UPDATE 3-Dreamworks Animation heads to China

Fri Feb 17, 2012 6:37pm EST

By Lisa Richwine

LOS ANGELES Feb 17 (Reuters) - "Kung Fu Panda" creator Dreamworks Animation SKG Inc will build a production studio in Shanghai with some of China's biggest media companies, a landmark deal that gives the company a foothold in one of the largest untapped markets for Hollywood.

The California-based animation studio behind "Shrek" agreed to form a joint venture with China Media Capital, Shanghai Media Group and Shanghai Alliance Investment Ltd. The deal was announced on Friday while Chinese Vice President Xi Jinping was visiting Los Angeles at the end of a U.S. tour.

The family entertainment company called Oriental Dreamworks will develop and produce Chinese animated and live-action content for distribution within China and around the globe, Dreamworks said in a statement.

In a symbol of the new partnership, Dreamworks perched a panda with a fishing pole on top of a crescent moon in the new company's logo, replacing the boy it uses in the United States. The moon was changed to red instead of white.

Beyond film and television, the new studio will pursue live entertainment, theme parks, mobile, online, interactive games and consumer products, a model similar to media giant Walt Disney Co.

"Our goal is, for five or 10 years from now, to have the leading family-branded entertainment company in China," Dreamworks Animation Chief Executive Jeffrey Katzenberg said in an interview.

"It's a pretty significant opportunity for us" given the vast Chinese market for entertainment, he added.

The agreement gives Dreamworks Animation far greater access to audiences in China, where foreign-made films are now limited. Xi's trip to the United States had raised hopes the two sides could strike a deal opening China's market to more American blockbusters, but no accord was announced on Friday.

Dreamworks Animation found success in China last year with "Kung Fu Panda 2," which became the highest-grossing animated movie in China with ticket sales of about $100 million.

The Chinese companies will hold about 55 percent of the new studio and Dreamworks Animation will own about 45 percent. It will initially be funded with cash and intellectual property valued at $330 million, the companies said.

The new studio will launch business operations in Shanghai later this year. Its first animated feature film is planned for 2016, Katzenberg said. The studio likely will release one animated feature per year in 2016 through 2018 with the goal of increasing to two per year. A live-action movie could come out within two years.

Consumer products and live entertainment also could provide "short-term revenue opportunities" as soon as this year, Katzenberg said.

The Dreamworks deal follows efforts by other studios to reach the Chinese market. Both Relativity Media and Legendary Entertainment have forged agreements to establish operations in the country.

Dreamworks Animation shares rose 0.9 percent to close at $19.52 on Nasdaq.