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DreamWorks Wakes Up to Reality

With the Katzenberg-Disney suit and Playa Vista behind it, the studio is under pressure to stem start-up losses and build a live-action strategy.


After ridding themselves in less than one week of their two biggest distractions, the principals of DreamWorks SKG--Jeffrey Katzenberg, David Geffen and Steven Spielberg--face a big question: Where do they go from here?

The settlement of Katzenberg's breach-of-contract lawsuit against former employer Walt Disney Co. for about $250 million, on the heels of DreamWorks' decision to pull the plug on its Playa Vista studio fiasco, now puts the pressure on the partners to get the fledgling studio dealing with substantive issues. Among them: how to stem continuing start-up losses that come with trying to build a studio amid an industrywide retrenchment and what to do about a live-action movie division that needs more product.

The three men are nearly at the halfway point of their 10-year partnership, which sources said at times felt the strain of Katzenberg's three-year legal battle with Disney and the four-year effort to build a "studio for the 21st century" at Playa Vista.

Since early April, Katzenberg has seemingly spent more time in a courtroom than in his own office as he pursued his fight with Disney over the bonus it owed him. He and other key DreamWorks officials spent countless hours preparing the case, meeting with outside lawyers and, finally, appearing for 32 days at a court hearing in Century City law offices that ended last week.

When it comes to day-to-day operations, Katzenberg is de facto chief executive of DreamWorks, raising questions about how disruptive his absence was to company business.

"Was I razor-focused? Was my attention distracted by this? Absolutely," admitted Katzenberg, known as an obsessive micromanager. "Did that have an impact? Did the company suffer? Yes, but it's hard to quantify how it did."

Katzenberg objected to a suggestion that relations with Spielberg and Geffen had been strained over his prolonged legal duel, insisting, "There was never a time when they didn't stand behind me privately and publicly." However, he acknowledged, "they did make accommodations in their schedules and their priorities. . . . Was it a sacrifice? Yes."

Probably the biggest disruption was to the company's animation division, to which Katzenberg devotes most of his time and energy. However, he doubts that any of the creative problems that arose during the making of the new $80-million animated film, "The Road to El Dorado," could have been averted by his having spent any more time on the process.

" 'El Dorado' has gone through the natural problems these films go through," Katzenberg said. "There were more than average, but not more than ever. Do I think those challenges were impacted by my litigation? No."

While Katzenberg has no direct responsibility for running DreamWorks' live-action movie division, which is overseen by Spielberg, he is involved in "helping strategize" that part of its business, which is in flux.

For some time, the DreamWorks partners have been trying to figure out how to get more films in the pipeline to justify the kind of overhead the studio carries.

In April, Geffen acknowledged the need to release more movies and was grappling with how to achieve that since Spielberg and his two production chiefs, Walter Parkes and Laurie MacDonald, "can't oversee more product than they already are."

But since then, no adjustments have been made, an indication that strategic decisions such as this one seemed to be tabled until Katzenberg could refocus his attentions.

"Maybe those things would have been more aggressively addressed if I was there utzing people along," Katzenberg conceded.


DreamWorks has had mixed results in its movie business, doing well with such live-action hits as "Saving Private Ryan" and "Deep Impact" (though Paramount Pictures owns half of each) and the animated films "Antz" and "Prince of Egypt," but not so well with "In Dreams," "The Love Letter" and "Amistad."

Just how well DreamWorks, a privately held company, is doing financially has always been a mystery to Hollywood. Its financial figures have been a closely guarded secret, and what numbers have been revealed privately to a limited number don't appear to tell the whole story.

DreamWorks has periodically floated private documents to potential investors related to a possible investment in Playa Vista.

According to people who have seen the financials, the studio showed a loss of slightly more than $200 million last year, with revenue of more than $1 billion, with specific mentions that its TV operation didn't do very well in 1998 and noting that it was the studio's first full year of revenue from film.

But those prospective investors also note that there are some caveats to the loss number. As is the case with most entertainment companies, money flows in for as long as seven years after the initial costs are incurred for a film from such things as video sales, television broadcasts and foreign business.

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