Should DreamWorks Animation make more movies?

I definitely support the idea of an increased movie slate. It gives more chances for the company to discover franchises and generate hits. However...

Shareholders who are thinking of buying on this newly announced strategy must keep a couple things in mind. The first thing is that a bigger slate means more chances for failure. A failure will hurt a DreamWorks Animation more sharply than it would hurt, say, a Time Warner (NYSE: TWX) or a News Corp. (NASDAQ: NWS). That's because the cartoon studio lives and dies by its individual releases.

Second, as this news article states, the move will help increase output for the company's DVD business. As we all know, DVD sales have slowed. So, in a sense, this move to increase production can be seen as an offsetting element to the decline in the home-video markets. It would have been nice for the strategy to be a response to an increasing DVD market. Of course, assuming Blu-ray eventually takes up where DVD left off, the company will be able to leverage that new medium to propel shareholder value.

I think this is a good corporate move overall. My hope is that Katzenberg will be able to maintain quality control and keep administrative costs to acceptable levels with the expanded pipeline. Granted, we're only talking about one extra film every two years, but when considering the complexity of computer-based animation, such a move can increase the ambient challenges. At the end of the day, I don't think this means DreamWorks Animation's stock is a solid buy. It does mean, however, that any investor looking for more direct exposure to the film industry on a long-term basis should take a look at the situation.

Disclosure: I own Disney; positions can change without notice.