DreamWorks Animation Nixes Distribution Extension with Paramount

Where will Jeffrey Katzenberg go?

DreamWorks Animation is looking for a new home.

The studio’s board of director has rejected a proposal from Paramount to extend its distribution pact for another year, an individual with knowledge of the negotiations told TheWrap. 

DreamWorks' current deal with Paramount expires in 2012. 

Finding a new landing ground for Jeffrey Katzenberg's animation house, however, could be difficult. Most of the studios have animation divisions.

Fox has ramped up its animated output, scoring hits with films such as "Ice Age," and Universal launched its own division, Illumination, headed up by Chris Meledandri in 2007. Sony also has an animation division. 

Warner Bros. is reportedly not interested in distributing DreamWorks Animation's films. 

Also read: Jeffrey Katzenberg's Dilemma: Stock Woes, TV Dreams, No Buyers

Disney, with its string of mega-grossing animated hits from Pixar, is an unlikely destination, and that doesn't even factor in residual bad blood stemming from Katzenberg's stormy departure from the Mouse House in the early nineties. 

Without a studio partner, DreamWorks could strike out on its own and distribute its movies without assistance. That would allow the company to keep a bigger chunk of its profits, but it would also mean shouldering marketing costs and forging global partnerships with foreign distributors. 

Paramount has remained firm throughout negotiations that it will only renew its deal if it gets paid more than the 8 percent it has been charging DreamWorks to distribute films throughout the world.

For its part, DreamWorks had been looking to sweeten terms and pay out a lower fee for the rights to roll out films such as “Puss in Boots” and “Kung Fu Panda 2.” 

Paramount recently strengthened its hand in the negotiations by announcing last month that it is launching an in-house animation division, loosening the studio’s reliance on outside products that appeal to family audiences. 

On an earnings call with analysts last week, Katzenberg described the relationship with the distributor as “excellent,” but according to studio executives, the DreamWorks chief has frequently clashed with Paramount’s top brass.  

Indeed, the pressure on Katzenberg has been immense. The studio scored international hits with "Kung Fu Panda 2" and "How to Train Your Dragon," but the industry-wide decline in DVD sales and a poor domestic performance for its "Panda" wrecked havoc on the company's earnings and stock price.