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Three miles separate the campuses of Walt Disney Co. and DreamWorks Animation SKG Inc., yet these leading Valley companies find themselves going head-to-head – in both virtual reality and the other side of the globe. Both Disney, in Burbank, and DreamWorks Animation, in Glendale, have made acquisitions in the online world of multi-channel networks. And they are building themed entertainment attractions in the same Chinese city of Shanghai, based on their popular film characters and storylines. But the approaches each is taking in these ventures is reflective of their size and longevity – with Disney the entrenched media and entertainment giant run by Robert Iger, while DreamWorks Animation, run by former Disney executive Jeffrey Katzenberg, plays its hand as the scrappier player. Deep-pocketed Disney shelled out $500 million in March for Maker Studios Inc., a large Culver City-based YouTube network, and is splitting a $5 billion price tag with its Chinese partners on the Shanghai Disney Resort scheduled to open next year. DreamWorks Animation acquired multi-channel teen network AwesomenessTV last year for just $33 million and has a joint venture for a Dream Center entertainment complex in Shanghai where it will spend far less than Disney. Both companies, though, are facing the same challenges: how to succeed in a rapidly changing media world in which DVD sales are on decline, the Web is ascendant and the best opportunities are likely abroad, as opposed to down the street. “I wish it was an offense move. Diversity is essential for us if we want to grow the business,” said Katzenberg, at different points last month at the Milken Institute’s Global Conference in Beverly Hills, adding that finding new ways to bring in money “can’t come fast enough.” DreamWorks Animation announced its Oriental DreamWorks joint venture two years ago. In addition to the Dream Center park, the venture includes an animation studio that will co-produce “Kung Fu Panda 3” to be released in 2016. To manage Oriental DreamWorks, the partners hired Guenther Hake, a former managing director for Disney’s greater China consumer products division. Disney has other digital and Chinese projects in the works as well. In the past six months, the company signed agreements with Shanghai Media Group to develop Disney-branded movies, and with Shanghai digital media company BesTV to develop content. These deals are similar to the Maker acquisition in helping with the marketing of the Disney brands and its renowned characters Mickey Mouse, Donald Duck, Iron Man and the Avengers. “There are a lot more ways to monetize characters than in the theater and on DVD,” said Eric Wold, an analyst in the San Francisco office of B. Riley & Co., a Los Angeles investment bank. “You are seeing consumers wanting to pay for certain things on digital channels rather than having a giant cable package of things they do not want.” DreamWorks Animation representatives declined to discuss the AwesomenessTV and the China deals. Disney did not respond to interview requests. Virtual gold mine With more than 80 million Americans viewing online video daily, whether large entertainment and media companies will take a seat at the digital table is more a question of if rather than when. Indeed, Disney has been a leader, with its ventures dating back to 2004 but really taking off the following year when ABC television shows became available on Apple Inc.’s iTunes, a pioneering and leading online media platform. The relationship between the Mouse House and Apple has only strengthened since then. However, YouTube, a subsidiary of Google Inc. in Mountain View, is by far the largest of the online video websites, reaching 84 percent of the viewing audience, according to ComScore, a digital measurement and analytics firm in Reston, Va. And in going after Maker, Disney went after one of the biggest producers of content on YouTube. Maker Studios targets young people and families with its gaming, fashion, celebrity, music and comedy content on 55,000 channels drawing 380 million subscribers worldwide. Much of its content is in short clips of three minutes to 10 minutes in length viewed on the go, while waiting in line or other downtime during the day. In March alone, Maker drew in 20.6 million unique visitors, the third highest among YouTube networks, and it held the top spot in average viewer time at 75 minutes, according to ComScore. With those kinds of numbers, Disney felt comfortable forking over $500 million in cash with up to $450 million in earn-out payments for the acquisition. In a May 6 conference call with analysts to discuss third-quarter earnings, Iger said the acquisition made sense because Disney lacks depth in creation and distribution of short-form video that Maker, founded in 2009, specializes in. “We believe that by creating access for the Maker people to some of our big brands and characters in storytelling – Star Wars would be a perfect example of that, Marvel is another one – that we can actually allow the Maker people to substantially improve the distribution or the reach of shorter-form video using these characters and stories,” he said. Field Garthwaite, the chief executive of IRIS.TV, a Los Angeles software developer for media companies, digital publishers and sports leagues, said there is no doubt Disney can invest in talent and grow Maker’s revenues by bringing it into the Disney ecosystem. “It bolsters the core business of those major brands like Pixar and brings cross-channel promotion opportunities,” he said. By contrast, DreamWorks acquired Awesomeness, in Los Angeles, a year ago for $33 million, with additional payments of up to $117 million if certain earnings targets are met in the next two years. AwesomnessTV produces and distributes content aimed at young people in their early to late teens. The network’s lineup includes short form videos on fashion, pop culture, celebrities, comedy sketches, reality programming, and the dramas “Runaways” and “Side Effects.” The network has more than 85 million subscribers and a video view total of 4.6 billion, company officials said. “So, with those kind of eyeballs on a very specific, defined demographic, we think there are many ways in the coming year or two to start to monetize it,” Katzenberg said during his conference call. DreamWorks Animation could use another revenue stream, considering the poor showing of its recent feature films. The company took an $87 million write down in late 2012 on the poor performance of “Rise of the Guardians,” and took another $57 million charge this spring for “Mr. Peabody & Sherman.” Since the acquisition, DreamWorks has formed a joint venture with Hearst Corp. and AwesomenessTV to create a YouTube channel aimed at the readers of Seventeen magazine. And in April, AwesomenessTV and DreamWorks spent $15 million to acquire Big Frame, a Culver City-based network of more than 300 YouTube channels featuring entertainment, music and lifestyle content that draws 39 million subscribers. Through these ventures DreamWorks Animation gains entry into an age group different from the one that made “Shrek,” “Kung Fu Panda,” and “How to Train Your Dragon” popular at the theaters. “AwesomenessTV is a little skewed toward teens and it moves (DreamWorks) up the chain and may be an indication of where they want to take their programming,” said Wold, the analyst at B. Riley. However, the online ventures are clearly just taking baby steps. DreamWorks reported that in the first quarter AwesomnessTV generated just $4.1 million in revenue and incurred a gross loss of $80,000. But Vasily Karasyov, an analyst with Sterne Agee Group Inc., a Birmingham, Ala. brokerage, said he believes that AwesomnessTV can serve as a launch pad for new ideas that eventually can become bigger television series. “If there is some idea or concept that is getting traction, they can take it and translate it into the regular TV experience,” Karasyov 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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