DreamWorks Animation officially passes on Paramount

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DreamWorks Animation has ruled out working with Paramount Pictures after next year.

The independent studio behind the ‘Shrek’ and ‘Kung Fu Panda’ movies officially informed Paramount Pictures that it was rejecting an offer to continue their distribution agreement on the same financial terms for one additional year, confirmed a person familiar with the matter who was not authorized to speak publicly.

As part of an announcement last month that it would start producing one animated movie of its own annually in 2014, Paramount told DreamWorks that it would extend a five-year distribution relationship in 2013 only for better financial terms. Their current agreement ends in 2012.

Under their existing deal, Paramount receives 8% of each movie’s revenue for its distribution services. DreamWorks Chief Executive Jeffrey Katzenberg has made it clear that he is looking pay less in the future.

Executives at Paramount and most observers in Hollywood had not expected the two companies to continue working together, as their relationship has become increasingly strained. The extension offer had no expiration date, so it is unclear why DreamWorks officially rejected Paramount’s proposal at this time.

DreamWorks’ options now appear to be very limited, as four of the five other major Hollywood studios already have their own animation units. The remaining one, Warner Bros., is not interested in releasing DreamWorks’ movies, according to knowledgeable people who were not authorized to speak publicly on the matter.

If DreamWorks can’t strike a distribution deal with a major studio, it may need to release its own future productions or work with a mix of smaller distributors around the world.

A spokeswoman for DreamWorks Animation declined to comment.

The news that DreamWorks rejected Paramount’s one-year offer was first reported by The Hollywood Reporter.

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-- Ben Fritz