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DreamWorks Animation's profit drops; no sequel for 'Monsters vs. Aliens'

October 27, 2009 |  5:24 pm

Monsters
DreamWorks Animation SKG posted a 48% decline in third-quarter profits, but the results were nonetheless better than what Wall Street was expecting. 

The Glendale-based studio also disclosed that it would not be producing a sequel to its latest movie, "Monsters vs. Aliens," which received a tepid response in key overseas markets. 

DreamWorks reported net income of $19.6 million, or 23 cents a share, on revenue of $135.4 million in the quarter ended Sept. 30.

That compared with net income of $37.4, or 41 cents share, on revenue of $151.5 million during the same period a year ago, when the studio benefited from its hit film "Kung Fu Panda."

Analysts were expecting earnings of 16 cents a share on revenue of $129.3 million, according to consensus estimate by Thomson Reuters. The studio did not release a movie in the third quarter of this year.

Instead, the studio’s results were driven by home video and pay television revenue from its 2008 films “Madagascar: Escape 2 Africa” and “Kung Fu Panda” and from “Monsters vs. Aliens,” which was released on home video Sept. 29.  The film has sold an estimated 4.6 million units, in line with what several analysts were expecting.

Analysts have expressed concern that the anemic DVD market could hurt sales for "Monsters vs. Aliens," which came out in theaters last March. All the major studios have been buffeted by an industry-wide slowdown in DVD sales as the recession forces consumers to curtail spending. U.S sales of DVDs and high-definition Blu-ray discs dropped nearly 14% in the third quarter, according to Digital Entertainment Group.

DreamWorks executives, however, have repeatedly stressed that the studio's computer-animated movies are less vulnerable to the DVD downturn than live-action films.

Chief Executive Jeffrey Katzenberg continued that theme Tuesday, telling analysts in a conference call that "Monster vs. Aliens" was off to a “strong start in its initial home video release.”  Katzenberg declined to give a forecast for DVD sales, saying it was too early to estimate future sales. "Madagascar 2" has sold 11.3 million units to date, while "Kung Fu Panda" reached 16 million units through the third quarter.

Katzenberg also disclosed that the studio did not plan to produce a sequel to "Monsters vs. Aliens," which generated $380 million at the box office but did not fare well in some key international markets. Asked why, he said: "I'd like to tell you there's a perfectly rational, clear and easy answer as to why not, but there isn't."

“There was enough of a consensus from our distribution and marketing folks in certain parts of the world that we would be pushing a boulder up a hill,” Katzenberg said of the decision not to pursue a sequel, which has been DreamWorks strategy with its other movies.

The company did not revise its outlook for the year, saying it expected earnings to be up slightly or flat from a year ago.

-- Richard Verrier

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