Disney Case Essay

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Disney Case The Cap Cities acquisition brought a number of entertainment related distribution properties under Disney's ownership including the ABC television network, 10 other television stations, the ESPN network, the ABC radio networks and several newspapers and periodicals. Prior to the acquisition, Disney was primarily a creative content producer and a theme park operator. With the acquisition of Cap Cities, Disney became a major player in media distribution. The investment thesis was to combine, further capture, and improve vertical components of the value chain (i.e. content development and distribution). In hindsight, we would argue that the benefit and cost based synergies were minimal and generally below expectations. As a result, we believe that vertical integration decreased total value – in this case – given that the market exchange is generally more efficient under licensing agreements. For example, the perception at the time of acquisition was that ABC’s distribution network would serve as a perfect outlet for Disney’s creative content and that the benefit based synergies from cross promotion were to be substantial. However, integration does not appear to have had such success. With the acquisition, ABC is effectively forced into purchasing Disney’s content versus the best, and in some cases better, alternatives. As a result, ABC’s ratings have struggled over time (particularly excluding Who Wants to Be a Millionaire) as the end consumer has opted for programming on other stations. Thus, theoretically, other stations are able to charge higher rates for advertising time. While this may be a beneficial arrangement for Disney (i.e. guaranteed distribution), it isn’t for ABC. The tradeoffs seem to exceed the benefits, and therefore a contractual arrangement is preferable and creates more overall value. This dynamic differs from theme parks were the

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