CGI pics draw crowd

Increased B.O. competish threatens huge profits

The bears on Wall Street say the current infatuation with CGI animation amounts to the same kind of irrational exuberance that characterized the Internet bubble half a decade ago.

That’s probably a bad comparison, if only because, unlike many late-1990s dot-commers, CGI titans Pixar and DreamWorks Animation actually have extraordinarily profitable enterprises to show for their astounding $4 billion-plus market capitalizations.

Still, the kinds of huge returns being generated by such films as DreamWorks’ “Shrek 2” — which tallied $437 in domestic box office last summer and has taken in an additional $200 million or so in U.S. DVD sales so far this fourth quarter — are attracting serious competition into the CGI-animated feature business.

And stock analysts say this will bring the astronomical returns enjoyed by some computer-animated pics — 300% in some cases — down to Earth.

There will be at least 10 CGI-animated features released next year — up more than twofold over the four released in 2004. Competition for the next big releases from DreamWorks and Pixar — “Madagascar” and “Cars,” respectively — will come from Fox, which is reconnecting with the CGI shop behind “Ice Age,” Blue Sky Studios, to produce “Robots.” That project will voice star Ewan McGregor.

Meanwhile, with its future in distributing Pixar hits in some doubt, Disney has arranged on its own the CGI production of “Chicken Little” and “The Chronicles of Narnia: The Lion, the Witch and the Wardrobe.” The latter C.S. Lewis adaptation is being helmed by “Shrek” mastermind Adam Adamson out of New Zealand.

The increasing number of digitally animated pics will be competing amid a calendar that, at least to some degree, is limited by the work sked of its core aud — school kids.

“In the years to come, when there are 10 CGI films coming out, it will be harder to have the kinds of 100% ROIs we’re seeing,” says Keith Goodman, a media stock analyst for Glenhill Capital LP.

“If you look at the media industry over time, anything that achieves super-normal returns always attracts lots of capital,” Goodman says. “More capital means more films splitting up the box office dollar and driving up marketing costs — and bringing returns to normalized levels. And you can bet that this will be a very different industry in three or four years.”

Indeed, capital has flooded into the CGI animation business from the most unlikely of places. Notably, telecommunications giant IDT Corp. has been on an acquisitions spree the last few years that’s seen it gobble up such digital animation shops as Vanguard Films and DPS/Film Roman. Now operating under the well-financed umbrella of IDT Entertainment, those firms are readying for theatrical release next year such titles as the war epic “Valiant,” which also stars the voice of McGregor and will be distributed by Disney; and the Sarah Michelle Gellar-voiced fairytale send-up “Happily N’Ever After.”

Meanwhile, acknowledging a more bullish perspective for the genre’s incumbents, Goodman also suggested industry leaders like Pixar and DreamWorks might enjoy a talent advantage that allows them to ride out the oncoming competitive assault.

Perhaps this paradigm was born out to at least some extent in early November, when the $23.5 million debut of the Sony Imageworks-animated, Warner-distributed “Polar Express” didn’t even come close to unseating the Pixar-animated, Disney-distributed reigning B.O. champion, “The Incredibles.”

The latter took in $51 million for the weekend ending Nov. 14, its second in release.

Meanwhile, there’s evidence that suggests digital toons can succeed outside the holiday and summertime periods, and that perhaps double-digit film releases in the genre can be supported as a result. Released in early September, for example, DreamWorks’ “Shark Tale” has grossed about $160 million in the U.S. to date.

Beyond the domestic theatrical equation, the superior performance of digitally animated features on DVD and in foreign territories would also suggest global audiences would welcome many more entries.

The Pixar-animated “Finding Nemo” has generated about $475 million in total home entertainment spending so far. After moving a record 11 million “Shrek 2” DVDs in the first three days of release, DreamWorks is now envisioning a direct-to-DVD “Shrek” franchise similar to the straight-to-homevid sequels Disney has established around such traditionally animated hits as “The Lion King,” “Beauty and the Beast” and “The Little Mermaid.”

And much of IDT’s plans revolve around creating direct-to-DVD content that can be distributed through the home entertainment arm it acquired a year ago, Anchor Bay Entertainment.

“There’s no reason why every single studio shouldn’t ramp up a CGI studio and IPO it today,” Goodman adds.

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