DreamWorks Animation SKG Inc. (DWA:US)’s distribution deal with Twentieth Century Fox achieved Chief Executive Officer Jeffrey Katzenberg’s goal of slicing costs while furthering plans to find new revenue as DVD sales shrink.
The accord announced yesterday pays News Corp.-owned Fox the same 8 percent film-distribution fee in the U.S. as the deal it replaces with Viacom Inc. (VIAB:US)’s Paramount Pictures. DreamWorks Animation will spend less -- a 6 percent fee -- on growing digital formats such as video-on-demand and online rental, while keeping revenue from domestic television such as Netflix Inc. (NFLX:US)
Katzenberg, pitting Fox against Sony Corp. (6758) in negotiations, pushed to lower costs at the studio, which is battling an industry drop in DVD sales as well as tougher competition for family audiences. He said he’s considering Fox as a partner in cable-television channels he plans in the U.S. and elsewhere as he builds new businesses to increase sales.
“It is a topic of interest and one that we will pursue,” Katzenberg said of his TV ambitions on a conference call. “Certainly we’ll be pursuing it with our partners at Fox.”
This year, Glendale, California-based DreamWorks Animation has announced plans for a New Jersey theme park, as well as an animation studio and live entertainment venture in China. Last month, Katzenberg announced a deal to acquire (DWA:US) Classic Media, owner of characters including Casper the ghost.
Lower distribution fees will further improve the company’s financial situation, he said.
“Our new agreement with Fox presents more favorable economics overall,” Katzenberg said in a statement.
DreamWorks Animation, based in Glendale, California, will pay 8 percent to Fox for home-video and international television sales, in addition to theatrical distribution of its movies, according to Katzenberg.
Altogether, the Fox agreement amounts to about a 1 percent fee reduction for DreamWorks Animation, Barton Crockett, an analyst with Lazard Capital Markets in New York, wrote in a research note. Lazard had expected a larger reduction of about 1.5 percent in DreamWorks’ costs, he said.
“The main advantage is that DreamWorks has a solid partner in Fox,” he wrote.
Katzenberg has said he plans to use the characters from Classic Media to help create a cable-television channel for both the U.S. and international markets. While the company is discussing a venture with Fox, it is free to look elsewhere for a partner, Katzenberg said.
“This remains both an ambition and an opportunity for us,” Katzenberg said. “They have enormous expertise and experience in this area,” he said of Fox, citing the company’s 350 international channels.
DreamWorks Animation rose (DWA:US) as much as 4.5 percent to $18.51 in extended trading yesterday after the deal was announced. The stock has advanced 6.8 percent this year to yesterday’s close of $17.72 in New York.
News Corp. (NWSA:US), based in New York, was unchanged in extended trading. The Class A shares fell 0.9 percent to $23.06 at the close of regular trading and have gained 29 percent in 2012.
DreamWorks Animation’s net income has declined to a projected (DWA:US) $71 million this year, the average of five analysts’ estimates, from $218.4 million in 2007. The shares have lost about 60 percent from a high of $44 in March 2010.
Paramount will distribute “Rise of the Guardians,” its last film for DreamWorks Animation, in November. Fox will start with “The Croods” in March, Katzenberg said.
Fox already produces and distributes animated films. Its July 13 release, “Ice Age: Continental Drift,” has collected almost $800 million in worldwide sales, the most of any animated feature this year, according to researcher Box Office Mojo.
“Madagascar 3: Europe’s Most Wanted,” DreamWorks Animation’s one release so far this year, has collected $565 million worldwide, according to Box Office Mojo.
DreamWorks Animation has three releases scheduled for 2013, including “The Croods,” “Turbo” in July and “Mr. Peabody & Sherman,” in December, according to Box Office Mojo.
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