DreamWorks offering awaits box office bite of 'Shark Tale'.

THE animation unit of DreamWorks SKG will decide in the next two weeks whether to press ahead with its planned $650 million initial public offering or postpone a stock sale until early next year, according to sources close to the company.

These sources say that the decision by DreamWorks Animation SKG Inc. will depend in part on the strength of its new animated film "Shark Tale," which opened in theaters on Oct. 1.

DreamWorks originally planned to sell shares to the public shortly after releasing the feature, a story about fish-turned-mobsters that showcases the voices of Will Smith and Robert De Niro. But softness in the IPO market and the uncertainty of whether youngsters will warm to the movie's adult sensibilities has been causing hand-wringing at the animation studio in Glendale.

"If 'Shark Tale' fails to achieve domestic box office success," the prospectus states, "our business, results of operations and financial condition could be adversely affected in 2005 and beyond."

Up to now, the DreamWorks animation unit has been one of the company's breakout success stories, with "Antz," "Shrek" and "Shrek 2," which is scheduled to be released on home video next month and could generate at least three strong quarters of revenue.

"Shrek 2," the third-highest grossing domestic film of all time, broke the single-day box office sales record by grossing $44.8 million--and contributed to a near-tripling of the animation unit's revenues in the first half of this year.

That so much attention is being focused on the single release "Shark Tale" speaks to the challenges that would face DreamWorks Animation, as it does to those of any small, nondiversified entertainment company.

"Nobody wants to invest in a proverbial one-hit wonder," said Larry Gerbrandt, head of the media and entertainment practice in Los Angeles at turnaround firm AlixPartners. "If they could show that they should be valued at more than just how they performed on an individual title, it becomes a better story and an easier sell on Wall Street."

DreamWorks Animation SKG Inc.

YEAR (Dec. 31)                        2003      2002

Revenue (millions)                      $301   $434.3
Total Expenses (millions)                439    391.2
Operating Income (Loss) (millions)     (138)     43.1
Net Loss(millions)                   (188.7)   (25.4)

SUMMARY

Business: Animated film studio
Headquarters: Glendale
CEO: Jeffrey Katzenberg
Total Assets: $677.1 million
Total Liabilities: $686.6 million

Top-Grossing Animated Films

                                                  Domestic Box
                                                     Office
Title                Studio        Release Date    (millions)

Shrek 2            DreamWorks        May 2004        $436.7
Finding Nemo         Pixar           May 2003         339.7
Shrek              DreamWorks        May 2001         267.7
Monsters Inc.        Pixar          Nov. 2001         255.9
Toy Story 2          Pixar          Nov. 1999         245.8
Toy Story            Pixar          Nov. 1995         191.8
Ice Age         Blue Sky Studios    March 2002        176.4
A Bug's Life         Pixar          Nov. 1998         162.8

Source: DreamWorks Animation SKG Inc.

Staff reporter Kate Berry can be reached at [phone], ext. 228, or at [e-mail].