Seeking Alpha
Research analyst, growth, value, IPOs
Profile| Send Message|
( followers)  

Dreamworks Animation SKG Inc (NASDAQ:DWA) made a relatively unnoticed acquisition today that could have an immediate impact on the company's movie pipeline and licensing revenue. The company is said to be the winning bidder for Classic Media, a portfolio of cartoon characters. The New York Times had an article saying Dreamworks Animation was leading the bidding with $150 million.

Here is the huge catalog of animated characters that Dreamworks Animation is bidding on:

Archie, Baby Huey, Basil Brush, Boris & Natasha, Bravestarr, Casper the Friendly Ghost, Dick Tracy, Doctor Solar Man of the Atom, Dudley Do-Right, Ethelbert the Tiger, Fabulous Funnies, Fat Albert, Felix the Cat, Finley the Fire Engine, Fractured Fairy Tales, Frosty the Snowman, George of the Jungle, Gerald McBoing Boing, Godzilla, Groovie Gollies, Guess with Jess, Gumby, He-Man, Hot Stuff, Lamb Chop, Lassie, The Little Drummer Boy, Little Golden Books, Little Lulu, The Lone Ranger, Magnus Robot Fighter, Mr. Magoo, Mr. Peabody & Sherman, Pat the Bunny, Peter Cottontail, Postman Pat, Richie Rich, Rocky & Bullwinkle, Roger Ramjet, The Roy Rogers Show, Rudolph the Red-Nosed Reindeer, Rupert Bear, Sabrina the Teenage Witch, Santa Claus is Comin' to Town, The Secrets of Isis, Sergeant Preston of the Yukon, Shazam!, She-Ra, Tinga Tinga Tales, Transformers: Animated, Turok, Underdog, Voltron, Wendy the Good Little Witch, Where's Waldo?

That's an extensive list. If you read through all the names and didn't recognize at least five, then you might not have watched too many cartoons in the last 20 years, or Christmas specials for that matter. Dreamworks' acquisition would not include all of the television or movie rights, as some are already sold. Dreamworks would have ownership of the characters though.

The acquisition would obviously be a huge push for Dreamworks Animation in its consumer products and licensing efforts. Since 1998, Dreamworks Animation has only released 24 movies, giving it a relatively small pile of characters that receive the lunchbox, Halloween costume, stuffed animal treatment. This new acquisition would give Dreamworks hundreds of characters to license out, and with its branding networks used now by current movie releases, Dreamworks could unlock some value from older characters.

Now here's the crazy part, Classic Media made $376 million last year in licensing revenue (Cinema Blend). Dreamworks is paying less than what it can make to not even make a movie based on one of the acquired characters. Dreamworks Animation is also set to release a movie based on Mr. Peabody and Sherman in 2014. Surely, it isn't paying $150 million for one movie's rights.

The other big reason to make the purchase could be Dreamworks Animation's recent expansion into theme parks. I wrote about a deal to bring an indoor theme park to a New Jersey mall recently. Could that be the beginning of a theme park empire from Dreamworks? The acquisition of hundreds of characters could help speed up the process of having enough recognizable activities for different age groups.

Classic Media was founded in 2000 by former Marvel Entertainment Chief Executive Officer Eric Ellenbogen. The company has gone through several ownerships, being owned by Boomerang Media and Entertainment Rights at points in its history. Along with its television and movie licensing of characters, Classic Media is the third largest comic book rights holder.

Classic Media has been acquiring assets for years. Its most recent acquisition was the Olivia character from Chorion. Olivia is a character from a book series by Ian Falconer. The series of books based on the pig character has sold six million copies and was turned into a television show. Earlier in March, Classic Media acquired Noddy from Chorion as well. Noddy is a character dating back to 1949 in the United Kingdom. The book series has sales of over 250 million, and various television shows have produced 250 episodes with the Noddy character. Here is a look back at deals made by Classic Media:

  • 2001: won bankruptcy assets from Golden Books Family Entertainment
  • 2002: entered into a joint venture for Bullwinkle Studios with a 80% ownership stake
  • 2003: acquired Big Idea assets from bankruptcy auction
  • 2006: formed television station Qubo with NBC Universal and Scholastic

The Big Idea studio has seen two movies released: Jonah: A VeggieTales Movie (2002) and The Pirates Who Don't Do Anything (2008). Jonah made $25.6 million in the United States on a $14 million production budget. It became the eighth highest grossing movie in the "Christian" genre, according to Box Office Mojo. Of course, The Pirates would gross only half of Jonah's total six years later ($13.0 million). Both movies had very small foreign box office totals. Could ownership from Dreamworks Animation help bring the VeggieTales movie series back to life or to international audiences?

A $150 million acquisition by a billion-dollar company normally doesn't excite investors. I tend to get overly excited by this move because I see the long-term potential. The licensing power of these brands alone is worth $300-$500 million each year for Dreamworks, considering they did $376 million on their own last year. The deal also could bump up theme park deals and involvement. Lastly, the deal could ramp up movie releases.

As a company that only puts out two to three animated movies a year, perhaps Dreamworks could make more movies if they were already-familiar audience titles and Dreamworks had all the rights to the characters. The new licensing revenue could also help finance more movie releases per year. I continue to be bullish on shares of Dreamworks Animation, after picking it as one of my top ten stocks for 2012.

Source: Dreamworks Animation Is Acquiring Casper, He-Man, And Waldo; Here's Why You Should Care