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Management Essay

1210 words - 5 pages

Done by:
Deryn Theresia Tjoandi
MGMT 102
Strategy G4
Done by:
Deryn Theresia Tjoandi
MGMT 102
Strategy G4
“Write a two page report to the board of Disney recommending why your analysis suggests that ESPN should (or NOT) be sold from the Disney portfolio? Focus on establishing the evidence for (or lack of) economies of scope between Disney and ESPN.”
“Write a two page report to the board of Disney recommending why your analysis suggests that ESPN should (or NOT) be sold from the Disney portfolio? Focus on establishing the evidence for (or lack of) economies of scope between Disney and ESPN.”

Overview of ESPN
ESPN is a multimedia sports entertainment company that is part of Media ...view middle of the document...

Economies of Scope
To decide whether or not ESPN should be sold from Disney’s portfolio, we will be analyzing the synergies reaped from ESPN through the economies of scope. We will be looking at four different aspects of economies of scope.

Revenue economies - Cross-Selling
Upon the acquisition of ESPN, Disney is able to cross-sell and cross promote media assets and brands across different media segments that were not linked in the way suggested by vertical integration. Disney’s decision to expand from entertainment industry to sports industry was indeed a smart move as it is able to maximize it revenue with broadcasting network and comprehensive global media platforms. For instance, Disney can advertise their products offerings during major league events such as Olympics. For instance, Disney and ESPN are embarking on global initiative to support Special Olympics’ goals to encourage social inclusion and acceptance through Sports in 2015. By doing so, Disney is able to associate its brand with a premiere worldwide sports broadcaster and this provides an avenue for Disney to promote its products. The linkage influence between the two companies allows Disney to share the channels for sales and leverage on existing customers with no competing business. The co marketing alliance between such established and well-known companies reduces an overall marketing cost while allowing brand enhancement for both companies.

Market Power & Mutual Deterrence
Having ESPN as part of the Media Network division, Disney is able to introduce product bundling to customers. This means that Disney is able to sell Disney and ESPN channel as a package rather than selling the individually. Disney benefits from this as it increases sales volume by promoting 2 products at the same time. Customers also benefit because the price of the bundle is lower than subscribing to the channels individually. In addition, since the ability to sell time for commercial advertisement on television are primarily depended on the size of the audience which the network can deliver to marketers, Disney has obtained a larger market power over other its competitors from the product bundling. The product bundling between two largest and most powerful channels that are family centric and sports oriented respectively result in a higher bargaining power, which leads to a higher overall advertising revenue from television subscription for Disney.

Cost Economies
The strategic acquisition of ESPN also allows the company to maximize production capacity as both ESPN and other Disney media network are able to share similar technology, sales and marketing, distributions and service. Therefore, Disney’s media network segment can utilize similar technical support services, distribution channel and operating...

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