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DreamWorks Animation Doubles Q2 Loss

4 Aug, 2015 By: Erik Gruenwedel

Mass layoffs, sale of its Glendale, Calif. campus and related restructuring costs contributed to DreamWorks Animation reporting a second-quarter (ended June 30) loss of $38.5 million, compared with a loss of $15.3 million during the prior-year period.

Restructuring costs, which included staffing cuts of about 500 employees, reached nearly $21 million.

Revenue topped $170.8 million, up about 40% versus the prior-year period. Revenue from feature films increased to $87.8 million, compared with $69.7 million a year ago.

Theatrical release Home generated revenue of $23.9 million in the quarter. The film, which generated $386 million at the global box office, was released digitally June 26 and generated an estimated 100,000 transactions worldwide, as of the end of the quarter. Those digital sales are the highest ever for a DWA release.

“Since its digital release, Home has the highest digital conversion of any DWA title during the same period, even surpassing How to Train Your Dragon 2,” CEO Jeffrey Katzenberg said on the fiscal call. Home was released July 28 on DVD and Blu-ray Disc.

Katzenberg said Penguins of Madagascar had a “soft” home entertainment debut, despite generating $18.2 million in revenue from 1.1 million discs since its March 17 release by 20th Century Fox Home Entertainment, according to The-Numbers.com.

“That said, its performance enabled the film to recoup [costs] in the quarter and we have an active effort underway to drive [retail] sales heading into the holiday selling season,” he said.

DWA president Ann Daly was asked whether "Home's" strong EST returns were due to Comcast's Xfinity Store and iTunes or secular changes in home entertainment. She maintained that while overall retail (disc and digital) sales for Home would be less than "Dragons 2," the initial shift from physical to digital was a good trend. 

"Of course, that's a more profitable transaction for us," Daly said.

Kung Fu Panda 3 is slated for theatrical release on Jan. 29, 2016, in China.

Separately, Katzenberg said “Dragons: Race to the Edge,” a TV series created for Netflix and launched June 26, ranked among the SVOD pioneer’s most-viewed new originals to date. DWA has a distribution deal with Netflix through 2017 that has heretofore produced five animated series.

DWA’s television business more than doubled year-over-year revenue to $55 million, generating operating income of $19 million.

Meanwhile, DWA said it would not meet second-half-year projections for its consumer products and live events segment, including rollout of the “DreamPlace” retail platform in shopping malls. CFO Fazal Merchant said the strengthening dollar has put a dent in the  international rollout of the concept.

“For example, it’s roughly 75% more expensive for a Russian developer to purchase a ‘DreamPlace’ than it was a year ago,” Merchant said, adding that consumer products revenue would be flat with last year.

At the same time, Katzenberg said it is unknown about the impact on consumer products in regards to original series streamed on Netflix.

“It’s a learning curve for us. This is new territory for us. We thought it was going to come a little faster, [but] I don’t think we think it’s not coming,” he said.

Meanwhile, Katzenberg said DWA continues to have an “outstanding” relationship with Netflix, including as a “valued” distribution partner of original content. He said the company is working diligently to maintain its relationship with Netflix, but is also prepared to move on.

“We don’t know what their needs will be go going forward, and so we’re prepared to fill those [SVOD deals] to the extent there needs to change. We need to be ready to capitalize on that,” Katzenberg said.

“If they want more content, we need to be prepared to scale up and produce it. If they want less content, we need to make sure we have some other channels out there.”

When asked if DWA would consider going straight to consumer (i.e. families) should third-party SVOD deals diminish, Katzenberg said the evolving over-the-top video market is so dynamic that speculating on an OTT platform two years out was premature.

"The great news is that for an independent company like ours ... the ability to have a direct relationship with your customer is growing almost on a monthly basis, is great news. We are astutely focused on that," he said.


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