Friday, July 05, 2013

DWA Earnings ... Present and Future

Per Forbes:

Analysts have universally raised their estimates for movie studio Dreamworks Animation SKG, with the current year consensus surging by twenty cents a share over the past 90 days alone. Meanwhile, next year’s earnings growth is expected to come in above 27%, suggesting that the future is looking quite bright for DWA. ...

DWA has earned itself a Zacks Rank #1 (Strong Buy). This suggests that this company will outperform others in the near futureDWA has earned itself a Zacks Rank #1 (Strong Buy). This suggests that this company will outperform others in the near future. ...

And yet ...

I had occasion to talk to a veteran DreamWorker earlier today, somebody who's been a the studio a while and has come through the recent downsizing. He's seen and likes Turbo, but is concerned about how it will perform ("It's a nice movie, but who's going to come and see it?") And he's worried about this:

Studio estimates Friday show "Despicable Me 2" is trampling the Johnny Depp Western at the July 4 holiday weekend box office. The animated Universal sequel has collected three times more than the Disney cowboy caper since both films debuted Wednesday.

"Despicable Me 2" earned $59.5 million so far, while "The Lone Ranger" took in $19.5 million in ticket sales. ...

The DreamWorks Artist isn't uptight that the Illumination Entertainment picture is doing gangbusters at the box office, he's nervous that it represents a new model for making animated features.

"They made this movie overseas, right? Not in California, right? A lot of us here in Glendale wonder how much longer we're going to have jobs. There's rumors that if Turbo doesn't do well, there's going to be a new round of layoffs. That more tuff will go to China and Indian. If DreamWorks can hire twenty artists there for one hired here, why not?" ...

It's true that the Despicable movies are done overseas. And also true that they're the first entries in the animated features sweepstakes produced out of California that have cleaned up globally at the box office. But let's break this down a little:

1) The Despicable Me series was produced in France, at a higher wage studio.

2) The DMs (especially the first one) were boarded by moonlighting artists from Disney, DreamWorks and elsewhere.

3) The DMs are not low-rent; they cost way more than low-budget/niche CG features, but considerably less than the current crop of Pixar and DreamWorks candidates ($74 million vs. $150-$180 million.)

But there are other new wrinkles in Cartoonland to think about: Illumination Entertainment keeps corporate administration lean and mean (something many California studios do not.) And it also takes advantage of French local customs:

... [T]he European Commission has finally greenlit a major boost to France’s Tax Rebate for International Production (TRIP).

Approved by the French Parliament in December, the cap of the 20% rebate for spend by international shoots in France jumps from €4 million ($5.1 million) to $12.9 million. And accommodation now rates as eligible expenditure.

The smash-hit bow of Chris Renaud and Pierre Coffin’s “Despicable Me 2″ – produced by Universal’s Illumination banner and made at Gaul’s Illumination Mac Guff — is a shining example of the French tax rebate’s benefits.

“Despicable Me,” “The Lorax” and now “Despicable Me 2″ have turned the spotlight on France’s vibrant animation biz and talent pool, creating jobs, training animators to work on world-class projects, and bringing much coin to the local industry.

Illumination topper Chris Meledandri has often said that though Illumination initially came to France for its animation talents at Mac Guff, it would have been extremely difficult for Illumination to have stayed in France after “Despicable Me” if there had been no incentive. ...

I often get asked the question: Is animation going away? I always answer, "Not now."

But we need to understand that the deep and wide talent pool that keeps work here in So Cal can, over time, be created elsewhere. France is working diligently to build its own work force, and it is the one geographic area outside California that can boast that it has made big animated hits.

It can now also brag that it has generous government subsidies. California will need to respond.


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