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Animators Fret Over Frugal NBCUniversal’s DreamWorks Takeover (And No More Free Lunch)

The company's acquisition of Jeffrey Katzenberg's animation powerhouse brings promise and problems as animators fear layoffs and cost-cutting: "They're going to be paying for lunch from now on."

If you listen closely, you can hear a hint of pessimism in the predictions of Steve Hulett, business rep of the Animation Guild, about what will happen after NBCUniversal completes its acquisition of DreamWorks Animation. Thanks to the Walt Disney Co.’s 2006 purchase of Pixar Animation Studios, for example, Hulett has seen versions of this movie before.

“Usually they spend a period of time trying to soothe nervous hearts,” says Hulett of acquirers. “They lie to the crew because they’ve got a picture to get out, and they can’t have people jumping ship. … They use whatever argument they can use to calm you down, [but] I suspect there will be 200 or 300 fewer people working there in the next 18 months.”

DWA is a union shop, and NBCU’s animation operation, Illumination Entertainment, isn’t. The guild has 565 members in feature animation at DWA and 281 in television. Hulett expects features to bear the brunt of the cuts while television will hold or grow.

The impact on Hollywood’s animators is one of several thorny issues that have yet to be addressed in the wake of NBCU’s April 28 reveal that it will pay $3.8 billion for Jeffrey Katzenberg’s animation house. NBCU CEO Steve Burke has been vague about the company’s plans for DWA, though the well-liked but thrifty Chris Meledandri, who runs Universal’s successful Illumination (Minions, Despicable Me), will be in charge. Jeff Shell, chairman of Universal’s film group, tells The Hollywood Reporter he admires DWA’s movie and television work, adding, “Hopefully, we can find a way to do the same-quality films for a lower price.” A studio insider says one engine for the deal — besides Shell’s admitted “Disney envy” and NBCU parent Comcast’s desire to stock its theme parks with fresh characters and other intellectual property — was the belief that DWA’s Shrek, Madagascar, Kung Fu Panda and How to Train Your Dragon are “four franchises that aren’t over yet.”

How those franchises will be exploited is not clear, but animators and executives say there are worlds of difference between the cultures of Illumination and DWA, which has been run since its inception by the highly charged and polarizing Katzenberg, 65. Adding to the intrigue, both he and Meledandri, 56, have been publicly silent, except for boilerplate statements, since the deal was announced. (It still must gain regulatory approval.)

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Whatever happens, the landscape of Hollywood animation will change because for the first time in about 30 years, Katzenberg will not be a part of it. NBCU was willing to pay a premium for DWA in exchange for getting Katzenberg to give up his role and transition to running digital assets such as the DWA-backed AwesomenessTV. “My guess is [NBCU] looked at Jeffrey as someone who was not capable of or not willing to cut productions aggressively,” says Hulett. “They figured Meledandri knows how to do it. He’s delivering billion-dollar movies on $80 million budgets.” Hulett predicts NBCU will try to get DWA’s film budgets of $130 million or more down to less than $100 million. (Hulett and others note the true cost of these movies is difficult to discern from the outside.)

It is now part of Hollywood lore how Michael Eisner and Frank Wells, on arriving at Disney in 1984, were dismissive of animation and planning to outsource it cheaply overseas, only to be stopped by Roy Disney, Walt’s nephew. Tasked with it, Katzenberg became enamored and launched a string of hits beginning with The Little Mermaid and culminating, before his dismissal from Disney in 1994, with the outsized success of The Lion King. Says Hulett, “He really revived animated features as an art form to the way they were thought of under Disney in the ’30s and ’40s.”

When Katzenberg founded DreamWorks SKG with Steven Spielberg and David Geffen in 1994, “there was a tremendous energy and drive to create a studio that would rival Disney,” says Vicky Jenson, a director of Shrek and Shark Tale. In those days, DreamWorks animators traveled abroad to study the settings of the films. and experts were brought in to educate them about the world in which they were working. That practice, still in place at Pixar and its sister company Disney Animation Studios, began to fade as DWA hit rough waters and layoffs ensued. Katzenberg’s challenges were great after his division was spun off as a public company in 2004 to enable DreamWorks to repay investor Paul Allen: DWA now was answering to shareholders, with fortunes that seesawed depending on its releases.

Katzenberg’s efforts to diversify DWA’s business led to distractions, and the quality of the films slipped. In recent years, “one of the keywords presented to us was ‘marketability,’ ” remembers Jenson. “Business-wise, it probably made sense, but you could see the scary handwriting on the wall.” She believes creative risk can be discouraged when marketers lead: “If Pixar had done that, I don’t think we would have seen the movie Up.”

NBCU is clearly hoping to emulate Disney’s handling of Pixar and Disney Animation, which were both placed under Pixar co-founders John Lasseter and Ed Catmull after the 2006 purchase, with its DWA deal. Lasseter has managed to revive the fortunes of Disney Animation with such hits as Frozen and the recent Zootopia while maintaining the quality and bankability of Pixar films (despite the recent disappointment The Good Dinosaur). At the same time, Pixar has remained based in Northern California, operating with a distinct culture and a creative mandate separate from its Southern California sibling Disney Animation.

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To that end, the physical and cultural differences between DWA and Illumination are especially stark. DWA has a lush 14.7-acre campus in Glendale (though it sold the property in 2015 to raise money, it has a long-term lease). “All the outside patio furniture is redwood, top-quality stuff,” says Tom Sito, a veteran of Disney and DWA who also has done work for Illumination and who now heads USC’s animation program. DWA serves its animators free lunches. By contrast, Illumination worked out of facilities that were rented as necessary until 2012, when the company set up shop in a small, 20,000-square-foot space in Santa Monica, largely populated with marketing staff. The company also has a significant but stripped-down production facility in a converted parking structure above an Alfa Romeo dealership in Paris. Whatever else may happen at DWA, says Jenson, “They all know they’re going to be paying for lunch from now on.”

While Katzenberg still likes to work with comparatively large crews on his films, mostly under one roof, Sito says Illumination animators are far flung and work with directors through email and Skype, with Meledandri mostly managing from Santa Monica. “There’s not a collection of artists in one room reacting to one another’s work,” says Jenson. On the two Despicable Me films, Sito says, “There would be story artists in New Hampshire and New Jersey and England and Canada. I’ve got to hand it to the directors [Pierre Coffin and Chris Renaud] that they were able to pull it off.” With Despicable Me 2 having pulled in more than $970 million worldwide in 2013, clearly it worked. Jenson says the look of the Illumination films is simpler, but audiences don’t seem to mind: “[DWA’s] Rise of the Guardians was a beautiful movie, but who could notice it if they didn’t go see it?”

One key difference between the two companies has been that Illumination focuses more on story before major production spending begins, while DWA has been known to make costly changes while the film is in progress. Working with Katzenberg, says Jenson, “I definitely got my share of horrible notes, the big ‘UGH’ written on my pages, [but] he definitely understood what a good movie could be. At his best, he could help you find it.” Adds Sito, “Jeffrey rubbed a lot of people the wrong way because he’s so brusque. But he was passionate about the medium.”

At this point, Hulett’s appraisal is less sentimental. “The love of Jeffrey ended when the big layoffs came,” he says. But he thinks Katzenberg, too, is feeling the pain. Despite a likely payday of $420 million from the sale, Hulett says: “In some ways he’s licking his wounds. I think he really wanted to stay in the game.”

A version of this story first appeared in the May 13 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.