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Jeffrey Katzenberg, CEO of DreamWorks Animation (DWA), must be feeling just awful. The new Shrek bombed. There's no way to spin the statistic (although I can't wait to see how the company tries). According to early estimates at Box Office Mojo, Shrek Forever After grossed $71 million at domestic theaters over the three-day weekend. Why is this so bad? It was number one, after all. To begin with, big tent-pole pictures are in trouble if they don't score over $100 million in their debut spots. It's simply the way it is. Beyond that, you have to check out what the first Shrek made back in 2001 during its opening: that flick captured $42.3 million. You mean to tell me the fourth in the series couldn't make at least double what the original did? If it had to bomb, it could have bombed a little less severely, don't you think?
Shrek just couldn't keep up with its predecessors. And I have to say, I don't believe you can necessarily blame the animation studio. I haven't seen any Shrek cartoon, but quite honestly, it seemed that the one just released was of a similar quality to the rest of them. I thought people would flock to it and turn it into a blockbuster.
I was wrong about the fan reaction. I've also been wrong, more specifically, on the Shrek trade itself. I discussed this over the weekend.
I also mentioned how I've been wrong on Disney (DIS), and this brings up a related subject: Does the Shrek debacle reflect poorly on the prospects for Toy Story 3?
Personally, I expect great things from Toy Story 3. The second film in that franchise opened with over $57 million in its first weekend in wide release (Toy Story 2 might have opened with a higher amount if not for the release pattern). Given the assumed large quantity of demand for this content -- since the first sequel was released all the way back in 1999 -- I would say Toy Story 3 needs to do well over $120 million to be considered successful. Where did I get that number? It's what the third Shrek roughly made during its pilot weekend. Such an opening would be unusual for Pixar, as this chart illustrates; we have to remember, though, what kind of brand equity we're dealing with. Like it or not, the Mouse has high expectations to live up to.
Shrek Forever After serves as a practical reminder of a valuable truism in the movie business: You never know what's going to be a huge hit or a tremendous disappointment. In fairness to Katzenberg, he couldn't have predicted exactly when the market was ready to move on from the beloved green creature. He was simply carrying out his fiduciary duty to shareholders by mining the famous fairy-tale universe one last time.
I don't know how Shrek will do in the coming weeks; maybe international exhibition will save the day, but this just isn't a good start. I don't know how DWA will trade Monday, but, up or down, I would be cautious about buying DreamWorks Animation at this point.
Disclosure: I own Disney; positions can change without notice.
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Reader Comments (Page 1 of 1)
5-24-2010 @ 10:14AM
Iridium said...
wow really, $70 million in one weekend - not even a holiday weekend and the movie is a bomb.
What now every movie has to make $500 million for it to be a commercial success. Financial people really are getting truly insane.
Because Avatar, which was a terrible movie, beat records so easily it seems like a movie can only be a blockbuster now if it makes over a billion dollars worldwide.
A movie is a success if it brings in more dollars than it cost to make and promote, period.
5-24-2010 @ 10:45AM
FitFan said...
This article reminds me of another truism: Invest only in businesses that you understand.
If you haven't seen any of the Shrek movies, then how can you compare the quality of this movie to previous Shrek "cartoons"?
If you had watched the previous movies, you would have known that the Shrek writers were out of material about half way through the second film. Shrek The Third did very poorly, even though it opened pretty well.
5-24-2010 @ 12:13PM
thedude said...
I've got to back FitFan on this. If you had seen the Shrek films you would have been surprised that Three did as well as it did. I'm even more surprised that Four did this well. I anticipated it would only make half that on opening.
Also to quote Iridium "A movie is a success if it brings in more dollars than it cost to make and promote, period."
Adding to that, the only concern Disney has is making a profit. If you've been to any of their parks recently you would understand. Any uniqueness they may have had was rapidly replaced by vapid commercialisation. Although I have heard that the Mickey D concessions in Disney's parks are being phased out. Disney really doesn't care what rubbish it churns out as long as it lands in the plus column. As long as the Barnum/Hannum statement stands true there will always be profits.
5-24-2010 @ 1:24PM
Steve said...
Thanks for the comments, I appreciate the discussion.
I never thought that it might sound odd to comment about the quality of this new Shrek while at the same time confirming that I have yet to see a Shrek. Let me answer this fair point: I rendered a judgment based on the commercials, the concept, and the trailer. That may not turn out to be a satisfactory answer to all, but I hope it helps a little.
Iridium, I am critical of the opening because I was coming up with a trade thesis for the stock (which I fumbled). Unfortunately, short-term players are betting on relative numbers, not absolute ones. $70 million may be a lot of cash, but in the end, DWA is down 10% (as I write) because the market players simply hated the gross. I knew there was a risk for this once I saw the opening.
Whether the film was good or not, it was always possible that the opening would have propelled the stock for a quick gain had it been higher than all the rest. In this instance, it just didn't happen.