Disney: Continuing to Bring Characters to Life
By: Alina Lalji and Bobby Kaloty
The Ivey Business Review is a student publication conceived, designed and managed by Honors Business Administration students at the Ivey Business School.
Entering the Kingdom
Walt Disney Company (Disney) has sat atop the global media production industry for the better part of a century. From the iconic white-gloved mouse to some of the world’s most elegant princesses, Disney has established a brand unparalleled in the industry. Much of this success can be attributed to a corporate strategy centralized around “bringing characters to life” with an ecosystem of assets that builds a strong connection between on-screen content and in-person purchases.
This concept of deriving value from digital assets can be observed as early as 1957, where archives show Walt Disney’s depiction of organizational structure: a central film/digital asset that will help generate value beyond the screen through offline entertainment assets including resort parks; publications, such as magazines, books, and comics; and merchandise.
Since 1957, Disney executives have worked tirelessly to execute on Walt Disney’s original vision. This has most recently been done by CEO Bob Iger, whose deal-making ability helped Disney strategically acquire major media players such as Pixar and Lucasfilm. Iger’s “tentpole strategy” involves creating large media franchises such as Frozen, whose merchandising revenue has surpassed box office sales. Each of Disney’s unique franchises, also known as intellectual properties (IP), consists of an elaborate set of characters and storylines designed to captivate the consumer. Disney’s success in engaging children and commercializing each franchise is a driving factor in the company’s success as one of the world’s most powerful brands.
Disney’s Consumer Products and Interactive Media (DCPI) is the segment that brings Disney’s IP to life. The segment, responsible primarily for licensing Disney content for product applications, including comic books, video games, applications, and toys, saw revenues slide by 13 per cent to $4.8 billion over the course of 2017. While DCPI is only responsible for a meagre nine per cent of overall sales, it serves as an indicator of the company’s ability to monetize on-screen media through in-person purchases, or, simply put, Disney’s competitive advantage of “bringing characters to life.”
Approaching Midnight
Historically, a child’s buy-in to a Disney franchise was precipitated by their on-screen connection to a movie. This engagement led children to form strong, passionate attachments to the franchises, often persisting into adulthood. To foster this attachment, Disney developed a range of everyday products so that children “could watch, sing, play, dress, bathe, eat, and sleep in princess products and ‘be’ Cinderella all day long.”
Disney’s historical success in cultivating attachment in consumers while still young can be seen through brand intimacy rankings. In 2017, Disney ranked the highest in brand intimacy for those aged 18 to 34, and second overall for all consumers 18 and over. These consumer relationships were largely characterized by nostalgia, but as the younger demographic begins a natural transition to a new generation, nostalgia may no longer be enough for future brand intimacy. DCPI’s volatile performance signals a need to adopt a more effective method of engaging and retaining the upcoming Generation Z (Gen Z) and following generations.
Gen Z: Functional Product Value, Not Nostalgia
Gen Z is the population born in the mid-1990s to mid-2000s. This consumer segment and those around this age range are critical when it comes to marketing and requires a very different approach to be successfully converted to customers. With increasing use of technology, this generation is exposed to more media products than ever before. It is becoming increasingly important for media brands to differentiate their products in the competitive environment. Children in this segment are not as loyal as the previous generation and are ready to switch to brands and products that offer more value. This trend has been seen across industries including clothing and toys. Given Gen Z’s customer preferences for product value, Disney’s overreliance on nostalgia to capture the current millennial market will not prevail as Gen Z ages. Disney must figure out alternative methods of generating products that have high functional value to make the brand top-of-mind with the valuable Gen Z cohort.
Gen Z is expected to represent 40 per cent of the world’s consumer base by 2020 and to become a large influencer on family spending. Disney’s success in maintaining its reign as one of the most powerful brands will hinge upon acquiring and retaining this new generation of customers. DCPI has historically built its portfolio around licensing brands into products such as t-shirts and mobile apps that focused on branding rather than functional value. However, the current product mix offered by DCPI is misaligned with the values of Gen Z. The next set of services and products offered by DCPI needs to be within a line of products that serves a functional need for customers rather than relying solely on the brand.
Stemming New Growth
The market for educational development toys is projected to reach nearly $40 billion globally by 2019 and to grow at 10 per cent annually through 2021. Moreover, 76 per cent of this market will be geared specifically towards science, technology, engineering and mathematics (STEM) toys. The boom in these toys can be attributed to parents and educators beginning to recognize both the benefits of interactive learning during a child’s critical development years and the increasing importance of STEM-related fields. As children age and develop skills, they need new products tailored to the next stage of learning. With parents and educators heavily invested in early childhood development, DCPI can find success in offering STEM toys as an at-home solution for parents, and also as a scalable method for bolstering educators’ in-school curriculum.
Disney’s Next Move
To maintain its competitive advantage of a strong connection between on-screen viewing and in-person purchases, Disney should redesign its DCPI product lines for the vastly different Gen Z segment. Educational toys present a unique opportunity to not only leverage Disney’s existing IP collection, but to directly create a strong off-screen interaction with Gen Z customers.
Educational toys will help Disney retain Gen Z by offering a product lifecycle that progresses naturally with children as they mature in education levels. As children progress to a new stage of learning, there is a natural progression of product lines to purchase.
A New Toy Story with Kidtellect
When shopping for STEM toys, parents look for products that offer a hands-on experience and educational value. It will be imperative for Disney to not only leverage its strong brand recognition, but also design toys that provide competitive educational value to children. Disney should acquire Kidtellect, a company with deep expertise in developing STEM toys, and complement the products with its own strength in branding to develop an unparalleled offering. By acquiring an existing player with a proven product, Disney can forgo the research and development process in developing educational toys and augment the products with its core competencies in brand development.
The recommended target, Kidtellect, develops packages of educational toys and applications for children aged two to eight under the brand Tiggly. Currently, Tiggly focuses on math development, problem solving and understanding shapes. Tiggly has successfully launched a curriculum for one of four STEM fields, presenting an opportunity for Disney to expand the toy line in the other three. The company has mastered engaging and valuable curriculum creation and is trusted by both parents and teachers to either jumpstart or supplement their children’s learning. To date, Tiggly’s toys are used in classrooms in more than 4,000 schools worldwide.
A Whole New World
Disney’s STEM toy line should mimic the format of Tiggly’s existing product line: a set of physical toys which help children develop a specific skill set, supplemented by mobile and tablet-based applications. Disney’s IP, however, adds value that Tiggly could never hope to achieve. With the exception of some Sesame Street characters, Tiggly’s toys are based upon proprietary IP and lesser-known characters. Post-acquisition, children would be able to learn with their favourite Disney princesses and Marvel superheroes.
To retain long-term customers, Disney’s products must be cognitive and affective. Tiggly accomplishes the cognitive side of this equation: its widespread adoption evidences that it has convinced parents of its educational merits. However, children lack a strong emotional connection to its characters. These same children likely have been familiarized with Disney’s characters through parks and resorts, movies, and television and thus, have a strong emotional attachment to these characters.
To further ensure the longevity of Disney’s IP and to maximize its value, toys should incorporate characters from multiple IPs, if possible. For example, an alphabet book could feature several different characters from the Disney universe. This will ensure IP longevity over time, as children will be consistently engaging with a variety of characters and content from Disney’s history.
As opposed to a simple character licensing strategy, Disney must complete a full acquisition of Tiggly to roll-out a comprehensive STEM product line. Additionally, as many of Disney’s STEM toys will leverage multiple IPs, the company needs to maintain control over the mix of IPs that go into the market to maximize the highest potential IPs.
Marvel of Value
The most critical outcomes of Disney’s pivot to providing STEM toys will be an increase in customer lifetime value (CLV) for Gen Z customers, which will be seen through the lengthening of connection between on-screen content and in-person purchases.
Disney’s CLV enhancement will be driven by two forces. First, with educational toys more likely than traditional toys to spur ongoing purchases, the STEM offering will provide DCPI with a sizeable revenue stream. Second, the STEM toys will incorporate various characters from the Disney umbrella and create spillover effects to the broader Disney ecosystem, lengthening the relevancy of IP over a child’s lifetime. Beyond just STEM toys, sales of future products for an IP should also improve as a result. Additionally, because Disney’s IP caters to a variety of age groups, Disney will be able to grow the product as its customers age, retaining them throughout much of their childhood and boosting the nostalgic value for which Disney is renowned.
The potential revenue uplift is calculated based on the following: the number of households subscribed to Disney Channel, the income brackets that will have the discretionary income to purchase toys, and an assumed $20 purchase price for the STEM product. Through this analysis, Disney will be able to reap $1.48 billion in DCPI revenue uplift once it has established itself as a reputable STEM player in the international market. This is a 30.7-per-cent increase from 2017 DCPI revenues and does not factor in spillover effects on sales of other product categories. With a world-leading brand, Disney will be able to transfer its brand value into this vertical to capture the market.
Return to Pride Rock
Transitioning into the world of STEM educational toys presents an exciting opportunity for Disney’s DCPI segment. As the upcoming wave of Gen Z children prefer products that provide functional value alongside familiar characters, Tiggly’s portfolio of STEM toys are a perfect fit to acquire and retain children over the long term. As customer demographics and industry dynamics continue to shift, Disney must find innovative strategies to defend its core competitive advantage: bridging the world of on-screen content and in-person purchases by magically bringing characters to life.