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Murray Stahl's Horizon Kinetics on DreamWorks Animation

January 18, 2014 | About:

DreamWorks Animation, about the 3rd largest holding in the Core Value strategy, more than doubled this year, and is about 35% higher than when the position size was increased this past June. Yet, I believe that the shares are cheaper today than they were 12 or 18 months ago. Until then, DreamWorks did one thing: it made animated movies, and it was analyzed and valued as such. We thought it did two things: the movie making and, over time, the building of its movie library, which may be valued separately and had the characteristics of a dormant asset. Here’s what has happened in the past 18 months or so, none of which has yet had time to make an appreciable, visible impact upon revenues or earnings:

  • April 2012: acquired Classic Media, which owned characters such as Casper the Friendly Ghost, Waldo, He‐Man, Lassie, the Lone Ranger, and Rocky & Bullwinkle, among others. These could be re‐commercialized as television series.
  • Late 2012:
    • formed Oriental DreamWorks, a joint venture with three Chinese investment firms that will produce Chinese‐themed animated and live‐action films, The first animated feature film will be released in 2015.
    • formed a joint venture with local partners to build The Dream Center, a six‐city-block riverfront development in Shanghai that will include theaters, restaurants, shopping and a Kung Fu Panda themed entertainment zone. Completion: 2016.
  • February 2013: entered an agreement with a European amusement park operator to create three DreamWorks theme parks in Russia (St. Petersburg, Moscow, and Yekaterinburg). The joint venture partner will design, build, and manage all the properties, with DreamWorks earning licensing revenue.
  • April 2013: opened DreamWorks Experience in Macau as a joint venture with the Las Vegas Sands Resort. This is a themed resort that includes performances and shows, a DreamWorks‐themed hotel and rooms, a daily parade, and opportunities to meet characters from the films.
  • June 2013: entered into an agreement with Netflix to supply 300 hours of original programming based on characters from Shrek, the Croods, and How to Train Your Dragon, among others. The deal also gives Netflix rights to content based on future movie releases, including Mr. Peabody and Sherman (acquired with the Classic Media library), to be released this year.
  • July 2013: entered an agreement with Hasbro to create toys and games based on Bureau of Otherworldly Operations and Trolls, two films to be released in 2015 and 2016.

Now, how much in earnings are those worth to a company with a stock market value of still less than $3 billion?

Source: Horizon Kinetics Market Commentary - 4th Quarter, 2013

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