Assessing 'Madagascar'
For audiences, "Madagascar" is a buddy comedy, but for investors, it's a suspense film.
And the suspense won't end when box office figures for the opening weekend come out. They'll just be a starting point for speculation on the real potential thriller: home video sales. The video, which accounts for the majority of most films' revenue, won't come out until November.
"We look at the theatrical release of every movie as a promotion for the DVD. If it does well theatrically, that's a big advertisement for the film on home video," said David Miller, an entertainment analyst with investment bank Sanders Morris Harris' Los Angeles office.
The pressure on "Madagascar" video sales is especially high because DreamWorks Animation, based in Glendale (Los Angeles County), missed its first- quarter earnings target due to a big disappointment in "Shrek 2" video sales.
After "Shrek 2," the sequel to the popular fractured fairy tale about an ogre and a princess, blasted past forecasts to make $441.2 million at the box office, expectations were high for video sales. But retailers sent millions of unsold copies back to the company, and DreamWorks Animation recorded no revenue for sales of the video in the first quarter of this year.
Because of this, first-quarter revenue came in at $167 million, instead of the $175.2 million expected by Wall Street. Profit was just 44 cents per share, well below the 58 cents analysts had expected. The stock sank 12 percent, or $4.45, to close at $32.05 on May 11, the day after the company disclosed the shortfall.
On Thursday, the stock closed at $33.70.
Now the company's financial performance for the year depends primarily on "Madagascar" box office sales. Its home video sales will be an important driver for 2006 revenue.
Most analysts say "Madagascar" will have no problem with the theatrical part of the equation. It's opening today in 3,700 theaters, with little competition in the PG bracket. Like Pixar's "Finding Nemo" in 2003, "Madagascar" could garner a lot of repeat viewings from kids during the summer.
In fact, analyst Katherine Styponias of Prudential Equity Group called the company's profit target of $1 to $1.25 per share for the 2005 fiscal year -- set low after the "Shrek 2" video disappointment -- far too conservative. Styponias, who does not own shares of DreamWorks Animation, made her comment in a research report. Prudential Equity Group has no banking business with DreamWorks.
Styponias predicts "Madagascar" will gross $200 million in U.S. theaters. Anthony DiClemente of Lehman Bros. estimated it will make at least $175 million. Those estimates have the jungle comedy beating out DreamWorks' "Shark Tale," but falling below both "Shrek" movies and almost every Pixar film.
Even if "Madagascar" roars through the box office, there's no guarantee that it will grab the lion's share of the home video market come Christmas. The "Shrek 2" sales fiasco proved that a big box office can't guarantee equally off-the-charts DVD sales.
As DreamWorks looks past "Madagascar," it faces more challenges, mainly increased competition. Seeing the huge success of "Finding Nemo" and the "Shrek" franchise, more studios are getting into the computer animation business.
There are as many as eight computer-animated features planned for 2006 release, including not only DreamWorks and Pixar offerings but also entries from Warner Bros., Sony Pictures Imageworks and Disney.
Fox, Paramount and Vanguard Films also have offerings coming up, and many expect that Pixar will increase the frequency of its releases from one every 18 months to at least one a year.
DreamWorks will find itself in a position similar to its own "Madagascar" characters -- pampered zoo animals who must learn to survive in the lion-eat- zebra jungle.
DreamWorks' team of animators and technologists -- many of them based at the company's Redwood City studio -- says it's ready to gobble up the competition, especially newcomers.
"The movies we're making today, somebody else can repeat five years from now," said Ed Leonard, chief technical officer. DreamWorks' advantage over newer entrants is that it has been perfecting in-house technology from one film to another and now has a stockpile of tools to use on future films.
Of course, the same advantage also belongs to Pixar, which started the computer graphics film industry with 1995's "Toy Story."
Pixar also has a big advantage over DreamWorks in its more solid track record -- one hit after another, including 2003's "Finding Nemo" and 2004's "The Incredibles." Pixar's next scheduled release is "Cars," due in June 2006.
DreamWorks has had some misses, like "Sinbad: Legend of the Seven Seas," but they were traditionally animated 2-D films, which the company has discontinued.
However, DreamWorks sometimes comes out way on top: "Shrek 2" beat out every Pixar offering to become the top computer-animated film in history. DreamWorks has "Shrek 3" in the pipeline, as well as a straight-to-video offering based on the "Shrek" series.
Could "Madagascar" be the next "Shrek," spawning sequels galore? Lehman Bros.' DiClemente wrote in a research note that with its ensemble cast -- main characters include a lion, a giraffe, a hippo and a zebra, and the secondary lemur and penguin characters are likely scene-stealers -- the door is open for more films.
As long as box office sales go smashingly, that is.
"A $200 million domestic take would provide enough of a platform with which to release spin-off films," wrote DiClemente, who does not own DreamWorks stock.
E-mail Carrie Kirby at ckirby@sfchronicle.com.
Carrie Kirby, Chronicle Staff Writer
Friday, May 27, 2005, San Francisco Chronicle - San Francisco,CA,USA
And the suspense won't end when box office figures for the opening weekend come out. They'll just be a starting point for speculation on the real potential thriller: home video sales. The video, which accounts for the majority of most films' revenue, won't come out until November.
"We look at the theatrical release of every movie as a promotion for the DVD. If it does well theatrically, that's a big advertisement for the film on home video," said David Miller, an entertainment analyst with investment bank Sanders Morris Harris' Los Angeles office.
The pressure on "Madagascar" video sales is especially high because DreamWorks Animation, based in Glendale (Los Angeles County), missed its first- quarter earnings target due to a big disappointment in "Shrek 2" video sales.
After "Shrek 2," the sequel to the popular fractured fairy tale about an ogre and a princess, blasted past forecasts to make $441.2 million at the box office, expectations were high for video sales. But retailers sent millions of unsold copies back to the company, and DreamWorks Animation recorded no revenue for sales of the video in the first quarter of this year.
Because of this, first-quarter revenue came in at $167 million, instead of the $175.2 million expected by Wall Street. Profit was just 44 cents per share, well below the 58 cents analysts had expected. The stock sank 12 percent, or $4.45, to close at $32.05 on May 11, the day after the company disclosed the shortfall.
On Thursday, the stock closed at $33.70.
Now the company's financial performance for the year depends primarily on "Madagascar" box office sales. Its home video sales will be an important driver for 2006 revenue.
Most analysts say "Madagascar" will have no problem with the theatrical part of the equation. It's opening today in 3,700 theaters, with little competition in the PG bracket. Like Pixar's "Finding Nemo" in 2003, "Madagascar" could garner a lot of repeat viewings from kids during the summer.
In fact, analyst Katherine Styponias of Prudential Equity Group called the company's profit target of $1 to $1.25 per share for the 2005 fiscal year -- set low after the "Shrek 2" video disappointment -- far too conservative. Styponias, who does not own shares of DreamWorks Animation, made her comment in a research report. Prudential Equity Group has no banking business with DreamWorks.
Styponias predicts "Madagascar" will gross $200 million in U.S. theaters. Anthony DiClemente of Lehman Bros. estimated it will make at least $175 million. Those estimates have the jungle comedy beating out DreamWorks' "Shark Tale," but falling below both "Shrek" movies and almost every Pixar film.
Even if "Madagascar" roars through the box office, there's no guarantee that it will grab the lion's share of the home video market come Christmas. The "Shrek 2" sales fiasco proved that a big box office can't guarantee equally off-the-charts DVD sales.
As DreamWorks looks past "Madagascar," it faces more challenges, mainly increased competition. Seeing the huge success of "Finding Nemo" and the "Shrek" franchise, more studios are getting into the computer animation business.
There are as many as eight computer-animated features planned for 2006 release, including not only DreamWorks and Pixar offerings but also entries from Warner Bros., Sony Pictures Imageworks and Disney.
Fox, Paramount and Vanguard Films also have offerings coming up, and many expect that Pixar will increase the frequency of its releases from one every 18 months to at least one a year.
DreamWorks will find itself in a position similar to its own "Madagascar" characters -- pampered zoo animals who must learn to survive in the lion-eat- zebra jungle.
DreamWorks' team of animators and technologists -- many of them based at the company's Redwood City studio -- says it's ready to gobble up the competition, especially newcomers.
"The movies we're making today, somebody else can repeat five years from now," said Ed Leonard, chief technical officer. DreamWorks' advantage over newer entrants is that it has been perfecting in-house technology from one film to another and now has a stockpile of tools to use on future films.
Of course, the same advantage also belongs to Pixar, which started the computer graphics film industry with 1995's "Toy Story."
Pixar also has a big advantage over DreamWorks in its more solid track record -- one hit after another, including 2003's "Finding Nemo" and 2004's "The Incredibles." Pixar's next scheduled release is "Cars," due in June 2006.
DreamWorks has had some misses, like "Sinbad: Legend of the Seven Seas," but they were traditionally animated 2-D films, which the company has discontinued.
However, DreamWorks sometimes comes out way on top: "Shrek 2" beat out every Pixar offering to become the top computer-animated film in history. DreamWorks has "Shrek 3" in the pipeline, as well as a straight-to-video offering based on the "Shrek" series.
Could "Madagascar" be the next "Shrek," spawning sequels galore? Lehman Bros.' DiClemente wrote in a research note that with its ensemble cast -- main characters include a lion, a giraffe, a hippo and a zebra, and the secondary lemur and penguin characters are likely scene-stealers -- the door is open for more films.
As long as box office sales go smashingly, that is.
"A $200 million domestic take would provide enough of a platform with which to release spin-off films," wrote DiClemente, who does not own DreamWorks stock.
E-mail Carrie Kirby at ckirby@sfchronicle.com.
Carrie Kirby, Chronicle Staff Writer
Friday, May 27, 2005, San Francisco Chronicle - San Francisco,CA,USA
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