Jeff Shell Talks DreamWorks Animation Deal: "I Plead Guilty to Disney Envy" (Q&A)

Jeff Shell GETTY - P 2016
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The Universal film chief reveals the strategy behind a $3.8 billion deal, why having two animation studios will benefit both, Illumination chief Chris Meledandri's uncertain role and how he plans to keep distinct cultures intact.

Jeff Shell readily admits he has Disney envy. The chairman of Universal Filmed Entertainment says a key driving force behind parent NBCUniversal's $3.8 billion purchase of DreamWorks Animation is to emulate the successful two-pronged strategy employed at the rival entertainment company. Disney has Pixar Animation Studios (Toy Story, this summer's Finding Dory) and Disney Animation Studios (ZootopiaFrozen), both run by John Lasseter and Ed Catmull, and, if Universal's DWA deal passes regulatory scrutiny, Universal will have Chris Meledandri's Illumination (Minions, this summer's The Secret Life of Pets) and DreamWorks (Shrek, this fall's Trolls) run by Meledandri and possibly another executive. Shell talked with The Hollywood Reporter about how the acquisition — which came together within the past two weeks — will impact the company's television and film offerings, and what's next for DWA's outgoing CEO Jeffrey Katzenberg.

So is Chris Meledandri the new John Lasseter?

Chris [Meledandri] has built and runs Illumination and we love Illumination. So, and this is all very new, but the idea that we would buy DreamWorks and have a guy like Chris Meledandri in our company and not have him involved is inconceivable. There’s a range of ways he can be involved, being the creative driver of their movies, being more broadly involved, and we haven’t sorted any of that out yet. I don’t think Chris has even determined what he wants his involvement to be. The idea is over the next six to eight months, while the government does their review, we’ll review their business and we’ll also sit down with Chris and [figure out] how the structure is going to work and what his involvement is going to be. 

So there’s a possibility that you might bring in another business executive to help Meledandri run animation?

No, I don’t think we’ve thought about [that]. DreamWorks is its own company built by Jeffrey Katzenberg, as opposed to Illumination that was founded and built by Chris brick by brick. So it's a possibility that the ownership structure or the management structure at DreamWorks might be different than the way it is at Illumination. That’s all I’m saying.

The knock on DreamWorks Animation in recent years was that their movies are very expensive, especially when compared to what Meledandri has been able to do with lower budgets at Illumination. So why buy the studio that was making movies criticized as costing too much? 

Let me break that down a little bit. First of all, the flip side of "too expensive" is that DreamWorks has always been known for having high-quality movies. So we like the quality of their movies and their TV is very high-quality. One of the things Netflix touts about the DreamWorks TV product is the quality of the productions, and we certainly want to continue that [via DWA's Netflix output deal]. Hopefully, we can find a way to do the same quality films for a lower price, but we’re not even remotely close to that.

DreamWorks was exploring lower-cost films and Katzenberg had said that he was doing that in part because of the competition from places like Illumination.

Yep, that’s what he said. We have to get in there and figure it out for ourselves. They’re doing one low-cost model, but obviously we would like to do movies for cheaper — always and everywhere, animation and not animation. But we also want to maintain a quality so we’re taking one step at a time.

It was no secret that this company was for sale. It’s been for sale for a long time and Jeffrey’s gotten real close with a couple of other suitors. Why did you sit back then and second question, what made you pounce now?

That’s really a question for [Comcast CEO] Brian Roberts because this all stemmed from a call with Jeffrey he had two weeks ago. Jeffrey and I have been talking for two years about things we can do together. Whether we can do TV together or consumer products and other things. Jeffrey decided, and I think correctly, that we were the proper custodian for this company he had built and it was time to move on to the next stage. So I think it was a moment in time for Jeffrey rather than us pouncing. I think it was him deciding that the moment was right for him.

How did you arrive at your valuation of the company?

We were willing to pay and the reason for that is we liked the company for a number of strategic reasons that had nothing to do with just the pure profitability. So, for example, they had a television operation that we are in the first inning of setting up here at Universal that’s going to take us five to seven years and tons of investment and a lot of luck to get to where they’ve gotten. So the day after this deal closes, we can pump property through that television operation — whether it’s Fast and Furious or Jurassic World — and create value because they have a business that’s up and going with a creative team and a TV animation structure that would take us years to build. Ultimately this was a "buy vs. build" decision for us. We built some of our own franchises and stories, we can continue to do that, but now we got a whole pile of them that they created. 

How about the theme parks? A number of the characters already have existing licensing agreements.

That’s correct, and some of them are with us, for example. I’m looking outside my office window at the Shrek [ride] right here at Universal Studios Hollywood. So, we have them, too. I think that is a significant part of the deal. I mean, you can't think about a Kung Fu Panda attraction at a Beijing theme park when it opens up and not get excited. This is how we’ll work our theme parks. We’re very excited about Harry Potter [attractions], but we’d love to have our own IP in the theme park as well.

DreamWorks has its Netflix deal for TV and there is some question whether that might conflict with Comcast's strategy. How is that going to work?

I actually love that deal, so I talked to [Netflix chief content officer] Ted Sarandos this morning, he’s a friend of mine. We at Universal have tons of deals with Netflix around the world. We sell our product to Netflix. I love the Netflix deal and I hope we can continue to supply them with the product they wanted to buy in the past.

But your pay TV deal in the U.S. is with HBO, correct?

Our pay TV deal is with HBO, and presumably when we get the distribution rights [to movies] back from Fox [when that deal expires at the end of 2017] for DreamWorks, these movies will also go into our HBO deal.

Will the DreamWorks digital properties like AwesomenessTV being spin off under Katzenberg be sold off? And if so, do you have a buyer in mind, and is it Jeffrey himself?

I don’t know anything about that. I'm under the impression that we haven’t made any decisions about any assets. So, I do know that Jeffrey’s going to continue to be involved in Awesomeness and NOVA, which are both partnerships, and I think that’s great. I don’t think we made any decisions to sell anything.

But Verizon is a big investor in Awesomeness and that might conflict with you guys.

And if it does, we’ll cross that bridge when we come to it.

There’s a culture at DreamWorks Animation, free lunch and a lot of perks. Do you anticipate that changing?

Culture is very important in media operations. I’ve been in the media business my whole life. I was at Disney, then I was at Fox and now Comcast and Universal. I think it’s very critical to a company that’s ultimately made up of creative people to preserve the culture that has incubated their creativity. So I think we’re going to be very, very careful before we do anything to change the culture of this company.

What about the DreamWorks' campus? Jeffrey sold it off. Are you planning to keep it and would you consider buying it back?

Well, he sold it off and leased it back for a long time, so it’s effectively an ownership. It’s just an operating lease, so we haven’t even started thinking about that. Our starting point is we bought a company for a lot of money and we would leave things as close to the same as they are and then go from there. 

Pixar operates very separately from Disney Animation Studios, almost pathologically so. Do you anticipate that kind of separation or a little more cross-pollination?

This is what I’ve done my whole career. The challenge always is to try to find a way for creative ventures to run individually and separately with their own cultures, but also take advantage of a larger whole. When I got to Universal, Donna [Langley] and Ron [Meyer] would echo this, it was very separate. There was no connection between NBC, let alone Comcast, and I think what we’ve done in the last three years is we’ve really become much more connected to Comcast. That has benefited us when you see the fire hose of promotion for our movies (and we’re about to see that with Secret Life of Pets over the next couple of months). You've got to keep a separate culture, whether it’s here at Universal or at DreamWorks, so I would anticipate there would be a separate company in some shape or form there to maintain the culture.

There’s a lot of irony here. DreamWorks was launched by Steven Spielberg, David Geffen and Katzenberg with fanfare of being an independent studio. And now here we are 20 years later, Spielberg is back at Universal with Amblin Partners and now Jeffrey’s company is at Universal. 

I talked to Steven about that this morning and I said, ‘I’m secretly trying to put DreamWorks back together.” But no, it’s kind of wonderful. I was at DreamWorks Animation this morning and I drove back to the lot at Universal and came in the back way because that’s the fastest way from DreamWorks Animation and you go right by Amblin where Steven works and it’s just kind of cool, right?

People say you have Disney envy. What do you say to that?

I agree. I actually think what Bob Iger and his team have built at Disney, John Lasseter, Alan Horn — as a consumer, you know, I watched Jungle Book last weekend. That is a masterful movie. It’s hard not to have Disney envy if you’re in the media business right now. They’re just making absolutely fantastic product that is enjoyable for all ages and they have an economic machine there that’s monetizing across the globe in a fashion that’s equally magical. So yes, I plead guilty to Disney envy.