Should DreamWorks Animation make more movies?

Recently, DreamWorks Animation (NYSE: DWA) announced that it would be making more movies. According to the press release, the move calls for five movies every two years. The plan would be for one year to have the normal two projects, while the next year would have three releases.

This is an interesting scheme. It has many implications. First, it means that CEO Jeffrey Katzenberg is extremely confident in his company's ability to produce compelling content. Second, it means that he believes that 3D theaters will be more important than ever in the near future. Third, it is a direct attack against Disney's (NYSE: DIS) Pixar asset. DreamWorks Animation is, without a doubt, becoming much more cutthroat in its competitive stance.

I definitely support the idea of an increased movie slate. It gives more chances for the company to discover franchises and generate hits. However...

Shareholders who are thinking of buying on this newly announced strategy must keep a couple things in mind. The first thing is that a bigger slate means more chances for failure. A failure will hurt a DreamWorks Animation more sharply than it would hurt, say, a Time Warner (NYSE: TWX) or a News Corp. (NASDAQ: NWS). That's because the cartoon studio lives and dies by its individual releases.

Second, as this news article states, the move will help increase output for the company's DVD business. As we all know, DVD sales have slowed. So, in a sense, this move to increase production can be seen as an offsetting element to the decline in the home-video markets. It would have been nice for the strategy to be a response to an increasing DVD market. Of course, assuming Blu-ray eventually takes up where DVD left off, the company will be able to leverage that new medium to propel shareholder value.

I think this is a good corporate move overall. My hope is that Katzenberg will be able to maintain quality control and keep administrative costs to acceptable levels with the expanded pipeline. Granted, we're only talking about one extra film every two years, but when considering the complexity of computer-based animation, such a move can increase the ambient challenges. At the end of the day, I don't think this means DreamWorks Animation's stock is a solid buy. It does mean, however, that any investor looking for more direct exposure to the film industry on a long-term basis should take a look at the situation.