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DreamWorks Animation Is Bought by Comcast in $3.8 Billion Deal DreamWorks Animation Sale Leaves Jeffrey Katzenberg at Crossroads
(about 9 hours later)
LOS ANGELES — Hollywood’s smallest publicly traded entertainment company, DreamWorks Animation, threw in the towel on Thursday after a turbulent 12 years, agreeing to sell itself to Comcast’s sprawling NBCUniversal in a deal valued at a hefty $3.8 billion. LOS ANGELES — For the past decade, Jeffrey Katzenberg’s identity has been indistinguishable from the DreamWorks Animation brand. A relentless advocate for his little studio, he became famous for making 40 phone calls and conducting three breakfast meetings before 10 a.m. (He always orders the same thing: Diet Coke.)
The purchase means greater competition for the Walt Disney Company, the world’s largest entertainment company. NBCUniversal plans to use DreamWorks Animation properties, which include “Kung Fu Panda,” “How to Train Your Dragon” and “Shrek,” to bolster its fast-growing theme parks and move deeper into toys and children’s television. Mr. Katzenberg’s campaign to keep DreamWorks Animation afloat, even as a changing film business made that increasingly difficult, came down to one desire: He wanted to be his generation’s Lew Wasserman, the M.C.A. chief who was Hollywood’s big everything — biggest political power, biggest cultural force, biggest business mogul.
The deal will pay DreamWorks Animation shareholders $41 a share in cash, more than 50 percent over its closing price on Tuesday, when news of a possible deal emerged. Jeffrey Katzenberg, the founding chief executive of the studio, who is expected to reap nearly $400 million from the deal, will become a consultant to NBCUniversal and serve as chairman of a new entity called DreamWorks New Media. On Thursday, part of that dream ended.
Stephen B. Burke, NBCUniversal’s chief executive and senior vice president of Comcast, in a statement cited DreamWorks Animation’s “dynamic film brand and deep library of intellectual property” as reasons for the deal. “DreamWorks will help us grow our film, television, theme parks and consumer products businesses for years to come.” DreamWorks Animation, essentially the sole remaining piece of a splashy conglomerate founded in 1994 by Mr. Katzenberg, Steven Spielberg and David Geffen, said it would sell itself to Comcast’s sprawling NBCUniversal for $3.8 billion. In return for a personal payout estimated at $420 million, Mr. Katzenberg, 65, will reluctantly step aside, having never quite managed to become that kingpin.
Mr. Burke said Chris Meledandri, the chief executive of Illumination, Universal’s animation division, would oversee the DreamWorks Animation business. Mr. Katzenberg’s new entity will be made up of assets like AwesomenessTV, a digital network and studio aimed primarily at teenage girls. The deal will provide NBCUniversal with family film franchises like “How to Train Your Dragon,” “Shrek” and “Kung Fu Panda” that it can use in its quest to compete with Disney in the global theme park, consumer products and children’s television businesses.
The end of the road for DreamWorks Animation as an independent company reflects an increasingly consolidated Hollywood. To survive, companies have come to rely on interconnected, franchise-oriented businesses – with television, consumer products and theme parks typically more lucrative than film. Mr. Katzenberg’s company, which has tried mightily to diversify away from movies, was ultimately unable to grow fast enough to survive alone. But Hollywood was really only interested in one thing: Why did the intense and bespectacled Mr. Katzenberg, a die-hard animation enthusiast, finally call it a day?
In recent years, Mr. Katzenberg has pursued sales and mergers with multiple studios, to no avail. A possible acquisition by SoftBank, the Japanese telecommunications giant, went nowhere in 2014. There was also a failed effort to tie up with Hasbro. For more than two decades, Mr. Katzenberg has been a fixture among Hollywood’s elite, sitting courtside at Los Angeles Lakers games with the likes of Leonardo DiCaprio and Rihanna and reigning over an annual Oscar fund-raiser that draws every mogul in town. In 2012, he made White House officials blanch by insisting President Obama spend extended time chatting with donors at George Clooney’s mansion; he got his way.
The price secured by Mr. Katzenberg was greater than many people in Hollywood thought DreamWorks Animation was worth. It puts the company in the league of Marvel Entertainment and Lucasfilm, both of which were acquired by Disney for about $4 billion each. But as Mr. Geffen has graduated to philanthropy, donating hundreds of millions of dollars and seeing his name go up on the walls of some of the country’s top cultural institutions, when he’s not sailing the world on his mega-yacht, and Mr. Spielberg has continued to make Oscar-nominated films, Mr. Katzenberg has had to mostly focus on the grinding task of keeping DreamWorks Animation going.
For Comcast, the deal comes about a year after its $45.2 billion takeover of Time Warner Cable collapsed under regulatory pressure. The new deal, while significant, is relatively small for the cable and entertainment giant. It is about one-twelfth the size of Comcast’s failed bid for Time Warner Cable and about an eighth the size of its $30 billion acquisition of the entertainment group NBCUniversal, which was completed five years ago. With that chapter closed, Mr. Katzenberg must now decide what to do.
Comcast executives described the acquisition as a “tuck-in” that provided a boost in creativity and intellectual property for NBCUniversal. Stephen B. Burke, NBCUniversal’s chief executive and senior vice president of Comcast, suggested in a phone interview that Mr. Katzenberg could find a next act in digital media, perhaps following the example of Barry Diller, the former Hollywood executive who built IAC/InterActiveCorp. (Mr. Katzenberg started his career at Paramount Pictures as Mr. Diller’s assistant.) Others wondered if Mr. Katzenberg was positioning himself for an ambassadorship should Hillary Clinton win the presidency. (After supporting President Obama in 2008, he has recently been one of Mrs. Clinton’s top fund-raisers.)
Mr. Burke has focused on developing strong franchises at NBCUniversal over the last several years, and the DreamWorks acquisition furthers that effort. In addition to “Shrek,” “Kung Fu Panda,” and “Madagascar,” DreamWorks Animation comes with the rights to a burgeoning TV production studio and a classic media library with the rights to more than 400 titles and characters, including ”Where’s Waldo,” “Casper,” “Lassie,” and “Rudolph the Red-Nosed Reindeer.” There is also the possibility that Mr. Katzenberg could follow Mr. Geffen’s example and turn to philanthropy.
Marci Ryvicker, an analyst with Wells Fargo, said in a research note that the deal “makes a lot of sense and will spur growth in animated films, related consumer products and theme parks — or ‘the Disney way.’” Mr. Katzenberg seemed unsure how to handle the questions about his future. He initially agreed to speak to a reporter. But that pledge was ultimately reversed, with a spokesman saying that Mr. Katzenberg instead wished the spotlight to shine on Comcast.
The deal carries a number of potentials for conflict. DreamWorks Animation is a big supplier of television cartoons to rival Netflix, which provides a low-cost streaming alternative to the cable television service that Comcast sells. Also, AwesomenessTV is part owned by Verizon, which is a competitor to Comcast’s cable and internet business. At a 10 a.m. meeting on Thursday for DreamWorks Animation’s 1,500 employees, held near a monumental fountain on the studio’s Tuscan-style campus in Glendale, Calif., Mr. Katzenberg struck an upbeat tone, according to attendees.
Comcast said that the takeover was subject to an antitrust review by the Department of Justice or the Federal Trade Commission but that it does not require approval by the Federal Communications Commission. The company expects the transaction to close by the end of 2016. “I rest easy in knowing that the house of dreams that we’ve spent the last two decades building together — the stories, the characters, the joy and the laughter — has found the best possible home,” he said, standing near two senior Universal executives.
Gene Kimmelman, a former antitrust offical at the Justice Department who now is president of Public Knowledge, a nonprofit media advocacy group, said in an email that he did not see any direct competition problems related to the deal. (He vigorously opposed Comcast’s proposed Time Warner Cable acquisition.) He added, “This is not a deal that we needed to do, but it’s the deal I’d always hoped would come along.”
But, he added, it raises questions about whether the conditions placed on Comcast’s takeover of NBCUniversal are strong enough to keep Comcast from using its power over popular content from harming the nascent and fast-growing market for streaming video. The reality is that Mr. Katzenberg finds himself as both a winner and loser.
Mr. Kimmelman said he planned to ask regulators to review the conditions related to the NBCUniversal deal in light of the new transaction. After years of failed efforts to escape a boom-and-bust cycle driven by sporadic film releases, he finally found a rich solution for his company. Comcast paid more than many people thought DreamWorks Animation was worth. (“Comcast Overpays,” read the headline of a blog post written by Rich Greenfield, a BTIG Research analyst.) DreamWorks Animation shareholders will receive $41 a share in cash.
“I think we can take their existing I.P. and do more with it,” Mr. Burke said.
The price puts DreamWorks Animation on par with Lucasfilm, the “Star Wars” studio that Disney bought in 2012 for about $4 billion.
And Mr. Katzenberg will retain a business platform, albeit a tiny one: Comcast said he would serve as chairman of a new entity, DreamWorks New Media, which will be made up of AwesomenessTV, an online studio and distributor of content aimed at teenage girls, and NOVA, a fledgling unit that uses 3-D animation technology to assist companies like Nike and Burberry with marketing campaigns.
(Contrary to reports, NBCUniversal has not decided what to do with AwesomenessTV, which is partly owned by Verizon, a Comcast rival. “You could imagine a situation where AwesomenessTV doesn’t stay as part of the company forever, but it could easily be the other way,” Mr. Burke said. “We don’t know.”)
Even so, Thursday was a day of loss for Mr. Katzenberg. People close to him said he struggled with the decision. In previous sale and merger attempts — notably one with SoftBank in 2014, followed by one with Hasbro — Mr. Katzenberg intended to come along for the ride by continuing to run the studio.
But Comcast made it clear that it was only willing to pay such a high price if it could create synergies by folding DreamWorks Animation into its Universal Pictures unit, and that could happen only if Mr. Katzenberg ceded control. NBCUniversal wanted its own animation chief, Christopher Meledandri, the executive responsible for the “Despicable Me” franchise, to oversee all operations.
Mr. Burke acknowledged that the sale was “not an easy thing for Jeff to grapple with,” adding, “It is his baby.”
The deal came together rapidly. Two weeks ago, Mr. Burke said he received a call from his boss, Brian L. Roberts, Comcast’s chief executive. They had heard a whisper that Mr. Katzenberg was considering a maneuver, possibly with a Chinese backer, to take his studio private. They thought that Mr. Katzenberg might instead sell to them.
Mr. Roberts placed a call to Mr. Katzenberg, who immediately picked up the phone. Mr. Katzenberg told Mr. Roberts that, depending on Comcast’s price, he would love to talk. Mr. Roberts called Mr. Burke with the news, and the two men, along with a few other Comcast executives, flew to Los Angeles on April 15.
The next morning at 7 a.m., the Comcast executives met Mr. Katzenberg and his top lieutenant, Ann Daly, at a downtown law office. The deal making quickly grew fast and furious, to use a term associated with a Universal movie franchise.
The end of DreamWorks as a stand-alone company — Mr. Spielberg in December folded what remained of the company’s live-action film label into his Amblin Partners — reflects a changing Hollywood, where the collapse of the DVD market overwhelmed many independent studios. But the various DreamWorks enterprises also never quite gelled, perhaps because the aims of the company’s founders, despite their personal ties, almost always diverged.
Mr. Spielberg, a prolific producer and director, was drawn to his own projects, and seemed often to make the most lucrative among them for companies other than DreamWorks. Mr. Geffen, a financial godfather to his partners, long ago lost interest in movies, and in 2008 withdrew from active involvement in the companies.
Mr. Katzenberg, meanwhile, poured himself into DreamWorks Animation, which seemed forever trapped in a creative chase behind its rival Pixar, which often bested it at the box office and on the Oscar circuit. Mr. Katzenberg also got bogged down in an endless fight for positive quarterly earnings news and fresh capital.
DreamWorks was founded shortly after Mr. Katzenberg left a senior Disney job amid deteriorating relations with then its chief executive, Michael Eisner.
“Times change, the marketplace changes, the original reason the company was founded ceased to exist,” said Terry Press, a former DreamWorks executive who is now president of CBS Films.
“The one thing that never changes,” she added, “is Jeffrey’s iron will to succeed.”