The Trouble With Dreamworks Animation In a July 30 note following DreamWorks Animation’s second-quarter earnings, where it reported a $15.4 million loss, Cowen and Company analyst Doug Creutz listed as one of just two potentially positive scenarios ahead for the animated studio founded by movie mogul Jeffrey Katzenberg that it “becomes an acquisition candidate.” The other was that the average box office performance of its upcoming slate of films beats expectations. Both, however, are thought by sources to be long shots. “The film lineup looks poor at best,” said BTIG analyst Richard Greenfield, who has a sell rating on the studio’s stock and says it is worth $15.50 per share. For the first time in his 40-year movie career, Katzenberg’s performance is being seriously questioned by both Wall Street analysts and Hollywood peers. As an independent studio not tethered to a larger organization in the cost-heavy field of animated movies, his studio is overly dependent on the box office performance of individual films to meet its financial targets. Further, DreamWorks Animation’s business model of only producing two to three movies per year has suffered from the dual realities of increased competition in family films and an overall downward trend in attendance at the domestic box office. These factor have resulted in a confluence of negative events recently, ranging from missed earnings to losses on poorly performing films to a U.S. Securities and Exchange Commission investigation into the write-down of film inventories the studio took on the movie Turbo in February 2014, have raised questions about DreamWorks Animation’s future. (The studio is cooperating with the SEC investigation.) Yet DreamWorks Animation shares are currently trading significantly higher than Greenfield’s target, closing trading Tuesday at $23.99, primarily buoyed in recent weeks by a short-lived rumor that Japan’s SoftBank was in talks to buy the studio for $3.4 billion. The rumor was fueled, in part, by one of Hollywood’s worst-kept secrets: Katzenberg has been trying to sell DreamWorks Animation for years. A DreamWorks Animation representative declined to comment or make Katzenberg available for an interview for this story. Katzenberg isn’t trying to sell his studio because he needs the money — he’s among the richest men in the world with a net worth somewhere between $860 million and $957 million depending on who is doing the calculating. His goal has always been to use a sale of the studio to leverage himself into a bigger job at a larger organization — and get out from under the glare of Wall Street. The now derailed talks with Softbank dovetailed nicely with that objective. The Japanese telecommunications and internet giant, newly flush with billions of dollars from the Alibaba IPO, is by all accounts looking to spend its way into Hollywood. Its initial interest in DreamWorks Animation likely stemmed from the fact that animated movies, unlike comedies or dramas, play well to an international audience, and DreamWorks Animation’s just happen to perform especially strong in Asian markets.
Posted on: Wed, 08 Oct 2014 21:08:41 +0000
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