DreamWorks Animation’s box-office flops may result in 400 job cuts

DreamWorks Animation SKG, the upstart studio that once rivaled Walt Disney Studios in mining box-office gold from animated features, is embarking on a fresh round of layoffs following a string of disappointing releases.

DreamWorks is looking to shave as many as 400 jobs, or about 20% of its California workforce, under plans still being finalized, according to people familiar with the matter who were unauthorized to discuss them. The layoffs would be the second major downsizing in two years at the studio, which cut 350 jobs in 2013, and currently employs about 2,200 workers in California.

The reductions mark a retreat from ambitious growth plans under the leadership of co-founder Jeffrey Katzenberg, who transformed DreamWorks from a fledgling studio into a $700-million-a-year multimedia powerhouse.

But unlike rival studios, DreamWorks is mostly dependent on feature animation — and that has made the lack of hits especially troublesome, analysts say.

The studio took a $57-million write-down last year for its animated feature “Mr. Peabody & Sherman” and a $13.5-million charge on its summer movie “Turbo.” Those followed an $87-million write-down for the 2012 “Rise of the Guardians” holiday movie.

“The reason they are struggling is their business model, for better or worse, is built around each picture performing and if a picture doesn’t perform they have to look at staffing and ways to cut,” said Steve Hulett, business representative for the Animation Guild, which represents about 800 unionized workers at DreamWorks.

That’s one reason why Katzenberg has been actively shopping the studio. Last year, he ramped up efforts to find buyers, but his efforts were rebuffed by Japanese telecommunications giant SoftBank, Rupert Murdoch’s 21st Century Fox and toy maker Hasbro. The company’s share price has plunged 36% over the last year.

At the same time, DreamWorks is facing tougher competition from its longtime rival, Walt Disney Co., as well as other studios that have bankrolled hit animated features.

Under the leadership of John Lasseter, Disney has continued to churn out hits in its Pixar unit and has reinvigorated its traditional animation division. Disney’s 2013 film “Frozen” pulled in nearly $1.3 billion in ticket sales, making it the highest grossing animated movie of all time. Disney scored another hit with the recent release “Big Hero 6,” which has generated over $428 million in worldwide ticket sales.

Universal Pictures has proven a formidable rival with its “Despicable Me” franchise — which will have a “Minions” spinoff this summer — and Warner Bros. scored a surprise hit with “The Lego Movie” last year.

The pending layoffs at DreamWorks were preceded by the departure this month of longtime executive Bill Damaschke, the studio’s chief creative officer. Veteran producers Bonnie Arnold and Mireille Soria have taken over as co-presidents of feature animation.

The new executive team has been reevaluating the studio’s upcoming film slate and process for developing animated movies. As part of the restructuring, the studio is expected to scale back its production. DreamWorks has been releasing about three animated movies a year.

The layoffs will be phased in across multiple departments, and will include animators, story board artists, and other production and support staff. Some employees have already been notified.

A spokesman for DreamWorks Animation declined to comment.

DreamWorks Animation has been pressured by Wall Street to reduce costs after a series of box-office flops that have eroded profits and spooked investors. The company’s share price closed at $22.16 on Friday. Markets were closed Monday for the Martin Luther King Jr. holiday.

Much of the scrutiny has fallen on Katzenberg, 64, who was hailed as a visionary when he launched the company after helping to revive Disney’s vaunted animation studio in the 1980s and 1990s. The studio chief was behind such hits as “The Lion King” and “The Little Mermaid.”

After a highly public feud with his former boss Michael Eisner, Katzenberg formed DreamWorks with partner director Steven Spielberg and music mogul David Geffen.

The animation studio, which was spun off into a separate company in 2004, churned out such big hits as the “Shrek,” “Kung Fu Panda” and “Madagascar” movies. DreamWorks spared no expense to build a lavish Tuscany-style campus in Glendale, poaching animators from Disney.

After some initial struggles in the studio’s early years, DreamWorks scored big with a string of computer animated movies, often outperforming Disney at the box office. But DreamWorks has struggled to replicate that success and has lost some of its swagger.

Although last summer’s movie “How to Train Your Dragon 2” garnered an Oscar nomination, the more recent “Penguins of Madagascar” didn’t perform as well as expected. Some analysts expect DreamWorks will take a write-down on that film as well.

DreamWorks also has decided to push back the release date for “B.O.O.: Bureau of Other Worldly Operations,” originally set for June. Katzenberg was said to be unhappy with the progress of the film and the expected competition in June, when Pixar plans to release its anticipated movie “Inside Out.”

Compounding matters for DreamWorks, big-budget action films such as “Captain America” are also competing for the same family audience. And once reliable DVD sales can no longer be counted on to drive profits as consumers watch more movies on Netflix and other streaming services.

In a conference call with analysts last summer, Katzenberg said the studio was evaluating its creative process so that movies with the broadest appeal would be selected. He also said the studio would be more strategic about release dates. Average movie budgets will be lowered to at least $125 million from about $145 million, he said.

“We have been inconsistent,” Katzenberg told The Times last year. “The only thing I can guarantee you is we are our harshest critics.”

Katzenberg also been attempting to diversify its operations in television, theme parks and other areas to lessen its reliance on making animated feature films.

For instance, DreamWorks has licensed some of its well-known characters for theme parks in Russia and New Jersey. The studio is also partnering on a project to design educational computer tablets for kids, and in February launched a publishing division called DreamWorks Press.

DreamWorks in 2013 signed a landmark agreement with Netflix to produce 300 hours of animation programming. Previously, the studio had produced only TV specials and series for Cartoon Network and Nickelodeon. Last month, the company announced plans to launch a kids and family television channel in Asia.

The studio is also tapping into new entertainment platforms by deepening ties with YouTube. DreamWorks acquired YouTube teen network Awesomeness TV for $33 million in 2013, and in January of last year partnered with YouTube to produce a series of daily shows called “YouTube Nation.”