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A toy-maker-plus-animation-movie-studio mash-up might create some serious "fu" for Hasbro and DreamWorks, but there are significant risks as well. Image: DreamWorks Animation

Hasbro (NASDAQ:HAS) is rumored to be in talks to buy DreamWorks Animation (NASDAQ:DWA), which, if successful, would complete the transformation of the toy maker into a full-fledged movie studio.

The toymaker will reportedly make a stock-and-cash offer for the animation studio, which has produced such megahits as Shrek, Madagascar, and Kung Fu Panda, but also failures like Rise of the Guardians. DreamWorks CEO Jeffrey Katzenberg is said to want $30 a share for the movie studio, a 34% premium to Wednesday's closing price.

While Hasbro has been maneuvering itself to be an entertainment company instead of just a toy maker for several years, it needs to be careful for what it wishes, as it just might succeed. Here's why getting DreamWorks would be a risky proposition for investors.

1. Hasbro's efforts at movie-making so far have been hit-or-miss.
Seeing the success Marvel had at the box office converting its character portfolio into big-screen success created the desire in Hasbro to do more than just ride the company's coattails. But the Disney (NYSE:DIS) division's formula hasn't been easy to replicate as popular board games don't necessarily translate into movie hits.

After initially signing a bunch of deals with Paramount Studios and Universal, Hasbro saw them quickly fall apart as there's apparently not as much demand for Candyland and Stretch Armstrong as there is for Iron Man and Captain America. And even though Battleship made hundreds of millions of dollars overseas, it was a commercial flop in the U.S. Worse, by simply slapping the name of just any game onto a movie, Hasbro risks damaging its brand.

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A big bet on the wrong franchise could sink Hasbro's brand. Image: Hasbro

2. Reliance on movies makes for lumpy performance.
When there isn't a big hit in the theater, earnings suffer. The latest iteration of the Transformers franchise that was released in June, Age of Extinction, has generated over $1 billion at the box office, which helped grow its entertainment and licensing segment revenues by 10% in the third quarter to $53.4 million. Back in the first quarter, though, Transformers revenue shrank because there was no movie in the theaters and it was gearing up for the summer release of the third installment.

3. Animated movies are a difficult business.
The movie business is fickle, but animated movies are even more so. Even Disney's Pixar, which has as much of a golden touch as any studio when it comes to making animated movies, had no new movies released this year -- the first time in a decade that's happened -- and the one that was supposed to be released this year was pushed back until late 2015.

For every Shrek produced there are numerous lesser movies put out. Even though DreamWorks' How to Train Your Dragon 2 has generated over $600 million in worldwide box office receipts, it's considered a disappointment because it was expected to do so much better. That's led to layoffs, and without enough movies in the pipeline, staff-heavy divisions saw their ranks cut. As a result, the release of Dragons 3 has been pushed out to 2017. Last year's disappointment, Rise of the Guardians, caused an even larger round of layoffs.

4. DreamWorks risks being overdiversified.
The animation studio has a lot of irons in the fire. Like Hasbro, which was not content to simply be a toymaker, DreamWorks has moved beyond its core animation business in a bid to diversify its revenue stream.

It bought Classic Media in 2012, which gave it some familiar titles like Lassie, The Lone Ranger, and Casper, the Friendly Ghost. And it bought the YouTube channel AwesomenessTV last year and rival online network Big Frame this year, before launching its own DreamWorksTV on YouTube this summer. It also formed a digital and print book division, DreamWorks Press, and is in the midst of building out Oriental DreamWorks to develop content in China for China.

5. Hasbro's diversified efforts haven't always paid off either.
Hasbro's attempt to run a TV channel didn't work out as planned, and its joint venture with Discovery Communications (NASDAQ:DISCA) was renegotiated after five years so that Hasbro's partner now controls 60% of the entity and has rebranded it from The Hub to Discovery Family Network.

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Will Hasbro be frozen out by Disney if it it acquires one of its competitors, thereby becoming one? Image: Disney

6. What would Disney do?
Hasbro and Disney have a long history together, and the House of Mouse recently stripped Mattel (NASDAQ:MAT) of its toy rights to the movie Frozen and its Princess brands to give them to Hasbro starting in 2016. Any deal with Hasbro acquiring DreamWorks and becoming a competitor in its own right would certainly raise concerns about future collaborations at the very least.

But there are benefits, too.
Buying DreamWorks Animation would give Hasbro a new outlet for some of its top brands, including perennial hits like My Little Pony and Littlest Pet Shop, but also would give the animation studio another means of getting into merchandising, something it has been increasingly doing lately.

There are synergies to be realized when a Transformers or Star Wars comes together, giving producers not only movie receipts, but also toys, memorabilia, and new television shows. Hasbro's Star Wars animated TV series continues to be one of its top-performing franchises year in and year out.

A merger and acquisition by Hasbro of DreamWorks Animation could be a blend of the best of both companies, but there are also a lot of hurdles that could cause this mashup of toys and movies to fall flat, suggesting there's more risk than reward to be realized by investors.

Follow Rich Duprey's coverage of all the most important news and developments in the leading brand name products you use. He has no position in any stocks mentioned. The Motley Fool recommends DreamWorks Animation, Hasbro, Mattel, and Walt Disney. The Motley Fool owns shares of Hasbro and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.