DreamWorks Animation Sold

So what have we learned?

That talent is the fuel, but rarely the engine. And it's harder to build an engine than find new talent.

So if we go back two decades, we find three of the highest profile players in Hollywood teaming up to create a new studio, a veritable United Artists, making all that money for themselves.

Sound like the modern music business paradigm?

Well, if you're thinking last decade. What we've learned is the record labels provide certain services, have certain relationships, that are hard to equal. Hell, the managers didn't step up, they don't like to pay. And the promoters pay all day long, but they don't create out of thin air, they just fulfill demand.

So PSY made it alone. Amanda Palmer got a big buck on Kickstarter.

But where are they today?

Where is Lucian Grainge today?

Very little talent outlasts the company, the enterprise lives on.

So we start with Steven Spielberg, the most successful director of his era, he invented the blockbuster with "Jaws." Although his forays into TV were checkered at best. A bit better on films he produced but did not direct, but the truth is Spielberg's a director, not a businessman. He's learned tons via direct experience, but a businessman has a different personality. Furthermore, studios are kept alive on their libraries, on their slate of films. You balance out the risk. When DreamWorks ramped up production there were too many failures, there was not a deep catalog, names only got them so far.

And then comes Jeffrey Katzenberg. The supposed genius behind Disney's animation renaissance. And that it was, from moribund to making money. Kudos. But it's one thing to run herd over people, making sure they work Sunday as well as Saturday, but another to run herd over an entire organization. Michael Eisner may have been a tyrant, but he gets most of the credit for bringing Disney back from the dead. And even Eisner has not been able to triumph on his own. Never underestimate the power of the edifice, the resources at your fingertips, the ability to leverage what you've got in power plays. Sure, Eisner learned how to make beaucoup bucks with films starring underpaid has-beens, but ideas are secondary to capital, secondary to lanes.

And then came the Pixar juggernaut. A company employing Steve Jobs's deep pockets to get it exactly right. Turns out John Lasseter was the genius, not Jeffrey Katzenberg. That's not a surprise, Lasseter bled animation, it was his whole life, Katzenberg fell into it, was he a suit claiming too much credit? I'll let you decide.

And that brings us to David Geffen, entrepreneur extraordinaire. What Geffen specializes in is getting talent what it wants. That's why he got behind Spielberg and Katzenberg, he wanted to give his friends not only the best opportunities, but the most remuneration. But Geffen is not talent. If he was, I'd have bet on DreamWorks SKG. Then again, Geffen's major victories were in a pool he played in his whole life, records. He knew that world. And the trio's label failed, because it had no catalog and couldn't see that times were changing, too much money was spent reimagining the Warner Brothers of the seventies, only it was the nineties. One can ask if Geffen is really a builder, or someone who extracts value, knows how to make a deal. One can't take away his triumph on Broadway with "Dreamgirls," but even his own forays into film were uneven. As William Goldman famously said, "Nobody knows anything." Which is why you hedge your bets and don't try to revolutionize.

No, DreamWorks SKG was not a disruptive enterprise, at most it was a victory lap, and then it imploded. The aforementioned record label tanked, as did the video game division and Geffen ultimately made a deal for Spielberg's output and the animation division went public.

And then the game begins. Can you give the Street what it wants? A baseline of profit, no dips with occasional peaks?

That's nearly impossible to do.

And when you have a disaster in film, it's nearly a total write-off.

Katzenberg scrambled. Saw he was gonna hit the wall and cut expenses and tried to live in the modern era. But was he doomed from the start? Was the task insurmountable?

That's the question, can you compete with Amazon?

Nobody has yet.

As for Google... Bing has little market share and has lost over a billion.

And Facebook... It turns out there's room for only one social network. And when another one appeared, Facebook bought it. That's right, Zuckerberg scooped up Instagram, and while he was at it bought WhatsApp for good measure. Could Facebook possibly fall to Evan Spiegel's Snapchat? Possible, although the profits at Snapchat are thin. But one thing you can say is Snapchat was a new idea, evanescent product. What was the new idea at DreamWorks?

There wasn't one.

So be wary of competing in an established marketplace. Especially one with long entrenched players. You're going to hit headwinds from minute one.

And think twice about going into capital intensive enterprises where you either succeed or fail and there's no in-between. Records are cheap, movies are really expensive. Records can come alive long after release, and sell long after release, whereas the revenue chain for movies is down down down from the beginning. So if you're busy spending and there's nothing coming in...

That's the dirty little secret of the studios and the labels, they've always got something coming in.

And the assets that generate this income, the library and the catalog, can be employed as leverage.

Independence is a loser's bet, even the Weinstein brothers have failed. They lost Miramax and their new company has been teetering, and if Spielberg is the best director out there, they're the best promoters.

So...

1. Don't compete with the behemoths unless your enterprise is truly disruptive, has an element that cannot be seen by your competitors. Furthermore, it's best if you can produce cheaper and scale quickly at little cost. And now, with so much content in the sphere, excellence is key. This is what killed Jeffrey, for a long time Disney was the only company in the animation business, then everybody was in it. The audience can't see every cartoon, only the best.

2. Know what you do best. Spielberg directed. Katzenberg worked for others. As for Geffen, one can argue he did do what he did best, he delivered for Steven and Jeffrey beyond their wildest dreams, it just wasn't a financial triumph for David.

3. Have a steady stream of income to tide you over the low points. Sure, in tech you garner an audience first and revenue last. But even that paradigm is fading. If you're spending big and waiting for the money to come in...you're at risk. Hell, the history of independent movie companies is death, Carolco bit the dust, maybe you just can't do it.

4. Sexy doesn't define the bottom line. Faceless hard work does...the animators who exercised Katzenberg's wishes at Disney, the CPAs and other bodies at the studio who make the whole thing work.

We're gonna see unicorns in the future. But if you expect outsiders to come along and dethrone film studios and record companies...you probably believe Tidal will become a raging success. People vote with their dollars. And they spend them reluctantly and wisely. They'll follow your antics in the news, but when it comes to paying...

They want what everybody else wants. Not what is promoted best, but that which is considered quality and successful.

So, so long DreamWorks. You're a relic of the nineties, before the world was blown apart by the internet and consolidation ruled.

Comcast is rolling up. Give credit to Katzenberg for selling out.

But it's hard to characterize DreamWorks as anything but a disaster, a blip on the radar screen at best.

P.S. "Synergy," the most overused word of the seventies, has finally come to flower in the twenty first century. Huge conglomerates can utilize assets in a way that small enterprises cannot. There are Pixar attractions at Disneyland, Comcast can feature DreamWorks Animation properties at Universal Studios. We live in a global economy. He with deep pockets can amass assets that propel each other to untold profits around the world.


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