Letter to Shareholders

Fellow Shareholders,
DreamWorks Animation had its share of both successes and
challenges in 2012. In the summer, we released the highly
profitable Madagascar 3: Europe’s Most Wanted. It grossed
nearly $750 million globally, was the eighth biggest movie of the
year worldwide and became our best-performing film ever
internationally. It joined Puss In Boots among the top 10 titles of
the year in domestic home video.
Later in the year, we released Rise of the Guardians, which
grossed over $300 million globally. While audiences responded
enthusiastically, giving it an “A” Cinema Score rating and driving
a strong 4.2-times multiple of final domestic box office to its
opening weekend results, it didn’t reach the level of theatrical
success required of our movies. After 17 consecutive profitable
DreamWorks-only branded CG films, we were disappointed that
Rise of the Guardians resulted in a financial loss to the Company.
Looking at the industry as a whole, we saw a number of positive
developments during 2012: domestic box office levels reached
record highs, international markets continued to show incredible
growth and the home entertainment market showed signs of
stabilizing after eight years of steady declines. These encouraging
data points serve to reinforce the strength of our core business.
That said, it is clear that there is heightened competition in the
marketplace for family audiences from broad-appeal tentpole
movies. To address this, we are very focused on finding optimal
release dates for our pictures in order to give each one the best
possible opportunity for success, even when this results in
fluctuations in our output level.
Beyond our core business, we are more committed than ever to
growth and diversification. To this end, we are focused on three
key areas of investment, which we believe will further strengthen
our Company and lead to greater long-term returns.
First, we are investing in the growth of DreamWorks Animation’s
franchises through television series and our recent acquisition of
Classic Media. In addition to our core business, these initiatives
allow us to sustain evergreen consumer products programs in the
intervals between our franchise film events.
We currently have four DreamWorks-branded television series:
Monsters vs. Aliens, Kung Fu Panda: Legends of Awesomeness
and Penguins of Madagascar on Nickelodeon and Dragons:
Riders of Berk on Cartoon Network. Through our expanding relationship with Netflix, we will soon add a fifth: their first-ever
original kids’ television series, Turbo: Fast Action Stunt Team.
In 2012, we acquired Classic Media, our first acquisition since
becoming a public company. Classic Media owns a very large and
valuable independent collection of characters and branded
assets. We have now formed DreamWorks Classics to leverage
this incredible collection of intellectual property on television and
across our lines of business.
Our second area of investment is technology, which has always
been central to our Company. Later this year, we will fully deploy
our proprietary set of next-generation film-making technologies.
This is a very exciting development that is designed not only to
increase the creative productivity of our artists, but also to
reduce the length of our production cycle and meaningfully lower
our film costs. In addition, we are beginning to apply our technology expertise beyond our core business into new strategic initiatives, in areas ranging from software to mobile games to
short-form content, all of which have considerable potential for
future growth.
Third, we are committed to further developing our presence in
rapidly expanding international markets. In February of 2012,
we agreed to form a joint venture in China to establish the leading Chinese-branded family entertainment company, Oriental
DreamWorks. Together with our partners there, we will develop
and produce high-quality, original Chinese animated and liveaction content for global distribution.
Over the course of the year, we also made a number of strategic
location-based entertainment deals—including a licensing agreement in Russia to develop Europe’s three largest indoor theme
parks—that will drive added value for the DreamWorks Animation
brand overseas.
In closing, 2013 marks the start of our new distribution agreement with 20th Century Fox. Fox is an ideal partner for us and
we enjoy a more favorable economic arrangement with them as
our distributor. In partnership with their team, we will release
two original films in 2013: The Croods this spring and Turbo
this summer.
During the past year, we made significant investments and took
important steps to improve efficiency and productivity, as we
build on our Company’s remarkable 19-year track record in order
to deliver meaningful returns to our shareholders into the future.
On behalf of the Board of Directors and entire management
team, thank you for your continued support of DreamWorks
Animation.
Best,
Jeffrey Katzenberg
CEO, DreamWorks Animation SKG