DreamWorks is scrambling to find another distribution partner to replace Universal Pictures, which abruptly severed its ties with DreamWorks just four months after hammering out a much-ballyhooed distribution deal with the company.
The studio had been engaged in talks with DreamWorks for the past two weeks to renegotiate the deal, which was agreed upon in terms but had never been finalized. DreamWorks recently approached Universal to modify the terms of the pact after it became clear that it was having problems raising the money necessary to finance six films a year.
Universal was willing to make concessions -- including investing in the fledgling company -- considering how much the global economic climate has changed since the deal was originally struck in October. But the studio balked at DreamWorks’ demands to reduce the distribution fee below 8%, which would have been an unprecedented rate in Hollywood.
What Universal didn’t know is that DreamWorks -- led by attorney Alan Levine -- was also negotiating with Disney to replace Universal as its studio partner moving forward.
Instead, Universal was blindsided and privately called DreamWorks’ behavior "despicable and deplorable." Publicly, the studio released a statement that said it "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."
DreamWorks is now close to inking a deal with Disney, which is expected to help the company raise mezzanine funding. Disney, which was an original suitor to land a distribution deal with DreamWorks following DreamWorks’ split with Paramount Pictures, would provide DreamWorks with P&A funds, pay-cable slots and possible production co-financing for DreamWorks’ intended six pictures. So far, DreamWorks has secured a $325 million commitment from Mumbai-based Reliance, which is contingent on DreamWorks raising an additional $325 million in debt via its bankers at J.P. Morgan. Reliance and Spielberg have been splitting the company’s bills, which include development and overhead costs. But DreamWorks’ lack of capital has begun to take a toll on the company. Ben Stiller’s Red Hour shingle exited DreamWorks on Thursday and inked a deal with 20th Century Fox.
DreamWorks, which declined comment, is hoping to cut a deal with Disney in the next 48 hours. Timing raised eyebrows given that Disney recently severed its ties with Walden Media and the Narnia franchise citing budget concerns.
While a partnership with Disney would most certainly help DreamWorks, it wouldn’t necessarily make sense for the Mouse House. Since the success of the "Pirates of the Caribbean" franchise, studio has been strictly focused over the past several years on making movies that fit the Disney brand. That means family movies that it can fully exploit across all of its divisions, including theme parks, the Internet, homevid, videogames and merchandising -- essentially movies it can capitalize on companywide.
DreamWorks doesn’t necessarily make those kinds of movies.