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Cost Cutting Works for DreamWorks Animation

DreamWorks Animation has the benefit of not being exposed to the weak ad market - but now the weak ad market is actually going to help the film studio cut costs and grow margins.

With three big movies coming out next year, DWA will be spending plenty of cash to attract audiences.

The fact that TV networks are being forced to drop prices, is nothing but positive for Jeffrey Katzenberg's company.

That's just part of the good news from the maker of Shrek: Revenue fell 7 percent to $132 million, more than analysts expectations, and earnings were $26 million, down a million from the year earlier and nearly double analyst expectations. The company benefited this quarterfrom a $24 million one-time gain from renegotiating its video game agreement with Activision Blizzard.

This is a company built on brands, and when they work, they keep on delivering years after a movie leaves the theater. One factor behind this quarter's success is higher-than-expected pay TV revenues for last year's Kung Fu Panda and DVD revenues from its Madagascar sequel, also out last year.

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Another factor working in DWA's favor: this year it's only releasing one movie, "Monsters vs. Aliens" but next year it has three on the schedule, including sequels to the highly popular "Kung Fu Panda" and "Shrek." And over the rest of the year the studio's business looks like it will continue to improve as DreamWorks continues to profit from its film products on TV. The company should generate as much as $60 million in revenue from a "Monsters vs. Aliens" TV special around Halloween and a "Madagascar"-themed special for the holiday season. The studio's narrow focus can certainly be a liability at times. But as it expands its brands into additional platforms, its film business seems particularly smart in times like these when ad markets are weak.

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