One local video game developer, THQ Inc., has shuttered its kids division, because it wasn’t making enough money. But for companies such as DreamWorks Animation SKG Inc., the potential for video games that appeal to kids is still exciting.
Why the difference? Because for DreamWorks, the games constitute a small but steady additional stream of revenue on top of its core business of animated movies.
DreamWorks last week signed a contract with a new licensing partner that will develop video games based on its upcoming three films, which include the next installment in the “Madagascar” franchise that will hit theaters in June.
The development and publishing deal with West L.A.’s D3Publisher of America Inc. is the latest in the Glendale film studio’s efforts to exploit the popularity of its stable of beloved animal and fantasy characters, including Kung Fu Panda and Puss in Boots as well as the menagerie from “Madagascar.”
Until now, the studio worked with a succession of game developers and publishers, including Activision Blizzard Inc. in Santa Monica and THQ in Agoura Hills. The latter company released Puss in Boots products for traditional game consoles and smart phones.
Chris Hewish, DreamWorks head of interactive, said he understands that the market for video games is challenging and that the company will continue to work closely with its developers and publishers.
“We stay very involved with all our partners, even meeting on a weekly basis, because we want to have the best products in all these platforms,” said Hewish, who came to DreamWorks four years ago after 13 years at Activision.
The publishers, he explained, are torn between the current sales model of games for consoles and the coming dominance of digital.
“The video game industry is in the midst of a transition,” Hewish said. “And it’s a very tough time for (video) publishers who have to maintain good relationships with the retailers of console games, but also look ahead to where the market is going in digital and online.”
It wasn’t clear whether DreamWorks decided to seek out new partners such as D3 before THQ announced it was leaving the market.
Instead of going with a diversified publisher like Activision or THQ, DreamWorks this time opted for a specialist in family games. D3 is best known for its licensed games and educational software based on TV shows and films for young people, such as “Ben 10,” “Victorious” and “National Geographic.” The “Ben 10” adventure and racing titles have sold more than 5 million units over the last five years.
“Any time you sell a million-plus in kid’s games, it’s definitely a success,” said Michael Cerven, D3’s spokesman. “Kids’ games are our bread and butter and gives us an edge over other (more general) publishers.”
D3 was acquired a few years ago by Tokyo’s Bandai Namco Games Inc. and is now a subsidiary of the Japanese company.
With the DreamWorks deal, D3 gained rights to develop and publish games for three animated feature films. Two are sequels, “Madagascar 3: Europe’s Most Wanted” and “Rise of the Guardians,” and the third is a new potential franchise, “Croods,” featuring prehistoric characters and set for release next spring.
To create products for the mobile and social gaming market, DreamWorks recently struck a deal with Halfbrick Studios, the Queensland, Australia, developer of the THQ’s “Fruit Ninja: Puss in Boots” apps for Apple and Android devices.
Analysts are skeptical that video games could become a significant contributor to the studio’s consumer products revenue. Ben Mogil of Stifel Nicolaus & Co. in New York, which has a “sell” recommendation on DreamWorks shares, expects video games at most would contribute $10 million in annual revenue.
Although the quirky pop-culture comedy of the “Shrek,” “Madagascar” and “Puss” films also attracts an older moviegoer, Mogil noted that DreamWorks’ core audience is kids and their parents.
“It’s there, but not great,” he said of the video game market for DreamWorks. “Their demographic is a tad young to be really active video game users.”
DreamWorks is scheduled to release fourth quarter earnings Feb. 28. In the third quarter, its profit fell 51 percent on lower box office and home video sales, but that was not as bad as what Wall Street expected. Its shares, which closed at $18.47 on Feb. 8, are down 36 percent from its 52-week high set last February.
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