DreamWorks Animation signs five-year deal with 20th Century Fox

Shrek and Po have found a new home.

DreamWorks Animation, the Glendale studio behind such hit animated franchises as “Shrek,” “Kung Fu Panda” and “Madagascar,” has signed a five-year deal with 20th Century Fox, which will distribute its movies beginning next year.

Fox replaces Paramount Pictures, DreamWorks’ partner since 2006. The two companies’ relationship began souring in 2011 as DreamWorks Chief Executive Jeffrey Katzenberg sought to pay a lower fee and Paramount Chairman Brad Grey formed a competitive animation unit at his studio.

DreamWorks hired former Disney distribution President Chuck Viane last fall to advise the studio on its options, including the possibility of distributing its own movies. By this summer, however, the company abandoned the option of releasing its own films and focused on intense talks with Fox and Sony Pictures.

Under the new agreement, DreamWorks will pay Fox 8% of revenue from box-office and DVD sales, the same fee that it paid Paramount Pictures. Katzenberg previously told his company’s shareholders that he would seek a lower fee in a new distribution deal.

However, in a victory for DreamWorks, Fox will receive a lower fee for the small but growing business of digital distribution, including video-on-demand and download-to-own.

In addition, DreamWorks will retain the right to distribute its movies on domestic television channels, a source of revenue that it previously shared with Paramount. DreamWorks will keep the rights to release its movies on TV in China.

Katzenberg recently announced plans to launch a DreamWorks-branded family cable channel.

DreamWorks last year signed a deal to replace HBO as its pay television partner in the U.S. with Netflix, which will take over those duties in 2013.

A complicating factor in the new partnership is that Fox has an animation unit of its own, Blue Sky Studios, which is best known for the hit “Ice Age” franchise. The studio will have to carefully balance the interest of Blue Sky with DreamWorks in selecting the best release dates and dedicating the support of its marketing team.

The first DreamWorks film to be released by Fox will be caveman comedy “The Croods,” which is scheduled to hit theaters March 22.

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