Paramount buys DreamWorks (but will sell movie library)

[limacharliewhiskey]

Not sure if this will affect us much as DVD collectors, but it's interesting to know. The movie library is being bid on by a group of private investors (except for the rights of Saving Private Ryan and the latest War of the World film), which makes me wonder what will happen to these titles (films like Gladiator and American Beauty fall into this category).

All future DreamWorks films will be owned by Paramount (and presumably released on DVD as such). At least Paramount usually gives us top-notch quality DVD releases.

http://www.latimes.com/business/prin...es-pe-business

Paramount Confirms Studio Deal
It intends to sell off DreamWorks' library of live-action films in the $1.6-billion purchase.
By Claudia Eller and Sallie Hofmeister
Times Staff Writers

December 12, 2005

Paramount Pictures Corp. announced Sunday what everyone in town already knew: It had reached an agreement to acquire DreamWorks SKG, the studio founded 11 years ago by Steven Spielberg, David Geffen and Jeffrey Katzenberg.

But in revealing the terms of the $1.6-billion deal, Paramount included one unforeseen twist. To offset as much as $1 billion of the financial hit, the studio plans to sell DreamWorks' 59-film live-action library, which includes the Academy Award-winning films "American Beauty" and "Gladiator."

On Sunday, the studio said it was in advanced talks with outside investors. But instead of having a stake in the studio itself, those investors would buy control of the library outright.

"I can't stress how transforming an event this is," Paramount Chairman Brad Grey said in a conference call with reporters Sunday.

Should the deal go through, Paramount said it would pay $775 million in cash and initially assume $825 million in DreamWorks debt. Then, a private equity group, not yet selected, is expected to acquire the library for $850 million to $1 billion, including the assumption of $550 million in the DreamWorks debt taken on by Paramount.

Based on those numbers, that would reduce Paramount's contribution to $325 million to $475 million in cash, plus the assumption of $275 million in debts owed to such third parties as Technicolor, HBO and NBC Universal.

The sale to Paramount, which is expected to close in the first quarter of 2006, would terminate DreamWorks' distribution contracts with NBC Universal, which currently releases its movies outside the U.S. and its DVDs worldwide. For NBC Universal, the loss of those distribution fees could amount to tens of millions of dollars over the next five years, according to two people familiar with the deal.

That's one reason executives at NBC Universal were smarting over the weekend. The studio, which is owned by General Electric Co., spent more than six months negotiating to buy DreamWorks.

Two sources close to the situation said the directors of General Electric had approved an acquisition of DreamWorks in a board meeting Friday.

But that same day, Paramount signed a definitive agreement with DreamWorks. Viacom Inc., which owns Paramount, had given its blessing the day before.

For Paramount, buying DreamWorks would accelerate a turnaround led by Grey, who has sought to reverse the lackluster financial performance and slow-off-the-mark culture of the historic studio since taking the helm in March. Once dominant in Hollywood with such blockbusters as "Top Gun" and "Forrest Gump," Paramount in recent years has suffered from management turmoil and a box office slump that began before the current industrywide downturn.

The sale of DreamWorks — one of Hollywood's last stand-alone movie studios — reflects how tough it is for independents to survive in an industry dominated by media giants.

"It's a very difficult time in the movie business, even with the most extraordinary talent," said Grey.

Under Paramount's ownership, DreamWorks will not disappear entirely. It will continue to produce four to six movies a year under its own banner, with a total production budget of $300 million, sources said. That means Paramount would market and distribute 14 to 16 films annually. Grey and Geffen said that most of DreamWorks' 500 employees would be absorbed by Paramount with "minimal layoffs."

Geffen and Spielberg have each signed three-year employment contracts and would continue overseeing DreamWorks but would no longer have a financial interest in the company. Spielberg would not be tied exclusively to Paramount, though it would automatically co-own any movie he directed or produced.

Spielberg would be able to greenlight movies he directs with budgets of as much as $100 million, two sources said. Geffen, who would approve movies made with other directors, would have the authority to spend as much as $90 million without Paramount's OK.

Katzenberg would have no role in the live-action operation at Paramount. He runs DreamWorks Animation, which was spun off in a public offering last year. Paramount, however, would have exclusive rights to distribute DreamWorks Animation's movies and to use its characters in TV shows for the next seven years.

According to a source, one of many people interviewed who declined to be named because some of the elements of the deal are not public, Paramount already has received bids for the live-action library from two private equity firms that it declined to identify.

After the library sale, Paramount would retain worldwide distribution rights to the collection's titles including Spielberg's "Saving Private Ryan" and "War of the Worlds."

That means Paramount would collect fees every time a library title is licensed.

Tom Freston, co-chief executive at Viacom, said that Paramount hoped to retain both a minority interest in the library and the right to buy it back at a future date.

All movies released by DreamWorks since October would be wholly owned by Paramount as would all future DreamWorks films.

The acquisition also would give Paramount DreamWorks' film projects that are still in development and its television production unit, maker of such shows as "Spin City" and "Las Vegas."

Gaining access to DreamWorks' movies is a way for Paramount to fill out its own anemic release slate next year and beyond.

Paramount is also desperate for material to feed its international distribution pipeline. The studio ended its international distribution partnership with NBC Universal this fall.

Grey said that the hiring of DreamWorks' relatively small international team would speed the building of its own operation.

Similarly, DreamWorks' TV unit would plug a hole left by the pending split of Viacom into two public companies in January. The new Viacom, headed by Freston, will include Paramount, MTV Networks and cable channel BET.

As part of the split, the other company, CBS Corp., led by Leslie Moonves, will include Paramount's TV production and syndication group as well as the CBS and UPN TV broadcast networks, Infinity Broadcasting and cable channel Showtime.

Grey, a longtime talent manager and executive producer of such TV shows as "The Sopranos," said DreamWorks television could help Paramount expand into network production. But he called turning around the movie studio his "first priority."

Paramount's top business executive, Rob Moore, one of the architects of the deal, said DreamWorks would help strengthen the studio where it is weak. "This is great timing for us," he said.

One of biggest prizes in the agreement is the distribution deal with DreamWorks Animation. The first animated film to be distributed by Paramount would be next summer's release of "Over the Hedge."

This would immediately make Paramount a major player in the lucrative family animation genre. It also would allow closer collaboration between Viacom's Nickelodeon cable channel and DreamWorks Animation.

Freston said Sunday that Nickelodeon could develop TV series around established DreamWorks characters from such hits as "Shrek" and "Madagascar." He and Katzenberg plan to meet today to discuss such projects.

Since being founded in 1994, DreamWorks has shrunk from a multimedia studio involved in movies, television, music, video games and the Internet to a scaled-back operation that produces and distributes a handful of films and TV series each year.

Its track record at the box office has been mixed, with such hits as "Catch Me If You Can" alongside such flops as "The Island," a $130-million futuristic thriller co-financed by Warner Bros.

Spielberg has made a number of films over the years with Paramount, among them "Saving Private Ryan" and most recently "War of the Worlds." And, DreamWorks and Paramount are also financial partners on several new film projects, including the adaptation of the Broadway show "Dreamgirls," a pet project of Geffen's.

Geffen said that he and Spielberg had no plans to move their production headquarters to Paramount from Universal—where Spielberg has been based for many years and where he made "Jaws," "E.T. the Extra-Terrestrial" and the "Jurassic Park" films.

"I don't think Steven will ever leave his office on the Universal lot," said Geffen.

In a statement, Spielberg said, "Due to my very long history and my loyalty to Universal, I was saddened that after long negotiations and many compromises, we were unable to come to terms with Universal's parent company, GE."

Geffen was less nostalgic.

"Though we had agreed on terms, GE reneged on that deal," Geffen said.

According to sources, GE had tentatively agreed to a $1.5 billion deal for DreamWorks and then, days before its exclusive negotiating window closed in September, cut its bid by about $100 million. The parties, however, kept talking and Universal was proceeding as if a deal would be done as recently as a week ago, when Geffen warned Universal that he had another buyer.

On Friday, Universal's brass were shocked to learn how far along DreamWorks was with Paramount. In fact, Universal's lawyers were still working on the fine points of their agreement.

NBC Universal chief Bob Wright and Meyer were unavailable for comment.

[tomdkat]

Originally Posted by limacharliewhis

Not sure if this will affect us much as DVD collectors, but it's interesting to know.

I agree.

Peace...

[papibear]

Hopefully whoever this group of investors that ends up with the film library rights will be someone who gives a damn about it and won't be pulling titles from DVD release and whatnot.

[limacharliewhiskey]

An interesting follow-up story as to why Dreamworks was sold (and maybe some insight on what to expect for the movie/DVD industry in the future):

http://www.latimes.com/news/printedi...ines-frontpage

DreamWorks Sale Sounds Wake-Up Call for Indie Films
By Claudia Eller and Sallie Hofmeister
Times Staff Writers

December 17, 2005

When the self-proclaimed Dream Team announced the formation of DreamWorks SKG at the Peninsula Hotel 11 years ago, director Steven Spielberg said that he and his partners, Jeffrey Katzenberg and David Geffen, were creating a multifaceted entertainment empire that would "outlive us all."

It didn't.

This week, the trio reached an agreement for their studio to be acquired by Viacom Inc.'s Paramount Pictures, underscoring how hard it is for independent firms to survive among media giants. The pending sale, the latest evidence that stand-alone movie studios are a losing proposition, also prompted the question: If S, K and G can't do it, who can?

"The rules of the filmed entertainment business are changing," said Amir Malin, who in the last 20 years has run several independent film companies, including the former Artisan Entertainment. Rocked by the soaring cost of talent, production and marketing, slowing DVD revenue and flagging cinema attendance, he said, "a business that should be hugely profitable has become a byword for waste and extravagance."

Should Paramount complete the $1.6-billion acquisition early next year as expected, DreamWorks would become the second studio in less than a year to be swallowed by a rival. In April, Metro-Goldwyn-Mayer, one of Hollywood's oldest and most legendary studios, was bought by investors led by Sony Corp.

Now, virtually every studio is owned by a media giant.

That leaves the renamed Lionsgate and a fledgling studio founded by former Miramax Films chiefs Bob and Harvey Weinstein as the last independents that make, market and distribute movies that compete in the big leagues.

And Lionsgate is considered the next takeover target. In fiscal 2005, the company behind such films as "Crash" and the "Saw" horror hits turned its first profit in eight years.

"It's a tough business," acknowledged Chief Executive Jon Feltheimer, even though Lionsgate works to keep production and overhead costs below those of major studios.

Hollywood's junk pile is littered with the names of independent outfits that tried to go it alone: Orion Pictures, Savoy Pictures and Vestron Pictures.

Still, for all the hand-wringing, it's sometimes hard to remember that the biggest media companies are making more money than ever from global sales of their movies, TV shows, cable channels and interactive games.

But even these behemoths — Viacom Inc., Time Warner Inc., Walt Disney Co., General Electric's NBC Universal and News Corp. — are struggling with stagnant stock prices and pressure to boost profit margins. They also face uncertainty from new technologies and piracy.

Those same companies are slashing overhead to boost their bottom lines. Time Warner's Warner Bros. studio in Burbank is enjoying a record year at the box office with such films as "Harry Potter and the Goblet of Fire." But the studio is slashing more than 400 jobs.

Studios have themselves to blame for some of their problems. Profligate behavior is common in Hollywood, where $200-million movie budgets are no longer rare. Big-name directors and actors often get huge cuts of box-office profits even before the studio has made a dime.

For example, it is difficult to eke out a profit when Spielberg is at the helm of a movie. Sources at studios that have distributed films that Spielberg directed say he typically is guaranteed as much as 25% of a studio's gross.

As a result, the 2002 hit "Minority Report," which grossed $354 million at the worldwide box office, made only a small profit for DreamWorks and its partner, News Corp.'s Twentieth Century Fox, according to people familiar with the financial details who requested anonymity for confidentiality reasons.

This was just one reason that DreamWorks failed to build the kind of financial safety net it needed to weather Hollywood's chronic ups and downs. Despite some huge successes — among them, "Gladiator," "American Beauty" and "Saving Private Ryan" — DreamWorks at times was little more than a box-office bomb away from financial ruin.

The company nearly went bankrupt twice, Geffen said during a panel discussion in New York this year, adding that when the animated film "Sinbad: Legend of the Seven Seas" flopped in 2003, the resulting $125-million loss nearly sank his company.

Like all independent studios, DreamWorks lacked the diversified businesses that helped the conglomerates ride out the hard times. And unlike the major studios, which rely on the relatively predictable revenue generated by licensing their vast film libraries for use on DVD, cable and TV, DreamWorks had to build a library from scratch.

In 11 years, it amassed only 59 live-action titles, many of which are co-owned by other studios. (An additional 11 animated films are owned by DreamWorks Animation, which was spun off last year and is not part of the sale to Paramount). MGM, by contrast, had a 4,000-title library.

Based on typical industry practices, DreamWorks would have had to release at least twice as many movies a year as the seven it averaged to justify its $100-million annual overhead.

"When Steven, Jeffrey and I started the company, we hoped to make enough films to rationalize the cost of being our own distributor," Geffen said Sunday, when the deal was announced. "Sadly, we were never able to."

In the end, analysts said, it came down to the movies. Whether because of bad choices or fickle audiences, DreamWorks didn't have enough hits to offset its flops. Its first two movies — the action film "The Peacemaker" and period slave drama "Amistad" — were lackluster at best, grossing less than $50 million each. And most of its hits were shared productions, meaning DreamWorks had to split its profits with another studio.

"A lot of their film choices in the early years weren't so good," said Richard Greenfield, an independent media analyst. "It's all about creative success, and whether you end up choosing more right than wrong."

DreamWorks' demise as a full-fledged studio was exacerbated by a management vacuum. Geffen disliked the film business and rarely came into the office. Spielberg's priority was directing movies. Katzenberg was focused on the animation operation, which he still runs.

Like DreamWorks, a start-up studio such as the new Weinstein Co. must navigate the minefields that come with independence. This fall, the Weinstein brothers were forced to give up their lucrative, 800-title library when they split with Miramax and its corporate parent, Disney.

Their company has raised $500 million in equity and expects to add $500 million more in debt. But it could blow through that war chest quickly if too many of its movies disappoint.

For the entertainment industry, the continued consolidation is bad news. For starters, it means huge job losses: MGM's staff of 1,500 is being squeezed to about 250. It also means fewer buyers vying for the services of actors, directors and writers.

For consumers, the effect of studios' consolidation is unclear.

Facing shareholder pressure, studios are often reluctant to take creative risks, relying instead on sequels and remakes rather than original ideas.

Yet, even as true independent studios dwindle, each major studio has acquired or launched in-house "specialty" film divisions. These units release lower-budget, smaller movies while serving as feeders for young talent and as laboratories for hatching award-winning projects.

A majority of the 10 Golden Globe best picture nominees — five dramas and five for musicals or comedies — came from either independent studios or the specialty divisions of major studios.

"The fact that studios are in both businesses really keeps the level of diversity of films in the marketplace constant," said Warner Bros. production chief Jeff Robinov. Warner released the big-budget "Batman Begins" and, through its specialty unit, the critically acclaimed "Good Night, and Good Luck."

Nielsen Entertainment analyst Larry Gerbrandt said the maverick spirit in filmmaking lives on. More films are submitted to the independent Sundance Film Festival each year than are accepted, he noted.

"We haven't lost independent production," Gerbrandt said. "What we've lost is the independent financial structure."

Which is what happened to DreamWorks, proving again that some of the richest and biggest names in Hollywood can't always buy their independence.

[tomdkat]

Excellent article, lima. Thanks for posting it.

Originally Posted by limacharliewhis

DreamWorks' demise as a full-fledged studio was exacerbated by a management vacuum. Geffen disliked the film business and rarely came into the office. Spielberg's priority was directing movies. Katzenberg was focused on the animation operation, which he still runs.

Give me a break. If the 'Dream Team' doesn't feel they need play in the game for their team to be a success, why even bother? I wonder if more interest leading to more involvement by the "dream team" could have changed the fate of DreamWorks. Maybe Spielberg could have reduced his 25% of gross take down to 5-10%, given "his baby" was now directly involved/impacted.

Facing shareholder pressure, studios are often reluctant to take creative risks, relying instead on sequels and remakes rather than original ideas.

It's time for everyone to accept this. The studios are in business to make money and as a result, they must keep the stockholders happy. We might not understand the decisions they make all the time but it's clear they do what they think is best to keep the company afloat. It's easier for us to speculate on what will or won't work, when it comes to movies, than it is for us to have to make the critical decisions on which directions to go in if we're not sure the desired goals will be reached.

With that being said, I don't know much about Lionsgate but I think their fate will be different than DreamWorks. Crash, Fahrenheit 9/11, Saw, Diary of a Mad Black Woman, Beyond the Sea, and Hotel Rwanda are just a few Lionsgate distributed films I really enjoyed. I think Lionsgate has good rep for quality and I almost look forward to seeing a movie associated with them.

Do you think Lionsgate will go the way of Dreamworks?

Peace...