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Dreamworks Animation SKG Inc (NASDAQ:DWA)

Analyst Conference

June 18, 2013 4:30 pm ET

Executives

Rich Sullivan - Deputy Chief Financial Officer

Jeffrey Katzenberg - Co-Founder, Chief Executive Officer, Director and Chairman of Nominating & Governance Committee

Ann Daly - Chief Operating Officer

Lewis W. Coleman - President, Chief Financial Officer and Director

Analysts

Anthony Wible - Janney Montgomery Scott LLC, Research Division

Ryan Fiftal - Morgan Stanley, Research Division

Barton E. Crockett - Lazard Capital Markets LLC, Research Division

Benjamin E. Mogil - Stifel, Nicolaus & Co., Inc., Research Division

Douglas Creutz - Cowen and Company, LLC, Research Division

David W. Miller - B. Riley Caris, Research Division

Vasily Karasyov - Sterne Agee & Leach Inc., Research Division

Tuna N. Amobi - S&P Equity Research

Richard Greenfield - BTIG, LLC, Research Division

Michael Corty - Morningstar Inc., Research Division

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the DreamWorks Analyst Conference Call. [Operator Instructions] And also, this call will be made available for replay after 4 p.m. today through July 3 at midnight. You my access the AT&T playback service at any time by dialing 1 (800) 475-6701 and entering the access code 295848. International participants, dial (320) 365-3844.

And I would now like to turn the conference over to your host, Rich Sullivan, of DreamWorks Animation. Please go ahead.

Rich Sullivan

Thank you, and good afternoon, everybody. 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 will begin with some prepared remarks, followed by an opportunity for you to ask questions.

Before we begin, we need to remind you that certain statements made in this call regarding the company's television production and other businesses may constitute forward-looking statements. The company's actual results may vary materially from those described in such forward-looking statements as a result of a number of risks and uncertainties, including those contained in the company's various 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'd like to now hand the call over to our Chief Executive Officer, Jeffrey Katzenberg. Jeffrey?

Jeffrey Katzenberg

Thanks, Rich, and good afternoon, everyone. Thanks for joining us today. We're holding this conference call following the recent DreamWorks deal announcements by both Netflix and SUPER RTL. As we've mentioned in the past, television is a key part of our growth and diversification strategy for the company. These 2 deals are the most recent strategic steps that we have taken to move very aggressively into the TV business.

Today, we're announcing that over the next 5 years, we will produce nearly 1,200 new episodes of DreamWorks' branded programming. This production slate will feature TV series that are based on our current franchises, our future films and the most popular heritage properties from Classic Media. So in addition to being the world's largest feature animation studio, we're now on a path to becoming one of the biggest producers and distributors of high-quality family TV programming on a global basis.

I'd like to summarize what the Netflix and SUPER RTL announcements means for DreamWorks, specifically. Netflix announced yesterday a new long-term, multi-property licensing agreement that makes them our exclusive subscription television partner in various parts of the world. In the single largest deal for original content in their history, they have pre-ordered more than 300 hours of our new programming, with rights across the 40 countries where their service is offered today. It's a very significant opportunity for DreamWorks to partner with Netflix, which is the fastest-growing destination for families watching television today.

Additionally, we are forming new long-term agreements with dominant telecast partners in other territories around the globe, beginning with SUPER RTL, Germany's leading children's TV network. We signed a 5-year agreement under which SUPER RTL has licensed 1,100 episodes of programming, including much of what we have also licensed to Netflix, as well as additional content from our vast DreamWorks and Classic Media libraries of titles.

The first series that will be made available to SUPER RTL starting this September is Dragons, which will be followed by Turbo. The programming we are supplying under these 2 deals and subsequent placement of our high-quality content in other territories on a worldwide basis will be -- will give us a significant footprint across the global TV landscape. These developments are possible today because of the long-term investment we've made in feature film franchises, our acquisition of Classic Media and the growing momentum of the DreamWorks brand around the world. We believe that our strategy of entering into long-term distribution deals with leading telecasters across the globe provides the most immediate and meaningful impact for our brand, for our company and for building shareholder value.

Today, television is a transformative line of business, and going forward, we believe it will be a substantial and consistent revenue generator for the company. This now includes the following items: first, our recently acquired Classic Media television production distribution business; second, our existing TV series that are licensed to Nickelodeon, including Penguins of Madagascar, Kung Fu Panda and Monsters vs. Aliens, as well as DreamWorks' Dragons to Cartoon Network; the third component of our television business is the DreamWorks and Classic Media collection of holiday specials, which features some of the most beloved titles, including Frosty The Snowman, Rudolph the Red Nosed Reindeer and Santa Claus is Comin' to Town, as well as our own Shrek The Halls; our fourth -- and forth, our TV business now includes the new programming that we've licensed to both Netflix and SUPER RTL, which we are in the process of selling to other leading telecasters on a worldwide basis.

Altogether, we believe television will generate approximately $100 million in revenue in 2013, half of which is expected to come from Classic Media. We believe our television revenue will grow to a steady state of more than $200 million annually starting in 2015. And we expect the gross profit margins from television to be around 30%, which is close to what we had historically achieved from our feature film business. The revenue and profit projections I have just laid out for you do not include the substantial benefit that television will have on our rapidly expanding consumer products business or the long-term library value from owning these negatives. We believe a number of our new series will have significant merchandising value associated with them, which will result in meaningful incremental revenue, as well as higher profit margin.

A second area of potential upside that is not included in our projections is our acquisition of AwesomenessTV. Since we acquired the company less than 60 days ago, it has continued to see incredible growth in both the number of network subscribers, which has increased 40% from 14 million to 20 million, and video views, which have increased 43% from 800 million to 1.1 billion in literally only 6 weeks. In a very short time, Brian Robbins has used the YouTube platform to develop a powerful network of highly engaged teen girls in AwesomenessTV. About a month ago, he launched a new channel called Awesomeness X, which is primarily aimed at teen boys and is already off to an amazing start. The next step for Brian will be to apply his expertise to a branded digital family entertainment offering. We couldn't be more pleased to have him onboard.

The developments in our television business that I've discussed today are clearly changing the profile of DreamWorks Animation. We also continue to focus a tremendous amount of effort and are seeing many great opportunities in 3 other pillars of our growth strategy for the company. They are consumer products; location-based entertainment, which includes theme parks, the DreamWorks experience, cruise ships and retail entertainment; as well as our joint venture in China, Oriental DreamWorks. We look forward to sharing details on these and other developments with you in the coming months. As we grow these businesses into meaningful and ongoing revenue streams, DreamWorks is increasingly shifting from an animated feature film company into a multi-faceted, branded entertainment company that delivers high-quality family content around the world.

Having said all of that, we couldn't be more excited to be exactly 29 days away from launching our big, fun and very funny summertime family film, Turbo, which arrives in theaters on July 17.

With that, we'd be happy to take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] So our first question comes from the line of Tony Wible with Janney.

Anthony Wible - Janney Montgomery Scott LLC, Research Division

It seems like you guys are attacking the TV market from a lot of angles in a short period of time. Is there any reason to think that you could not also produce a traditional TV network? I understand that it takes a lot longer to get that into producing a steady state of revenue, but just curious if this is what we should come to expect the deal to date or if there's still a longer-term plan to grow TV, even beyond what we've seen so far.

Jeffrey Katzenberg

Well, I think we are -- this is a very big opportunity for us, and I think it's going to have the majority of our focus in the near term. We want to deliver just the highest quality of series that we are capable of, consistent, frankly, with the series that we have been involved with to date for both Nickelodeon and Cartoon Network. We've all been #1-rated TV shows and well-reviewed, and I think Panda actually won a daytime Emmy this week. And so making great TV programming on the scale that we're now stepping into is going to be our primary focus. Having said that, we do think there will be complimentary opportunities for us beyond this, but for the immediate term, this is our -- this is going to be our focus. It's a big opportunity and it's a big undertaking.

Operator

It's from the line of Ben Swinburne with Morgan Stanley.

Ryan Fiftal - Morgan Stanley, Research Division

This is Ryan Fiftal on for Ben. A couple of questions. One, could you talk a little about your plans on the production side for the content? 300 hours is obviously not a trivial amount of content, and it's coming on the heels of some recent cutbacks for you guys. So could you talk about your thoughts for doing this in-house versus outsourcing? That'd be one.

Jeffrey Katzenberg

Okay. You want to get to the other one, too, or...

Ryan Fiftal - Morgan Stanley, Research Division

Yes, sure. So I was just -- also, on the revenues that you laid out, if those include other ancillary revenue streams beyond the first run license. And any of your thoughts on those, if you think there is significant opportunity for syndication in the longer tail. And potentially, EST and if that's all included in the numbers.

Jeffrey Katzenberg

So I'll do the first one, and then I'll have Ann Daly answer. I'll do the second question here, which is in terms of the revenue stream. The number we've given you does include first-cycle EST, DVD, what we expect to be other partners and other countries around the world. So it's inclusive. For sure, there will be significant library value of this, but we've not factored that in. And as I said, there's no consumer products here factored into any of this either. So -- and Ann can answer in terms of the production side of it.

Ann Daly

Sure. In terms of the television production, this is something that will be managed over several years. We're foreseeing doing new series -- a couple of new series every year. There will be multiple seasons per series. And in that manner, it will -- that we see some small increase in our SG&A, but mostly, this will be managed separately from our feature film business that we're currently doing with the Dragons television series. And so those possibly will be captured in the series margins. I think the -- as we're doing with Dragons, we use outside companies to do the physical production under our direction. So that will be the -- that's the way that we're approaching it with this new slate of programming.

Operator

And that will come from the line of Barton Crockett with Lazard Capital Markets.

Barton E. Crockett - Lazard Capital Markets LLC, Research Division

I'm wondering about the gross margin outlook that you gave at around 30%, which is impressive as you ramp revenues. Do we build into that gross margin? Or do you kind of get that from the outset? That would be 1 question. And then another question would be the rights that you sold to Netflix and RTL are described as first run rights. Can you give us any sense of how long that is, even in terms of what a standard industry benchmark is for this type of window and whether you have any inclination to vary much from standard industry practice.

Jeffrey Katzenberg

So Lew, you want to do...

Lewis W. Coleman

Yes. Barton, the gross margins are sort of generally there series by series, so probably be a little bit lower in the very beginning. But as we gain ability to produce in that kind of stuff, I'd expect to hit that steady state fairly early on for each series.

Ann Daly

And then regarding the terms, I won't into great detail in general. Each of these deals has a extensive period of exclusivity. And then there are windows, as you would in a normal distribution deal, for additional exploitation.

Operator

So now it will come from the line of Ben Mogil with Stifel.

Benjamin E. Mogil - Stifel, Nicolaus & Co., Inc., Research Division

Going to the $100 million figure for this year, so if $50 million is from the Classic part on the TV side and then $50 million -- the rest of the $50 million, is that a combination of the stuff that's in Nick, the stuff that's in Cartoon Network and some of the stuff that's on -- going to be on Netflix and RTL this year? Is that the right way to think about it?

Rich Sullivan

Yes, as well as the TV Christmas specials from our holiday special.

Benjamin E. Mogil - Stifel, Nicolaus & Co., Inc., Research Division

Okay. So is there Classic revenue beyond the $50 million that you noted that's just allocated to a different bucket?

Rich Sullivan

I'm sorry, Ben. Can you repeat that?

Benjamin E. Mogil - Stifel, Nicolaus & Co., Inc., Research Division

The $50 million that you noted from Classic on the TV side, Classic, I think, was doing something like in the $80 million range when you bought it. Is there other Classic revenue that's not in that $50 million -- in that line item?

Rich Sullivan

For the most part that Jeffrey referred to, the consumer product business, which is also a significant part of the Classic Media portfolio, is not included in the TV numbers we talked about.

Benjamin E. Mogil - Stifel, Nicolaus & Co., Inc., Research Division

Okay. So if we want to move from the $100 million to the $200 million that you noted, obviously, that's all the Netflix and the RTL deal. How much Netflix and RTL, don't even give me a range if you don't want to give a specific, do you think is in the $100 million that you've guided to for this year?

Rich Sullivan

Yes, Ben, just to take a step back, I think I want to correct one of your assumptions. It's an all-inclusive number. So we're going to grow from about $100 million in 2013 to around $200 million or more in 2015, and that's going to be at that number at a steady state or more. That's all-inclusive. So it includes worldwide television sales for all of the series. Some will be on Netflix, some won't. It will include the DreamWorks Classic properties that are currently in existence; our continuing DreamWorks Animation properties that we licensed to Nickelodeon, where we get a piece of the home video business; as well as our Classic holiday specials, both on TV and home video; as well as the DreamWorks Animation holiday specials, both in TV, FVOD and home video. So it is an all-inclusive number. So I don't want to mislead you that, that's all driven by the 2 deals, specifically, but clearly, those are the big driver of revenue.

Benjamin E. Mogil - Stifel, Nicolaus & Co., Inc., Research Division

Okay. That's helpful. And then sort of second question. The shows that you have with Cartoon and Nickelodeon, can you talk about when they come up for expiration? Is there a potential to move them over to these larger deals that you have? Or do those guys at the first rights [ph] refuse what we should assume that sort of continues?

Ann Daly

Yes. The Nickelodeon deals and the Cartoon Network deals will stay intact, and so those shows will continue with those broadcasters.

Benjamin E. Mogil - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And then besides Germany, which is not a Netflix market, are there any major markets that you're sort of talking to that are -- I mean, is China, for example -- can you do something on China? Or is there the -- is it there -- not that it's not local product going to be a challenge from a regulatory perspective.

Jeffrey Katzenberg

Well, no. I mean, we're in discussions throughout the world. We've been out now for the last 60 days, in active conversations in virtually every major market that Netflix is not in, including China.

Operator

That would be coming from the line of Doug Creutz with Cowen.

Douglas Creutz - Cowen and Company, LLC, Research Division

Obviously, some of these deals are based on movies, generally. You have Turbo coming this fall. To what extent is the relative level of success of a film at the box office impact the revenue opportunity for the TV show that comes after?

Jeffrey Katzenberg

Gosh, I have no idea. I mean, I don't know how to answer that one.

Ann Daly

I think the greatest impact will be in the ancillary business that comes along with the exhibition of those shows around the globe. Because they -- the license fees are in place, and then it drives additional business, as you can imagine. And that could increase the profitability, so that's probably the biggest variance there.

Jeffrey Katzenberg

But just going to the other side of it, we've produced 19 CG animated movies. 18 of them have been blockbusters. An average box office is over $500 million on those 18. Even the 19th didn't want the $100 million, which certainly is enough of a level of success that we could have done a TV series off of that, if we thought that, that movie was appropriate. In that particular case, the storyline itself didn't really lend itself to it. So I would -- I don't think we should say that every single movie that we make is going to have a TV series behind it, but I think many, if not most, will. And it's part of our -- it's been part of our franchise-building strategy from the very beginning. And honestly, it's probably why we're on this call with you today. If we had not done Madagascar and Kung Fu Panda and Dragons and Monsters vs. Aliens, every single one of which has been, as I said, #1 hits when they were launched and award-winning shows, I don't think we would have had the opportunity with Netflix.

Operator

And that would be from David Miller with B. Riley & Co.

David W. Miller - B. Riley Caris, Research Division

A few questions. Jeffrey, the press release yesterday from the Netflix side mentioned 300 hours of original programming. Could you kind of ballpark -- or anyone, could you kind of ballpark what that equates to in terms of number of episodes? I'm assuming, just academically, that 300 hours doesn't necessarily mean 300 episodes. And then just separate from that, are there -- is there any sort of optionality in both of these contracts or I should say specifically the Netflix contracts that has any kind of boost to your payout if Netflix gets to a certain number of subscribers either here or abroad? Does your payout go up if they achieve a certain number of subscribers? And then I have a follow-up for Lew.

Jeffrey Katzenberg

Sure. So first of all, on the -- Netflix, as you know, reports on hours, not episodes. And we want to respect their way of discussing their programming. So I really don't think it's for us to really give more detail on that. That really is for them. And I'm sure you can direct your questions to them, and they'll share with you whatever their thinking is on it. So what we did announce today is that our total package of things that's inclusive of Netflix is about 1,200 episodes for us. In terms of Netflix, we are not paid on a subscriber basis or on subscriber growth. That is not the nature of our compensation from them.

David W. Miller - B. Riley Caris, Research Division

Okay. And then just a follow-up for Lew. Lew, with the television production business now obviously, fairly substantial, do you feel comfortable in future Qs, perhaps separating out TV from film and creating a new line item on the income statement?

Lewis W. Coleman

David, we always take a look at our segment reporting, and we will continue to sort of update the segment reporting as we generate new meaningful businesses. It's obviously easier to change your segment reporting towards the beginning of the year than it is at the end of the year and all of those kind of issues. So if I were you, I wouldn't expect a big change in our segment reporting this year. And we will evaluate it next year, as appropriate.

Operator

And that would be from Vasily Karasyov with Sterne Agee.

Vasily Karasyov - Sterne Agee & Leach Inc., Research Division

If you don't mind, I have a couple. It's a very big announcement, so just trying to understand it. About the $200 million in revenue run rate, can you please tell us how many episodes or how many hours, I guess, is an easier way to talk about it, you assume to be producing for $200 million in revenue a year?

Jeffrey Katzenberg

I don't think we've actually broken it down in terms of how many episodes would be in play at that moment of generating $200 million. So I don't want to guess at it.

Vasily Karasyov - Sterne Agee & Leach Inc., Research Division

But your Netflix deal, it's not on the hours delivered, it's sort of like an annual fee and then you deliver what you can. Can you tell us just a little more on the structure?

Jeffrey Katzenberg

No. They've contracted with us very specifically for a number of TV series, a number of episodes over multiple seasons for each of those series. But we're not breaking them down. That's not how they report. So, again, we're respecting Netflix's way in which they discuss their programming. It really is for them to discuss it. But it's multiple titles over multiple years, multiple seasons for each of those titles.

Vasily Karasyov - Sterne Agee & Leach Inc., Research Division

And today, is it -- I think you used the word pre-ordered in your prepared remarks. Does it mean that there is no out for them out of the deal, both of you are in it for the duration of it?

Jeffrey Katzenberg

That's correct. It's a firm order.

Vasily Karasyov - Sterne Agee & Leach Inc., Research Division

It's a firm order. Okay. And then one last question, please. Out of the $100 million, I think, that you mentioned for this year for TV revenue, how much is incremental to today's announcement? What would we be getting without the announcements of this week? And I would put SUPER RTL into that.

Jeffrey Katzenberg

I don't think any of the Netflix, RTL money will flow into this year.

Rich Sullivan

Yes.

Jeffrey Katzenberg

RTL -- so a little bit of RTL will.

Ann Daly

This will deliver Dragons within this year.

Rich Sullivan

Yes. I mean, I think the -- it's [indiscernible]. We've never given you a number to be incremental. What I can say is we've redefined this bucket for you. We've never given you Classic Media in this format either. And what we're really trying to do is identify our much larger TV business and consolidate it for you. It's going to be about $100 million this year, 50% of it coming from Classic Media, from things like Veggie Tales and the Christmas classics that we were reporting as part of the Classic Media revenue line last year, as well as our own Christmas classics. You will start to see some new production, both from Dragons, as well as some of the Classic Media properties that we will be delivering to SUPER RTL, that will come into the tail end of 2013. But overall, the $100 million is both to represent existing businesses that we've reported on historically, as well as some new businesses, with growth in those line items. So that's kind of how we're thinking about it.

Vasily Karasyov - Sterne Agee & Leach Inc., Research Division

Right. And just, Rich, I am sorry, but it's a big announcement, just want to understand here. The $50 million that you mentioned TV revenue from Classic Media, so that's sort of what we would call a historic Classic Media, right, that they were generating that kind of run rate prior to the acquisition, immediately after the acquisition, before the SUPER RTL and Netflix deals. Do you understand me correctly?

Jeffrey Katzenberg

But remember, we've now separated out of that their consumer product part of their business. So we've now -- that's their TV revenue -- library TV revenue.

Vasily Karasyov - Sterne Agee & Leach Inc., Research Division

Yes, right. Understood. Yes. And you wouldn't be able, just to shorten the duck, to give us your assumptions of revenue per hour?

Rich Sullivan

Good shot.

Jeffrey Katzenberg

That was a good shot.

Vasily Karasyov - Sterne Agee & Leach Inc., Research Division

I assume. Yes.

Rich Sullivan

[indiscernible].

Jeffrey Katzenberg

The bullet is ricocheting around the room. It hasn't landed.

Operator

That would be from the line of Tuna Amobi with S&P Capital IQ.

Tuna N. Amobi - S&P Equity Research

So this is obviously a significant announcement. And I wanted to get a sense, what's the upside to doing a global kind of deal with Netflix as opposed to kind of a region-by-region? I mean, do you feel like -- for example, in markets like U.K., at a minimum, I would have thought that you might have carved out that kind of market. And given the deal you did in Germany, I'm just wondering if you feel like you've got enough upside here from this kind of comprehensive deal or this is the kind of template that we should expect going forward. Any comment on this thought process would be helpful.

Jeffrey Katzenberg

Well, I would say -- I think Netflix has paid us full in fair value in every market that we're in with them. And I think there are very meaningful opportunities for us outside of the Netflix territories. We've had very, very active conversations now in multiple territories. There's a very high degree of interest in this. And no, we think there will be a very, very strong secondary market for this product, particularly in the international marketplace, as this moves from -- off the Netflix platform and into our library. So this is an opportunity for us very, very quickly to scale into a very significant, brand-new, high-quality library of TV animation, probably on a current base and as big and as competitive a library as it exists at any company today.

Operator

It's from Richard Greenfield with BTIG.

Richard Greenfield - BTIG, LLC, Research Division

A couple of questions. So just trying to understand the benefit from what happened yesterday and today with RTL. Can you just give us a sense -- given all of the initiatives that you've announced -- that Jeffrey enumerated, how much would that $100 million this year have grown, too, by 2015, if you hadn't embarked on the acceleration from -- in terms of hours that you're now selling to -- initially, to Netflix and RTL? And then the second question, it has been kind of talked about, although you've never really commented, specifically, that DreamWorks was interested in a cable network or thoughts about creating a cable network with its table of contents, especially after Classic Media. It seems like you've decided that kind of a digital cable network is the future. And just wondered how you thought about kind of helping Netflix build their business and content versus creating your own wholly-owned channel for DreamWorks, whether domestically or around the globe, because, obviously, that's kind of -- it seems like you've made that decision to license versus build, and I was just wondering kind of the inputs that went into that.

Jeffrey Katzenberg

So I don't think we can size for you, Rich. We have not done that exercise to say in the next 12 months what would that business have grown without this deal. The deal itself is clearly transformative for us and that it's doubling, if not more, the size of our television business and allowing our television business to operate at a very, very high margin that is in line with what our feature -- our animated feature film business has been. Not many businesses around these days for, I think, any of us an opportunity to have that kind of an opportunity. And then in terms of a channel play for us, as we said, right now, this is our focus and our commitment. We think this is a very big opportunity, but it's also one that we want to execute on and want to deliver really, really well. And if we do, there is clearly going to be new and bigger opportunities for us. But we feel that as the proper step for our company right now, today, into -- as you said, do we license or do we build? We actually think we're doing both here. We're obviously licensing, but we are building a library here at an extraordinary rate. This is a billion dollars worth of programming that we will be able to accumulate in literally a 3-year, 4-year period of time. And that's an enormous asset. And we'll have value for this company for a long time in many ways that none of us even know yet as we sit here today. I hope that makes a little sense.

Richard Greenfield - BTIG, LLC, Research Division

And just one quick, just in terms of mechanics of how this works. Do any of your buyers get to choose the type of content? Or have the titles actually already been decided upon? But basically, if they look at something and they say, "That isn't something we want," do they have the ability to pick and choose or this is a pure output deal where you guys are coming up with the idea, they get pushed out and you get paid regardless of whether the content performs?

Ann Daly

We've actually created a slate going forward and worked with each party to select the shows and the timing of those shows that works for them. So I think the real answer is that we've done it in concert with them, and there's an agreed-upon slate that we will be producing as a result of those discussions.

Richard Greenfield - BTIG, LLC, Research Division

Got it. Specific title.

Lewis W. Coleman

Without any requirements.

Jeffrey Katzenberg

Without what?

Lewis W. Coleman

Without any performance requirements.

Operator

That is Michael Corty with Morningstar.

Michael Corty - Morningstar Inc., Research Division

I have 2 questions. Following up on the last question there, what kind of feedback, if any, will you get from Netflix in terms of viewership, hits on the shows? I know that's one -- just one way to judge the quality of a show. But will you get any feedback from Netflix on how those shows are -- how popular they are on the platform? And I guess I'll go to the second one. We're here to talk about television, obviously, but I thought I'd take the opportunity to ask. There's comments from a few movie industry veterans last week at USC, excluding all the headlines, just focusing on the dynamic pricing. They talked about that might be possible at theaters down the road. Certainly, that would benefit DreamWorks with your high-quality content. Any comments on -- or thoughts on that?

Jeffrey Katzenberg

Well, I guess, I would start by saying, I think those 2 guys have bigger dreams than me because I can't imagine that we're in a world in which you pay $150 for a movie ticket, but I have to expand my imagination. So I think that's how I leave it -- I'll leave that -- at that. And in terms of the...

Ann Daly

In terms of the reporting, we have an agreement with Netflix to work with them to understand what the viewing dynamics are in each one of the shows that we create. And so we feel really comfortable that we're going to get a lot of insight into how the shows are playing so that we can continue to make them high-performing shows on their network.

Michael Corty - Morningstar Inc., Research Division

Okay. And how will that -- that's kind of an as-it-goes process or that's something you'll get every quarter? How -- I'm just curious how that will work.

Ann Daly

It will be as it goes and it'll be internal, for our internal use only.

Operator

I have no further questions in queue. Please continue.

Rich Sullivan

Okay, great. That concludes today's conference call. I'd like to remind everyone that a replay of this call is available shortly on our website. That web address again, www.dreamworksanimation.com. And please feel free to call the DreamWorks Investor Relations Department with any follow-up questions. Thanks again for joining us today.

Operator

And ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.

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