DreamWorks Animation SKG, Inc.

at William Blair & Company 30th Annual

Growth Stock Conference - Final
June 2010
RALPH SCHACKART, ANALYST, WILLIAM BLAIR & COMPANY: Let me go ahead and get started. Good
morning and thanks again for attending William Blair's 30th Annual Growth Stock Conference. I'm
Ralph Schackart, for those of you that I haven't met by now. I cover digital media, RealD at William
Blair. Just talking about RealD, sorry.
Today we're pleased to have Lew Coleman here from DreamWorks Animation for his inaugural William
Blair Growth Stock Conference. I'm sure you're very familiar with all of DreamWorks fun and lovable
characters, so I'll spare the long-winded intro. We are going to show a trailer today, or Lew and Rich
are, but it will not be in 3D for those of you that are interested.
We're going to do a little bit different format today. Lew's going to spend about maybe 10 or 15
minutes on the slides, then we're going to actually do the Q&A here.So, there will not be a breakout
session.
With that, I'll turn it over to Lew. And if you could turn your phones to vibrate mode, that'd be great.
LEW COLEMAN, PRESIDENT, CFO, DREAMWORKS ANIMATION SKG, INC.: Thanks, Ralph. It's nice to be
here. I think it's particularly nice, given where our stock price has been recently, to at least be invited
to a growth stock conference. So, I thank you very much.
Before I begin, I'd like to call your attention to the Safe Harbor Statement, which is there and on our
web. Thank you Safe Harbor Statement.
2010's a big year for DreamWorks Animation. Today we're the largest animation studio in the
world. And this year we're the first company to release three PG animated films all in 3D. 2010 has
been a great year for the 3D platform. As you know, all our films are being produced in 3D, except the
trailer today.
Our distributor estimates that 3D accounted for approximate 65% of the domestic gross so far this
year for both Dragons and Shrek combined. We continue to believe that 3D is one of the most
profitable investments we have made today.
We currently have two hits at the box office, How to Train Your Dragon and Shrek Forever After, ranked
number three and number four domestically, at least at this time. Released on March 26th, Dragons
has reached approximate $215 million in domestic box office. Worldwide it's approaching $500 million,
with Japan set to open in August.
In addition to its strong box office results, Dragon's our most successful original film for consumer
product revenue, generating nearly two times as much as we expect from Shrek Forever After. In April
we announced that Dragons would become our fourth franchise and we plan to release the sequel in
2013.

Our second feature film this year, Shrek Forever After, reached over $70 million in domestic box office
during its opening weekend, the fourth biggest opening for an animated film, behind only Shrek 2,
Shrek the Third, and the Simpson Movie. Both Shrek Forever After and How to Train Your Dragon have
had very strong staying power with audiences, experiencing better than normal week-to-week holds.
Shrek Forever After recently passed the $210 million mark in domestic box office and is the third
DreamWorks Animation film since June, 2008 to reach $200 million, and the fifth in a row to surpass
$180 million domestically.
While we're proud of the film and very pleased to have achieved this level of consistency, we think that
the Company's recent stock price performance is an indication that investors had higher expectations
for Shrek Forever After at the domestic box office.
Shrek Forever After will be a profitable film for us. However, given Shrek Forever After's performance
domestically, we expect that it will ultimately perform similar to our traditional film model. That is, we
do not expect Shrek Forever After to contribute significant revenue to the Company in the second
quarter. In fact, we expect to recognize the majority of the film's revenue in the second half of the year
as a result of its international box office performance and its Home Entertainment release.
Impacted by the absence of a spring home video release this year, together with the domestic box
office performance of Shrek Forever After, we expect the Company to recognize a year-over-year
decline in gross margin percentages in the second quarter. Although we still have a couple of weeks
remaining in the quarter, we believe as of today that the Company is likely to deliver second quarter
earnings per share that is meaningfully below our reported EPS for the second quarter of 2009.
Looking more closely at the international box office for Shrek Forever After, it's already off to a solid
start. The film has set a number of international box office records, including being the highest
grossing animated movie of all times in Russia and the Philippines.
With box office receipts approaching $50 million, Shrek Forever After has become the second highest
grossing movie in Russia, behind only Avatar, and is the highest grossing Shrek film in several
countries, including India, Indonesia, Malaysia, Singapore, and the Ukraine.
Shrek Forever After opens this weekend in Australia and across Western Europe at the end of the
month and into early July as we work around the World Cup schedule.
As you know, our goal is to release films that we expect to be among the best performers ever
year. We believe we are able to mitigate a good portion of the risk associated with this business model,
or our sequel strategy.
In addition to reducing our risk profile, the sequels have allowed us to generate value beyond the box
office. So far we've pursued a number of non-theatrical efforts with these franchise properties,
including television series, television specials, online Virtual World, and live entertainment.
In an industry that is increasingly reliant on known properties to drive value, DreamWorks Animation is
one of the very few studios to have four active franchises in the marketplace today, positioning the
Company to deliver significant value to shareholders over the long term.

In closing, I would like to bring to your attention our third film in 2010, Megamind, which we are
hopeful will become another franchise. Before I take some of your questions, I'd like to give you a
sneak peak of what's in store for you in November. Let's take a look at our latest trailer for Megamind.
[Plays Trailer.]
RALPH SCHACKART: Let me go ahead and kick it off, if I could. Lew, obviously Shrek is softer than a lot
of people anticipated coming out of the gate. Is there anything you could do internationally in the
distribution front, or Paramount can at this point, to maybe sort of -- on the marketing end of it or
reposition the movie as it rolls out worldwide?
LEW COLEMAN: Ralph, good question.
UNIDENTIFIED AUDIENCE MEMBER: Repeat the question?
LEW COLEMAN: The question was is there any -- because Shrek opened a bit soft domestically, is there
anything we or our distributor, Paramount, ought to do internationally to ensure, I guess, higher box
office and more success.
I think we're somewhere between pretty and very comfortable with how the film has been positioned
internationally. The Shrek series have always been very strong internationally. The initial box offices
that I spoke about briefly are all records.
So, my guess is, is that we will not change the advertising strategy internationally based upon the
domestic performance. I think the domestic performance had a lot more to do with sort of some of the
cycles in the industry. The fact that people are getting maybe more used to Shrek than they needed to
be. And I think maybe most of all the fact that we failed to really figure out how to open Shrek Goes
Fourth in a way where it was a huge event.
So, I think part of it, if we had to do over again, we would probably do something slightly different with
20/20 hindsight on how we launched it domestically. But at this point, I don't think we're going to make
any substantive changes in terms of what we're doing internationally.
More questions?
RALPH SCHACKART: Questions?
LEW COLEMAN: A question.
UNIDENTIFIED AUDIENCE MEMBER: Are you concerned that maybe the premium pricing had something
to do with (inaudible)?
LEW COLEMAN: I think there's been a lot of speculation around the 3D pricing in particular on Shrek
Goes Fourth. And I think that's really an easy thing to blame. Most of our exit interviews did not show
any price resistance. There was some confusion in the market on the release weekend around $20
prices, particularly in New York, and that may have had somewhat of an effect.

I think that the audiences out there are beginning to figure out 3D pretty quickly as consumers. And I
think you really have to make a compelling case to have a 3D movie in 3D. Like Avatar, like
Dragons. And I don't think we made that case for Shrek. I also think you had audiences that were quite
used to looking at Shrek in 2D.So, this conversion of sequels from 2D to 3D is something we can all get
a look at this weekend when Toy Story comes out.
So, a lot of different reasons; hard to pick one that's primary. Price resistance did not seem to be an
issue on the exit interviews.
RALPH SCHACKART: Lew, can you talk a little bit about Megamind and what you're planning to do for
the rollout strategy? Maybe some lessons learned from Shrek, if there are any, since it was your fourth
installment in the franchise. And how it's sort of tracking internally with some of the polling you're
doing with the consumers.
LEW COLEMAN: As far as Megamind's concerned? Yes. Megamind is really at this point sort of too new
to rate. We've had it out with one screening. The film is way far from being in its final finished form, so
it's sort of hard to read the early screenings because it's not a finished film.
We think it's a strong story. We think that there is room to sort of take the superhero genre and turn it
upside down and make it a bit irreverent because it hasn't been done. So, we're pretty comfortable
with the direction that the film is heading in. But I think it's sort of way too early to take victory laps at
this point.
Yes.
UNIDENTIFIED AUDIENCE MEMBER: (Inaudible question - microphone inaccessible.)
LEW COLEMAN: Yes. I think the box office futures are inevitable. I think we will watch the market
because it may turn out to be somewhat useful. But I don't think we're going to -- I don't think we're
going to have a lot of confidence in it until we understand the depth of the market and give it a little
while to trade.
It's obviously sort of sparked a lot of interest, and it's obviously gotten wrapped up into the whole
derivative issue at the same time. So, I think there's a lot of noise around it. We'll wait and see what
happens. Obviously, if it turns out to be a useful market, it'll help us all.
Yes.
UNIDENTIFIED AUDIENCE MEMBER: Are you speaking with Paramount (inaudible)?
LEW COLEMAN: We have discussions with Paramount daily. And at this point, there is no announcement
to make on what's going to happen to the distribution agreement.
RALPH SCHACKART: Lew, can you talk about some of your new growth initiatives that you've laid out at
the Analyst Day? Virtual Worlds, some of your made-for-TV specials, and your Broadway initiative as
well, please?

LEW COLEMAN: Yes. In sort of reverse order, Broadway is now traveling. It opens in this city next
month. The touring market is a different market than the Broadway market. We have a tendency to sell
into season ticketholders and we're looking forward to a fairly profitable touring show.
We're in negotiations to also open it in London. Those have not been finalized yet, so that's not a
formal announcement. And we're looking at some other opportunities as far as legitimate theater is
concerned.
The television specials was the second one? Television specials for us are a way to sort of keep
franchises alive. We like to do them. It sort of also fills out the gaps in what our labor -- particularly our
creative labor is doing, so it keeps the studio full. The economics behind them are fairly reasonable. It
is mostly DVD, partly now advertising revenues. Advertising revenues are improving, so that business
is looking marginally better to us.
Virtual World, it's really too early to tell. Virtual Worlds' been up a little over -- probably about six
weeks, I would guess; maybe eight weeks. We're fairly happy with how the market's responding. We're
fairly happy with how many kids are signing up. But it's way too early to sort of make a victory lap at
this point.
The Virtual World will be a drag on earnings in the second quarter, mostly because we've put quite a
bit of advertising dollars behind the launch and those dollars hit the P&L statement directly. And at
least it's within the range that we'd previously given you guidance on.
But broadly speaking, we're happy with the way we're extending our IP. We have a couple of other sort
of efforts coming up which will sort of move it into a different sort of live kind of venues. We're working
on a show with Dragons and we're working on a show with Kung Fu Panda that is not purely theatrical,
but has good entertainment values for the family.
RALPH SCHACKART: Since you're here, I'll give you the mic.
UNIDENTIFIED AUDIENCE MEMBER: Is there anyting that really got lost in the noise with Shrek? Were
analyst estimates, like myself, part to blame? Just too high? Or anything that you'd like to share with us
with sort of the publicity that Shrek number four has received?
LEW COLEMAN: Yes. I mean, I think -- I mean, it's hard to sort of get a perspective because I think
everybody had enormously high expectations for Shrek and so we wound up opening a movie at $72
million. And the disappointment means that $72 million openings are failures.
So, I don't think a $72 million opening is a failure. I don't think a movie that declines somewhat less
than 30% in the next four weeks -- weekly is a failure. I don't think the estimates of $250 million
domestic box office should necessarily be a failure.
But clearly, I think everybody's expectation, including our own expectation, was for a higher
opening. Lots of things, as I've already mentioned, probably affected that.So, I think the thoughts I
would like to leave you with is that it's still a damn good movie in every respect.
UNIDENTIFIED AUDIENCE MEMBER: (Inaudible question - microphone inaccessible.)

LEW COLEMAN: Because Megamind is an original film, we do not pay enormous dollars for the voice
actors. The voice actors tend to get larger payments when we do sequels. So, they are paid sort of
pretty close to scale. I don't know what the total amount is -- there's obviously some big actors in that,
but it is not really significant.
Our current model calls for total production costs, including overhead, to be around $150 million. And
this movie is going to fit within our sort of total estimates. So, if you add the voice talents maybe, I
don't know, Rich, $10 million on it? On top of that?
RALPH SCHACKART: A quiet audience. It must've been a late night last night with--.
LEW COLEMAN: For all of us, I think.
RALPH SCHACKART: Any more questions for Lew? Rich? Alright, Lew. Thank you very much for
coming. We appreciate it very much.
LEW COLEMAN: Thank you very much.
RALPH SCHACKART: Thank you.