Can The DreamWorks-Disney Deal Be A Win-Win?

As I anticipated on Friday, Walt Disney Studios and DreamWorks announced a five-year, 30 movie distribution deal on Monday. Disney's Touchstone label will distribute the films and Disney will handle DVD sales and pay-TV distribution on "Starz".

Both Disney and DreamWorks are under particular pressure because of this economic downturn, and this could help them both out. DreamWorks was having a hard time raising additional financing to match the capital investment it's getting from India's Reliance Big Entertainment. Now, as part of this deal Disney will lend DreamWorks more than $100 million.

DreamWorks lost the distribution deal agreed to last year with Universal pictures when talks broke down last week (reportedly because DreamWorks was asking for more favorable terms). Now DreamWorks will pay Disney a distribution fee of 10 percent of each movie's revenue. That's more than the studio was hoping to pay Universal, but DreamWorks is still lucky to have a deal- after its relationship with Paramount ended there aren't other likely candidates for distribution.

Disney gets that 10 percent of each film's revenue and a low-risk way to put more products through its pipeline. And because it was the only studio negotiating over the weekend, it had strong leverage and probably got some really good terms. A few years ago Disney cut back on the number of movies it's making -focusing entirely on family-friendly films- to reduce risk and generate higher return-on-investment. But its marketing and distribution system still has room for those additional films, so adding these six DreamWorks films will leverage that unused capacity. Plus, Spielberg's usually successful, usually PG 13 fare will be a good complement to Disney's family movies and a good replacement for the "Touchstone" brand adult-targeted movies that have bombed at the box office of late.

Both Disney and DreamWorks are touting this as an ideal match, so why didn't Spielberg just go with Disney in the first place?

People close to the deal say it was simply loyalty to Universal, where he started his career years ago. Such strong loyalty that Spielberg didn't give the Disney option enough consideration the first time the deal was up for negotiation. We won't get to see how these entertainment brands work together until late 2010 when their first movie comes out.

Questions? Comments?