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Dreamworks Animation Shows Its 'Monster' Strength

DreamWorks Animation showed some "Monster" strength in the third quarter, beating Wall Street projections with better than expected DVD sales and the ongoing performance of "Monsters vs. Aliens."

The movie debuted the prior quarter, but it continued to show internationally, adding $33.4 million to this quarter's revenue.

Since the DVD's release about a month ago, it's sold 4.6 million units, an impressive start, while the studio's two 2008 films together contributed some $57 million in revenue, despite the fact that they've been sitting on shelves for months.

This is a welcome exception to the industry-wide decline in DVD sales.

(Kids movies tend to hold up much better than adult films, which is why Disney's DVDs and movies like Warner Bros. "Harry Potter" franchise are bucking the trend.)

DreamWorks Animation's bad news comes from Broadway: Shrek the Musical is ending its run on the great white way in January. The company says it still has plans to monetize the musical, saying "we are confident these will be profitable." Among them is the launch of the touring company next summer.

Results were down from last year, but better than Wall Street expected considering it only has one theatrical release this year, compared to two last year (it's planning to start releasing five movies every two years. In the most recent quarter revenues came in at $135 million, down from $151 million in the year-ago quarter while net income dropped to $19.6 million from $37.3 million.

DreamWorks Animation and CEO Jeffrey Katzenberg are heavily invested in 3-D, committed to releasing every one of its films in the format, with three 3-D movies coming out next year. This Monday Morgan Stanley's Ben Swinburne released a 90-page report that (among other things) digs into the benefits of 3-D to the movie studios. He points out that when the number of 3-D films doubles in 2010 from its 2009 levels, that will be the real test for the roughly 45 percent higher ticket price for 3-D screenings.

Swinburne says that the studio profitability of 3-D is still in question, but that both theater chains (RGC, CNK, CKEC) and studios (DIS, VIA, TWX, SNE) benefit from converting theaters to digital, which is the first step in setting up 3-D projection. Digital is a win-win: exhibitors can make last-minute decisions about what movie to show in which theater based on consumer demand, and it saves studios $3.5 to $5 million in distribution costs for a wide-release movie. But he also says that 60 percent of a film's audience needs to be 3-D for a studio to recoup additional 3-D costs, but for the eight big 3-D movies this year only 55 percent of audiences picked 3-D.

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CKEC
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CNK
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DIS
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RGC
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TWX
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VIAB
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Studios and theater operators are counting on 3-D to differentiate the pricier theatrical experience from home video — to keep the movie theater experience alive. Some good news from Swinburne: 3-D is increasing pricing power for certain content. Now the studios just need the 20 3-D films next year to prove the power of the extra dimension.

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