CEO Jeffrey Katzenberg will have to deliver a world class sales pitch soon if he wants to overcome investors’ growing sense that 2012 will be an ogre of a year for the producers of Shrek. The animation studio’s stock hit an all time low in late December when it fell to $16.50. Even so, 22.9% of the shares were controlled by short sellers — people who were betting that the price would continue to drop — according to SNL Kagan. That hasn’t happened yet; DreamWorks Animation closed today at $17.58, which is still -39% over the last 12 months. But analysts don’t see a buying opportunity: This week Goldman Sachs analyst Drew Borst downgraded DreamWorks to “sell.”  He’s disappointed by the estimated $150M domestic box office for last year’s Puss In Boots — which he figures attracted 30% fewer ticket buyers than the average for the previous 13 DreamWorks releases. That probably wasn’t a fluke, he says: The company faces “increased competition at the box office in the kid/family genre” as well as from home entertainment options on cable and online streaming services such as Netflix. Barclays Capital’s Anthony DiClemente also cited weakening trends for home video sales last week when he lowered his 2012 profit estimate by 24.3% to $1.03 a share. He figures Kung Fu Panda 2 sold about 43% fewer DVD and Blu-ray discs than he had forecast. The growing amount of time that kids spend with video games  and tablets, “may be impacting demand for DVDs more acutely than previously thought.”

On top of those broad concerns, analysts want to know how Katzenberg plans to distribute his films at the end of this year when his deal with Paramount expires. His silence about a potential replacement “leads us to believe that (he) may be seriously considering a self-distribution model, which would likely require some sort of capital raise, likely in the form of debt issuance,” Caris & Co analyst David Miller said last week. Susquehanna Financial Group’s Vasily Karasyov says DreamWorks probably will find another studio to distribute its films, but will have to pay a higher price. If DreamWorks had to pay a distributor 10% of each film’s profit, instead of the 8% Paramount collects, then that could slash Karasyov’s 2013 DreamWorks profit estimate by 11% to 89 cents a share. DreamWorks is expected to release its 4Q earnings in late February, but hasn’t announced a date yet.