Poor DVD sales of Wallace & Gromit: The Curse of the Were-Rabbit forced DreamWorks to make a write-off in its 2005 results because the film had not generated enough revenues to pay off its distributor, Universal. Kris Leslie, chief financial officer of the Hollywood studio, said: “We don’t expect any significant earnings from this film in the future . . . It didn’t achieve the consumer awareness that we’d hoped for.”

The latest Wallace and Gromit adventure, made by the Bristol-based Aardman Animations, took $184 million at the box office and won an Oscar this week for Best Animated Feature. However, neither the sum of money taken nor the critical success was enough to offset the distributor’s cost. The film would have to have made considerably more than $200 million before DreamWorks would have shown a profit.

The problem was that Wallace and Gromit’s British style failed to catch on in America. Whereas the movie grossed $51 million in Britain, it only took a little more — $56 million — in the far larger US market. DVD sales have followed the same pattern, forcing the company to take an immediate charge to reflect the total loss.

DreamWorks, the studio behind Madagascar and Shrek, earned $63.2 million in 2005’s fourth quarter after the $25.1 million Wallace & Gromit write-off. The company had previously taken a $3.9 million charge in the third quarter as it became clear that the film was not meeting the studio’s high hopes for it.

Income was far lower than a year ago, when the company recorded a net profit of $192 million. The better performance reflected income from the studio’s blockbuster Shrek 2 sequel to the ogre and the princess saga.

The company’s revenue was primarily accounted for by Madagascar, the animated feature starring four zoo animals who have to survive in the wild. It generated 88 per cent of the $192 million fourth-quarter turnover. The bulk of the turnover was generated by DVD and video sales of the movie, with 14.2 million being sold worldwide in the first seven weeks after its release.

DreamWorks is one of Hollywood’s two leading animated studios. Its principal rival, Pixar, was recently acquired by Disney for $7.4 billion.

Jeffrey Katzenberg, DreamWorks’ chief executive, said that the company viewed as “neutral” the impact of the Pixar deal.

He said: “We don’t actually directly compete. We never release films on the same date and in the next couple of years it doesn’t seem like that will be the case. There really is no change in the marketplace.”

Mr Katzenberg also said that a potential logjam of animated films set for release this year appeared to have sorted itself out, leaving DreamWorks’ next film, Over the Hedge, with three weeks alone in the marketplace after its May launch, before Pixar’s Cars appears in June.

DreamWorks refused to give any guidance for 2006 because it could not predict the box office success of Over the Hedge and its other film for the year, Flushed Away.

The company, giving yet another example of Hollywood’s demanding economics, said that Over the Hedge would have to take $310 million worldwide before DreamWorks actually received any profit from it.

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