Friday, July 18, 2014

DreamWorks on a High Wire

From the dour Seeking Alpha.

... Dreamworks is attempting to diversify its way into becoming a conglomerate, with a wide variety of ways to leverage its content, including several deals with China.

The problem it faces, at very least in the short term, is it has dropped the ball on its film business, whose performance is the key to it being in a strong position to take advantage of various future initiatives. ...

Dragon 2 has vastly underperformed expectations, and it will have an impact on the share price of the company. ... [T]he benchmark for sequels was no lower than $600 million in the past. Dragon 2 will come nowhere near that low side of past performance. Not only will that eventually weigh on the immediate performance of the company, but it will result in a much lower number for all of 2014, which is now likely to come in at about $750 million in revenue. ...

Starting an entertainment company from scratch is always a dicey thing. It's not 1922 anymore, and there a lot of gib, well-established competitors. A dozen years ago, there was not a lot of heavy competition in the animated feature sector of the economy. Now there is. In this high risk environment, smaller companies have to move forward constantly or perish.

From scuttlebutt around the campfire, Jeffrey K.'s original strategy was to build an animation company that rivalled Pixar's success, and sell the joint lock, stock and work station for a Pixar-sized number. But then the 2008-2009 economic meltdown, and that settled that.

Now the plan appears to be to diversify and build an entertainment conglomerate that lasts. I hope fervently the boys and girls at DreamWorks Animation can do it. Box office for features now in the pipeline will probably aid in discovering if that happens.

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