What Comcast really gets from DreamWorks: Lassie and the next Shrek

'I'll call him" was Comcast Corp. CEO Brian Roberts' response in April when told that DreamWorks head Jeffrey Katzenberg could be negotiating to take his animation movie studio private with the help of a Chinese investor.

Thus began whirlwind negotiations on April 13 as Roberts in Philadelphia reached Katzenberg on his mobile phone while driving from a Hollywood lunch with director Steven Spielberg.

"We know how to do this," Roberts recalled saying on the phone, adding that Comcast wanted to buy the studio.

DreamWorks would be a small snack for the giant Comcast, but the movie studio would make Comcast far stronger in the lucrative animation business, give it a marketable portfolio of modern characters and classics, and gain entree to millennials with a digital television platform.

Within hours, Roberts contacted DreamWorks board chairwoman Mellody Hobson - who is married to Star Wars creator George Lucas - and assembled Comcast's deal team.

Fifteen days later, on April 28, Roberts had it done, buying DreamWorks for $3.8 billion, or $41 a share. That was 57 percent more than DreamWorks shares on the day that Roberts first phoned Katzenberg and an amount that some analysts considered pricey.

Roberts calls the deal "probably the fastest we ever did" and said it "fit like a glove" with the company's other content businesses.

Yes, the Glendale, Calif., studio famed for the Shrek, Madagascar, Kung Fu Panda, and How to Train Your Dragon animated films had lost its luster in recent years with box-office flops. But Roberts said the downturn didn't deter him. Doubters made similar observations about NBCUniversal, which owns the Universal movie studio, when Comcast bought it for $30 billion in 2011. Look how that turned out.

DreamWorks' core business was good, Roberts said. But it was hobbled by a lack of scale with revenues under $1 billion a year and the overhead of running a public company. Those costs could be slashed by folding it into NBCUniversal.

Animation is considered Hollywood's most profitable genre with a 36 percent margin, according to Bloomberg Intelligence.

DreamWorks movies also could be heavily marketed through Universal, NBC, and Xfinity, giving them national exposure.

Intellectual property dreamed up by DreamWorks creators or acquired by Katzenberg can also be monetized by Comcast through consumer products or TV reruns. The stash includes a veritable modern-day Royal Library of Alexandria of animated characters and classics, including Lassie, Casper the Friendly Ghost, and Where's Waldo.

"It all there in the vault," Roberts said. "All these characters. All these spin-off ideas. The model working so well at Disney includes licensing around the world and television."

Roberts came away from his early look around DreamWorks in April with an appreciation for Katzenberg's entrepreneurial verve. As the DreamWorks studio business faltered, Katzenberg diversified into television.

Children's shows air on the Disney or Viacom channels. But Katzenberg realized that Netflix could be a new buyer for original children's content. So far, DreamWorks has contracted to deliver 1,600 original shows based on DreamWorks characters to Netflix and other distribution platforms.

"Yes, they did have some misses," Geetha Ranganathan, the media analyst with Bloomberg Intelligence, said of DreamWorks. "But [Comcast's Roberts] is not paying for that." DreamWorks has been "diversifying away from films and they have been growing their TV revenue."

DreamWorks also owns a majority stake in the millennial-focused AwesomenessTV, with 150 million subscribers on multiple channels on YouTube. In April, the latest month available, those channels garnered 700 million views with teenagers and young adults tuning into short-form video shows such as Royal Crush, Cheerleaders, and Tampon Talk.

Partly owned by Verizon Communications and Hearst, AwesomenessTV competes with Vice and other youth-oriented platforms. Based on Verizon's stake, analysts believe that AwesomenessTV could be worth more than $600 million in total.

But Roberts seems most excited about animated movies. Katzenberg was a rising corporate star at the Walt Disney Studios when it released classics such as The Little Mermaid and The Lion King. Then Katzenberg left to found DreamWorks with Spielberg and music-industry billionaire David Geffen in 1994. The DreamWorks Animation studio was spun off into a separate public company in 2004. Its films have grossed $13 billion globally.

As part of selling out to Comcast, Katzenberg, 65, has agreed to step aside at the DreamWorks Animation studio - Roberts called it "passing the baton" - though Katzenberg will be a consultant to NBCUniversal.

Decisions will have to be made on scheduling and future film projects. DreamWorks is now organized to release two animated films a year - a franchise and an original.

Planned DreamWorks releases are Trolls on Nov. 4 and Boss Baby next March, with The Croods 2, Larrikins, and How to Train Your Dragon 3 in the movie pipeline, according to Universal Pictures.

Amy Yong, media analyst with Macquarie Capital Inc., thinks that Trolls could be a big hit in the movie theaters and could generate substantial consumer product spin-offs, including a Trolls-linked line of cosmetics.

NBCUniversal head Steve Burke also has said that he would like to "resurrect" the Shrek franchise.

"They have as good a shot, or at least better than anyone else, of making a go of it," said Joseph Bonner, telecom analyst with Argus Research, referring to Comcast's deal for DreamWorks and the franchise-driven business model in animated movies. "And they got the intellectual property so it doesn't go to Fox or Sony. So there's a strategic value."

But, he added, "I would not say they underpaid for it."

bfernandez@phillynews.com

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The independent DreamWorks movie studio, which will become part of Comcast's Universal Studios, sputtered over several years, though revenues rose in 2015. Amounts in millions.

Year         DreamWorks      Universal Studios

2011            $706.0            $4,592

2012            $749.8            $5,159

2013            $706.9            $5,452

2014            $684.6            $5,008

2015            $915.9            $7,287

SOURCE: DreamWorks, Comcast SEC filings               EndText