Revenue, profit drop nearly 7%

Revenue and profit at DreamWorks Animation both dipped about 7% last quarter to $132 million and $27.5 million, respectively.

But the numbers, announced Tuesday, beat Wall Street expectations, and CEO Jeffrey Katzenberg, while acknowledging the underperformance of “Monsters vs. Aliens” abroad, beat the drums for the banner’s expanded 2010 slate.

Katzenberg said second-quarter results were driven primarily by the continued strong performance of 2008 films “Kung Fu Panda” and “Madagascar: Escape 2 Africa.”

“Monsters vs. Aliens,” released in late March, contributed $10.3 million in revenue, largely as a result of DWA reworking a videogame agreement with Activision. The film has grossed about $198 million at the domestic box office, bringing its worldwide box office total to more than $377 million. The DVD hits stores Sept. 29.

Despite its sturdy run Stateside, however, the pic fizzled in some large overseas markets. That was a surprise to the company, and the reasons for the disappointing perf aren’t yet clear. Katzenberg said a DreamWorks team will embark on a 25-city world tour in September and October to find out what went wrong.

The issue requires in-depth, face-to-face discussion “rather than having memos and five-minute phone conversations,” Katzenberg told Daily Variety.

Looking ahead, Katzenberg was bullish on 2010, even predicting “the biggest year in the history of the company.” While “Monsters vs. Aliens” was DWA’s only release this year, it will release three films next year, a first for the animation house. It’s slated “How to Train Your Dragon” for March, “Shrek Forever After” for May and “Oobermind” for November.

Katzenberg said during Tuesday’s conference call that a soft ad market could mean more bang for the buck as the studio prepares to market that trio of films.

“We are being very aggressive and opportunistic. We are obviously going to be a very big advertiser with three releases next year, and we are going to capitalize on it,” he said.

The company may also be able to lower distribution costs from the 8% it currently pays Paramount under an agreement that runs through 2012. Katzenberg has indicated that 8% may no longer be a competitive rate.

“It’s complicated. I don’t think there’s a one-word answer because there are many moving parts to it,” he said, while also noting, “Our relationship with Paramount is first-rate. They’ve been doing a good job for us, and we look forward to sitting down with them.”

Movies in 3-D will continue to shore up theatrical revenue, Katzenberg said, although the rollout hit a speed bump with the weak economy. “Monsters vs. Aliens” opened theater owners’ minds to the possibilities, but bank lending froze up just as they got behind the technology in a big way.

Meanwhile, DWA’s television business is humming, with “Penguins of Madagascar” a hit on Nickelodeon. Series based on “Kung Fu Panda” and “Monsters vs. Aliens” are in development.

Wall Streeters anticipate a potential wealth of merchandising revenue from the projects, which DreamWorks Animation will split 50-50 with Nick.

Katzenberg was upbeat but cautious on the prospects.

“It’s really impossible to sit here today and speculate how big, how high, how fast,” he said.

The company is also managing to buck the weakening DVD market that is tormenting other studios. Viacom chief Philippe Dauman said earlier Tuesday that, beyond the impulse to save in hard economic times, people just seemed to be tired of buying DVDs, period.

But Katzenberg said DWA product is more analogous to a toy purchase than a movie purchase. And kids watch them over and over — so they’re a seen as a great value, he said.

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