What the Netflix Content Deal Means to DreamWorks

DreamWorks Animation (NASDAQ: DWA  ) is running away from the movie business. The studio behind blockbuster hits like Shrek and Madagascar just announced a major deal with Netflix (NASDAQ: NFLX  ) to bypass theatergoers and bring its content directly to the video streamer's audience.

The move is part of a push by DreamWorks to lessen its reliance on the few theatrical releases that have dominated its annual business results.

Sure, that home run strategy worked fine in 2011, while hits like Puss in Boots and Kung Fu Panda were pulling in over $1 billion at the box office and grabbing Oscar nominations to boot. But the problem is that a single flop like last year's Rise of the Guardians can be brutal to DreamWorks' bottom line. The company had to take a $165 million writedown and announce layoffs after ticket sales on that film disappointed.

So DreamWorks has been cleaving costs out of its development process, aiming to get per-movie spending down to $120 million from the $150 million level it's at now. And it's been working on diversifying its revenue stream, for example by purchasing Classic Media and its content library last year for $157 million.

The new Netflix deal should go even further toward making theatrical releases a smaller part of DreamWorks' business. Netflix called it the "largest deal for original first-run content in [its] history." And it fits perfectly with Netflix's plan to focus on targeted, curated content at the expense of broad basket deals like the one it let expire with Viacom earlier this year.

DreamWorks is far from done with movies, though. The Croods reached blockbuster status quickly in the first quarter, raking in over $480 million at the box office. DreamWorks' second film, Turbo, comes out next month and could surprise to the upside as well. But it is DreamWorks' progress on the small screen -- and away from unpredictable theaters -- that has to have management the most excited.

Stream on
The tumultuous performance of Netflix shares since the summer of 2011 has caused headaches for many devoted shareholders. While the company's first-mover status is often viewed as a competitive advantage, the opportunities in streaming media have brought some new, deep-pocketed rivals looking for their piece of a growing pie. Can Netflix fend off this burgeoning competition, and will its international growth aspirations really pay off? These are must-know issues for investors, which is why The Motley Fool has released a premium report on Netflix. Inside, you'll learn about the key opportunities and risks facing the company, as well as reasons to buy or sell the stock. The report includes a full year of updates to cover critical new developments, so make sure to click here and claim a copy today.


Read/Post Comments (1) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 17, 2013, at 11:39 AM, sokrat3s wrote:

    Netflix became the powerhouse it did by becoming a massive movie/TV library that was simply more convenient than Blockbuster.

    Now you can't find half the stuff you want to watch, or used to be able to watch.

    Netflix seems to be taking cues from Microsoft on how to make moves to alienate your user base.

    I don't think "Rise of the Guardians" is going to be the kind of thing that keeps people around.

    And I always love when movie companies complain about profits citing "unpredictable" theaters. Make better movies people will go see them.

    Do you think people are going to shell out more money for "Guardians" or "Despicable Me 2?"

    Make better movies and people will pay.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2492366, ~/Articles/ArticleHandler.aspx, 12/20/2014 4:14:54 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement