Gates joins DreamWorks team

In the end, Hollywood went to Silicon Valley – or, in this case, Redmond, Wash. DreamWorks joined hands March 22 with Microsoft’s CEO Bill Gates at a press conference at Microsoft HQ to announce a $30 million joint venture between the computer software giant and the new entertainment entity.

The event came on the heels of the news that software billionaire Paul G. Allen, who co-founded Microsoft with Gates, has agreed to ante up $500 million to DreamWorks for an 18.5% equity stake and a seat on the board of directors.

Also, former Buena Vista TV president Bob Jacquemin has been brought aboard as a key member of DreamWorks television operations.

DreamWorks Interactive is the tentative name of the new company in which Microsoft and DreamWorks – headed by Steven Spielberg, Jeffrey Katzenberg and David Geffen – will invest $15 million each. The goal will be to produce interactive software for adventure games and stories for cartridge, CD-ROM, interactive TV and online networks.

Microsoft also has made a “strategic” minority investment in DreamWorks. Terms were not disclosed, but subsequent reports put the amount at about $9 million.

No software titles were announced. Katzenberg said, “There is no road map, no guidebook for us to look at and say, this is where we’re going. It is still evolving.”

“The title has to be an incredible title,” said Gates, drawing a parallel between two industries. “That’s the story of the movie business and that’s the story of the software business.”

“The play’s the thing,” added Spielberg, emphasizing the storytelling side of the venture.

Storytelling is what industry insiders say Gates has been eager to own but, until now, unable to buy. The obstacle has been the reluctance of Hollywood’s creative talents to trade the Hollywood locale- or its sizable compensation – for opportunities offered by technology companies.

The deal essentially plugs Microsoft into an elite strata of Hollywood’s talent base.

Once it has bridged the techno-Hollywood culture gap, DreamWorks Interactive will create CD-ROMs initially for Windows-based PCs. But eventually the products will be released for a variety of existing platforms, including Macintosh, said Gates, with the first titles hitting the market in time for Christmas ’96.

Spielberg said the first releases would be originals, but that titles based on films would appear after DreamWorks releases its first movies in late ’96.

The biggest platform for DreamWorks Interactive products may be Microsoft’s new online network, due to start up this year with the rollout of its Windows95 software.

Tele-Communications Inc. is a major investor in the Microsoft Network, and industry observers are looking to the already booming online media, such as Internet’s World Wide Web, as the next big entertainment arena.

Talks have been ongoing between the two companies since DreamWorks was first announced, but only became serious within the past six weeks, said Patty Stonesifer, senior VP of Microsoft’s consumer division and acting CEO of the new firm.

The deal with Allen also had been anticipated. DreamWorks had set a target of $1 billion in equity and is to raise another $1 billion in debt while retaining 67% of the company. DreamWorks has been in talks with the California Public Employees Retirement System (Calpers) and with Samsung.

The Samsung talks recently fell apart but Calpers still is talking about putting up about $300 million for an 11% equity stake. IBM and Microsoft also are said to be in the mix for a lesser percentage. Chemical Bank, a major lender to Hollywood, would then provide the $1 billion in credit from a bank consortium.

Microsoft only became aware of Allen’s move in recent weeks, said Stonesifer. While Allen retains a 13.5% interest in Microsoft and a seat on the board, he has involved himself chiefly in his own entrepreneurial ventures.

For DreamWorks, future linkups may include tech companies such as IBM and Silicon Graphics to complete its stated mission of becoming a “digital studio.”

For Microsoft, its alliances with telcos such as US West and Southwestern Bell could lead to further Hollywood partnerships in interactive networks.

The principals said DreamWorks Interactive would immediately begin hiring, and expects to employ 75 people by the end of the year, with two-thirds of the staff headquartered in L.A.

A search is on for a CEO and senior management for DreamWorks Interactive. A board comprising Microsoft and DreamWorks execs will oversee the joint venture.

DreamWorks’ business plan originally called for a $75 million capitalization of the interactive division. Stonesifer said both sides were committed to upping the amount if necessary.

Microsoft has built a powerful marketing and distribution structure for its Microsoft Home division, giving it 15.4% of the CD-ROM market, the largest of any company.

Microsoft will distribute the DreamWorks Interactive product, while producing and marketing its own CD-ROM titles.

The deal is exclusive for DreamWorks in terms of electronic publishing, however. “This settles the bill,” said Katzenberg, saying the joint venture completes the troika’s plans for an interactive division.

It also brings to an end Spielberg’s active involvement with Knowledge Adventure, the CD-ROM company in which he invested last year.

Spielberg said that after the last of the five titles he helped to create at Knowledge Adventure hits the market in 1996, his services will be limited to his own interactive company.

Jacquemin, who left Disney in January 1994 after nine years, will head TV marketing, sales and distribution for DreamWorks as a consultant to the company. In confirming the arrangement, Jacquemin said he would head all domestic TV activities for the company, excluding programming. DreamWorks has yet to announce who will fill that position. Jacquemin said he would keep his operation lean in hopes of getting the business up and running “in a relatively short period of time.”

Although DreamWorks is involved with CapCities/ABC, Jacquemin emphasized that the arrangements will give the company latitude to develop programming for a wide array of customers.

Martin Peers in New York, Jim Benson in Hollywood and the Associated Press contributed to this report.

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