Ten years ago, DreamWorks SKG didn't exactly have a boffo premiere. The studio, founded by Hollywood moguls Steven Spielberg, Jeffrey Katzenberg, and David Geffen, suffered through its share of early bombs. Video games went nowhere, TV shows flopped, and a music business was sold off. Even with Academy Award winners like American Beauty, live-action hits were few and far between. That was before the three amigos discovered a green ogre named Shrek. Since then, DreamWorks has been the hottest studio this side of Steven P. Jobs's Pixar Animation Studios (PIXR ). In October, Spielberg, Katzenberg, and Geffen had a blockbuster $812 million initial public offering of the animation unit -- and then saw the stock zoom by more than 45% the next month. "There were times when it wasn't for the fainthearted," admits Katzenberg, 53.
Indeed, since Dreamworks ditched traditional animation (which gave it bombs like 2003's Sinbad), its edgier computer-generated releases have included megahits like this fall's Shark Tale and summer's Shrek 2, which grossed $436.7 million in the U.S. and passed Pixar's 2003 Finding Nemo as the highest-grossing computer-generated animation film. The animation unit is run by Katzenberg, the hyperkinetic onetime Walt Disney Co. (DIS ) studio chief who teases his former bosses with subtle Disneyland references in his Shrek flicks. Katzenberg has a film in the works about a London rat that no doubt will be likened to Disney's you-know-who.
DreamWorks Animation turned a $187.2 million loss in 2003 into a $196 million profit in 2004, estimates Merrill Lynch & Co. (MER ), with revenues of $1.1 billion. It plans to continue turning out two films a year -- a hefty load for films that generally take up to four years to make. Next up: Madagascar, about shipwrecked animals from the Central Park Zoo. Shrek 3 is in the works.
Although it has emerged as an animation powerhouse, DreamWorks hasn't abandoned live-action filmmaking. Spielberg, 58, is directing a remake of the 1953 classic The War of the Worlds, starring Tom Cruise. And Geffen, 61, who engineered the IPO, will use his legendary dealmaking skills as CEO of the film studio. Geffen became a billionaire by starting music companies and selling them to Warner Communications Inc. (TWX ) and MCA. This time around, he has sold investors a stake in one of Tinseltown's hottest studios.