Q4 2010 Earnings Call Transcript

Transcript Call Date 02/24/2011

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the
DreamWorks Animation Earnings Conference Call. At this time, all participants are in a listen
only mode. Later, we will conduct a question-and-answer session. (Operator Instructions).
As a reminder, this call is being recorded.
I would now like to turn the conference over to your host, Rich Sullivan from Investor
Relations. Please go ahead.
Rich Sullivan - Head of Corporate Finance: Thank you and good afternoon everyone.
Welcome to DreamWorks Animations fourth quarter 2010 earnings conference call. With me
today is our Chief Executive Officer Jeffrey Katzenberg; our President and Chief Financial
Officer, Lew Coleman; and our Chief Operating Officer Ann Daly.
This call, well begin with the brief discussion of the quarterly financials disclosed in todays
press release followed by an opportunity for you to ask questions. Id like to remind
everyone that the press release is available on our website at web address,
www.dreamworksanimation.com.
Before we begin, we need to remind you that certain statements made in this call may
constitute forward-looking statements. Forward-looking statements can vary materially from
actual results and are subject to a number of risks and uncertainties including those
contained in the Companys annual and quarterly reports as well as in with other filings with
the SEC. I would encourage all of you to review the risk factors listed in these documents.
The Company undertakes no obligation to update any of its forward-looking statements.
With that, I would like to now hand the call over to DreamWorks Animations President and
Chief Financial Officer Lew Coleman. Lew?
Lew Coleman - President and CFO: Thank, Rich and good afternoon everyone. For the
quarter, the Company reported total revenue of approximately $276 million, resulting in net
income of $85 million or $0.99 per share on a fully diluted basis. For the full year, revenue
increased to $785 million and net income was $171 million or $1.96 per share. On a yearover-year basis, revenue for 2010 increased 8%. Our diluted earnings per share increased
15%.
Full year earnings contained an operating loss of opportunity $35 million or $0.28 per
diluted share generated by Kung Fu Panda virtual world and our Shrek The Musical touring
show. The amount includes write-offs with capitalized expense taken against these two
properties.

Additionally, because we are confident that the Company will have sufficient future taxable
income to realize substantially all of its deferred tax assets, we reversed the majority of the
valuation allowance previously taken against these assets. As a result, the Companys fourth
quarter results include a tax benefit of approximately $45 million or $0.52 per diluted share
that is primarily attributable to the release of the valuation allowance.
Turning to our results; Megamind contributed revenue of approximately $27 million to the
quarter, primarily from merchandizing and licensing. As anticipated, the film remained in an
unrecouped position with our distributor at the end of the fourth quarter.
Shrek Forever After contributed revenue of approximately $72 million for the quarter,
primarily from home video. By the end of the quarter, the title had reached an estimated 7.2
million net home entertainment units sold worldwide.
How to Train Your Dragon contributed revenue of approximately $80 million for the quarter,
primarily from home video. By the end of the quarter, the title had reached an estimated 7.5
million net home entertainment units.
Since we had two fourth quarter DVD releases, the Company and Paramount both
experienced an increased of home entertainment contribution from Dreams Animation titles
in the quarter.
Additionally, fourth quarter results for Shrek 4 and Dragon include revenue from our
promotional agreements with Samsung for exclusive 3D versions of these titles.
Premium configuration to Dragon and Shrek 4 accounted for over 40% of both titles
domestic units sold in the quarter. The market where its become more difficult to maintain
margin per unit, premium products has helped us to partially offset some of the pressure.
Finally, regarding home video, remember that our distributors are no longer reporting
international home video results to us on a 30-day lag. As a result, international territories
released in December are included in 2010 results.
Monsters vs. Aliens contributed revenue of $6 million, primarily from home video with
approximately $9 million net units sold worldwide by the end of the quarter. Kung Fu Panda
contributed approximately $23 million to the quarter mostly from television.
Our businesses contributed revenue of approximately $19 million to the quarter, split almost
50-50 between television and our Shrek The Musical touring show.
Our remaining film catalog and other items contributed approximately $49 million to the
quarter nearly two-thirds of this amount coming from the first three Shrek movies.
Important to note, that our year-over-year growth in library revenues is fueled primarily by
the Shrek franchise related effects that were unique to 2010. Moving to the remainder of

the income statement, cost of revenues for the quarter equaled $194 million, resulting in a
gross profit of approximately $82 million.
Selling, general and administrative expenses for the fourth quarter totaled $31 million,
including approximately $7.5 million of stock compensation expense. This compares to $26
million, including approximately $7 million of stock comp expense in same period of 2009.
Year-over-year increases in SG&A is due mainly to additional headcount and consultant fees.
For the quarter, the Kung Fu Panda online virtual world generated an operating loss of
approximately $15 million including an impairment charge of $12 million.
Shrek The Musical touring show posted a fourth quarter operating loss of approximately $10
million, including an impairment charge of $8 million. Both impairment charges are recorded
in our cost of revenues for the quarter.
Taxes; primarily due to the release of substantially all of the valuation allowance associated
with the Companys deferred tax assets, we recorded both an expense attributable to the
increase in shareholder payable as well as the tax benefit in the quarter.

Current quarter expense of approximately $254 million due to a tax sharing agreement with
a former stockholder was recorded on the tax benefit payable to shareholder line and a tax
benefit of approximately $287 million was recorded in the Companys provision for income
tax line of the income statement. In fact, the Companys 2011 combined effective tax rate,
that is our actual tax rate coupled with the payments to former stockholder, will be in the
low to mid 30% range.
Moving on to balance sheet; when we compared the third quarter balance sheet to the net
deferred tax asset line on our year-end balance sheet, it increased by $287 million.
Similarly, the amount payable to former stockholder line increased $250 million. These
increases were driven primarily by the release of valuation allowance.
With regards to the payable to the former stockholder line, we currently expect
approximately $28 million to become due and payable within the year and the remaining
amount to come due over the next several years. Company ended the fourth quarter with
approximately $164 million of cash. Our diluted share count for the quarter was $86 million
and our share repurchase authorization remained at $150 million as we did not purchase
shares during the quarter.
Looking ahead to the first quarter of 2011, the next big event for the Company is the
domestic release Megamind in the home video market tomorrow, with the majority of the
international release occurring in the second quarter. Based on its current performance
level, we do not expect meaningful earnings contributions from this film in the first quarter.

In fact, we anticipate a fairly limited contribution from our core business until Kung Fu
Panda 2 recoups its distribution cost.
One final note, we now expect to receive domestic pay television revenues from How to
Train Your Dragon in the second quarter.
With that, Id like to turn the call over to Jeffrey.
Jeffrey Katzenberg - CEO: Thank you. Good afternoon, everyone. From Lews comments
its clear that both quarter and the year had a fair share of ups and downs, but sure we
dont want to overlook the fact that overall 2010 was a good year for DreamWorks
Animation.
We became the first studio to release three feature-length CG animated films in a single
year. How to Train Your Dragon, Shrek Forever After and Megamind were all among the top
20 films of the year and together, it grossed $1.6 billion at the worldwide box office. Our
latest release Megamind has reached nearly $320 million in worldwide box office to-date.
While it performed below our expectation in theatres, we were able to keep prints and
advertising spending towards the low end of our generic guidance range of $150 million
$175 million for an original film and voice talent costs were limited due to its box office
performance. Therefore with the successful home video release, we do expect Megamind to
be profitable.
How to Train Your Dragon is one of the top ten highest grossing movies of 2010 and our
most successful original film domestically since the first Shrek. It is it also partnered with
franchise. Dragon was among the very best reviews movies of the year and I am extremely
proud that it has been nominated for two Academy Awards.

Shrek Forever After-The Final Chapter of our lead franchise reached $750 million worldwide
with over $510 million at the international box office making it our highest grossing film
overseas ever and the fifth highest grossing movie of 2010 on a worldwide basis. While we
had a wide range of outcomes from our three films, in the end we averaged $200 million
with the domestic box office and over $300 million internationally for a title. In addition to
these three theatrical events, for the first time, we released two new home video titles this
holiday season. Like in the theatrical window, we had mix results in the home video market.
Though our two titles performed very differently which we think is indicative of the strength
and the weaknesses of the overall home video market. Shrek Forever After did not perform
to same levels weve seen from comparable DreamWorks Animation titles including previous
Shrek films. As weve seen with a number of our other theatrical hits in the fourth quarter,
the box office success is no longer as indicative of home video performance as it has been
historically. We believe this is partially due to a soft overall market, significant competition
from other family title as well as a couple of titles specific factors.

First, as weve seen historically, sequels tend not to hold up as well in home video versus
prior chapters and this was the case which Shrek Forever After. Second, Shrek 4s
international box office success is due in part to a growing emerging theatrical market
(overseas).
How much of this growth is in territories that do not yet have an established home video
market Im sorry much of this growth is in territories that do not have an establish
home video market. So, while the international box office growth is great for our films that
has not converted into home video success at this time, we will need to monitor both of
these factors for up and coming sequels.
On the other hand, even in a tough home video environment, How to Train Your Dragon, a
loved title, performed very well both in domestic and international markets. In fact, we saw
a significant improvements in both conversion and margins compared to our 2009 original
film, Monsters vs. Aliens.
How to Train Your Dragon was among the very top converted home video titles in the fourth
quarter. Dragon and a few other family titles released in the quarter prove the consumer still
have an appetite for high quality content in home video.
Turning to our new business initiatives; in 3D, we found our most profitable new
investments. Nearly two-thirds of our total box office dollars in 2010 came from 3D. Screen
count continued to increase both domestically and overseas and we view 3D as a growth
opportunity for the Company. We also see it as a meaningful way to differentiate the
DreamWorks Animation brand.
Another successful initiative for us is TV series. In 2010, Penguins of Madagascar was the
second highest rated animated show on all of TV with kids ages 2 to 11. Together with
Nickelodeon, weve planned to launch our second TV series this fall, Kung Fu Panda;
Legends of Awesomeness.

Turning to TV specials, weve aired five holiday specials in total and our creative team is
currently working on another two; one based on How to Train Your Dragon and the other
Penguins. Weve seen success with three of these today. Thanks to retail exclusives,
merchandizing program and DVD releases.
Finally, as Lew discussed, our Kung Fu Panda virtual world and our Shrek The Musical
touring shows were not successful for the Company. While both fell short of our
expectations in their current form, we continue to believe that the underlying business
opportunities in these areas are worth exploring.
The 2010 was a year of both successes and challenges. Overall, we believe we reached
some important milestones that positions DreamWorks Animation well for the future. We are

now focused on the next few big events for the Company, including the release of Megamind
on DVD tomorrow and the theatrical releases of our next two films, Kung Fu Panda 2 and
Puss in Boots later this year.
With that, were happy to take your questions.

Q&A
Operator: Ingrid Chung, Goldman Sachs.
Ingrid Chung - Goldman Sachs: I have one for Ann or maybe Lew. Did I hear right about
home video in terms of premium units being 40%, but there was pressure on wholesale
pricing? Given the intense competition for home video in the fourth quarter, what did you do
to make sure that the unit sell through was pretty good? Then secondly for Jeffrey, I was
wondering if you could talk about the digital strategy for DreamWorks? Currently HBO has
some limited rights to digital distribution. Do you have an update for us on HBO GO? I know
its a long way off but and you have a good relationship with HBO, but I was wondering if
you could sell your digital rights non-exclusively post 2014 to people like Hulu or Netflix? Do
you think that expends the overall revenue pie for DreamWorks?
Ann Daly - COO: So in the fourth quarter we have seen a steady and increasing
percentage of our home video units particularly in the domestic market, but also in
international market increased for premium products, so the issue that weve been facing is
that top line increase is not translating to completely to the bottom line and its really
having the effect of actually stabilizing our margin overall and partly thats just because of
the content cost and bit of what is happening in the home video marketplace right now in
terms of overall purchases, which are slightly down year-over-year. So we still think this is a
positive strategy for us and we see continued growth and believe that there as the
marketplace stabilizes that there is an opportunity to improve margins as a result for this
strategy.
Jeffrey Katzenberg - CEO: So, on a digital front, Ingrid, this is an emerging and
developing market and it is creating incremental value for content, so this is a very good
thing for the industry and very specifically for DWA. Overall, the market is still sorting itself
out, so whether its a cable channel partner or digital content aggregator, the more people
that are willing to pay top dollar for quality content, the better especially were finding there
is a great deal of focus and interest on brand of content like DWAs. Specifically in terms of
HBO, we did recently renegotiate the deal, which gave HBO right to our third picture in 2010
and at the same time we firmed up HBOs specific streaming rights as well as expanding our
digital sell through and rental rights. So, without getting in the specifics, HBO does have
digital rights to stream in certain define windows and the deal expires in 2014.
Operator: David Gober, Morgan Stanley.

David Gober - Morgan Stanley: Just a quick clarification for Lew, I guess on the
commentary about the online world and Shrek The Musical, I just want to make sure Im
getting the math right in terms of what was in the press release? I guess the total losses
between the two is $35 million, but in terms of impairment charges, did I catch there was a
$12 million impairment on the online world and then was there an $8 million impairment for
Shrek The Musical. I just want to make sure I know where thats going through, Im
assuming thats on the cost of revenue side?

Lew Coleman - President and CFO: Yeah, David, you got the numbers right both the split
between the two write down and the total amount. But I dont think I have much to add
here.
Jeffrey Katzenberg - CEO: The answer is yes.
Rich Sullivan - Head of Corporate Finance: You passed the test, David.
David Gober - Morgan Stanley: One kind of bigger picture question for Jeffrey. You
mentioned the fact that 2010 was the first year of three films for DreamWorks or any
animated studio, animation studio rather. There has clearly been an increase in the overall
slate of animated films. I was just wondering, what your view was of how or how the
experience in 2010 either positively or negatively impact your view of doing three films or
even more films in the future. How could you feel about doing that on an annual basis or the
current kind of slate of two to three every year?
Jeffrey Katzenberg - CEO: So couple of things, first is to say overall, CG animation enjoy
a spectacular year in 2010. Five of the top 10 grossing films were CG animated movies and
they represented, I think it was somewhere between 15 and 20% of the total domestic box
office, thats just kind of staggering performance. So, in aggregate, it could have been a
bigger year, so a year in which admissions were slightly down domestically, up overall; box
office flat CG animation took bigger chunk of it than ever before. So, overall, I think the
appeal of these movies, particularly the high end, best performing ones continues to be very
robust. Looking at our own experience, it was a challenging year for us. We think weve
learned a lot out of this. We are going to continue to develop and build DWA to have the
capacity and the capabilities in the long run to do three, but it is actually going to depend on
several factors. The most important one is going to be about our development and having
great ideas. The second is more than even we are determined to allow each film to have the
adequate time to realize its potential and we have a assembled here now an enormous
bench strength of directors, producers and animators and I think probably today we would
say to you no movie before its time is our mantra. If that results in two movies in a year
instead of three, were fine with that. If three will come together and it happens organically
as opposed to something thats a fourth function, great, we will have three. So, were going
to stay flexible about it. Its also impacted by the marketplace itself and how much
competition there is out there, so once again we want to make sure that each of our movies

has an opportunity to be an event for our customers. So we dont want to get jammed up if
there happens to be a lot of products out there. So its a long answer but I hope it gives you
some sense of what were thinking and feeling.
Operator: Richard Greenfield, BTIG.
Daniel Ralph - BTIG: Its actually (Daniel Ralph) in for Rick. Just a quick question about
summer releases. The summer release schedule seems pretty packed with high profile
releases this year. Just wondering what your thoughts were in terms of the DVD release of
Kung Fu Panda 2? If all these high profile releases will affect your release date on that and
any of the TV series that may be slated for DVD?

Lew Coleman - President and CFO: So, I guess on the issue of the release schedule,
Kung Fu Panda, we think is well-positioned. It is literally the only family comedy coming
within that couple of week timeframe, and we think is a very strong and very competitive
title. When it comes to fourth quarter DVD release, again we feel very confident that we will
have a premier release slot date for the film and it will be done in time and in conjunction
with the premiering of the Kung Fu Panda TV series on Nickelodeon. So, we have thought
about this and have been planning for it both ourselves here as well in partnerships with
Nick about how to use both of these events to fuel one another. So, we think its going to be
an added boost for us in the fourth quarter.
Operator: Barton Crockett, Lazard Capital Markets.
Barton Crockett - Lazard Capital Markets: I wanted to ask one kind of larger picture
question about the model, I mean, were seeing changes in the revenue opportunity with
some pressures in the home video market. Weve seen at least one other movie this year,
Despicable Me, do very well on kind of a lower budget model. Is there some flexibility in
your thinking as you look at your business about the model, potentially to maybe move to a
lower spend, perhaps if warranted by a lower revenue opportunity to protect margins?
Alternatively, if you look at on the other side of the coin, the big studios, Disney, Time
Warner, are talking more and more about franchise films, where they leverage all avenues of
distribution theme parks, consumer products at a level that would seem to be beyond
DreamWorks capabilities, at least the size of your Company. Does it make sense for
DreamWorks to continue to be a separate company or would it be better served as part of a
larger conglomerate?
Jeffrey Katzenberg - CEO: Little bit question Barton, Im glad youre taking strategically
for us. I guess on the to support talk on the cost side of it we are particularly proud of
the fact that weve now been producing these movies here for now the last six or seven
years and we have, even though the ambition of our creative talent, our artist continues to
grow. They each time want to (call for) our audience, think of our unique experiences both
visually and in the complexity of the characters in the films and the production value, get

our cost (have) actually stay flat. Now starting this year, we actually are seeing a decline in
our cost. So, where we fit in a $140 million to $150 million per picture costs with our slate
in 2011, thats now going to come down to $130 million. So, certainly, from a cost
standpoint, were headed in the right direction even though our movies are getting more
ambitious and we have some technology things that are going to really kick in the high gear
at the end of this year and well start impacting our releases in 2013, which we think are
going to further put downward pressure on the cost of making our movies. So, thats on that
side and Despicable Me was a terrific film and really, really well done, a great result and for
me its only good news. When a film performs that well and that successfully and it has a
great home video run on top of it, its just affirms once again when these movies connect
with an audience in a great way, the sky is the limit. That was good news.

Lew Coleman - President and CFO: In terms of leveraging our content into franchises, I
dont want to beat our (chest), but I will say just for a moment here, I think we are the
ones that started that story line. It is literally the foundation of the Company, we outlined
this to you guys, Barton, I know you were there when we launched this company publicly
six years ago and before I think the rest of the marketplace said that we were going to be in
the franchise business that we felt that there was tremendous value by having multiple
chapters and then having the ability that have our IT exist outside of just the movie
theatres and their home video market. I think we have had some great successes in
repurposing our IT, and we are continuing to aggressively to do that. Disney has more
levers to pull in terms of their Disney-branded products they do, they also have an 80 years
head start on it and so we think were doing well. We think we can do much, much better
and were going to continue to find ways to invest our IT as an alternative business
opportunity and to build these franchises. I believe outside of the Disney Company,
DreamWorks Animation, I think today, has more ongoing successful franchises than any
other company in Hollywood including Time Warner.
Operator: Vasily Karasyov, JPMorgan.
Vasily Karasyov - JPMorgan: Wanted to follow-up on what you were saying about the
evolution of DVD market, can you tell us how we should think about the generic ultimate
that I believe you gave couple of years ago at the Investor Day where you said that on a
normal film, we would see 40% of ultimate revenue come from theatrical, 40% from home
entertainment and 20% from TV and as you did the last quarter and what you saw in how
Dragon performed, change that?
Ann Daly - COO: Ill take the first part, the video market. The thing thats been interesting
for us this year with Dragons that we will point out is, and as Jeffrey mentioned, that the
results in the marketplace with that title actually were better than the results that we got on
a very similar title couple of years ago, Monsters vs. Aliens. So, in the market where we
have a core family audience with the good (mouthful) time and transitional time were
seeing that we (can add) value in the market today in similar levels and in previous years.

Lew Coleman - President and CFO: Vasily, Id just say in terms of the model I guess it
would be safe to say probably every single thing about it has changed. Not sure anything is
the same today. If you think about the theatrical marketplace, it has changed. The
international marketplaces have exploded, yet at the same time particularly in the emerging
markets. We do not yet have as robust home video marketplace. Were also now just
beginning to see those markets emerge in terms of the television revenues from it. 3D has
been a huge incremental value to us on what is now about a $5 million per picture cost for
we saw across our three titles this year over $100 million in incremental revenue. So, when
you go back to the model that we put in front of you guys, I guess, its now must be three
years ago, I think its fair to say nothing sustained.

Vasily Karasyov - JPMorgan: A quick follow-up if I can. Given the changes in the
international reporting, do you expect now a larger proportion of the home entertainment
revenue to come in the first quarter of release?
Rich Sullivan - Head of Corporate Finance: You are talking about the 30 day lag.
Obviously, that depends on release dates, but what has historically happened is, the
December release dates for our previous years were accounted in the following quarter
because of the lag. So now in 2010, those December release dates are accounted in the
results and that will continue to go forward, but it really just depends on the release date.
Operator: Doug Creutz, Cowen.
Doug Creutz - Cowen: You guys (vertically) announced Me and My Shadow for a March
2013 release date; youve also announced Dragon 2 is coming off that year. Given that you
announced the film for March, would it fair to assume youre planning to put out three films
in 2013?
Jeffrey Katzenberg - CEO: As I said earlier here, we are staying flexible on this right now
and weve not made a firm commitment for our release schedule for 2013. So those are the
target dates for them right now. They could move.
Operator: Benjamin Mogil, Stifel Nicolaus.
Benjamin Mogil - Stifel Nicolaus: I just wanted to just follow-up on this release question
which was sort of about the international lag. I think in the past the first quarter of DVD
release was basically all domestic; the second quarter was basically all international. With
the lag no longer being in place do you expect the next quarter will look more like what say
the old third quarter would look like the tail end for price projection. Is that the way we
should be looking at the trajectory of releases that youve had now versus the historicals?
Lew Coleman - President and CFO: I think thats probably the best way to look at it.
Normally, we would have shown quite a bit of income in the first quarter 2011 that was

sucked into the obviously, in the December and as I mentioned to David, sucked into
2010.
Benjamin Mogil - Stifel Nicolaus: Then I think lastly just on Megamind, youre talking
about (DVD obviously) shipped towards youll find out but youve obviously got decent
trends in retailers, how they are feeling. Is your hope or view that it will more similar
Dragon in its trajectory than say MvA or obviously Shrek.
Rich Sullivan - Head of Corporate Finance: Ben, Im not sure we heard the question.
Could you repeat it?
Benjamin Mogil - Stifel Nicolaus: You mentioned that youre obviously optimistic for
Megamind DVD in terms of decision right now, not to take a write-down and you view the
movie as still being profitable. You obviously are shipping to more, you might some decent
retailer indication. Are you pretty optimistic that it sort of tie your index ratio will be sort of
similar to that of Dragon and not MvA?
Ann Daly - COO: I have to say its hard to tell right now. Were certainly hopeful that thats
the case. I will say that everything that we have lined up in the domestic market for
tomorrow indicates an enthusiasm on the part of the retailers or big programs in place that
today is (definitely) hard to tell.
Benjamin Mogil - Stifel Nicolaus: Okay. No, thats fair enough. I clearly understand the
business has changed. So, thank you very much.
Lew Coleman - President and CFO: Ben, just one addition here, as a matter of fact, our
books are open until we file our 10-K. So, what youre seeing from us today is our best
guess of what the ultimate is on Megamind.

Operator: David Miller, Caris & Company.

David Miller - Caris & Company: Jeffrey or Lew, there seems to still be this impression on
the Street, rather real or perceived, I have a feeling its more perceived than anything else
that you guys may not be doing enough to really be aggressive in terms of monetizing the
IP a little bit more to make up for just this massive secular change seen in the DVD sellthrough marketplace. I mean, youve got the television business, which just continues to be
hugely accretive for you. Were sold on that. Youve got the consumer products business,
which continues to work well for you. The library revenue number was just spectacular in
the quarter and yet, most investors out there are still have the impression that you guys are
more of a packaged goods company rather than a, call a monetizer of the IP. Im wondering
if you can address that for the audience today.

Jeffrey Katzenberg - CEO: We agree with you. Its more perceived issues than a real
issue. I mean the fact is, David is that, we have many irons in the fire. We launched in the
fourth quarter of last year partnership with Royal Caribbean cruise ship business, which has
been terrific success for them. Theyre rolling out four more ships in the first two quarters of
this year. We have some real solid activity on the theme park front, and several more irons
in the fire for us. So, we are continuing to move forward on the development of our two
arena shows, which will launch a year from now both How to Train Your Dragon arena show
and the Kung Fu Panda arena show. These things take time and as weve seen, not all of
them are successes, but weve certainly had more than our fair share of successes with
them and we think that this is slow and steady its going to win the race here. Its not about
being flashy and just lots of noise, were trying to make sure that we do these things partly
and that they are good investments for us, and they have a good opportunity to succeed
and if they do succeed, they can actually be meaningful for our shareholder. So, I would say
patience would be the not for lack of activity, I think its just that maybe things are long
term. I mean the arena shows themselves are taking two and half years to do this. The
Royal Caribbean on their first ship took a year and half to get that up and running. So these
things are not fast. TV series with Nickelodeon, and it takes three years to make. We have
three more TV shows that will be released will be launched in the next 18 months. So, two
with Nickelodeon and one with Cartoon Network between 2011 and 2012, now busy time is
coming.
Operator: Tony Wible, Janney.
Tony Wible - Janney: I was hoping you can tell me what the 3D split was on Megamind in
the theatrical window?
Lew Coleman - President and CFO: 61% I think is the number worldwide basis. 61% of
our revenue came from 3D.
Tony Wible - Janney: With all the conversation around whats going on in the home
entertainment world, does it change any of your views on the cheap rental window? I guess
you guys are aligned with one of the distributors thats not supporting that window and I
guess if you look at some of the results in the DVD to box ratios, it seems like those studios
that have embraced the window have seen better tie ratios. Does this lead you to want to
maybe introduce a window or do something similar to what Disney talked about last week
with charging a premium?

Ann Daly - COO: It depends on the title in our view. There are some and we are in a fairly
unique situation and that the inherent economics of buying our movies exists just because
of the higher feasibility of viewing in the home. So in many ways for our business and our
titles, the rental window actually is a sampling device that leads to purchase, and so we
really are taking a buy title evaluation of about whether or not we actually impose the
window or not and some of that comes from just evaluating whether there are level of x-

purchase, the level of viewership and everything that we bring a movie to market we make
that determination and then thats what were going to do.
Jeffrey Katzenberg - CEO: The fact that the market is now just changing so rapidly right
now that every three to four to five months is a different equation for us and I think for
everyone else.
Tony Wible - Janney: I might have missed it but did you guys have any Madagascar 2
contribution, albeit probably nominal in the quarter?
Rich Sullivan - Head of Corporate Finance: We gave it, it was I think it was (in the
Library and other).
Operator: Marla Backer, Hudson Square.
Marla Backer - Hudson Square: I want to make sure that I understand some of the
economics of the TV series. First of all, you own those series, correct? The reason I am
asking is, is there any opportunity for you to; A, license that IP internationally for
international TV and is that something that youre considering?
Jeffrey Katzenberg - CEO: No, on the TV series, on each one of our series, there is a
different deal for each one of them and some of them we do control and some of them we
dont. So, I think there is not a one size fits all on that.
Marla Backer - Hudson Square: On the ones that you do control would that be ultimately
part of the strategy?
Jeffrey Katzenberg - CEO: Yes. The ones we control we will look to exploit.
Marla Backer - Hudson Square: Should we assume that the model there is the same as it
always has been which is to develop those TV series until they reach a certain level of
maturity and then monetize them through DVD and merchandise and other venues?
Jeffrey Katzenberg - CEO: Yes, so on all of the TV series, we do control the DVD right and
we do control the merchandising license payments, (toy) rights on them and again each one
has a different economic split with whoever the distributor is on it, but we do control all of
those rights on all of the TV shows.
Marla Backer - Hudson Square: Last question is on Puss in Boots, given that you had a
little bit of mixed results on Shrek 4, will that in anyway influence how you market Puss in
Boots when it comes to theaters this year?
Jeffrey Katzenberg - CEO: Well, I have two different answers for that. The first is that if
somebody would tell me right now that Puss in Boots will grow at $750 million, which is
what the last Shrek will be there, I will be more than happy to get on the table and dance in

front of all of you. So, we have nothing to apologize on that. That would be a spectacular
performance for that film and probably make it our most successful original movie ever. So
in that regard, the thing about Puss In Boots, which is I think a great thing for us is this is
an (origin) story; it actually predates Shrek and Shrek characters; they are not in the
movie; they are not referenced in the movie and in its own world. So in a way I think we
actually have the best of both worlds. We have what is arguably one of if not the most
beloved character out of the franchise who now is existing into his own movie, in his own
world. So, he is known throughout the world. He is recognized and beloved throughout the
world. But this story is a completely different kind of story. Its told in a very unique and
different way and I dont consider it a sequel or a part of the Shrek franchise in that regard.
So, we look at it as an original film here.

Marla Backer - Hudson Square: Do you think that that will be amongst your toyetic
property as well as Kung Fu Panda; do you think those will be amongst your more toyetic
properties?
Jeffrey Katzenberg - CEO: Hard to say. Kung Fu Panda is coming out in a period of time in
which there are some very, very big toyetic properties; thats a wonder word toyetic. We
have a very good program on Kung Fu Panda. We will have an aggressive program in the
marketplace, but its not in the world of the blockbuster successes that weve seen Toy Story
and Cars, were not in the world or that league. Puss In Boots I think will have a program,
but it will be a modest one.
Operator: I have no further questions in queue. Please continue.
Rich Sullivan - Head of Corporate Finance: Well, that concludes todays fourth quarter
earnings call. Id like to remind everyone that a replay of this call will be available shortly on
our website. That web address again, www.dreamworksanimation.com. If you have any
additional questions, please contact DreamWorks Animation Investor Relations department.
Thanks again for participating and have a great evening.
Operator: Ladies and gentlemen, that does conclude your call for today. Thank you for your
participation and for using AT&T Executive TeleConference Services. You may now
disconnect.

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