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DreamWorks Animation stock up on news of Netflix deal

July 25, 2011 | 12:25 pm

Dreamworks Animation's Kung Fu Panda 2

News that DreamWorks Animation is cutting short its output deal with HBO in order to work with Netflix sent the "Shrek" producer's stock to its highest point in more than a month.

DreamWorks Animation's current agreement with pay-TV channel HBO was to run until 2014. Under the terms of the deal, DreamWorks Animation movies go exclusively to HBO during the "pay cable window," which typically starts about six months after theatrical debut.

However, DreamWorks Animation has gone to HBO and obtained an exit from the contract so it can instead make its movies available on Netflix's Internet streaming service during that window, a person familiar with the matter confirmed.

The deal with Netflix would only be for DreamWorks Animation movies released in 2013 and 2014. Older movies from the studio would remain available exclusively to HBO for the next several years.

DreamWorks, led by Jeffrey Katzenberg, will be the third independent studio to agree to use Netflix as its pay-cable partner, along with Relativity Media and FilmDistrict.

Investors were apparently pleased with the news, first reported Sunday by Bloomberg, and sent DreamWorks Animation stock up 4% in midday trading Monday. The Dow Jones industrial average and Nasdaq composite, meanwhile, were both down for the day.

The multiyear Netflix deal is expected to be announced as early as this week. This is the first good news for DreamWorks Animation since its future with current distributor Paramount Pictures became hazy earlier this month, when the studio announced the formation of a new animation division.

Paramount's decision to form its own animation unit was seen as a signal that the studio was not on the same page as Katzenberg regarding future revenue splits once their current pact expires in 2012. Abandoning the HBO deal appears to make it less likely that DreamWorks Animation could be acquired by Time Warner, HBO's parent company, or set a theatrical distribution deal with the conglomerate's studio, Warner Bros. Some in Hollywood have speculated that both were likely scenarios for DreamWorks Animation once the Paramount agreement expires.

In other words, DreamWorks Animation now knows who will have its movies after they debut on the big screen in 2012. It's just not sure who's going to release them on the big screen.

A spokeswoman for DreamWorks Animation declined to comment.

The loss of DreamWorks Animation movies is not seen as a big blow for HBO, as the studio only makes a couple of films a year. Also, 20th Century Fox, which has an output deal with HBO, is boosting its animation product. HBO also recently signed an output deal with Summit Entertainment, which makes about a dozen movies a year.

-- Ben Fritz and Joe Flint

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Photo: A scene from "Kung Fu Panda 2." Credit: DreamWorks Animation

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