DreamWorks Animation SKG Inc. (DWA) is set to lay off around one-fifth of its workforce as it plans to slash around 500 jobs across all its divisions. In addition, the company plans to trim down its feature production to two films from three a year. DreamWorks is also closing its Northern California studio.
Notably, all these initiatives are part of a major restructuring process of the company’s animated film business. DreamWorks aims to improve the quality and profitability of its pictures now that it has faced several box-office disappointments.
DreamWorks' latest release Penguins of Madagascar fell short of expectations as it faced intense competition from The Walt Disney Company’s (DIS) Big Hero 6 and Christopher Nolan’s Interstellar. While rival production houses have delivered quite a few box-office hits with animated features, DreamWorks’ recent movies have failed to meet the expectations.
Following the restructuring, the company also expects to incur a pre-tax charge of about $290 million, to be largely accounted for in the quarter ended Dec 31, 2014. The pre-tax charge includes $30 million for the California studio shut-down, around $200 million in costs for unreleased projects and alterations in its release schedule, and $60 million in severance-related costs. The quarter will also include a $55 million impairment charge, related mainly to weaker-than-expected collections for Penguins of Madagascar and Mr. Peabody & Sherman.
The company unveiled its restructuring plan soon after two sets of takeover talks failed to materialize last year. Negotiations with two potential buyers, namely Japanese telecom giant SoftBank Corp. (SFTBY) and leading U.S. toy maker Hasbro Inc. (HAS), had fallen apart.
The company has planned to release one sequel and one original movie each year over the period 2016–2018. It is specifically focusing on sequels as they require lower advertisement costs and promises strong ticket sales.
DreamWorks, which had about 2,200 employees as of Dec 31, 2013, expects the restructuring to be largely completed by the end of this year. The studio also said that it expects to realize annual cost savings of roughly $30 million in 2015 and about $60 million by 2017 following the restructuring.
With this restructuring process in place, the company aims to achieve consistent creative and financial success in its core film business. DreamWorks also expects the restructuring plan to maximize the company’s creative talent and resources, lessen its costs, and bolster profitability. Notably, the company’s Vice Chairman and Chief Operating Officer would also be exiting the company as part of the restructuring plan.
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