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Article Excerpt
Original Source: FD (FAIR DISCLOSURE) WIRE
MICHAEL SAVNER, ANALYST, BANK OF AMERICA: Try to get started to keep the end of the day here on time and get everybody out. Let me just do the disclosures real quick. As you're aware, we are required to make a number of conflict of interest and related disclosures in connection with our participation in this conference and the companies that we may discuss. If you'd like to review these important disclosures, please pick up a packet at the back of the room. For those of your listening via Web cast, there's PDFs available.
My name's Michael Savner. For those of you who don't know, I'm the leisure analyst here at B of A. I'm very pleased to be presenting DreamWorks Animation as our next company. DreamWorks, of course, is a pure-play digital animation film studio focusing solely on CGI films. Prior to its public offering in October of '04, DreamWorks was part of DreamWorks Studios, which was recently sold to Paramount.
Joining me up here today is CEO Jeffrey Katzenberg. Jeffrey has served as DreamWorks' CEO and a member of the board since October of '04 when the company was spun out. He co-founded and was principal member of DreamWorks Studios from its founding in 1994 until its sale to Paramount in January of '06. And prior to joining and forming DreamWorks Studios, he was, of course, Chairman of the Board of the Walt Disney Studios from 1984 to 1994.
So, Jeffrey, thanks very much for joining me this afternoon.
JEFFREY KATZENBERG, CEO, DREAMWORKS ANIMATION: It's good to be with you.
MICHAEL SAVNER: I guess maybe just to start off in a very obvious place, less than two months from now you have a little film coming out, Shrek the Third. I believe the film is locked down now or will be within days.
JEFFREY KATZENBERG: Locked and loaded, ready to go.
MICHAEL SAVNER: Locked and loaded. So, how is it? How does it look?
JEFFREY KATZENBERG: Good. I think that obviously the interest and curiosity for these films, and particularly this one, kind of starts to get heated now. And I think that the real issue for us in these next 60 days is not really the quality of the film. I think the film is in keeping with the previous two movies. I think that it's a worthy successor of those films. And that's saying a good deal, because they were both very, very good movies. And I think the movie is a good film. The real issue is the marketplace itself. And the going into the month of May is really something that is unprecedented for the industry. And it is not anything that I think any of us can be predictive of right now. And I just feel very, very strongly that all of us need to err on the side of being cautious. And because we're looking for a marketplace to accommodate and adjust in a way that just has never occurred before. And as my partner says to me all the time, there's your plan and God's plan. And your plan doesn't count.
And so, I think the movie delivers. And I think it's a satisfying experience. And the real issue will be the marketplace.
MICHAEL SAVNER: What have you done differently, if anything? Obviously, there's a lot of big players involved. And everyone wants to plant their flag at what they think is going to be the optimal window. Spiderman, arguably, is well-positioned with two clear weeks. And then you come in with Shrek. And then just one week later is Pirates. Certainly nobody is moving. And that's been clear for a long time. Is there anything different you've done, maybe on the marketing side, or with your theatrical distribution partners, to kind of make sure that you could do everything in your power to give yourselves a free a path as possible?
JEFFREY KATZENBERG: Well again, Michael, there isn't any impediment to a path here. I think that if you actually look at the marketplace, and you look at the capacity, other than probably at those 6 and 8 o'clock shows at night, where capacity will be strained. But what exhibition has done now in the last couple of years is to give themselves, and therefore us, enormous flexibility in terms of expanding into screens and really maximizing the business.
I don't remember the exact number, but I think that if you look at the record Memorial Weekend in terms of just the gross business on the weekend -- and I don't want to be held exactly to this -- but it's in the world of about $300 million -- 300, $320 million, $330 million or something like that. If you actually look at the capacity of the business -- and here's how capacity is defined, the number of seats times four days. Actually what you do is you take the number of seats, say five shows a day, the average ticket price, and what you would see is that the ability of the market is probably -- or the capacity of the market is somewhere in the $800 million plus range.
Now, what that means is that what happens at 10 o'clock in the morning, or 11 o'clock in the morning and 11 o'clock at night, where you sort of look at the outer edges of that business. But if you take the number of seats; sort of discount that down 20%, just for those fringes; and five shows a day; and about $6.75 a ticket, you're over $800 million, the biggest Memorial Weekend in history is in the 300, $350 million, capacity isn't going to be -- doesn't seem as though that's going to be a gating issue.
MICHAEL SAVNER: We were talking with the exhibitors earlier today. And we do have precedents for the last couple of years. We've had multiple $300 million movies in one year. So, it seems to me that there has been a lot of hype about the competitive markets. But based on the back of the envelope math you just did and what we heard from the theater folks, having three films do $1 billion in May is actually not out of the question, as you go into June of course.
JEFFREY KATZENBERG: Yes. I mean, the capacity is there to have it -- for it to occur. It just never has. And I actually don't even think the issue is whether these movies all get their -- whether everybody goes to see their movies once. I don't think there's any question that, in terms of the general movie-going audience, everybody is going to see Spidey, everybody's going to see Shrek, everybody's going to see Pirates. And that basically gets everybody a quarter of a billion dollars. And the difference will be which one of those movies are going to get multiple viewings, and how broad will the multiple viewings be?
I can say that a couple of things that work, I think, uniquely for us is we're the only family film. We're the only PG-rated movie. We're the comedy. And we're 81 minutes long. And that pretty much means that we're going to tend to get one and half to two shows to every one of those other pictures, because they're much longer movies.
MICHAEL SAVNER: Then in the second half of the year, you've got another major event film, potentially, with your partnership with Jerry Seinfeld -- the Bee Movie. Maybe for a lot of people that film is probably more obscure, because it's not as visible yet. That will probably -- we'll start...
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