After suffering the consequences of a series of mistakes and misfires, Dreamworks (DWA, Financial) has finally decided to reduce its headcount significantly to cut down the operating costs. Around 150 to 400 employees are expected to be retrenched from the production house; mostly the animators, storyboard artists, and production personnel would suffer the wrath of pink slip. The company has a workforce of 2,200.
According to Steve Hulett, business representative for The Animation Guild, “We began hearing from members that they were getting laid off, but the company hasn’t responded to our inquiries.” Hulett mailed the company last week seeking more information, but had not yet received a reply. Dreamworks has yet to come out with the news on a public platform. They haven’t acknowledged the information yet saying “we can’t comment on rumor and speculation.”
A series of underperformances
After being stung by a string of failures on box office, the studio is rethinking its upcoming release strategy. The staff reduction is an outcome of the same. The Dreamworks suffered a loss of $87 million on “Rise of the Guardians,” a $13.5 million blow on “Turbo” and a $57 million write down on “Mr. Peabody and Sherman.”
“Three of our last four films have not delivered in terms of audience turnout or financial performance,” Katzenberg told analysts in April 2014. “The Penguins of Madagascar” didn’t meet the expectations of the studio as well. At the end of 2014, the film underperformed with a collection of $271 miilion worldwide, out of which $78 million were from the domestic theatres.
This year was going to witness the release of “Kung Fu Panda 3” and B.O.O.: Bureau of Otherworldly Operations as well, but sadly their release has been shifted to the next year, with the latter one not yet landing on a new release date.
“Kung Fu Panda 3” is likely to share the year of release with the “Trolls” in 2016. “Boss Baby” “Mumbai Musical,” sequels to “Puss in Boots,” “the Croods” and a third “How to Train Your Dragon” also waiting in the wings beyond that.
Painful realities of Dreamworks
“It has been unable to build new franchises, and its new releases have not been profitable,” said BTIG research analyst Rich Greenfield.
Talks to sell the company have been in vain. Early discussions with SoftBank Corp (SFTBF, Financial) in September and with Hasbro Inc (HAVE, Financial) in November ended shortly after they were reported. “Unfortunately, everyone in the industry sees the predicament Dreamworks is in, making it impossible to sell the company anywhere near current levels,” Greenfield said. “Cutting costs is the only near-term option.”
Marc Graser, the senior editor at Variety, commented on the failed attempts to sell the company, “with each miss the executive appears to look more desperate.” He blamed the style of micro management by the co-founders of the company for the failure of the deals.
There’s still hope
Despite the crisis, the company got something to be happy about last week. “How to Train Your Dragon 2” has been nominated for the Oscar for best animated feature which grossed $618 million worldwide since its release in June last year.
On January 4, the company’s chief creative officer, Bill Damaschke, was replaced by two producers, Bonnie Arnold and Mireille Soria, as new co-presidents of feature animation. Both of them are determined to reduce production budgets and check other overhead expenses at the company;Â hence the two are taking a close look at the types of films the studio is coming up with. The Fox would be coming with “Home” the next film for the company in March 2015. So as an investor it would be best to wait until the restructuring at Dreamworks is done and then watch out for its performance before taking any calls on the company. For now it would be best to hold your positions if you are already invested in the showbiz giant and for those contemplating to include the company in your portfolio it should be an eager wait till the time the restructuring process is completed.
