Comcast Corp's (CMCSA.O) planned purchase of DreamWorks Animation (DWA.O) would increase the media giant's foothold in Asia, particularly China, as it competes in an increasingly global battle for entertainment dollars.
DreamWorks, producer of the "Kung Fu Panda" and "Shrek" franchises, was one of the first Hollywood studios to open a production studio in China. It formed a joint venture with local companies in 2012 called Oriental DreamWorks.
The $3.8 billion purchase of the company founded by movie mogul Jeffrey Katzenberg is expected to help drive traffic to Comcast theme parks in the region, Wall Street analysts said. The animation studio's relationships also could make it easier for Comcast to distribute content in China.
DreamWorks has aggressively courted audiences in that country, which is the world's second-largest film market and home to a growing population of city dwellers ready to spend on entertainment.
This year's hit "Kung Fu Panda 3," for example, was the first movie animated in both English and Mandarin. When it opened in February, it set a record for the biggest animated film opening in China.
"DreamWorks has done a very good job in building a team in China and learning the market," said Larry Namer, president and CEO of Metan Global Entertainment Group, which produces entertainment content for Chinese audiences. "As far as the Hollywood entities go, I think they seem to understand the nuances of the market better than most."
Comcast's plan to purchase DreamWorks was announced on Thursday and requires approval from regulators.
From January through March, 37 percent of Comcast’s total revenue came from its content and theme park unit, NBCUniversal. Tapping into Asian markets could help that grow further, analysts said.
But banking on Asia right now is no guarantee. China, the region’s growth juggernaut for the last decade, has seen its economic expansion slow dramatically over the last two years, and its first-quarter gross domestic product increase of 6.7 percent on an annualised basis was its smallest since 2009.
Larger rival Walt Disney Co (DIS.N), however, is busy ramping up its presence in China. The company will open a $5.5 billion Disney theme park in Shanghai in June. And its animated film "Zootopia," released in March, has grossed more at Chinese box offices over its theatrical run than "Kung Fu Panda 3."
NBCUniversal is building its own $3.3 billion theme park in Beijing. DreamWorks is a partner in an entertainment district planned for Shanghai. Universal Pictures opened an office in Beijing in 2014 and has consumer products staff in China.
"I want to make sure that we're doing everything we can to grow that market as aggressively as possible," NBCU Chief Executive Steve Burke said Wednesday on the company's quarterly earnings call, a day before the DreamWorks deal was announced.
With DreamWorks in the fold, Universal's parks could add movie characters like Shrek and Kung Fu Panda alongside Harry Potter and the yellow minions from "Despicable Me."
"They are borrowing a page from the Disney playbook," MoffettNathanson analyst Craig Moffett said. "They will use these brands to drive traffic at their theme parks."
DreamWorks' ties in China also may ease the way for more NBCUniversal content into the country, analysts said. Chinese regulations limit the number of films imported into the country each year, and the government's censors often object to foreign entertainment content.
NBCUniversal's strategy includes building its presence in other Asian countries and around the world. In September, it acquired a stake in Universal Studios Japan, which helped drive theme park sales in the first quarter of 2016.
DreamWorks also provides original TV content to streaming service Netflix (NFLX.O), which is now available in more than 130 countries, but not yet China. The DreamWorks TV business is expected to generate $1 billion in revenue from 2016 to 2018, Macquarie Securities analyst Amy Yong said.
(Reporting by Lisa Richwine; Editing by Anna Driver and Lisa Girion)
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Updated Date: Apr 29, 2016 04:15 AM