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Market Insight

Dreamworks Animation moves for Classic Media

July 22, 2012

Tim Westcott Tim Westcott Director – Research and Analysis, Programming, IHS Markit
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Dreamworks Animation is to buy Classic Media in a deal that will swell its intellectual property library with more than 450 titles, ranging from Casper the Friendly Ghost, Lassie and the Lone Ranger to Postman Pat.

The Hollywood studio said today it would pay $155m in cash and borrowings to acquire Classic Media from Boomerang Media Holdings LLC, a portfolio company of Chicago-based private equity firm GTCR. Eric Ellenbogen and John Engelman, who founded Classic Media in 2000, will stay on board and operate Classic Media as a subsidiary division. The transaction is expected to be completed in Q3 2012.

Classic Media's library is made up of over 450 titles and more than 6,100 episodes of animated and live-action programming. Properties include one of the world's largest comic book archives, the Golden Books library, and Mr. Peabody & Sherman, which is being revived by DWA in a new film due for release in December 2013.

The portfolio also includes properties owned by Entertainment Rights, which Boomerang bought out of bankruptcy in April 2009 for an undisclosed sum stated to be lower than its debts of £125m ($183m). Entertainment Rights had earlier bought Classic Media from Ellenbogen and Engelman in January 2007 for $210m.

Classic Media has 80 employees and is headquartered in New York City, with offices in the UK and a division, Big Idea Entertainment, in Nashville. For the 12 months ended 29 February 2012, Classic Media made net revenue of $82.2m and operating profit of $19.2m.

The acquisition of the Classic Media business is potentially transformative for Dreamworks Animation, which has mainly focused on originating its own franchises (such as Shrek, Madgascar and Kung Fu Panda) rather than reworking library properties. Jeffrey Katzenberg said DWA planned to leverage the Classic Media library across all of its 'channels', ranging from the theatrical business which still provides almost all of the studio's revenues to much less significant consumer products, theme parks and live entertainment businesses. Ellenbogen and Engelman, meanwhile, said the combination would 'expand the opportunities for us and for our content and distribution partners'.

Purchases in the children's business are typically based more on intellectual property than the operations of the target company, but these comments suggest there is more to the Classic Media acquisition. DWA will also acquire a business which is mainly based on producing and licensing children's content for the international TV market. The combination will at a stroke increase the scale of this activity within DWA as well as, of course, unlocking new revenue streams for the DWA back catalogue. 

While the international market for children's content is an intensely competitive and tough one - as shown by the difficulties of Entertainment Rights, for one - a flow of revenue from licensing will also help to diversify DWA's business, which is heavily dependent on the often volatile theatrical market. That Classic Media will also be 'earnings-accretive' in its first year is another benefit of the deal for the Nasdaq-listed DWA.

 

Geography
USA
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