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Credit crisis slows studio

Universal gets DreamWorks distribution deal, but finance hurdles loom.

October 14, 2008|Claudia Eller | Times Staff Writer

In a move that brings Steven Spielberg closer to reestablishing his independence, Universal Pictures will distribute the movies produced by the filmmaker's new DreamWorks studio. However, Spielberg and partner Stacey Snider's ambitious plans to fund their venture have been slowed by the global credit crisis.

The new DreamWorks is seeking to raise about $1.2 billion in equity and debt to operate the company and fund movie production. India's Reliance ADA Group has agreed to invest $500 million to $550 million for a 50% equity stake. But the venture still needs to raise the lion's share of financing -- some $700 million to $750 million -- in debt.

JPMorgan Chase, the lead bank, has temporarily suspended its plans to syndicate the debt and will wait until the markets rebound, people close to the situation said.

Nonetheless, that is not expected to hinder DreamWorks' plan to begin buying scripts and developing new movie projects. Spielberg and Snider have already begun the initial phase of bringing over some key executives with hopes of hiring the majority of the 150 employees who have worked for them while the studio has been owned by Paramount Pictures.

Under the seven-year distribution agreement, Universal will receive an 8% fee for releasing about six films a year produced by a reconstituted DreamWorks. Universal will distribute the movies around the world with the exception of India -- a fast-growing market -- where Mumbai-based Reliance will release them.

And as is not uncommon in such arrangements, Universal will advance DreamWorks money to cover prints and advertising costs on the movies it releases, which it will be able to recoup before DreamWorks receives its cut of the box office.

Giving DreamWorks a little more cushion, Universal agreed to loan the new studio $150 million once it exhausts the majority of its total funding. The loan must be repaid with interest by the time the distribution deal expires.

Spielberg and Snider hope to launch their studio formally in January and retain its DreamWorks name. But they will continue to have close ties to Paramount. As part of the separation agreement, Paramount has the right to co-finance and co-distribute about three dozen projects that DreamWorks has had in development.

Paramount also has the option to co-finance and co-distribute overseas any new movie that Spielberg and Snider produce during their first year in business.

The widely expected distribution pact with Universal marks a homecoming for Spielberg, who began his career at the studio with such early hits as "Jaws" and always maintained offices on the lot, even after selling DreamWorks to Paramount parent Viacom Inc. in 2006. When Spielberg founded DreamWorks with David Geffen and Jeffrey Katzenberg in 1994, they enlisted Universal as the international distributor of DreamWorks' movies and worldwide distributor of its home videos.

It is also a coming home of sorts for Snider, who spent nine years at Universal as a top executive. She resigned her post as chairwoman of Universal Pictures in spring 2006 to run DreamWorks.

Snider, who will have an equity stake in the new DreamWorks, said Monday that it was entirely Spielberg's decision to pick Universal, making up his mind this weekend. Until recently, Spielberg also had serious discussions with Walt Disney Studios about a potential distribution deal and months earlier talked with News Corp.'s 20th Century Fox movie studio.

But, ultimately, Spielberg went where he felt most comfortable.

"Steven was compelled by a deep sense of loyalty," Snider said. "He had such a long history there and wants to make a contribution to a place he considers his home."

Snider said that Spielberg was "impressed" with the global distribution organization that Universal's top team, led by Ron Meyer and Snider's successors, Marc Shmuger and David Linde, have built. Universal previously distributed films internationally through a joint venture with Paramount and MGM. But over the last two years, Universal has greatly expanded its distribution capabilities overseas.

Meyer, who was in London on business, said during a phone interview, "We couldn't be happier to be back in business with DreamWorks."


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