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Steven Spielberg's DreamWorks SKG studio has made a deal with Universal Pictures to distribute the six or so movies it plans to produce every year as an independent company backed by India's Reliance ADA Group. Since 2006 DreamWorks SKG has been owned by Viacom's Paramount Pictures [VIA
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]. But last month Spielberg and DreamWorks SKG's CEO Stacey Snider closed on a deal with India's Reliance ADA group for up to $1.5 billion in financing. (Reliance provides $500 million in equity, and JP Morgan Chase [JPM
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] aims to raise $700 million in debt financing— more on that later).
There was lots of debate and speculation about which studio would score the right to distribute DreamWorks' films. Disney [DIS
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] emerged as a last-minute option but Universal has long been the frontrunner — Spielberg started his career at Universal, which gave him his first directing gig. The fact that DreamWorks' offices are still on Universal's lot in Spielberg's old Amblin bungalow speaks volumes to his comfort level with CNBC's sister company (both are units of General Electric) [GE
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].
Here's how the deal will work: Universal will make room in its slate of 28-30 films a year to release another six films annually from Spielberg. For its distribution, Universal will likely get around an 8 percent fee. DreamWorks will continue to work together with Paramount, which can co-finance a good number of projects that Spielberg and Snider have in the works.
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One player who will be notably absent from the new company is David Geffen. The "G" in SKG, Geffen effectively put together Spielberg's new deal, separating DreamWorks from Paramount, securing new financing, and nailing down the distribution details. Geffen is effectively stepping out of the movie industry. That means the men behind the "SKG" initials have all gone their own ways. "K", Jeffrey Katzenberg, broke off a few years ago with DreamWorks Animation [DWA
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], which is publicly traded and unrelated to the new company.
But there is still a key pending detail — that $700 million in debt financing — that's sitting on hold while this credit crunch drags out. JP Morgan Chase was meant to start syndicating $700 million in debt for the new company this week, but with the markets still volatile, it's putting that plan on ice. DreamWorks plans to start its new business in January, so it has until then for the debt markets to calm down. But the fact that one of the most famous names in Hollywood can't raise debt speaks volumes to the state of film financing.
Needless to say if Spielberg is waiting, countless others will have a much harder time raising money. When it comes to the health of film financing, the question is always timing. Many of the major studios already have enough financing in place to take them through the next three to five years. Others trying to raise financing may need to extend their timeline as much as possible. MGM is looking to raise $500 million for a new fund for self-produced films under new executive in charge of production, Mary Parent. The studio has until the latter part of next year before it needs to have that fund in place, and it's probably relieved to have that cushion. Independent producers may have a tough time, so we'll see if the number of films produced drops off in the next year.
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