Towards an Entertaining Business Model: A Teaching Case

For managers in established firms the Internet is a tough nut to crack. It is simple to set up a web presence, but difficult to create web-based business models. The brave new world of electronic commerce offers opportunities for businesses to enter new markets, create new products and deliver them in innovative ways. However, these opportunities can be threats. A key threat to any business, almost regardless of their place in the value chain, is disintermediation. Suppliers, who may be current collaborators, find that they can now reach customers directly. While those supplying physical goods face the risk of being 'disintermediated', the situation is worse for businesses that deliver digital or at least digitisable products. This case analyses the response of one firm, Egmont, to such threats and their quest for a new model upon which to base their business. I. PART A: INTRODUCTION Egmont has a vision of providing consumers with quality entertainment. For example, Egmont publishes 70% of the world's Disney stories, and it currently sells or rents about half of all videos and 60% of all film tickets in Copenhagen. In 1998, Egmont and Disney celebrated 50 years of co-operation, which started with the publication of a monthly Donald Duck comic in Sweden. Today, Disney-Egmont co-operation encompasses the publication of magazines and books in 28 countries. Egmont's CEO, Jan Froeshaug, sees the Group's unique competency as 'making great products'. Egmont 'makes great products' primarily on the basis of rights, characters and scripts licensed from content producers. Their key skill is in transformation where content is created and leveraged internationally, but localised for different markets Egmont is grappling with rapid changes in technology, markets and competitors. It has activities in all the stages of the value chain. However, as it is mainly an intermediary transforming entertainment products, Egmont is squeezed from both ends of its value chain by originators and by retailers and customers. The entertainment sector faces rapid changes in both delivery formats and business models. Games, music and film are increasingly downloaded directly from networks, so a strong position in the Internet channel will be essential to retain distribution rights. The ability of interactive media to track user behaviour and predict demand will enable the sector to source better. Yet, Ole Timm, Senior VP and managing director of Egmont Entertainment (ENS) and chairman of Egmont Online (EON) is reluctant to expand rapidly investments in the Internet and commit EON fully to ecommerce in entertainment products because of the risk of channel conflicts and low current market volumes. A . F i rm Background Egmont, based in Denmark, is Scandinavia's largest entertainment media group with activities in 29 countries. The breadth, scale and international nature of Egmont's business make it potentially a dominant player in interactive media. Egmont's vision is to be a world-class media house providing consumers with quality entertainment 'while they read, watch, listen and play.' According to Egmont's CEO Jan Froeshaug the 'raison d'etre' of the Group is its unique competencies in making entertainment products, focusing on children in Europe and the whole family in Scandinavia. B. Financial Situation In 1998, Egmont's profit before tax and extraordinary items was $46m (see Figure 1). Group revenues increased by approximately 6% to $1.1bn in 1998 (see Figure 2). In 1998, sales outside Denmark were 85% of the total. Sales via electronic media is expected to increase in line with industry trends from 40% in 1998 to about 50% after 2000.