DreamWorks Animation considers distribution options

DreamWorks Animation, the studio behind “Shrek,” “Kung Fu Panda” and this week’s “Puss in Boots,” is taking its first step to possibly go it alone.

The Glendale-based studio has tapped respected distribution veteran Chuck Viane to advise the company on a range of distribution options, including the viability of releasing its own movies or finding a new studio to do the job.

“In the next six to nine months we have a very important decision to make in terms of our future distribution,” DreamWorks Animation Chief Executive Jeffrey Katzenberg said. “As we look to consider what the options are, having the incredible knowledge and expertise of Chuck will be invaluable to us. He has 30 years of experience and understands the worldwide marketplace.”

Like Katzenberg, Viane is a former Disney executive, who retired this summer. He will serve as an advisor and will not have an executive role at the company, Katzenberg said. He added that Viane will help DreamWorks evaluate its options, including “exploring self-distribution.”

That prospect has come into play after a business standoff with DreamWorks Animation’s longtime distribution partner Paramount over its distribution fee. Building on its moderately successful Johnny Depp comedy “Rango” this year, Paramount recently took the ambitious step of launching its own animation studio and tapped former Disney executive David Stainton to run it, making it unlikely the studio will extend its current distribution deal with DreamWorks once it expires in 2012.

The move was just the latest sign of how more Hollywood studios are angling to get a piece of the increasingly crowded computer-animation business, an industry that was once dominated solely by DreamWorks, Pixar-Disney and 20th Century Fox’s Blue Sky Studios. Computer animation is a significant profit source for Hollywood’s studios: Four of the top 10 movies at the box office in 2010 were animated films, including “Toy Story 3” and “Shrek Forever After.” This year, Hollywood will release 15 animated films — up from 12 in 2010 and close to the record number of 17 that reached theaters in 2002, according to Hollywood.com, a box office tracking firm.

The partnership between DreamWorks and Paramount, forged in 2006, has been largely successful, with both studios benefiting from hits such as the “Madagascar,” “Shrek” and “Kung Fu Panda” films. DreamWorks’ latest release, “Kung Fu Panda 2,” was the No. 1 animated film this year, grossing $664 million in worldwide sales.

Nonetheless, Paramount has indicated that beginning in 2014 it wants a higher distribution fee — currently 8% of each film’s revenue — than DreamWorks is willing to pay. Katzenberg has told analysts that he wants a lower fee but said that he hadn’t ruled out remaining with Paramount and reiterated that the studio has “done a great job for us.”

By releasing its own movies, DreamWorks would have greater control over how they are marketed and distributed around the world. But doing so would also require the studio to front the significant costs of marketing and distributing its movies — between $150 million and $170 million per picture.

Another option Viane will evaluate is for DreamWorks to partner with another studio. Warner Bros. and Universal Pictures have been cited as the most likely distribution partners because Disney, Fox and Sony already have their own animation units. Universal has a new family entertainment unit, Illumination Entertainment, which produced last year’s hit “Despicable Me,” but could add DreamWorks Animation movies to its mix.

DreamWorks Animation’s negotiating leverage has been weakened somewhat by a slide in the company’s stock price, which has fallen 40% in the last two years, reflecting investor concerns about an industrywide slowdown in DVD sales and rising competition.

But Viane said DreamWorks Animation will have plenty of potential suitors. “DreamWorks represents a huge and meaningfully independent revenue stream to anyone who has their accounts,” he said. “If you’re going to make your portfolio of films better, what better way than to have the industry leader?”

richard.verrier@latimes.com