Comcast is buying DreamWorks Animation, the film company behind the "Shrek" and "Kung Fu Panda" franchises, for approximately $3.8 billion, strengthening its presence in the important and growing business of children's entertainment.
DreamWorks will become part of the Universal Filmed Entertainment Group, which includes Universal Pictures. The studio has had some successful children's movies recently, including the "Despicable Me" and "Minions" franchises.
"DreamWorks Animation has always had a tough time as an independent company," said Wall Street Journal reporter Ben Fritz in an interview on KPCC's The Frame. "Hollywood is really dominated by big conglomerates these days. For DreamWorks to operate on its own — without its own toy company, theme park company, TV networks, and carrying all its own overhead — is really pricey.
"It has to rely on the movies it releases every year and they all have to be hits. DreamWorks has had some flops recently and they've been in a tough spot."
While DreamWorks has had continuing success with its "Shrek" and "Kung Fu Panda" titles, the company lost money in recent years on "Rise of the Guardians," "Mr. Peabody & Sherman," "Penguins of Madagascar" and "Turbo." About a year ago, the company laid off about 500 employees.
"It's really hard to have a lot of hits when you're only releasing two movies a year," Fritz said. Realistically speaking, this is what had to happen."
NBC Universal already has an animation company called Illumination Entertainment, which produces the "Despicable Me" and "Minions" movies. It's unclear how Illumination and DreamWorks Animation will be integrated.
"What Universal is really interested are the best brands — 'Kung Fu Panda, 'Shrek,' 'Madagascar,'" Fritz said. "DreamWorks also owns a lot of classic titles like 'Lassie' and 'Voltron,' and Comcast wants to use those for toys, theme park rides and TV shows. Movies, I found out, is the least of their concern. They're going to figure that out later. But it says a lot about the modern state of Hollywood that Comcast has bought a movie studio, but its last concern is whether that studio will continue making movies."
DreamWorks Animation was a public company that was was spun off from DreamWorks SKG, the studio founded by Steven Spielberg, Jeffrey Katzenberg and David Geffen. Katzenberg was the executive in charge of DreamWorks Animation.
The deal solves what Cowen and Co. analyst Doug Creutz "would have been a very difficult succession plan had DWA remained independent, as to a certain extent we think the company had been held together purely through [CEO Jeffrey] Katzenberg's force of will."
Once the deal closes, Katzenberg will become chairman of DreamWorks New Media. He'll also serve as a consultant to NBCUniversal, a unit of Comcast Corp. Creutz called it a "happy exit."
Katzenberg "is not going to be involved in the movie business anymore," said Fritz, "which, for people who are in Hollywood who make movies, is really unthinkable."
After the merger, Comcast will still be on a lower rung than Disney when it comes to animation.
"This [deal] will not level the playing field," Fritz said. "'Zootopia' has ben a powerhouse. Last year there was 'Inside/Out.' Even the biggest successes that Illumination or DreamWorks have had don;t measure up against the track record that Disney and Pixar have had recently. But it's very clear that NBC Universal and Comcast are following the Disney model — focusing on family entertainment, building theme parks and consumer products businesses where they can exploit their best brands."
Earlier this year, DreamWorks expanded a licensing deal with Netflix Inc. to have the online video service feature more of its series and movies. The expanded licensing agreement announced in January allows Netflix to showcase several new DreamWorks series, including "Trollhunters," a fantasy created by acclaimed movie director Guillermo del Toro. The deal gives Netflix more video likely to appeal to children, an audience segment that has played an important role in its growing its service to 81.5 million subscribers in the first quarter.
The boards of both Comcast and DreamWorks have approved the transaction, which is targeted to close by year's end.
DreamWorks stockholders will receive $41 for each share they own. That's a 24 percent premium to the company's Wednesday closing price of $32.20. The companies put the deal's value at about $3.8 billion.
Shares of DreamWorks Animation SKG Inc. leapt $7.88, or 24.2 percent, to $39.98 while Comcast rose 59 cents to $61.89 in midday trading.
This story has been updated.