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Wednesday, Feb 1, 2023
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Layoffs – Not Really a Nightmare

The news last month that DreamWorks Animation SKG Inc. was cutting 500 jobs and consolidating operations was the clearest evidence yet of the financial troubles facing the Glendale studio. It also was a reminder of the wild swings of economic fortune that not only studios, but their hometowns can experience when audiences turn fickle and films bomb at the box office. But even as DreamWorks sets about cutting what will amount to nearly 20 percent of its workforce, the script may not have such a terrible ending for Glendale and the Valley. There are currently about 2,200 workers at the studio’s manicured campus headquarters, and about 250 of those are expected to be laid off. However, the Glendale property is escaping the fate of the studio’s satellite location in Redwood City, which is being closed. Six hundred employees work at the Silicon Valley office, mostly visual artists and other production workers, and DreamWorks plans to offer up to half of them the opportunity to relocate to Glendale. That means the Valley office should see its total workforce remain even, despite the massive cuts. “It is not going to be a huge difference in the number of people,” said Steve Hulett, the business manager for Animation Guild Local No. 839, which represents animation artists, writers and technicians. The staffing cuts announced Jan. 22 by Chief Executive Jeffrey Katzenberg will hit all divisions of the company, starting with feature films, as the company plans to reduce its output from three films to two annually starting next year. They will extend to television, online, live performance and consumer products. They followed yet another poor showing at the box office by the studio’s fall release, “Penguins of Madagascar.” While the studio had a breakout hit with “How to Train Your Dragon 2,” which was released in June and has generated more than $600 million in worldwide ticket sales, it has taken nearly $158 million on write-downs on three other films since 2012. Philip Lanzafame, Glendale’s director of economic development, said that while DreamWorks has had to make adjustments to its payroll in the past, the scope the company is doing it this time around is more severe. DreamWorks last made staffing cuts two years ago when it delayed production of the movie “Me and My Shadow” and sent it back into development. At that time, the Glendale campus was expected to lose 250 to 350 people. “They are going to have to make do with the people they have, but I am not sure what that impact is,” Lanzafame said. Deep roots But it’s even possible that the cuts – assuming DreamWorks doesn’t get into more financial trouble – could end up being a net gain for the greater Valley and Los Angeles. Christopher Thornberg, founding partner of Beacon Economics LLC, an L.A. consulting firm, said that despite the problems at DreamWorks, other animation and post-production companies are doing well and have their own spots to fill. “They will swoop in and scoop those people up,” he said. Kenn Phillips, chief executive of Valley Economic Alliance, a Van Nuys non-profit development group, added that any employees who are laid off from the Glendale campus will be replaced with top-notch Redwood City workers DreamWorks obviously highly values. “You are having a great deal of highly educated and highly sought after people living locally that had been living elsewhere,” he said. DreamWorks traces its root to the original DreamWorks SKG founded 21 years ago in Los Angeles by Katzenberg, director Steven Spielberg and music industry mogul David Geffen. Katzenberg, who had a background at Walt Disney Co. during its early 1990s animation renaissance started by “Beauty and the Beast” and “The Lion King,” oversaw the new studio’s animation business, which was spun off in 2004. The animation studio was originally located on the Universal Studios lot with the other divisions of DreamWorks SKG. A roughly 400,000-square-foot Glendale campus, which features a no-cost cafeteria, water fountains, koi ponds and walking paths, was constructed in 1997. DreamWorks Animation really came into its own thanks to a giant green ogre named Shrek, which became the studio’s most lucrative franchise starting in 2001. Later movies that pulled in big box office numbers included the “Madagascar,” “Kung Fu Panda,” and “How to Train Your Dragon” franchises. The burgeoning studio expanded the campus by another 100,000 or so square feet in 2008. But the $85 million development put the studio at the limits of its development agreement, so additional space was taken off campus. Last year, the company agreed to a five-year lease on two floors totaling 44,000 square feet at 655 N. Central Ave. for its growing television team. DreamWorks already had two floors in the building for business affairs and accounting. Bill Boyd, senior managing director at real estate brokerage Charles Dunn Co. Inc., said that so far there has been no talk about what plans DreamWorks may have for its leases. It could take up to six months for the company to reconfigure its needs and determine if it should shed some of that off-campus space, he said. “Those in the market assume that DreamWorks Animation would not be in the market for anything in the short term,” Boyd added. In the past two years DreamWorks has lost its magic touch. Starting with “Rise of the Guardians” in November 2012, the company has taken write downs on four of its last six films, including its latest release, “Penguins of Madagascar,” in November. Meanwhile, in October and November came media reports that DreamWorks might be acquired, first by Japanese communications and Internet company SoftBank Corp. and later by Hasbro Inc., the second largest toymaker in the U.S. No deal was struck between the parties with a reported sticking point being Katzenberg’s demand for $35 a share. In fact, the share price has tumbled nearly 40 percent from a year ago. It hit a new 52-week low of $18.57 on Jan. 29. The new strategy at the studio is to make one less film a year, funneling creative resources into just two releases. At the same time, the layoffs and reduction of overhead will allow the studio to reduce costs by about $25 million a film – to $120 million. Still, Eric Wold, an analyst in the San Francisco office of B. Riley & Co., a Los Angeles investment bank, cautioned that fewer movies could prove a risky strategy. “It does put more pressure for each to be more successful,” he said. Thornberg believes that the Glendale studio can work its way out of its current situation and find box office success again. He Thornberg pointed to Disney, which less than a decade ago had hit the doldrums with its animated features. But then came a turnaround starting with “Wreck It Ralph” (2012) and, a year later, “Frozen,” which has brought in $400 million alone in domestic box office. “‘Frozen’ still has legs and is making money hand over fist for Disney,” he said.

Mark Madler
Mark Madler
Mark R. Madler covers aviation & aerospace, manufacturing, technology, automotive & transportation, media & entertainment and the Antelope Valley. He joined the company in February 2006. Madler previously worked as a reporter for the Burbank Leader. Before that, he was a reporter for the City News Bureau of Chicago and several daily newspapers in the suburban Chicago area. He has a bachelor’s of science degree in journalism from the University of Illinois, Urbana-Champaign.
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