In a world of budget crises and high unemployment, Viacom's (NYSE: VIA) Paramount has launched a business aimed at amusing the masses. The studio will ditch its deal with DreamWorks Animation (Nasdaq: DWA) and start producing its own animated films. Judging from the popularity of animated movies, now's a great time for Paramount to get into the game.
To deliver on its animation aspirations, Paramount will have to match up with formidable competitors such as DreamWorks and Walt Disney's (NYSE: DIS) Pixar. Those two have dominated big-screen 'toons with megahits such as Shrek and Cars, respectively. But Paramount may have a unique opportunity to break into animation, as DreamWorks struggles to drum up demand for its 3-D movies -- a fad that's showing signs of being, well, just a fad.
Calling all 'tweens!
Paramount's parent company lends the nascent studio another advantage. Viacom owns kid-centric television station Nickelodeon, an obvious source of potential film spinoffs for shows with large established audiences. If my kid brother's obsession with anything and everything aired on Nick is any indication, Paramount may have a huge potential audience in the tween market (kids ages 8-14).
Targeting that group would be a smart move on Paramount's part. More than 25 million tweens today influence billions of dollars of consumer spending, through their own purchases and those of their parents.
Paramount isn't the only one set to benefit from its foray into animation. Each animated hit ushers in an often painfully overextended line of products. The world may not need more character-themed lunchboxes, clothes, and all the rest -- but you can bet we'll get them.
The seemingly endless supply of movie-themed products are generally designed, produced, and sold by toy companies, like Mattel (Nasdaq: HAS), Hasbro (Nasdaq: HAS), and Jakks Pacific (Nasdaq: JAKK). With Paramount adding to the pipeline of animated films, these companies will have more movies on which to base new product lines.
The power of nostalgia
For both Viacom and the companies that sell movie-themed products, animation offers the unique opportunity to build strong emotional connections with customers while they're still young. Look at what happened to Pixar in the 1990s with Toy Story. Children loved the movie then, and more than 15 years later, the Toy Story franchise is still raking in the cash. Pixar thus did what many companies try but fail to do: associate its name with customers' memories of good times. That long-term brand building has certainly given Pixar a leg up along the way.
If Viacom's Paramount can pull off the same trick -- even to a lesser degree -- it would give the company a boost in brand loyalty and, as a result, value. The direct impact of Paramount's new animated films may ultimately matter less than the value-creating potential that comes from being in the animation business. Keep your eye on Paramount's movie pipeline, and you might just spot the next big animated film capable of capturing hearts and creating long-term value for Viacom.
