12:45 PM EXCLUSIVE… UPDATED: Jeffrey Katzenberg promised Wall Street analysts that DreamWorks Animation would have a new distribution deal by Labor Day — and he does. Sony had been in the running down to the wire these last weeks. But when it didn’t close, DWA turned to Twentieth Century Fox. which now becomes an animation powerhouse, combining under one roof two of the four most successful CGI animation companies (DWA, Pixar, Blue Sky Studios, Illumination Entertainment) and providing greater leverage with exhibition, retailers, media, buying, and promotions. Fox Filmed Entertainment owns Fox Animation Studios whose president Vanessa Morrison recently renewed her deal. Additionally Fox Animation’s Greenwich, Conn-based Blue Sky Studios recently re-upped EVP and COO Brean Keane. The companies have huge worldwide franchises in Ice Age and Rio and no doubt Epic, a 3D CGI action-adventure comedy. Now DWA will increase Fox’s market share.
[1:40 PM UPDATE: DWA scheduled a conference call at 2 PM today and just announced the deal:
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Under the terms of the agreement, Fox will assume certain marketing and distribution responsibilities in bothdomestic and international markets for all animated feature films produced byDreamWorks Animation for release in 2013 through 2017.
“Fox has long been an industry leader in both theatrical and home video thanks in large part to its well-integratedapproach to distribution across a wide range of platforms around the globe,”said Jeffrey Katzenberg, Chief Executive Officer of DreamWorks Animation. “Jim Gianopulos and Tom Rothman have built a world-class distribution team and weare excited to apply their expertise, robust infrastructure and global resourcesso that DreamWorks Animation’s films can reach their fullest possible potentialover the next five years.”
“DreamWorks Animation is a great company that makes terrific films and everyone here feels privileged andhonored to have been chosen to distribute their marvelous work throughout theworld,” stated Fox Filmed Entertainment CEOs and Chairmen, Jim Gianopulos and Tom Rothman. “We are particularly excited to add DreamWorks Animation’s films to the strong and growing slate of movies from our outstanding Blue Sky Studios division, which is coming off another global blockbuster with Ice Age: Continental Drift, and has Epic and Rio 2 in advanced production. Together we will be a dominant force in animated entertainment for years to come.”
“Starting in 2013, DreamWorks Animation content will be distributed in the more traditional markets under afee structure that is similar to our existing arrangement with our current distributor,” continued Katzenberg. “However, our new agreement with Fox presents more favorable economics overall for DreamWorks Animation because we are taking advantage of lower costs associated with the emerging digital distribution landscape and managing domestic television distribution in-house.”
Under the terms of the agreement, Fox will receive a distribution fee on worldwide theatrical and home video gross receiptsas well as on international television, and on certain digital businesses, including rentals, SVOD and EST. DreamWorks Animation will retain the rights to distribute its product in the domestic television windows without paying a fee to Fox.
2:25 PM, 2ND UPDATE: During the conference call, Katzenberg, Rothman, and Gianopulos surprisingly laid out the pay terms of the new DWA-Fox distribution deal. On theatrical releases, DWA will pay the same 8% it pays Paramount on all windows. That’s below market – 10% is probably more in line. (One analyst estimates that 5% of each DWA film’s gross revenue covers the distribution personnel and infrastructure costs.) But DWA had to drive a hard bargain because it can’t afford to take a hit to its earnings. And so DWA negotiated just a 6% fee to Fox on what are now emerging digital markets because of the lower associated costs. “The one real difference here with Paramount is that 7 years later there are certain capabilities built within DWA that we can do ourselves. We had to rely on Paramount 7 years ago, but now we have a long-term Netflix deal that extends beyond the term with Fox,” Katzenberg told the media. “It’s a competitive deal in every respect in terms of Paramount and in digital markets it’s even better.”
Katzenberg called the deal an “exciting business development” for DWA and “an absolute win-win” with Fox. He said that Ann Daly, who has been DreamWorks Animation’s COO since the IPO in October 2004, “spearheaded” all of the distribution deal negotiations. Time Warner, Comcast, and even Disney were approached but didn’t want a deal.
Katzenberg did note that Paramount, which has been DWA’s distributor for 7 years, will retain distribution deal rights for years to come on certain titles for varying lengths of time. “We enjoyed a fantastic working relationship with Paramount. They did an excellent job.” The duo release Rise Of The Guardians on November 21st.
Katzenberg said he did not intend to revamp Fox’s home entertainment distribution like he had at Universal and then Paramount when DreamWorks arrived. “Nothing could be further from the truth,” Katzenberg said. “When we came to Paramount 7 years ago, we brought along 400 people and we became the leadership in some areas, not all areas. Some are still in place there. That’s not the case here. “One of the great appeals is that in every area Fox is a world-class distributor, the leader in the most valuable and important area of worldwide home video, big box retail category leader, one of the leaders in worldwide threatrical distribution and first-class domestic distribution. No need for us to be doing anything but putting product in their hands.”
Katzenberg did stress that, aside from exclusive distribution on the movie side, nothing was exclusive on the TV side between DWA and Fox.
Rothman and Gianopulos made the point that, since animated movies have to be dated so far in advance, no dates need to be reshuffled between Fox and DWA product.
There was some thought that DWA might self-distribute – especially after it hired Disney’s Chuck Viane a year ago to consult on distribution options. But Katzenberg confirmed last month that he was no longer considering self-distribution. And today he glossed over the subject.
The problem for the public company is that Wall Street has soured on DreamWorks Animation. Of the 14 analysts who track the company, only one rates it a ‘buy’, 7 recommend ‘hold’, and 6 have it either at ‘underperform’ or ‘sell’. Although shares are +7.1% in 2012, they’re -11.3% for the last 12 months, and -54.5% since the company went public in 2004.
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