Over the past few decades Walt Disney has dominated family entertainment. However, development of technology has changed the situation and the industry has become competitive. Pixar is a pioneer with its proprietary computer animation technology leading the animated film industry. This means computer-generated effects (CG) have replaced hand-drawn animation, which is Disney’s strength. On the other hand, the collaboration between Disney and Pixar has rejuvenated Disney. This report will firstly explain how the macro environment and industry has changed. It will then analyze the core resources and competencies for Disney and Pixar and, finally, will evaluate the best strategy for Disney to pursue next as the agreement between Disney and Pixar comes to termination.
What is happening in the macro environment at the time of the case? Technology development is a key driver for changing animated films. This may simultaneously change economic factors and socio-cultural factors. PESTEL is the tool to analyze the broad macro-environment. (Johnson, Whittington and Scholes. 2003) Environmental influences on the animated films industry can be summarized within the following categories.
Box office revenue is not the only form of financial success. Other revenues created by movies include home video sales, cable channels and television programs. Consumer expenditure has increased by diversification of merchandise sales including toys, apparel, books and video games. (Alcacer, Collis and Furey. 2010) These factors show that the range of economic alternatives is huge. Furthermore, the concept of the sequel is an important source of revenue by reducing marketing costs because of built-in audiences.
There is a shift in value and culture as 3D movies is commonplace now. Most people would prefer to watch CG films rather than 2D. Lifestyles have changed as statistics show that home video sales have become the most important source of revenue as opposed to the box office. (Alcacer, Collis and Furey. 2010) The result demonstrated that people are more willing to watch a video at home rather than go to the cinema to watch movies. As GC animated films become popular, everyone likes to go to the character- related theme parks, including adults.
The development of technology could be used in a variety of areas to make humans’ lives easier and more comfortable. As technology develops, it displaces traditional methods such as computer-generated (CG) technology which is supplanting hand-drawn animations. Developing technology leads to efficiency and low costs.
What happening in the industry at the time of the case?
The animated film industry changed as access to technology grew. Animated films produced the highest profits of all movies. (Alcacer, Collis and Furey. 2010) ‘Porter’s 5 forces’ analyzes industry structure for attractiveness, profitability and level of rivalry. (Porter, 2008)
The entrance barriers are relatively high as capital requirements of entry are extremely high and economies of scales are important. Disney dominated the family entertainment market in the past as it had a very distinctive niche in the industry. However, the situation has changed due to technology growth so that barriers to entry have decreased. (Alcacer, Collis and Furey. 2010) High returns attract new entrants. Two powerful companies have entered the industry, Pixar and DreamWorks.
The threat of substitute products is high. Obviously, there are many types of movies rather than animation films and they can penetrate the entertainment market. Substitutes bring threats as people have choices in a variety of entertainment markets.
The bargaining power of customers is high in the industry. Since this industry needs a large concentration of customers to sustain it. For example, customers would be reluctant to purchase home video if the price was too high. Furthermore,...
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