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DreamWorks Animation 3Q Profits Drop 48%

Lack of films and a Broadway gamble hurt revenues — though the studio did better than expected.

Despite the “Monsters vs. Aliens” box-office bonanza, DreamWorks Animation reported a 48 percent third-quarter drop in profit on Tuesday on revenue that shrank 11 percent to $135.4 million.

The results were actually better than had been expected. Wall Street analysts had predicted the studio’s revenue would slide 15 percent to $129 million, according to a survey by Thomson Reuters released before the company’s earnings were announced.

Profits were non-existent, but executives at the company sounded a note of optimism.

“‘Monsters vs. Aliens’ is off to a strong start in its initial home video release and we continue to see very good performance in home entertainment from our two 2008 titles and our catalog,” Jeffrey Katzenberg, CEO of DreamWorks Animation, said in a statement. “We had a solid third quarter, making progress toward DreamWorks Animation’s goals of growth and diversification. We look forward to building on our success in the fourth quarter and next year.”

DreamWorks Animation said that its biggest source of revenue in the third quarter was the fall 2008 release “Madagascar: Escape 2 Africa,” mostly due to TV deals. The company also noted it had begun to see revenue streams from the sale of “Monsters vs Aliens” on DVD and Blu-ray.

The latest installment in the “Madagascar” franchise contributed $35.4 million in revenue to the quarter, primarily from international home entertainment and domestic pay television. “Monsters,”  which was released theatrically last spring, provided another $33.4 million in revenue to the quarter, through worldwide box office and its September domestic home entertainment release.

Part of the reason for the bleak earnings picture was that DreamWorks Animation, which typically releases two movies theatrically each year, only released one in 2009. The company’s costly Broadway gamble with “Shrek: The Musical” also fared poorly, further depressing profits. The company plans to end the show’s run on Jan. 3, but hopes to recoup costs with a touring production.

“We plan to monetize “Shrek: The Musical” in a number of ways going forward,” said Lew Coleman, the company’s chief financial officer. “We are confident today that these will be profitable activities for DreamWorks Animation and look forward to launching the touring company in Chicago next summer.”

The company also said it will release a DVD of the musical. Katzenberg said the production was filmed earlier this month.

Looking forward, analysts predicted that the company would see stronger earnings following the release of customized 3D technology for home televisions sometime in the next year. That’s a boon for DreamWorks, which has bet heavily on the current yen for three dimensions in film and plans to shoot all future movies in 3D.