Peabody and Sherman get 57 million write off due to animation competition; Jeffery Katzenberg gets grilled at Milken conference; Katzenberg says new movies need to be “checked off”

 

Welcome to the DreamWorks curse edition of Gene Scallop’s entertainment report. Here’s what’s topping today!

 

During March, we highlighted DreamWorks Peabody and Sherman. The film pulled off the biggest upset in the box office and survived a write-off. Not this week as the time traveling duo were forced to pay a 57 million smacker charge. Looks like the analysts got it exactly right. Hey Angie, what’s the situation there?

 

Angie Angelfish (via Dateline Hollywood)- DreamWorks Animation shares are down 5.2% in postmarket trading following the announcement in its Q1 earnings. The write-down “is evidence of the current challenges we face within our feature film segment, and restoring the strength in our core business is my number one priority today,” CEO Jeffrey Katzenberg says. He adds that DWA’s next release — How To Train Your Dragon 2, set to open June 13 — “will put us back on-track to once again reach the levels of box office success that we’ve achieved historically.” With the Mr. Peabody & Sherman damage, DWA generated a net loss of $42.4M in Q1, down from a $5.6M profit in the period last year, on revenues of $147.2M, +9.4%. The top line beat the consensus forecast for $137.2M, but the charge for the film contributed to a loss of 51 cents per share, far bigger than the 14 cent loss that the Street anticipated.

Although Peabody & Sherman has generated $261M in ticket sales at worldwide box offices, it only contributed $3M to DWA’s Q1 feature film revenues and left the studio still owing money to its distributor, Fox. All told, the feature film unit reported a $25.4M loss on $110.1M in revenues. Turbo accounted for $22.3M in sales, mostly from pay TV, while The Croods kicked in $41.7M from pay TV and home video. Sales of library titles came to $37.9M. The TV operation had a profit of $5.8M on revenues of $17.9M, while Consumer Products had a $6.0M profit from $12.1M in revenue.

 

Things got even worse at the Milken conference last night as DreamWorks own Jeffery Katzenberg tried his best to defend the movie business. Who creamed him Danny and what should he do next?

 

Danny Angelfish (via Dateline Hollywood)- “I think the film business is going to be a tremendous growth business,” said Jeff Shell today. Speaking at the Milken Institute’s Global Conference in Beverly Hills, the Universal Filmed Entertainment chairman rebuffed Jeffrey Katzenberg’s proclamation earlier this week at the same conference that “movies are not a growth business.” “Domestic ticket sales are flat but if you look internationally most of the markets are growing like crazy,” Shell said, noting that globally is where the vast majority of box office comes from now. The studio boss’ comments came just hours after Time Warner CEO Jeff Bewkes slapped down the DreamWorks Animation CEO’s remarks. DWA shares are down around 11% today after it took a $57M write-down for Mr. Peabody & Sherman.

 

Shell was joined on the Entertainment: The Big Picture panel today by A+E Networks president and CEO Nancy Dubuc, CBS boss Les Moonves and Activision Blizzard boss Bobby Kotick.

“For anyone who is producing content today, the future is extremely bright,” said Moonves on the topic. While noting that his CBS Films is very small, Moonves pushed back himself against the DreamWorks Animation CEO’s remarks. “Anyone who is producing content and doesn’t see it as a growth biz is extremely mistaken.”

“I think film entertainment is a great business,” Shell also said. “Digital comes with lots of challenges but for the film biz the ability to watch content on all your devices” is great. Calling the big screen business “a phenomenal business,” Shell, who has only been in his job since the big shake-up at the studio in September, told the packed ballroom that “I wouldn’t have taken the job if I didn’t think so.”

DreamWorks Animation chief sounded like he’d prefer to have a root canal than talk to analysts about how his studio hopes to avoid another failure like Mr. Peabody & Sherman — which just resulted in a $57M write-down for Q1.  Three of the studio’s past four films failed to deliver, Jeffrey Katzenberg noted, which he blamed on “inconsistent execution” and other factors tied to marketing and scheduling.

As the market for kids’ films becomes more competitive, “we have to focus on the creative side of the business” to find “ideas that have the broadest global appeal” and stand out as must-see experiences. “Playability honestly is just not enough today. … We feel a different level of criteria in terms of the ideas we’re picking and the marketing of the ideas.” He’s hot on sequels and says DWA has more in the pipeline than ever, with plans to release at least one a year.

 

As for non-sequels, “we are triple looking at them for big concepts. … They have to check off a lot more boxes than they did in the past.” Next year’s BOO: Bureau of Otherworldly Operations qualifies with its “big visuals, kind of a Ghostbuster-ish idea. … It feels like a very big idea, a very marketable idea.”

Peabody & Sherman cost $145M, but DWA assured analysts that upcoming films beginning this November with Home will cost $125M or less — not including “incentive-based compensation” (look out). With $261M from worldwide box offices, including $108M domestically, Peabody & Sherman pretty much matched Turbo. It had a “materially larger” impairment charge, President Lew Coleman says, because it cost more to make and Turbo benefited from more sales of licensed merchandise. But Katzenberg says that distributor Fox doesn’t have to worry. “They will be fully recouped.”

 

Checking the Penguins tally, 2,148 sign in as DreamWorks gets clubbed big time for their biggest mistakes.

 

Les Moonves and the other CEO’s may have thrown Katzenberg an disastrous temper tantrum, but rest assured folks, he’ll promise to do everything right next time as will we on the May edition of Gene Scallop’s entertainment report.

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