DreamWorks Talks Up 'Madagascar'

The movie is huge, the animated film studio tells investors.
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DreamWorks Animation

(DWA)

is making a return trip to

Madagascar

.

The studio, much maligned since a DVD crisis earlier this year spawned class action suits and an informal

Securities and Exchange Commission

inquiry into DVD returns on

Shrek 2

, said that

Madagascar

will mark its second major franchise.

Some analysts were lukewarm about

Madagascar's

Memorial Day weekend opening this spring. The film has since done very well overseas and has now surpassed $500 million in worldwide box office, making it one of the top five animated films. It ended up generating $192 million domestically.

"As a result of its tremendous box office success, the potential to tell a new chapter in its story and the popularity of the film's characters, we are excited to announce that we are making

Madagascar

our second company franchise -- along with

Shrek

," CEO Jeffrey Katzenberg said at the Merrill Lynch media and entertainment conference. "We will release a theatrical sequel in 2008."

Wall Street has looked at the animation side of Hollywood with a somewhat jaundiced eye lately. Both major studios have been especially hard hit by larger-than-usual returns of DVD releases this year.

Pixar's

(PIXR)

smash hit

The Incredibles

fell prey to a similar syndrome as retail and catalog sales fell short of the Steve Jobs-run studio's expectations. Pixar, like DreamWorks before it, was forced to warn on earnings last quarter and is also facing an informal probe by the SEC.

Stock prices were hit hard on the news. DreamWorks has recovered somewhat since August, when it met lowered second-quarter targets and reaffirmed full-year earnings guidance. Shares in the Glendale, Calif., studio have risen 22% since then. DreamWorks closed Wednesday at $27.37, down 11 cents.

In addition to the sequel, DreamWorks Animation will produce a direct-to-video release for 2009 starring

Madagascar's

penguin characters. The company has also produced its first mini-movie: a 10-minute film featuring said penguins, which will play in theaters this fall with its upcoming

Wallace & Gromit: The Curse of the Were-Rabbit

. That flick opens Oct. 7.