DWA's Halloween treat

'Madagascar' helps deliver surprise Q3 profit

Sales of "Madagascar" DVDs — at about 20.4 million and counting — helped DreamWorks Animation SKG to report a surprise third-quarter profit Tuesday.

"Madagascar" notwithstanding, CEO Jeffrey Katzenberg's key message Tuesday when discussing anything related to the DVD industry was: caution.

"The international DVD marketplace has not stabilized to the same degree as the domestic marketplace," he said. "There's a lot of moving parts over there that keep us cautious about the marketplace. Less so, domestically."

Expanding that theme to the domestic and international direct-to-DVD business, he added: "We continue to look at that marketplace cautiously."

To wit, DWA has repositioned "Puss in Boots" (pictured), based on the Antonio Banderas-voiced character introduced in "Shrek 2," as a theatrical release for sometime after the fourth chapter of the "Shrek" franchise hits theaters in 2010. Previously, "Puss in Boots" was planned as a direct-to-DVD release.

"We will revisit that market again, but we have nothing planned right now," Katzenberg said of the company's direct-to-DVD strategy.

Other theatrical releases announced Tuesday are for "Monsters vs. Aliens," the working title of a movie planned for release in summer 2009, and "How to Train Your Dragon," scheduled for fall 2009.

DWA said it earned $10.5 million in the third quarter, compared with a loss of $700,000 in the same period a year ago. Revenue of $55.6 million was down from $87.1 million last year when "Madagascar" was winding its way through its international theatrical release.

Analysts expected the company to post a small loss on just $38.8 million in revenue. Shares of DWA, which were up 3.3% during the regular session Tuesday to $26.45, continued their ascent in after-hours trading.

"Madagascar" contributed $24.1 million revenue mostly by way of DVD sales, though also because costs associated with the transition from Universal to Paramount as DWA's distribution partner were less than expected.

"Wallace & Gromit: The Curse of the Were-Rabbit" generated about $17.2 million in revenue courtesy of domestic pay television. DWA said that, since its DVD release in the first quarter, it has shipped about 5.1 million units.

"Shark Tale" accounted for $5.8 million in revenue during the quarter, and library and other titles recorded revenue of $8.5 million. "Shrek 2" didn't make a contribution because DWA still owed the distributor about $7.1 million on that title as of the end of the quarter.

DWA is planning a couple of TV series with partner Nickelodeon to debut in 2008, one based on the penguin characters from "Madagascar" and the other based on the planned theatrical release of "Kung Fu Panda" in summer 2008.

Katzenberg noted in a conference call with analysts that DWA will not be shouldering the financial burden of getting those shows on television.

DWA's next release, "Flushed Away," was made with Aardman Animations, which has some analysts worried about its boxoffice potential, given the underperformance of "Wallace & Gromit," which was the first film under DWA's five-picture alliance with Aardman. Katzenberg said DWA can bow out of that deal at just about any time, though there are no plans yet to do so.

"Flushed Away," while maintaining an Aardman stop-motion feel to it, is a CG-animated film. "It stands out in a crowded marketplace," Katzenberg said.

Revenue for the current quarter will be driven by sales of the "Over the Hedge" DVD, which was released Oct. 17, DWA executives said. The film did $325 million in worldwide boxoffice receipts, well shy of the better than $500 million garnered by "Madagascar."

Looking toward what is arguably the company's most anticipated event, the May release of "Shrek the Third," Katzenberg seemed optimistic even in the face of competition by the likes of "Spider-Man 3" from Sony Pictures and Disney's "Pirates of the Caribbean: At World's End."

"The moviegoing marketplace can certainly accommodate all three of these films," he said.
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