DreamWorks Animation Posts Lower Q1 Results

Dreamworks Animation

CEO Jeffrey Katzenberg says premium VOD is not part of the studio's business plans.

NEW YORK — DreamWorks Animation on Tuesday reported lower financial results for an uneventful first quarter, missing average Wall Street expectations.

The only major release in the period was the DVD release of Megamind. In the opening quarter of 2010, the early boxoffice of How to Train Your Dragon and DVD revenue from Monsters vs. Aliens were key drivers. Analysts have pointed to the late-May release of Kung Fu Panda 2 as the next major possible catalyst for the company's financials and its stock.

DWA earned $8.8 million in the first quarter, down nearly 60 percent from the $21.7 million recorded in the same period a year earlier.

Revenue declined by a third from $162.1 million to $108 million, including $18.1 million from the Megamind  DVD and $19.9 million from Shrek Forever After's home entertainment run, as well as $19.1 million from Madagascar 2's availability on free TV in the U.S. and internationally. Megamind sold about 2.9 million home entertainment units worldwide through the end of the quarter.

On a conference call, CEO Jeffrey Katzenberg said the company expects Megamind to be the 14th profitable DreamWorks-branded CG movie in a row.

Katzenberg on Tuesday got a question about whether DWA could explore the premium VOD window that four big studios are starting to experiment with in a deal with satellite TV giant DirecTV, which will offer select early-release movies about 60 days after their theatrical launch for $30. Premium VOD "is not a business of ours" and is "not relevant to us today," Katzenberg said.

Asked about the current distribution deal with Viacom's Paramount Pictures that expires next year, Katzenberg reiterated that Paramount is doing an "excellent job" and signaled there would likely be no movement, decision or update from the company before next year.

But asked by an analyst about the success of recent animated film competition, including Paramount's recent release of its own animated feature Rango and Universal's  Hop, he argued that some of the recent product wasn't as successful as it may have seemed or been presented to be. Instead, it just did better than a weak overall market, Katzenberg suggested, adding that CG movies are very expensive to make and that not everybody is successful with them.

"We don't think the marketplace is overcrowded," Katzenberg also said, reiterating previous comments on how he feels about competition in the animation space. He suggested that there is an ebb-and-flow that at times sees studios who aren't regular players in the space produce animated fare.

"We remain very confident about our two movies this year and our program for next year," Katzenberg added. In the company's earnings release, he had also said: "We now look forward to kick-starting the summer moviegoing season with Kung Fu Panda 2 on May 26, as family entertainment — and CG animation in particular — has performed at the top of the box-office charts so far this year."

Asked about Netflix's streaming video service and its plans to buy more content, Katzenberg said it is another buyer, which validates the value of DWA and other content.

Faced with a question about the global appeal of DWA product, management said the studio has focused on films with international appeal. Katzenberg said Shrek was a blockbuster around the world, except for Japan. Panda is doing better in Asia, and Madagascar is doing particularly well in Europe, but both franchises are international successes.

Management also said it has increased advertising spending online, from about 6 percent of overall marketing expenses to about 10 percent.

Before the earnings report, DWA shares closed down marginally at $26.73, close to their 52-week low of $25.17.

Email: Georg.Szalai@thr.com
Twitter: @georgszalai