Comcast CFO Outlines DreamWorks Animation's Financial Upside Inside NBCU

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Universal Studios

Michael Cavanagh cites distributing the animation studio's films in-house after 2017 when a $75 million-a-year Fox deal ends, cuts to the $250 million selling, general and administrative costs and revenue opportunities.

NBCUniversal's ability to distribute films from DreamWorks Animation itself once DWA's distribution pact with Fox ends will be among the financial benefits of the $3.8 billion deal, Comcast CFO Michael Cavanagh said Monday at an investor conference.

Speaking at the 44th annual J.P. Morgan Global Technology, Media and Telecom Conference in Boston, the exec said that based on "most analyst reports," DWA "should earn close to $200 million" in earnings before interest, taxes, depreciation and amortization a year when releasing two movies plus producing TV shows. But integrating it into NBCUniversal can improve those financials, he said.

Outlining the sources of cost upside for DWA under NBCUniversal, Cavanagh mentioned the animation studio's current distribution deal with Fox, which runs through 2017, saying it costs about $75 million a year. "In about two years' time, we'll take that in and immediately add that to the core earnings power of the company," he said.

As "the other big cost driver," Cavanagh cited DWA's $250 million a year in selling, general and administrative expenses. "It really doesn't make sense to have a public company that makes only two movies a year, so we will be able to do quite a good job over a period of time to capture synergies there," he said, but didn't provide further specifics. 

In terms of revenue opportunities, DWA adds to Universal a TV animation studio, Cavanagh highlighted. "So we will be able to take, subject to it making sense, our intellectual property, like Jurassic World or other properties, and, as DreamWorks has done, create kids animation for TV, largely distributed over SVOD and drive more value through that," he said.

Explaining how the deal will boost animated output, Cavanagh said Universal and DWA will each continue to make about two animated movies a year, with each releasing one new film and one sequel. He added: "The characteristics of an animated film, profit-wise and risk-wise, volatility[-wise], is much better for animation than Iive-action movies. So we have long wanted to tilt the business more in the direction of animated films at the margin."

Overall, Cavanagh called DWA a "once-in-a-lifetime opportunity" and said that NBCU is "very confident" that the long-term film unit financial trajectory was "going in the right direction." He reiterated past management guidance that after a record $1.2 billion in film unit operating cash flow in 2015, this year will have a "much smaller" slate, and "we expected this to be a down year relative to a record." In 2017, such big franchises as Fast & Furious and Fifty Shades will return though, followed in 2018 by Jurassic World, said Cavanagh.

Adding attractions to NBCU's theme parks based on DWA franchises are an additional opportunity, the Comcast CFO said. "Out over the horizon [of several years], to have internally children's intellectual property that is both in the library of DW as well as newly created ... is great for the parks business," he said.

Cavanagh on Monday also lauded Universal's management team of Jeff Shell, Donna Langley, Ron Meyer and Chris Meledandri for having done an “unbelievable job" and earning the right to do a major acquisition. He said about DWA that "this business has been on [the team's] wish list for a long period of time."