Waking from the Dream

Anyone who saw Shrek 2 and wondered how to cash in on the ogre's box-office charm will soon have a chance. DreamWorks SKG, the studio behind the billion-dollar Shrek franchise, announced that it plans to spin off its animation division in an initial public offering (IPO) to raise at least $650 million. DreamWorks Animation, as the new company will be called, intends to ramp up production with the release of two computer-animated films a year and needs the capital to help finance the movies and tackle archrival Pixar, which keeps raising the bar with hits like Finding Nemo.

But the IPO opened a window into troubles at the high-flying studio, launched in a blaze of publicity in 1994 by Steven Spielberg, Jeffrey Katzenberg and David Geffen. The IPO filing reveals that DreamWorks' animation division lost more than $350 million over the past five years. It also warns of a litany of potential pitfalls, from the studio's meager slate of big-budget films to its undersized library of movies from which to generate cash during lean years.

The animation spin-off is the latest chapter in the dismantling of DreamWorks, following the sale of its music business and exits from video games and Internet ventures. "They had the name recognition and horsepower to do magnificent things," says media investor Harold Vogel. A fairy-tale ending, however, appears to have been left onscreen.