Disney Business Model Explained: How Does The Dream Factory Really Work? 

Disney has established itself as an entertainment giant with a massive customer base. In fact, analysts and experts call it the dream factory, which isn’t far from the truth. The company was started successfully by Walt Disney and has managed to build on the business practices he established to turn Disney into a key player in today’s global entertainment industry. 

Today, Disney is in the business of building brands instead of just creating content for viewership, and it then capitalizes on these brands by building experiences around them. Disney theme parks and cruises, Disney merchandise, and Disney franchises are all cogs in a huge machine that is fascinating to study. 

Of course, all has not been great for the organization either – Disney expanded aggressively in the 2000s, and it has gotten to the point where anything more will leave it vulnerable to anti-trust lawsuits. 

Bottom Line Up Front 

While Disney is known mainly for its cartoons like Mickey Mouse and Goofy, and movies like Cinderella and Snow White, there’s more to the company than that. The Disney business model is diversified with involvement in the tourism sector, entertainment, network broadcasting, and much more.

Having a diversified portfolio also means that Disney has multiple revenue streams, but operating the organization hasn’t been without its own challenges for company executives. Disney’s rapid growth hasn’t been all good for them. Between ever-increasing operating expenses, some less-than-ideal acquisitions like Fox, and failed venture into the international market, there are a lot of issues that the company’s current business model faces. 

All in all, I believe that even though the company has been very successful, and despite Disney’s status as a household name and the impact it has had on American and global culture, its business model might not be the most profitable for too long.

Financial Performance and Background 

All of Disney’s theme parks and operations took a huge hit during the Pandemic, and the company was thrown off balance enough to warrant its former CEO – who had just retired months before the global crisis began — Bob Iger to come back to help lead the company through this rocky time. 

The company has since recovered quickly, owing to things like the launch of Disney+, Disney’s own streaming service, and Disney’s parks being back in business. In the second fiscal quarter of 2022, Disney’s earnings have grown 23% compared to last quarter, and its six-month earnings have grown 29%. 

The Building Blocks 

• Key Players: A lot of people have a hand in turning the company into what it is today. Walt Disney himself, Bob Iger, Bob Chapek, and many other stakeholders have shaped the company’s structure and its creative direction over the years. 
• Expenses: Disney’s main expenses are the operation and maintenance of its theme parks and cruise line, its employees’ salaries, and movie and content production. Disney is known to spend hundreds of millions of dollars on some of its content, and on training its employees. The operation of its theme parks and cruise line isn’t cheap either, and eats up a big chunk of its total revenue. 
• Customer Base: Disney caters to a vast audience. With time, it has managed to make something for everyone. From young people who love to watch its Marvel and Star Wars franchises to children who are Pixar fans, Disney has viewers and customers in multiple demographics. 
• Revenue Streams: The company’s earnings are fairly diversified. Disney earns money through the streaming and distribution of its movies and content to cinemas, TV channels, and online streaming platforms. It also earns a lot of money from its theme parks, cruises, and resorts. The rest of Disney’s money comes from licensing and advertising deals it makes with other companies and vendors so they can use Disney’s brands and characters on their own products. 
• Main Assets and Resources: Disney has two main assets – the intellectual property it owns, and its theme parks and resorts. 

Key Players and Influences 

Walt Disney

Walt Disney’s creative vision and organizational practices are what shaped Disney. Even long after his death, the Disney family continued to build on his legacy and the company as a whole was very keen on staying on the same track Walt Disney and Rob Disney had envisioned for it. 

Disney was the one to set the principles of talent management, and the Disney family still owns a little less than 3% of the company today. 

Bob Iger 

Robert Iger – or Bob Iger, is known as Hollywood’s politest CEO. He is also the person responsible for growing Disney as much as it did, with Disney’s acquisitions of the Marvel franchise, Lucasfilms, Fox Studios, and many more happening under his leadership. 

Roy Disney Jr. and The Save Disney Campaign 

When Roy E. Disney didn’t like Michael Eisner and asked for his retirement – this is what led to the recruitment of Bob Iger as CEO at Disney. He stayed there until early 2020 when he was replaced by Bob Chapek. 

The campaign started with conflicts between Roy Disney and then Disney CEO Michael D. Eisner. Eventually, Roy Disney demanded that Michael D. Eisner resign from the position in a scathing letter addressed to him and the members of Disney’s board of directors. 

“In conclusion, Michael, it is my sincere belief that it is you who should be leaving and not me. Accordingly, I once again call for your resignation or retirement. The Walt Disney Company deserves fresh, energetic leadership at this challenging time in its history just as it did in 1984 when I headed a restructuring which resulted in your recruitment to the Company.” 

Roy Disney started a formal campaign to have Eisner resign, with speeches made to stakeholders outlining his dissatisfaction with the way Disney was being run. He felt like the company was moving away from its vision of providing long-term value and producing content that mattered – going instead for the quick buck in the short term. Roy Disney wanted to save Disney’s spirit and what it stood for, which is why he called for a change in leadership. 

With Bob Iger at the helm – who replaced Michael Eisner as a result of this campaign – Disney was able to achieve this goal. A prime example of this success would be the reacquisition of the rights to Oswald the Lucky Rabbit (Disney’s first star) from NBC. 

Other Shareholders and Key Players Today 

Today, only under 3% of Disney is owned by the Disney family. The biggest individual shareholders of the company are Bob Iger who owns 0.06% of the company, Christine M. McCarthy, and Alan N. Braverman who both have 0.01% of Disney each. Apart from these figures, there’s the current CEO Bob Chapek, and creative leaders like John Lasseter. 

A significant chunk of The Walt Disney Co. is also owned by institutional investors, namely Blackrock Inc. which owns 6.3% of the company, Vanguard Group which owns 7.6%, and State Street Corp. which owns 4.1% of the company. There are also other small institutional investors, and they collectively hold over 63% to 65% of the company. 

Expenses 

Disney’s expenses have always been a concern for the company, with factors like the amount it invests in employees, and the operating expenses for its theme parks coming into play. In its latest quarterly report, Disney made some important announcements and disclosed that both its revenue and profit were up, but out of the $21 billion revenue the company earned, only $3.6 billion could be counted as profits. 

In comparison, other large companies like Apple take over 38% of their revenue as profit. In 2020, Apple’s revenue was $275 billion, out of which $105 billion was profits. On the other hand, Walmart put most of its $559 billion revenue towards operating expenses – only making $22 billion in profits versus its $559 billion revenue. 

Disney spends most of its money on its theme parks and content creation – it also has thousands of employees on its payroll. 

Employee Training 

While Disney spends a lot on employee training and education – it has a $25 million budget for employee education and back-to-school programs – and training, there are also reports of Disney not being the happiest place to work at. While Disney keeps spending money on training and educating its employees, it also keeps losing talent to its competition. 

Theme Parks

Disney also spends a lot on its theme parks. In recent years, it has spent more on the parks than it has on the acquisition of media giants like Lucasfilms, Marvel, and Pixar combined. This would have been a good thing, only, people aren’t as keen about Disney theme parks anymore. What was once sold as the American Dream and the happiest place to be is quickly losing its charm among gripes about the parks being too expensive coming from its customers, and issues with inflation faced by the company. 

Content Creation 

Disney spends Billions of dollars on giant movie projects and hundreds of millions of dollars on the average ones. This expenditure is justified by the fact that the movies usually still make back what Disney invested in them as well as turn huge profits, but the expenses remain. 

While movies like Frozen are mega hits and cross the billion dollar mark in profits, others are less successful, like Treasure Planet and The Country Bears. 

Customer Base and Disney’s Marketing Strategy 

Disney is a brand that enjoys instant recognition almost all over the world, but that doesn’t stop it from staying ahead with smart marketing. Here are some ways Disney stays ahead of the competition and makes the most out of the content it produces: 

Market Segmentation 

Marketing mantras like having a target audience and knowing your niche are all well and good, but things can get confusing when you look at Disney and think about what a wide customer base they have. Disney fans are adults, teenagers, and children across a wide range of demographics, so how come it can successfully market to all of them at the same time? 

The answer is pretty simple – while Disney does market to a wide range of demographics in its advertising, its individual ads and campaigns are all targeted toward a particular audience. For whatever aspect of its products it’s hoping to advertise, it picks a target audience and focuses on that. 

It won’t make a single generic ad and hope it resonates with both its adult audience and the kids. Take Disney Princess ads for example, and the ads for its animated content that’s meant for children. Disney will choose marketing channels that children (and their guardians) are more likely to come across, while it would use other forms of advertising for Marvel content that is meant for young adults. 

This practice of splitting up its audience and then using separate ad campaigns to appeal to each demographic is called Market Segmentation, and Disney is a pro at it. 

Storytelling, Brand Identity, and Nostalgia 

Along with Disney’s success at market segmentation, Disney has the power of storytelling, a strong brand identity, and nostalgia on its side. 

• Storytelling: Disney’s movies and content usually use traditional storytelling methods and give them a modern twist to appeal to the modern masses. These stories and content move the consumer, as we can see with the meaningful messaging in Pixar movies, for example. Disney has managed to inspire its fans and its audience, which makes its content successful with the masses. 

• Brand Identity: Disney enjoys a strong brand identity and a name that is recognizable almost all over the globe. When Disney comes up with new content, customers and fans expect the same kind of quality from it that they’re used to, and the likelihood that they will invest in it simply because it came from Disney is not low. This isn’t just a coincidence or a result of the company being around for a long time – it is actually deliberate and hard-earned on Disney’s part. Disney places a lot of focus on making sure its messaging displays a uniform brand. The parks take brand consistency so seriously that if you got an autograph from Princess Jasmine in Disneyland Paris and then another one from Hong Kong, they would both look the same! 

• Nostalgia: Not all of Disney’s success comes from robust marketing – some of it is indeed a result of the fact that Disney owns a lot of American cultural icons, and that a whole generation of Americans grew up watching content from the company. Disney consistently uses this to its advantage in its content and advertising. 

Revenue Streams

Disney has multiple revenue streams, but here are the main ones: 

• Linear networks 
• Parks, Experiences, and Products 
• Direct to Customer 
• Content Sales and Licensing 

Linear Networks

Of all of these streams, the biggest money maker for Disney is the Linear Networks segment of the business, making over 35% of its revenue in the first quarter of 2022. This amounts to a total of $7.7B. 

This includes the ownership and operation of all of Disney’s national and international cable channels like ESPN, Disney, ABC, and National Geographic. 

Parks, Experiences, and Products 

Disney owns and operates parks all over the world, from multiple states in the US to cities like Hong Kong and Shanghai. The company also has a cruise line and vacation club, all of which are hugely popular with Disney’s audience. 

The company made $7.2B out of these parks in the first quarter of 2022, which amounts to 33% of Disney’s first quarter revenue and is a dramatic increase from what the parks made in the last two years. This, of course, is owed to the fact that the parks have just reopened after an extended closure since 2020 due to the coronavirus pandemic. 

Direct to Customer 

The direct-to-customer segment of Disney’s revenue comes from the streaming services the company owns, including Disney+, Hotstar, Hulu, ESPN+, and Star+. 

Disney earned about $4.7B from these streaming service subscriptions, which amounts to 21% of the total revenue. 

Content Sales and Licensing 

Sometimes, Disney will sell its content to third parties to put on their own platforms, and sell licenses to its brands and content. This part of Disney’s business is responsible for making it about 11% of the total revenue, which counts up to be around $2.4B for the first quarter of 2022.

Main Assets and Resources 

Disney owns an impressive portfolio of both tangible and intellectual property. From acquisitions like Marvel and Pixar under its name to broadcasting networks like ABC and National Geographic, here is everything under Disney’s belt: 

• Parks and Resorts: Disney has parks and resorts all over the world, as well as a cruise line. There are 12 Disney parks located in 6 resorts as well as some resorts without any parks. Here’s a complete list: 
  • Disneyland
  • California Adventure
  • Magic Kingdom
  • EPCOT
  • Disney’s Hollywood Studios
  • Disney’s Animal Kingdom
  • Disneyland Paris
  • Walt Disney Studios Park
  • Hong Kong Disneyland
  • Shanghai Disneyland
  • Tokyo Disneyland
  • Tokyo Disney Sea 

These resorts are as follows: 

• Disneyland Resort
• Walt Disney World
• Disneyland Paris Resort
• Tokyo Disney Resort
• Shanghai Disney Resort
• Hong Kong Disney Resort

Disney also has resorts and a cruise line that don’t include parks: 

• Disney’s Vero Beach Resort
• Disney’s Hilton Head Island Resort
• Disney’s Aulani Resort in Hawaii
• Adventures By Disney 
• Disney Cruise Line 

• Media and Studios: Disney’s media and studios are where most of Disney’s content is made, which includes establishments primarily in North America.  
• Consumer Products and Interactive Media: Not only does Disney have multiple video games based on its characters and stories, but it also has merchandise, products, and even Disney-themed food at its parks. All of these products come under the consumer products and interactive media division of Disney’s properties. 
• Media and Cable Networks: Disney owns TV channels, news channels, and much more on the local and international market. Some examples include National Geographic, ABC, Disney Channel, and ESPN. 
• Subsidiaries: Disney now owns major production houses like Lucasfilms, Pixar, Marvel Studios, and Disney Theatrical Productions. All of these acquisitions were major game changers in the world of entertainment, and have made Disney the entertainment giant it is today.

Is Disney Really That Successful? 

While Walt Disney Co. is the biggest entertainment company in the world today, it might soon become a lesson in how not all growth is good. Things like its acquisition of Fox after a bidding war with Comcast, and its failed efforts at expanding into international markets, there’s a lot that looms as a threat over Disney’s otherwise successful empire. 

21st Century Fox: Disney’s White Elephant 

21st Century Fox was acquired by Disney after a long bidding war with Comcast over its assets, and after getting regulatory approval for the deal from the Department of Justice. Disney had grown so much in size that if it acquired Fox’s news channel (Fox news) along with the broadcasting channels it already owns, it would have opened itself up to antitrust lawsuits and other regulatory complications. 

In the end, the deal was complicated, with some of Fox’s assets staying with the original owners, who would keep operating them under a different company name. What Disney did acquire, however, it intends to use in a lot of its future cinematic releases. 

The thing is though, that this extended bidding war with Comcast and then Fox’s own assets have only driven Disney’s profits down. The reason Fox was up for sale was that the owners didn’t wish to adapt the company to compete in the era of digital and online streaming. While the acquisition drove Disney’s 4th quarter profits down by about 45% when Disney first got it, Disney feels optimistic about the deal. 

“As I said a few times, we analyze the 21st Century Fox opportunity entirely through the lens of our future business,” CEO Bob Iger is recorded to have said. But no one can ignore how Disney shares tanked for a bit after the acquisition, mainly because of the huge costs it incurred on the acquisition and integration of its new Fox assets into Disney as a whole. 

As of today, Disney has made good use of the assets it got from Fox by putting the content it acquired on Disney+ and Hulu, as well as using the characters from the X men universe in its Marvel releases. But was the value Fox offered to Disney worth the price? Some might argue in the negative. 

Expansion into France and a Lesson in Cross Culture Management 

When Disney first said it wanted to make a Disneyland in Europe, it had some ideas about Paris that translated into trouble. While some employees walked away because the training sessions for jobs felt like brainwashing, Disney realized that its assumption that visitors would stay at their hotels and resorts for 4-5 days at a time was wrong. Not only did European employees not appreciate the way Disneyland was run, but the customers were unhappy too. 

Disney’s policy of not serving alcohol came as a surprise to a culture where wine with lunch was the norm, and Disney was woefully unprepared for the Europeans who wanted to get American-style breakfasts. 

EuroDisney – which was later named Disneyland Paris – wasn’t a huge success at first, giving the company over $2 billion in losses by the end of 1994. Performance did eventually pick up, and while Disneyland Paris is a desirable and successful entertainment destination for many today, it was not easy for the American company to adapt to the tastes and habits of its new, European customer base. 

Consistently Growing Expenses – Can Disney Keep It In Check? 

Operating Disney even on a day-to-day basis isn’t easy, and it sure isn’t cheap. Disney’s profit margins are one of the lowest among most successful companies, and the only reason it’s successful is because of the sheer size of the company, even if that is also the biggest issue right now. 

Out of the $21 billion the company earned, only $3.6 billion was profits while the other went towards operating expenses. This profit isn’t the best when you put it against the revenue, and it might be an issue in the future if the trend of decreasing profit margins in the company continues. 

Expensive deals and acquisitions like Fox, Marvel, Lucasfilms, and Pixar aside, Disney invests a lot of time and energy into maintaining a stellar employer image. It has a $25 million annual budget for employee education, and it constantly trains and invests in its creative talent. 

Disney Has Competition 

While Disney is a widely successful company and the world’s biggest entertainment company, it is not immune to market competition and other threats. The whole reason Bob Iger acquired so many new subsidiaries for the company was to make sure that Disney stayed ahead of the competition by being able to offer shows and movies on its platforms that the public loves and enjoys. 

Still, the entertainment market is highly saturated, and here are some companies that Disney often finds itself contending with for a share in the market: 

• Netflix: Not only did Netflix give other entertainment companies including Disney a run for their money, but it also changed the entertainment landscape forever by introducing its streaming platform and app. Now, it also intends to steal some of Disney’s share in the animation sector. 
• Comcast: Comcast is diversified and has its fingers in a lot of the same pies as Disney does. Universal Television, CNBC, DreamWorks, and Telemundo are all owned and operated by this company, and it was also in a bidding war against Disney for 21st Century Fox. 
• Sony: Sony is a great producer in the films and movie sector, with Spiderman being one of its most notable properties. 
• Amazon Prime Video: Amazon Prime Video often gives Disney competition when it comes to online streaming. 
• Universal Studios: Universal Studios is a park that might not have as much to offer as Disneyland does, but it has been a huge success and the main attraction for tourists when they don’t want to go to Disneyland. The park itself is owned by Comcast, and its success is largely owed to the popularity of the Harry Potter series. 

Disney manages to stay ahead of this competition with the help of its solid brand and marketing, as well as with the help of acquisitions like Hulu and Marvel. These acquisitions help the company retain its market share even among the vicious competition. 

Conclusion 

Disney makes most of its money through two main sources – its content, and its theme parks and themed experiences. While the company faces severe competition from within the industry, it has managed to stay ahead because of constant innovation and growth. 

FAQs about the Disney Business Model

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Mahnoor Fatima

With a Chartered Accountancy education (and working towards a Bachelor's in Business Administration), Mahnoor has over three years of writing, researching and studying the best business strategies of our day and brings that curiosity here at Business Chronicler. Today, as a Technical Content writer, for a leading tech startup, she is also responsible for writing a lot of copy for clients in the B2B tech, SaaS and AI spaces, drawing on her education and curiosity in best digital business practices.

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