The release of “The BFG” has many people (mostly marketers) excited at the collaboration between director Steven Spielberg and Disney Studios. Two esteemed names in family entertainment are coming together to deliver an adaption of a children’s classic from author Roald Dahl. What seems like a natural partnership has never taken place before, and the economic forces of their industry have basically stipulated it may never happen again.
Casual audience members may regard the legendary director and the family studio titan as natural partners. Fact is, it is a strange collaboration when you consider Spielberg has his own studio (DreamWorks) with its own animation division. While Disney has had a longstanding distribution deal with DreamWorks and despite teaming up with Spielberg, it announced last fall that contract will expire this August.
That is but one curiosity in the ever-evolving financial backstory involving these two entities. The competition between these “partners” has always been present, and it means that getting the movie completed is no small wonder. The marriage bringing “The BFG” onscreen this Friday will culminate in divorce in just a few months.
A Partnership Doomed From the Beginning
Spielberg famously created his new studio in 1994 with two other Hollywood figureheads: record and film mogul David Geffen and longtime studio executive Jefferey Katzenberg. Katzenberg had rejuvenated Disney in both animation and live-action titles throughout the 1980s and had just resigned from the company when he teamed with Spielberg, a sign Disney would be ever-present on their young studio’s horizon.
DreamWorks, as a fundamental partner with Universal Studios, found enough early success to create its own animated film division (DreamWorks Animation). Following a deal with Paramount, DreamWorks Studio entered into a financing arrangement with Reliance, an investment firm from India. The segregated live-action division entered into a distribution deal with Disney in 2009.
That partnership has not been fruitful. While some titles had a measure of success, more common have been notable thuds, such as “Fright Night” or “Need For Speed.” Then there was the execrable scud “Cowboys And Aliens.” Perhaps the House of Mouse developed an antagonistic attitude as a result of these monetary shortfalls.
Meanwhile, in 2014 Katzenberg was shopping the DreamWorks Animation side for a buyer. After a Japanese offer fell through, he nearly had deal brokered with Hasbro that November. The toymaker has not only licensed its properties for motion pictures (such as “Transformers,” “G.I. Joe,” and “Battleship”), it has also developed its own production division. The desire to have an animation outlet for its licensed products was obvious and would have been a blessing. Until the Mouse showed up.
Just days after announcing the possible merger, Hasbro cut off the negotiations. The reason? Disney executives approached the toy producer in opposition, lest it be considered a competitor. Hasbro suits crunched the numbers: the company had not only generous arrangements involving Marvel and Star Wars characters, but a new contract set to cover the lucrative Disney Princess ensemble. Walking away from DreamWorks was sound, given these Disney deals amount to one-third of Hasbro’s business.
But don’t cry for Jefferey and Steven. Two weeks ago, regulators approved the purchase of their division by Universal’s parent company, Comcast. By combining DWA with Comcast’s Illumination Entertainment (makers of “The Minions”), the communication giant aims to become competitive with Disney in animation. That would explain the valuation of the purchase price—Comcast dropped $3.9 billion on the studio.
Does that sound like it overpaid? Indeed. For perspective, when Disney purchased the more dependable Star Wars franchise, the price tag was $4 billion. Not only is DreamWorks of lower value, Comcast is buying a DreamWorks Animation unit with just a many problems as diamonds in the vault.
So Much for That Promise
“Entertainment is one of the bright spots of our economy,” said President Obama from the parking lot of the DreamWorks Animation campus in November 2013. “The gap between what we can do and what other countries can do is enormous. That’s worth cheering for.” This was not the first time Obama could be accused of being tone-deaf to economic realities.
That day the president was visiting Katzenberg, one of his biggest campaign contributors, and taking a tour of the facilities. Considering Katzenberg had helped raise nearly half a million in cash for his elections, you can see why Obama would lavish praise on the man and his company. You cannot see how he was accurate, however.
Just weeks following the upbeat speech, hundreds of DreamWorks employees drove off that same parking lot for the last time, laid off by the studio. Katzenberg also made a startling announcement soon after: he would close the nearby PDI studio, a longstanding animation office complex DWA took over in the 1990s. There was an even starker reality behind these moves.
Obama had campaigned in 2012 on policies of preserving American jobs, and castigated opponent Mitt Romney for supposedly “outsourcing” work to other nations. After Obama’s upbeat speech, Katzenberg was slashing workers and closing offices in the United States, but not abroad. Opposite to claims from the man he financially backed for high office, DWA scaled back its release schedule and began farming out more animation work on future films to divisions in Canada and Asia.
Comcast bought into a company truncating its releases and sitting on successes tied to tired franchises. Following those layoffs, the studio saw losses from it release “Mr. Peabody and Sherman,” the third title of its last four releases to lead to a write-down in stock reports. Those fortunes have recently improved, with “Home” and “Kung Fu Panda 3” becoming money makers, but those were released one full year apart.
If Comcast expects to use a depleted DreamWorks to compete with Disney, it is a very long-range plan. It would take years just to get the DWA release schedule back to a more active level. In the meantime, Disney is in such a good position it may not even be regarding Spielberg’s “The BFG” as a lynchpin for its release calendar.
Disney recently shattered the record for the fastest-ever to earn $1 billion at the box office in a year. More impressively, that feat took place a full five weeks before “Finding Dory” had been released to record-breaking numbers.