DreamWorks suffers in spite of ‘Panda’

DreamWorks Animation topped the box office in 2008 with Kung Fu Panda and Madagascar 2 but not even these hits could prevent a steep fall in full-year profits.

The company missed analyst estimates for the fourth quarter, with net income more than halving. The period suffered compared with a strong fourth quarter in 2007 when Shrek the Third was released on DVD.

Although the group’s releases continued to perform well on DVD, the group acknowledged the industry-wide slowdown in sales of the home entertainment format and said it had altered the “ultimates” – an estimate of a film’s earning potential on all platforms – for Kung Fu Panda.

“Clearly, the reduction in DVD volumes has resulted in a reduction in our film ultimates,” said Lew Coleman, president of DreamWorks Animation.

“It’s safe to say that margins are coming down, mostly due to the home video business.” The group has trimmed its calculation for the movie by $8m.

Still, Jeffrey Katzenberg, chief executive, said the film had sold more DVD units than anticipated, with 11m copies sold since Christmas. “In this marketplace that shows the strength of our product,” he said.

DreamWorks will only have one release in 2009: the 3-D Monsters vs Aliens. “We believe that Monsters vs Aliens will reset the bar for what moviegoers should expect from a computer-generated animated film and are confident that it will offer our audiences a premium viewing opportunity,” said Mr Katzenberg.

Films released in 3D generate more revenue per screen than other titles, he added. “We expect that in most markets there will be a meaningful upcharge and in the US that should be about $5 [per ticket].”

The group is diversifying into theatrical productions, with a Shrek musical, and is also producing animated one-off “specials” for television using the characters from its films.

A programme based on characters from the Madagascar films is about to be shown on Nickelodeon and there are also spin-offs from Kung Fu Panda in the works.

Net income dropped from $94m to $52m in the fourth quarter. For the full-year, profits fell from $218m to $142m. Fourth-quarter revenues fell from $290m to $199.8m. They dropped to $650m from $767m for the full-year.

Earnings per share for the quarter were $0.59 compared with $0.98. For the full year, they fell to $1.59 compared with $2.18. The shares were up 4.5 per cent in after-market trading at $19.76.