Table of Contents

Executive summary.........................................................................................................................2
Name and definition of the industry............................................................................................................ 3
The relevant macro-environmental forces of the Industry.................................................................. 4
Political factors.......................................................................................................................................4
Economic conditions...............................................................................................................................4
Sociocultural forces.................................................................................................................................5
Technological factors..............................................................................................................................5
Environmental forces..............................................................................................................................5
Legal and regulatory factors...................................................................................................................5
Forces Driving Industry Change.................................................................................................................... 5
Five Forces Industry Analysis........................................................................................................................ 6
Competitive Rivalry.................................................................................................................................6
Threat of New Entrants...........................................................................................................................7
Competition from Substitute Products..................................................................................................7
Supplier Bargaining Power.....................................................................................................................7
Buyer Bargaining Power.........................................................................................................................8
Key Success Factors for the Industry........................................................................................................... 8
Strategic Group Map......................................................................................................................................... 8
Attractiveness of the Industry....................................................................................................................... 9
Financial Analysis........................................................................................................................................... 10
Performance Summary.........................................................................................................................10
Revenues and Net Income....................................................................................................................10
Net Return on Total Assets...................................................................................................................10
Return on Shareholders’ Equity............................................................................................................11
DTIC’s Competitive Advantage.................................................................................................................... 11
SWOT Analysis................................................................................................................................................. 12
Strengths...............................................................................................................................................12
Weaknesses..........................................................................................................................................12
Opportunities........................................................................................................................................12
Threats..................................................................................................................................................12
Competitive Strength Assessment............................................................................................................. 13
 Executive summary

Walt Disney Direct-to-Consumer & International (DTCI) is a subsidiary of the Walt

Disney Company. DTCI is an entertainment company that provides subscription-based,

over-the-top (meaning media that bypasses traditional telecommunication platforms and is

offered to customers directly via the internet), video-on-demand, and sports streaming

services to American and international consumers. The services available to American

subscribers currently consist of ESPN+, Hulu, and Movies Anywhere. Disney+, DCTI’s

recently announced streaming service, is highly anticipated by consumers and will launch

on 12 November 2019. Hotstar, an India-only streaming platform, is currently DTCI’s only

streaming service available in an international market. On March 14, The Walt Disney

Company reorganized its company into four segments [CITATION Spa18 \l 1033 ]: Walt Disney

Studios, its film studio, Disney Media Networks, which oversees its television networks and

channels, Disney Parks, Experiences and Products, which manages its theme parks and

resorts. Disney’s fourth segment, Walt Disney Direct-to-Consumer & International, was

formed to oversee the digital video subscription services it owns. Disney has the power to

soon become the biggest competitor in the industry with global expansion of their

streaming services and investment into exclusive and original content

(https://www.cnbc.com/2018/03/19/streaming-services-americans-spend-2-point-1-

billion-a-month-in-55-percent-homes.html).
 Name and definition of the industry

The digital video streaming subscription services industry as we know it is a

relatively new industry that has its origins in the early 1990s. Early video-on-demand

systems involved expensive equipment and technology, but prices have dropped

significantly over the years, and these services now are more popular than ever. Due to the

vast amount and variety of content available, as well as the wants and needs of consumers,

digital streaming service companies generally use a broad differentiation strategy. The

large competing organizations in this industry, like Netflix and Amazon Prime, attempt to

offer the best content from a wide variety of categories at high video resolutions and with

premium surround sound audio. They even develop their own content in a multitude of

genres, hire famous thespians, and recruit talented directors in order to attract customers

and win a competitive advantage. Other video streaming providers, such as Crunchy Roll,

offer a narrower swath of content in niche genres, Japanese animation, known as anime, is

one such niche genre but very popular; many streaming services include this in their

offerings. In addition to the more well-known and established streaming service

companies, many companies are launching their own new services in the industry; for

example, CBS All Access, the yet-to-launch service from NBC, and DC Universe, among

others.
 The relevant macro-environmental forces of the Industry

The digital-video-streaming-subscription services industry entire entertainment

industry is very competitive. The revenue for the industry is expected to reach over $22

billion by 2020 [ CITATION Wat18 \l 1033 ]. Thus, there is potential for many factors in the

company’s macro-environment that influence the company’s competitive environment and

its industry. The following motif utilizes the PESTEL analysis to conduct a detailed

examination of the political, economic, sociocultural, technological, environmental, and

legal factors that affect the relevant macro-environment.

Political factors

Political factors can have a strong effect the macro-environment in the industry.

The legislative branch of the government can affect the passage or repealing of laws such as

net neutrality that have a direct effect on DTIC’s and other companies’ streaming services.

Additionally, the governments of other nations have an effect on the content offered by

these services in other countries as well as the initial expansion into the countries. Netflix,

for example, has successfully expanded into many countries, but had to deal with issues

involving the local governments such as regulatory restrictions [ CITATION Bre18 \l

1033 ].

Economic conditions

Economic conditions are an important factor in the industry; in fact, economic

conditions were one of the main reasons that streaming services took off in popularity. The

relatively low monthly price of streaming video services compared to cable television has
many people abandoning the over-the-air method of watching television and movies in

favor of subscribing to online services (an act known as cord-cutting).

Sociocultural forces

Sociocultural forces include the stagnant and evolving values, attitudes, and

lifestyles of society; these forces have an impact on this industry’s macro-environment.

Entertainment consumers are gradually moving away from traditional television watching

in favor of streaming services; It’s estimated that 860,000 cord-cutters made the switch to

streaming services in the first quarter of 2019 [ CITATION The19 \l 1033 ].Furthermore,

61% of young adults age use Internet streaming services instead [ CITATION Ter17 \l 1033

].

Technological factors

Technological factors play a major role in the streaming services industry. Internet

speeds, internet infrastructure, transmission mediums, increasing video quality demanded

by higher resolution televisions, and audio quality are just some of the technology that is

inherently important to this industry. The different methods of content-watching (mobile

phone, tablets, televisions, etc.) is also relevant.

Environmental forces

Environmental factors are not very relevant to the streaming industry’s macro-

environment and do not play a big enough part to be included in this analysis.

Legal and regulatory factors

Legal and regulatory factors are important to the streaming services industry’s

macro-environment. Net neutrality laws, or recent lack thereof, affect how content is
delivered via the Internet to consumers. Obtaining the legal rights to show content, and

respecting copyright laws are important considerations.

Forces Driving Industry Change

Emerging new Internet capabilities and application contribute greatly to this

industry’s change. With the increase in households’ access to faster Internet access,

consumers are expecting higher video and audio quality. Whereas 1080p, considered “full

HD”, was once the standard, 4K resolution, which is four times the resolution of 1080p, is

now expected from major streaming services. Emerging Internet capabilities coupled with

rapid technological change, like the mass availability of higher resolution televisions,

means that competitors in this industry must constantly adopt and adapt to new standards.

Shifts in buyer demographics also drive this industry’s change, as streaming video

becomes more popular, it becomes increasingly attractive for entertainment companies to

attempt to enter this industry, creating more competition.

Globalization is another force driving this industry’s change, many video-streaming

companies offer their services in multiple countries with content specifically tailored to

each respective region. It is becoming increasingly attractive to expand to other countries

as Internet speeds worldwide have grown up to 27% in 2018 [ CITATION Mur18 \l 1033 ].

Five Forces Industry Analysis

Competitive Rivalry

Competitive Rivalry is moderate. Consumer demand is growing steadily, with

American streaming service subscription rates rising from 49% to 55% [ CITATION Wan18

\l 1033 ]. Additionally, the content from each provider is becoming increasingly

content they possess [ CITATION Wat18 \l 1033 ]. However, although costs to switch

brands are low, the prices are low enough to where many consumers subscribe to multiple

services at the same time [ CITATION Wes19 \l 1033 ]. Competitors are numerous,

established, and strong.

Threat of New Entrants

The threat of new entrants is moderate. While entry barriers can be considered

high to potential brand-new entrants (such as how Netflix was in 2007 when launching

their streaming service); established companies such as NBC and CBS can afford to launch

their own streaming services, and they either have done so or have concrete plans to do so

in the near future.

Competition from Substitute Products

Competitive pressures from substitutes are strong. There are numerous substitutes

in the entertainment industry. Some substitute products are growing faster than streaming

services; for example, video game revenue growing 18% to almost $44 billion, and movie

theaters reaching almost $42 billion compared to streaming services’ $29 billion

[ CITATION Shi19 \l 1033 ]. Additionally, even Netflix sees video games as a bigger threat

than fellow industry giant HBO’s own streaming service [ CITATION Per19 \l 1033 ]. Piracy

is also a substitute thread, but the convenience and low cost of streaming are a deterrent to

the risky and time-consuming practice.

Supplier Bargaining Power

Supplier bargaining power is moderate. DTIC’s future Disney+ service will possess a

vast amount of content that the Walt Disney company has created and owns; they will also
create even more content. Therefore, they do not need to worry about contracts for certain

TV shows and movies ending and possibly losing that content to other providers. DTIC’s

Hulu does have to take that in consideration. Hulu has contracts with media creators to

stream their respective television shows and movies.

Buyer Bargaining Power

Competitive pressures from buyers is weak. The buyers are the subscribers to

DTIC’s streaming services. Their demand for the streaming services is strong. Their costs

to switch to other streaming services are relatively low; but DTIC’s content will be

differentiated and popular enough for this to not pose a credible threat. Disney+’s content

will feature movies that have earned billions of dollars at the box office [CITATION

Rub29 \l 1033 ], and these films will only be available to purchase from Disney or streamed

on their service.

Key Success Factors for the Industry

Key success factors are essential for the competitors within the industry to thrive. In

the streaming-video service industry, offering original and exclusive content at attractive

subscription prices are the key success factors. According the Digital media trends survey

by Deloitte, 57% of streaming service customers choose to subscribe to a service based on

their access to original content, a percentage which grew from 2018[ CITATION Wes19 \l

1033 ]. The Walt Disney company has a plethora of original content available, and the

capability to produce even more through fellow business segment Walt Disney Studios. In

addition to original content, usability is key success factor in this industry. Consumers

need to be able to easily access the content they are looking for. 33% of consumers chose
“ease of use” as one of their top criteria when choosing to subscribe to a streaming service [

CITATION Spa19 \l 1033 ] .

Strategic Group Map

The strategic group map, shown in Figure 1, plots the leading industry competitors

against each other with regards to geographic coverage and original & exclusive content.

There are multiple strategic groups which are occupied by the different competitors in the

industry. HBO Now, Starz, and Showtime Anytime each offer much original content, but

they are limited to streaming in America only. Youtube Premium offers some original

content, and is available in multiple countries. DTIC, after the launch of Disney+, will

contain hundreds of original and exclusive popular movies and TV shows; their subsidiary

Hulu contains much original content but is only available in the United States and its

territories, with Hotstar being their only international offering. Netflix and Amazon Prime

occupy the top-right of the strategic map; each service contains thousands of hours of

original content and each is available in about 200 countries [ CITATION Kha16 \l 1033 ].

Attractiveness of the Industry

The digital video streaming subscription services industry is a relatively new

industry and became attractive very quickly; with the amount of money made in this

industry every year, it becomes increasingly attractive to firms looking to enter. Currently,

there are numerous streaming services that are highly differentiated, and they appeal to

many segments of consumers. However, for new entrants to become viable competition;

they need a high amount of original, exclusive content. Furthermore, with so many large

companies already establishing their foothold in this industry, it will be difficult to compete
in the market as the average consumer only subscribes to a total of three services

[ CITATION Wes19 \l 1033 ]. Ultimately, this industry is only attractive to established

media companies with the resources to provide high-quality exclusive movies and shows,

as well as the potential to expand to global markets. DTIC definitely fits these criteria.

Financial Analysis

Performance Summary

The following financial information is pulled directly from The Walt Disney

Company’s Second Quarter and Six Months Earnings for Fiscal 2019 Report [CITATION

The191 \l 1033 ]. DTIC comprised $1,873,000 of The Walt Disney Company’s total

revenues for the six months earning ending on March 30, 2019; this is a 6% increase from

the previous year’s six months. DTIC’s operating loss increased from $188 million to $393

million. The explanation given for this increase is due to an increase in investment for their

established and upcoming services. Due to the lack of detailed financial information

regarding The Walt Disney Company’s DTIC segment; the following information will come

from the company’s condensed consolidated statements of income located at the end of the

prior-referenced report.

Revenues and Net Income

Revenue is the income that a company generates from its operations, while net

income shows a company’s income from operations after income taxes and various other

expenses. Figure 2 shows the Walt Disney Company’s revenues and net income. Despite an

increase in costs and expenses; their net income increased 10.68% from the previous

year’s six months ended. The reason for this increase is shown in Figure 1 under “Other
Income”. This is included to show that the increase is attributed to DTIC’s acquisition of

Hulu.

Net Return on Total Assets

Net return on total assets (ROA) is a profitability ratio that shows how well a

company is generating profit from its assets. Figure 2 shows The Walt Disney Company’s

compared to rivals Netflix [ CITATION Net19 \l 1033 ] and Amazon [ CITATION Ama19 \l

1033 ]. As you can see, The Walt Disney Company outperformed both competitors.

Return on Shareholders’ Equity

Return on shareholders’ equity (ROE) is a profitability ratio that measures the

effectiveness of managements’ use of their company’s assets to generate profits [ CITATION

Har19 \l 1033 ]. As seen in Figure 2, the Walt Disney Company edges out Amazon in this

section, while almost doubling Netflix’s ROE. However, The Walt Disney Company does

need to improve this ratio as they are below the average.

DTIC’s Competitive Advantage

Figure 3 shows the competitive power of DTIC’s resources and capabilities. One of

DTIC’s strongest resources in its arsenal is the Walt Disney brand name. The Walt Disney

company began in 1923[ CITATION Dis19 \l 1033 ] and since then has established world-

wide recognition; in 2019, the company was ranked at the top of Forbes’ list of the World’s

Best Regarded Companies for 2018 [ CITATION Dis191 \l 1033 ]. Additionally, The Walt

Disney company owns some of the world’s most well-known and popular intellectual

properties including Mickey Mouse, Marvel Entertainment, Star Wars, and more. This

resource translates into a powerful competitive advantage. DTIC’s capability of providing

multiple different streaming services for general entertainment or live sports is another
advantage the company possesses. Unfortunately, DTIC does not have the global foothold

that its strongest competitors have.

SWOT Analysis

Strengths

As mentioned earlier, one of DTIC’s greatest strength is its brand recognition. In

addition to the strength of its parent company’s brand; DTIC owns the well-known services

Hulu and ESPN. The diversity and caliber of Disney’s intellectual properties are another of

its greatest strengths. The Walt Disney company own’s six out of the ten top grossing

movies of all time[ CITATION War19 \l 1033 ] which will soon be available to stream on

DTIC’s Disney+ service.

Weaknesses

DTIC’s strongest weakness is its inferior operations regarding global availability. It

provides services in only one foreign country compared to the hundreds that DTIC’s

strongest competitors are in. And, although Disney+ has much promise, it has not launched

yet. So, its soon-to-be flagship streaming service has yet to prove itself and is starting from

way behind the competition.

Opportunities

DTIC’s greatest weakness is also an opportunity. The worldwide entertainment

industry is massive, and thanks to the Walt Disney company’s capital and resources, it has a

clear opportunity to expand its global market share. DTIC has already proven its capability
to do so with its Hotstar service in India. Hotstar has gained 300 million users in just four

years compared to Netflix’s 150 million subscribers globally[ CITATION Mal19 \l 1033 ].

Threats

Internet Piracy is one of the biggest threats to DTIC’s profitability. According to a

U.S. government study, digital piracy costs the global TV and film industry $29.2 billion

each year[ CITATION Gon19 \l 1033 ]. Additionally, the large increase in new competition,

as well as the intensity of the current competition, are threats to DTIC’s profitability and

competitive well-being.

Competitive Strength Assessment

Figure 4 shows the competitive strength assessment of DTIC compared to Amazon

Prime Video. I chose the comparison between these two specifically because both

companies operate as business segments of a larger parent company. Therefore, each

company has more financial resources available.

As user interface and quality of content are largely subjective, TV Guide’s statistical

analysis of streaming service was referenced [ CITATION Gen19 \l 1033 ]. The library of

upcoming Disney+ is considered in this assessment as well, as it is known what will be

available [ CITATION Bel19 \l 1033 ].