http://www.businessweek.com/news/2012-08-21/dreamworks-animation-rises-on-fox-film-accord-los-angeles-mover

Bloomberg News

DreamWorks Animation Rises on Fox Film Accord: Los Angeles Mover

August 21, 2012

DreamWorks Animation SKG Inc. (DWA:US), the maker of the computer-generated “Shrek” movies, rose as much as 4.6 percent after the company signed an agreement with Twentieth Century Fox to distribute its films.

DreamWorks Animation, based in Glendale, California, advanced (DWA:US) 2.3 percent to $18.12 at 11:26 a.m. in New York after reaching $18.53, the biggest intraday gain since June 27. The stock had declined 6.5 percent in the past year prior to yesterday’s agreement.

The deal advances Chief Executive Officer Jeffrey Katzenberg’s goal of slicing costs to counter shrinking DVD sales while he pursues new initiatives. DreamWorks Animation will pay News Corp.’s Fox the same 8 percent fee received by its former partner, Viacom Inc. (VIAB:US)’s Paramount Pictures. The company will spend less -- 6 percent -- on formats such video-on-demand and keep 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 also battling 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.

“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, 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.

Distribution Fees

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 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 reduction of about 1.5 percent in DreamWorks Animation’s 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.

Share Decline

“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.

News Corp. (NWSA:US), based in New York, rose 2 percent to $23.51. The Class A stock had gained 29 percent in 2012 as of yesterday.

DreamWorks Animation’s net income is projected (DWA:US) to drop to $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.

To contact the reporter on this story: 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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