Theme Park Expansion Will Provide a Boost for Dreamworks Animation Shares
Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Dreamworks Animation (NASDAQ: DWA) has released 26 animated movies in its history. The company continues to count on two to three releases per year to obtain its annual revenue and profits. However, that may be changing as the company boosts its licensing power and sees growth in its characters being licensed for theme parks. Similar to rival Disney (NYSE: DIS), the company is counting on other segments than movies to strengthen its revenue going forward.
In fiscal 2012, new and previous year releases made up 57.2% of Dreamworks Animation’s revenue. Library titles made up 22.6% of the annual total. The company acquired Classic Media’s assets in 2012. The results of that acquisition made up 4.8% of the fiscal year’s revenue total. The other category, which is the big part of this article, represented 14.1% of the company’s total.
“Madagascar 3”, which was released in 2012, made $197.2 million for Dreamworks Animation, representing 26% of the yearly total. “Puss in Boots” ($151.7) and library titles ($169.2 million) represented the other biggest contributions to the annual sales.
In fiscal 2012, Dreamworks Animation reported other revenue that made up 14.1% of the total. Of that total, television specials represented $48.8 million, live events represented $44.0 million, and other revenue was $13.2 million.
That $13.2 million shows the opportunity that Dreamworks has. The company saw revenue of $13.2 million for the full year from licensing of the company’s brands used at theme parks and on Royal Caribbean Cruise lines (NYSE: RCL). Since 2010, the company has had a relationship with Royal Caribbean to use certain Dreamworks movie characters on the cruise ships. Less than 2% of the company’s yearly revenue came from theme park and cruise line related revenue.
Last July, Dreamworks Animation announced a partnership with Triple Five, a shopping mall operator, to create an indoor theme park based on the movie company’s characters. American Dream Mall, which will open adjacent to Metlife Stadium (home of NFL’s New York Jets and New York Giants), will see 40-55 million visitors annually. Dreamworks characters like Shrek, Fiona, Donkey, and Po, will be featured on rides, shows, and souvenirs. The licensing from the mall extends Dreamworks to theme parks, live shows, Broadway, and cruise lines, creating a huge consumer brand company. I highlighted this move last year and also pointed out Triple Five’s other malls. The company owns Edmonton Mall and Mall of America, creating two potential homes for additional indoor theme parks with Dreamworks Animation characters.
In February of 2013, Dreamworks continued its theme park expansion with a partnership from Regions Group of Companies. Regions is Europe’s largest indoor theme park company. The Russian company is planning on opening theme parks featuring Dreamworks characters in Moscow, St. Petersburg, and Yekaterinburg. Regions will be responsible for designing, building, and managing the malls and will pay licensing fees and possible royalties to Dreamworks. The malls are scheduled to open in 2015. Theme parks in Russia make sense for Regions and Dreamworks Animation. Recently, “Madagascar 3” became the second highest animated movie and fourth highest grossing movie all time in the country. In fact, six of the top ten grossing animated movies in Russia are Dreamworks Animation brands.
Obviously, the long term goal for Dreamworks Animation will be to create its own theme parks. Disney has success with parks that it can control and test new characters and plan special events around upcoming releases. Dreamworks will see its cash flow and earnings boosted from licensing revenue over the next three years. By the end of 2015, there could be three Dreamworks Animations in Russia and one indoor park in the United States.
Disney has success with its two theme parks in the United States and allowing companies to license the characters for parks overseas. Dreamworks should begin plans for an outdoor theme park in the United States. The company is headquartered in California and could use the state’s large population and interest in Disneyland Resort to attract visitors to its park.
The other potential I see is Dreamworks partnering with a regional theme park operator to test its theme park concept, but it might hurt its long term potential. For example, the company could create a Shrek themed small area at an existing theme park. I use Shrek as an example because the top four grossing movies (domestically) for Dreamworks Animation come from the Shrek franchise. All together, the four Shrek movies grossed over $1.25 billion domestically.
With a small movie base of 26 films, Dreamworks Animation made a purchase in 2012 that will provide a huge base of characters that could be implemented in a theme park. The company acquired Classic Media to strengthen its film slate and also increase its consumer product revenue. Characters like Waldo, Rocky and Bullwinkle, Frosty the Snowman, Casper, Richie Rich, Baby Huey, and Rudolph the Red Nosed Reindeer are now owned by Dreamworks Animation.
Here is a potential layout of a Dreamworks Animation theme park:
- Shrek Land featuring Shrek, Fiona, Donkey, Puss in Boots, the Castle and other characters from the movie franchise.
- Madagascar featuring rides based on the places the characters have traveled in the movies.
- A Kung Fu Panda are where kids can learn to become a warrior like Po.
- Christmas Land featuring Frosty the Snowman and Rudolph the Red Nosed Reindeer (possibly seasonal). Could also feature Jack Frost from the “Rise of the Guardians” movie.
- With “How to Train Your Dragon” being the next franchise for the movie, this would be an easy area to create where a ride could make kids feel like they are on a dragon.
Disney has resorts in Florida, California and Hawaii. The media conglomerate also has partial ownership in theme parks in Paris, Hong Kong, and Shanghai. In 2012, Disney reported revenue of $42.3 billion. The company’s parks and recreation category made up 30% of that total ($12.9 billion) in a 10% increase. Parks and recreation also represented the second highest portion in the company’s net income with $1.9 billion, or 19% of the $10.0 billion total.
Compare that to Dreamworks Animation, who saw 1.7% of net sales come from theme parks and cruise ships. The signing of the international licensing along with some potential American theme parks with Shrek, Fiona, and other characters, could dramatically impact Dreamworks revenue and earnings. Disney has taken its characters and made them into theme park attractions and consumer products. This modeling after Disney is the next step for Dreamworks and investors should see the long term potential of a smaller Disney.
Along with Disney, Dreamworks Animation theme parks will compete against other regional players. I believe that Dreamworks will eventually develop more parks in the United States, either on its own or through licensing deals.
Other rivals include:
- Seaworld (NYSE: SEAS) – Seaworld owns 11 theme parks across the United States. The company will go public in 2013 and could help the growth prospects of Dreamworks theme park ventures. The company primarily offers animal themed attractions and focuses on wildlife versus characters from movies.
- Cedar Fair (NYSE: FUN) – Cedar Fair is one of the largest theme park operators in the world with 11 amusement parks, four outdoor water parks and one indoor park. The company utilizes characters like Charlie Brown and Snoopy for its theme and certain attractions. These brands are licensed and Cedar Fair could actually make a partnership with Dreamworks unlikely.
- Universal Studios (NASDAQ: CMCSA) – Acquired through its buyout of NBC Universal, Comcast has enjoyed the ownership of the Hollywood and Orlando Universal Studios. The company also showed Dreamworks and its investors how one brand can be turned into a separate theme park. Universal has a Harry Potter theme park that has seen huge success. Obviously, Harry Potter is a huge brand and one of the highest grossing movie franchises of all time with a built in book audience as well. However, the Shrek brand and others like Kung Fu Panda and Madagascar could hold their own in separate areas of one Dreamworks Animation theme park. In fiscal 2012, theme parks made up 3.3% ($2.1 billion of $62.6 billion), but did see a 5% increase in revenue from the previous year.
Dreamworks Animation Shares
Shares of Dreamworks continue to trade below $20. The company has not been at $25 since May of 2011. Shares of Dreamworks Animation traded over $40 back in 2010 and came close to the $30 level in 2011. The release of two to three movies a year and the end of the Shrek franchise has hurt shares and caused investors to pull out of this media brand. Theme park revenue could start out slow, but should provide a nice cushion by 2014 or 2015, leaving shareholders to benefit from the additional revenue.
Chris Katje has no position in any stocks mentioned. The Motley Fool recommends DreamWorks Animation and Walt Disney. The Motley Fool owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!