Universal-DreamWorks Distribution Deal Falls Apart

Universal-DreamWorks Distribution Deal Falls Apart

DreamWorks’ troubles raising financing as an independent studio are behind failed deal with Universal and negotiations with Disney.

 

 

 A deal struck just four months ago for Universal to distribute DreamWorks’ movies has fallen apart over disagreements regarding film financing and the pay television deal.

 

 
At the core of the breakdown has been DreamWorks’ inability to close its financing from Reliance Big Entertainment, which has committed $500 million to capitalize the studio, but only if DreamWorks raises another $700 million elsewhere.
 
Just last week there were reports that DreamWorks had secured $150 million in bank financing that would finalize at the end of March. But in the meantime, the studio had been asking Universal to front more cash so that it could start making movies.
 
One executive close to the deal said that DreamWorks had sought $250 million from Universal to help produce its movies. The major studio balked at putting up so much cash, which in effect would have meant an equity investment in DreamWorks.
 
At the moment, DreamWorks has 17 projects in waiting that it bought from Paramount last month, but none has a greenlight because of the credit crunch.
 
Another factor that led to the break was because an HBO deal  with DreamWorks had foundered, leaving the studio with no presence on pay cable. The independent studio sought to use slots from Universal's deal with the pay cable channel, and Universal was reluctant to give up more than one or two.
 
As a result of these conflicts, DreamWorks turned in recent weeks to Disney, and one executive knowledgeable about those negotiations said a deal was “virtually done.” Another said a deal was possible on Friday. Disney declined to comment, as did DreamWorks, but executives from both companies were meeting all day Friday.
 
That alliance made some sense, as Disney has recently cut back on its movie production slate, and needs more movies to release through its distribution pipeline.
 
In addition, Disney has plenty of slots for movies through its deal with “Starz,” which it can make available to DreamWorks.
 
An executive close to the deal said that the deal was about distribution only; Disney would not put up any cash to make movies, and would not be an equity holder in DreamWorks.
 
But the talks with Disney came as an apparent surprise to Universal, reported in a New York Times blog early Friday. Universal immediately put out a statement ending the deal:
 
"Universal Pictures has ended discussions with DreamWorks for a distribution agreement,” the statement read. “Over the past several weeks DreamWorks has demanded material changes to previously agreed upon terms.  It is clear that DreamWorks’ needs and Universal’s business interests are no longer in alignment.  We wish them luck in their pursuit of funding and distribution of their future endeavors."
 
An insider on the DreamWorks side insisted that Universal had changed the terms after the deal was struck, including wanting to change the conditions of Steven Spielberg’s movies being part of Universal theme parks.
 
DreamWorks split last October with Paramount, which bought the studio in 2005 but suffered from poor relations between Paramount chief Brad Grey and Steven Spielberg.
 

At that time, the newly independent studio announced that an Indian media conglomerate, Reliance Big Entertainment, would finance the company. But thus far DreamWorks has been unable to match the $500 million committed with another $700 million from banks because of tightened credit around the world.

 

Spielberg’s $140 million animated 3D movie, “Tintin,” has ended up being financed by Paramount, ironically, and Sony, rather than DreamWorks.
 
Since leaving Paramount in the fall, Steven Spielberg has been floating the studio on his personal cash and that of Reliance, an extraordinary measure, and a rare one in Hollywood.