AP Sources: DreamWorks, Disney talk distribution

February 6, 2009 6:51:36 PM PST
Steven Spielberg's DreamWorks SKG production company is in talks to have The Walt Disney Co. distribute six of its movies a year as talks broke down with Universal Pictures, two people familiar with the situation said Friday. The switch ended the deal that Universal and DreamWorks announced in October and highlighted the difficulty of raising film financing in a credit crunch, even for one of Hollywood's most famous directors.

The people were not authorized to speak publicly about the matter and spoke on condition of anonymity because the discussions were confidential.

Universal, a unit of General Electric Co.'s NBC Universal, said Spielberg's company "demanded material changes to previously agreed upon terms."

"It is clear that DreamWorks' needs and Universal's business interests are no longer in alignment," Universal said in a statement.

Those changes included upfront financing of $250 million, more than the $150 million backup loan Universal had earlier agreed to if other financing ran out, one person said. DreamWorks also had sought to have its films occupy six slots a year in an arrangement in which Universal would receive payments from Time Warner Inc.'s pay TV channel HBO for the right to show its new release movies, the person said.

Movie distribution deals usually involve a studio paying for film prints and advertising, recouping those costs from ticket sales and then taking a small percentage of sales going forward.

High-profile producers such as Spielberg can also broker deals in which a studio co-finances the cost of production and splits the proceeds after prints and marketing are paid off.

But after the credit crisis delayed DreamWorks' other financing, it sought new terms that Universal was unable to accept, the person said.

In September, DreamWorks announced it was leaving Viacom Inc.'s Paramount Pictures studio with help of funding from Reliance Big Entertainment of India. Paramount bought DreamWorks for $1.6 billion in 2006.

Reliance had agreed to match up to $550 million in loans raised by JPMorgan Chase & Co. to make movies over a seven-year term, but those loans got delayed. The bank is now planning to raise $325 million in a first tranche of syndicated loans by the end of March.

The funding delays meant that last month, Spielberg had to dip into his personal funds to help buy the rights to 17 movie projects that were in development while DreamWorks was at Paramount. Spielberg also has had to cover half the costs of DreamWorks' approximately 60 employees, with Reliance covering the rest.

Burbank, Calif.-based Disney had been trying to distribute DreamWorks films before Spielberg chose Universal last year, partly due to his long relationship with the studio. His offices are still on the Universal lot.

Disney, meanwhile, is seen as wanting to bolster its movie lineup after its studio revenue fell 26 percent to $1.95 billion in the quarter to December, outpacing declines in other businesses.

A Disney spokeswoman declined to comment.

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