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A Fractured Fairy Tale

5 May, 2006 By: Jessica Wolf

DreamWorks Animation announced its very tepid first-quarter results this week, and the studio's 73% drop in profits registered barely a blip on stock analysts' radar.

In fact, the gist of the market reaction seems to be: “Wow, we actually thought things would be a lot worse.”

To be fair, DreamWorks, in the last several reporting periods, has eschewed making any predictions about what is a very unpredictable business, this business we call show.

At every turn, the studio's executives have been very clear that they expect to see no significant revenue, at least until the fourth quarter of this year, when its new animated movie Over the Hedge hits video, maybe even later, depending how it goes over.

I actually hope things work out well with Over the Hedge. It looks like a pretty cute movie, and can you really get any hotter than Steve Carell for voice talent right now? (More on this in a bit).

What really freaked me out in DreamWorks' earnings call this week was the fact that executives said their distributor (Universal) has still not recouped costs for the video release of Shrek 2 and Wallace and Gromit: The Curse of the Were-Rabbit.

Wallace and Gromit I can understand — it's a fairly recent release and, while critically lauded, the Brit comedy and gorgeous claymation technique it charmingly features seemed to prove too “out there” for most movie-lovers. It just didn't make a connection either in theaters or when it hit DVD Feb. 6 (though 13 million units sold is nothing to sneeze at).

But Shrek 2? Still not recouped? Really? Really?

Just how many copies of this title got shipped back anyway? Shrek 2 came out on DVD in November 2004 and was one of the biggest titles to be hit with the advanced-catalog aging trend of the industry, which HMR and others reported ad nauseum at the beginning of 2005.

It's likely larger studios were hit too; maybe they can just absorb it a little better. But it seems to me, a near year-and-a-half later, an un-recouped Shrek 2 spells initial overshipment in a gargantuan way.

Back in 2004, DreamWorks projected the title would hit 37 million units by the end of first-quarter 2005. It didn't, but only by a few million units.

I looked back at a story I wrote back then:

“The company attributed the Shrek 2 miscue to an overall droop in catalog DVD sales, which resulted in larger-than-expected returns from retailers.”

I remember thinking at the time I wrote this sentence that it was awfully quick to lump Shrek 2 into the catalog-title mix just a few months after its release. However, the subsequent buying patterns of the market over the last year have borne that out.

DreamWorks seems to have gotten much closer to the target with its next DVD release, Shark Tale, which hit DVD in February 2005. Apparently, Universal has recouped costs for that title, though it wasn't nearly the hit that Disney's underwater adventure Finding Nemo was.

What this all means to me?

For one thing, I think it means “make good movies because you can't count on selling scads of everything you throw out there.”

The original 2001 Shrek was a hit because it was new, it was fresh, it was funny and it was unexpectedly good. Shrek 2 was good too, but it wasn't fresh and it wasn't new anymore, and it landed on a weird sales bubble in the market.

Other studios followed Shrek with other good computer animation, too, like Fox with Ice Age, and Disney with Finding Nemo and The Incredibles, a movie which I dearly love.

And I really dig DreamWorks' Madagascar. It's something I can watch over and over with my 3-year-old niece and know that we are both equally entertained.

Now DreamWorks' one release for this year, Over the Hedge, seems pretty fresh too. It's not a sequel, it can't be looked at as a riff of Ice Age or some other studio's movie (cough cough Shark Tale cough).

It seems the studio is on the right track, coming up with creative ideas for films that the whole family can enjoy.

Now they just need to work with their new distributor, Paramount, in the realm of the new DVD era to stay on the right track when it comes to DVD shipments. All signs indicate DreamWorks executives are very realistic, if not hyper-cautious about the DVD sales market.

They know the halcyon days of the Shrek era are over. There's a lot of really good CG-animated competition out there from a variety of suppliers.

But that doesn't mean there isn't room for DreamWorks and its equally good product.

In fact, I equate DreamWorks with (and applaud them for) proving that Disney isn't the only studio that can do animated storytelling and do it with class, vitality and good-old-fashioned quality storytelling.

Hopefully that will translate to a few better quarters for DreamWorks later this year and into next.

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