Profits soar thanks to 'Shrek the Third'

DreamWorks may be having its problems with Paramount, but DreamWorks Animation is profiting handsomely from its relationship with the studio.

Jeffrey Katzenberg-led toon studio reported Tuesday that revenue had tripled to $222.5 million and net income quadrupled to $61.8 million in the second quarter, largely driven by boffo B.O. for “Shrek the Third,” which Par distributed.

Katzenberg declined to take the bait from an analyst on a conference call to criticize Par or its chief, Brad Grey.

“We feel they have done an outstanding job of marketing and distributing our products to date,” Katzenberg said. “We continue to have very, very good relationships over there with all of the management from Brad on down.”

He explained in a follow-up interview with Daily Variety that the possible departure of DreamWorks principals David Geffen and Steven Spielberg from the live-action studio, or any other change in its deal with Par, wouldn’t impact DWA’s separate distribution agreement with Paramount. The prospect of Geffen and Spielberg leaving Par when their contracts are up has been the subject of much speculation in recent weeks amid chatter about how the two are unhappy with the DreamWorks-Par relationship.

“Shrek the Third” is wrapping up its domestic run with $320 million in box office. Overseas, it has taken in $400 million, with several more markets to go.

Pic contributed $109.1 million in revenue last quarter from domestic B.O. and consumer products. A DWA movie typically doesn’t start to contribute revenue until the second quarter of its release, as distributor Paramount gets to recoup its distribution and marketing costs first. However, the big success of “Shrek the Third” allowed Par to recoup its costs quickly.

Pay TV, homevideo and licensing also helped DWA’s library generate revenue. “Over the Hedge” added $26.9 million as it hit 13.4 million DVD units sold worldwide; last fall’s “Flushed Away,” which has now sold 5.1 million homevid units, contributed $12.4 million; “Wallace and Gromit” made $14.7 million; “Madagascar” took in $12.7 million; “Shark Tale” added $10.7 million; and “Shrek” and “Shrek 2″ made almost $36 million.

DreamWorks is counting on “Shrek the Third” to continue driving its revenue for the rest of the year, with most of the foreign box office coming in the current quarter and homevid in the fourth quarter. November release “Bee Movie,” written by and starring Jerry Seinfeld, likely won’t start earning money until 2008.

Continuing the same modest predictions execs made for “Shrek the Third,” given its release between “Spider-Man 3″ and “Pirates of the Caribbean: At World’s End,” company cautioned investors that this holiday season will be crowded with high-profile DVD releases, potentially putting a damper on “Shrek the Third” sales vs. those of previous franchise installments.

“The fourth quarter is shaking up to be the most competitive that the homevideo market has ever seen,” Katzenberg said. “In the same way we cautioned you about the competitive environment around the theatrical release, the same issues will exist around the DVD release — even more so.”

DreamWorks Animation stock surged 5% in after-hours trading on Tuesday’s solid performance. Before earnings were announced, it closed down a fraction at $31.

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