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DreamWorks Animation Won’t Get Much Relief From ‘Home’

Massive writedowns. Failed sales. Deep staffing cuts.

It’s a trifecta of troubles that has left DreamWorks Animation struggling to find its footing and move forward after the worst year and a half in its often rocky history.

The company’s suffering won’t be alleviated when “Home,” its upcoming alien invasion film, lands on Friday. The picture is on track to open to between $30 million and $35 million, a respectable result but for the fact that it also carries a $130 million pricetag.

Home” opened to strong numbers overseas last week, leading some analysts to predict that the film should end up with more than $100 million domestically and roughly $380 million globally.

“They would skirt the writedown and be out of a deficit situation with those numbers,” said David Miller, an analyst with Topeka Capital Markets.

Others are less optimistic.

“We have become a little bit more concerned that ‘Home’ could underperform expectations, even though they were not overly high,” said Tuna Amobi, an analyst with S&P Capital IQ. “The company could be hard-pressed to recoup its initial investment.”

If “Home” can break even or turn a profit, it will be a better showing than DreamWorks achieved on three of its four most recent films — “Mr. Peabody and Sherman,” “Turbo” and “Penguins of Madagascar” all ended up in the red. At the same time, the company’s stock was buffeted after possible sales to Hasbro and Softbank fizzled.

DreamWorks Animation declined to comment on this article.

Film flops left the company in a deep financial hole, with the company reporting $300 million in operating losses last year. In order to climb out, DreamWorks is scaling down the number of films it fields annually from three to two. That’s left “Home” as the company’s sole release this year, intensifying the scrutiny that surrounds its performance.

This is “a transition year for them, and this is not going to be a movie that’s going to be anything that changes that,” said Marla Backer, an analyst with Research Associates. “It’s not going to be the next ‘Madagascar’ for them.”

In addition to paring down its release slate, DreamWorks Animation has laid off 500 people and sold its Glendale campus. Those steps have eased liquidity concerns, but they come at a cost.

“You’re laying off animators and storyboard artists,” said Miller. “That’s like an airline laying off pilots. It’s laying off the soul of a company.”

The knock on DreamWorks Animation has been that its films have become generic — an interchangeable array of big-name voice actors and fart jokes. What seemed fresh with “Kung Fu Panda” and “Shrek” has grown stale, particularly now that Illumination Entertainment, Paramount Animation, Fox’s Blue Sky Studios and Warner Bros. Animation have all invested heavily in the animation space, producing their own hits. The market for toon fare is no longer dominated by DreamWorks Animation and Pixar.

To that end, DreamWorks Animation has indicated that it is serious about shaking up its creative direction in addition to its cost structure. DreamWorks Animation CEO Jeffrey Katzenberg has tapped Bonnie Arnold and Mireille Soria, the pair behind the “Dragon” and “Madagascar” franchises, to oversee and reinvigorate the film side.

The company has also made progress in its efforts to grow more diversified, so that every film opening doesn’t precipitate a white knuckle ride for its stock. The company bought YouTube platform AwesomenessTV, it has been tapped to produce television content for the likes of Netflix and Verizon, and it is ramping up its consumer products arms. Not all of these moves have yet to reap dividends, but revenues from television production have more than doubled, and profits at DreamWorks Animation’s consumer products and licensing division increased 28%.

“The heavy lifting has been done on diversification,” said James Marsh, an analyst with Piper Jaffray & Co.”The bears are focused on what happened or what’s happening. They’re not looking at the future, and if you look ahead a year from now, I’ll tell you what the conversation is going to be. It’s going to be, ‘They’ve got their mojo back.'”

In twelve months, DreamWorks Animation’s future could look brighter, but for now it seems unlikely that “Home” will herald a bright new day for a company that hasn’t had much to celebrate.

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