DreamWorks' stock drops after investors realize expectations for the company may have been set too high. In light of that, the fate of the studio's upcoming animated film release Madagascar has taken on outsized importance.
ROBERT SIEGEL, host: This is ALL THINGS CONSIDERED from NPR News.  I'm Robert Siegel.</s>MICHELE NORRIS, host: And I'm Michele Norris.</s>MICHELE NORRIS, host: It's opening day for "Madagascar"--not the African island, the animated      film. It features the voices of Ben Stiller and Chris Rock among others,      and it's produced by DreamWorks Animation.  From the company's      standpoint, this is not just another opening, another show.  DreamWorks'      stock took a big hit earlier this month, and against that backdrop,      "Madagascar" has assumed outsized importance for investors.  NPR's Kim      Masters reports.</s>MICHELE NORRIS, host: KIM MASTERS reporting:</s>MICHELE NORRIS, host: The trouble arose in the land of far, far away, but not so long ago.  It      turns out the DreamWorks Animation told investors it expected to sell a      stunning 40 million DVDs of its blockbuster "Shrek 2."</s>Ms. JENNIFER SAUNDERS: (As Fairy Godmother)  Oh, don't worry.  I'm here      to make it all better.</s>MASTERS: "Shrek 2" was hardly a failure.  It sold a fabulously      successful 35 million DVD units.  But that's not 40 million, and the day      that the company announced that it hadn't sold as many as expected, its      stock dropped by 15 percent.</s>Mr. EDDIE MURPHY: (As Donkey) Oh, that is nasty!</s>MASTERS: Richard Greenfield, a stock market analyst with Fulcrum Global,      thinks the mistake was an honest one, but he also thinks it has hurt.</s>Mr. RICHARD GREENFIELD (Stock Market Analyst, Fulcrum Global): I don't      think they're going to make this mistake going forward.  That being said,      I do think investors are somewhat skeptical of management right now, and      there's going to be this rebuilding process in terms of restoring      management credibility.</s>MASTERS: The question is whether the error reveals a big problem or a      temporary glitch.  Entertainment industry analyst Hal Vogel thinks it      took some of the air out of a stock that had gotten a bit overvalued.</s>Mr. HAL VOGEL (Entertainment Industry Analyst): Things can get a little      bit too frothy, and that's what they're seeing a reduction of right now,      is the froth.</s>MASTERS: DreamWorks Animation has been quite a Wall Street success story      since the company started selling stock to the public in October.      Investors expected big things from the company which said it would      release two animated pictures a year.  To Vogel, that seems like a lot.</s>Mr. HAL VOGEL (Entertainment Industry Analyst): It's very hard to do even one hit picture a year, and some      people would say even one hit picture every two years.  DreamWorks is      very ambitious, perhaps overly so, given the vagaries of the market.</s>MASTERS: Consider that Pixar, which has a perfect record for delivering      hits from "Toy Story" to "The Incredibles," hasn't even cranked out one      movie a year so far.  Meanwhile, DreamWorks, before its animation unit      went public, had a mixed track record.  It scored very big with "Shrek"      and "Shrek 2," but fared less well with "Shark Tale."  It did so poorly      with hand-drawn animated features like "Sinbad:  Legend of the Seven      Seas" that the company is now committed exclusively to computer-generated      films.</s>MASTERS: Nonetheless, investors bid up DreamWorks Animation stock to more than $40      per share.  Then came the news of the shortfall in DVD sales.  Now      investors are watching "Madagascar," the story of zoo animals who find      themselves in the wild, very closely.</s>MASTERS: Unidentified Man #1:  This could be the best thing that's ever happened      to us.</s>MASTERS: Unidentified Man #2:  No, no, no, no, no, no, no!</s>MASTERS: Vogel expects "Madagascar" to be a big success.  If it's not,      he expects the stock to take another hit.</s>Mr. HAL VOGEL (Entertainment Industry Analyst): That just shows how volatile and how dependent the earnings      are of any of these companies, including DreamWorks, on DVD shipments and      sales as apart from the theatrical performance.</s>MASTERS: Even if "Madagascar" is a smash, Vogel doubts DreamWorks      Animation stock will once again rise above $40 a share in the near      future.  Greenfield disagrees, and he says "Madagascar" doesn't have to      fly all that high for the company to get there.</s>Mr. RICHARD GREENFIELD (Stock Market Analyst, Fulcrum Global): Most investors are expecting this film to do better than      "Shark Tale," which did $350 million at the worldwide box office.  No      one's expecting this to live up to what "Shrek" or "Shrek 2" did.</s>MASTERS: Greenfield believes that DreamWorks can flourish even if it      doesn't do quite as well as Pixar.  Time will tell whether that's true.      Clearly, 10 years after it was formed, DreamWorks is far different from      the company that its three founders imagined.  Steven Spielberg, David      Geffen and Jeffrey Katzenberg wanted to create a media company churning      out movies, television shows, music.  Now Spielberg and Geffen are      running a privately held movie production company with no music and just      a little television.</s>MASTERS: Katzenberg still has big plans for the animation unit.  While he's      keeping mum in anticipation of another stock offering, he recently told      Newsweek magazine that DreamWorks Animation will become a brand-name on      its own, selling everything from bed linens to Broadway productions.  Kim      Masters, NPR News, Los Angeles.