DreamWorks Animation takes tumble

Net income falls 45% in last quarter

NEW YORK — It’s a typical story this earnings season: DreamWorks Animation saw profits and revenue dip last quarter.

Major problem was a tough comparison with the same period the year before when blockbuster DVD “Shrek the Third” bowed, the company said, plus higher costs from new businesses including the Virtual Studio, TV projects and Broadway.

Net income fell 45% to $52 million and revenue dropped 31% to about $200 million. But box office was booming and DWA’s homevideo sales were robust, execs said, making 2008 “the most successful non-Shrek year in our history,” according to chief financial officer Lew Coleman.

CEO Jeffrey Katzenberg joked about a possible staffing coup — bringing outgoing News Corp. prexy Peter Chernin to the drafting table.

“I spoke with him … I asked him if he wanted to be an animator. He said, ‘Well, you know, no one’s ever asked me that.’ I caught him off guard,” Katzenberg told Daily Variety. “I think Peter is one of the all-star great executives of our industry.”

Katzenberg thinks one of the company’s greatest accomplishments in 2008 was “the consistency in our performance — something we’ve been trying very hard to achieve.” Its two pics, “Kung Fu Panda” and “Madagascar: Escape 2 Africa” were among the top 10 performers theatrically.

Over the past eight weeks, the box office as a whole is up 25%. “I believe that is a reflection of the marketplace and is the movie business behaving counter-cyclically, which it has done historically,” he said.

As for the DVD market, “where the greatest stress and greatest anxiety has been expressed,” Katzenberg said, “Kung Fu Panda” has sold more than 11 million units, up from the 10 million he predicted at an investor meeting in December.

“Madagascar” sold about 5 million units in its first 10 days, execs said, predicting that would represent about 75% of total volume. That will be less overall than “Panda,” execs said, because it was a sequel and didn’t have the lucrative holiday sale window. But given the dire market conditions, Katzenberg called the numbers for both pics very strong.

He brushed off Blu-ray business as minuscule. But he said sales of two-disc premium packs — with the movie plus extra material — were surprisingly strong. “It’s been a meaningful part of our volume … customers in an unexpected way are trading up for the premium production.”

Katzenberg sees 2009 driven by more “Madagascar” sales and by “Monsters vs. Aliens” — DreamWorks Animation’s first 3-D release, which opens domestically March 27.

“We believe that ‘Monsters vs. Aliens’ will reset the bar for what moviegoers should expect from a CG animated film,” Katzenberg said.

He’s upbeat on the rollout of 3-D, and said the company would start to see a return on its “Monsters vs. Aliens” investment at 15% penetration, at a $5-per-ticket premium. He said there’s evidence that consumers are “making that extra effort to get to a 3-D screen.”

Asked on a conference call about “Shrek the Musical,” Katzenberg acknowledged “there was a fair amount of concern on everybody’s part” after a poor showing the last week in January. But he said things had picked up since then and that the past week, ending Feb. 22, was the third biggest the show’s had since it opened, including the two holiday weeks around Christmas.

“When we get to March, and Easter break begins, it starts a better season for all of Broadway theater. So we think the worst is behind us,” he said.

Katzenberg expects costs on the company’s newer businesses to continue for the next few quarters, but said it would see incremental revenue and profit from them by the end of 2009.

For the full year 2008, DreamWorks Animation reported net income of $142.5 million and revenue of $650 million.

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