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End of a dream?

Studio finds itself on new, shaky ground

What happened to the dream?

Just 11 years after DreamWorks was founded with much fanfare by Steven Spielberg, Jeffrey Katzenberg and David Geffen as a “new” kind of studio in the vein of artist-friendly United Artists, the studio is on the block.

If an NBC U deal goes through, DreamWorks would remain a studio under the Universal umbrella — much like New Line at Time Warner — and not be made into a production shingle.

The live-action studio would be the last DreamWorks property to be scaled back. The music division has been sold off, and the TV business has never lived up to expectations.

And so the end of a very short era may indeed be near.

Early on in the history of DreamWorks, there was talk of studio space in Playa Vista, a physical plant and creative freedom from studiolike politics. But it’s hard to be a giant.

Hollywood weighed in with surprise at the news that a company whose original purpose was to stand as an alternative to the increasingly corporate film industry may be folded into just that structure. (Unlike U.A., the DreamWorks principals always intended for infrastructure — buildings, studio space, offices, etc.)

One film exec said, “Do I want more companies gone in the motion picture business? That does represent less capital in the movie business if that is indeed true about DreamWorks. No, it’s not good.”

Nothing is a fait accompli, however, and people close to the situation say the deal will have to clear some major hurdles before it’s done.

The benefits of such a deal to DreamWorks are evident: The privately held studio would shed overhead costs and be less strangled by losses, such as those it’s now incurring on “The Island,” which last weekend opened to a disappointing $12 million. (The studio would also receive cash to pay out investors such as Paul Allen.)

But the gain for NBC U, which has recently been crowing about belt-tightening, is less obvious.

The NBC network recently took a hit in primetime, resulting in an almost $1 billion loss in ad buys.

This setback prompted NBC U chief exec Bob Wright to send a companywide email saying he was looking to “rein in spending accordingly.”

An asset on the DreamWorks side is Geffen, a legendary lover of dealmaking.

In many ways Universal already has a valuable stake in DreamWorks. The studio handles homevideo distribution for DreamWorks films and distributes them internationally through UIP. (UIP is in a precarious situation and there is talk that the distrib — jointly owned by U and Paramount — may break up by the end of the year. Such a scenario would mean that U and DreamWorks could build their own foreign distribution arms.)

DreamWorks is even based on the Universal lot.

While Spielberg is said to be one of the major selling points in the deal, the director is already in business with Universal, a company with which he has a long history and where his Amblin production company was based. His upcoming film “Munich” is a co-production between DreamWorks and Universal.

As one producer on the U lot said of the possible merger, “It seems like a favor, and I don’t know if GE is in that business.”

A merger between the two companies has nevertheless been rumored for some time.

One of the biggest questions, however, is how much U would be willing to pay for the studio, the value of which some estimate at $1 billion.

DreamWorks’ library has only 60 titles, and while some have Oscar laurels, such as “American Beauty,” “Gladiator” and “Saving Private Ryan,” they are a select number. Furthermore, the library does not boast a franchise. Although a second “Gladiator” film has been in development for some time now, the project has not moved beyond the script phase.

The valuable “Shrek” franchise belongs to DreamWorks Animation. The public toon company would not be included in the deal in the event of an acquisition, although Universal would gain the rights to distribute the company’s films domestically.

The value of the company has also likely been jeopardized by the poor performance of “The Island,” a $130 million investment (split with Warner Bros.) on which DreamWorks looks to lose north of $50 million. At the very least, the film may be used as a negotiating tool in talks.

Whether or not the talks come together, DreamWorks, which has been in a box office slump since 2003, has quietly been preparing for a transition.

In recent months execs have been signed to just one-year contracts, and the number of production deals at the studio has dropped.

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