Beloved of three-year olds everywhere, Peppa Pig has been a fruitful cash cow for its creator Entertainment One. The problem with cash cows, though, is that they can easily become one-trick ponies. When kids get tired of the trick, that can end up costing the farm.
Investors should be pleased with the news today that Entertainment One is further diversifying by entering into a joint venture with the mighty American film company DreamWorks, whose principal partner is none other than Steven Spielberg himself. They certainly seemed happy anyway, sending shares up 5.3% to 179.8p this morning.
The joint venture, called Amblin Partners, also involves Participant Media and Reliance Group. It extends an existing arrangement, whereby Entertainment One distributes lucrative DreamWorks films (think Shrek) in the UK and the Low Countries, to cover Spain, Australia and New Zealand, as well as covering the TV, licensing and merchandising categories.
Beyond that, the new firm will ‘create content using the Amblin, DreamWorks Pictures and Participant brands and leverage its power and broad awareness to tell stories that appeal to a wide range of audiences’. Nothing like a bit of leveraging brand awareness to keep the kids happy, eh.
Given that almost all of Entertainment One’s growth is coming from its smaller television division (revenues there rose 46% in the six months to September 30, while film revenues dropped 14%), it is indeed possible that this will restore some necessary balance to its portfolio, though much of course will depend on what share Entertainment One is getting of Amblin’s profits.
However, the main reason the company’s share price has lost half its value since July is fears over its debt-fuelled growth. Its net debt stands at well over £300m, and it recently announced a revised credit structure that was ‘appropriate for its strategic ambitions’ of doubling in size by 2020 but that would also increase its interest payments.
It’s not clear how the DreamWorks venture will improve that situation, but at least Entertainment One has given Peppa Pig some company in its stable.