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A Bad Case Of Pixar Envy


It was toon time at New York's Lincoln Center, better known for opera and ballet. On May 1, DreamWorks Chief Executive Jeffrey Katzenberg played host to an event promoted as a seminar on animation. But the several hundred Wall Streeters, press, and entertainment honchos -- with kids in tow -- soon realized this was Dreamworks in marketing overdrive. Mike Myers, the voice of the green ogre in the blockbusters Shrek and Shrek 2, did several minutes of shtick. So did Chris Rock, the voice of the zebra in the upcoming film Madagascar. But the highlight was Jerry Seinfeld, the former prime-time king whom Katzenberg recruited back to Hollywood to serve as producer, writer, and lead voice for the 2007 release, Bee Movie. The finale: a 20-minute sneak peak of Madagascar ahead of its May 27 release.

The glitzy PR fest was Katzenberg's most visible, hardest sell yet since his company went public in October. And it underscored just how high the stakes have grown for DreamWorks Animation SKG (DWA). It's really about Pixar envy. That's because its chief rival, the studio founded by Apple Computer Inc. (AAPL) CEO Steven P. Jobs, has had six back-to-back blockbusters, from Toy Story to last year's The Incredibles. In a hit-or-miss industry where few can boast of consistency, Pixar's streak is nothing short of -- well, incredible. Sure, DreamWorks has the Shrek movies and Shark Tale, but its total record is spottier. And now that he has to be vigilant about quarterly earnings and manage shareholder ex-pectations, Katzenberg is pushing DreamWorks harder to deliver a string of hits, starting with the $90 million flick about New York zoo animals that are stranded on a desert island.

So far investors are buying into the promise of more hits to come: DreamWorks' stock is up 34% since the initial public offering. Madagascar is its first major movie release as a public company, and founders Katzenberg, Steven Spielberg, and David Geffen clearly hope it will be a turning point, especially since Pixar trades at a higher multiple. "[Madagascar] is crucial for DreamWorks to show [it is] more than the Shrek company," says analyst Richard Greenfield of Fulcrum Global Partners LLC, who predicts it will gross more than $200 million.

Indeed, DreamWorks has been chasing Pixar almost from its start in 1994. Four years later, both made insect movies -- Pixar's A Bug's Life grossed $162.8 million; DreamWorks' Antz $90.6 million. Pixar's The Incredibles last fall sailed past DreamWorks' Shark Tale, grossing $261 million vs. $161 million. Along the way, while Pixar and its partner Walt Disney Co. (DIS) were minting winners, DreamWorks delivered some clunkers, like 2003's Sinbad: Legend of the Seven Seas, which cost $60 million and grossed only $26.4 million. Pixar "is the gold standard, which we're envious of," Katzenberg recently told an investors' conference. DreamWorks executives did not comment for this article. The company is in a quiet period ahead of a secondary stock offering.

OUT OF THE CAGE

Taking nothing for granted, DreamWorks is gearing up a massive campaign to sell Madagascar. Prepare for wall-to-wall zoo animals. You can already find the lovable hippo, giraffe, lion, and zebra on boxes of Honey Nut Cheerios and packages of Totino's pizzas, not to mention on menus at 1,600 Denny's restaurants. The company plans to spend a steep $50 million on marketing and has its stars out in force. Ben Stiller, the voice of the lion, hosted Nickelodeon Network's (VIA) Kids' Choice Awards show in early April. And unlike a Disney or Pixar film, DreamWorks' films generally "play to a wider audience," says Doug Cole, head of entertainment marketing at Hewlett-Packard Co. (HPQ), which is using four psychotic penguins from the film in ads for its digital cameras and printers.

The key for DreamWorks will be to make Madagascar into a franchise movie that keeps on giving to the bottom line. Films like Shrek became cash cows, spewing revenues from consumer products and DVD sales and spawning sequels. Merrill Lynch & Co. (MER) analyst Jessica Reif Cohen figures that Shrek 2, the top- grossing animated film ever at the box office, eventually provided DreamWorks with $623 million in operating profits. Equally important, another hit would help build its still tiny library, which last year generated only $152 million in revenue, down from $281 million in 2002. With Shrek 2 and Shark Tale, DreamWorks last year earned $333 million on revenues of $1.1 billion. A year earlier, without a hit film, it lost $187 million.

So DreamWorks isn't slowing down. Shrek 3 and 4 are already in the works. So high is the company on Madagascar that it's preparing a direct-to-video spin-off starring the penguins. Word of mouth about the film is already strong. But ticket sales are the only real test.

By Ronald Grover in Los Angeles


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