Q1 2012 DreamWorks Animation SKG, Inc.

Earnings Conference Call - Final

OPERATOR: Ladies and gentlemen, thank you for standing by. Welcome to the DreamWorks Animation
first quarter earnings call. At this time, all lines are in a listen-only mode. Later, there will be an
opportunity for your questions.
(Operator Instructions)
I would also like to remind you that today's conference is being recorded, and will be available for
replay after 7.00 PM tonight through midnight, Tuesday May 15. You may access the AT&T executive
playback service at any time by dialing 1-800-475-6701 and entering the access code
244157. International callers dial 320-365-3844 using the same access code, 244157. I will now turn
the call over to your host, Rich Sullivan, DreamWorks Animation Corporate Finance. Please go ahead,
sir.
RICH SULLIVAN, HEAD OF CORPORATE FINANCE, DREAMWORKS ANIMATION SKG INC: Thank you, and
good afternoon, everyone. Welcome to DreamWorks Animation's first quarter 2012 earnings
conference call. With me today is our Chief Executive Officer, Jeffrey Katzenberg; and our President and
Chief Financial Officer, Lew Coleman. This 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 the press release is available on our website. That web
address, 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 with 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 would
now like to turn the call over to DreamWorks Animation Chief financial Officer, Lou Coleman.
LEW COLEMAN, PRESIDENT AND CFO, DREAMWORKS ANIMATION SKG INC: Thanks, Rich. Good
afternoon, everyone. For the first quarter of 2012, the Company reported total revenue of
approximately $136 million, resulting in net income of $9 million, or $0.11 per share on a fully diluted
basis. Without a theatrical release in the first quarter, results were driven by prior year titles. Puss in
Boots contributed revenue of approximately $74 million to the first quarter, primarily from home video
and international box office. By the end of the quarter, it had reached an estimated 3.8 million net
home entertainment units sold worldwide. Kung Fu Panda 2 contributed revenue of approximately $14
million to the quarter, primarily from home entertainment, and reached an estimated $5.5 million net
home entertainment units sold worldwide by the end of the quarter. Megamind contributed revenue of
$5 million to the quarter, primarily from international pay TV and home video, with an estimated 5.3
million net home entertainment units sold worldwide through the quarter end.
Shrek Forever After contributed revenue of approximately $3 million to the quarter, primarily from
home video. By the end of the quarter, it reached an estimated $10 million net home entertainment
units sold worldwide. Turning to a change in the way we discuss our results, we are now separating
revenue from our library category and revenue from other. Library only includes revenue directly
related to our feature films, and titles are added to the library during the quarter of the second

anniversary of their domestic theatrical release. Our library is still relatively young, and recently added
titles still have several years of amortization remaining. It is important to remember that the profit
margin for each individual film is the same the day after a title enters our library as it was the day
before. In the first quarter, library contributed revenue of approximately $27 million. Library revenue
will fluctuate from quarter to quarter, particularly as recently added titles enter their free TV
windows. Looking ahead, we do not expect our library revenue to increase until the second half of
2012, when both Shrek Forever After and How to Train Your Dragon entered their free TV windows.
The other category will now include non-feature films specific revenue, including television specials,
series, and live shows. This amounted to approximately $13 million of revenue in the last quarter, of
which Shrek, the musical in London was the single biggest contributor. Our non-feature film business
currently delivers significantly lower profit margins than our core business. Moving to the remainder of
the income statement, costs to revenues for the quarter equaled $97 million, resulting in a gross profit
of approximately $40 million. Selling, general, and administrative expenses for the first quarter totaled
$27 million, a decline of 8.8% from the first quarter last year. Turning to taxes, the Company's income
tax expense for the first quarter was approximately $5 million. Our combined effective tax rate, which
is our actual tax rate coupled with the effect of our tax sharing agreement with a former stockholder,
was approximately 35.5%. We currently expect our full year combined effective tax rate to be in the
low 30% range. Moving to the balance sheet. The Company entered the first quarter with cash balance
of approximately $89 million.
Our diluted share count for the first quarter was 84.8 million, and our remaining share repurchase
authorization is $125 million. Looking ahead, the production cost to both Madagascar 3 and Rise of the
Guardians will be approximately 15% higher than is typical for films. We expect second quarter results
to be driven by the theatrical release of Madagascar 3 domestically, and in selected international
territories, including France, Russia, Latin America, and China. Madagascar 3 will be released in a
significant number of key international territories late in 2012, due to the scheduling decisions relating
to this year's summer Olympics. In particular, it will be released in Australia, Italy, Japan, the Nordic
region, and Spain in the third quarter, and in Germany and the UK in the fourth quarter. As a result of
the film's release schedule, we expect our distributor will spend only about half of its worldwide prints
in advertising expense in the second quarter. Beyond the performance of Madagascar 3, we expect
pay TV revenues for Kung Fu Panda 2 and home entertainment revenues for Puss in Boots to contribute
to the Company's second quarter results. With that, I will turn the call over to Jeffrey.
JEFFREY KATZENBERG, PRESIDENT AND CEO, DREAMWORKS ANIMATION SKG INC: Thanks, Lew. Good
afternoon, everyone. As expected, it was a relatively quiet first quarter. I do want to focus on two items
before we take your questions. The first is our home video results for Puss in Boots, and the second is a
look ahead at our future film slate. As we mentioned last quarter, Puss in Boots got off to an excellent
start. It was the number one best selling title for the first two weeks of its home video release. It has
performed well since then, delivering a comparable sell-through ratio domestically, as we were seeing
last year for animated titles. Puss in Boots had over 1 million digital transactions in the US during its
first four weeks of release, the biggest number of any of our titles to date. Its results make Puss in
Boots the sixteenth profitable DreamWorks-only branded CG movie in a row.
On average, the ten films we have released since 2007 have grossed $200 million at the domestic box
office, and with the growth international theatrical markets, our films now have achieved a blockbuster
performance of $550 million at the worldwide box office, on average, over the last five years. The next
big event for the Company is the release of Madagascar 3, Europe's Most Wanted, on June 8, and I am
very proud to say that I believe it's the best Madagascar movie yet. At its heart, it's a very big idea

that takes our zoosters on an exciting, whirlwind journey to a brand new place. Our well known cast,
featuring Ben stiller, Chris Rock, David Schwimmer, Jada Pinkett-Smith, and Sacha Baron Cohen is
joined by a great collection of new characters played by Brian Cranston, Martin Short, Jessica Chastain,
and our villain is being voiced by Francis McDormand. Madagascar 3 is filled with a ton of comedy and
adventure, and marks the first time audiences will get to experience this franchise in 3D. We look
forward to seeing how it plays around the world throughout the summer, and as Lew mentioned, into
the second half of the year.
After our Madagascar sequel, we will release an original film, Rise of the Guardians, on November
21. It's based on a book series by acclaimed author William Joyce, and ties together the adventure of
the greatest heros of childhood, Santa Claus, the tooth fairy, the sand man and Easter bunny. Our allstar cast features Chris Pine, Alec Baldwin, Hugh Jackman, Isla Fisher, and Jude law. Our first theatrical
trailer was met with exceptional feedback from audiences when it debuted earlier last month, and our
online trailer has been viewed by over 11 million people since its April 5, launch receiving widespread
attention from fans and critics. Rise of the Guardians is the first of five original films that DreamWorks
Animation will release over the next two years, followed by The Croods, Turbo, Me and My Shadow, and
finally, Peabody & Sherman. We are very confident that among these five are a number of new
franchise properties for the Company. So with that, we will be happy to take your questions.
Questions and Answers
RICH SULLIVAN: Thanks. First question, please.
OPERATOR: Thank you. Our first question is from Barton Crockett with Lazard Capital Markets.
BARTON CROCKETT, ANALYST, LAZARD CAPITAL MARKETS: Thank you for taking the question. I was
wondering if you could provide us an update of where you went into the exploration of distribution
alternatives. Has anything happened, or are we still in a holding pattern at this point?
JEFFREY KATZENBERG: Barton, no change from last time. As I think we shared with you, it's our plan to
get on to pursuing this after the release of Madagascar. So our process will begin in June, and we
anticipate it being concluded no later than Labor Day.
BARTON CROCKETT: Okay. I was also wondering if you could update us on progress in China, if anything
has happened. I doubt there is anything to say, but there have been press reports about government
investigations there. If there is anything to say about that, I would be interested in hearing it.
JEFFREY KATZENBERG: As you know, we don't comment on that. So, I think we will punt on that one.
BARTON CROCKETT: Okay. But in terms of your progress in China, has anything happened there yet?
JEFFREY KATZENBERG: We continue to make great progress on multiple fronts there, both with regard
to the animation studio, our joint venture there, some development opportunities. We've had excellent
engagement, and it continues to expand in terms of the scope of it. Lew and our team are on their way
back to China this weekend. We then have a large contingent visiting us here at the end of this month
in May, and then I am back over there for a week in June. So many, many irons in the fire there, and
we continue to be very excited about what seems to be opportunities there for us.
BARTON CROCKETT: Okay, great. I will leave it there. Thank you.

RICH SULLIVAN: Thanks. Thanks Barton. Next question, please.

OPERATOR: That would be Doug Creutz with Cowen and Company.
DOUG CREUTZ, ANALYST, COWEN AND COMPANY: Thanks. Given that the incremental Kung Fu Panda 2
sales only appear to be about 400,000 in the quarter, the revenue number looked sort of high. I
wonder if you could maybe talk about what is going on there?
JEFFREY KATZENBERG: Rich, is there something there?
RICH SULLIVAN: I think we have a little bit of -- obviously beyond just the VCE units themselves, there
is also things like set television, most of the pay-per-view revenues is also in there, as well. Most of it is
related to home video.
DOUG CREUTZ: But it might not be physical unit home video, is what you're saying.
RICH SULLIVAN: It may not be unit driven.
DOUG CREUTZ: Thank you. That helps.
RICH SULLIVAN: Next question, please.
OPERATOR: Thank you. We will go to Ben Swinburne with Morgan Stanley.
BENJAMIN SWINBURNE, ANALYST, MORGAN STANLEY: Good afternoon. I wanted to touch on that digital
transaction data point you guys gave on Puss in Boots. I think you said over 1 million. Jeffrey, how will
you thinking about digital distribution of your films beyond the stuff you have done with Netflix. Are
you excited about electronic sell-through? Do you think this is largely VOD pay-per-view that we are
seeing, and do you think the cable satellite guys are getting a little better at that platform, and can
really drive real revenue? This is going back to Rich's comment about the Panda revenue. If I could ask
one follow-up on the modeling side, was your comment about the P&A being spread through the rest of
the year, I guess this is for anybody, suggesting that we won't see Mad 3 recouped in the second
quarter, or are you saying we should look at this as two different P&A buckets for the domestic, and
then international later in the year? Any help would be interesting.
JEFFREY KATZENBERG: First I'll just give you a little bit more insight on the first part of your question,
and then I'll let Lew or Rich do the second one, which is, in the Puss in Boots 1 million digital
transactions, 75% of those were CVOD, cable, satellite, video on demand transactions. 25% of them
were IVOD or EST. And I think we continue to see promise in this emerging distribution and
consumption by our consumers, and I just want to say emerging. We are not there yet, but it's growing,
and it would seem, in the long term, measured in the next several years, that it is going to become
very, very important and very valuable.
LEW COLEMAN: I think on the P&A, the easiest way to think about it is probably in two separate
buckets. What is likely to happen, when you spread the buckets out, is that likely we will recoup for the
film, and then it will go unrecouped as you get into some of the international markets, and then recoup
again later towards the end of the year. So, it's going to be a little bit of a swing, particularly in and out
of the quarters, on being unrecouped maybe twice this year.

RICH SULLIVAN: Obviously, that depends on the domestic performance of the film.
BENJAMIN SWINBURNE: Right, that makes sense. Thank you very much.
RICH SULLIVAN: Next question, please.
OPERATOR: That would be James Marsh with Piper Jaffray.
JAMES MARSH, ANALYST, PIPER JAFFRAY & CO.: Thanks. Quick question on China here. China Film
Group's been backing a competitor Imax in China, and obviously the key to that would be to get the
digital master and digitally up-convert that. Would you guys consider releasing your digital master to
China Film Group a couple of months before releasing that market, and what criteria would you
consider as you look at that option?
JEFFREY KATZENBERG: Well, the answer is I don't know. It's not something that we have looked at or
considered. To be honest with you, given the wide release that we've had for our films there, and sort
of the popularity of them out beyond just the top two or three cities, it would seem like that would not
be the smartest release pattern for us. I would have to -- I don't know enough to answer that question
with certainty.
JAMES MARSH: Okay. That's helpful. Then a follow-up on the digital sell-through data point. How does
that 1 million units compare to films with similar domestic box office? Have you compared it to other
films to see how strong it was?
JEFFREY KATZENBERG: It's grown substantially for us. I don't have a percentage for you, and I don't
know how it tracks against competitive product.
JAMES MARSH: Okay. Thanks.
RICH SULLIVAN: Thanks. Next question.
OPERATOR: We have David Miller with Caris & Company.
DAVID MILLER, ANALYST, CARIS & COMPANY: Yes, hi. I have two for Lew. Lew, deferred revenue was
unusually high in the quarter, $53.7 million versus $19 million last year. Is that related to the Chinese
joint venture, or is there something going on there? Then also, the consulting fees that you are paying
out to Chuck Viane, I assume you house those in SG&A, and the only reason I ask is just because SG&A
looked unusually low in the quarter, which is obviously great for your EPS line, but I thought that some
consulting fees were being paid out to Chuck in the March quarter. Let me know if I have that
wrong. Thank you.
LEW COLEMAN: David, on the deferred revenue, the blip is really HBO.
DAVID MILLER: I see. Okay.
LEW COLEMAN: And I don't know what the answer is on the consulting fees for Chuck, other than we
would expense them. That is probably what we did with them.

RICH SULLIVAN: That's correct.

DAVID MILLER: Okay. Thank you.
RICH SULLIVAN: Thanks, David, next question, please.
OPERATOR: Vasily Karasyov with Susquehanna Financial.
VASILY KARASYOV, ANALYST, SUSQUEHANNA FINANCIAL GROUP / SIG: Thank you very much. Good
afternoon. Jeffrey, I was wondering, since it's a quiet quarter, maybe I would ask you about how your
view on animation, and its relative importance versus other genres in movie making evolved since you
started DreamWorks Animation, and where it is now, given that there is so much competition now, and
everyone seems making CGI movies, and what you think that means for you, and what this dynamic
will be going forward in two, three, five years, what you guys expect from the competitive standpoint?
JEFFREY KATZENBERG: Okay. Well, I'll give you the short answer to it, because the long answer to that,
I'm sure, will have us banging into other people's earnings calls. So as always, the animation business
has been one in which we have seen cycles of production. Last year was a significant uptick in the
number of films that were released, particularly -- not just animation, but combination animation, and
even family titles last year were almost double what they had been in the previous two or three years
before. If you look at the total revenues for the pie itself, it actually expanded, and expanded decently,
except it was being split by a substantial number of films. So I think, to some degree last year, at least
in the domestic marketplace, the wide releases were divvying up the pot a bit. In total, the animation
business has become the single most mainstream, most successful genre in movies today. And it has
continued to be, if you look at the top 20 titles, it is without a question, the dominating genre of films. I
think this year feels like it's a bit more of a normalized market. There are far fewer animated titles and
far fewer family titles.
As an example, by the time Madagascar comes out, there in fact will only have been one CG animated
movie in front of it, one stop motion animated film, and very little family product. If you compare it to
last year, last year there was three times as many animated releases and family titles that were in the
marketplace prior to the release of Kung Fu Panda. Going forward, I think many people have come into
the animated field. They have made movies here. I think when you look at the actual bottom line of
those films, versus maybe what their box office grosses were, and then look at their international
market and their home video markets afterwards, I think people actually, you know, other than the
handful of super high-end films, consistently made by the Pixars, and Blue Sky, and Illumination, and
DreamWorks, outside of that, the rest of the work being done has probably not been very profitable, if
not just the opposite of that. So it looks easier than it is. People come in, they try it. It doesn't
necessarily work for them, and they go away. So right now the market looks pretty attractive for the
next two years or so.
VASILY KARASYOV: All right. Thank you very much.
RICH SULLIVAN: Thanks, Vasily. Next question, please.
OPERATOR: Thank you. We have Anthony DiClemente with Barclays.
CHRIS MERWIN, ANALYST, BARCLAYS CAPITAL: This is actually Chris Merwin in for Anthony. I was
wondering if you can give us some color on your strategy for monetizing your catalog

content. Obviously, you have the deal with Netflix, although it doesn't sound like the library is going to
be a big part of that, near term. Have you been talking to other S5 providers about potentially
licensing some of your content on a non-exclusive basis to augment the revenues there?
RICH SULLIVAN: I think it's a good question. As far as Netflix is concerned, that is an exclusive
relationship in that window, just like HBO was in the pay TV window in the deal prior, Netflix is an
exclusive relationship. So selling to other carriers would go against the rights in both the HBO and the
Netflix deal. As far as other things we are doing in the digital space with our catalog, we recently
announced that we are part of the Walmart Vudu transaction, bringing our catalog into the digital
world.We've launched that. We are looking for additional TV type deals internationally that would
mirror the Netflix deal in the US We are looking at a number of different areas. In the US in particular,
however, it is restricted by what we have already committed to HBO and Netflix.
JEFFREY KATZENBERG: But to answer your question, we are seeing some meaningful new opportunities
internationally with the use of our library and digital delivery of it, particularly in the emerging
markets.
CHRIS MERWIN: Okay, great. Thanks. Would you mind breaking out roughly how much Shrek musical
contributed to the non-film revenue of about $13.5 million, I think it was.
RICH SULLIVAN: It's about $6 million.
CHRIS MERWIN: Great. Thank you.
RICH SULLIVAN: Yep. Next question, please.
OPERATOR: Thank you. Next is Ben Mogil with Stifel Nicholas.
BEN MOGIL, ANALYST, STIFEL NICOLAUS: Thank you for taking the question. Just a couple
questions. Lew, I just want to make sure I heard you correctly. Is the budget commentary that you gave
on Madagascar 3 and Guardians, is it still $145 million on the actually budget ex-P&A?
LEW COLEMAN: Yes, it's right in the range.
BEN MOGIL: Okay.
RICH SULLIVAN: It's $145 million, not only just ex-P&A, but it's also including talent, as well. It's direct
and indirect production costs. With the sequel, you will have additional talent related costs associated
with the film.
BEN MOGIL: Just confirming, it is the exact same as what you gave last quarter, right?
RICH SULLIVAN: Correct.
BEN MOGIL: Okay, great. Then in terms of the digital transactions, let's call it 250,000 of them were
sell-through, is that in addition to 3.8 million DVD units, or is that embedded in that number effectively.
RICH SULLIVAN: It's not included in that number.

BEN MOGIL: It's not included, okay. Lastly, Lew, just from a timing perspective, it was interesting you
talked about the chance the film could go recouped, unrecouped, recouped, unrecouped on
Madagascar because of the timing. Do you anticipate that you could possibly actually not show
revenue until maybe even early next year, only because Paramount may hold back on everything, or is
that unlikely?
LEW COLEMAN: I think that's very unlikely. We have actually had films that have gone from recouped to
unrecouped, to recouped again in the past. It's not unusual.The way to think about this, think about
the domestic release probably being recouped in a standard fashion. Then think about at least the first
half of the international release probably not being recouped, and the last half of it being recouped. So
what you may wind up seeing is a pattern where the middle stages of the release are not recouped,
and the early part of the release is recouped, and the latter part is recouped for this year.
RICH SULLIVAN: Just to make sure, Ben, that we are clear, this isn't a reflection of our expectation of
performance for the picture. It's solely related to the release dates associated with the film. Because of
the Olympics, we've moved a few of these release dates later into 2012, including releases for big
territories like the United Kingdom in the fourth quarter. That not only affects the box office that we're
going be receiving, but also the release of the DVD, which has also been used, historically, to recoup in
the fourth quarter of that film. So just the timing of revenue for that film is spread because of release
dates. I didn't want you to think we were giving any kind of indication of performance on our end.
BEN MOGIL: I understood. You have a sense of the territories and timing. Let me ask it a little bit
differently, and I'm not trying to get to guidance perspective. But is it fair to say that half the
international box office -- half international markets from box office perspective will be released in 2Q,
and the other half in 4Q, or is it more half 3Q, half 4Q?
JEFFREY KATZENBERG: I'm watching heads shaking here. Nobody guess at that, please. If you want to
follow-up on that, we can actually sit down and look at the territories, and give you a more accurate,
not a wild guess.
RICH SULLIVAN: Ben, the release schedule is available on the web site. The best thing to do is, let's you
and I walk through each of the territories. Clearly, it depends on the success of each of those territories
to really do that equation. But we can certainly give you an idea -JEFFREY KATZENBERG: Even just in terms of market share, what percentage of the market is being
released in the second part, we can give you that information accurately. I just don't want people
guessing at it.
BEN MOGIL: Absolutely. I wasn't looking for guidance, I just wanted general market share. That's what I
was referring to.
JEFFREY KATZENBERG: Okay.
BEN MOGIL: Thanks. That's it for me.
RICH SULLIVAN: Great, thanks, Ben.
OPERATOR: We will go to Richard Greenfield with BTIG.

RICHARD GREENFIELD, ANALYST, BTIG: Hi, a couple of questions. One, just getting back to this
question of the international release, delaying it in major European territories to the length that you
are makes a lot of sense because of the Olympics. Just curious, given the state of piracy, and where we
are, now, in terms of when you would normally put out kind of a US home video for a movie like this,
how do you think about containing the relative risk related to piracy with that type of delay in markets
like the UK and Germany, and then second question, just in terms of the distribution deal, should we
assume at this point that you might end up paying a higher fee for distribution, or just give us some
sense, because it doesn't sound like you are completely on the path of doing self-distribution. Just
curious how to think about the distribution fee that you may end up paying going forward after
Paramount deal ends.
JEFFREY KATZENBERG: Great. On the first issue, this is not the first time we have released and our
movies rolled out over a period of time in the same -- in a similar set of circumstances four years ago,
two years ago with soccer, European soccer. This is something that we have done historically and with
some regularity to it. The countries where piracy for our product, and I emphasize our product, which
we don't necessarily follow the typical patterns of everybody else in this, are not in the delayed
windows. So we do not expect that we will be materially, adversely affected by these delays from a
piracy standpoint. In fact, I believe we have competitively outstanding release windows, and
particularly in the UK and Germany, are excellent examples of that. A place like Russia, we're day and
date just for those reasons. I think we are in good shape with the rollout here, vis-a-vis the piracy
issue. In terms of the distribution side of it, all options are on the table. I think it would be premature
for you or anyone else to assume or presume that self distribution is still not a serious, and real, and
viable option for us. That, in fact, is what Chuck Viane has devoted a pretty good part of his time here
with us making sure that that option is something that we are fully exploring and taking a look at.
In terms of speculating the terms of what the deal will be, Rich, I don't think we can or we should. I
don't know that we are going to know until we get into the marketplace, and we see who is interested,
and on what basis, and what the other opportunities that go along with it. I think I said this once
before, but I want to reaffirm again, the value of the deal cannot and should not be measured solely in
what the distribution fee is, because depending on who the partner is, there are opportunities to create
meaningful incremental value to DreamWorks shareholders that are separate, and aside from the fee
itself. A perfect example of that is the deal that we had with Paramount, have had, continue to have
with Paramount. It has a very large component that involves Nickelodeon, and we have obviously
created some very significant assets in partnership with Nickelodeon, as well as promotional
opportunities. So lots of factors to put into this. The fee itself doesn't get you to the bottom line.
RICHARD GREENFIELD: Thank you very much, Jeffrey.
RICH SULLIVAN: Thanks, Richard. Next question, please.
OPERATOR: Thank you. That will be Tony Wible with Janney.
TONY WIBLE, ANALYST, JANNEY MONTGOMERY SCOTT: Hi. I was hoping you could touch on the delayed
international release. Will that throw off the post-theatrical windows, too, or do you anticipate
compressing DVD a little bit closer in some of those markets? Second question is on the carve out of
the non-film product, is there a signal in there that you plan to grow that business, or what was the
logic in carving out catalog from non-film activity.

LEW COLEMAN: Tony, why don't I take the second one first. The reason we carved it out was that we
felt that the nature of the other revenue was significantly different than the nature of the library
revenue. We thought it would be better to start giving a clean library number for solely that reason.
JEFFREY KATZENBERG: Margin. Margin is different than that and, so, we are just -LEW COLEMAN: So we continue to emphasize library, and we continue to emphasize other. So it
doesn't represent a change in strategy, it just represents sort of a cleaning up of one reporting item
that was becoming increasingly difficult to explain when it was lumped together.
JEFFREY KATZENBERG: More transparency. On the DVD windows, pretty much in most territories follow
a pattern of usually in the neighborhood of about 16 weeks.And in many, many countries, that is by
regulation, or by a pattern of distribution agreements with exhibition. So we will not be breaking any of
those windows, if that is your question.
TONY WIBLE: Great, that helps, thank you.
RICH SULLIVAN: Next question, please.
OPERATOR: Thank you. We have Tuna Amobi with S&P Capital IQ.
TUNA AMOBI, ANALYST, STANDARD & POOR'S: Hi. Good afternoon. My question on Madagascar 3,
right? So it seems to me that, given the minimal competition, as Jeffrey alluded to, domestically, as
well as the fact that it's coming out in 3D, it seems to me that, domestically, the stars are aligned to
significantly perform. As look at the international release schedule, China in particular, I was wondering
how that film, the strategy might be different than what you did in the prior installment.What, if any,
role your JV partners might play. I suspect there is none, but I was wondering if, perhaps, this could
present some opportunities that you didn't have before. So internationally, any perspective on that film
in China would be helpful, as well, granted that the Olympics would, might be a factor that, as you
alluded to, I'm not sure if the Olympics, net-net, is a positive or negative. I'm trying to get a sense of
what factors that you see may play into the overall box office expectations of that film.
JEFFREY KATZENBERG: So first, Tuna, just in terms of the domestic marketplace, I wish I shared your
optimism for us having basically a free pass to blockbuster happiness. We have two weeks before us
Men in Black 2. The week before us, Snow White Huntsman. On the same date as us, Prometheus. The
following week, Rock of Ages. We are surrounded by happiness. Obviously, we are the only family film
in there. We are -- although what defines a family film anymore, I'm not sure.You remember last
memorial weekend, it seems like it was hundreds of years ago, Hangover 2 became a family film
somehow or another. So we don't take anything for granted. We think the competition is
significant. And we remain very focused on the fact that it's a very competitive marketplace, and we
don't believe we have been given free sailing here in this, and that we are just in open waters, we are
not.
In terms of the international side of it, specifically China, we are a waiting a release date from China
Film. We are well through the process and we don't have final confirmation on it, but we are hopeful
that we are being given a very timely slot for the release of the film. So I really don't want to say any
more than that, because we are in the middle of the process here, and other factors that we may not
know about may change that in some regard. The Madagascar series has been successful in China, but

obviously the marketplace today versus three years ago, three and a half years ago is significantly
grown. But we do think we will have a good opportunity there.
TUNA AMOBI: Can you perhaps remind me what Madagascar 2 did in China. That would be helpful.
RICH SULLIVAN: I will get you that answer.
TUNA AMOBI: Thank you so much.
JEFFREY KATZENBERG: We will give you that in a second. Let's go on to the next call while somebody is
sorting to get through that.
RICH SULLIVAN: Next question, please.
OPERATOR: Our final question will come from Michael Corty with Morningstar.
MICHAEL CORTY, ANALYST, MORNINGSTAR: Good afternoon. Thanks for taking the question. I just want
to get back to the 1 million digital sales. I just wanted to get your thoughts, now that you are at that
higher level, in terms of how you will balance, over the next few years, obviously maintaining you DVD
sales versus building customer or consumer awareness through your digital partners, and then
secondly, the trickier question, obviously, would be the price differentiation in terms of buying a digital
copy versus renting, especially given that your movies have a much higher value in terms of
purchasing, given the repeat viewing that often happens with animated films. Any thoughts on that
would be helpful, thanks.
RICH SULLIVAN: I think to answer the digital part of that question, digital allows us to offer an increased
number of SKUs and better segments for our customers.Between digital ownership or digital rental,
standard or hi-def, and even 3D, we can offer content to consumers at a bunch of different price points
now. That is a lot better than what we were able to do in just the physical market. Digital does provide
us avenues in which to price to different segments of the consumer base at different times and
different price points. As far as pricing in general, I think blu-ray has been successful at helping us
increase the wholesale price and helping us maintain margins. So that is kind of what is going on in the
space in general. Tuna, to answer your question regarding China, I think Madagascar 2 did $6 million in
box office in China.
JEFFREY KATZENBERG: 3.5 years ago, which is actually a pretty decent number.
RICH SULLIVAN: Okay. Next question, please.
JEFFREY KATZENBERG: I think that was it.
OPERATOR: There are no further questions.
RICH SULLIVAN: Okay. Well, that concludes our first quarter conference call. I would like to remind
everyone that a replay of this call will be available shortly on the DreamWorks Animation web site. If
you have any additional questions, please feel free to contact DreamWorks Animation investor
relations department. Thanks, again, for participating, and have a great evening.

OPERATOR: Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you
for your participation, and for using AT&T Executive Teleconference. You may now disconnect.