DreamWorks Animation Rides High3 Aug, 2006 By: Jessica Wolf
DreamWorks Animation posted improvements for the second quarter thanks to some strong video legs on Madagascar.
Net income was $13.7 million, compared to a $3.7 million net loss in the second quarter of 2005. Revenue more than doubled year-over-year to $74.9 million, from $35.4 million in Q2 '05.
The better-than-expected results were due to sales of Madacascar on home video and to lower-than-anticipated SG&A costs, said Kristina Leslie, company CFO. Those costs of business should even out to normal levels by the end of the year, she said
Madacascar contributed 37.9 million revenue from pay TV and home video sales. The title has shipped 18.9 million units on home video, Leslie said.
Executives are pleased that Madacascar is still performing so well in its home video catalog phase, but are keeping a close eye on that segment of a title's life cycle, Leslie said.
DreamWorks Animation got burned with the release of Shrek 2 on DVD and an initial over shipment that leaves prior distributor Universal Studios Home Entertainment still unrecouped for costs of the November 2004 video release. However, in the second quarter Shrek 2 unrecouped costs dropped from $13.2 million to $7 million.
For the first time since Madagascar, DreamWorks had a new product in the market with the theatrical release of Over the Hedge. The animated title is No. 7 at the box office for the year with $153 million in domestic revenue. Over the Hedge is also the first title under DreamWorks Animation's distribution partnership with Paramount Pictures Entertainment.
“We've been impressed and pleased with this new partnership, particularly in [Viacom's] ability to promote our films on Nickelodeon,” said Jeffrey Katzenberg, CEO and director of DreamWorks Animation.
Franchises are the way to go, Katzenberg said, noting that the Madagascar sequel already in the works will hit the box office in the fall of 2008.
“Five of the top six movies of the year are known properties that are clearly attracting audiences to the theater,” he said. “Building franchises like Madagascar will be key to our future.”
As to other future propositions, DreamWorks is evaluating the digital market carefully, Katzenberg said.
“We are looking at a number of different opportunities to move our product in that space,” he said. “Given that it is digital content it is actually well-suited to move out to the mobile marketplace.”
But it's still early to predict the value of digital releases, he added.
“I think there's promise there and we are exploring many opportunities both on the promotional and the sales of content side,” he said. “We will start to see a much more robust market for it when Shrek 3 comes out next year.”
One way the studio already plans to tap that computer-savvy consumer is via DreamWorks' new partnership with Mark Burnett Productions. The companies are creating online video games for AOL to promote of Flushed Away. The film, which partners DreamWorks CGI animation with the highly-recognizable stop-motion style of Aardman (home of “Wallace & Gromit”) hits theaters Nov. 3.
“Consumers will be able to interact with our characters and their environments in a very unique way,” Katzenberg said. “It's one of the many ways we will be looking to leverage our content in the new media space.”
From DreamWorks' point of view, the retail community — as it deals with a very mature DVD sales market — is aggressive rather than defensive about carving out a space in the digital era, said Lew Coleman president of DreamWorks Animation.
“All of the major retailers have various strategies they are pursuing about augmenting digital alongside hard goods,” he said.