How To Train Your Dragon 2 earned $50 million at the box office last weekend, but the studio behind it, DreamWorks Animation, remains intent on finding new lines of business.
In fact, CEO Jeffrey Katzenberg has been trying for two years to diversify, reports Brooks Barnes in the New York Times. Though DreamWorks, a profitable public company, has made many hits, including the original How to Train Your Dragon and four Shrek films, computer animation is no longer a safe bet at the box office. "DreamWorks Animation has had to take write-downs on three of its last four original films," Barnes writes.
By diversifying, DreamWorks--which remains, in Hollywood terms, a small independent studio--is hoping to create steady, recurring revenue streams. "The goal is to create annuities so we don't have lumpy earnings," is what chief brand officer Michael Francis tells the Times. In other words, DreamWorks is hoping to address a sales-cycle challenge that many growing businesses face: How to turn occasional or seasonal purchases into ongoing customer relationships. Here are two techniques DreamWorks is using:
1. Connecting elsewhere with engaged customers. DreamWorks has created an interactive Shrek-meets-Santa experience that shopping malls can buy--and use as an annual Christmas attraction. It's called DreamHouse. Two national mall operators, Forest City and General Growth Properties, have already bought in. Here's how the Times describes it:
Santa Claus will sit inside a 2,000-square-foot "cottage" with walls that are essentially giant video screens. Children will go on a virtual sleigh ride with Shrek before meeting Santa. No more waiting in line; appointments will be made by app.
On the surface, this is clearly an idea that will appeal to Shrek-loving children and their parents. Moreover, it gives DreamWorks another customer segment: mall operators.
One layer deeper, it's a way for DreamWorks to stay connected to devoted movie lovers, outside the realm of theaters and living rooms. Ongoing connections with these impassioned customers are crucial, writes Constant Contact's Julie Niehoff in the San Francisco Business Times. After all, it's these customers who become "vocal advocates" for your business, generating the useful word-of-mouth that ultimately leads to new customers.
2. Put more effort into creating products. There's nothing novel to this idea: After all, Disney has been doing it for years. So have other movie studios whose characters and settings can become toys or dolls.
And yet, DreamWorks realized it wasn't doing quite enough. Francis, the chief brand officer, used to be the CMO at Target. He tells the Times that DreamWorks simply wasn't trying hard enough:
"It takes boots on the ground and long-term planning that was just not happening before," Mr. Francis said. "When I was at Target, [Katzenberg] used to call and ask why DreamWorks wasn't as effective as its peers with licensing. And I would say, 'Well, because you want retail to do all the work. You call me up and thump your chest about your latest movie and expect me to spend my money creating a strategy.'"
Under Francis's guidance, DreamWorks has launched a tablet computer for children called the DreamTab and a multitude of products related to How to Train Your Dragon 2. The first How to Train Your Dragon movie had one retail partner; the sequel has 70. Likewise, the company used to have 69 consumer products executives. It now has 180. Later this year, a new in-house publishing unit will start to release DreamWorks-based books.
There's plenty any business can learn from this. Jason Fried, cofounder of Basecamp (formerly 37Signals), has shared several keys to developing products from an existing arsenal of project- or service-based offerings. Mohan Sawhney, professor at Northwestern's Kellogg School of Management has argued that shifting from projects to products is one of five crucial steps for scaling a growth business. The key, says Sawhney, is to "identify patterns in the delivery of services and then design products based on what can be repeated."
DreamWorks is following that blueprint. So far, it's working: Last year, notes the Times, 71 percent of its revenue came from new films. Next year, it will be closer to 48 percent. That's a diversification result that any business owner can appreciate.