Bloomberg News

DreamWorks Animation Weighs Forming Film Distribution Arm

September 29, 2011

(Updates share price in seventh paragraph.)

Sept. 29 (Bloomberg) -- DreamWorks Animation SKG Inc., producer of the “Shrek” films, may take over distribution of its movies when an accord with Paramount Pictures ends next year, three people with knowledge of the situation said.

The studio is considering delivering films to theaters electronically, said the people, who declined to speak publicly. Glendale, California-based DreamWorks Animation may also distribute movies for other producers, one person said.

DreamWorks Animation, which releases two to three films a year, would gain control over the marketing and scheduling of its movies at a time when theater consolidation and technology are making distribution cheaper and easier. Offering those services to others would add revenue to offset costs.

“There has never been a better time for a studio to distribute its own films,” said Peter Hoffman, a partner at the boutique investment bank GHL & Co. in New York. “Content has appreciated from a few years back and the costs of distributing are sharply reduced.”

The studio, led by Chief Executive Officer Jeffrey Katzenberg, hasn’t made a decision, one person said. DreamWorks Animation could still sign with another Hollywood studio when the deal with Paramount ends. Self-distribution would require DreamWorks Animation to market its own movies and find a new partner for releasing outside the U.S.

Shannon Olivas, a DreamWorks Animation spokeswoman, declined to comment. The company has until the second or third quarter of next year to decide how to replace Paramount, Katzenberg said on an April 26 earnings call with analysts.

Cinema Upgrades

DreamWorks Animation rose 23 cents to $19.39 at 12:09 p.m. New York time in Nasdaq Stock Market trading. The shares had declined 35 percent this year before today.

U.S. cinemas are being weaned from bulky and costly-to- print film reels. Of the 39,000 U.S. screens, 21,781 have the ability to receive movies digitally, according to the National Association of Theatre Owners.

Paramount, a unit of Viacom Inc., has distributed and marketed DreamWorks Animation films since 2006 and receives a fee of 8 percent for certain film revenue, including theatrical and DVD. That agreement expires Dec. 31, 2012, company filings show. Paramount announced plans for its own animation unit in July, with the first title scheduled for 2014.

DreamWorks Animation had asked Paramount to reduce its fee to extend the deal, the Los Angeles Times reported on Aug. 1.

On Sept. 26, DreamWorks Animation said it would offer its movies online through the Netflix Inc. subscription service starting in 2013. The agreement allows the studio to exit an arrangement with Time Warner Inc.’s HBO sooner than scheduled.

By doing so, DreamWorks Animation passed up an agreement with a premium pay TV channel in favor of an online service. Movies typically appear on premium channels after their theatrical run and DVD debut in stores.

--Editors: Rob Golum, Anthony Palazzo

To contact the reporters on this story: Ronald Grover in Los Angeles at rgrover5@bloomberg.net; Michael White in Los Angeles at mwhite8@bloomberg.net

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net


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