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DreamWorks Animation Driven by DVD

9 Mar, 2006 By: Jessica Wolf

Home video sales of Madagascar drove revenue for DreamWorks Animation in the fourth quarter of 2005.

Worldwide sales of the animated adventure made up 88% ($152.3 million) of the supplier's $172.9 million in revenue for the last quarter of the year.

By the end of 2005, Madagascar had sold 14.2 million units worldwide on video, said DreamWorks Animation CFO Kris Leslie, in a March 9 earnings report.

Shark Tale's home video sales legs also buoyed revenue. The title clocked in $5.7 million for the fourth quarter and as of year-end has sold 17.3 units on home video worldwide. Executives declined to break out domestic units for either title.

Year-end net income declined 68.5% to $104.6 million, or $1.01 per share, compared to 2004's $333 million, or $4.05 per share. Fourth-quarter net income was down 67%, from $192 million in Q4 2004 to $63.2 million in Q4 2005.

“We remain cautious of our assessment of the home video market, especially as titles move into catalog,” Leslie said.

Shelf-space crunches and pricing issues abound, but it's early to tell what kind of long-term impact that will carry to DreamWorks core business she said. The company will be watching closely as Madagascar moves into catalog status, she added.

The stop motion Wallace & Gromit title yielded no 2005 revenue for DreamWorks Animation as distributor Universal Studios did not recoup marketing or distribution costs by the end of the year, Leslie said.

Fourth-quarter data also includes a $25.1 million write off for Wallace & Gromit: The Curse of the Were-Rabbit, which resulted in an approximate $0.15 per share reduction to fourth quarter earnings per share.

Even though the title won best animated film at this year's Academy Awards ceremony, and garnered great reviews from critics, awareness just wasn't there and domestic box office and early home video sales were lower than expected, executives said.

Meanwhile, DreamWorks is not really interested in fiddling with accepted release windows, company CEO Jeffrey Katzenberg said.

“There's nothing [in the market] that's presented itself today that changes our distribution strategy or changes our approach to traditional windows,” he said. “We think we are getting full value out of our products the way it is.”

The disappointments with Wallace & Gromit are more “title specific” than reflective of the market as a whole, Leslie said.

DreamWorks execs are cautiously optimistic about the next project on the company slate, Over the Hedge, which features voice talent from Bruce Willis and Steve Carrell and hits theaters in May. Still DreamWorks does not expect to record any revenue, theatrical, home video or otherwise for Over the Hedge until after 2006 and its distributor has recouped costs, executives said.

As of Jan. 31, Paramount Home Entertainment began distributing DreamWorks titles under terms of the sale of DreamWorks SKG to Paramount parent company Viacom.

By the second quarter or so Universal will have shepherded through the last of its DreamWorks distribution.

It's still too early to tell all the effects of the new distribution partnership, Katzenberg said.

The deal does include a yearly cash payout to DreamWorks for costs related to the distribution shift from Paramount. That will be $11 million in 2006, Leslie said.

Early talks are underway between creative teams at DreamWorks animation and Viacom-owned Nickelodeon regarding incorporating DreamWorks characters into the cabler's programming slate and those talks will continue, Katzenberg said.

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