Utv and Disney: Strategy Case Analysis

UTV and Disney

Strategy Case Analysis

As a publicly-traded, multinational media company striving to penetrate the global market, UTV is analyzing the best means to pursue this strategy and continue to deliver value to its shareholders without jeopardizing managerial control. Specifically, UTV seeks to become one of the largest global M&E companies and to reach Rs 10 billion by 2010. UTV’s core competencies lie in its business-to-consumer model, which is highly scalable and grants the company “the ability to create and retain intellectual property at the top end of the value chain and the capability to disseminate this content through a variety of media across geographies” (pg. 4). Thus, the primary issues affecting UTV is whether a partnership with Disney will enable UTV to expand successfully and whether it is prudent to entirely sell Hungama TV to Disney at a time of fierce competition.

To grow, UTV must consider three potential possibilities: (a) expanding the base of UTV in the Indian market via existing verticals or through developing new verticals; (b) expanding to international markets through a partnership with a foreign studio; and (c) acquiring other Indian as well as foreign companies and thereby fortify the parent company’s overall base (pg. 7). However, due to the hefty investment that any of these three options would entail, UTV needs to find an investor that will strengthen its cash inflow and support its long-term global vision. Since Disney is a 75-year old company that has already acquired numerous subsidiaries and affiliates throughout the world and the company has diversified into four business segments (media networks, studio entertainment, Disney consumer products, and parks and resorts), establishing an alliance with Disney would be ideal because it will enable UTV to pursue any of these possibilities while gaining a bigger presence in the global market. Further, Disney recognizes that UTV is one of India’s leading integrated media companies and by acquiring 14.9 percent of UTV’s shares, Disney will pass onto UTV its global media and synergy expertise—something that can significantly increase UTV’s revenue and profit potential. While UTV can consider other partners, these may lack the focus that Disney has, i.e., setting up its international business “with an objective of making international operations the growth driver” (pg. 8), not to mention the extensive Hollywood and animated success that Disney has had, which UTV can greatly benefit from since UTV’s movie segment contributes to half of its total operating revenues (pg. 4). Understanding the effects of both the external and internal business environment is pivotal.

To address the external business environment that UTV faces, Porter’s Five Forces will be analyzed. Given the extremely competitive nature of India’s media industry and the fact that UTV’s net profits have been decreasing, UTV must immediately act. Otherwise, the company will not achieve its strategic objectives. Rising incomes will unquestionably intensify competitive rivalry and UTV will be in a better position to respond to such rivalry with a strong international partner.

Table 1 – Porter’s Five Forces
|Buyers |High threat. “On average, 30-40 million people were joining the middle class every year, translating |
| |into huge spending on mobile phones, televisions, music systems, and similar goods” (pg. 6). Consumers |
| |clearly have a large variety of entertainment products to choose from. |
|Suppliers |High threat. “The cost of the production and distribution of movies had gone up significantly during |
| |2003 to 2006 in the Indian media and entertainment industry” (pg. 6). |
|Substitutes |Very high threat. Consumers have access to numerous substitutes provided by several integrated media |
| |companies. |
|Potential Entrants |Moderate threat. A few barriers to entry exist (e.g., the capital required to start a large integrated |
| |media company). |
|Industry Competitors |Very high threat. UTV is competing in two broad markets: (a) television and broadcasting and (b) film |
| |and distribution. UTV’s rivals already have their own strategic advantages and have created unique |
| |“cult brand” images (pg. 8). |

Internally, UTV is determined to increase the scale of its operations and has chosen to compete in the international/global arena. The vehicle that the company clearly needs is a strategic investor with a strong existing global presence. In terms of differentiators, UTV features three verticals: (a) multi-genre, multi-lingual content airing in 19 countries and in seven languages, (b) production of Indian, Hollywood, and animated films and their respective distribution across several platforms, and (c) post-production and special effects facilities that give the company an edge in this segment (pg. 4). The staging factor was critical for the company as it transformed from a pure business-to-business model to a business-to-consumer model to reach the top of the value chain, though some products (e.g., films) require an average preparation time of 18 months. And, in terms of economic logic, UTV seeks to expand to become a Rs 10 billion company.

The next section of this paper will focus on the strongest justifications for the recommendations herein described, intended to enable UTV to maximize the success of the proposed partnership with Disney. Evidently, UTV is unable to achieve its strategic direction by itself. To start, the company is not “knowledgeable about the variations in cultures of different countries” and does not “have a large foreign presence” (pg. 7). The only way for UTV to become a true global M&E company is grow internationally and again, because of the limited international presence that UTV has, its best chance is to establish an alliance with an experienced global investor.

Although UTV’s board members are concerned that entirely selling Hungama TV to Disney may bring negative consequences, the reality is that Hungama TV is no longer the top player in the kids’ segment in India and it certainly is not profitable. Thus, if UTV agrees to give up Hungama TV, the company can redirect resources to improve its strongest vertical—the movies production and distribution business, and concentrate on launching films that target India’s largest segment of the population, i.e., those under 35 years old. After all, the majority of UTV’s revenues come from this vertical and reports indicate that “due to doubling the ticket price in multiplexes, both domestic and international revenues would increase and might even double” (pg. 5).

Another important consideration is UTV’s amortization model to recognize the cost of movies, “writing off 60 percent of the production costs in the year of release and then 10 percent in each of the following four years” (pg. 4). With Disney’s assistance, this process may be further improved and UTV may eventually be able to produce more than eight to 12 movies per year, not to mention that since Disney possesses extensive film making experience, the uncertainty of evaluating the potential of a movie that troubles some UTV executives can be minimized, and under Disney’s marketing, the success of certain UTV movies can be enhanced. Lastly, research shows that “the film entertainment was one of the fastest-growing industries because it was the primary source of content for television” (pg. 9).

For UTV’s top executives, success is contingent on scale. As the CEO of the company explicitly stated: “scale is more important than control […] once you start thinking about scale, performance is going to count in any case” (pg. 10). Reaching the top of the value chain is no ordinary task, and clearly, a strategic partnership with Disney will bring both short and long-run growth potential for UTV, especially in the international market. Further, establishing one partnership instead of multiples ones will make it easier for all parties to maintain transparency of information and control.

In sum, shrinking/exiting or holding its current position will never allow UTV to achieve its global vision and it may actually hinder the company’s standing in an extremely competitive environment. Disney will provide UTV the opportunity to penetrate the global arena without abandoning its business-to-consumer business model. Overall, the partnership will allow Disney to improve its presence in India’s children television market while UTV will gain Disney’s global media and synergy expertise.