Monday, September 15, 2014

Going Disney

The financial press (in this case Seeking Alpha) is catching on to the fact that DreamWorks Animation is changing its stripes.

... Being a studio that is reliant on releasing two successful films a year has made it difficult for the company to grow. It also makes it hard for investors to analyse, as a hit or a miss film can have a major impact on the company. It is not a great long-term business model when you only make money twice a year when a film is released resulting in a stock that is down 34% year to date.

Transforming from a studio into a global branded family entertainment company

However, like all good animated films DWA is planning on having a happy ending. DWA feels it finally has enough characters to move aggressively just from film into television, consumer products, digital content and location based entertainment. A similar model to Disney (NYSE:DIS) that relies on multiple revenue streams. Instead of watching DWA twice a year at the movies, fans can watch 365 days a year on Netflix and TV, keeping their characters front of mind. ...

This might be what Jeffrey Katzenberg was aiming for right along. Frankly, I've been nervous the last few years, thinking that the company was doing a high-wire act. It's hard to make a long-term business model out of "Do two blockbuster movies every year." Because if you have a flop or three, the business model gets blown all to hell.

So branching out, partnering with Netflix to build a library of television content, building a merchandising division, getting into the amusement park business, are all extremely smart moves. Long term, DreamWorks Animation can end up being its own conglomerate, but right now, it's still in the "mini-conglomerate" category.


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