Paramount Pictures Creates Animation Division, Plans First Film for 2014

Viacom Inc. (VIA/B)’s Paramount Pictures, maker of the “Transformers” action films, will create an animation unit that plans to release its first title in 2014.

Paramount Animation will focus on family oriented films, spending as much as $100 million per movie, Paramount Chairman and Chief Executive Officer Brad Grey said today in a statement. Initially, the unit intends to make one movie a year.

The move will enable Paramount to tap into the global popularity of family films and generate consumer-products sales through Viacom and its Nickelodeon children’s entertainment unit, Grey said in a telephone interview. He said the studio has considered a move into animation since his arrival in 2005.

“It was really a question of when are we going to get into animation,” Grey said in the interview. “Now is the time because technology is such that you can do it in the most prudent and intelligent way.”

The new unit may compete with Glendale, California-based DreamWorks Animation SKG Inc. (DWA), whose movies are distributed by Paramount under a contract that expires at the end of 2012.

“Viacom is putting a hedge in place in case that deal is not renewed,” said Tony Wible, a New York-based analyst at Janney Montgomery Scott who has ratings of “buy” for Viacom and “neutral” for DreamWorks. “More broadly, this highlights the continuing trend of more competition in animation.”

DreamWorks Contract

Paramount has offered to extend its contract with DreamWorks Animation for one year under the existing terms, according to a person familiar with the situation. Paramount won’t renew the agreement beyond that unless it receives more favorable terms, said the person, who requested anonymity because the discussions are private.

DreamWorks Animation had no comment on Paramount’s announcement of the new unit or on contract discussions, said Shannon Olivas, a company spokeswoman.

The Paramount Animation announcement follows the studio’s March release of “Rango,” which cost about $135 million and generated $243.2 million in ticket sales, according to Box Office Mojo.com.

“Rango,” directed by Gore Verbinski, was Paramount’s first in-house computer-animated production. The film, about a timid chameleon who becomes sheriff in the Old West, features the voices of Johnny Depp and Bill Nighy.

New York-based Viacom’s Class B shares rose 1 cent to $51.96 at 4 p.m. in New York Stock Exchange composite trading. They have gained 31 percent this year. DreamWorks fell 54 cents, or 2.6 percent, to $20.12 and have fallen 32 percent this year.

To contact the reporter on this story: Michael White in Los Angeles at mwhite8@bloomberg.net

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net

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