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Microsoft, DreamWorks Studio Team Up : Business: Venture to create Hollywood-inspired interactive software.


REDMOND, Wash. — The world's most powerful software corporation joined with some of the biggest entertainment industry powerhouses Wednesday as Microsoft Corp. said it will become a minority investor in DreamWorks SKG and participate in a venture to create a new generation of Hollywood-inspired interactive software.

Microsoft and DreamWorks, the studio started last year by moguls Steven Spielberg, Jeffrey Katzenberg and David Geffen, each will contribute half of the $30-million start-up funding for the venture.

Called DreamWorks Interactive, the new company will be based largely in Los Angeles with a smaller group near Microsoft headquarters in Redmond. It will focus initially on producing adventure games and interactive stories to be played on personal computers and game machines.

The venture is the splashiest entry yet in a fast-growing industry about which there is considerable uncertainty. Few have profited from the millions of dollars spent thus far on chasing the nebulous interactive market, though many are convinced that the market eventually will be huge.

By merging Microsoft's technical expertise with the sensibilities of the entertainment industry's top talents, the venture hopes to exploit new forms of popular culture, from shiny CD-ROM discs to yet unknown inventions in cyberspace. Microsoft's formidable distribution power gives the new company what could be an unparalleled advantage.

The DreamWorks' star team flew to Seattle to join Microsoft founder Bill Gates in a news conference. Gates is the richest man in America, and the four combined are estimated to be worth more than $11 billion.

Seated on high director chairs--not standard furniture at the software firm's headquarters--the group symbolized the ultimate in the "Sillywood" phenomenon that has driven numerous similar deals recently as Hollywood and Silicon Valley have come together to create digital-age entertainment.

"I'm spoiled," said Spielberg, who sported a brown leather jacket and a black baseball cap with the yellow smile logo of one of Microsoft's consumer software products. "I worked with the best studios and the best actors, and it would be silly to get into the interactive business without Microsoft. They're the best company in the world. It does seem like a marriage that was destined to happen."

A self-described "video junkie" dating back to the days when the ancient video game Pong was popular in the 1970s, Spielberg insisted that he and his partners commit the necessary time to interactive projects despite their busy schedules.

"I have not lost my interest in this technology," he said. "My interest grows every year."

Analysts and interactive industry veterans for the most part applauded the deal, which they said lends legitimacy to the nascent multimedia industry and would help to expand the market for CD-ROMs and other interactive software.

"These guys are obviously very talented and what they're doing can only help this industry," said Tom Kalinske, chief executive of Sega of America.

Some questioned Gates' projections that the new venture would have revenues of several hundred million dollars within two to three years. "Like the movies, this is a hit-driven business," said Bruce Ryon, multimedia analyst with Dataquest. "And it's not necessarily easy to get a hit."

Many of the new interactive ventures have suffered from a clash of wildly different personalities and cultures spanning Hollywood and the computer world. Some industry observers questioned whether the software giant and the new studio can bridge the gap.

All four principals are known for being obsessed with detail and taking a very hands-on approach to their businesses. Microsoft also has a reputation for dominating the companies it works with.

But Spielberg went out of his way to praise Gates, who has been under fire from rivals alleging that Microsoft has been heavy-handed in competing with them. The company's operating system software runs about 80% of the personal computers sold today, and the software giant has been the target of antitrust charges.

"One thing we've already learned from the last couple of months is that they are not predators, they are collaborators," Spielberg said in an interview with The Times.

But in a fledgling industry populated by dozens of small start-ups--many of which aspire to become the Microsoft of multimedia--the deal was greeted with some skepticism.

"I don't think the 'Dream Team' or Microsoft has the mantle on interactivity. I don't think they're any better than we are, either creatively or with technology," said Graeme Devine, co-founder of Trilobyte, the tiny Medford, Ore.-based firm that developed "The 7th Guest," one of the few CD-ROM titles to sell more than a million copies. "Should we suddenly run on down to Hollywood and say 'Please, Mr. Spielberg, open your door?' I don't think so."

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