For sale: the $650m studio with a knack for monster hits

Hollywood's youngest studio, DreamWorks, announced yesterday that it was taking its animation division public, a move calculated to capitalise on the worldwide success of Shrek 2 while also signalling the slow break-up of the 10-year power partnership between Steven Spielberg, David Geffen and Jeffrey Katzenberg.

The company said it was spinning off the animation division into a new company, to be headed by Mr Katzenberg. The $650m (£350m) it hopes to raise from the public sale of stock - at a date yet to be announced - will help pay off debts and also pave the way for a doubling of the production schedule.

Mr Katzenberg, who ran Disney's film studio for 10 years before being dumped by his boss-turned-nemesis, Michael Eisner, has made no secret of his ambition to beat Disney at its own game. Like its cinematic predecessor Shrek in 2001, Shrek 2 has surpassed all competition in the animated market, and the hope is that subsequent DreamWorks productions, starting with Shark Tale later this year, will prove equally effective. In all, it has eight animated films in the pipeline due for release over the next three years.

It may be a matter of interpretation, however, whether the share offering is the healthy symptom of a company on the up and up, or a publicity ploy to raise badly needed cash and paper over the cracks in an enterprise that has failed to live up to many of its expectations.

After early film successes, among them Saving Private Ryan , American Beauty and Gladiator , the roster has slumped badly in the past two years. Last year, the company generated just $164m at the box office - Spider-Man 2 took as much in its first fortnight. Other projects have also foundered. The music division headed by Mr Geffen was sold last year, and the television department has no bona fide hits to boast.

Even the animation division is far from a picture of health, the Shrek profits offsetting the failure of almost everything else put out by DreamWorks'lavish animation campus in Glendale. The division has made money in only two of the past five years and has debts of $465.3m. In the first quarter of this year, pre-Shrek 2, it posted a net loss of $25.9m.

Mr Geffen will participate in the new animation company but, significantly, Mr Spielberg will not. Rumours have swirled for years that Mr Spielberg has lost much of his initial interest in DreamWorks. Recently, he has focussed his energies on directing and producing, but the mixed fortunes of these projects has caused some in Hollywood to wonder if the golden boy has lost his touch. Peter Bart, editor-in-chief of Variety , wrote recently that Mr Spielberg, like his company, was going through the "creative blahs".

The share offering may also have been motivated by knocking on the door from DreamWorks' investors, among them Microsoft's Paul Allen, who has poured in about $1bn and now has the right to start demanding some of it back.

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