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Home / Industry / How Disney found its way back to creative success

Since every industry changes in time, the key to success is adapting to those changes—hence, strategy is innovation. In this, Walt Disney Co. and Warner Bros (WB) provide an instructive study in contrasts.

When Robert Iger, Walt Disney chairman and CEO, purchased Pixar for $7.4 billion 10 years ago, some in the industry thought he was crazy. The Disney empire was rooted in animation, and its classic characters—Mickey and Minnie Mouse, Donald Duck, Goofy, the Disney princesses—are some of the best-known, and most beloved characters in the world. Yet, Disney Animation needed some breakthrough ideas.

Beauty and the Beast, Aladdin and The Lion King were good draws in the 1990s, but things had lagged since the start of the new millennium, while Pixar’s Monsters Inc., The Incredibles and Finding Nemo were all the rage. In fact, Iger reportedly noticed that Pixar’s hugely popular Toy Story characters appeared in the 2005 opening parade at Hong Kong Disneyland while recent Disney animated characters—for example, Lilo & Stitch, released in 2002—were missing in action (although Mickey and pals were present and accounted for, of course). Iger could have continued trying to infuse Disney Animation from within but he realized the best opportunities can sometimes be created through alliances with other businesses. So he struck a deal with then CEO Steve Jobs to buy Pixar. (Disney’s existing contract to distribute Pixar films was slated to end in 2006 and Pixar had announced two years earlier it would not renew the arrangement.)

It was a bold push towards the future. A few years later, Iger made another successful deal to buy Marvel Entertainment for $4 billion in 2009. At the time, there was general scepticism that Disney overpaid for Marvel since three of its leading superheroes have already been licensed out—Spiderman (Sony), Fantastic Four (20th Century Fox), and X-Men (20th Century Fox). Yet, Disney has successfully launched several superhero movies— Avengers, Captain America, Thor and Iron Man.

Iger used the Pixar and Marvel purchases to convince George Lucas to sell him Lucasfilm (for about $4 billion) in 2012. That deal brought the Stars Wars and the Indiana Jones franchises within Disney’s fold.

The three acquisitions revitalized Disney’s creative juices, and has allowed the company to monetize these popular characters through as many outlets as possible—theme parks, movies, toys—as only Disney has proved able to do. For instance, the Avengers is a successful movie franchise but it is also monetized in Disney’s theme parks. This strategy has been, in itself, Disney’s great breakthrough innovation.

And the revitalized approach is paying dividends. During a six-month period from December 2015 to May 2016, Disney has cleaned the clock with a 25% market share in box office with a Star Wars sequel, the Jungle Book, and Captain America: Civil War. Iger announced that in the first quarter of this year, Disney “delivered the highest quarterly earnings in the history of our company, marking our 10th consecutive quarter of double-digit EPS growth". The best may be yet to come: with a younger demographic in Asia, Disney is likely to experience growth in Disneyland theme parks built around charming Disney characters and stories.

Between the three acquisitions plus its own Walt Disney Animation and Walt Disney Pictures, Disney has built a studio with five film brands. Each film brand has many characters with imaginative stories that serve as franchisable assets. By contrast, WB’s cinematic efforts are foundering. The company’s revenue dropped 13% in the fourth quarter of 2015. The long-awaited Batman v Superman: Dawn of Justice, which opened in April 2016, reaped $166 million in its opening weekend, only to nosedive 69% in its second weekend. Critics have not been kind; it clocked in at only 28% on Rotten Tomatoes’ “tomatometer".

WB has long taken a tried-and-true approach to its films, particularly with respect to its DC Comics superheroes. If it worked before, it should work again. So Batman (1989) was followed by Batman Returns (1992), then Batman Forever (1995), Batman & Robin (1997), Batman Begins (2005), The Dark Knight (2008) and The Dark Knight Rises (2012). Likewise, Superman (1978) begat Superman II (1980), followed by Superman III (1983), Superman IV: The Quest for Peace (1987), Superman Returns (2006), and Man of Steel (2013), culminating in this year’s Batman v Superman.

Now, WB’s approach seems to be one of imitation. In response to Marvel’s popular interconnected superhero adventure films (e.g., The Avengers), WB is spinning a host of similar tales featuring its own DC army (for example, the forthcoming Suicide Squad, Wonder Woman, and the two-part Justice League). True, you want to build successful franchises into sequels. However, Disney has reinvented itself, while WB seems to imitate the former’s moves.

Repeating what you’ve done in the past or copying what someone else is doing now are not innovative, and it’s innovation that underwrites future success. In fact, WB does have a history of innovation. Two examples: the company released the first “talkie", The Jazz Singer, in 1927, and established the standard of excellence for TV miniseries with Roots and The Thorn Birds in the 1970s.

For now, however, WB seems to be caught between a rock (its own past success) and a hard place (Disney).

The contrasting fortunes of Disney and WB highlight the importance of continuous innovation. Indeed, long-term competitiveness depends on it.

Vijay Govindarajan is the Coxe Distinguished Professor at Dartmouth’s Tuck School of Business and a Marvin Bower Fellow at Harvard Business School. He is the author of The Three-Box Solution: A Strategy for Leading Innovation (HBR Press, April 2016).

©2016 Harvard Business Review. All rights reserved.

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