DreamWorks Animation: Jeffrey Katzenberg’s Survival Plan Relies on Hit Toons

Jeffrey Katzenberg's Rebound Plan for DreamWorks
Karolis Strautniekas for Variety

Jeffrey Katzenberg diverted his attention from his core business of making family films, and it contributed to DreamWorks Animation racking up a whopping $300 million in losses last year — nearly half of what it generated in overall sales.

“The last eight months have been the worst in the company’s 20-year history,” Katzenberg told Wall Street analysts on Feb. 24, as he licked his wounds and reflected on a period of painful cost-cutting that resulted in layoffs, the closure of DWA’s Northern California studio, and a serious re-examination of its creative choices. Analysts and stockholders don’t care about the past, however. They want to know whether Katzenberg has a plan for the future.

That future is dependent on hit movies, something DWA has been sorely lacking. The Glendale, Calif.-based animation company’s recent success largely has ridden on the back of its “How to Train Your Dragon” franchise, and its 2013 hit “The Croods.” Other than that, the studio has generated hundreds of millions of dollars in writedowns from films like “The Penguins of Madagascar,” “Mr. Peabody & Sherman,” “Turbo” and “Rise of the Guardians.”

Katzenberg has primarily been focused on growing the company’s television, consumer products and licensing, and digital businesses. But in order for those divisions to succeed, they must be driven by hit films. The disappointing performance of “Turbo,” for example, reduced interest in the movie’s Netflix series, hurt homevideo sales, and left Mattel holding a lot of unsold snail-shaped toy cars.

Analysts see diversification as a smart move for Katzenberg, considering a majority of DWA’s revenue still comes from films. Yet no one understands the importance of a hit franchise better than he does, having overseen animation at the Walt Disney Co. during its peak years.

Katzenberg is aiming to get DWA’s mojo back under the new leadership of Bonnie Arnold and Mireille Soria, the dynamic duo behind the “Dragon” and “Madagascar” franchises. The company already has shaken up its release schedule, choosing six films to bow between 2016 and 2018. The only release on DWA’s slate this year is March’s alien adventure “Home.”

Much is riding on the studio’s late-2016 offering “Trolls,” starring the colorful big-haired characters, which is seen as a major consumer-products play. In the meantime, DWA’s divisions are largely left to fend for themselves. Yet Katzenberg believes the company will still be able to break even in 2015. Here’s how:

Television: DWA is expected to generate between $200 million and $250 million this year (up from $100 million in 2013), with a profit margin of 30% from deals like its distribution of hundreds of hours of original series to Netflix.

Consumer Products and Licensing: After spending the past several years ramping up its consumer products business (partly to monetize its acquisition of Classic Media, which includes characters such as Casper the Friendly Ghost and George of the Jungle), the division reported $24 million in profits, up 28% over 2013, largely from “Dragon” merchandise. That’s expected to grow to $130 million this year, primarily from the exploitation of its library of characters, including those from “VeggieTales,” “Voltron” and “Dinotrux.”

Oriental DreamWorks: The Chinese joint venture is expected to start generating revenue for DWA once “Kung Fu Panda 3” is released in 2016. The toon has been granted co-production status in the country, which will put more B.O. coin into DWA’s coffers.

New Media: AwesomenessTV drives DreamWorks Animation’s digital business, and after Katzenberg acquired the company for $33 million in 2013 ($113 million when adding in performance bonuses for the founders), it’s turned out to be a good buy. DWA’s digital arm posted $25 million in fourth-quarter revenue last year, a gain of $21 million over the similar frame in 2013, due largely to AwesomenessTV’s original programming, sponsorships, licensing and advertising income.

The division was expected to generate more money from the sale of 25% of Awesomeness to Hearst late last year, and the launch of a digital channel this year that DWA and Hearst will jointly manage. DWA also is seeing success with DreamWorksTV, which has surpassed 250 million lifetime views, and ranks as the top family entertainment channel on YouTube, with growth exceeding that of Disney Channel, Nickelodeon and Cartoon Network.

All that said, Cowen and Company’s Doug Creutz is among several analysts who question the company’s ability to break even this year. He says his firm’s estimates are in line with DWA’s expectations, assuming “Home” doesn’t lose money. But he adds that “DWA faces an uphill battle in fixing its film performance,” given competition from rivals’ tentpoles and other animated films. “We won’t see the longer-term impact of recent changes until 2016 and even 2017,” he explains. “In the near-term, we think the trailers for ‘Home’ are among the least appealing we have seen from the company.”

S&P Capital IQ’s Tuna Amobi also isn’t convinced that Katzenberg’s new strategy will work. “They’ve put themselves in a better position to succeed, with a much more streamlined cost structure and less overhead,” he says. Ultimately, though, he notes, the company will need “one or two hit films” to execute its strategy, and he adds the one caveat everyone seems to agree on: “It all comes down to making good movies.”

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  1. Learning of Dreamworks Animation’s acquisition of Classic Media(or more specifically of Casper the friendly Ghost) is pleasing. With the rights to Casper, I can see great potential in new films or tv series featuring the friendly ghost and his nutty uncles the Ghostly Trio.

  2. Its broke....Fix it. says:

    Trolls a “Major Consumer Products Play”? Seriously? You’re still letting marketing choose how to make your movies? This is among many of the reasons Dreamworks continues to fail. Acquiring ancient characters like Caspar, George of the Jungle, Voltron, Veggie Tales, and DinoTrux? Really? you think this is the magic combination to success? The desperation can be smelled from miles away.

    The answer is simple. Instead of diversification, DW should be focused on making quality. Not quantity across different mediums. Fire whoever has been greenlighting the ridiculous films recently. Pull the plug on ‘Trolls’. NOBODY is going to buy Troll dolls and line your pockets with riches.
    Utilize the *creative* talent you have hired by letting them make strories that hold truth. Stop making movies by committee. NOBODY wants to see a movie made by consumer products and boards of directors. The only way DW could succeed is to make movies that are *artist driven*. Not whats been happening lately.

    Or….DW could just continue what its been doing. What’s that definition of insanity again?

  3. Richard says:

    DWA’s main problem always has been development. Most of their movies have intensely mediocre scripts and the concepts chosen are without few exceptions almost always wrong. No matter how much talent is invested in the visuals, and there’s plenty of it, you can’t market undercooked turkeys and expect people to think it is filet mignon. Either Katzenberg messes too much where he should not or he trusts the wrong development people who don’t allow good writing to survive through the ranks. If Pixar has proved something is that, even in aninamation, it is all about the writing, as much as people in this business hate to acknowledge that basic fact.

    • Eric Otness says:

      Considering Katzenberg is the same guy who cut too much footage from The Black Cauldron, actually attempted to remove Part of That World, a song that was very key to Ariel’s character and development, for an extraordinarily petty reason (thank goodness Disney ignored that advice, as otherwise, the complaints against Ariel actually WOULD have been very deserved), nearly turned Toy Story into a box office disaster by his advice to make Woody into a jerk and the film into an adult, cynical and edgy irreverent film, and basically caused a lot of chaos in Aladdin’s development by ordering for it to be rewritten without even extending the deadline for release, oh, and also having Beauty and the Beast rewritten twice, and the final film being so divorced from the original tale to call it an adaptation would be a huge lie (and that would be a massive understatement), I’d say he’s firmly within the former category.

    • Vicky says:

      Pixar’s proven it’s about the storytelling–not the writing alone. Writing is only one of the components of great film making.

  4. onmedea says:

    “… having overseen animation at the Walt Disney Co. during its peak years.”

    Aren’t we currently in Disney’s peak years? He basically oversaw 3 animated films during that time.

    • Eric Otness says:

      Yeah, I agree. He oversaw Beauty and the Beast, Aladdin, and Pocahontas. While he was technically involved in The Little Mermaid, he also didn’t exactly get much of what he wanted there, while the other three actually were pandering to his ego.

      And honestly, his involvement shows: Beauty and the Beast is probably even MORE divorced from the original tale than The Little Mermaid ever was, not to mention it leaves an extremely broken moral when they had to choose promoting the feminist agenda over telling an actual good morality tale (especially when Belle came across as being very ugly in her behavior for most of the film ESPECIALLY for a story with a “true beauty comes from within tale”, and not even giving her actual foils that match up with that moral as intended. Honestly, the triplets are the closest Belle has to actual foils, and even THEY are more beautiful in and out than Belle.), not to mention it had to be rewritten twice, even one that actually WAS close to the original tale, and with Aladdin, not only did he rewrite THAT film, he actually didn’t even attempt to extend the freaking deadline, which made things even more of a mess. Oh, and Pocahontas was basically a bomb and the starting point for the end of the Renaissance.

    • Sue Lutt says:

      He was also responsible for the atrocious disney straight to video sequels which were seen as tarnishing the brands of the original .

      • Eric Otness says:

        Technically, Michael Eisner was responsible for that, not Katzenberg, as the latter was fired by the time the DTV sequels mess got rolling, though Katzenberg WAS responsible for The Rescuers Down Under.

        Quite frankly, even during the Renaissance era of Disney, Katzenberg was probably the worst chairman of Disney’s Animation department, even exceeding John Lasseter (who backed out of his promise of bringing back traditional animation and even made Winnie the Pooh a box office bomb because he stupidly released it the same day as Harry Potter and the Deathly Hallows Part 2.). Probably the only GOOD films of the Renaissance (not counting Pixar films) that actually stood the test of time were The Little Mermaid and The Lion King, both being films that Katzenberg had very little involvement in. For most of his career, he basically did far more harm to Disney than help, like his butchering The Black Cauldron (sure, it probably wouldn’t have been a slam-dunk hit even if he didn’t interfere, but had he just let the technicians do their job rather than cut the film himself, it would have at least been spared from being a box office bomb), then there’s how he butchered Beauty and the Beast by trying to push a feminist agenda over the actual intended moral of the tale, rewriting the film twice and rejecting scripts that actually did try to focus on the moral, or how with Aladdin, he had it rewritten at a whim and didn’t even move the deadline, resulting in what was pretty much a mess. And then we get into his final film, Pocahontas, which is probably the one film that killed the renaissance because he felt he should push the “A People’s Guide to American History” tripe into the film. Oh, and he also nearly ruined Toy Story because he demanded for an “adult, cynical edge” to the film. Eisner definitely was a horrible head for Disney, make no mistake about that, and he has plenty to answer for, but firing Katzenberg was probably one of the few good things Eisner did for the company, even if it was for selfish reasons (my main gripe is that he didn’t fire him sooner).

      • onmedea says:

        And “Home” has to be tracking, what, in the low 20s? Which is terrible for a new animated feature. We are witnessing the Twilight of the Katzenberg. Fire sale to follow.

  5. Dee says:

    It’s about the story stupid. The screenplays for pretty much all of the failures were very poorly written and based on the trailer for Home, which feels like Dora and very preschool, it would appear that nothing has changed. The dialogue in the trailer is 101 at best. The little purple character is totally unappealing and the gag is throw away, like “I just do not care.” Train Your Dragon at least tries to touch on real human emotion but for the most part no one seems to be personally invested in any of these movies. Executing great looking CG is not the challenge, lots of companies do that, telling great stories is and no one seems to really care about that over there. Where is the vision? Where is the passion?

  6. Armory says:

    I’m sorry, but Dreamworks Animation will produce more disappointing animated films. The studio apparently didn’t learn its lesson from last year’s clunker, “Mr. Peabody and Sherman”, which was a
    popular 1960s cartoon from “The Bullwinkle Show”. Just ruining the tale about the bespectacled
    dog and his “owner” Sherman (Since when did Sherman ever have a girlfriend?) was uncalled for.
    This terrible flick had Jay Ward turning in his grave.

  7. Sue Lutt says:

    They cheapened their big brands (kung foo, penguins of madagascar) with cheaply produced television cartoons and kids got sick of seeing the characters. Kung foo 3 will bomb badly. You would have thought Katzenberg would have learnt his lesson with the disney video sequels. Get this guy out, they need new blood in the role.

  8. Pedro Nakama says:

    “S&P Capital IQ’s Tuna Amobi”

    Wasn’t that the name of a character in the DreamWorks movie Shark Tale?

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