The hype over whether SoftBank may purchase DreamWorks Animation is starting to cool down, but not the talk of what such a deal would mean. Hollywood’s smaller and mid-sized independent studios may be headed for consolidation or significant partnerships with Asian companies flush with cash.
The possible SoftBank deal, first reported by The Hollywood Reporter, would have valued DWA at $3.4 billion, with SoftBank offering to purchase it at $32 a share. The news sent DWA’s stock price soaring on Monday, up 26 percent on closing, but the price retreated in after-hours trading amid a new round of reports that the talks were falling apart.
SoftBank CEO Masayoshi Son is on the hunt to acquire name-brand properties and is cash rich like many Asian companies including Wanda — which bought AMC Theaters — and Alibaba, which had an historically huge IPO this month. SoftBank owns more than 30 percent of Alibaba, and its holdings there are worth tens of billions of dollars.
For its part, Hollywood moguls including Dreamworks Animation CEO Jeffrey Katzenberg spend a great deal of their time courting Asian audiences. Between that reality and the influx of Asian capital into the U.S., the time for a series of acquisitions and partnerships with independents by Asian investors may be upon us. Companies like Lionsgate or MGM have been among those under consideration along with DreamWorks Animation. A key reason for all: their libraries.
“DreamWorks [Animation] has an impressive library of content and strong franchises that, I believe, would resonate well within China,” B. Riley analyst Eric Wold told TheWrap. “[China] is both a market that has demand for animated content as well as an ability to monetize those franchises through other licensing opportunities.”
China’s film and media industry is set to hit $6 billion by 2018, up from $3.8 billion in 2013, according to numbers from PricewaterhouseCoopers. And to feed the growing consumption, Asian investors would be willing to pay for vast sources of content for the home entertainment and mobile markets.
DreamWorks Animation is not alone.
“Lionsgate is a very interesting acquisition story,” says Seth Willenson, a veteran industry consultant specializing in library valuation. “It has a profitable theatrical business … strong worldwide distribution, in addition to companies in international territories, and home video.”
And even though a large portion of MGM’s library is owned by Time Warner, Willenson still thinks the company would make an attractive candidate for Asian investors.
“MGM has been bought and sold so many times … but it’s a brand name,” continued Willenson. “It would be a very logical target for a company to buy properties for the long run and for remake rights.”
Investors in MGM are waiting to see if the company will seek an initial public offering or a sale to a media conglomerate that wants to expand its television and movie properties, and acquire its film library.
Hollywood’s publicly traded independents like DWA, perhaps looking to shield themselves from investor scrutiny, may find deals with Asian investors particularly enticing. DWA has had to answer to stockholders for several box office disappointments, with a reported a loss of $15.4 million in it’s most recent fiscal quarter — the second consecutive quarterly loss for the company.
DWA recently raised the ire of investors when it took a $57 million write-down due to the poor box office performance of “Mr. Peabody and Sherman.”And in the fourth of 2013, the company also took a write-down on its movie “Turbo,” a charge under investigation by the Securities and Exchange Commission.
“We believe DreamWorks has attempted to find buyers in the past, and a sale would solve the existential question of what to do given a very uneven track record at the box office and a lack of meaningful profitability over the past three years,” wrote Doug Creutz, an analyst at Cowen & Co., in a note to investors.
In addition to studios, prime Hollywood targets for Asian investors will be media technology companies that can give Asian investors a leg up in the quickly growing exhibition business. According to the MPAA, the growth of cinema screens “increased by 4 percent worldwide in 2013 due in large part to continued double digit growth in the Asia Pacific region (+11 percent). IMAX already sold a 20 percent stake in IMAX China to China Media Capital Partners and FountainVest Partners for $80 million back in April.
“I would not be surprised if Chinese companies made a move to acquire some of the leading technology companies that play in the space like IMAX and RealD,” said Wold.