DreamWorks 4Q profit misses views; costs rising

LOS ANGELES (AP) — Shares of DreamWorks Animation SKG Inc. fell steeply in after-hours trading Tuesday after the movie studio reported fourth-quarter earnings that were below expectations and warned that costs would increase significantly on its two films set for release this year.

The shares dropped $1.65, or 8.4 percent, to $18 after the report.

The studio’s net income in the three months that ended Dec. 31 came to $24.3 million, or 29 cents per share, down from $85.2 million, or 99 cents per share, a year earlier. That missed the average forecast from analysts for 32 cents per share, according to FactSet.

Revenue fell 21 percent to $219 million from $276 million a year ago, but the company released only two movies in 2011, compared to three in 2010. The revenue figure beat the $206 million analysts expected.

Chief Financial Officer Lew Coleman said both of the studio’s films set for release this year would cost more than normal. “Madagascar 3,” due out in June, and “Rise of the Guardians,” due in November, will cost about $145 million apiece, up from the normal $130 million, because of scheduling changes, longer production times and infrastructure investment.

“That’s going to show up next year,” Susquehanna Financial analyst Vasily Karasyov said.

The company said marketing spending for the films would stay in the usual range of $150 million to $175 million. Coleman said production costs per film will drop to normal levels in 2013.

Standard & Poor’s equity analyst Tuna Amobi said the higher production costs might not be a worry. “All of these things can be overcome if the films perform,” he said.

Chief Executive Jeffrey Katzenberg said the holiday quarter also revealed “challenges for the industry as a whole” including a slide in DVD sales as a ratio of a movie’s domestic box office haul.

In the couple weeks after being released for sale Dec. 13, 5.1 million copies of “Kung Fu Panda 2” sold on disc. That was less than the 7.2 million units of “Shrek Forever After” sold in roughly the same period a year earlier.

“Kung Fu Panda 2” pulled down $165 million in domestic movie ticket sales versus $238.4 million for “Shrek Forever After.”

While those figures suggest that the so-called “conversion ratio” is about the same, Katzenberg said the number of discs sold for every dollar of gross ticket sales is deteriorating.

Movie fans are turning to alternatives such as DVD subscription services like Netflix and kiosk services like Redbox.

“While animation titles remain at the top of the charts, domestic box office-to-DVD conversion ratios across the industry do continue to decline,” Katzenberg said. “And internationally, box office success is not translated as well into home video sales since many emerging territories still lack mature post-theatrical markets.”

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