DreamWorks: Enter The Tough Guy

Roger Enrico may have been too nice. Will Lewis Coleman impose discipline?

Changing directors mid-shoot is classic Hollywood. And that seems to be what's happening at DreamWorks Animation SKG Inc. (DWA ). On Dec. 5 it brought in board member Lewis W. Coleman as president to provide more adult supervision over a studio that has bungled its early days as a public company.

Hey, wasn't Roger A. Enrico supposed to be the adult? Last year, DreamWorks Chief Executive Jeffrey Katzenberg recruited the former PepsiCo Inc. (PEP ) CEO to bring some business world gravitas to the studio as chairman. Having starred in the late-'90s turnaround at Pepsi, Enrico, 61, was quite a catch. After all, Enrico is no stranger to the entertainment industry; he was responsible for the groundbreaking 1980s deal that paid Michael Jackson $5 million to promote Pepsi. At DreamWorks, he helped woo investors and struck lucrative ventures with the likes of McDonald's Corp. (MCD ) and Kmart Corp. (SHLD ).

But fizzy drinks and salty snacks are a long way from animated ogres and Tinseltown hype. Enrico, who will remain chairman, acknowledges the learning curve has been steep at a time when the studio has lowered earnings targets, drawn the ire of the Securities & Exchange Commission, and scared off investors. "It became clear we needed to bring in someone else" to help out, he says.

For outsiders like Enrico, Hollywood can be like watching an old David Lynch flick -- a real brain-bender. Runaway costs are routine, and relationships often count more than the bottom line. And at DreamWorks, Enrico worked only two days a week and consulted mostly on marketing and investor relations. But four months into the job, Enrico discovered his CEO was more interested in making movies than in minding the store. Katzenberg routinely jetted off to Britain to keep an eye on the making of Wallace & Gromit: The Curse of the Were-Rabbit, say, or to India to supervise new animators. At Pepsi, says Enrico, "I was CEO, and I didn't make the Fritos."

Given all the problems at DreamWorks Animation, having a CEO on the premises might have been a good thing. In May the studio warned that it would sell fewer DVDs of Shrek 2 than it had anticipated. Pretty soon the stock was in free fall, the SEC had launched an informal probe into DVD sales accounting, and the company was hit with shareholder lawsuits accusing management of overselling the company's prospects. In November it announced a $656,000 loss on revenues of $81 million, due in part to a $3.9 million writedown on Wallace & Gromit. "The complexities of running a public company were more than I anticipated," says Katzenberg.

If Katzenberg made a mistake, it was overhyping Madagascar. Talking up films is as Hollywood as buzz and Botox. But it's dangerous at a small studio where films account for most of the profits. Also, studio auditors didn't realize until too late that Shrek 2 DVD sales were failing to meet projections.

By all accounts, Enrico is too nice and wasn't around enough to impose discipline on Katzenberg and crew. The job calls for someone willing to stand up not just to Katzenberg, but also to Steven Spielberg and David Geffen. Along with Katzenberg, they still control 59% of the animation studio -- though they are selling the live-action studio, DreamWorks SKG, to Paramount Pictures (VIA ).

Coleman is a tough guy from central casting. First recruited to chair the audit committee, the former Bank of America Corp. CFO is willing to step on toes -- even Gucci-clad ones. Coleman, whose new title is president, likely will cut costs and strengthen accounting. And Enrico, who is voluntarily giving up $2 million in bonus compensation to help pay Coleman? "For now we'll go with the flow," he says.

The changes are winning little applause on Sunset Boulevard or Wall Street. Asks analyst Richard Greenfield: "Why will it be better with someone new from the outside?" That's a very good question indeed.

By Ronald Grover

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