DreamWorks (DWA) Up on 200-Hour Video Deal with Verizon

DreamWorks Animation SKG Inc. DWA recently struck a multi-year deal concerning original online programming with leading U.S. carrier Verizon Communication Inc. VZ. However, the financial terms of the transaction have been kept under wraps. Following the news, the stock price of DreamWorks rallied nearly 3.31% in yesterday’s trading session.

Following this, Verizon will offer its online video customers a 200-hour package of live family entertainment created by DreamWorks and its AwesomenessTV (ATV) unit. However, the new programs will be available only to customers residing in the U.S.

Higher proliferation of smartphones/tablets coupled with increased 4GLTE rollout has encouraged most cable and Internet video operators to deliver superior service experience to its subscribers. These new offerings allow subscribers to watch shows on smart gadgets whether at home or away.

Moreover, young viewers prefer watching shows on smart devices over traditional media sources. Thus, the idea of catering to the younger generation through the creation of original TV content will certainly boost data revenues for Verizon.

Meanwhile, the launch of Verizon’s FiOS TV and AT&T, Inc.’s T UVerse TV have intensified competition for cable operators in the U.S. In the fourth quarter of 2014, both Verizon and AT&T witnessed 7.4% and 8.8% growth in video customers, respectively. In contrast, Comcast Corp. CMCSA reported a 0.9% drop in video subscribers in the same period.

DreamWorks lacks business diversification and is highly dependent on the success of its movie business which is volatile in nature. Thus, the deal with Verizon will certainly help the company diversify its revenue sources.

However, the acquisition of AwesomenessTV, a premier digital content developer and distributor, has opened up considerable growth avenues for DreamWorks. This multi-platform media service will combine DreamWorks’ original content with the digital expertise of AwesomenessTV, thus making it a much lucrative venture.

Earlier, DreamWorks had entered into an online streaming agreement with Netflix. Further, the company launched its online TV channel, DreamWorks TV, on Google Inc.’s YouTube.

DreamWorks is increasingly focusing on its Consumer Product business in order to generate more licensing revenues from its content library, thereby mitigating losses arising from its Feature Film business.

DreamWorks presently has a Zacks Rank #4 (Sell).