No Hollywood Ending ... Yet

General Electric (NYSE: GE  ) may bring good things to life, but it won't be Saving Private Ryan. According to yesterday's Wall Street Journal, the colossal conglomerate is breaking off talks to acquire DreamWorks SKG. The paper cites DreamWorks founder David Geffen (the "G" in the SKG) as a source, confirming that the two parties have agreed to disagree on a proposed pairing.

The deal would not have included publicly traded DreamWorks Animation (NYSE: DWA  ) , which DreamWorks spun off last year. GE and DreamWorks were in negotiations for the struggling live action studio, at a price that would have probably been a third of the $3 billion market cap that DreamWorks Animation currently commands. However, DreamWorks SKG does serve as the film distributor for DreamWorks Animation. That's a good thing, since three of DreamWorks SKG's four highest-grossing movies at the box office came from DreamWorks Animation.

Consummating a deal would have helped cement an ongoing relationship between Universal and the DreamWorks brain trust. Jeffrey Katzenberg's Shrek has been transformed into one of the more popular attractions at the Universal Studios theme parks, and Steven Spielberg continues to receive royalties from GE for his part in dreaming up the Islands of Adventure state-of-the-art amusement park.

It was the best fit, but not the only fit.

Given its brief operating history, the DreamWorks SKG library isn't vast, but it is certainly valuable. There won't be a shortage of bidders as rival studios like Disney (NYSE: DIS  ) , Viacom (NYSE: VIA  ) , Time Warner (NYSE: TWX  ) , and Sony (NYSE: SNE  ) should all welcome the chance to buy out DreamWorks SKG at the right price.

But don't expect DreamWorks Animation -- a recent recommendation in Motley Fool Stock Advisor -- to follow DreamWorks SKG onto the bidding block. Despite some rough sledding in recent months, DreamWorks Animation has little reason to warm up to a suitor at the moment.

Yes, DreamWorks has had a rocky 2005 after a successful IPO last year. Through the first half of the year, revenue has fallen by 41% and profits per share are off by 74%. That's understandable, given the lumpy nature of revenue recognition in Tinseltown. The top line had soared 258% higher in 2004. However, DreamWorks had already upset the market when it warned that DVD sales tailed off quickly after brisk initial sales of its top-grossing Shrek 2 blockbuster. It has led some to wonder, especially after Pixar (Nasdaq: PIXR  ) followed suit with a similar gloom-and-doom announcement on the state of excess supply in the DVD market, whether the DVD has peaked as a media format.

Don't bet on that being the case. It's just a glut of product that is currently crowding the market, given the latest craze of releasing popular television shows on disc, one season at a time. That will eventually clear out, and DreamWorks Animation can afford to wait. The company's balance sheet is flush with more than $4 a share in cash. The company's pipeline is also full of product. Wallace & Gromit: Curse of the Were-Rabbit opens next weekend. A sequel to Madagascar was also announced recently.

The company's ambitious release schedule, putting out twice as many new animated features as Pixar, appears sound. It will be building out its library of characters twice as quickly, and the strategy gives it more leeway to take chances.

Thanks to the DVD, we have a more consumer-friendly and cost-efficient platform to release new titles than Disney had when the VCR was still the home entertainment appliance of choice. It's why this is such a good time to be DreamWorks Animation -- or Pixar -- as movie audiences have been connecting with quality computer animation.

So here's hoping that DreamWorks SKG finds a mate willing to pay up -- and that DreamWorks Animation always remains a swinging single.

DreamWorks SKG? Sale!

Brash green ogres and urban zoo escapees? Not for sale!

DreamWorks Animation, Pixar, and Time Warner are all Motley Fool Stock Advisor picks.

Longtime Fool contributor Rick Munarriz enjoys going to the movies. Sometimes he enjoys leaving them, too. He owns shares in Disney and Pixar. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.