How Shrek saved DreamWorks

@CNNMoneyTech November 14, 2011: 3:11 PM ET

TUCSON (CNNMoney) -- Hollywood powerhouse DreamWorks Animation pours eight-figure sums each year into software R&D and is now "as much a technology company as we are an animation company," according to CEO Jeffrey Katzenberg.

But the move to digital animation required completely transforming the company -- and shedding hundreds of its artists.

Launched in the mid-1990s, DreamWorks initially released hand-drawn films. Shrek, its first full plunge into computer animation, was also its first giant box-office hit. "That little green ogre saved us," Katzenberg said during a talk Monday morning at the Techonomy conference in Tucson.

The ogre also forced a tectonic shift at the company. DreamWorks (DWA) decided to go all-in on digital animation.

"At the time we had 1,200 employees," Katzenberg recalled. "About a third of the workforce was obsolete, a third of the workforce we were able to retrain, and a third of the workforce stayed the same. That alone, culturally, was about as disruptive as you could possibly have."

The transformation eventually made DreamWorks stronger -- "that which doesn't kill you ...," Katzenberg quipped.

It also pushed DreamWorks -- which now has a staff of around 2,200 artists and engineers -- to start exploring the supercomputing frontiers.

Three years ago DreamWorks linked up with Intel for a four-year research and development effort that Katzenberg cast as one of Hollywood's most extensive (and expensive) technology projects. Its goal: Help animators translate their vision to the screen faster, better and cheaper.

"An expert animator can do about three seconds of animation in a week," Katzenberg said.

The big limitation isn't hardware; it's software. Katzenberg likened most modern tools to "having a thousand-horsepower engine in your car and driving 30 miles per hour." He hopes the Intel (INTC, Fortune 500) project, which will deliver its first finished tools in late 2012, will help change that.

DreamWorks' investment in R&D is already starting to pay off: The cost of making one of its animated films, which Katzenberg ballparked at $130 million to $150 million each, has fallen by around $6 million in the past year.,

Katzenberg attributed the savings to "the productivity gains out of better software" and "better engineering".

Those benefits can stretch beyond the entertainment industry. Katzenberg envisions the technologies Intel and DreamWorks are developing being used in medical imaging, industrial design and other fields.

That raises the intriguing question: Could DreamWorks Animation add "selling technology" to its business mix? It's being considered.

The company has grown very successful at taking "movie IP" -- its stories and characters -- and turning them into additional revenue streams like merchandise, video games and TV shows. Software intellectual property could work the same way.

"We have a few projects that we're incubating and treating like structured Valley-funded incubation ideas," Katzenberg said.

Speaking specifically of DreamWorks' breakthroughs in rapid rendering technologies, he added: "The implications of this are absolutely revolutionary -- and what's revolutionary for us today is revolutionary for the rest of the world tomorrow." To top of page

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