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DreamWorks Animation SKG Inc. Message Board

  • shrek_money shrek_money Oct 21, 2013 4:58 PM Flag

    Shrek Ain't Walking Throught the Door

    Given the statement that Turbo would be "profitable" was believable during Q2 earnings. Given the limited release in the overseas markets, Turbo had the potential to earn $438 million. This is about where a DWA film becomes “profitable.” DWA films have always performed well overseas in key markets such as Russia, China, Mexico, France, Germany, Spain, and the UK.
    With Turbo being released in EVERY major overseas market as of October 18th, Turbo has a ZERO chance of being “profitable.” Turbo was recently released in Italy, China, Australia, France, Germany, and the UK.

    These are HUGE markets for DWA. This weekend Turbo managed to make approx. $19 million overseas to put the worldwide gross at $225 million. Assuming a 30% week-over-week drop in box office revenue over the next 10 weeks, Turbo will gross another $42 million overseas. This will bring the worldwide box office gross to $267 million. With a worldwide box office gross of only $267 million, DWA would be looking at about a $110 million write-down.

    I don’t have all of the exact figures worked into this cost model, but here are the basics. In order for DWA to record a profit, it first must re-coup all production and marketing costs. From the total worldwide box office gross, DWA owes its distributor FOX an 8% cut. In addition, the movie theaters also get a piece of the ticket sales. Finally, the production costs of the film were $135 million and the marketing costs were probably around $135 million. Keeping it very simple, Turbo will need to earn $448 million to be profitable, it only needs $181 million more from Belgium and Sweden!

    Sentiment: Buy

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    • Keeping it simple isn't exactly keeping it accurate. Not sure where you are getting your numbers, but: Turbo is the first of a new breed of lower cost films. The $135 is not even close. Your guess at marketing costs is laughable. Turbo looks to have broken even. And Kevin - all your new handles aren't fooling anybody. Revisit this post soon and we'll see who was right.

      • 4 Replies to orangedigit
      • Orange,

        I found these number from an Editor after the Q3 earnings release.

        “we believe ‘Turbo’ is a profitable movie,” Katzenberg said, with the $127 million toon set to continue to be promoted on homevideo (out Nov. 12), through a new Netflix series and Mattel toys well into next year. DWA spent between $150 million and $175 million to market the film.

        Sentiment: Hold

      • there are more people waiting to short this fat pig than just me. Everyone is waiting for the numbers. BTW, I am too busy making money over FSLR, 30% gain since my recommendation. Did you get into it?

      • Orangedigit - I found these notes on the DWA corporate strategy. They explicitly state marketing costs are $150 - $175 million per film. So I guess $135 million is actually laughable since they spend more! In addition, the $135 million for production is very close to the actual "negative cost" of production!

        Please provide your information on capitalized "negative costs" for film production and actualy marketing costs...

        CORPORATE STRATEGY
        "DWA typically invests $110 million to $130 million (capitalized "negative costs") for each original film, and with added upfront payments for sequels, reaching $130 million to $170 million. Additional contingent payments of 7% to 9% (for original films) and 10% to 14% (for sequels) are due against worldwide box office revenues -- about half of which is retained by theater operators. Also, before any revenue recognition, about $150 million to $175 million per film in worldwide marketing costs is recoupable by the distributor, plus 8% distribution fees."

      • Why don’t we try to work with more accurate numbers and perform a complete analysis? I am actually long the Company, but I am not completely sold on the short term outline over the next 6 months. I may try to hedge my long before earnings on Tuesday.

        According to the 10K filing, the production cost of Turbo was $127-135 million. Starting by mid-2014 is a plan to leverage a new cost structure in order to lower development costs to $120 million. Don’t forget that Despicable Me 2 had a production budget of $76 million (Box Office Mojo) and grossed over $898 million worldwide so DWA isn’t exactly setting the animation scene on fire with its new “low cost” $120 million movies.

        From the information that I can find online, the Rise of the Guardians had a marketing cost of $80-85 million. Rise of the Guardians did not play in China, which is a huge market for DWA. Since Turbo did play in China let assume that the marketing costs for Turbo were $90 million? I don’t think that $135 million for marketing is a laughable number when these films have the potential to earn $1 billion if marketed appropriately.

        Let’s use the following numbers for an analysis on Turbo.
        Global Box Office Take to Date: $224.73 million
        Production Cost: -$127 million
        Marketing Budget: -$90 million
        Fox Distribution Fee: -$17.98 million (8% of Global Box Office)
        Move Theater Take: -$89.9 million (40% of Box Office Revenue)

        Turbo would currently be looking at a $100.15 million write down. I don’t think we can say right now that Turbo has broken even.

 
DWA
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