Studio drawing on new ventures

Richard Verrier is a Times staff writer.

DreamWorks Animation SKG is launching its franchise characters into new lines of business, giving the Glendale studio a chance to grow steadily and consistently even during a recession that already is slowing its DVD sales.

In their first investor conference since 2005, studio executives Thursday outlined a series of new business ventures to lessen DreamWorks’ dependence on production of only two animated movies a year, which often has led to big swings in its earnings and stock price.

DreamWorks will feature the studio’s popular characters in TV specials for NBC, for instance, as well as in theme park attractions in Dubai and Singapore.


“Shrek the Musical,” which will debut on Broadway this Sunday, could be the first in several DreamWorks-inspired shows. The company hopes to match the kind of success arch-rival Walt Disney Co. had with its musical based on the classic animated movie “The Lion King.”

“We wanted to step back and show investors how this company has grown,” Jeffrey Katzenberg, chief executive of DreamWorks Animation, said after the three-hour conference. “We have eight new initiatives we’re investing in.”

The company expects to generate as much as $60 million in revenue from various TV projects, including a series that will air on Nickelodeon in March featuring the penguin characters from “Madagascar,” Chief Operating Officer Ann Daly said.

“The ongoing presence of our characters will help keep the franchises fresh,” she said.

Even as they touted new business ventures, however, DreamWorks executives acknowledged that the recession was having an effect on the home video business. Daly said the studio expected to sell more than 10 million DVD units for the hit film “Kung Fu Panda” in the fourth quarter. That falls short of what Wall Street anticipated.

Most analysts had forecast quarterly sales of at least 12 million units for “Kung Fu Panda,” which was released on home video Nov. 9. The movie, starring Jack Black, has generated more than $630 million worldwide in box-office ticket sales, making it one of the company’s most successful animated movies.

“The home video market is maturing and has recently been hurt by the economic downturn,” Daly said. “The current recession and lack of consumer spending domestically [are] having a dramatic impact.”


The studio, for instance, expects to ship about 500,000 fewer DVDs because two customers -- Circuit City Stores Inc. and Woolworths Group in Britain -- have filed for bankruptcy, she said.

Even so, Daly said, “Kung Fu Panda” will still be among the top-selling titles in the fourth quarter.

Some analysts praised the moves as potentially valuable new sources of additional revenue for the company.

“They made a case that there’s an interesting growth story at DreamWorks over the next few years,” said Anthony Valencia, an analyst at TCW Group in Los Angeles.

However, investors reacted coolly Thursday to the slowdown in DVD sales. The company’s shares fell 77 cents to $23.47.

Michael Pachter, managing director at Wedbush Morgan Securities, said he was impressed with the company’s long-term strategy, but pointed out: “In this market, all investors care about is what’s happening today.”


DVD sales, which declined industrywide for the first time last year as movie discs reached a saturation point, have been further depressed by the falloff in consumer spending. DVD sales fell 9% in the third quarter, according to independent tracking service Nielsen VideoScan, which does not include sales from Wal-Mart Stores Inc. Sales of higher-priced, newer titles fared even worse, plummeting 22% in the third quarter.

But Katzenberg said the studio, which is expanding its Glendale campus to accommodate growth, would thrive amid the economic downturn. Unlike its rivals, DreamWorks does not own a television network and thus is less dependent on fickle advertising revenue.

Katzenberg also noted that the studio had developed a more consistent track record at the box office by spending more time developing story lines and by hiring experienced directors and producers.

DreamWorks’ most recent films, “Kung Fu Panda” and “Madagascar: Escape 2 Africa,” are on track to become among this year’s highest-grossing films. The studio announced plans to release a third installment of “Madagascar” in 2012.

“Even in this difficult economy, [computer-animated] entertainment continues to be one of the most consistent and safest bets,” Katzenberg said.

The credit crunch has slowed the much-ballyhooed rollout of 3-D-ready movie theaters, Katzenberg said. DreamWorks has banked heavily on the new technology and is planning to release all of its upcoming films in 3-D, starting with its next feature, “Monsters vs. Aliens.”


He predicted that about 2,500 screens would be ready by the time the film comes out March 27. That’s far below what many in Hollywood had hoped for, but enough to offset the extra $15 million it costs to produce a film in 3-D, Katzenberg said.

Some analysts questioned whether budget-conscious consumers would be willing to pay an extra $5 to watch the movie in 3-D.

But Katzenberg said he had no doubts. “It’s a whole other experience,” he said. “It’s a tremendous opportunity for the industry and for Hollywood.”