Japanese Company SoftBank In Talks To Buy DreamWorks Animation: Explained

Jeffrey Katzenberg. (Photo via Shutterstock.)

Jeffrey Katzenberg. (Photo via Shutterstock.)

Has DreamWorks Animation been purchased by another company?

No, not yet. News that the publicly-traded DreamWorks Animation was in discussions with Japan’s SoftBank broke last Saturday afternoon via Hollywood Reporter. DreamWorks has refused to comment on the negotiations, saying, “We don’t comment on rumors and speculation.” DreamWorks’ board held an emergency meeting last Thursday to discuss the offer.

What is SoftBank?

SoftBank, the Japanese company that is interested in purchasing DreamWorks, is a telecommunications and Internet conglomerate that ranked 135th on Fortune’s 2013 Global 500 list with revenues of nearly $67 billion. The company, which has a market cap of US$92 billion, acquired a majority stake in the US phone carrier Sprint Nextel in 2012.

SoftBank also owns 1/3 of the Chinese Internet giant Alibaba Group, a stake that is worth over $70 billion. SoftBank owns majority stakes in companies across a wide range of industries including data center operations (IDC Frontier), online gaming (GungHo Online Entertainment, Supercell), publishing (SB Creative) and financial services (SBI Group). The company also has investments in online companies including Yahoo Japan and Zynga.

How much did SoftBank offer DreamWorks?

SoftBank offered $3.4 billion for DreamWorks, or $32 a share. That’s signficantly higher than DreamWorks’ market valuation of $1.89 billion last week, when its stock price was trading around $22 a share. DreamWorks stock shot up to over $28 today.

Will DreamWorks CEO Jeffrey Katzenberg consider that amount to be enough?

Katzenberg has stated in the past that he thinks his company is worth at least as much as Pixar, which was purchased by Disney for $7.4 billion in 2006. But neither DreamWorks’ films nor its characters have shown the lasting power of Pixar’s beloved library. It’s hard to see how Katzenberg will achieve the same price that Pixar was able to command, but he may get close to the $4 billion that Disney paid for Marvel and Lucasfilm each.

Why would SoftBank want to own DreamWorks?

Financial analyst Atul Goyal explained to the Wall Street Journal that:

Such a deal would make sense for SoftBank because it would help the company expand its offering of media content, which now features mostly mobile games. As growth in smartphone penetration slows, mobile network operators like SoftBank, which owns one of the three main cellular carriers in Japan as well as Sprint Corp. in the U.S., will rely increasingly on content to attract customers.

As part of its content strategy, SoftBank also attempted to purchase Universal Music Group from Vivendi last year. Their $8.5 billion bid was rejected.

Who owns SoftBank?

Korean-Japanese businessman Masayoshi Son is the founder and CEO of SoftBank. He is the richest man in Japan with an estimated net worth of $16.6 billion. Son is something of a futurist, and recently developed a $2000 robot called Pepper that can “read” human emotions. Below is a video of Son interacting with Pepper. He’s also a dreamer and once presented an outlandish 300-year business plan for SoftBank.

If the deal goes through, how will this affect the creative side of DreamWorks Animation?

Unknown at this point. While SoftBank has been hands-on with its bigger investments like Sprint, it has been known to take a hands-off approach with the creative companies it invests in, like Clash of Clans producer Supercell.

If SoftBank buys DreamWorks, will they send more jobs out of the United States?

DreamWorks doesn’t need a foreign company to encourage it to send work overseas; it has already been doing plenty of that on its own. Part of the studio’s business strategy has been to shift feature animation production to China and India, where costs are lower than the United States. DreamWorks will continue to expand its overseas production capacities, and a sale of the studio shouldn’t have much impact on this pre-existing strategy.

If the deal doesn’t work out, will another company purchase DreamWorks?

DreamWorks Animation’s business model is widely acknowledged in the financial world to be too risky and unsustainable for the long-term. The company’s creative reputation has also taken a big hit as most of its recent films have underperformed, forcing the company to take three write-downs in a 2-year period. DreamWorks CEO Jeffrey Katzenberg has reportedly explored the idea of selling DreamWorks in the past, but had recently refocused on building a more stable company. The company has been aggressively expanding in the past 2 years by acquiring online channels, moving into series production, expanding its intellectual property base for licensing and merchandising, and most importantly, growing the company’s presence in China through Oriental Dreamworks. Nevertheless, DreamWorks remains a boutique studio and will have trouble growing in the current marketplace without the support of a deep-pocketed backer.

  • jonhanson

    Softbank isn’t a stranger to animation, as you might know if you’ve seen Tiger and Bunny.

    I wonder if this will mean that Tommy Lee Jones will get a role in an upcoming Dreamworks movie: https://www.youtube.com/watch?v=WPXL5slQUmY

    • Potato Schomato

      The idea of ‘Otosan: the movie’ tickles me way more than it really should

  • tt

    if Softbank buys DreamWorks, DreamWorks wont have to keep making several films per year and focus on making great films in general instead of worrying about revenue.

    • jonhanson

      Theoretically, but why would a bank care about quality rather than revenue? Unless of course they make a case that quality leads to higher revenue, which I think is a pretty tenable position given their spotty box office performance recently.

      Of course if DreamWorks did cut their production down that would mean losing a lot of jobs, so even though I want them to make the best movies possible I can’t say I’d be eager to see that happen.

      • AnimationGuy

        As mentioned in the article, Softbank likes to take a hands-off approach with their creative investments (which is the best thing they could do).
        Supercell is cited as an example. Have a look at how well their ‘Clash of Clans’ is doing (it’s doing very well).

    • Mull

      Absolutely. It’s exactly what LucasFilm did when it became LucasArts – get out from under the weight of having to knock every single feature release out of the park or go broke. DW can’t afford to play that game anymore, despite JK’s ‘Go big or go home’ approach, and they know it.

      • Alexandria Lynn

        “DW can’t afford to play that game anymore, despite JK’s ‘Go big or go home’ approach, and they know it.”
        AMEN!!!!! I could rant on all day about why I feel Mr. Katz isn’t a good CEO at all, but since he’s rather political, he shouldn’t be investing in animation in the first place! Instead, he should quit working for Hollywood and run for Congress or something!

        • http://www.doodlesinanimation.blogspot.com Annie T.

          Personally, I don’t think he should go for Congress. He should just write a political blog or something while watching his Dreamworks shows on Netflix all day.

  • Next stop, FantasyLand

    “…company is worth at least as much as Pixar”… Oh… Ha! Jeffrey. You slay me. That’s the best Comedy writing that’s come out of Dreamworks in a long time. Have you considered a career in writing?

    • jonhanson

      Do you mean in terms of profitability or money? On both counts I’d like to say they’re on a level that’s more even then some like to suggest. And I say this as a huge Pixar fan, but an even bigger fan of animation in general.

      In the past 5 years Pixar released 5 movies that made $3,636,909,865 according to Box Office Mojo, for an average of $727,381,973 a movie.

      In the past 5 years DreamWorks has released 12 movies that made a total of $5,979,175,067 and an average of $498,264,588 a movie.

      So DreamWorks has Pixar beat on total international box office while Pixar has DreamWorks beat on average box office per movie. Now given how much money DW takes internationally this isn’t the best comparison and it’s hard to say exactly what both studios ended up taking home, even with the big gap I’d bet Pixar took home more but I’m not sure the gap is all that big.

      The main thing you can say for Pixar is the branding, which might feel wrong to people who view Pixar as a more “pure company.” Pixar’s main value monetarily now is things like Disney Infinity and Car toys. With that said I can’t say for sure .

      So I think DreamWorks is worth less than Pixar but I don’t think it’s anywhere near comedic when you look at the numbers.

      Artistically is another matter but I’d also say that in the last 5 years DreamWorks made more great movies than Pixar did, more good movies and less sequels as a percentage of total output. You might say it’s just because they put out a lot more movies but so what? It allows them to try more things and there’s a value in that, as there is with Pixar’s approach.

      • postnamehere

        I don’t know how the math shakes out but…
        Disney has owned Pixar for those past 5 years so counting Pixar movies without the Disney ones is kinda misleading, it’s really just all Disney. What your doing is counting 2 studios against one, Dreamworks south and north against just Pixar or (Disney north.)

        • jonhanson

          Well the original quote was Katzenberg saying he thought Dreamworks was worth as much as Pixar and the commenter thought that was laughable so I did the math based on the logic of the original statement. You are absolutely right that the connection with Disney makes it a little harder to draw clear distinctions but you’ve gotta work with what you have.

          As for the math feel free to check out Box Office Mojo. That said I just did basic stuff to make a rough sketch, I’m sure you could get a much better picture by looking at more solid financial data.

          I definitely think Pixar is worth more, I just don’t think it’s necessary as big as a blow out as some might suggest. Unless you include Cars toys, then it might be.

          • Mull

            Including the “Cars’ toy earnings is a must; that revenue would not exist without Pixar having made the original “Cars” feature. The film was one of the studio’s weaker efforts (and the sequel even weaker) BUT in its merchandising alone, “Cars” virtually paid back every dollar Disney laid out to buy the studio. Think about that. An eight billion dollar ancillary market revenue stream from a single Pixar film franchise cannot be ignored. Walk into any Toys R Us on earth and you’ll find not a shelf but an entire retail aisle dedicated to Disney/Pixar “Cars” merch, all of it still moving well. That’s the only ‘evergreen’ that Hollywood respects. DW’s merchandising hasn’t to date been able to begin to match that stratospheric “Cars” loot haul. Such financial gonads loom large on Wall Street.

          • jonhanson

            Wow, I knew Car toys were big but I wouldn’t have guessed eight billion. That’s definitely one area Disney/Pixar wins hands down, merchandising. Which is funny because people view DreamWorks as the more commercial studio, but there’s a lot to be said for iconic characters when it comes to creating ‘evergreen’ content, in both senses of the word.

    • Alex Dudley

      But due to the amount of films they released, that is accurate.

  • Michael

    Doesn’t sound promising to me. Plus, Katzenberg is delusional to think Dreamworks is worth much more than the current offer – almost as much as a CEO who makes a 300 year business plan. I think the problem all along for Dreamworks is that it never really had a vision-other than attempting to make the next “Lion King”. I never heard a statement about who they are or who exactly their audience is. Without that kind of direction, you’ll meander. And they have. Whereas other studios like BlueSky, Sony, or Laika have at least produced films with a particular style. When they deviated, they paid the price too. Dreamworks is akin to those studios, not Pixar.

    • Mesterius

      So producing films in different styles is a terrible mistake? I tend to diagree with that. If everything Dreamworks made followed their Shrek formula, for instance, we would likely never have had great films like “How To Train Your Dragon” or “Kung Fu Panda”. Which would have been a loss to me. Plus, for the record, HTTYD 2 was a huge success worldwide (even though I personally enjoyed it less than the first).

    • Next stop, FantasyLand

      Katzenberg: “DreamWorks makes movies for adults and the adult that exists in every child.”
      Quote from: http://www.usatoday.com/story/tech/2012/10/22/ceo-forum-dreamworks-jeffrey-katzenberg/1646191/

      I think every adult can remember being a child…. But what Child in their right mind, has an adult in them? Ahem. That’s just creepy.

      He’s had a ill conceived vision from the get-go. The P.T. Barnum of the animation industry. If he has an offer that comes anywhere close to the current stock price, let alone an offer *OVER* the price, he should grab it. Its not going to come again.

      • jonhanson

        “I think every adult can remember being a child…. But what Child in their right mind, has an adult in them? Ahem. That’s just creepy.”

        If you take away the wording isn’t that the appeal of Peanuts? That children can be more mature than we give them credit for and that their problems and concerns shouldn’t be brushed away as childish overreaction?

      • http://elekiddo.blogspot.com/ Alex Irish

        He said that?! Guess that’s why Shark Tale exists as the scourge that it is.

        • Dusty Ayres

          Not everything can be a home run.

  • http://tresportfolio.tumblr.com/ Tres Swygert

    It really seems that DreamWorks is focusing on trying to get out of debt than to be a great identity of telling stories and having familiar characters. Sure, DreamWorks has its own self to blame for their failings (some of their failings), but it seems their model of making sequels the moment it hits gold is not enough for investors. Quite sad that they are not able to keep up in the competition of things.

    • Austin Papageorge

      Dreamworks has net tangible assets over $1 billion. They’re not in huge debt.

      • http://tresportfolio.tumblr.com/ Tres Swygert

        They are to their investors. Otherwise, I doubt they would really looking for a buyer right now.

  • KOKen

    I can’t wait for the inevitable Puzzle & Dragons feature film if this deal goes through.

  • jonhanson

    Thanks for the correction, I’ve heard of them plenty of times but never thought to look into what they actually do since bank is in their name. That actually explains a few things.

    • AmidAmidi

      I’ve heard of them plenty of times but never thought to look into what they actually do since bank is in their name.

      It’s kind of amazing that you’re making these comments in a post that specifically explained what SoftBank does. Next time, try reading the post first.


    I imagine that regardless of the out come Dreamworks stock is already increasing it’s profitability.

  • http://tresportfolio.tumblr.com/ Tres Swygert

    Don’t forget the investor lawsuit filed against DreamWorks, as the plaintiff believes DW is withholding information regarding financial performance. http://www.digitaljournal.com/pr/2218904

    Even with the liabilities adding up to over $1 billion in net tangible assets, it looks like it’s not enough to keep people like Jeffrey Katzenberg…happy.

  • jonhanson

    I really don’t see how that’s the case. To me it’s more that Pixar and Disney’s identities have been wrapped up since Toy Story and Disney would suffer if the relationship was severed. And at the time Disney’s feature animation production was still struggling to make the transition to CG and considering the importance of animation to Disney it makes sense that they’d want to invest in one of the best and most successful studios on the planet.

  • Next stop, FantasyLand

    Heard that SoftBank has pulled out of the negotiations with DW…..

    I guess somebody kicked the tires, and didn’t like what they saw…..

    Maybe they saw the list of the upcoming films for Dreamworks.

  • http://www.doodlesinanimation.blogspot.com Annie T.

    Eh, the American jobs are kind of already leaving.