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Katzenberg: ‘Hangover 2’ hurt ‘Kung Fu Panda’

DreamWorks topper talks earnings as revenue bounces back 38%

Kung Fu Panda 2” may be a big hit overseas, and broke records in some territories, but DreamWorks Animation chief Jeffrey Katzenberg calls the decision to open the toon domestically against “The Hangover Part II” a “calamity.”

The topper was candid during the company’s second-quarter earnings call, reporting that despite the domestic disappointment, overseas B.O. returns for “Panda 2” helped boost the toon studio, with revenues up 38% to $218.3 million, and profits up 42% to $34.1 million for the three-month period that ended June 30.

On paper, the release of a family pic like “Panda 2” against an R-rated comedy over the Memorial Day weekend looked like a smart counterprogramming move that would attract different auds to the megaplex, benefitting both films.

But while the “Hangover” sequel bested estimates, playing more broadly to earn $135 million over its first five days, the “Panda” sequel wound up with just under $67 million during the same frame.

When they locked down the date, DreamWorks’ execs had anticipated an $80 million to $90 million opening for “Hangover 2.” As a result, the extra $60 million generated by the pic shaved off around $20 million from “Panda’s” haul, they believe.

“We ran into a completely unanticipated tidal wave,” Katzenberg said. “(This) was the only place in the world where we opened against ‘Hangover.’ When that happens, “there’s no recovering from it,” he said.

The opposite was true overseas, where “Kung Fu Panda 2” has earned $440 million at the B.O., compared to its $160 million domestic take.

” ‘Kung Fu Panda 2’ is currently the fifth highest-grossing film of 2011 on a global basis and has exceeded $600 million at the worldwide box office to date,” Katzenberg said. “We are looking forward to the next two big events for the company during the second half of the year: the Nov. 4 theatrical release of ‘Puss In Boots’ and the release of ‘Kung Fu Panda 2’ into the homevideo market in the fourth quarter.”

On its own, “Kung Fu Panda 2” generated $55.8 million in sales to DWA’s bottom line during the quarter, primarily from the B.O. and merchandising and licensing deals.

“Megamind” earned another $19.7 million, while “Shrek Forever After” and “How to Train Your Dragon” contributed $34.9 million and $41.4 million, respectively, mainly from homevid and pay TV sales.

Library and non-film businesses generated $66.5 million. Around 20% comes from touring shows and TV series revenue from Nickelodeon, for example, an increasingly steady revenue source for the company.

While the studio is considering moving dates for upcoming releases to prevent another “Hangover”-type head-on collision at the B.O., Katzenberg is adamant that the studio won’t ever pursue day-and-date worldwide releases for its toons.

“We spend a great deal of effort and time to make sure we release our movies when our audiences are available to us,” factoring in the culture, traditions, holidays and vacation periods for each territory. “To think that you can dictate to an audience when they will be available … would be incredibly foolish for us. The international release patterns for our movies is not broken.”

Katzenberg is also still high on 3D, at least overseas, where “the marketplace couldn’t be stronger,” he said. “Outside of North America, the performance of 3D continues to be very strong across many different films. We see continued interest in it and appeal for it and growth over these next 12 to 24 months. There’s still a pretty decent way for it to expand meaningfully internationally.”

Domestically, the exec admitted to being partly to blame for some of the extremely optimistic views of 3D’s revenue potential. At the same time, the pessimism of its longevity is also on an extreme level, he said.

For DWA, at least, 3D remains one of the best returns on investment for the company, after it was able to shave off the costs to produce its pics in the format.

Two years ago, DWA spent $15 million per pic to deliver a 3D version. Today, the cost is half that, Katzenberg said. The studio now has nine 3D films in production.

Around 45% of “Kung Fu Panda 2’s” B.O. was generated from 3D screenings, not including Imax, which typically accounts for another 8%.

Despite Paramount’s release of “Rango,” and moves to launch a new inhouse animation arm, Katzenberg isn’t showing any signs of concern over DWA’s distribution deal with the studio, in which they get paid 8% of the B.O.

“Our current agreement goes on for another year and a half,” he said. “What we won’t do is move prematurely to answer a question that doesn’t need to be answered yet. I don’t see this as the issue everybody is making of it. It doesn’t compromise us and isn’t competitive with us.”

What he did stress was that Par’s move into animation has “zero impact on us and our relationship.”

Katzenberg was quick to praise Par’s marketing and distribution team, as he has in countless other investor calls, saying the studio “has done and has always done a great job on the distribution of our movies. They’re upset about it as much as we are (when a film doesn’t perform) and are making sure we have success on ‘Puss in Boots’ as much as we could ask for.”

What Par’s move into animation does affirm is the value and appeal of animation today, he added. “This continues to be the most successful and valuable genre in the movie business,” he said.

When discussions with Par’s execs do occur over a new deal, Katzenberg said talks would come down to “two parties making a decision whether they want us to stay and whether we want to stay.”

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