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DreamWorks Animation SKG, Inc. (NASDAQ:DWA)

Q3 2007 Earnings Call

October 30, 2007 5:15 pm ET

Executives

Rich Sullivan - IR

Jeffrey Katzenberg - CEO

Lew Coleman – President, CFO

Analysts

Michael Savner - Banc of America Securities

Anthony Noto - Goldman Sachs

Eric Handler - Lehman Brothers

Jessica Reif Cohen - Merrill Lynch

Barton Crockett - JP Morgan

Rich Greenfield - Pali Capital

Dave Miller - Sanders Morris Harris

Doug Creutz - Cowen & Co.

Evan Wilson - Pacific Crest Securities

Drew Crum - Stifel Nicolaus

Operator

Welcome to the DreamWorks Animation earnings conference call. (Operator Instructions) I now turn the call over to your host, Mr. Rich Sullivan. Please go ahead.

Rich Sullivan

Thank you and good afternoon, everyone and welcome to DreamWorks Animation's third 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 the 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 press release is available on our 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, let me now turn the call over to DreamWorks Animation's CEO Jeffrey Katzenberg.

Jeffrey Katzenberg

Thanks, Rich. This is an important time of the year for the company with two significant events occurring in the coming weeks. First off, we have the theatrical release of Bee Movie at the end of the week which is followed by the home video release of Shrek the Third later in the month.

Before I discuss each of these events in more detail, I want to highlight the continued theatrical success of Shrek the Third this past quarter. The film is now within a hair of equaling the success of Shrek 2 internationally and a total worldwide box office performance of almost $800 million.

In addition to both being the best domestic opening in the history of animated film, Shrek the Third has set a number of box office records abroad. It was the biggest animated opening of all time in many major international territories including the UK, France, Russia and Mexico. Clearly, the film was a tremendous theatrical success and has made the Shrek franchise one of the most successful in movie history.

The next big event for Shrek will be the release of Shrek the Third into the home video market on November 13. We are confident that it will be among the top performers this holiday season with the support of a very competitive program at retail.

However, once again I want to remind everyone of the difficult market conditions facing new releases in the fourth quarter this year. After a record-breaking summer at the box office, an unprecedented number of high-quality titles will be released into the home video market this quarter. With four titles that performed over $300 million in domestic box office and several others reaching over $200 million, we expect a very strong home video market overall this holiday season.

That said it's difficult to see how this abundance of product will not impact the individual performance of each title. So in addition to the caveats that we would typically place on the home video release of a sequel, we remain especially cautious this holiday due to the unprecedented level of competition from new releases.

Beyond the home video release, the continued success of Shrek has allowed us to expand the franchise into a number of new areas. Shrek will help mark the start of the holiday season this year by making his first appearance in the annual Macy's Thanksgiving Day Parade as the official 2007 ambassador for the event. Then our holiday TV special, Shrek the Halls will debut on ABC on November 28 at 8:00 pm. It's an outstanding product that we hope will become a holiday classic for years to come.

Finally, we continue to make significant progress in preparing for the launch of Shrek the Musical on Broadway. The talent that we've assembled for this project is first rate and we'll keep you updated in its continued progress with hopes of a Broadway debut by the end of 2008.

While we are certainly excited about expanding into these new markets, our primary focus remains on creating successful, high-quality theatrical releases. We are just a few days away from our next big theatrical event, the opening of Bee Movie in the U.S. on Friday. Working with Jerry Seinfeld on this project has been one of the most thrilling things to happen here at our studio since its inception. He has really brought a passion and energy to the film-making process that I think is evident in the finished product. I'm convinced that audiences who have missed Jerry's unique style and humor for all these years will not be at all disappointed.

Consequently, we believe that especially here in the U.S., Bee Movie has the potential to reach an audience that may not have otherwise gone to see a typical DreamWorks Animation film. With Jerry's help, we've developed one of our most comprehensive marketing programs to support the opening this weekend. From talk show appearances to TV vignettes to national advertising spots -- including fantastic support from our promotional partners like McDonald's and Hewlett Packard -- Jerry and his Bee Movie are hard to miss. We are all excited to see how it performs this weekend and in the coming weeks.

Before I turn it over to Lew to discuss the results in more detail, I want to mention one final item. I'm very happy to announce today that we've selected our project for our fall 2010 release. The film, acquired under the working title of Master Mind is a project from Red Hour Films, Ben Stiller's production company. Lara Breay and Denise Cascino will produce, and Cameron Hood and Kyle Jefferson will make their animated feature film directing debut on the project.

The film tells a story of a Super Villain who, in accidentally killing his archrival in the opening sequence of the movie, has to find a way to reclaim what made his life meaningful. With the addition of this project completing our lineup through 2010, I believe we now have one of the strongest film slates that I've ever been associated with. I'm very excited about seeing all of these films and great projects come to fruition in the years ahead.

With that, let me turn it over to Lew.

Lew Coleman

Good afternoon, everyone. Let me briefly highlight a few items before we take your questions. Overall, the company reported $160.8 million of total revenue resulting in net income of $47 million or $0.47 per share on a fully diluted basis. As Jeffrey mentioned, the primary driver of the results was the international box office performance of Shrek the Third. Most of you know that we settled international results with our distributor on a 30-day lag. As a result, approximately $400 million or 85% of the total international box office for Shrek the Third impacted the third quarter.

In total, Shrek the Third contributed $92.1 million of revenue to the company in the period. After Shrek the Third, Over The Hedge and Flushed Away were the largest contributors of revenue with $17.8 million and $17.3 million respectively, driven mostly by television and home video performance.

Looking ahead to the remainder of 2007, we expect that revenue for the fourth quarter will be driven primarily by the home video performance of Shrek the Third, which will be released in the U.S. on November 13. As Jeffrey pointed out, we're confident that Shrek the Third will be a top performer this year.

Yet, as we've mentioned several times before, we are approaching this home video release with caution based upon a number of factors, including the competitive environment, with at least five other mega hit releases targeted at our core audience coming to market during the fourth quarter. The fact is, historically sequels have generally underperformed previous chapters in the home video relative to box office. Lastly, box office to home video tie ratios tend to weaken as box office levels increase, due to the number of repeat movie-going customers who still only buy one copy of the DVD. So, we've set our expectations and maybe more importantly, our initial shipments to retailers with these variables in mind.

As Jeffrey mentioned, Bee Movie will open in the U.S. on Friday. As is typical for our films, we do not expect to recognize significant revenue in the quarter of its release as our distributor will not likely have recouped its upfront marketing and distribution costs. Also in the quarter, ABC will air Shrek the Halls for the holidays. The majority of the economics will be recognized in both our revenue and expenses in the fourth quarter when the project is delivered. Essentially ABC has reimbursed us for our production costs, so the net profit to us on the project will not be material in the quarter. ABC also has the right to share in a portion of the revenues from the DVD sales beginning at the end of next year.

Turning to the balance sheet, the company ended the quarter with a cash balance of approximately $544 million. As you know, we completed the repurchase of approximately $150 million or 4.8 million shares in the third quarter. In addition, we repurchased approximately 770,000 shares at $31.79 after the close of the third quarter directly from a charitable organization that had previously been established by Steven Spielberg. This brings the total of share repurchases for the year to approximately 7.1 million shares or $218 million.

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

Rich Sullivan

Operator, can you please announce the instructions for logging questions?

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Michael Savner - Banc of America Securities.

Michael Savner - Banc of America Securities

Jeffrey, do you have a rough screen count you can give us for the Bee Movie opening?

Jeffrey Katzenberg

Yes. We will open in about 3,900 theaters and about 7,000 prints.

Michael Savner - Banc of America Securities

Lew, can you go into a little bit more detail about your expectations for the balance sheet and the cash use? Obviously the cash balance really did swell again even after the buyback. Even adjusting for the roughly $24 million-ish that you just told us you repurchased, when might you revisit the optimal use of that cash? Is there something else that it's being earmarked for?

Lew Coleman

I think as most of you know by looking at our balance sheet, we have $50 million of subordinated debt maturing in the next couple of days. While I can't promise you that we're going to pay it off, you ought to think that is probably the likely outcome because we haven't made any other arrangements. We also are conscious of the fact that our financing next year on our campus matures. While that is a bit further off, we do consider that to be a claim on cash.

We've done what we think is a pretty good job, given the number of shares we've repurchased this year. We do not really have any outstanding board authorizations remaining at this point and probably will not go back to the board until sometime early next year. At that point we'll have a better look at what happened to the Shrek DVD and what happened to Bee Movie.

So I know everybody is interested. We still believe that if we can't find a better place to use the cash, it needs to be returned to the shareholder in one form or another. So there's no change in that policy. But at this point, we are probably going to wait until we see how a few of these bigger revenue sources pan out before we go back to the board.

Michael Savner - Banc of America Securities

Jeffrey, if I could just ask one last strategic one. David Porter recently joined you from Wal-Mart and Tom Freston recently joined the board, though I don't know if he was at it, but I believe you had a board meeting recently. Can you talk about what impact, if any, either of those individuals have had and what David's role might be coming on, on the distribution side?

Jeffrey Katzenberg

Yes. Well, we're very excited. As you say, David Porter, one of the senior merchants at Wal-Mart, had been with them for 20 years plus. David's just got a lot of experience in many aspects of sales and retail. I think that the places where he is being focused right now is working with Ann Daly on our international home video front in particular, what we're doing at retail internationally. The programs there really don't have the same sophistication and the same level of support that we see here in the U.S. so we see that as a meaningful opportunity internationally.

Secondly, we are continuing to look at digital delivery and what the opportunities are there. That's another thing that David is focusing on and working with Ann Daly directly on it. So he's a great addition to us and I think he will have more and more visibility in lots of areas of the company.

Tom Freston, just a world-class executive with tremendous knowledge in the whole entertainment sector. Just adds, I think, yet another really quality point of view to our board. I think down the road as we start to look at strategically what are opportunities for our company, Tom is going to be invaluable.

Operator

Your next question comes from Anthony Noto - Goldman Sachs.

Anthony Noto - Goldman Sachs

Flushed Away and Over The Hedge had a much greater contribution than we would have thought. I was just wondering if there continues to be new legs of opportunity to leverage that content? Obviously those films had underperformed a while back and there was a certain amount of writedown; actually Wallace & Gromit, Over The Hedge, and Flushed Away, all three I'd put them in the same bucket.

Is the revenue you're recognizing there above what you had previously anticipated, is really the question?

Jeffrey Katzenberg

Yes, let me start with Flushed Away, first of all. As you know, we took a writedown. Part of taking a writedown is the fact that you have to present value your anticipated future revenues. So essentially part of what you're seeing is the accretion of the present value writedown. In that respect it's sort of built into the accounting system more than anything else.

We had better results in TV than we expected, but also TV is lumpy. This was one of those lumpy periods for TV. The DVDs are basically performing better than we had expected, mostly because children's titles seem to remain fairly strong in the DVD market.

Anthony Noto - Goldman Sachs

You had recognized approximately $92 million in revenue for Shrek the Third this quarter and you noted 85% of international box office was recorded. Will all the remaining 15% occur in the fourth quarter or will some of that spill over into 2007?

Rich Sullivan

Anthony, this is Rich. You have about $25 million of international box in the second quarter; about $400 million this quarter. The remainder will hit in the fourth quarter of 2007.

Anthony Noto - Goldman Sachs

Finally I know that you're not going to give us a lot of color on what the Bee Movie will do.

Jeffrey Katzenberg

You're going to ask anyway.

Anthony Noto - Goldman Sachs

I know that you do a lot of testing and ultimately how it plays out we'll see on Monday, but could you tell us how it actually tested from an awareness standpoint? Did it resonate with children in your marketing research testing?

Jeffrey Katzenberg

Anthony, I just think that research testing is more of a tool for the filmmakers in the process of making their film than it is an indicator of how a movie is ultimately going to do. But the film has played well across all quadrants. There are different aspects of the film that I think it's one of the interesting things about the movie is that for people that come looking for Jerry Seinfeld's sophisticated sense of humor, they're going to find it in a big way. For kids who are used to coming to these movies for a lot of the visual and physical things that are so much a part of them, there's a lot there for them.

Operator

Your next question comes from Eric Handler - Lehman Brothers.

Eric Handler - Lehman Brothers

I wonder if you could talk a little bit about the home video market, given that there is such a large number of mega hits that's targeted at your core audiences, what have you seen in terms of requests from retail in terms of shelf space? Are you going to be allocated a typical amount of shelf space? Are they cutting back on the order somewhat?

Secondly, what percentage of that home video do you believe will be contributed from the high-def DVD?

Jeffrey Katzenberg

In terms of the retail, the good news for us is that retail has been on alert for this now since the beginning of the year. The new releases and something that we've sort of labeled franchise catalog, which means the accompanying titles, in our case, Shrek and Shrek 2-- but you'll find the same for Spidey 1and 2 and for the Potters and for Pirates, et cetera, in it.

Retail has made a great accommodation to us and given us a good deal of high visibility. So I think you're going to see these titles front and center in a very big way. I think retail sees them as a very attractive traffic builder for the holiday season. Clearly the boxes don't get bigger, so there's going to be pressure I think on catalog in the face of that. But for Shrek and the Shrek catalog, which is where our focus is, we have very high visibility.

In terms of HD, there's a big push on for it. As a percentage of our business, it will be very, very small. I think you're going to see a lot of visibility. You're going to see a lot of marketing efforts behind HD. I think there's actually some great, great creative work that Toshiba has done that we've worked with them on in terms of our characters. So I think you'll find a lot of attention being given to the market. But in terms of percentage of sales for us it will be very, very small.

Eric Handler - Lehman Brothers

Will there be any bundling with the Toshiba DVD product at all?

Jeffrey Katzenberg

Not in the fourth quarter.

Operator

Your next question comes from Jessica Reif Cohen - Merrill Lynch.

Jessica Reif Cohen - Merrill Lynch

Jeffrey, as we sit here on the eve of a potential strike, can you talk about your views and how protected you are? How have you prepared for the strike?

Jeffrey Katzenberg

Our animation, Jessica, our writers that work for us in animation are actually governed by the Animation Union, which is IATSE local 839, we are not under a WGA agreement. I think that we are probably in a somewhat unique situation in terms of that. But again, having said that, I don't think anybody escapes this.

In terms of the immediate production and delivery of our slate for 2008, we will not be impacted by a WGA strike if there is to be one. But I think that if there is to be one it's going to have a negative impact on everybody.

Jessica Reif Cohen - Merrill Lynch

When does your union contract expire?

Jeffrey Katzenberg

Ours goes until July 2009.

Jessica Reif Cohen - Merrill Lynch

On the promotion for the Bee Movie, where does it fall in the range of the P&A that you've provided to us on your various movies?

Jeffrey Katzenberg

It's right online. There are a lot of bells and whistles of some kind of innovative things that we've done with Jerry. Obviously there's a lot of work that we did with NBC. But I think the thing is that he has personally been out there in support of the film in a way that I'm not sure anybody has ever done before. He loves it and is very proud of it and loves to talk about it. So he has been invaluable in getting out domestically and goes on the road for five weeks to do the same internationally. He's literally going to every major territory in the world to support it.

Rich Sullivan

The question on P&A was right. It is right in the middle. I think what you may have been referring to is the production costs of the film is more like a sequel production cost. I think we've said that a few times.

Jessica Reif Cohen - Merrill Lynch

Right. But I was asking about promotion, but thank you.

Operator

Your next question comes from Barton Crockett – JP Morgan.

Barton Crockett - JP Morgan

I wanted to ask you about your cash flows in the quarter. You've generated a lot of cash from it looks like working capital benefits, distribution services agreement, unearned revenues, accounts payable. To what extent should we expect some of that stuff to reverse here in the fourth quarter?

Lew Coleman

I would not expect a lot of reverses in the fourth quarter. You're dealing with slightly different revenue sources coming in in the fourth quarter, particularly on the DVD side. But I would not expect anything to be that much unusual in terms of how we're consuming cash or the kind of cash we're going to generate.

Barton Crockett - JP Morgan

You did generate cash from operating activities of $235 million in the quarter and the net income was $124 million. So it suggests there was something unusual in terms of the cash generation in excess of net income here. I understand there is lumpiness on the investment and the amortization on the films, but I guess you're suggesting that there really wasn't anything unusual in this quarter?

Lew Coleman

I think what you saw in this quarter as much as from a cash standpoint is that Paramount was fully recouped by the end of the second quarter in Shrek. So we essentially covered the prints and the ads. We're now down into a reasonable share of the revenues.

In the fourth quarter, it's unlikely Bee Movie will be recouped and that's why we say you're not going to see a lot of Bee Movie. Conversely, in all likelihood we'll recoup pretty quickly on the Shrek DVD release.

Lew Coleman

I think you have to remember and this is where I think the working capital gets a little bit difficult to measure we'll have a big event in the fourth quarter, the Shrek the Third DVD. What normally ends up happening is we end the quarter with a receivable for the cash for that amount which comes into the following quarter. So you'll see that that fluctuation as we typically see with the DVD.

Barton Crockett - JP Morgan

Maybe we can follow-up a little bit more offline on that. And then switching gears here a little bit just in terms of the Over The Hedge DVD sales here in the third quarter, should we assume that that's kind of the units that you ship will dip a lot here in the fourth quarter? You’ve already sold a lot of the demand and it's going to be very competitive, can you give us a sense of a the hit by the competition?

Jeffrey Katzenberg

Some, but we've worked pretty hard to get our niche. The one thing that's kind of nice is that our catalog is strong and not so deep. So we actually are able to get it some visibility. Having one of the strongest titles for the fourth quarter is allowing us to put programs in place to get us some visibility. So I don't think anything exceptional is going to happen but I also don't think that we're going to disappear.

Barton Crockett - JP Morgan

Finally here just with that big chunk of cash sitting on your balance sheet, just to be clear, I mean outside of just having cash to finance your movies, is there any other strategic reason to sit on that? Acquisitions? Strategic alternatives? Dry powder for whatever may come down the pike in terms of strategic changes? Is there any other reason to sit on that?

Lew Coleman

I think we've indicated that we're comfortable having a couple of movies worth of production costs sitting in cash at all times just so we don't have to go out and finance a film slate or add risk to our balance sheet because we believe that the risk in the operating model is sufficient without adding financial risk to the company.

Beyond that, we continually evaluate a variety of options which we try to do obviously on a disciplined basis. We are continually looking for the kinds of acquisitions which would be closely related either to our IP or our customer base. At the moment we haven't found anything. But it doesn't mean we're not looking and it also doesn't mean that the money is burning a hole in our pocket. We are being fairly disciplined and careful. If we can't find a better use for the cash other than financing a couple of movie productions, it will in all likelihood get returned in some way to the shareholders.

Jeffrey Katzenberg

Barton, I mean, you're literally coming off a quarter where we just invested $220 million in our stock. So it's not like we're sitting still.

Barton Crockett - JP Morgan

Clearly there's no complaints and you guys have done a lot. I just wanted to understand from here. That helps and I appreciate it.

Jeffrey Katzenberg

I think Lew has positioned it in absolutely the perfect way. You're coming into a fourth quarter, we have two very, very big events coming. What we would like to do is see where we are on the other side of those events, which is going into the first quarter next year and then we'll reassess it. So we'll keep our eye on it. Promise.

Operator

Your next question comes from Rich Greenfield - Pali Capital.

Rich Greenfield - Pali Capital

First is a follow-up on the last question in terms of allocation of capital. Just given what is a pretty significant increase in your cash balance, does it make you think especially with the share shrink that you've had this year, do you start to think about how long you want to be a public company or what the benefits are of being a public company? That would be helpful to address.

Jeffrey, Transformers did extremely well on DVD. It was one of the first big films out of the box, and it did more than 4.5 million plus units in the first week. I just wanted to get your sense of does that set a better tone relative to the caution that you urged earlier in the conference call, is that a good first indicator? Is that a unique title because it's an original movie, et cetera? Thanks.

Lew Coleman

This issue of whether or not we want to be a public company or not is not on the agenda. We are a public company. We like the currency that we have available. As you all know, we've gone through a certain amount of pain and anguish being a public company. We don't have any intent to buy it back in privately, slowly through share repurchases. Period.

Rich Sullivan

What was the second part of that question?

Rich Greenfield - Pali Capital

Transformers and does that have any impact on your view around the DVD marketplace in Q4 or is that a unique title?

Jeffrey Katzenberg

It was good news for everybody. To have the market get off to a great start that way is good news for everyone.

Operator

Your next question comes from Dave Miller - SMH Capital.

Dave Miller - Sanders Morris Harris

I'm assuming you guys feel comfortable with the scale that will exist by March of '09 in terms of overall digital projectors and therefore 3D screens by the time Monsters vs. Aliens is released in March of '09. So given that, should we assume as analysts that around sort of that mid-'09 timeframe would be the time at which you may switch to self distributorship, perhaps in the United States -- maybe not in Europe, but definitely in the United States? If that's the case, would you consider funding your own advertising expenses? Thank you.

Lew Coleman

A lot of different things there, Dave. Let me say that I think it's a little bit early for us to have that kind of insight as to what '09 theatrical digital delivery is going to look like. In any event, we have a distribution agreement with Paramount which goes to 2012 and we're in a very happy and good relationship with them. Self-distribution is not something that's on the table for us and not something that we are considering.

Operator

Your next question comes from Doug Creutz - Cowen & Co.

Doug Creutz - Cowen & Co.

I was wondering if you could tell me with respect to your decision to go HD DVD support exclusive, should we expect to see any impact to the P&L, any direct impact to the P&L from that? Thanks.

Lew Coleman

As you know, we have not disclosed or confirmed whatever economic incentives there are. But from an accounting standpoint, the economic incentives would be attached to the ultimates of individual films and therefore would be amortized as we would amortize the profit on any film.

So I guess the direct answer to your direct question is there's no direct relationship but there is an indirect relationship through the ultimate process.

Doug Creutz - Cowen & Co.

So your gross margins would essentially be higher?

Lew Coleman

Yes.

Operator

Your next question comes from Evan Wilson - Pacific Crest.

Evan Wilson - Pacific Crest Securities

After Shrek The Third’s international performance, I understand Shrek is Shrek. Could you talk about the international, helping us recalibrate our expectations for a ratio between domestic and international going forward for all your future releases? Just a little bit more about the market dynamics there.

Jeffrey Katzenberg

Again, I think it is a title-by-title situation. There are certain titles that would seem to have stronger pulls. The Seinfeld factor would seem to probably add incremental boost to the U.S., Australia, UK and be less impactful in other parts of the world. So whatever the halo is of that, we would not expect to and I think we've actually said to you in previous calls that we expect the boost here and therefore the tie ratio between domestic and international we think is going to be closer to 1:1.

You have a movie like Madagascar which I think as you know, played extremely strongly internationally. Shrek obviously had a great summer in it. So, the good news is when our titles perform internationally, they are super, super strong. I would expect Kung Fu Panda is going to play extremely well internationally.

Operator

Your next question comes from Drew Crum - Stifel Nicolaus.

Drew Crum - Stifel Nicolaus

Jeffrey, I wonder if you could comment on a couple of scheduling items. First for Bee Movie it appears the schedule is staggered. I just wonder if you could explain the rationale there versus going with more of a day and date scenario? And then maybe talk about the rationale behind moving the release date up for Monsters vs. Aliens?

Jeffrey Katzenberg

Sure. So depending on the time of year when a movie is coming out really is what determines the releasing windows. We have historically followed the family audience and so our release dates are very, very much reflective of in individual countries, holidays, school breaks and the like. There are some places, instances in which piracy is a very, very big issue for us. Sometimes that will impact us deciding to go on a day and date rather than delaying because of what can happen in an individual country under those circumstances. So we are always looking at that.

But the November film release tends to be more compacted than the summer one. The holidays traditionally are closer. Obviously, Thanksgiving is unique here in this country. But the Christmas holiday is pretty much around the world. We tend to follow those holidays.

In terms of Monsters vs. Aliens, that decision was really based on what we think are going to be the constraints of 3D digital theaters and the rollout of them. We were not concerned with competing creatively with Avatar, Jim Cameron's movie. I think they're very, very different films. Just like this weekend with Bee Movie and American Gangsters. These films appeal to very, very different audiences and both can do well.

For us it was really about wanting to be able to grab the maximum number of 3D screens. Given the release window that we've chosen, I think you'll see us with very near, if not at, 100% of the 3D screens, certainly in North America, made available to us. They'll be available to us over a good six to eight week period of time. We feel the advantage of that versus that summer window really made the difference.

Drew Crum - Stifel Nicolaus

I think the last call or maybe the two quarters ago you mentioned piracy being an issue in the home entertainment market and foreign markets. Is that something that's still persistent or is that something that's subsided?

Jeffrey Katzenberg

There's no question it is persistent. And it is, again, different approaches in different countries for us to deal with it. But there are certain countries in which it has flared up and the impact is very visible.

Drew Crum - Stifel Nicolaus

Lastly, could I get a current share count for what you had at the end of the quarter?

Lew Coleman

About 99 million shares.

Operator

That was the last question, sir. I turn the call over to you.

Rich Sullivan

Well that concludes the third quarter earnings conference call. I'd like to remind everyone that a replay of this call will be available shortly and accessible on our website. That address again, www.dreamworksanimation.com.

Also if you have any further questions, please feel free to contact the DreamWorks Animation Investor Relations department. Thank you very much and have a great afternoon.

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