DreamWorks’ big controversy realized! I’m Realistic Fish Head. 2 weeks ago, we discovered that Kung Fu Panda 2 got a warm but painful reaction from China after weeks in the box office. This week DreamWorks CEO Jeffery Katzenberg is in trouble. Since it’s unable to buy the troubled motion picture studio from any other motion picture companies, this puts a big hurting of producing up to 2-3 movies per year.
With it’s own stock being pummeled on Wall Street, it could take a miracle to keep it alive as this report says:
His company, DreamWorks Animation, is too small to qualify as a major studio, but too big to be bought by all but a few media players.
His visions are as grand as ever, but his opportunities to fulfill them are limited. With no obvious buyer for his studio and no ability to significantly ramp up production beyond two or three films a year, Hollywood’s most ambitious mogul is stuck.
Katzenberg started this business hoping to create a Disney,” Michael Pachter, an analyst with Wed bush Morgan Securities, told The Wrap, referring to DreamWorks. “It’s 10 years later, and it’s not quite Disney yet.”
It’s not even Pixar.
Add to that DreamWorks Animation’s stock woes. With everything riding on the opening of the two to three films that the studio releases a year, a soft premiere sends the public company’s share price (DWA) into a tailspin.
That happened again for the latest release, “Kung Fu Panda 2.” The stock took a 9 percent hit over two days, and over time the slide has been notable. DreamWorks stock was trading at a high of $37 per share in October, and closed at just $21 last Friday.
That most DreamWorks films go on to make north of $300 million globally is almost incidental. Each one is so costly and time-consuming to produce that investors expect blockbusters every time Katzenberg and company swing the bat.
“The real reason the stock goes up and down is that revenues are flat, earnings are flat, and the company only makes around two bucks a share,” said Pachter.
The studio’s doldrums have left Katzenberg looking for fresh ways to exploit his “Kung Fu Panda” and “Shrek” films. He has told close associates that he is looking to launch a television network to rival Nickelodeon, according to one such knowledgeable person.
And having just joined the board of the social gaming zenith, Zynga, Katzenberg may well have a thought about leveraging his content for that growing space.
A spokesperson for DreamWorks Animation said the company has no current plans to launch a network, and declined to comment further for this article.
Part of the issue is not Katzenberg’s problem alone. Traditional media companies have fallen out of favor on Wall Street.
“They are in the business of trying to create brands and monetize them the best way they can, but if they expand into gaming or cruise lines, no initiative will move the needle enough,” Tony Wible, an analyst with Janney Montgomery Scott, told The Wrap.
“They make a profit, but let’s think about what’s changed,” said Pachter. “There used to be one then two animated film companies, and it was that way for five or six years. Now, everyone has one and there are some 19 animated films this year. It’s ridiculous, and they’re cannibalizing the market for DVD sales particularly.”
Indeed, the annual, steep decline of DVD sales has hit the company and its suite of family friendly titles particularly hard.
Some wonder if Katzenberg’s decision to take the company public was ill-timed, just on the cusp of the movie industry’s maturity and as new media sucked all the attention from the content giants.
Katzenberg is nothing if not savvy, and according to several industry insiders has tried to sell the company, thus far unsuccessfully. (An attempted deal with Time-Warner two years ago got the most attention; Time-Warner CEO Jeff Bewkes apparently lost interest.)
These days an exit strategy is murky since the name of the game in content is now “libraries,” and DreamWorks’ titles number fewer than 25.
From “Bee Movie” to “How to Train Your Dragon,” many are blue-chip brands, but there aren’t enough of them to interest a buyer looking for a reliable source of revenue around the cyclical movie business.
All of this leaves the restless Katzenberg with precious few options to grow, or sell — or count DreamWorks Animation as a major win.
The company’s distribution pact with Paramount is set to expire in 2012. Paramount, which makes an 8 percent distribution fee on the DreamWorks films it handles, is unlikely to sweeten the terms, according to an individual with knowledge of the negotiations.
When the original agreement was signed four years ago, Paramount’s cupboard was bare. But since then, the studio has ramped up its own production, making it less likely to meet DreamWorks’ demands.
Studio chairman Brad Grey has already told Katzenberg that if his studio re-ups with DreamWorks, it won’t get the same terms.
Meanwhile, Katzenberg’s mission to convert the world to 3D keeps losing steam, a state of affairs that has him publicly depressed.
“It’s really heartbreaking to see what has been the single greatest opportunity that has happened to the film business in over a decade being harmed,” Katzenberg said in an interview last week. “The audience has spoken, and they have spoken really loudly.”
Overall, a man of Katzenberg’s outsized business appetites, trapped on this small a stage, with his passion project on the rocks, makes many in Hollywood nervous.
It’s unlikely that he would be tapped to run Universal; industry insiders say that NBC Universal chief Steve Burke knows Katzenberg from his time at Disney and is not a fan.
Warner Bros., Fox and Sony all have stable leadership, and Katzenberg has already had his run on the Paramount lot. (“He doesn’t want Brad’s job,” said one wag recently, only half in jest. “He wants Sumner’s.”)
Given Katzenberg’s stormy exit from Disney, a return to the Mouse House is impossible to imagine.
With a salary of $1 a year and millions in stock options, it’s not about the money for Katzenberg. It’s more about finding the right fit for his singular talents.
“He’s not looking to retire. He doesn’t want to work for somebody,” a rival studio chief told The Wrap.
Given the elements, it looks like Katzenberg will be treading water for awhile longer, waiting for the bolt of inspiration that will make his animation house a true successor to Disney or Pixar.
And speaking of that, with only next year left DreamWorks has with Paramount, which also places the blame for its partner’s sudden tumble, it also weighs hard for this supreme motion picture company to keep up with its collection of movies too. Let’s just hope DreamWorks can survive one more year of innovations it has left up their sleeves.
Gene: It’s also bad news here at the box office as the Green Lantern takes up the top spot as Warner Bros. continues the DC comics Superhero collection. Paramount’s Super 8 drops to 2nd, and what’s this, Fox’s Mr. Popper’s Penguins makes its debut at 3rd trying to make amends for their box office bummer X-Men: First Class which is in 4th. Kung Fu Panda 2 which is partially blamed for DreamWorks’ possible downfall drops to 6th behind The Hangover 2 in 5th. The wait is finally over Rio fans! The flightless parrot is coming to Blu-Ray and DVD August 2nd after weeks of being in the box office which prevented the family hit from reaching number 1.
With summer officially approaching as well as graduation for seniors, things will continue to heat up as all of your favorites bring on the best summer hits straight to your home! This is Realistic Fish Head saying officially, Happy Summer 2011!