Aswath Damodaran 261
Product and Project Cannibalization: A Real Cost?
Assume that in the Disney theme park example, 20 % of the revenues at the
Bangkok Disney park are expected to come from people who would have
gone to Disneyland in Anaheim, California. In doing the analysis of the park,
you would
a) Look at only incremental revenues (i.e. 80 % of the total revenue)
b) Look at total revenues at the park
c) Choose an intermediate number
Would your answer be different if you were analyzing whether to introduce a
new show on the Disney cable channel on Saturday mornings that is expected
to attract 20 % of its viewers from ABC (which is also owned by Disney)?
a) Yes
b) No
The answer will depend upon whether the cannibalization would occur anyway
(to a competitor, if Disney does not take the project). The greater the barriers to
entry or the competitive advantage that Disney has over its competitors, the less
likely it is that cannibalization would occur anyway. In that case, it should be
treated as an incremental cost. If not, it should be treated as non-incremental and
ignored.
I would argue that Disney has far greater competitive advantages at its theme
parks, than it does in TV broadcasting. Therefore, I would look at only the
incremental revenue for the theme park, and the total revenues for the TV show.
