Few thought the cable guys could crack Hollywood.
But now Comcast Corp. -- from Philadelphia, no less -- seems well on its way to building what may be the next Walt Disney Co. Its agreement Thursday to buy DreamWorks Animation SKG Inc. for $3.8 billion will, if completed, mark the next step in Comcast's ascent to the heights of the American entertainment industry, a trajectory that seemed unlikely five years ago.
In 2011, when Comcast bought NBC Universal and combined its cable business with pay-TV networks including USA and Bravo, the Universal film studio and theme parks were almost afterthoughts. Yet in the years since, CEO Brian Roberts and his entertainment CEO Steve Burke have found both can be good businesses.
"The movie business was everything Comcast didn't like," Jeff Shell, chairman of the Universal Filmed Entertainment Group, said in an interview. "It's volatile. It's risky. It hasn't traditionally had good returns."
With the DreamWorks Animation deal, Mr. Roberts and his team are putting a spotlight on the new company they've been shaping: a multi-layered entertainment titan that can compete head-on with Disney for TV audiences, film fans and tourists.
"People are watching and experiencing content in lots of different places and in lots of different ways," Mr. Shell said. "Movies have become more valuable than perhaps they were viewed when we were first looking at the company."
While Comcast's cable business grappled with the rise of cord-cutting, Universal Pictures had its best year ever in 2015. "Jurassic World," "Furious 7," and "Minions" each drew more than $1.1 billion at the box office. A passel of smaller hits, such as "50 Shades of Grey" and "Straight Outta Compton," pulled in hundreds of millions.
Last year, NBC Universal's revenue rose 12%, with the film unit growing 46%. The studio claimed 22.3% of the domestic market, according to researcher Box Office Mojo. Disney, which also had its best year ever, was second with 19.8%.
"They just turned in the best year of any studio in history," said Craig Moffett, an analyst at MoffettNathanson. Even before the DreamWorks Animation deal, "It's hard to claim that Comcast wasn't already a powerhouse."
Comcast has succeeded in part by mimicking Disney -- a company it tried unsuccessfully to acquire more than a decade ago -- exploiting popular characters throughout its film, TV, theme-park and consumer-products businesses. Internally, Comcast calls this coordinated effort "Symphony."
When Universal released the animated "Minions" last year, the squealing yellow characters appeared on rides at theme parks and in ads on NBC's broadcast of the Super Bowl. Universal theme parks already feature attractions based on the DreamWorks Animation hit movie "Shrek." Now the company will own the full slate of DreamWorks Animation characters, including the animals from "Madagascar" and "Kung Fu Panda," along with animation studios in the U.S. and China.
"They're borrowing a page from the Disney playbook," Mr. Moffett said. "They're turning characters into 360-degree brands and marketing them in theme parks and merchandising. Comcast has a collection of assets which allows them to promote DreamWorks characters in a tremendous number of places."
Theme parks are a big part of that calculus. Last year, Comcast agreed to pay $1.5 billion for a 51% stake in USJ Co., owner of Universal Studios Japan in Osaka. In mid-2011, the company bought out Blackstone Group's interest in its Florida resort for $1.03 billion.
Universal Studios has opened Harry Potter attractions in Florida and California, and is building in China now, too. Park revenue grew 27% last year, with profit up 35%.
"Initially, we underestimated the theme parks business," Mr. Burke, head of NBC Universal, said in a January memo to employees. "Once we understood its potential, we jumped in and increased our investment in new attractions and hotels."
In a statement Thursday, Mr. Burke said DreamWorks Animation "will help us grow our film, television, theme parks and consumer products businesses for years to come."
Comcast's ambitions in Hollywood are a far cry from 2011, when the film division ranked fifth out of the six major studios in box-office sales. The cable parent's entertainment experience was limited back then to regional sports networks, the Golf Channel and E! Entertainment.
"Comcast had a lot of rebuilding to do," Mr. Moffett said. "Part of that was convincing the talent that a cable company from Philadelphia was going to be able to foster an environment where creativity would be rewarded and celebrated. There was some skepticism about how they would fare."
To overcome that, Comcast tapped Burke to run NBC Universal. While he came from Comcast's cable business, Mr. Burke had a Hollywood pedigree as a former Disney and ABC executive. He brought in many of his own people to help run the company.
That included Mr. Shell, a Comcast executive who'd done stints at Disney and Fox. Mr. Roberts and Mr. Burke have largely given his team a free hand, Mr. Shell said.
"Of course if we're going to do a big $100 million-dollar-plus movie they will both be involved and know about what we're committing the company's capital to," Mr. Shell said. Mr. Roberts "watches every Universal movie," he said.
Thursday's deal started as a conversation between Mr. Roberts and DreamWorks Animation CEO Jeffrey Katzenberg, Mr. Shell said.
"It came together very quickly," he said.
Comcast has had some struggles with NBC Universal -- namely the Brian Williams scandal last year -- and its cable networks are confronting the same challenges as competitors: shrinking live TV audiences. NBC's popular morning show, "Today," been No. 2 behind ABC's "Good Morning America" for four straight seasons, and the outlook for the film division this year is less certain, with little chance of matching the 2015 record.
Still when NBC Universal reviewed its five-year film plan this week, the focus was on movies that have delivered the biggest bang, revivals of past hits and franchise pictures like "Jurassic World" that can be refreshed again and again. In 2011, the company had just once such series: "Fast and Furious."
"We spent half the time talking about how to take care of franchises, make sure that they stay fresh, create new ones, make sure that they're fully monetized in consumer products and around the world," Mr. Burke said on an earnings call this week. "So it's a key, key part of our company."
-- Bloomberg News