February
6
DreamWorks Seeking New Distrib Deal
After Thursday night's pre-Oscar Frost/Nixon celebration at L.A.'s Nobu, several reporters at the party called Universal execs to inform them that they had heard that DreamWorks was negotiating a new distribution deal with Disney. This came as a shock to Universal, which had been trying to accommodate DreamWorks' increasing demands. The next day, the studio severed the deal that had been hammered out four months ago.
DreamWorks heads Steven Spielberg and Stacey Snider have faced an uncertain economic climate as they try to raise hundreds of millions in debt against the $550 million in equity promised by India's Reliance, which they cannot use until they raise bank funding against it. Initially, the company had planned to raise $750 million: on the advice of J.P. Morgan, it's now $325 million, which would free up $650 million to start funding production of 18 movies over three years. When the economy improves, DreamWorks plans to raise a second phase of financing.
Spielberg put up some of his own money to start the new iteration of DreamWorks away from former studio parent Paramount; he and Reliance are co-financing the company's current overhead (which is trimmed down from $50-million a year) and split the $26.5 million fee to acquire 17 projects from Paramount, including The Trial of the Chicago 7, Dinner for Schmucks, The 39 Clues, Motorcade and Atlantis Rising.
Universal had agreed that if DreamWorks needed funds at the end of their term--after the studio had released several films--the studio would loan DreamWorks $150 million. But with the delay in their bank funding, DreamWorks asked to get that money up front, for their immediate needs. Universal was willing to lend the $150 million against future earnings. But DreamWorks was asking for more, and when they were not able to score the terms of their old HBO deal, Universal would only give up a few slots to Spielberg and Snider--not the six a year they needed.
When Universal was unable to satisfy DreamWorks' extra demands, Spielberg and Snider reopened talks with Disney, which had been interested in the deal. (Spielberg had preferred to stay in his comfort zone with Ron Meyer and Universal.) It's easier for Disney, which releases fewer pictures a year, to deliver DreamWorks their Starz Pay-TV slots. And a DreamWorks announcement could boost Disney's stock price. (Nothing that Universal does has much impact on parent General Electric.) When Universal called DreamWorks and got confirmation of the Disney talks on Friday,the studio instantly severed the deal.
In other words, Ron Meyer was pissed. Universal insiders insist that GE was supportive of releasing Dreamworks product, and was willing to extend as much as they could--as long as the deal made good business sense. The original deal was based on DreamWorks paying its own way--not leaning on Universal. "Their needs got bigger and bigger," says one exec. "They kept changing their deal."
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