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DreamWorks Animation SKG, Inc. (NASDAQ:DWA)

Q2 2007 Earnings Call

July 31, 2007 4:30 pm ET

Executives

Rich Sullivan - IR

Jeffrey Katzenberg - CEO

Lew Coleman - CFO

Analysts

Jessica Reif Cohen - Merrill Lynch

Michael Savner - Banc of America Securities

Anthony Noto - Goldman Sachs

David Miller - SMH Capital

Rich Greenfield - Pali Capital

Barton Crockett – JP Morgan

Tuna Amobi - Standard & Poor's

Evan Wilson - Pacific Crest Securities

Presentation

Operator

Welcome to the DreamWorks Animation earnings conference call. (Operator Instructions) I would now like to turn the conference over to our host, Mr. Rich Sullivan, DreamWorks Animation Investor Relations. Please go ahead, sir.

Rich Sullivan

Thank you and good afternoon, everyone. Welcome to DreamWorks Animation's second quarter 2007 earnings conference call. I am joined on today's call by our Chief Executive Officer Jeffrey Katzenberg and our President and Chief Financial Officer Lew Coleman.

Today's call will begin with a brief discussion of our quarterly financials disclosed in today's press release, followed by an opportunity for you to ask questions. I'd like to remind everyone that today's release is available on the company website at www.DreamWorksAnimation.com.

Before we begin, we need to remind you that certain statements made on this call may constitute forward-looking statements. Forward-looking statements can vary materially from actual results and are subject to a number of risks and uncertainties, including those contained in the company's annual and quarterly reports, as well as in other 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 DreamWorks Animation's Chief Executive Officer, Jeffrey Katzenberg.

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Jeffrey Katzenberg

Thanks, Rich and good afternoon, everyone. Over the past several months, we've talked about 2007 representing the next chapter of DreamWorks Animation; a chapter that is about growth and is driven by franchise development as well as the creation of unique original product.

What better way to start this next chapter for us and the company with the release of Shrek the Third? Despite an unprecedented level of competition, Shrek has been a blockbuster success. It achieved the record for the largest domestic opening ever for an animated film at $122 million and the second-largest opening for any film in history. With a total domestic box office of more than $320 million, it is now the second-biggest film of the summer, behind only Spider-Man. Internationally, the film has performed even better, having just today passed $400 million, breaking box office records in a number of key territories including the UK, France and Mexico.

Challenged by pirates, Spider-Man, wizards and Transformers, our ogre has more than held his own. I think is safe to say the film's performance has well demonstrated the continuing strength of the Shrek franchise. In fact, our three Shrek theatrical releases have accumulated more than $2 billion in worldwide box office, making this one of the biggest franchises in movie history. The next big event forward will be the release of Shrek the Third in home video on November 13.

It is important to remind everyone that, as we saw with our last sequel, blockbuster films, to some degree, rely on repeat viewership to achieve their level of box office success. These incremental dollars do not necessarily translate into additional home video units. While we expect Shrek the Third to be one of the must-have videos of the holiday season, the fourth quarter is shaping up to be the most competitive home video market we've ever seen.

In the same way we cautioned everyone about the competitive environment surrounding the theatrical release of Shrek the Third, the same issue will exist towards home video release; in fact, even more so. In just a seven-week period, five $300 million-plus movies and six movies that did over $100 million are being released into the home video market. So while we have tremendous marketing programs in place, we're looking at this next event with a healthy dose of caution.

Additionally, this fall we will see the debut of Shrek the Halls on ABC, which we hope will be a TV event for each and every holiday season for many years to come. Shrek the Musical is continuing to move through development with an anticipated debut on Broadway as early as the fourth quarter of 2008.

Our next film, Bee Movie, is in the final stages of production. While this film very much captures the essence of previous DreamWorks films, at the same time, it also has something new and unique to offer: Jerry Seinfeld and his singular comedic point of view.

Looking beyond this year, 2008 we will again be delivering on our business model by releasing a franchise film and an original film, beginning with Kung Fu Panda in the summer. Then in the fall, we come back with Madagascar, The Crate Escape, the follow-up to our 2005 summer hit.

In 2009, the company will take another important step as our films will be released in 3-D. Our first 3-D film will be Monsters vs. Aliens and will be released on May 15, 2009. We will continue to provide updates regarding our 3-D initiative in the coming months.

Overall, we're working on a lot of exciting initiatives for the company and are off to a great start for the year with the performance of Shrek the Third. With that, let me turn it over to Lew.

Lew Coleman

Thank you, Jeffrey, and good afternoon, everyone. I thought I would highlight a few things about the quarter and the rest of the year and then move quickly on to your questions. As Jeffrey mentioned, the tremendous success of Shrek the Third was the primary driver of the results this quarter. Overall, we reported to $222.5 million of revenue, which resulted in net income of $61.8 million or $0.60 per share on a fully diluted basis.

We had a few items that had a positive impact on our results, including a reserve reduction at our distributor relating to the uncertainties surrounding the changeover from Universal to Paramount for home video distribution, as well as the benefit from our tax relationship with Vulcan. The adjustment by our distributor resulted in additional revenue of $25.5 million, which mostly affected our 2005 video releases, Wallace & Gromit and Madagascar, and contributed approximately $0.11 of earnings per share on a fully diluted basis this quarter. The company also recorded approximately $0.04 per share on a fully diluted basis related to its tax-sharing agreements with Vulcan.

However, the clear driver of the results this quarter was Shrek the Third. The title contributed almost half of the revenue, delivering $109.1 million mainly from domestic box office and consumer products. It is important to note that Shrek the Third also had great success internationally in the second quarter. However, due to the reporting lag for international results from our distributor, the impact of this performance will not be recorded until the third quarter.

Also this quarter, there was a meaningful contribution from our film library, which delivered approximately $36 million in revenue, driven mainly by the performance of Shrek, as well as Shrek 2, which is being reported in library for its first time. For both of these titles, we observed a meaningful increase in home video unit sales related in part to the theatrical release of Shrek the Third. While there may be some uplift in Shrek and Shrek 2 unit sales for the remainder of the year, we believe that the majority of the Shrek 3 pull-through effect occurred this last quarter in the period leading up to the theatrical release.

Other highlights for the quarter include the home video performance of both Over the Hedge and Flushed Away, which reached approximately 13.4 million and 5.1 million of net units through the end of the second quarter.

Looking for a minute at the remainder of the year, the third quarter will be driven by the international box office performance of Shrek the Third, which at this point is nearing its completion with only a few territories yet to be released, including Italy and the Nordics at the end of August.

In the fourth quarter, the primary driver would be the release of Shrek the Third into the home video market. While we are confident that the title will be a top performer this year, we expect that the home video market will continue to be very different than it was several years ago. First, as Jeffrey has pointed out, it's a much more competitive market, especially this year, with a flood of hip titles in the marketplace. Also, the international market continues to be more difficult for several reasons, including the continued growth in piracy, which is having more of an impact in key territories including the UK, Germany, and Spain, than ever before. So overall, we are releasing the title into a much more crowded and mature market.

Additionally, history has shown that multiple-chapter franchises see a meaningful trend of diminishing performance in home video sales relative to box office with each new chapter release. This has led us to be, as Jeffrey mentioned again, much more conservative in setting our expectations.

Finally, before I get to your questions, I do want to give you an update on the share repurchase program. In the second quarter, we repurchased roughly 300,000 shares or $8.8 million worth of stock. On an cumulative basis, we have now purchased approximately 1.5 million shares for $43.4 million, completing roughly 30% of our approved plan through the first two quarters of the year.

With that, let's open it up to questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Jessica Reif Cohen - Merrill Lynch.

Jessica Reif Cohen - Merrill Lynch

First on Shrek 3, the international markets, the $400 million in box office to date, is that the bulk of what you expect to recognize? In other words, are there any key markets that still have not opened?

Jeffrey Katzenberg

Yes there are, Jessica. The Nordics and Italy combined still have some nice potential to them. We've got a little ways to go yet, we're not done.

Jessica Reif Cohen - Merrill Lynch

The international P&A, does that get recognized in the next quarter as well?

Jeffrey Katzenberg

Yes.

Jessica Reif Cohen - Merrill Lynch

On the Bee Movie, how broad, is there a key demographic? How broad do you expect the appeal of that movie to be?

Jeffrey Katzenberg

Let me first say having Jerry Seinfeld, who I think is one of the singular comedic geniuses of our time, come here to the studio now for close to four years and author an animated movie has been certainly unique and a great treat for all of us here. We are very excited and proud about what he has been doing.

The thing that's interesting about the film is that it really very much embraces his comedic sensibility. We think that's an opportunity. We think there's a chance for him to bring an audience to one of these films that may not have necessarily been here before and to hopefully expand its appeal.

Jessica Reif Cohen - Merrill Lynch

Yes, a definitely different audience but how do you expect that to play?

Jeffrey Katzenberg

Fundamentally, it's an animated movie and it appeals to a family audience, so I wouldn't read anything into it other than I hope that his appeal and his sensibility will add a dimension on top of that.

Jessica Reif Cohen - Merrill Lynch

On share buybacks, why has the pace slowed down? Would you expect to pick that up in the near future?

Lew Coleman

Jessica, a couple of things. I don't have any great expectations other than we're going to try to get this executed in the best, most efficient way that we can. As you can do the math, we are a third of the way through the program and we are a third of the way through the time period that's elapsed, so in some respects we are on the schedule. That does not mean that we might not take advantage of certain changes in the marketplace to accelerate the pace, but I can't predict that at the moment. I have to be conscious of market conditions.

Operator

Your next question comes from Michael Savner - Banc of America Securities.

Michael Savner - Banc of America Securities

Jeffrey, can you just talk to us a little bit about how pleased you are with the international release schedule during the staggered releases, given that Shrek 3 certainly has done very, very well internationally but it is on pace to lag how Pirates and Spider-Man 3 did in their internationals, which were more day and date and all the domestic performances were relatively comparable. Those two also seemed to have fared a little bit better even relative to their predecessors internationally, or more comparable.

Do you think those are franchise-specific issues, the way they appealed internationally? Would you reconsider the staggered release versus day and date for future releases?

Jeffrey Katzenberg

First, Michael, our audience is a different audience to some degree, and our film is primarily driven by a family audience. The profile of both of those movies, while there is definitely appeal in the family segment of the market for them, the demographics of their films tend to be older than ours and more male than ours in both cases; much more so in one than the other. The bulk of our audience is available, as they are here in the States, when they get out of school and the holidays occur. Our release pattern has followed the holidays.

I think if you look in the case of Spider-Man, I think there was some advantage to them, both domestically and internationally in the fact that they came first into the marketplace after a very, very quiet spring; not just domestically but throughout the world. So, there was clearly pent-up demand there and I think that the timing of that worked well for them.

If you look at our international performance relative in comparing Shrek 2 to Shrek 3, and our international performance in fact is much, much stronger than it was domestically here. We're going to end up much, much closer to hitting our Shrek 2 performance internationally with Shrek 3. That's not the case here in the domestic marketplace. I think having our movie in the marketplace when our audience is available continues to be the right thing for us. I don't want to say that that's the only way to go, but certainly we think it was the right decision for Shrek.

Michael Savner - Banc of America Securities

So is that the same plan for Kung Fu Panda as of now?

Jeffrey Katzenberg

Yes, and actually next summer is even more complicated by the fact that there are two very large events that are occurring. One is obviously the Summer Olympics, which will come into full swing in mid-August. The other is European soccer tournaments which tend to be very distracting in June. So, it's an even more delicate ducking and weaving for next summer for us. But we will tend to follow the holidays.

Michael Savner - Banc of America Securities

That's helpful color. If I could just follow-up on Jessica's question, Lew. To push you a little bit more of that though, on the share repurchase and the pace. The fact that you've done about a third in about the same amount of proportionate time that you've had the authorization out, the stock is up 15% and now you clearly are already in an overcapitalized balance sheet position. Now you have a very visible stream of cash flow that's going to be coming in over the next few months from Shrek, so that problem is only going to be exacerbated.

Can you maybe give us a little bit more granularity about what other options you might be considering and what could be weighing on your decision process for the share repurchases?

Lew Coleman

Mostly what's weighing on my decision process is what you just outlined. It's a bit of a high-class problem. I think that, now that we've seen the release of Shrek 3, we probably have a little more certainty in cash flows, and it is likely that, assuming reasonable market conditions, that we will behave accordingly. There's probably not much more to say about that, Michael. I see what you see.

Operator

Your next question comes from Anthony Noto - Goldman Sachs.

Anthony Noto - Goldman Sachs

Jeffrey and Lew, congrats on a great performance. I know it has been a couple of films coming, but the numbers look great. Internationally, you had the relationship with McDonald's this year for this film; this was your first film. What have you learned from the licensing relationship with McDonald's versus Burger King on Shrek 3? How may you implement some changes and what did you see as the benefits?

Jeffrey Katzenberg

It's just hard to compare. The support that we received from McDonald's throughout the world was exceptional and we think it really was valuable for re-endorsing the franchise. We think the biggest value in fact, though, is going to come on the newer titles that are less established, but their execution is really nothing short of breathtaking. Everything about it is done first class. The premiums are exceptional, and the quality of the promotions and the television commercials they did were outstanding. The online work they did… it just is really across the plate, they are just a Triple A, first-class operation and it is an honor and a privilege to be with them.

I have to say, even in terms of the responsibility issues I think that we all think about today in terms of fast food, this is a company that is aggressively addressing this and has choice as one of the really highest priorities in terms of offering alternative choices in their Happy Meals and their programs. So, I can't say enough good things about them and think their value is enormous.

Anthony Noto - Goldman Sachs

As it relates to the domestic box, it looks like you are already tracking over 420, you haven’t opened a couple of big markets that will add to that. We compare that to U.S., it looks like it's going to do around 220. Just a straight relationship, it would look like your third quarter theatrical revenue from Shrek 3 would be between $140 million to $150 million. Is that directionally correct? Does that also assume that you've recorded no revenue from international in the June quarter?

Rich Sullivan

I just want to make sure that we clarify. You are referring to the domestic revenue at 320?

Anthony Noto - Goldman Sachs

220, sorry. It looks like you're tracking over 420 internationally and you haven't opened some big markets yet, and then the domestic box office is tracking at 320, sorry.

Jeffrey Katzenberg

What is the question?

Anthony Noto - Goldman Sachs

If I just do the relationship of one to the other and where I think you end up, if you haven't recorded any June revenue from international theatrical box office, your September revenue for Shrek 3 should be in that $140 million to $150 million range?

Jeffrey Katzenberg

I have no idea; I'm sorry.

Rich Sullivan

I think what you are getting at, Anthony, is obviously dependant on two factors: (1) which is a known, the 8% that we have to pay the distributor; and (2) the splits with the theatres, which obviously we don't disclose specifically. What I can do, though, is you and I can probably sit down offline and go through which markets were included in the second quarter and which ones will be included in the third quarter, and probably get to some reasonable estimate.

Anthony Noto - Goldman Sachs

Great. That's really the bulk of the questions, what fell into the June quarter. Finally, Lew, on the stock buyback, not to beat this to death, obviously the results were strong and you knew that. Is it simply that there's just not enough volume trading in your stock for you to be more aggressive?

Lew Coleman

I think there were times in the second quarter when the volume was pretty low and when we went into the market, we could see we had a price effect. But I think more recently the volume has been running fairly high. We've a number of million share days, and my guess is that will not be a problem in the future.

Operator

Your next question comes from David Miller - SMH Capital.

David Miller - SMH Capital

Congratulations on the stellar results. Jeffrey, I just want to separate fact from rumor and hopefully you'll just set the record straight.

There have been various wire services reporting that a Shrek 5 is in the works, that a treatment has been established and that you guys are working on that project. I believe you've announced a Shrek 4. I don't believe you've announced a date. If you could just set the record straight as to what is in the works in the Shrek franchise as it applies to theatrical productions, that would be great. Thank you.

Jeffrey Katzenberg

Sure. There are, in fact, two more chapters in the franchise. As we had really said from the beginning, this is one story that has multiple chapters to it. We thought that we would be able to, as we were going along when we started out, we thought it would be told in four chapters and have found in fact that it will be five. So I guess that's the good news, is that there are in fact five chapters to the franchise. In addition, we continue to move forward on the development of Puss in Boots, which would come sometime subsequent to Chapter 4.

Operator

Your next question comes from Rich Greenfield - Pali Capital.

Rich Greenfield - Pali Capital

In terms of your bundling strategy, Lew mentioned that the bulk of your revenues for Shrek 1 and Shrek 2 would have been realized already, but I would assume you have plans to bundle all three or do some type of marketing of 2 and 3 when the DVDs come out. Maybe just discuss why you are not more excited about those, or is it just a level of caution given what you sold already in Q2?

On Bee Movie, is there an exact length you can talk to so far, and how soon is that movie going to be done?

Lastly for Jeffrey, could you just comment on your broad view of the relationship with Paramount as a distribution partner, and specifically Brad Grey and his management team?

Lew Coleman

On the bundling issue, Rich, I think you're right. We are cautious in that we really did have a very strong lift on the theatrical release of 3 in terms of DVD sales on 1 and 2. That is not to say that we will not, in all ways possible, have a full program out there in the fourth quarter in which we will try and offer these things up in any number of different configurations. We will be well-represented out there. It's just we saw such a lift in the second quarter, we just feel cautious about what we're going to see in the fourth quarter. But again, as I say, we will be well represented out in the marketplace with the product well packaged to sell there, and right alongside of 3.

In terms of the length of Bee Movie, I think it's right around 81 minutes or so -- I think that's what your question was -- and on schedule to the completed right around the end of September.

Finally, in terms of Paramount, we have enjoyed an excellent relationship with them. We feel that they have done an outstanding job on the marketing and distribution of our product to date, and continue to have very, very good relationships over there with all of the management, from Brad on down. They've just done a stellar job for us.

Operator

Your next question comes from Barton Crockett – JP Morgan.

Barton Crockett - JP Morgan

I wanted to ask a question about 3-D. Can you give us a sense of a couple of things? First what -- at least in general terms -- do you expect to be the number of screens that you'll be able to put Monsters vs. Aliens on in 3-D a couple years out? What do you see there?

Secondly, now that you've changed the date, what do you see about the competitive situation? Anything there that we should take into account when we take a look at that impact?

Finally on the 3-D, if you could talk again about what you see in terms of the expense involved in producing in this format and what it could mean in terms of potential for an upcharge or incremental attendance? Thank you.

Jeffrey Katzenberg

In terms of screens, it's very, very speculative today in terms of how quickly this is going to expand. There certainly is a growing enthusiasm on the part of exhibition, as they are seeing more very, very high-end product being made by really the best filmmakers in the industry; the commitment. It’s a little bit chicken and the egg. I think they are now starting to see a flow of meaningful product and that has gotten them excited. I think they see this as incremental business in terms of creating an opportunity.

Probably the best model that you can look towards in terms of getting some indication as to how the consumer perceives the premium value of this is just to look at IMAX. I think you see that there has been broad acceptance and enthusiasm for a high-end, quality movie experience when you are offering the customer something very special and unique. Certainly, what we're doing in 3D is unlike anything people have seen before.

So, going back to the screens, I think today it's a wild guess as to what will happen. Ideally, I can tell you what our hope is: we would love to see by the summer of 2009, there to be at minimum 5,000 to 6,000 screens and hopefully as many as 8,000 or 9,000 screens in the domestic marketplace. The international marketplace will lag significantly behind that.

In terms of the competition, as I think you all know, we have been scheduled to come out on Memorial weekend now for well over a year and competitively another film came and sat down on the same date, also to be a 3-D film by one of the real great filmmakers of all time, Jim Cameron. So rather than bang heads, we made a decision to move our film movie up a week and come out on what has actually been historically an extraordinary weekend for DreamWorks Animation, including what just happened with us on Shrek the Third. So you know, this weekend has worked extremely well for us now for four out of the last five years, and we feel comfortable being there. I think beyond that, it's a competitive world out there and we know that.

Barton Crockett - JP Morgan

I guess the concern is that with just a one-week gap in both on 3-D, two 3-D films running through the circuits, do you think there is room for that or do you think there has to be more give?

Jeffrey Katzenberg

It depends. If there's a high-end number of screens that I suggested, yes; then both films will be fully accommodated in the marketplace. If there are not, then there will be some splitting of screens that will go on. It's too bad but I don't think there's anything that we can do about it.

It's so interesting. You can look out today, we're talking about 2009. There is already a Narnia book in the first week of May, there is a Pixar movie book three weeks or four weeks after us. There's Ice Age 2 on July 1. This is the world that we live in. There are no perfect dates, unfortunately. A perfect date is when you get to have your film out and nobody else releases a movie for four weeks. The good old days.

Barton Crockett - JP Morgan

Well, we will look for that again. Probably not. I will leave it there. Thanks a lot.

Operator

Your next question comes from Tuna Amobi - Standard & Poor's.

Tuna Amobi - Standard & Poor’s

Jeffrey, I was wondering if you can perhaps clarify any thoughts you have on exploiting your content across new media platforms; online, et cetera. I'm not sure what you're doing there. I'm not sure if you're in the camp that your target audience perhaps does not lend itself well to that kind of platform, or the risk of piracy, so I will let you speak to that, if you will.

One question for Lew. I was just trying to understand the rationale better for the accounting treatment of the return reserve reversal into revenue with the transition from Universal to Paramount. Perhaps you can comment on the timing and potential magnitude of any future reserves in the revenue recognition as a result of this change, and perhaps also why you didn't treat this item as an accounting change as opposed to the way that you're currently accounting for that? Thank you.

Jeffrey Katzenberg

Tuna, I will go on the first and there's actually two questions implied in your one, and I'm not sure which one so I will actually go ahead and answer them both. The first is, if you are asking about how are we looking at digital in terms of delivery of our films, it's something that we continue to keep an eye on very carefully. Right now, it's a non-market. Less than 1% of the home video market exists digitally, and it's probably even a smaller percentage when you go to family films. So it's a very, very small business and it's not to say that it is not going to grow into a significant business. We are sure that it is going to; it is just not there yet.

If you were asking in terms of what we look at in terms of new media vis-a-vis repurposing our IP into new media, that is an area that we are looking closely at and are excited about and see opportunities in terms of moving into that space. I would hope that in the future we will be represented there.

Tuna Amobi - Standard & Poor’s

I think you covered it pretty well. Lew?

Lew Coleman

Tuna, let me tell you a little about the business decisions and then I would tell you why we accounted for it the way we did. When we changed distributors from Universal to Paramount, there was considerable risk that we would get massive returns from not only Universal who now no longer had in interest in treating us perfectly, but also from their sub-suppliers that they sold inventory to, because this would be a good excuse to offload it back to us. That had been historically an event that had occurred with other distributor changes. So we put up a reserve against that happening.

What happened this last quarter was that Paramount and Universal finally sat down and reconciled all of their differences, including these reserves. As a result of those differences, we got clear data that essentially said we would not have the returns that we initially thought we would have. So we had what amounted to be, from an accounting sense, a change in estimates in terms of what those reserves were. That is different than a change in accounting principles.

So, from an accounting standpoint, it's a change in estimate. It occurred in the second quarter solely because Paramount and Universal had finished their reconciliation activities as a part of the transfer of the distributorship. I called it out because (a) it was a fairly large amount and (b) I wanted to make sure you guys understood that it was not necessarily a recurring event for this particular reason.

Operator

Your next question comes from Evan Wilson - Pacific Crest.

Evan Wilson - Pacific Crest Securities

I was wondering if you could add any detail on how we should be modeling Shrek the Halls for Q4? Then relative to consumer products sales for Shrek 3, can you give us any further commentary, more than you gave us in the past, how it finished up relative to Shrek 2 or how it's tracking relative to Shrek 2, and then give us any similar direction on your expectations now for how the Bee Movie is tracking? Thanks.

Lew Coleman

Evan, on the Shrek the Halls you should not include it in any of your estimates. This is essentially a television deal where we've gotten expenses reimbursed and we will have DVD rights in the future, but the network will essentially own the exhibition rights. So the simplest thing to do, I think, is to keep it out of your estimate for the fourth quarter.

Your second question was a Shrek question. I didn't get it all.

Evan Wilson - Pacific Crest Securities

Consumer product sales. You had talked about how they were tracking versus Shrek 2. I was wondering if you could update that and then potentially give us any similar direction on Bee Movie.

Lew Coleman

I think what we told you the last time was that the minimum guarantees that we would receive from our licensees were tracking slightly above what we had seen in Shrek 2. What we took into income in the second quarter was mostly those minimum guarantees, which as I think you know, we don't disclose exactly. But that's the portion of the revenue from Shrek the Third that came from consumer products, i.e. the minimum guarantees. So, what essentially happened, happened as we described it. It has been a good property for consumer products.

Evan Wilson - Pacific Crest Securities

Is there any similar commentary you could give us for the Bee Movie, relative to another franchise, or just directionally?

Lew Coleman

I think, directionally, the Bee Movie, both because of the nature of the subject and because it is not a sequel, will have less consumer product revenue, clearly, than Shrek had. The movie has some toy potential but it's not huge, has a game potential which is better. But all in all, I think I would sort of consider the consumer product portion of the Bee Movie to be sort of in the middle of the average of the non-sequel films.

Evan Wilson - Pacific Crest Securities

Great. Thanks very much.

Operator

Rich Sullivan

That concludes today's second quarter earnings conference call. I would like to remind everyone that a replay of this afternoon's call will be available shortly and accessible on our website, www.DreamWorksAnimation.com. Also, if you have any further questions, please feel free to call DreamWorks Animation Investor Relations department.

Thank you again for participating and have a great evening.

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Source: DreamWorks Animation Q2 2007 Earnings Call Transcript
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