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DreamWorks Rides on 'Madagascar' Success; Eschews 'Shrek' DTV

1 Nov, 2006 By: Jessica Wolf

DreamWorks Animation turned a profit in the third quarter despite having no new video product in the market, which is the company's main source of significant revenue.

Catalog title Madagascar kept things rolling for the studio with $24.1 million in revenue for the quarter, largely from combined home video sales. The jungle adventure has sold 20.4 million units on home video since its release earlier this year. DreamWorks also saw a reduction in Madagascar reserves set aside for returns and costs associated with the recent distribution switch from Universal Studios Home Entertainment to Paramount Pictures Home Entertainment. This contributed to the title's quarterly revenue.

Overall, the company reported net income of $10.5 million for Q3, compared to a net loss of $0.7 million in 2005. Quarterly revenue stood at $55.6 million compared to $87.1 million year-over-year.

DreamWorks is still chipping away at the unrecouped cost for Shrek 2, which now stands at $7.1 million, the same as the second quarter of the year. There were some Shrek 2 DVD sales in the quarter, said Kris Leslie, DreamWorks CFO, but those were mitigated by costs relating to the distribution switchover.

Still, DreamWorks expects Shrek 2 to be finally fully recouped by the end of this year, she said.

The studio's newest title Over the Hedge hit DVD Oct. 17 and is performing to expectations so far, said Jeffrey Katzenberg, DreamWorks director and CEO.

Because the company is committed to franchises and because the Shrek franchise has proven so strong, DreamWorks decided to nix plans for a direct-to-video release of a film for Shrek 2 tertiary character Puss in Boots in 2008, Katzenberg said. Instead it will come out after chapter four of the Shrek series, which is slated for 2010, he said.

That shouldn't be read as a judgment on the DTV market in general, said Lew Coleman, company president.

“It's a crowded marketplace, and we've just hit the pause button for the moment,” he said. “It's a decision very specific to Puss in Boots. It's as much about feeling [the movie] has greater potential as a theatrical release than a direct to video.”

The Madagascar penguins, which were once also slated for a direct-to-video release, will be hitting the small screen in a different way, Katzenberg said.

Through DreamWorks' new partnership with Viacom, that company's Nickelodeon arm will create and release a weekly TV program based on the Madagascar penguin characters in 2008, as well as a segment for another upcoming DreamWorks Animation theatrical release, Kung Fu Panda.

Those series will be financed by Nickelodeon but will serve as marketing vehicles for and be timed to the theatrical releases of Madagascar 2 and Kung Fu Panda.

DreamWorks Nov. 3 saw the release of its second collaboration with U.K.-based Aardman Studios with the CG-animated Flushed Away. The first was last year's Wallace and Gromit: The Curse of the Were-Rabbit, which underperformed in theaters and on video. Curse of the Were-Rabbit has sold about 5 million units on home video since its release in the first quarter. Pay TV rights brought in $17.2 million for the title in the third quarter of 2006.

DreamWorks has a five-picture deal with Aardman, which will come under review after the second film is released, Katzenberg said.

“We have the opportunity to assess where we are at and have the option to go forward or not,” he said. “I think we've had a very good relationship with Aardman and we'll reassess after we see how things go with Flushed Away.”

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