Cable giant wants to build up its movie, TV, and theme park assets.

By Mathew Ingram
April 28, 2016

As predicted by a Wall Street Journal report earlier this week, Comcast announced on Thursday that its NBCUniversal unit is acquiring DreamWorks Animation for $3.8 billion in cash. In doing so, the cable giant clearly has its sights set on duplicating a Disney-style model: That is, control a library of dependable, long-term content you can monetize in a variety of different ways.

After the acquisition, DreamWorks Animation will become part of NBCUniversal’s Filmed Entertainment Group, which includes its Illumination Entertainment animation business—which produced the popular Despicable Me and Minions movies—as well as the Universal Pictures movie studio.

The purchase price Comcast is shelling out for DreamWorks reinforces just how badly it wants the company. The offer amounts to $41 a share, which is a 50% premium to the $27 that DreamWorks was trading at just before the Journal story came out. The total value of the deal, including debt, is just over $4 billion.

For Comcast CMCSA , the acquisition provides a hedge against its existing cable TV and Internet businesses. While those assets continue to spin off large amounts of cash, and Comcast appears to be winning the war against cord-cutting (at least for now), the cable business is not exactly a growth story, especially when you are already the largest player.

Much like NBCUniversal’s $200-million investment in Vox Media, and a similarly-sized investment in BuzzFeed, the DreamWorks acquisition provides the company with content it can not only shove down the pipe that it owns into people’s homes, but can distribute in other ways as well, especially online and through streaming services.

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NBCUniversal CEO Steve Burke made it clear that he sees DreamWorks as much more than just a creator of family-friendly entertainment it can fold into its animation arm. After praising the DreamWorks brand, he said the main goal was the company’s “deep library of intellectual property,” which would help NBCUniversal “grow our film, television, theme parks and consumer products businesses for years to come.”

In other words, the rationale behind the DreamWorks deal is fundamentally the same as it was for Disney’s $4-billion acquisition of Lucasfilm in 2012, or Disney’s earlier purchase of Marvel Entertainment in 2009, which also worked out to about $4 billion.

Both of those deals gave Disney a massive library of existing movie, TV, and other content, which it has been using to fuel not just its movie business but its theme parks and merchandising businesses. And just as important, those deals gave the company a potential pipeline of future movies, TV shows and merchandising opportunities.

So is DreamWorks Animation going to be as valuable to Comcast or NBCUniversal as Lucasfilm or Marvel has been to Disney? That remains to be seen, but Disney has set a fairly high bar: When merchandise sales are included, the first Star Wars movie that Disney produced after the deal has already generated enough revenue to pay for the entire Lucasfilm purchase.

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It seems unlikely that DreamWorks is going to produce that kind of blockbuster return for NBCUniversal, at least initially. The company has done well with several of its movie franchises, such as Kung Fu Panda, Madagascar and Shrek, but it doesn’t have anything that really compares to the Star Wars library or the Marvel franchise (although Shrek has pulled in about $3.5 billion since the original movie in 2001).

Rich Greenfield of BTIG Research, for example, argues in a research note about the acquisition that Comcast is paying much too high a premium for a company whose track record of movies he calls “underwhelming.”

DreamWorks has also been struggling financially. CEO Jeffrey Katzenberg—who co-founded the DreamWorks movie studio with Steven Spielberg and then spun the animation unit off as a separate company in 2004—has tried to sell the company several times. Talks were said to be underway with toy giant Hasbro in 2014 but were unsuccessful, and DreamWorks also reportedly talked to Japanese venture firm Softbank.

From Comcast’s point of view, however, DreamWorks is clearly worth betting on. The cable giant has more than enough cash flow to pay for the deal, and even if it never attains Star Wars or Marvel-style success, the animation business beefs up its TV, movie and theme park businesses and gives it a hedge against the decline of traditional cable.

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