premier clip hours ( Hannaford 2004 ; Consumer Federation of America 2003 ) . Furthermore. its telecasting webs reached around 24 % of the national audience ( Kaufman 2003 ) .

Such concern patterns usually develop certain features built-in to the oligopolistic market construction. As Disney evolved into a pudding stone its concern features turned towards oligopoly. Its nature of concern can be analyse to place them with the features of oligopoly.

4. 1 Interdependent of the rivals

Harmonizing to Rea ( 2003. p. 11 ) ‘…interdependence of the houses in the industry is a important characteristic of oligopoly…’ . Rea ( 2003 ) explained that an oligopolist must see the reaction of other houses in the industry sing its every determination and frailty versa. This characteristic can be seen in Disney’s nature of concern.

For case. oligopolists’ pricing determinations are reciprocally mutualist because the monetary value of one manufacturer significantly affects the others’ gross revenues. Oligopoly pricing determinations can be so complicated and hard to foretell that theories of oligopoly monetary value finding work best merely in the short tally ( anything can go on in the long tally ) ( 2004 ) .

In fact. Katz and Rosen ( 1998 ) found that there is no 1 theory that describes the oligopoly behavior for every market. Very frequently a house subscribed to different oligopoly theoretical accounts for different merchandises under different fortunes. To exemplify the mutuality. one of these theoretical accounts can be used to explicate Disney’s pricing determination as an oligopoly monetary value leader. With five big houses ruling 75 % of the industry. turning away of monetary value competition is necessary. If Disney lowers its monetary values. rivals are likely to follow and abandoning higher net incomes.

As an illustration. Jones and Robinette ( 1999 ) found that Disneyland Paris has important impact on the subject park industries in France and Europe. They believed that Disney will supply monetary value leading in the market because it has the lowest cost of production and others will monetary value to Disney degrees or hazard being underprised and exit the market.

Figure 6 explains this state of affairs. Here. Disney is shown as the dominant manufacturer ( Figure 6b ) with its other rivals assumed to be the little manufacturers ( Figure 6a ) .

Legend: MC – Marginal Cost Curve. D – Demand Curve. MR – Marginal Revenue Curve

( beginning: 2004 )

Figure 6: Oligopoly monetary value leading

At a monetary value of P1. Disney’s rivals supply the full market for the Parkss at the measure demanded. Q2. Therefore. at P1 or supra. Disney will non sell anything. At monetary values below P1. say Pd. the entire measure demanded. Q3 exceeds the entire measure supplied by Disney’s rivals. Therefore. Disney can sell the difference between the measure supplied by its rivals and the measure demanded by the market i. e. Q3 – Q1 ( 2004 ) .

As the monetary value falls below P1. Disney can sell more and more measures therefore organizing Disney’s demand curve. Dd. With its attach toing fringy gross curve. MRd. and fringy cost curve. MCd. its profit-maximising end product degree and monetary value are Qd and Pd severally. So. Disney sets its monetary value. Pd. and its rivals must follow otherwise their gross revenues will be limited ( 2004 ) .

Alternatively. if Disney were to increase its monetary values. the others might non in order to derive market portion. Taylor ( 1996. pp. 8-9 ) said:

It is hence prudent non to take down monetary values and merely raise monetary values when cognizing the other houses will make so. The largest or lowest-cost or most aggressive house will frequently emerge as the monetary value leader. This is wholly an informal and unwritten collusion since any existent understanding would go against the antimonopoly Torahs.

Apart from pricing determination. mutuality besides lead to collusion. Oligopolists discover that sometimes in order to maximize net income it is best to conspire among themselves and move like a group monopolizer ( Mankiw 2001. p. 351 ) . Overt collusion leads to a formal trust apparatus whereas silent collusion is an informal understanding among members on any concern issue runing from monetary value and production to authorities issues ( Sloman 2003 ) .

For case. Grey ( 2000. pp. 1-2 ) discovered that:

In order non to be missed out on authorities fiscal credits amounting to US $ 200 million in the twelvemonth 2000. Disney’s ABC web colluded with its rivals and the authorities to include anti-drug messages into Television books in stead of the legal duty to air. free of charge. authorities spurred public service ads against drug usage.

4. 2 Barriers to entry

Barriers to entry discourage competition and are important characteristics of the media oligopoly ( Sloman 2003 ) . A barrier to entry is a limitation on the entry of houses into a market or industry. Harmonizing to the website AmosWEB ( 2004 ) . the primary barriers to entry are resource ownership. start-up and authorities policies. Ologopolists create barriers to entry so that their monetary value remains inelastic i. e. an addition in monetary value resulted in an undistinguished bead in demand ( Sloman 2003 ) . This merely means that their merchandise is so much in demand that clients are willing to pay excess for them as shown in Figure 7 below.

( beginning: Investopedia. com 2003 )

Figure 7: Monetary value Inelasticity

Disney’s nature of concern has created comparatively high entryway barriers for other rivals. Disney controls the household amusement market because it has economic systems of graduated table in production. high fixed cost and low variable cost. The company knows what the mark client wants and has focused on market variegation with a broad array of merchandises and services. That makes it really hard for new and little houses to develop trade name recognition/identification. merchandise distinction and production procedures ( Olsson 1996 ; Taylor 1996 ; Chinloy n. d. ) .

In add-on. Baum ( 2003 ) mentioned that in the media market. the high sunk costs required to set up a media mercantile establishment constitute a heavy barrier to entry. This is true because Olsson ( 1996 ) discovered that rivals find it hard to perforate into the extremely specialised industry in which Disney is runing due to the big initial capital investings required to come in the industry.

Furthermore. with the relaxation of the Federal Communication Committee’s regulations and ordinance. media oligopolists find it easier now to conspire and do supranormal net income. They can raise entry barriers and dispute the theory of contestable markets by doing the competition hard ( Sloman 2003 ) . Chinloy ( n. d. ) argued that Disney would merely buy the energetic little house or rely on its established relationships with clients or providers to restrict the activities of smaller houses.

4. 3 Vertical Integration

Another characteristic of oligopoly is perpendicular integrating. Vertical integrating allows media corporations to command and rule the market by having different media companies to bring forth and administer their ain merchandises. This control and laterality will later take to monetary value stableness even though there is a alteration in cost thereby maximizing net income.

This monetary value stableness was noted by Paul Sweeny in 1939 who developed the kinked demand curve shown in Figure 8 to reflect his observation ( Sloman 2003 ) . Harmonizing to Sloman ( 2003 ) . Sweeny argued that there is monetary value stableness even in a non-collusive oligopoly with the premises that rivals will follow monetary value decrease set by the dominant participant ( the inelastic portion of the curve ) and will non make so when the dominant participant additions monetary value ( the elastic portion of the curve ) . Together with the fringy gross curve and alteration in fringy cost curves. monetary value stableness is achieve anyplace vertically within the fringy cost curves.

( beginning:

economics/Sisir/Econ120/ chapter13a. pdf & gt ; n. d. )

Figure 8: Kinked demand curve

Such is the impact of perpendicular integrating that it is no admiration that media companies are speed uping their attempts recently. Vertical integrating means that concerns have a buyer-supplier relationship that represents phases of production ( Management Guru n. d. ) . In other words it is the procedure where media houses own two or more distinguishable media sectors.

With perpendicular integrating. media houses non merely bring forth content but besides ain distribution channels to expose their wares. Presently. perpendicular integrating involves the combination of movie and telecasting show production with the ownership of overseas telegram channels. broadcast webs and Stationss. and gesture image theatres ( McChesney 1998. 1999 ) . As McChesney ( 1999 ) noted:

If a media pudding stone has a successful gesture image. for case. it can advance the movie on its broadcast belongingss. distribute on its distribution channels and so utilize the movie to spin-off telecasting plans. Cadmiums. books. ware and much more.

Disney’s perpendicular integrating has resulted in ownership of the ABC web. ten Television Stationss. 30 wireless Stationss. overseas telegram scheduling ( ESPN. the Disney Channel. A & A ; E. E! . Lifetime ) . movie studios ( Miramax. Walt Disney Pictures. Standard. Hollywood ) . the Hyperion book company. ESPN magazine. music labels ( Walt Disney Records. Mammoth. Lyric Street ) . amusement Parkss and athletics squads ( Anaheim Angels. Mighty Ducks ) ( McChesney 1999 ) .

By incorporating vertically. Disney’s animated movies like Pocahontas and Hunchback of Notre Dame which were merely grossing approximately US $ 100 million were able to bring forth US $ 500 million in net income for Disney because of its high prise stableness through Television shows on its ABC web and overseas telegram channels. amusement park drives. amusing books. CD-ROMs. Cadmiums and selling ( through 600 Disney retail shops ) ( McChesney n. d. ) .

The terminal consequence is that Disney. with its tremendous resources and diverse retentions are economically able to develop and advance expensive undertakings. Spending a batch of money on a undertaking does non guarantee economic success but instead it means to be given every opportunity possible to win in the competitory media market place ( Croteau & A ; Hoynes 2001 ) .

4. 4 Economies of graduated table

The 4th important characteristic of oligopoly is economic systems of graduated table. Harmonizing to Samuelson and Nordhaus ( 1995 ) economic systems of graduated table is where houses are able to increase an excess unit of production at a lower norm cost.

Majority of the costs in the media concern are fixed cost i. e. the basic costs required to run. which do non alter significantly in the short tally ( Rohn 2004 ) . In the long tally. all cost is variable cost.

In the broadcast media market. Baum ( 2003. p. 15 ) said that ‘…economies of scale lead to market laterality. spectrum restrictions and other characteristics ensuing in low snap of substitutes…’ . This has led Disney to seek greater net incomes through economic systems of graduated table in the media concern ( Foote. 2004 ) .

For case. Disney spent USD3. 6 billion in its Disneyland Paris subject park of which a big part is basic disbursals for wages and installations that did non alter significantly with the figure of tourer reachings or continuance of gap hours. Merely really big companies can run into such big capital demand ( Olsson 1996 ; Rohn 2004 ) .

Average cost in Disneyland Paris is the entire cost involve in operation divided by the entire figure of tourers. Park operation. hence. have high economic systems of graduated table in the long tally because the cost of runing an extra hr ( fringy cost ) is lower than the mean cost ( Rohn 2004 ) as shown in Figure 9 below.

( beginning: Williams n. d. )

Figure 9: Economies of graduated table

With the Gallic authorities puting USD 1. 2 billion ( 40 % ) in Disneyland Paris. supplying public transit installations and offering a big revenue enhancement alleviation ( from 18. 6 % to 7 % ) on the cost of goods sold. the operating cost went down as the figure of visitants went up. Economies of graduated table were therefore enjoyed with higher net incomes ( Olsson 1996 ; Rohn 2004 ) .

5 INFLUENCE OF OLIGOPOLY ON COMPANY STRATEGIES

Media companies are concern entities and the ‘theory of the firm’ states that the primary end of any concern entity is to maximize net income ( Sloman 2003 ) . The ‘theory of the firm’ assumes that a company’s every determination is made to maximize net income regardless of the market construction.

Taylor ( 1996. pp. 8-9 ) said that ‘…oligopolists that follow a monetary value leader do non prosecute in monetary value competition. but they still contest for market portion with other non-price schemes in hunt of profit…’ . It is non surprising so that Disney’s concern theoretical account focuses on merchandise creative activity. trade name development and belongings development in order to prolong the control of its market portion ( Hong Kong Trade Development Council 2004 ) .

In 2001. Croteau and Hoynes ( 2001 ) examined some of the net income oriented non-price concern schemes that have emerged as a consequence of oligopoly. Some of these have been adopted by Disney. Although these schemes were discussed separately. they frequently overlap to do up an overall incorporate concern scheme.

5. 1 Manipulating demand through advertisement

One of the ways to better market portion and net income is to increase demand. In avoiding monetary value competition. increasing demand through advertisement is a really of import scheme ( Sloman 2003 ) . Taylor ( 1996 ) concurred that the big house is frequently in a place to make a demand for its ain merchandise through advertisement.

Disney’s scheme to increase demand is to pull strings the demand through advertisement. In other words. Disney uses advertizements to pull clients to its merchandises. In this facet of selling. Disney has been successful in acquiring the advertisement message across the mass through perceptual experience. consciousness. apprehension. persuasion and keeping ( Wells. Burnett & A ; Moriarty 2000 ) .

Alternatively of saying the monetary value to avoid a monetary value war. Disney focused on added value in their advertizement like the one shown in Figure 10 which emphasised on winning a household vacation to Disneyland Resort.

( beginning: Stien 2002 )

Figure 10: A Disney advertizement

Furthermore. Disney made full usage of perpendicular integrating to publicize its merchandises by airing them in its huge media webs. For illustration. to derive more audiences to its ESPN wireless. Disney gained the rights to air the 1996-97 NBA hoops season and advertised this plan in its ABC Radio Network. This scheme managed to pull 42 million grownup clients to NBA on ESPN wireless ( Wells. Burnett & A ; Moriarty 2000 ) .

In another illustration. Schiffman & A ; Kanuk ( 2004. pp. 456-57 ) wrote that Disney manipulated demand with advertisement to:

Entice babe boomers to holiday at its subject Parkss without their childs so that they can experience immature once more. This is because babe boomers ( those born between 1946 and 1964 ) are the individual largest typical age group alive today. do of import consumer purchase determinations and incorporate some trendsetting consumers.

Once this market section is captured. Disney can continue to raise entry barriers through client trueness.

5. 2 Synergy

One of the fruits of perpendicular integrating is synergy. Harmonizing to Croteau and Hoynes ( 2001 ) synergism is ‘…the construct of different elements collaborating to accomplish consequences that none could individually…’ . Media pudding stones can maximize benefits from synergistic ownership of many different media houses. When Disney took over ABC. Disney CEO Michael Eisner told the imperativeness. “I’m optimistic that one plus one adds up to four” . intending the whole is greater than the amount of its parts.

Synergy involves cross development of an thought across several media such as movies. telecasting. sketch. cartoon strips. soundtrack. etc. with each adding value to the other. It provides Disney the advantage of bring forthing immense net incomes from coincident gross watercourses ( Croteau & A ; Hoynes 2001 ) .

An illustration of such a synergism was provided by Tompkins ( 1996. p. 1 ) when he
researched into the Disney company:

The film Aladdin was distributed via Buena Vista into assorted gross bring forthing movie markets including the gesture image theatres ( domestic and abroad ) . place picture. Disney Channel and telecasting. Return of Jafar. a takeoff of the original film. was the first ‘made for video’ Disney film. jumping the theatres wholly. The parks/resorts/shows sector of Disney besides generated amusement and gross through parades and shows. Last. Disney’s consumer merchandises platform generated 4. 000 Aladdin merchandises. sold through Disney Stores. records. videogames. CD-ROM package. promotional links with Burger King. even an art auction of single animated frames from the films. In entire. the film and all other activities jumping from Aladdin racked up $ 1 billion in gross revenues.

The immense net incomes are by and large reinvested into research to happen better and cheaper resources so that economic systems of graduated table can be attain and sustain.

5. 3 Branding

In the oligopoly environment. US media companies concentrate on stigmatization as a scheme because they have the capital to advance the trade name. It was estimated that making a recognized trade name costs from US $ 20 million to US $ 40 million in telecasting advertisement in the first four months entirely ( Croteau & A ; Hoynes 2001 ) .

Croteau and Hoynes ( 2001 ) mentioned that:

Disney uses its brand-name in association with wholesome household amusement to sell all kinds of merchandises emblazoned with the Disney trade name. Its sketch characters are in movie. telecasting. videotape. the Internet. consumer merchandises and subject park attractive forces. Over clip. their entreaty built up a Disney trade name that has strong trueness among clients.

Harmonizing to Interbrand. a prima trade name consultancy. Disney is the six most valuable trade name in the universe for the twelvemonth 2004 ( delight see Figure 11 ) ( 2004 ) .

( beginning: 2004 )

Figure 11: Disney’s trade name value for twelvemonth 2004

Regardless of the content. a new alive film. for illustration. will bask an border over rivals if it is a new Disney animated film. The same goes for Disney plaything. vesture and other peripherals. Although Disney does non fabricate them it appropriates most of the net income from the royalty collected from makers ( 2004 ) .

Disney is besides capitalizing on a mixture of cross media channels to widen its brand’s range. For case. Disney has worked at developing multiple trade names such as the Touchstone. Hollywood and Miramax film label ( and production house ) to bring forth more adult-oriented. unrecorded action films without staining Disney’s household image ( Hong Kong Trade Development Council 2004 ; Croteau & A ; Hoynes 2001 ; Tompkins 1996 ) .

Tompkins ( 1996 ) reported Eisner as summing it up:

At Disney. our strength in family-oriented movies. particularly life. gives us strong and alone trade name designation that lifts much of our end product ( end merchandises ) out of that hazardous ‘hit-driven’ class. The Disney logo on a movie or Television show ( or consumer merchandise or at a subject park ) has come to intend ‘top-quality for the full family’ . No other …logo says that.

Without monetary value warfare. stigmatization is possibly the most of import scheme to make demand. increase market portion and better net incomes through trade name consciousness which once more will take to making barriers to entry and accomplishing economic systems of graduated table.

5. 4 Joint venture

Interdependent of the houses has led many media companies to organize joint ventures. While competition in the US media market can be and is fierce. the purpose of joint ventures is to cut down competition and split the media pie among the smattering of giants.

As each amalgamation or acquisition between pudding stones gets more and more expensive the last few staying pudding stones rely progressively on schemes of cooperation and joint ventures with their rivals. as a manner of cut downing hazard ( Croteau & A ; Hoynes 2001 ) . McChesney ( 1998 ) found that the media giants each employ equity joint ventures with their rivals to an extraordinary extent.

Disney excessively. portion ownership with its rivals on many media companies. ( McChesney 1999 ) . For illustration. Disney and General Electric jointly owned History. a overseas telegram web that shows historical events ( Consumer Federation of America 2003 ) . Its moneymaking joint venture with Pixar generated 50 % of the movie division’s net income on certain old ages with Computer Generated Imagery ( CGI ) films like Toy Story and Finding Nemo ( Frost 2004 ) . In 2002. Disney and News Corporation launched a new video-on-demand service. Movies. com which provided movies on both overseas telegram and the Internet ( BBC News 2001 ) .

6 INFLUENCE OF OLIGOPOLY ON COMPANY BEHAVIOUR

While Disney must see competitors’ reaction to its determination. likewise Disney must besides respond to its competitors’ determination. This reaction is by and large a response to the media industry’s oligopolistic nature of concern.

The manner Disney responds in the oligopoly environment influences its behavior. Here. net income maximization is once more the drive force because Disney behaves in a manner as to accomplish maximal net income. Hence. oligopoly has an influence on the manner the company behaves.

6. 1 Conglomeration

When Disney’s saw its rivals geting other media sectors through perpendicular integrating and basking all the benefits. it responded likewise with the acquisition of Capital City’s ABC telecasting web and other media companies. By acquiring bigger through perpendicular integrating. Disney does bask some distinguishable advantages as a pudding stone.

One advantage is that Disney can afford to develop more expensive undertakings since it controls or has entree to tremendous sums of investing capital. It has continuously produced alive films bing more than US $ 50 million such as The Emperor’s New Groove ( 2000. US $ 100 million ) . Finding Nemo ( 2003. US $ 80 million ) and Home on the Range ( 2004. US $ 100 million ) ( Waterman 2004 ) . In bend. a successful undertaking can be tremendously profitable therefore reenforcing Disney’s function as a dominant media corporation ( Croteau & A ; Hoynes 2001 ) .

A 2nd advantage of size is the ability to defy short term losingss. For every successful film such as Finding Nemo. there are tonss of films that make small or no money like Home on the Range ( Internet Movie Database 2004 ) . Disney can absorb the expensive media floating-point operation and still go on doing films ( Croteau & A ; Hoynes 2001 ) .

A 3rd advantage is to forestall coup d’etat. In February 2004. Comcast made a command to get Disney for US $ 54 billion at US $ 26 per portion ( La Monica 2004 ) . However. analysts said that Disney’s portion was deserving US $ 30 per portion. A just monetary value for Disney would so be US $ 63 billion ( Isidore 2004 ) . In April 2004. Disney rejected the proposal and Comcast withdrew its offer stating that Disney was excessively dearly-won ( Phillips 2004 ) . Therefore. with its size and sound fiscal standing. Disney was able to queer off the hostile command.

( beginning: World Wide Web. cablevisiontechsneedrespect. com 2004 )

Figure 12: Circular on Comcast coup d’etat command on Disney

6. 2 Globalization

Contented scheduling in the US media industry involves really high initial cost for development and equipment. Sometimes media giants fail to retrieve this cost domestically ( Rohn 2004 ) . With deficient grosss from the domestic
market media companies find it hard to claim a profitable market portion ( Croteau & A ; Hoynes 2001 ) .

In response to this. Disney ventured to sell their content to the foreign market. Disney’s motive in globalization is driven by content recycling to distribute its production cost and addition economic systems of graduated table ( Rohn 2004 ) . Rohn reported that in 1993. Disney’s CEO Michael Eisner said:

Our merchandises have been outside the US for decennaries. but all of a sudden we realised that the chances for growing outside that US are traveling to be much greater in the hereafter than in the US.

Therefore in 1996. Walt Disney Television International took charge and employed the planetary schemes ‘…to expand the kids and household oriented Disney Channel into a planetary force and to set up planetary joint ventures for administering its programming…’ ( Rohn 2004. p. 86 ) .

Today. Disney’s ESPN. Disney Channels. Playhouse Disney. Toon Disney and many others are established in France. Germany. the United Kingdom. Spain. Italy and Scandinavia. It has besides reach the Middle East. Latin America and several Asiatic states ( Rohn 2004 ) .

With huge concern potency. the Chinese mainland has become Disney Consumer Products’ second largest market in the Asia Pacific after Japan. Today. the US amusement giant has already established more than 1. 000 retail corners or mercantile establishments throughout mainland China ( Hong Kong Trade Development Council 2004 ) .

Disney has come up with a battalion of great merchandises to fulfill insatiate consumer demands around the Earth. Licensing concern has taken Mickey Mouse and other Disney characters around the universe and into the Asia Pacific part. Mr. Norman Janelle. senior frailty president and general director of Disney Consumer Products ( Asia Pacific ) said:

We have been in Japan for many old ages. which is likely the first market that embraced Mickey and Disney as an amusement character. The Nipponese market is our largest individual market outside the US ( Hong Kong Trade Development Council 2004. p. 1 ) .

With the comparatively untapped foreign markets. globalization presented limitless chances for Disney such as planetary perpendicular integrating and bask economic systems of graduated table to reap greater net incomes.

6. 3 Diversification

Oligopoly rivals often introduce new and multiple merchandises. Reliance on a individual merchandise is self-destructive during an economic downswing. Disney’s compulsion with conglobation is slightly a hazard decrease through variegation.

Alternatively of purchasing stock in assorted companies. Disney merely bought the companies in the advancement of conglobation. Spreading its finger in many different media concern helps Disney to defy downswings in any peculiar market. Croteau and Hoynes ( 2001. p. 8 ) said that:

If the film concern goes into a slack. possibly gross from printing or music recording will take up the slack. In a twosome of old ages. the enlargement and contraction of peculiar markets may switch and film gross will be the hard currency cow that helps back up other countries of the pudding stone.

As pointed out by Olsson ( 1996 ) . Disney has been able to diversify its operations and merchandises to fudge against diminishing gross revenues in merchandise lines by deviating into place picture. movie. ware. wireless broadcast medium. web telecasting and in subject Parkss.

Diversification helps Disney to react to its rivals’ barriers to entry in a peculiar section. Dickerson et Al. ( n. d. ) concluded that Disney is non good positioned to dispute AOL-Time-Warner horizontal cyberspace portal with its GO. com portal. Alternatively. Disney has diversified into its single branded Internet belongingss such as ABC. com. ABCNews. com and ESPN. com with much more success.

6. 4 Technology

The coming of information engineering ( IT ) has taken the media universe by storm with its immense potency. In an oligopoly market. engineering can supply economic systems of graduated table and barriers to entry.

For case. the Internet is an advantageous but dearly-won medium for publicity and advertisement. As a Wall Street Journal study concluded. “building a trade name in crowded Internet markets will necessitate ever-larger disbursement on advertisement and selling. ” Merely the major media participants had those kinds of resources to purchase up promising ventures. ( Croteau & A ; Hoynes 2001 ) .

In order to take advantage of the Internet. Disney purchased a $ 70 million commanding portion of Infoseek. a web hunt site. and in 1998 launched its “Go Network” ( Croteau & A ; Hoynes 2001 ) thereby transforming its behavior into a chink and howitzer company.

As an IT company. Field ( 2002. p. 2. 6 ) discovered that the Disney Internet Group concern theoretical account was based on convergence i. e. an attempt to unite the strength of a powerful offline traditional amusement trade name with the new coevals of Web distribution and publicity. Hence. Disney’s scheme is to:

Develop alone and independent Internet belongingss that many people do non straight associate with Disney such as ABCNEWS and ESPN. while reserving its branded Disney merchandises for Disney. com to beef up client relationships tied to Disney merchandises and service.

Building trade name through the Internet additions demand and subsequently economic systems of graduated table due to take down production cost.

Another illustration of Disney’s IT version is Disney’s Imagineering armored combat vehicle i. e. the “how’d they do that” section. which is highly originative and advanced. Harmonizing to Tompkins ( 1996. p. 5 ) . Imagineering helps Disney to:

Produce certain filmed amusement. such as ‘Jim Henson’s Muppet Vision 3D. ’ the first movie to unite Audio-Animatronics with in-theater particular effects. It besides assists in the development of CD-ROM consumer merchandises. Imagineering is instrumental in the creative activity of Disney subject Parkss and drives i. e. the group that makes standing in a Disney drive line feel like merely 15 proceedingss. when it may really be 90 proceedingss.

Imagineering has turned out to be a competitory advantage for Disney to raise entry barriers because its creativeness is a tough act for rivals to follow.

7 Decision

As one of the five media pudding stones. Disney experiences oligopoly competition. Its nature of concern shows oligopolistic traits such as mutuality of its rivals. barriers to entry. perpendicular integrating and economic systems of graduated table. These traits are really inter related to heighten Disney’s fight and ensures Disney’s laterality in the media industry. Vertical integrating additions Disney’s size so big that it is able to accomplish economic systems of graduated table which create barriers to entry that resulted in market laterality whereby it has to see competitors’ reaction to its concern determination.

These oligopoly traits have influence on Disney’s concern schemes. These schemes aim at maximizing net income in an oligopoly environment through pull stringsing demand through advertisement. synergism. stigmatization and joint venture. These schemes work in combination to increase market portion. lower production cost. increase advertisement efficiency and construct trade name consciousness. Disney’s joint ventures offer an ideal synergism potency to pull strings demand through advertisement that build trade name consciousness.

Apart from that. these oligopoly traits have besides influence Disney’s behavior. Disney has reacted to the oligopoly media industry by being a pudding stone. diversifying. globalising and implementing new engineerings. Disney behaves harmonizing to the industry trends to remain relevant and continuously in hunt of new foreign markets. Its conglobation is advantageous to contend stiff competition and survive economic downswing with merchandise variegation. planetary enlargement and Information Technology execution.

Disney has grown into a media company with an oligopolistic nature of concern that has influence its schemes and behavior. Turning in an oligopoly industry has turned Disney into the 2nd largest media company after AOL-Time Warner ( Cacace & A ; Tucksmith 2003 ) .

8 Recommendation

Though much has been done by Disney to acquire to where it is today. oligopoly dainties exist invariably such as coup d’etat and loss of market laterality. Much can still be done for Disney to last in the oligopolistic media industry. Recently. Disney’s movies such as The Alamo and Home on the Range failed to accomplish box-office criterion. executing below outlook. On top of that there was the Comcast hostile coup d’etat command. These dainties happened because Disney was acquiring complacent and seemed to be resting on its old awards.

Predominating oligopolists devour the weak the minute they see an advantage in the weak company. Disney should concentrate on beef uping itself against oligopoly dainties because seemingly Comcast still harbours the desire to get Disney in the hereafter. It may besides be prudent for Disney non to over diversify into unrelated concerns. Over variegation clouds the intent of nucleus concerns at some point in clip. Alternatively Disney is better off concentrating on its media merchandises betterment. distribution. publicity and selling.

The Internet is a really good medium for Disney to distribute its trade name and advertizement. Dial-up connexion is slow and is limited to publicizing Disney’s merchandises. With the coming of broadband services. Disney’s venture into Movies. com must be better because it is a positive measure to increase its movies audience. Broadband is fast and viewing audiences can watch Disney’s latest movie releases and publicities in the comfort of their places.

Last. it is alluring to roll into the monopoly construction once the company becomes excessively dominant. It is more advantageous for Disney to stay an oligopolist because monopolizer ever attract unwanted Government attending which can be really restrictive. Collusion with its rivals is recommended to avoid being a monopoly. However. care must be taken to avoid collusion spouses from choosing out subsequently.

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