DreamWorks, Pixar dominatedigital animation

/ Source: CNBC

DreamWorks and Pixar both make cutting-edge digital animated films. But behind the scenes, the two studios are about as different as Shrek and Mr. Incredible.

Based in northern California, Pixar has released six films in the last decade -- every one a blockbuster. That’s a record unmatched by any studio in Hollywood history.  

"It's the perfect melding of the old, 1920s style studio system and the San Francisco-based, tech-heavy, stock-option culture,” said David Miller, an entertainment industry analyst at Sanders Morris Harris. “That's the secret to their success."

Southern California-based DreamWorks animation is riding high on the success of Shrek 2 -- the biggest-grossing animated film of all time. That's delivered big green to investors: DreamWorks shares are up more than 30 percent since going public in October.  

Pixar's stock, up 25 percent over the last year, trades at a premium to DreamWorks.  But DreamWorks has something Pixar doesn't.

"DreamWorks owns, exclusively owns, its characters and it owns the rights to the franchises,” said Marla Backer, a analyst at Soleil Securities. “Pixar doesn't have complete say over what happens with its characters."

That's because of Pixar's profit-sharing, co-production deal with Disney, which gives the Mouse House sequel rights to Pixar's current film library.

"Right now, Pixar is really sharing half of their back end profits with Disney," said Anthony DiClemente, an analyst at Lehman Brothers.

Pixar's deal with Disney ends with the release of its next movie, "Cars." Originally slated to open next fall, it's been pushed back to the following summer, which buys the studio some time to negotiate a new deal with new management at Disney.

"The later they delay the release of that 2006 film for Pixar, the more chances they can sign a new deal with (outgoing Disney CEO Michael) Eisner's successor."

Pixar and DreamWorks may dominate the digital animation business now. But as Warner Brothers, Fox and even Disney climb into this arena, competition for animation talent, scripts and audiences is only going to increase.