Can Comcast Catch Up To Disney By Buying Dreamworks Animation?

Comcast (CMCSA -0.52%) recently agreed to buy DreamWorks Animation (DWA) for about $3.8 billion. The $41-per-share offer represents about a 51% premium from DreamWorks' closing price prior to the buyout talks. The deal has been widely compared to Disney's (DIS 1.54%) $7.4 billion purchase of Pixar in 2006.

Image source: DreamWorks Animation.

Comcast says that the acquisition will help develop it's media arm NBCUniversal. The addition of DreamWorks to NBCUniversal will boost film animation and consumer products businesses, add characters to theme park attractions, and provide TV shows for kids. In other words, Comcast wants NBCUniversal to become more like Disney. But will buying out DreamWorks make NBCUniversal a potential challenger to the House of Mouse? Let's take a look at the key numbers to decide.

What NBCUniversal means to Comcast
NBCUniversal's broadcast TV and filmed entertainment businesses posted respective annual revenue declines of 7.3% and 4.3% last quarter. Both units faced tough comparisons to the prior year quarter, when broadcast revenues were propped up by the Super Bowl and filmed entertainment revenues were boosted by Fifty Shades of Grey.

However, its theme park revenue soared 57.5% annually, thanks to the acquisition of its 51% interest in Universal Studios Japan. On a pro forma basis -- which excludes the impact of that acquisition -- theme park revenues rose 9.6% annually, thanks to stable guest attendance, and higher per capita spending at its parks. NBCUniversal has been investing billions into expanding its theme parks with new Harry Potter, Despicable Me, and Fast and Furious attractions, and plans to expand aggressively overseas with new parks in Beijing, Moscow, South Korea, and Dubai.

Image source: Universal Studios.

Why Comcast wants DreamWorks Animation
DreamWorks Animation's revenue is expected to rise 2% to $935 million this year. That's equivalent to about 3% of NBCUniversal's top line and 1% of Comcast's revenue from 2015. NBCUniversal's filmed entertainment revenue rose 46% to $7.3 billion last year, thanks to the strong box office performance of Minions, Jurassic World, and Furious 7. Therefore, just buying DreamWorks Animation won't boost Comcast's top line growth by much.

DreamWorks also trimmed its theatrical slate from three films to two last January due to poor box office earnings from films like Mr. Peabody & Sherman, Rise of the Guardians, and Turbo. Due to that adjustment, feature films revenue as a percentage of DreamWorks top line fell from 66% in 2014 to 57% in 2015. The near-term outlook for the company remains murky, with Kung Fu Panda 3 coming in below Wall Street expectations.

But if Comcast digs into its deeper pockets to expand DreamWorks Animation by releasing more films per year, expanding film franchises to TV shows, and adding new character-based attractions from Shrek or Kung Fu Panda to its theme parks, the unit's sales growth could improve. DreamWorks Animation also developed an entertainment complex near Shanghai through its Oriental Dreamworks joint venture, which could give Comcast a foothold to challenge Disney's new Shanghai Disney Resort.

Can Comcast challenge Disney?
Comcast's purchase of DreamWorks Animation might widen its intellectual property moat against Disney, but its theme park, media, and movie businesses remain smaller than Disney's.

Fiscal 2015 revenues. Source: Company earnings reports.

However, buying Dreamworks might help Comcast overtake Disney in annual film revenues. The media business could also benefit from DreamWorks' multi-year agreement with Netflix to stream its films and original kids' programming.

Comcast also plans to sell toys and other products through DreamWorks' consumer products division, which generated just $86.5 million in sales last year. If Comcast expands that unit, it might grow into a multi-billion dollar business like Disney's consumer products division, which generated $4.5 billion in sales last year. Comcast could also use the unit to sell and license merchandise from NBCUniversal's own popular franchises, like Despicable Me or The Fast and the Furious. Therefore, buying DreamWorks is really more about challenging Disney in media, movies, and toys instead of engaging in a head-to-head battle of the theme parks.

Comcast has plenty to prove
Comcast investors didn't seem excited about the acquisition, since the stock barely budged after the deal was announced. That's likely because DreamWorks' films often lag behind Pixar in box office returns and critical acclaim, and its top-grossing Shrek series ended in 2010.

However, DreamWorks might thrive and evolve under NBCUniversal, which could bring back and expand old franchises like Shrek. After all, Marvel and Lucasfilm weren't in great shape when Disney acquired them, but both studios have produced new blockbuster franchises under its guidance. If Comcast works similar magic with DreamWorks, it could be much better equipped to challenge rivals like Disney.