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Third 'Shrek' Installment Gives DreamWorks Animation Big Q2

31 Jul, 2007 By: Chris Tribbey

Shrek the Third took in $320 million in the domestic box office.

Everything was green for DreamWorks Animation SKG Inc. during the second quarter of this year, and the company is hoping for a green Christmas as well. DreamWorks reported total revenues of $222.5 million in the quarter — nearly triple what the company reported in the second quarter of 2006 — and net income of $61.8 million, thanks largely to the box office success of Shrek the Third.

Also, Shrek the Third, a film that has pulled in $320 million in the domestic box office, will land on DVD Nov. 13, DreamWorks Animation CEO Jeffrey Katzenberg said during a second quarter earnings call July 31.

Yet with five films that grossed more than $300 million streeting on DVD during a seven-week period in the fourth quarter, along with another six that pulled in more than $100 million, Katzenberg said DreamWorks has a “healthy dose of caution” when it comes to the DVD success of the film.

“While we expect Shrek the Third to be one of the must-have videos of the holiday season, the fourth quarter is shaping up to be the most competitive home video market we've ever seen,” Katzenberg said, adding that more “Shrek” films are in the works. “In the same way we've cautioned everyone about the competitive environment surrounding the theatrical release … the same issue will exist for its home video release. In fact, even more so.”

DreamWorks President and CFO Lew Coleman added that the continued growth of piracy and the performance history of franchise sequels are also reasons to temper DVD sell-through expectations. “We expect that the home video market will continue to be very different than it was several years ago,” he said.

DVD sales of the first two “Shrek” movies increased thanks to the third movie, Coleman said, contributing to $36 million in revenue from DreamWorks catalog titles.

The home video and pay TV release of Over the Hedge accounted for $26.9 million in revenue, and 13.4 million units of the DVD have been shipped, the company reported. Flushed Away brought in $12.4 million, and 5.1 million DVD units of that film have been shipped.

DreamWorks also reported a positive impact of $25.5 million in net revenue, thanks to a reduction in “previously recorded return reserves” and marketing costs. When DreamWorks switched from Universal to Paramount for home video distribution, DreamWorks planned for potential massive returns.

“There was considerable risk we would get massive returns … we put up a reserve against that happening,” Coleman said. “Paramount and Universal finally sat down, reconciled all of their differences, including these reserves. And as a result … we got clear data that essentially said we did not have those returns we initially thought we would have.”

In other news, DreamWorks next film, Bee Movie, is in the final stages of production (Nov. 2 in theaters); in 2008 the studio plans to release Kung Fu Panda; and set for a May 15, 2009 release is DreamWorks' 3D film, Monsters vs. Aliens.

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