Animation arm sees huge results at Paramount

While one DreamWorks departs Paramount, another is staying put, at last for a few more years.

DreamWorks Studios may be re-launching with a new infusion of cash, but DreamWorks Animation remains in a distribution deal with Par that runs through 2012.

Originally spun into a public company to help investor Paul Allen liquidate his early investments, DreamWorks Animation is now in the unexpected position of having absolutely no business relationship with DreamWorks Studios.

Technically, the live-action studio hasn’t been connected to its toon sibling in over two years, but it’s no coincidence that the latter signed a seven-year distribution deal with Paramount at the same time the former was acquired by it.

Back then, nobody figured DreamWorks’ relationship with Par would end so quickly. But DreamWorks Animation CEO Jeffrey Katzenberghas been thriving.

The “K” in DreamWorks SKG, who has led the animation studio since it spun out four years ago, has had only positive public words for Paramount and insiders say there have been few conflicts, save for a dispute when former Par marketing honcho Gerry Rich ankled.

Aided by the former DreamWorks team that took over Paramount distribution and the studio’s well-respected marketing machine, DWA toons have performed well for the past two years, grossing an average of $441 million worldwide. Overseas B.O. has been particularly strong, with this summer’s “Kung Fu Panda” and last year’s “Shrek the Third” grossing $409 million and $476 million, respectively, from foreign markets. Home entertainment perf has also been solid is a slumping market — “Shrek the Third” has sold more than 20 million units so far.

Significantly, DreamWorks Animation stock is up 27% since 2006.

“Whether it’s distribution, marketing, or home entertainment, Paramount has been treating DreamWorks Animation like it’s incredibly important,” says Wedbush Morgan analyst Michael Pachter. “It’s widely perceived as a good relationship.”

DreamWorks Animation has invested heavily in 3-D technology, and after the release of “Madagascar: Escape 2 Africa” in November, all the studio’s upcoming pics will be digital 3-D releases, including “Monsters vs. Aliens” and “Shrek Goes Fourth.”

There have been rumors that Katzenberg could bid adieu to Par before the contract’s official end after 2012, but that’s not allowed under their contract until Jan. 1, 2011, and even then it would be a costly move.

First, a substantial 35% of the company’s stock must change hands to trigger the option, but then DreamWorks Animation would have to pay Paramount $150 million for the early exit (pro-rated as time passes between Jan. 1, 2011, and Dec. 31, 2012). Assuming DreamWorks toons continue to perform well for Par, it would be very difficult for Katzenberg to justify that expense to his shareholders.

Meanwhile, Par is getting into the toon biz on its own. The studio just greenlit its first animated feature (save for cheap Nickelodeon spin-offs), “Rango,” which will star Johnny Depp, be directed by Gore Verbinski, and be produced at Industrial Light and Magic.

Insiders say it may be no coincidence that the pic has been scheduled for March 2011 — perhaps as a sign that Par can do animation on its own, if needed. Katzenberg is rumored to be peeved, since DreamWorks Animation has its own film set to come out that May — possibly “Kung Fu Panda 2.”

By the time DreamWorks Animation ends, or renews, its distribution pact with Paramount, the other DreamWorks will be a totally different company that has evolved independently for at least two-plus years. But they’ll hardly be strangers.

The men in charge, Katzenberg, Spielberg and David Geffen, remain friends, of course. Latter two are still paid $1 per year to be “consultants” for DreamWorks Animation. Spielberg retains 6 million DreamWorks Animation shares, giving him 2.2% of its voting power.

Geffen, however, is closely tied to the company. He and Katzenberg jointly control 72.2% of the company’s stock voting power, essentially putting them in charge. The former music mogul also sits on DreamWorks Animation’s board.

And no matter how separate the two businesses get, there’s always one other detail: the name. Technically, DreamWorks Animation owns the DreamWorks name and it’s expected to continue using the single word version in advertising and promotion. However, it has given DreamWorks Studios, in both its old and new incarnations, the rights to keep on using the moniker. Which means most of America will continue to think the two distinct companies are one. But what’s a brand between friends?

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