Continuing the recent push in entertainment industry consolidation, Comcast's NBCUniversal (NASDAQ: CMCSA) recently purchased Jeffrey Katzenberg's DreamWorks Animation for $3.87 billion after weeks of speculation. The acquisition of the animation production company powerhouse will strongly position Universal against Disney (NYSE: DIS) in the animated family film market. The purchase will also bolster Universal's intellectual property rights to create more immersive theme park experiences in the company's parks around the world.
Katzenberg will receive about $21.9 million from the sale, as controlling shareholder of DreamWorks Animation, but will get a new role as chairman of DreamWorks New Media, presiding over Awesomeness TV and NOVA while serving as a consultant for NBCUniversal. While the acquisition includes the New Media arm of DreamWorks, many believe that Comcast will attempt to sell it, with Verizon (NYSE: VZ) poised as a potential buyer after its 24.5 percent investment in Awesomeness TV last year.
Whether or not Comcast keeps DreamWorks New Media, the company is poised to control DreamWorks' classic franchises like Shrek and Kung Fu Panda. These franchises will join Universal's existing properties of Minions and Despicable Me. DreamWorks now joins Universal's in-house animation arm Illumination Entertainment to give the studio a two-prong animation production pipeline, with both DreamWorks and Illumination creating content to bolster the studio's profits.
This structure is similar to Walt Disney Studio's parallel Pixar/Walt Disney Animation Studios production company structure, where both companies produce films simultaneously for their parent company to distribute. Illumination Entertainment founder Chris Meledandri is poised to run the combined animation business, presiding over Universal's entire animation slate.
DreamWorks' $3.87 billion price tag is less than the $4.05 billion that Disney paid for Lucasfilm (Star Wars) in 2012 and the $4 billion it paid in 2009 for Marvel. Beyond Disney, China's Dalian Wanda Group paid $3.5 billion for Legendary Entertainment in early 2016. The purchase looks good for Universal, though, as the combined Illumination/DreamWorks film slate outperforms Disney's animation slate over the past several years.
While a return on the investment will take multiple films, Comcast will likely utilize DreamWorks' characters throughout its cable and theme park properties. While Universal has already licensed some DreamWorks franchises for use in its theme parks, Universal Studios might compete more strongly against Disneyland with strong merchandising and theme park tie-ins with their new franchises.
The acquisition is expected to close by the end of 2016. Should the purchase fail to get regulatory approval, DreamWorks is entitled to a $200 million breakup fee.