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Friday, Oct 7, 2022

Resuscitating DreamWorks

Talk about your unusual investment plays.

Here we have a company that churns out a single product every 12 or 18 months. The product is very expensive to make and subject to the whims of a very fickle customer.

The product, of course, is the motion picture, and the company is DreamWorks Animation what is planned to be a publicly held spinoff of the entertainment amalgam founded by the team of Spielberg, Katzenberg and Geffen.

This week marks the 10-year anniversary of S, K and G walking into the Verandah room of the Peninsula Hotel in Beverly Hills to announce what was being billed at the time as Hollywood’s next major studio. Entertainment journalists practically called it the Second Coming, and the principals did little to damper anyone’s enthusiasm. “I look at the three of us and I figure this has gotta be the Dream Team,” Katzenberg gushed. “Certainly, it’s my Dream Team.”

Well, a decade later, DreamWorks SKG still cranks out eight or 10 movies a year, along with the occasional television show. But that’s pretty much it. News reports have Geffen removed from day-to-day operations and Spielberg, never an operations guy, is focused on making movies, some of them for other studios. It’s not quite a flop but hardly Dream Team material.

And now the bill is finally coming due. Microsoft co-founder Paul Allen, who forked over $500 million to help start the thing and who remains the largest investor will be looking to get repaid, beginning next year. Always super-secretive S, K and G have not laid out the exact amount involved, but it’s very big money, even for two billionaires and one who is well on his way.

How to raise big money? How else? Go to Wall Street.

DreamWorks Animation is betting mostly on family-oriented blockbusters like “Shrek” and “Shrek 2” and, most recently, the goofy undersea “Shark Tale,” which in its opening weekend scored a huge $50 million. With those successes come revenues from merchandising tie-ins, DVDs, foreign distribution, cable, etc. Add it up and you might have a company rivaling publicly held Pixar, which is on course to earn more than $100 million this year.

Thing is, the DreamWorks stuff hasn’t been quite as successful as the Pixar stuff (“Finding Nemo,” “Toy Story,” “Monsters, Inc.”). And Pixar’s latest release, “The Incredibles,” is almost certain to be a hit right out of the gate on Nov. 5 likely leaving “Shark Tale” in its wake. (Keep in mind that “Shark Tale” premiered on more than 4,000 screens a huge opening and to very little competition.)

It’s just tough being small in showbiz because there’s so little margin for error. Even Pixar, which has five hits in a row and whose stock has been climbing in anticipation of a sixth, only gets mixed reviews on Wall Street because it, too, is placing too many chips on too few numbers. Its last release was in May 2003.

There’s also the matter of Pixar finding a distribution partner to replace Walt Disney Co. after the falling out between the companies’ two CEOs, Steve Jobs and Michael Eisner. “These shares are best suited to long-term investors willing to accept a fair degree of risk,” writes Value Line analyst Alan House.

Yet for all that, expect the DreamWorks Animation IPO to find plenty of takers. It’s the classic vanity play, a chance to tell your friends that you’re in the movies even if the proceeds go less to building up the enterprise and more to paying out the insiders. But of course, isn’t Hollywood always on the lookout for suckers?

Mark Lacter is editor of the Business Journal.


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