When an investor thinks about theatrical animation, the first two revenue streams that come to mind are box-office receipts and eventual DVD sales. They can both be lucrative, but let's not dismiss the importance of video game licensing as well. DreamWorks Animation (NYSE:DWA) and software publisher Activision (NASDAQ:ATVI) have combined to sell 10 million units of games based on the Shrek, Madagascar, and Shark Tale franchises.
DreamWorks' animated offerings are known for their unlikely partnerships: an ogre and a donkey, a lion and a zebra, or a shark and a fish. However, there is nothing odd about DreamWorks Animation and Activision working together, which may explain why the companies announced a new long-term alliance this morning.
Activision is being granted the exclusive video game publishing rights, across all platforms worldwide, for the next few DreamWorks Animation releases. That's significant, since DreamWorks has committed to an aggressive release slate of roughly two new flicks a year.
On the software side, licensing isn't as lucrative as developing in-house franchises, as gaming giant Electronic Arts (NASDAQ:ERTS) has over the years. Activision has sold a ton of Shrek and Spider-Man video games, but each unit sold has DreamWorks Animation and Marvel Entertainment (NYSE:MVL), respectively, skimming a little off the top.
However, licensing affords the game maker the luxury of a built-in audience. With DreamWorks' animated features drawing tens of millions of patrons to the local multiplex, Activision can put out a new DreamWorks-inspired title without worrying about brand or character recognition.
Creating content, licensing it, and massaging it into marketable form has paid off for these companies. It's probably no coincidence that all of the businesses mentioned have been past recommendations for the Motley Fool Stock Advisor newsletter service. There are also other software companies, like THQ (NASDAQ:THQI), which seem to rely almost entirely on licensing others' content to create popular games.
With all three next-generation video game consoles set to roll out over the next year and change -- and game prices rising about $10 per title for the new systems -- Activision and DreamWorks Animation may be heading into an even more lucrative alliance than investors expect.
So let swamp-dwelling ogres and talking donkeys nurture their unlikely friendships. For DreamWorks and Activision, there's money to be made with every theatrical bond.
It's an unlikely partnership straight out of the movies: daredevil David Gardner and his number-crunching brother Tom, working together to help you discover the market's superstar stocks each month in Motley Fool Stock Advisor . To add some star power to your portfolio, sign up today for a free 30-day trial.
Longtime Fool contributor Rick Munarriz loves playing video games, but he doesn't own shares in any of the companies mentioned in this story. The Fool has a disclosure policy. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
