All is not well in the magical land of Dreamworks.
The upstart mini-major is suffering from lackluster box office, a tightening of the purse strings by major investor Reliance, and other money woes that have led to the resignation of one senior executive, and reports of a further 10% reduction in the company's overall staff on the horizon.
When the company first started it seemed like a perfect deal. The three founding partners were considered the gold seal of guaranteed success in Hollywood.
Stephen Spielberg pretty much defined the modern blockbuster, Jeffrey Katzenberg was one of the key players in the rebirth of Disney from struggling cartoon company to media juggernaut, and David Geffen who went from the mail-room at the William Morris Agency to becoming a music mogul, film producer, and billionaire investor.
These are very smart customers who know what they're doing.
So what went wrong?
Well, I suspect that some fundamental mistakes were made that have come back to haunt them.
1. DISTRIBUTION: When Dreamworks was founded it was set up with the ability to distribute its own productions. It gave up that ability when it was sold to Paramount, and when the company, in partnership with Indian financial player Reliance ADA, bought its freedom a little more than two years later, it failed to restore a truly independent distribution capability.
Instead, they handed over distribution of their movies to Disney's Touchstone Pictures in a 30 picture deal.
A big problem with that deal is that Disney doesn't really give a crap about Touchstone anymore. They're not going to burn the same amount of calories that a distributor that belongs wholly to Dreamworks would.
Also, when you're a distributor you can make distribution deals with other production companies to fill the gaps in your own release schedule. That gives you the income of distribution fees and/or box office share without the risk of being the guy who paid to make the movie.
2. UNDER EXPLOITATION: Dreamworks has only been able to scratch the surface of the television market, producing only a handful of shows, and too many of them short lived.
One of the reasons for this is the simple fact that unlike Paramount, Universal, Disney, Fox, or Warner Bros. they don't belong to a conglomerate that owns or co-owns a broadcast network like CBS, NBC, ABC, Fox, and the CW.
That means that they already have a strike against them. The networks will always give preferences to shows that they, or one of their sister companies, own, all others have to hit a homer at every swing, or go out the door as soon as the opportunity arises.
The cable market is a much wider field, with more independent players that they could do business with, but here again they failed to exploit a potential market to its fullest. Most of their cable TV ventures have been in partnership with HBO and TNT, both of which are owned by Time Warner. That means that they will always be the junior partner in any deal.
3. PLAYING THE MAJOR'S GAME: Dreamworks has always been ambitious, declaring their intention to make major Hollywood movies. Many times they succeeded, but unlike the real majors, they didn't have the cushion of distribution, and television to soften the blow when one or more of their big productions failed to turn a profit.
Dreamworks needed to create a more solid foundation for the company in television, in distribution, and in smaller budget "exploitation" genre films that don't get awards, but have a better risk/reward ratio than the usual big budget epic.
Then they might have avoided the problems that are plaguing them now.