Comcast’s $3.8 Billion DreamWorks Animation Deal Is Transformative

In the global race to provide family entertainment to theaters, parks and to spin off merchandise, Comcast has leveled the playing field with Disney

The Kung Fu Panda characters are now ready to fight for Comcast; especially in China where DreamWorks Animation has become a major player

When Walt Disney bought Pixar, Marvel and Lucasfilm, there were those in each case who thought the home of Mickey Mouse had overpaid. Instead those deals became huge new profit centers that provide a perpetual bonanza of profits.

Comcast’s $3.8 billion deal to acquire DreamWorks Animation is similarly transformative. Years from now it will be looked upon as a bargain for the Philadelphia-based conglomerate that a decade ago was scorned when it tried to acquire Disney.

Besides Disney, Comcast is the only other company with the right collection of assets and global ambitions to maximize the value of DWA’s facilities, talent and intellectual property like Shrek, Kung Fu Panda and Madagascar.

It not only has the theatrical platform through Universal Pictures (which will take over DWA movies when the Fox distribution deal runs out after 2017) but also has the theme parks and consumer products distribution they is key to getting the most out of family entertainment.

It also has global ambitions and the high profile animation that DWA creates will help Comcast leap over rivals in reaching the entire world.

That is especially the case in China – now the world’s biggest market for movies - where DWA CEO Jeffrey Katzenberg has spent a great deal of time establishing a joint venture studio, a stake in a Shanghai amusement area and key relationships.

Universal is planning to open a big theme park in China and Kung Fu Panda is now likely to be one of the most visible symbols of that facility, which will be enriched by other DWA properties as well.

This will put Comcast on a more level playing field with Disney, which has dominated children and family entertainment for since the 1980s when Jeffrey Katzenberg, who later left to found DreamWorks, was churning out animated hits like Lion King. Comcast may not be quite the 900-pound gorilla that Disney is in family branding but this will make it at least a 700-pound gorilla with a lot of room to grow.

Jeffrey Katzenberg becomes about $2 billion richer

Katzenberg will not be in charge of animation after the sale to Comcast but will continue to play a role helping grow the digital divisions and as a consultant.

Katzenberg’s role changes but he is being well compensated. He gets about $22 million in severance and about $408 million for his stock. Steven Spielberg, who has about five percent of DWA, is in line to receive about $187 million.

The big question becomes what role will Chris Meledandri play in the new DWA/Comcast. He is the former Fox executive who created Illumination Entertainment which has given Comcast/Universal such hits as Despicable Me and Minions.

With Katzenberg stepping aside, Meledandri would be a natural to top both, although for now sources are saying Illumination and DWA will remain separate.

One big driver of the deal is the theme parks. Under G.E. ownership, the Universal Parks were stagnating. Since Comcast took over in 2011, and quickly acquired full ownership of the parks, they have been expanded, brought aboard new brands like Harry Potter - and the result has been an explosion in revenue and profitability.

Comcast earnings from theme parks was $943 in 2013 and last year were about $1.5 billion – and in quarterly earnings announced Thursday were up again by some 56 percent (in part because of the addition of results from Universal Japan for the first time).

For DWA, this is the end of a long often-difficult road as an independent and as a public company. The stock price has ridden up and down with the company’s hits and misses. As a result Wall Street has penalized DWA for being inconsistent. Only a few months ago DWA had to layoff 500 employees and close some of its key facilities.

Even with the addition of TV operations and other brands such as Casper The Friendly Ghost. DWA still lacked the scale to smooth out the earning bumps. Once inside Comcast, that will not be the case.

Comcast also has an asset Disney can’t match, its cable operations. By reaching into some 23 million homes, Comcast can use its cable arm to promote movies and TV shows, boost product sales and enhance the DWA brand. At the same time the DWA brands will help grow and brand Comcast’s own family entertainment assets.

Comcast/NBC Universal's Steve Burke and Brian Roberts

It is no accident that Comcast is making this deal with Steve Burke running the entertainment operations under Comcast CEO Brian Roberts. Burke used to work at Disney and is well steeped in how to leverage animation assets and brands across a wide portfolio of revenue opportunities.

So this is a win win for Comcast and DWA. The only losers are Fox, which currently distributes DWA movies, and Disney, which will now have an even stronger competitor across all of its most important lines of business.

The original DreamWorks Studio, founded by Steven Spielberg and David Geffen as well as Katzenberg, never became the major entertainment giant once envisioned. The live action part of that dream has recently been reunited with Universal.

Now the animation business spinoff is coming home as well. That will mean even more choices for consumers but layoffs at DWA as many functions are merged into Comcast/Universal.

CORRECTION - April 28, 8 pm - An earlier version of this article overstated how much money Katzenberg will receive from the sales transaction.

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