FEBRUARY 28, 2012, 8:48 P.M. ET
DreamWorks Animation Reports Weaker Results
By MICHELLE KUNG and DREW FITZGERALD
Weak sales of "Kung Fu Panda 2" DVDs contributed to steep declines in revenue and profit during DreamWorks Animation SKG Inc.'s fourth quarter.
Despite a strong box-office performance, the second "Kung Fu Panda" installment, together with "Puss in Boots," released in October, couldn't match the results of the larger group of films the studio had in the market in the year-earlier period.
Chief Executive Jeffrey Katzenberg said in a conference call with Wall Street analysts that the DVD's performance was hurt by a general downturn in the home-video environment, which he said remains "challenging."
In the quarter ended Dec. 31, DreamWorks posted a profit of $24.3 million, or 29 cents a share, down 71% from the year-earlier period, when DreamWorks made $85.2 million, or 99 cents a share. Revenue fell 21% to $219 million.
"Kung Fu Panda 2" contributed $49.6 million to revenue in the latest quarter, mostly through home-entertainment sales. The more recently released "Puss In Boots" added about $23.8 million to revenue, while "Megamind" contributed $19.4 million, mostly through international pay-television revenue.
"Puss in Boots" generated $149.2 million in domestic ticket sales—only slightly less than "Kung Fu Panda 2"—contributing to a total $532.7 million world-wide.
But Mr. Katzenberg said the film's costs were higher than average for a DreamWorks film. At $150 million to $175 million, the movie's marketing and distribution expenses were relatively high for the studio. Paying the actors whose voices were used in the film also cost more than it has for many of the studio's films, Mr. Katzenberg said.
The company's net income for the full year fell by 49% to $86.8 million, or $1.02 a share, on revenue of $706 million, down 10% from 2010.
With an eye toward the world's most populous market, DreamWorks recently signed a joint-venture deal with investment fund China Media Capital to launch a production studio in Shanghai. The venture's terms require DreamWorks to share some technology with its Chinese partners while allowing the U.S. company to distribute more movies in China by avoiding state-imposed limits on foreign film imports.
While DreamWorks executives did not elaborate on the joint venture, dubbed Oriental DreamWorks, they said its first film will be released in theaters in 2016. There is also some possibility the venture will help DreamWorks Animation distribute upcoming films in China, Mr. Katzenberg said.
Executives also declined to discuss who will distribute DreamWorks Animation's films after the studio's current deal with Viacom Inc's Paramount Pictures expires at the end of this year. Paramount currently collects an 8% distribution fee on DreamWorks titles and has been distributing films for the studio since 2006. Mr. Katzenberg said that the studio would announce its distribution plans no later than this fall.
"We're considering all options," he said.
Revenues for the current year are expected to be driven primarily by the release of two new films -- a third film in the studio's "Madagascar" series and contemporary fairy tale "Rise of the Guardians" -- and the continuing home video and international returns from its 2012 films.
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