Vertical Integration, Outsourcing and Diversification Strategy

Vertical Integration, Outsourcing and Diversification Strategy

Chapter 9 Vertical Integration, Outsourcing and

Diversification Strategy

Disney Integration Map

Since Disney, unlike traditional manufacturing businesses, is in the

leisure/entertainment business, the way the vertically integrate their resources is quite

unique. Therefore, we developed a map to illustrate our thought process upon this


Figure 23. Disney Integration Map

The Walt Disney Company Case Study

82 FCU e-Paper (2016-2017)

9.1 Disney Vertical Integration

Vertical Integration is a strategy where a company expand its business operations

into different steps on the same production path. (Investopedia) By using the vertical

integration, Disney has their own supplier and distributor, so it can not only help

Disney reduce costs but also increase revenues.

9.1.1 Park and Resorts

About the vertical Integration of the Walt Disney Parks and Resorts, you can see

a lot of entity and virtual products or services which are created in Disney’s own story

and character in Disney Parks and Resorts. For example, like the performance, Walt

Disney Animation Studios produced the animation film The Lion King, and they

produce The Lion King musical to show in the Disney theme parks; like the virtual

products, Disney put their own consumer products to the Disney theme parks and sale

them to the consumers and visitors; like the virtual characters, you can see many film

famous characters show on the road in the Disney theme parks; like the character of

Simba the Lion, it was cross-licensed by consumer products division to merchandisers

who created Simba the Lion stuffed animals T-shirts, and others products that are sold

and distributed throughout Disney theme parks as well as the company’s retail stores


9.1.2 Movie

The “up-stream” of Disney Movies’ vertical integration is basically the same as

other products in Disney: the creators produce ideas and stories, then the studios

(movie and television) turn them into motion pictures we watch on different sizes of

screens. For other parts of Disney, they would go on to create more products from

The Walt Disney Company Case Study

83 FCU e-Paper (2016-2017)

these motion pictures, but for the movie section, this is basically it.

Vertical integration of Disney movies, whether it is animated or live-action, is

realized within Disney itself, Disney’s teams creators produce storylines, which is

then transferred to the hands of professional animators. The visual results are then

examined by editors and directors. Finally, the finished movie is marketed through

Disney’s own television channels and websites. Disney also owns distributors to

distribute their own movies.

Disney owns several studios: Disney Studios (including animation and live

action), Pixar, Lucas Film, and Marvel Studios. Industry information are as follows:

Table 25. Disney Studios SIC Code

9.1.3 Merchandise

Merchandise which includes consumer products and interactive media is a

segment of Walt Disney vertical integration strategy. This division uses the stories and

characters as materials of production process. Unlike other segments, Disney

consumer products and interactive media (DCPI) is not purely vertical integration but

also have attendance of market contracts.

The Walt Disney Company Case Study

84 FCU e-Paper (2016-2017)

Figure 24. Merchandise Outsourcing

The progress is Disney makes films and cartoons to create stories and characters

by themselves. Then use them as materials to form license and publish contracts with

other company. Disney will not be in charge in merchandising products but others will

produce then Disney or that companies will sell them. For example, H&M make

clothes with Mickey mouse logo and sell them in H&M store (Market contracts) or

Disney sell their toys in Disney store (Vertical integration); Disney catch-catch: a

game uses Disney characters license in Facebook social media platform. Retailers also

undertake after service.

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