"Shrek the Third" faces box office challenges

(Reuters)
Updated: 2007-05-16 09:16

Cast member Mike Myers, who plays the voice of 'Shrek', poses at the premiere of 'Shrek the Third' at the Mann's Village theater in Los Angeles May 6, 2007. [Reuters]

"Shrek the Third" will likely capture the box office throne this weekend, but Wall Street is closely watching to see whether the green ogre's reign over ticket sales may be cut short by pirates.

DreamWorks Animation SKG Inc. sandwiched the release of the third installment of "Shrek" between "Spider-Man 3," whose $151 million debut on May 4 smashed records, and "Pirates of the Caribbean: At World's End," whose predecessor held the previous opening weekend record.

The three "Spider-Man" films have generated $2.2 billion at worldwide box office for Sony Corp (NYSE:SNE - news). so far, and the two "Pirates" films have raked in $1.7 billion in global ticket sales for the Walt Disney Co., and both are poised to top world records for trilogies. "Shrek," at $1.4 billion in global ticket sales, is the top animated franchise of all time.

JP Morgan analyst Barton Crockett said investors are looking for an opening weekend of at least $81 million and would "feel OK if it does $100 million or more."

"More important than the first weekend is what happens the second and third weekend when they get competition from 'Pirates,"' said Crockett, who rates DreamWorks "neutral" and does not own the company's shares.

Crockett estimated that "Shrek the Third" would bring in $690 million in worldwide ticket sales -- 25 percent less than "Shrek 2" -- as a result of its competitive release date.

SMH Capital analyst David Miller also said "competition is definitely an issue," but pegged the film's opening grosses between $90 million and $110 million as a result of its high debut screen count, estimated at 4,200.

"There is room in the market for all three of the May movies," Miller said. "It just might take a little longer (for 'Shrek') to get to the $700 million expectation, which is where the Street needs to see it."

Miller, who described "Shrek the Third" as "just as entertaining as the second film, while easily much more entertaining than the first film," has a neutral rating on DreamWorks shares.

Despite investor nervousness, DreamWorks Chief Executive Jeffrey Katzenberg stuck to the May 18 release date, betting that the film would draw a broader swath of moviegoers and more repeat business than the two PG-13 action adventure films.

"All three of these movies are likely to get the core audience in there and seeing their films," Katzenberg told Reuters in a recent interview. "We are the only PG(-rated) family comedy. That's who we are."

The film opens with ogres Shrek and Fiona as reluctant rulers of Far Far Away as her father, the Frog Prince, lies on his deathbed. Shrek goes in search of the kingdom's true heir, a nerdy teenager named Artie, as an army of fairy tale villains, led by Prince Charming, stage a coup.

Soleil-Research Associates analyst Marla Backer saw the film and believes "it will play well, particularly with younger children."

"We also believe the merchandise campaign for 'Shrek the Third' is much broader than for 'Shrek 2,' which should benefit DreamWorks Animation," Backer wrote in a note to clients.