DreamWorks Animation SKG, maker of the "Shrek" and "Kung Fu Panda" movies, is in talks to be sold to Universal Pictures parent Comcast Corp. for more than $3 billion, the Wall Street Journal reported.
The animation studio, one of the few independent players left in Hollywood, would remain a separate brand from Universal's Illumination Entertainment, the newspaper reported, citing unidentified sources. DreamWorks Animation, run by founder and CEO Jeffrey Katzenberg, jumped as much 25% in early New York trading.
Adding DreamWorks Animation would bolster Comcast's children's lineup and bring online assets like Awesomeness TV, which targets millennials on YouTube. For Mr. Katzenberg, who has tried to sell DreamWorks Animation before, Comcast offers protection from the ups and downs of a small studio with a stock price dependent on box-office hits.
"Animation in terms of content is very valuable and Dreamworks has been underperforming for a number of years," said Neil Campling, a media analyst at Aviate Global in London. "This isn't the first time we've heard suggestions of it being for sale."
Dan Berger, a spokesman for DreamWorks Animation, declined to comment. Representatives for Comcast weren't available to comment.
Comcast would make an ideal parent for Dreamworks, especially with its ownership of Illumination, maker of hit films "Minions" and "Despicable Me," Mr. Campling said. He rates Illumination as the No. 3 animation studio behind Disney and Pixar.
Mr. Katzenberg has been expanding the TV business at DreamWorks Animation, selling films and cartoon series like "The Adventures of Puss in Boots" to Netflix as he seeks to break a dependence on the box office.
That might be attractive to Comcast, the biggest U.S. cable company, which is looking for ways to grow as pay-TV customers cut the cord and younger adults opt for online services like Netflix.
Dealmaking has been heating up in Hollywood, with Viacom Inc. saying it's looking to sell part of Paramount Pictures.
"Content owners have become increasingly valuable as of late and we could argue Comcast sees potential value in the library of franchises, characters that could be integrated," said Eric Wold, a B. Riley & Co. analyst covering the entertainment industry.
Merger speculation has surrounded DreamWorks Animation since 2014, when it had approaches from Hasbro Inc. and Japan's SoftBank Group Corp. After a series of film write-offs, Mr. Katzenberg in early 2015 implemented a wide ranging restructuring, cutting 18% of the company's workforce and selling its Glendale, California-based campus after costs swelled.
The studio also committed to reducing its film costs and the number of films it made a year to two. Mr. Katzenberg himself said he would refocus on making his features profitable. There have been some bright spots, with the studio seeing some success with "Home," its only feature last year, and its growing TV business.
Comcast's Universal Pictures comes off its best year ever in movies but will faces the challenge of keeping up with Walt Disney Co. -- owner of LucasFilm, Marvel and Pixar -- which will produce an estimated record number of billion-dollar movies in 2016. Comcast's NBC Universal business -- which includes TV, films and theme parks -- generated about 38% of total revenue and 30.5% of operating income last year.
Despite the report of talks, a deal doesn't make sense, said Doug Creutz, an analyst with Cowen & Co. He said in a research note that DreamWorks Animation had too little to offer Comcast.
"Given the company's continued uneven box office performance and marginal profitability, we have a hard time believing any deal will happen, particularly given the lack of strategic logic for Comcast," Mr. Creutz wrote.
-- Bloomberg News