\chapter{SWOT (Strengths, Weaknesses, Threats, and Opportunities analysis)}
\section{Strengths, Weaknesses - Competitors}
The Walt Disney company has beaten the S\&P 500 for the past 16 years (3x) but has had
problems to repeat the performance in the past 5 years. Disney's brands are one of the strengths
of the company together with their core capability of content creation. Additionally the digital
library owned by the company gives them an important source for TV programming or DVD
creation. We will describe its competitors (AOL and Viacom are the main ones, but Fox, Sony
and Six Flags can be considered also as competitors to Disney):
\begin{enumerate}
\item[*]
  AOL Time Warner (Media Entertainment Conglomerate)
  \begin{itemize}
    \item[o]
      AOL internet service is leader in the market, advertising in this sector is
      more resilient than it seems
    \item[o]
      Filmed entertainment group has continued to show strong revenues.
    \item[o]
      Networks group (especially HBO and Turner) have implemented cost
      saving measures and keep strong subscription revenues.
  \end{itemize}
\item[*]
  Viacom (Media Entertainment Conglomerate):
  \begin{itemize}
  \item[o]
    Cable Networks keep their strength and are oriented towards an important
    demographic group
  \item[o]
    CBS has outperformed the other main competitors in the last season
  \item[o]
    Viacom has been able to keep better prices for advertising than the
    competition given its ratings.
  \item[o]
    Blockbuster's gradual switching from VHS to DVD is expected to
    generate higher margins
  \end{itemize}
\item[*]
  Six Flags (regional theme park operator).
  \begin{itemize}
  \item[o]
    The 38 parks it operates had attendance of nearly 46.4 million in 2000.
  \item[o]
    The Company also owns an exotic wildlife and marine park.
   \end{itemize}
\item[*]
  Fox Entertainment Group Inc (multi-faceted entertainment company)
  \begin{itemize}
  \item[o]
    It has operations in filmed entertainment
  \item[o]
    A strong participant with Television Stations, Television Broadcast
    Network and Other Television Businesses
  \item[o]
    Producer of cable network programming.
    \end{itemize}
\item[*]
  Sony Entertainment Pictures
  \begin{itemize}
  \item[o]
    Sony Corporation works in the development, manufacture and sale of
    electronic equipments.
  \item[o]
    It also produces and markets entertainment products and instruments.
  \item[o]
    The Company is also in the business of motion picture production and the
    insurance and banking businesses.
  \end{itemize}
\end{enumerate}

\section{Threats - Risks}
\begin{itemize}
  \item
    Decline in the advertising market
    that extends well into 2002 or beyond Affecting the
    profitability of Media Networks (60% of Disney Revenues, with many advertising driven
    units such as ABC)
  \item
    A slower economic recovery than expected (middle of 2002) can affect investments in
    2002 and 2003, affecting the CAGR expected for the next 5 years.
  \item
    September 11 events can affect Parks and Resorts operations deeper and longer than
    initially expected.
  \item
    The cutting costs strategy can affect the quality of Disney products, affecting the brand
    and revenues growth. Nevertheless Disney plans to make investments to strengthen the
    ABC programming.
  \item
    ABC will face strong competition from NBC and CBS. This competition can affect prime
    ratings and advertising revenues growth.
  \item
    The cable business is very competitive, and ESPN has been an important driver for
    growth but the percentage of people that wants to watch sports hasn't been growing as
    dynamically as in the past. Additionally, other competitors with strong channel and
    growing audiences (by demographics) such as Viacom's MTV can be rough competitors
    and take some growth away from Disney.
  \item
      DVD market can grow in more moderate rates in the short run, affecting projections for
      the studio entertainment division. Another risk is a retraction in the box office business
      due to competition, macro economic environment and unsuccessful cost cuttings policy.
    \item
      The international expansion of Disney Parks can fail due to cultural issues (so far it has
worked very well), and/or macro economic reasons.
\end{itemize}

\section{Opportunities - Growth}
The company is investing in new content creation and cutting operating costs in all their
main business (Media Networks, Studio Entertainment, Consumer Products, Parks). We are very
confident that these investments, plus the quantity and quality of assets (e.g. film library, and
characters, theme parks) of the company will generate revenue in the future. The business model
of the company is heavily correlated with the U.S. economy, with consumer spending (Studio
Entertainment, Parks, Consumer products), and advertising spending (Media Networks) being
the most important revenue drivers. Currently, 65% of the revenues are strongly correlated with
the economy, out of the comparable companies Disney has the higher exposure. The current
economic downturn is affecting more the company than other competitors with different business
models. However, we expect that the economy will recover by the end of 2002, and Disney will
be again in good shape for the fiscal year of 2003 and later. Let's analyze the sources of growth
for each of the main areas:
\begin{description}
  \item[Media Networks]:
  \begin{itemize}
  \item[*]
    The company acquired Fox Family channel, which will become ABC Family, in 2001
    (\$2.9 Billion in cash, plus \$2.3 billion in debt). This acquisition is expected to increase
    the revenues in \$600 million in 2003 (EBIAT close to \$150 million).
  \item[*]
    Advertising expenses are expected to recover in the middle of 2002. This was the main
    factor responsible by the ABC revenues decrease in 2001.
   \item[*]
     Disney is investing heavily in ABC to improve programming and ratings. This could set
     the stage for recovery when the economy improves.
   \item[*]
     The cable networks have been a big source of growth for Disney. Higher affiliate
     revenue, and strong digital subscriber growth and conversion of the Disney channel to
     basic premium have been key drivers for this segment.
    \item[*]
      New networks such as Soap Net (17mm of subscribers) and Toon Disney (26mm of
      subscribers) continue to build distribution, and have a good growth perspective.
    \item[*]
      Disney international channels are now in 14 countries, with a strong distribution growth
      (expected to breakeven in 2003).
  \end{itemize}

  \item[Studio Entertainment]:
  \begin{itemize}
  \item[*]
    Disney has strong resources to be the leader in the box office battle: Miramax and Disney
    Buena Vista have a current market share of 20\%. The Miramax methodology to select
    movies to invest is one of the best in Hollywood (using statistical models and historical
    data).
  \item[*]
    Although Disney has a good market share, the company is having losses in their studio
    entertainment operations. However, the company is adjusting its costs to become
    profitable again.
  \item[*]
    DVD will be another source of growth for Disney. DVD sales have doubled in the last 2
    years (from 16mm to 32mm), and are expected to reach \$60mm in 2002. The big Disney
    cartoon collection can be used to leverage its DVD sales, with similar products to the
launch of Snow White and the seven Dwarfs on DVD (expected to sell 3mm units).
  \end{itemize}

\item[Consumer Products]:
  \begin{itemize}
  \item[*]
    The company is cutting costs and shutting down unprofitable Disney Stores The company
    is also slowing the pace of store refurbishing
  \item[*]
    Disney is using its valuable characters to sign licensing agreements with important
    companies such as Coke in 2000, and Kellogg in 2001. These contracts will leverage the
    power of the company to sell their products to more customers. The royalties from these
    new contracts are expected to start to improve the revenues no sooner the beginning of
    2003.
  \end{itemize}

\item[Parks]:
  \begin{itemize}
  \item[*]
    In 2001, the company already expanded its theme parks in Anaheim, opening Downtown
    Disney and Disney's California Adventure.
  \item[*]
    The second gate at Disneyland in Paris will also be opening within the next year.
  \item[*]
    Disney is also planning to build a park in Hong Kong in 2002. Today Disney parks in
    Japan receive 16 million people per year, and this park in Hong Kong can also be a big
    hit.
  \end{itemize}
  \end{description}