Transformation Stories: Disney

The risk of not transforming

The digital transformation of an organization is the reinvention of the same through the endless possibilities that technology increasingly offers us. Now, the key to this process is not technology or digitization. When we talk about digital transformation, the key lies in the transformation or reinvention.

It is about rethinking the way of providing value to the end user, starting by optimizing operational processes with the use of analytics and artificial intelligence, to the creation of memorable and consistent experiences for the end user across all touch points. It is a process that has accelerated especially since the popularization of the smartphone in 2007 and that is currently impacting all business sectors.

To understand what is happening and how important it is, let's simply think today about what the alternative to digital transformation is for an organization. What do we face if we do not reinvent ourselves? What would happen if we continued to bet on the same things that have worked for the last 5, 10, 20 years?

The great risk of not joining this wave of change is that digital-native newcomers may disrupt your own sector, dramatically reducing our market share. Porter already told us in 1979 that the threat of new entrants in an industry was an important factor. Today, more than ever, it is, as it is the digital-native newcomers who are generating the fastest disruption ever seen in all sectors. This is the case of Amazon in retail, Apple in mobile phones, Uber in taxis, AirBNB in hotels, and what could be the next major disruption, Tesla, in this case in the automotive sector.

But we were talking about Disney. This animation giant has recently entered the streaming business competing with Netflix. How is this move understood? What need does this historic company have to enter this innovative business? The first thing is to understand Disney's business model.

The Disney business model

How does Disney generate value? Seeing Disney as an almost perfect money-making machine is much less romantic than the classic view of this organization as a "dream factory". Without denying the latter, the definition is very true to reality in my opinion. The generation of value in this case involves the creation of brands and above all a masterful exploitation of them:

• Disney builds brands around its characters and stories. Cinemas and entertainment platforms pay to broadcast the movies.
• The next step is to offer licensing rights that allow manufacturers to use Disney characters in consumer products.
• Creation of experiences in theme parks. In them, all the attractions and products you can buy are based on Disney brands.
• Obtain a greater presence through media control: Disney owns the television network ABC and the subscription channel ESPN
• Direct access to fans through own stores: Disney Stores, where brand products are sold.

Therefore, Disney's business is not so much about making movies, but about creating and exploiting brands. It is a practically perfect marketing machine. Why has Disney bought brands like Pixar, Marvel, Star Wars,...? Because there is no organization as good as Disney at exploiting and ultimately increasing the value of a brand. It is a perfectly designed marketing machine to create value around a story. As shown in the following diagram from the Disney Archives, dated 1957. Let's observe how Walt Disney designed and planned how each piece of the Disney marketing machine fit together. One could almost say that Walt Disney was a true precursor of the Business Model Canvas!

Nubarrones en el sector

De hecho, la mayor parte de las ventas de Disney no proviene de las películas. Desde hace años, la unidad de la compañía que genera más ingresos es la de Media Networks, y en concreto las subscripciones a ESPN.

The problem is that the Media Networks unit has been experiencing a decline in revenue for years, largely due to a smaller audience for ESPN. If ESPN had 100 million subscribers in 2010, by 2017 only 87 million households were subscribed. Additionally, ESPN's average audience dropped by 7% and 11% year-over-year in 2015 and 2016, respectively, according to Forbes. This decrease in audience is also impacting ESPN's advertising revenue.

What is the cause of this setback? Consumers are increasingly substituting expensive pay-TV subscriptions for new streaming content alternatives. Once again, we see the impact of new digital-native entrants in an industry that was well-established and in a company with almost 100 years of history.

Now that we have understood Disney's business model and how it is being threatened by new digital entrants, Disney's move makes much more sense, that is, the creation of a streaming platform that can directly compete with Netflix.

Disney's Digital Transformation

Disney+ has been an instant success. I believe it can be an example of the type of digital transformation that many traditional brands can undertake. The use of its immense brand power has made it possible to quickly adapt to the digital landscape of the 21st century, attracting a legion of fans to a platform they have already become accustomed to. The company has quickly adapted to the new consumer habits and is thus able to compete with industry disruptors. Rather than resisting under 20th-century schemes, it has adapted in record time.

The steps Disney can take from now on would be to advance in personalization as it continues with its digital transformation. Now that it not only owns digital content but also a modern platform, it gains access to user data. We can expect Disney to seek new ways to increase the value of its brands through the use of data to make personalized recommendations for each viewer.

Disney+ was instantly launched to compete head-to-head with disruptors in its own market. It is an example of how a company can adapt to the new times. Traditional brands can see Disney as an example in digital transformation. Following in its footsteps is the best way to remain relevant and continue growing in the era of digitalization, which has only just begun.