Why Activision and DreamWorks Are Going Small

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DreamWorks Animation (NASDAQ: DWA  ) shareholders can all exhale now.

The Croods, one of just two movies that the company will release this year, is off to a good start at the box office. The tally on its opening weekend box office haul was a cool $45 million.

That strong launch means we probably won't see another big write-down like the one that swamped DreamWorks' results last year.

But there's more for investors to like about The Croods than just solid revenue. Just as important is how much it cost DreamWorks to produce the film. And by that measure the company has already won. This movie was a bargain compared to DreamWorks' last few outings.

The Croods cost just $135 million to make, much cheaper than the $150 million the animator usually shells out to develop a feature. And it plans to drive those costs down even further over the next 18 months -- to around $120 million per film.

It works for games, too
DreamWorks isn't the only company that's trying to do large-scale entertainment on a small-scale budget these days. Game maker Activision Blizzard's (NASDAQ: ATVI  ) newest title is also a move in that direction. Called Hearthstone, the game is a big departure from the company's massive-multiplayer, world-encompassing epics.

While the new game is based on Activision's World of Warcraft hit, it is far less ambitious in scope. This card-building game handles two players at a time, and took a team of just a few developers to put together. That's a far cry from the years of development and hundreds of millions of dollars that Warcraft needed. Still, Activision says the result has been an easy, accessible game that might not be epic in size, but is still "epically engaging."

I think these are smart moves by Activision and DreamWorks. Both companies could stand to rely less on a handful of blockbuster titles and thus risk a single flop that could torpedo the year’s results. And while it makes sense to keep swinging for the fences occasionally, there's no reason that every title has to follow that path.

By driving the cost bar lower, they are free to try some more innovative stuff. And who knows? The next big franchise might even come from one of these less-expensive productions.

While Activision and Microsoft have been taking the headlines when it comes to console gaming, Fools following the gaming sector would do well to also keep tabs on Electronic Arts. We can help. Our new special report breaks down the risks and opportunities facing the company to help you decide if EA is right for your portfolio. Click here to get your copy now.

Read/Post Comments (2) | Recommend This Article (1)

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  • Report this Comment On March 29, 2013, at 7:28 AM, esxokm wrote:

    Good article. Costs are always a problem with content companies. Movie companies in particular need to stop paying exboritant sums to talent.

    Video games are a little trickier. Wheras movies don't need to cost a lot because concept can trump the presence of expensive movie stars, video games depend on capital to deliver a wow factor.

    Still, it can be done. I think video game companies should explore bringing back older titles and developing new titles with older game engines to capture the imagination of the consumer that loves retro titles. As crazy as this may sound, Nintendo should think about releasing the old Nintendo Entertainment System and Super Nintendo Entertainment System again. The clone systems that are out there aren't as well-designed. Release the old library, have developers come up with new titles for the old system, and retro gamers might actually pay money to buy the products.

  • Report this Comment On March 30, 2013, at 10:45 AM, TMFSigma wrote:

    Yea, @esxokm, if people can spend dozens of hours playing 99 cent games on smartphones, there's definitely room for innovating on the cheap. Nintendo allows gamers to buy many of those old games through their current console, and I think sales are brisk.


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