DreamWorks’ Jeffrey Katzenberg discusses new Fox deal

In a Monday news conference, DreamWorks Animation Chief Executive Jeffrey Katzenberg discussed his company’s just-completed distribution deal with Twentieth Century Fox, and praised Fox chairmen Jim Gianopulos and Tom Rothman for building a “world-class distribution team” and singled out Fox’s strong relationships with large retailers that are critical to selling movie merchandise.

“I’m confident that Fox’s world-class experience and global resources will allow our films to reach the fullest potential over the next five years,” Katzenberg said.

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

The deal, finalized late last week, comes after more than a year of uncertainty about who would distribute movies for one of the world’s leading producers of computer-animated movies.

DreamWorks Animation films have generated more than $5 billion in box office in the last five years. Assuming the studio’s movies perform equally well for the next five years, that could mean more than $500 million over the life of the agreement for Fox, which will collect 8% of revenue from box office, home video and international television, as well as 6% of digital distribution receipts.

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

DreamWorks Animation, which has no relationship with the DreamWorks live-action studio, 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.

Katzenberg previously told his company’s shareholders that he would seek a lower fee in a new distribution deal, a goal that he didn’t achieve with Fox.

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. Fox will handle foreign television distribution except in China, where DreamWorks is building an animation studio in Shanghai with China’s top media companies.

Katzenberg recently announced plans to launch a DreamWorks-branded family cable channel that could be an outlet for a crop of new characters. The studio recently acquired more than 450 entertainment titles, including “The Lone Ranger,” “Casper the Friendly Ghost” and “Lassie” from New York-based Classic Media in a deal valued at $155 million.

DreamWorks last year signed a deal to make Netflix its pay television partner in the U.S. starting in 2013, replacing HBO.

In addition to the fees it will receive for its work, Fox will be able to use upcoming DreamWorks animated pictures such as “Rise of the Guardians” and a “How to Train Your Dragon” sequel as leverage in negotiating more favorable terms from movie theaters, marketing vendors and other partners with which it does business.

However, it faces the complicating factor of balancing the interests of DreamWorks with its own animation unit Blue Sky Studios, best known for the hit “Ice Age” franchise, in selecting release dates and dedicating marketing resources.

Rothman said that the Blue Sky and DreamWorks films are comfortably separated during the next few years.

“We’re very comfortable with where Blue Sky’s films are and the current dating for DreamWorks films,” he said. “It looks to us like a strong lineup and good spacing.”

Katzenberg insisted on the ability to secure good dates for his movies and a window of time on either side during which a partner would not release other movies of its own, according to people close to the talks but not authorized to speak publicly.

“I feel confident about the managing of release windows for the benefit of each Fox title and how DreamWorks titles will be handled in terms of that,” Katzenberg stated. “They’ve given us a lot of assurances and commitments.”

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

Investors were encouraged by the news, which was released after markets closed. Shares of DreamWorks Animation SKG Inc., which had slid 0.7% on Monday to close at $17.72, jumped as much as 5% in after-hours trading.

[For the record, 8:44 p.m. Aug. 20: An earlier version of this post incorrectly said DreamWorks Animation’s stock price “rose nearly 5% in after-hours trading to close at $17.72.” In fact, the stock price was $17.72 when markets closed. In after-hours trading, it rose as much as 5% above that.]

DreamWorks shares have fallen more than 40% in the last two years as the studio confronted a slowdown in DVD sales and an increasingly crowded marketplace for animated movies.

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