Disney - DreamWorks Deal?

Big changes are afoot in Hollywood.

Steven Spielberg's DreamWorks is no longer going to distribute its films through Universal Pictures ; CNBC's sister company made the official statement today (see below). And I've confirmed that DreamWorks is now in advanced negotiations with Disney to distribute through its Walt Disney studio. Neither Disney nor DreamWorks will comment but we could get an official statement on the negotiations by later Friday afternoon.

DreamWorks has had a harder time raising additional financing to match the $500 million investment it has from India's Reliance Big Entertainment. With credit markets so tight it's no surprise. Universal's statement implies that Universal simply isn't willing to help out in the financing department to fill that gap.

Spielberg has a longstanding relationship with Universal but in a way a deal with Disney would make a lot more sense right now. Universal's slate of films didn't have much room for four to six additional movies from DreamWorks. In contrast, Disney only makes about 12 movies a year now, so it has room in its distribution pipeline for those additional DreamWorks films. If it happens, Disney gets the additional content, more adult-themed content that balances their family-friendly fare. And DreamWorks get access to Disney's global marketing and distribution machine, and likely some additional financing to fill those gaps. And without Universal in the picture, Disney must have quite a bit of negotiating leverage. But Spielberg is Spielberg, and his films have the kind of track record Disney particularly needs after reporting a quarter with a dramatic drop in its movie business.

I'll keep following this as it develops.

Universal Pictures Statement:"Universal Pictures has ended discussions with DreamWorks for a distribution agreement. 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."

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