DreamWorks Animation took a sweeping step Thursday to shore up its bottom line, unveiling plans to cut 500 jobs, shake up top management and scale back film production.
The Glendale animated film giant also said it would take a $290-million charge in connection with the layoffs and an additional $55 million in film-related impairment charges. The company will also close its studio in Redwood City in Northern California.
The moves were part of a dramatic restructuring of the studio's core feature animation business that has suffered mounting financial challenges in recent years. DreamWorks Animation has struggled from a string of weak performing movies and faces growing competition from rivals that have been able to produce animated movies at lower cost.
"I'm deeply saddened by the fact that we will be losing so many treasured, loyal and inspired members," said co-founder and Chief Executive Jeffrey Katzenberg. "I know these actions are absolutely the right decision for the company."
The job cuts are the largest in the studio's 20-year history, representing nearly 20% of its 2,400-employee workforce.
Among the cuts were three senior executives: Chief Operating Officer Mark Zoradi, a former Disney executive who joined the company only six months earlier; marketing director Dawn Taubin; and Vice Chairman Lewis Coleman.
The layoffs were preceded by the departure this month of longtime executive Bill Damaschke, the studio's chief creative officer. Veteran producers Bonnie Arnold and Mireille Soria have taken over as co-presidents of feature animation.
The new executive team has been reevaluating the studio's upcoming film slate and process for developing animated movies.
As part of the restructuring, the studio has also decided to produce only two animated features a year, split between a new title and a sequel. The studio, which previously released three titles a year, said this will "ensure the consistent and profitable delivery of high-quality films."
The announcement is a bruising moment for Katzenberg, who once presided over one of the industry's leading animation studios. However, DreamWorks Animation has struggled to replicate the success of its earlier "Shrek" and "Madagascar" films.
Katzenberg also took pride in DreamWorks corporate culture and generous perks, which made DreamWorks a regular on Fortune's best places to work. He told Wall Street analysts that the reductions were a painful but necessary step to right the studio. He also vowed to take a more hands-on role in running the studio's core feature animation business.
The retooling of DreamWorks' business is also designed to reduce the cost of making animated movies, which has been one of the major challenges facing the studio. Katzenberg wants to reduce the average budget from $145 million down to $120 million or less.
The announcement was welcomed by industry analysts, who are growing increasingly impatient with the studio's shaky box-office results.
"They are clearly saying things that investors want to hear," said James Marsh, an analyst with Piper Jaffray & Co. "I think it's going to be a positive for the stock."
DreamWorks Animation shares at one point jumped 6% in after-hours trading. The shares, which have tumbled in the last year, closed at $21.31, up 63 cents, or 3%.
Katzenberg has faced intense pressure to reduce costs after the studio took write-downs on three movies in the last two years.
In a regulatory filing, the company said it was taking $55 million in impairment charges on the recently released "Penguins of Madagascar" and last spring's movie "Mr. Peabody & Sherman," for which DreamWorks already took a $57-million write-down last year.
In addition, DreamWorks said it would take $200 million in impairment charges on unreleased projects as part of a restructuring of its core feature film business.
The restructuring plan is expected to be substantially complete by the end of 2015 and expected to result in annualized cost savings of about $30 million in 2015, growing to roughly $60 million by 2017.