Restless Days at DreamWorks

The animation studio, due to post third-quarter numbers late Thursday, looks to redeem itself in Wall Street's eyes.
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DreamWorks Animation

(DWA)

will get another chance Thursday to show it is on the way to righting its ship.

The company has sailed far off course in recent months with a pair of earnings debacles and a scuttled secondary offering, along with the perception that

Madagascar

was long on hype and short on box office delivery. Where investors have been willing to cut

Pixar's

(PIXR)

Steve Jobs a break on poor home-video sales of

The Incredibles

, the Street has ruthlessly hammered Jeffrey Katzenberg & Co.

Given DreamWorks' sour turn since October's IPO -- the stock has lost more than 40% off its spring highs -- there seems to be little chance that the overhanging issues will dissolve overnight or that this week's earnings will yield some heavenly surprise.

Even so, consider the possibility that DreamWorks Animation has hit rock bottom and things might start to look up from here. A good start would see the company hit numbers this week. This time around, analysts are looking for a loss no greater than 7 cents per share on revenue of $28 million or so.

Advance buzz on its coming projects is solid. This fall's

Wallace & Gromit

film has the potential to be a sleeper hit. Both

Flushed Away

and

Over the Hedge

(based on the syndicated cartoon) are said to be strong. And a revitalized

Madagascar

could get the ball rolling.

The film's opening domestically was soft by some analyst estimates, but by the same token the movie does rank 63rd on the all-time scoreboard. According to Box Office Mojo, the film has done $427 million in sales globally. For the record, that puts

Madagascar

just $57 million behind the original

Shrek

, with significant markets still to be exploited, such as Italy and Japan.

None of which will make a huge difference to the bottom line when the company reports Thursday afternoon, but it could bode well for franchising -- which is exactly what this film's strong point was expected to be. The first DVD isn't in stores yet and plans, according to insiders, are already afoot for a sequel.

Those listening to Thursday afternoon's call will want to know how DreamWorks will respond to the dramatic shift in home-video sales trends. The company was the first studio to be crushed by viewers' declining appetite for DVDs, but as investors in Pixar and

Disney

(DIS) - Get Report

know by now, it will not be the last.

While DVD sales still account for the lion's share of revenue on any given film, investors will want to see how DreamWorks and its rivals recoup lost sales in the home-video channel. DreamWorks has been Hollywood's crash test dummy on the issue, but any sign the company is shaking off the passive approach will be well taken.

Of course, DreamWorks has other irons in the fire. Word a couple of weeks ago that

General Electric's

(GE) - Get Report

NBC Universal was in discussions to buy the other piece of the DreamWorks pie, the live action side, couldn't be a better development for both DWA holders and the original studio itself.

Those who claim that the decade-old DreamWorks studio has failed neglect some high points. Yes, the television division failed to take off, and no, the music label didn't fly, but DreamWorks still has seven of the top 100 grossing movies of all time. It has made a concerted effort to produce quality fare in a Hollywood that consistently scrapes the bottom of the barrel.

Otherwise, consider that of the lead players, Katzenberg is a producer first and foremost, Spielberg is a director, and David Geffen's a lyrical man unmoved by movie studio economics. Putting this company under the GE/NBC Universal umbrella would streamline and solidify the distribution needs on both sides of the animation and live entertainment coin, which both already deal with Universal. There are worse bosses in the world, after all, than Bob Wright and Ron Meyer.

If in the process someone could figure out a way to get Paul Allen his money back and out of the mix, it's a safe bet that everyone from Wall Street to Flower Street would be a whole lot happier. In the meantime, only pleasant surprises will be welcome on Thursday.