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'Flushed Away' Plunges DreamWorks Q4 Profits

27 Feb, 2007 By: Jessica Wolf

DreamWorks Animation posted a $21.3 million net loss for the fourth quarter of 2006, thanks primarily to a $109 million write-off for the lackluster Flushed Away.

The rat-themed story was the last to come out of a longstanding partnership between DreamWorks and British Aardman studios.

The Flushed Away charge “offset an otherwise solid performance by other company titles in the quarter, primarily driven by home video sales of Over the Hedge,” said DreamWorks CFO Kristina Leslie, in her final earnings call with the company.

Revenue in the fourth quarter stood at $204.3 million. For the full year, DreamWorks Animation posted $394.8 million in revenue and $15.1 million in net income.

Over the Hedge contributed $104.1 million in revenue for the final quarter of 2006, mostly from continued strong DVD sales. The critter adventure has shipped approximately 9.8 million units on worldwide home video since its Oct. 2006 release.

Madagascar DVD sales and international pay television revenue added $36.2 million to quarterly revenue. The title has shipped 22.2 million units on home video since its fourth quarter 2005 release.

DreamWorks is finally fully recouped on Shrek 2, which was hit hard two years ago thanks a glut of DVDs in the market and an overall market slowdown in catalog sales, which resulted in an unexpected level of returns of the title to DreamWorks' then-distributor Universal Studios Home Entertainment.

Shrek 2 brought in $31.1 million in revenue in the fourth quarter, mostly thanks to television revenue and continued catalog DVD sales.

DreamWorks Animation is one of few suppliers with major theatrical properties to hold off announcing a high-definition release strategy.

It's probable that will not change in 2007, said company CEO Jeffrey Katzenberg.

“[High-def] still very very small and we keep watching it carefully to find out when there's an opportune moment to put our product into it,” he said. “Whether we'll be there in the fourth quarter it's too early to tell right now.”

It's also far too early to tell what revenue opportunities digital delivery holds, he said.

“At this point, the digital marketplace for the industry as a whole is in the very low single digits — very low,” he said. “It was not a meaningful contribution in ‘06 and we don't expect that to change in ‘07.”

However, digital delivery has “great promise” as a platform, Katzenberg said, especially since DreamWorks is in the digital business already with its animation technique.

What everyone can count on in 2007 is another Shrek marketing barrage both in the Spring as Shrek the Third hits theaters, and again in the fourth quarter when the third installment of the fractured fairy tale hits DVD, Katzenberg said. That includes plenty of repackaging and repromotions of the first two movies on DVD, he said.

“We are well along on our plans for the fourth quarter releases and are several months into programs that have been worked out with retailers,” he said. “I think we are incredibly well positioned to have a very big impact and a very big event at retail with the Shrek franchise as a whole.”

Overall the DVD market has stabilized, with less of an “avalanche” of catalog titles and fewer animated releases anticipated for this year and the next, compared to last year's 17 films, Katzenberg said.

One of the company's creative goals is to create films that are significantly different from the competition and from other projects DreamWorks itself has done in the past, he said. However, sequels will remain an important part of strengthening the business and brand building, he said.

DreamWorks plans to release two movies a year, one of which will be a sequel or building off an established franchise. This year those movies are Shrek the Third and Bee Movie, a Hollywood sendoff featuring voice talent from Jerry Seinfeld and Ren?e Zellweger.

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