DreamWorks reboots for life beyond 'Shrek'
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In the summer of 2005, DreamWorks Animation SKG Inc.'s board held a retreat at the exclusive Jackson Hole, Wyo., mountain resort. The animation studio behind the "Shrek" franchise had stumbled badly in its first few months as a publicly traded company and executives were under pressure to come up with a new game plan.
One of the board's conclusions was basic: the company needed to make better movies. While arch-rival Pixar Animation Studios was making one highly-polished movie a year, DreamWorks was rushing to meet a more ambitious slate of two. Consequently, DreamWorks was suffering from a decidedly mixed track record outside of its flagship "Shrek" movies.
So DreamWorks has a new motto for its business going forward: Slow down. The company has decided to add a year to the production of its films.
"We've been racing to the finish line and that has meant compromising on story telling sometimes," says DreamWorks Chief Executive Jeffrey Katzenberg. There's a strong financial incentive, he adds: "If we improve our box office performance by 10 percent, it adds $100 million pre-tax profit to the company."
The studio has been making other changes, too. It has overhauled its top team after its problems in 2005, when it had to restate its earnings estimates twice because of miscalculating how many "Shrek 2" DVDs it would sell. That episode resulted in an informal SEC inquiry, which was later dropped. The Glendale, Calif. company also has has unified its production systems and streamlined its corporate structure.
The changes are important because, as it stands, DreamWorks Animation risks looking like a one-trick pony whose only trick is the popular "Shrek" franchise, the third installment of which comes out in May. Two of its last three movies have required write-downs, including "Flushed Away," which Cowen & Co. analyst Lowell Singer estimates could be as high as $115 million.
There also is the realization that "Shrek" may not last forever. That has forced the company to think about developing other franchises -- a particularly difficult task at a time when a flood of animated films is hitting movie theaters, many of them about cute talking animals. This summer alone has "Surf's Up," about surfing penguins, and "Ratatouille," about a rat's adventures in Paris.
"I didn't realize how similar they were all going to be," says Mr. Katzenberg, who describes a moment a year ago when he was in a movie theater and sat through back-to-back trailers for several near-identical animated movies. "Fortunately, our next six or seven movies are unlike anything we've done before or anything anyone else is doing."
The next 18 months or so will bear out whether DreamWorks Animation can make the transition it has in mind. Despite the slower production schedule, it still is aiming for one original movie and one sequel each year.
Mr. Katzenberg says the studio is able to stick to its goal of two movies a year while also extending the production time because it had a "deep bench" of movies in development. That is unlikely to include movies with its production partner Aardman Animations though, with the two expected to break up this year after "Flushed Away."
Having put some of its early problems behind it, Mr. Katzenberg says the studio already is in better shape, with a strong slate of movies. After "Shrek 3," it is releasing Jerry Seinfeld's animation debut, "Bee Movie," in November. Next year brings "Kung Fu Panda" and "Madagascar 2."
To strike the jackpot of one sequel a year in the long term, the studio needs at least three franchises running at any one time. It currently has two: "Shrek" and "Madagascar."
DreamWorks executives say "Shrek" likely has two movies left in it after No. 3 (a fourth is already in the works for 2010). "Madagascar" has been sketched out as a four-chapter series, with a third movie teed up for either 2011 or 2012.
The studio already has plans to keep those franchises alive in other ways. It is planning a spin-off of "Shrek" called "Puss in Boots," based on the swashbuckling cat voiced by Antonio Banderas. A "Shrek" Christmas TV special is in the works, as well as a Broadway musical for next year. It also is developing a TV series with Viacom Inc.'s Nickelodeon based on the penguins from "Madagascar."
But the real bucks are in feature films. DreamWorks President Lew Coleman says: "What we're really doing here is looking for sequels." While sequels are more expensive than the originals, they are less risky and usually more successful, he says. Because of the higher costs involved in luring back the talent, sequels can cost anywhere from $150 million to $170 million, versus $130 million for an original movie.
Among upcoming candidates for sequels, the storyline of "Bee Movie," about a disillusioned bee, doesn't particularly lend itself to a sequel, executives say (although Mr. Seinfeld himself might prove to be an animation franchise). "Kung Fu Panda" does, however. The tale of an ancient Chinese panda forced out of his armchair to learn kung fu to protect his village, it is being released the year of the Olympics in Beijing. In a show of confidence in the story, DreamWorks already plans to spin it off into a Nickelodeon TV series sometime after the movie comes out.
DreamWorks is working on two original movies for 2009: "Monsters vs. Aliens" and "How to Train Your Dragon," both potential franchises. "Monsters vs. Aliens" is B-movie style comedy about a squad of monsters who emerge from a secret military base to save the planet. "How to Train Your Dragon" is based on the book by Cressida Cowell about the son of a Viking who is on a mission to capture a dragon.
Those two movies will be the first to fully benefit from the extra year of work, which will stretch their production time to 41/2 years. Mr. Katzenberg says the extra year will be spent largely on developing the story of its movies, a relatively inexpensive exercise. He notes that if they had had the extra time on movies like "Madagascar," they could have worked on strengthening the final act, which wasn't as sharp as the first two acts of the movie.
"We've been getting the job done but we felt we could do better if we had more time," Mr. Katzenberg says. "It's a very small investment for a very high return."
First Published January 23, 2007 12:00 am