Rationale behind Comcast’s acquisition of DreamWorks
Previously in this series, we discussed how Comcast (CMCSA) is looking at developing new franchises that can be monetized effectively across all its business segments. Late in April this year, Comcast took a step in that direction with its acquisition of DreamWorks Animation (DWA) for $3.8 billion. Comcast expects to close the acquisition by the end of this year.
This acquisition would give Comcast access to popular DreamWorks Animation franchises including Shrek, Madagascar, and Kung Fu Panda. The acquisition would also give Comcast access to DreamWorks Animation’s significant animated content library, which is distributed across both linear TV networks and SVOD (Subscription Video On Demand) platforms.
If completed, this acquisition could result in Comcast using the DreamWorks Animation franchises to add new attractions at its theme parks. In addition, DreamWorks Animation’s consumer products business, which monetizes its franchises, will also be a part of Comcast’s NBCUniversal businesses.
Another way that Comcast could benefit from its acquisition of DreamWorks Animation is through China (FXI). The rising popularity of English language content around the world has resulted in US media companies increasingly focusing on international markets such as China.
DreamWorks Animation already has an animation studio in China called Oriental DreamWorks, which could make it easier for Comcast to gain a foothold in the Chinese film market. Other US media companies such as The Walt Disney Company (DIS) and Time Warner (TWX) are already targeting China.
DreamWorks Animation acquisition could pit Comcast against Walt Disney
Walt Disney entered into a distribution agreement with DreamWorks Animation in August 2009. Under the terms of the agreement, Disney will distribute live-action movies produced by DreamWorks Animation under the Touchstone Pictures banner for a period of seven years. This agreement could be up for renewal this year. Considering Comcast’s acquisition of DreamWorks Animation, Comcast’s Universal Pictures could be interested in distributing DreamWorks Animation’s live-action movies rather than allowing Disney to distribute them.
As the chart above indicates, theatrical distribution and TV or SVOD distribution were the biggest contributors to Disney’s Studio Entertainment segment. These businesses’ revenues were $732 million and $934 million, respectively, in fiscal 2Q16.
Comcast makes up 3.0% of the PowerShares QQQ Trust Series 1 ETF (QQQ). QQQ has 4.7% exposure to the TV and radio sectors.
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