Dark Days at DreamWorks

Wall Street is starting to see some rather large chinks in the armor of its favorite animation studios.

Weak DVD sales humbled Dreamworks Animation DWA for the second time in as many months Monday. The smashup came just two short weeks after rival Pixar PIXR suffered its own bottom-line bruising. Shares in both companies have been hit hard.

Even so, Wall Street continues to dance around the question of just why DVD sales have suddenly faltered. While all agree that the studios and their distributors must lighten up on movie-bloated retailers, it seems that no one can say just why consumers are less eager to buy movies on DVD.

Some people see pure market math at work. As more and more people buy DVDs, there are fewer die-hard consumers. "The new people on board are not as avid" buyers as the first-to-market users were, says Larry Haverty of Gabelli Asset Management. He adds that "consumer preference to buy DVDs seems to have peaked."

Asked on a call Monday, Dreamworks CEO Jeffrey Katzenberg claimed there was too little data to come to any conclusion on why DVD sales had suddenly weakened. He noted that with only two titles in the marketplace, Shrek 2 and Shark Tale, Dreamworks just hasn't seen enough consumer behavior. "There's too little data over too short a period of time to make an assessment of it," he said.

Katzenberg emphasized that the shortfall was not a Shrek 2 issue. Instead, he intoned, "this is a market issue." Pixar chief Steve Jobs was equally mealy-mouthed about The Incredibles' problems last month.

There are indeed a variety of factors contributing to the DVD problem. For one, Pixar and Dreamworks only put out one or two movies a year, so any problems hit their earnings much more than at an outfit like Time Warner TWX.

For another, the companies' distributors -- Disney DIS for Pixar and Universal for Dreamworks -- have customarily flooded the retail channel with DVDs. That practice will presumably come to an end in the wake of problems with The Incredibles and Shrek 2.