Wednesday, May 25, 2016

Detailing the DreamWorks Deal's Benefits

... for Universal-Comcast.

... Outlining the sources of cost upside for DWA under NBC-Universal [at the 44th annual J.P. Morgan Global Technology, Media and Telecom Conference], Comcast's CFO Michael Cavanagh said the animation studio's current distribution deal with Fox, which runs through 2017, saying it costs about $75 million a year. "In about two years' time, we'll take that in and immediately add that to the core earnings power of the company," he said.

As "the other big cost driver," Cavanagh cited DWA's $250 million a year in selling, general and administrative expenses. "It really doesn't make sense to have a public company that makes only two movies a year, so we will be able to do quite a good job over a period of time to capture synergies there," he said, but didn't provide further specifics.

In terms of revenue opportunities, DWA adds to Universal a TV animation studio, Cavanagh highlighted. "So we will be able to take, subject to it making sense, our intellectual property, like Jurassic World or other properties, and, as DreamWorks has done, create kids animation for TV, largely distributed over SVOD and drive more value through that," he said.

Explaining how the deal will boost animated output, Cavanagh said Universal and DWA will each continue to make about two animated movies a year, with each releasing one new film and one sequel. He added: "The characteristics of an animated film, profit-wise and risk-wise, volatility[-wise], is much better for animation than Iive-action movies. So we have long wanted to tilt the business more in the direction of animated films at the margin." ....

The DreamWorks employees I talked to last week get all this. One employee made the prediction that various non-animation parts of DWA (publicity, merchandising, administration) would be eliminated or down-sized and folded into Universal, which tracks what Chief Financial Officer Cavanagh says above.

Universal-Comcast is really a lot like the Disney Company, with amusement parks, a movie studio, and multiple animation units (DreamWorks Animation, DreamWorks Animation TV, Illumination Entertainment, etc.) and a thirty need for intellectual properties it can exploit and leverage through the company. Longer tern, that will mean more development, not less.

This is probably why DreamWorks feature employees seemed relaxed about their futures when I talked to them. (And yeah, there are those who wonder what direction the company goes, and what their roles in it will be. The next two to four years should tell.)


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