Will D’Works deal get a second wind?

Par enters picture as third potential player

DreamWorks may indeed be acquired by NBC Universal after all. Or will it? Despite press reports, it is understood that NBC U has not raised its offer to buy the studio.

To further complicate things, a third player has entered the fray. Paramount has also approached DreamWorks about buying the studio, though the talks are described by insiders as exploratory and no offer has been made. Ultimately, Par chairman Brad Grey would have to get approval from Viacom in order to move forward with a deal.

Insiders say the dealmaking revival could be attributed to Universal Studios prexy Ron Meyer’s dogged pursuit of a deal and David Geffen’s savvy, public negotiation. However, the General Electric board has not given a greenlight to the terms that DreamWorks is seeking.

Two weeks ago, following a two-month exclusive negotiation period, Geffen called off talks with NBC Universal when, at the last minute, the latter lowered its bid for the studio from more than $1 billion to $900 million. As a studio DreamWorks’ main assets are its 60-title library, which includes Oscar-winning films such as “American Beauty,” and access to Steven Spielberg, the most commercially successful director in the business.

DreamWorks’ live-action studio has been unable to shake a slump. Although it was a partner on Par’s “War of the Worlds,” the studio’s latest releases, “The Island” and “Just Like Heaven,” have been disappointments at the box office.

The deal’s fizzle was attributed to NBC Universal owner, GE, particularly chairman Jeffrey Immelt, who questioned the return on the investment.

Meyer, however, has been a strong advocate of the DreamWorks-U union, and is said to have persuaded NBC U chief exec Bob Wright to revive discussions.

Yet because of the natural relationships that already exist between DreamWorks and U, many were surprised when the deal was not clinched — just as they are not surprised that talks are under way again.

Universal distributes DreamWorks films abroad through its UIP foreign distribution operation (which is jointly owned by Par and U) and handles its homevid products. The two studios have partnered on several films, such as “Gladiator,” and DreamWorks’ live-action studio has always been based on the U lot.

The dissolution of most of UIP by 2007 means that both U and Par are hungry for product that will be able to feed their respective independent overseas distribution channels.

D’Works has leverage

The UIP issue has given DreamWorks some degree of leverage in its talks with NBC Universal. The fact that UIP is dissolving has triggered contractual language regarding DreamWorks’ participation in the operation that allows DreamWorks to exit UIP if it chooses. That would mean that Universal would lose a significant chunk of DVD and theatrical product — a threat that may have caused U to rethink its bid for DreamWorks.

Although the sale of DreamWorks does not include the public company DreamWorks Animation, it does include the distribution rights to DreamWorks Animation films. This detail is particularly attractive to Paramount, which has released a limited number of animated films via its Nickelodeon film operation. Unlike U, which distribs DreamWorks Animation pics overseas, Par does not have an agreement to distribute another company’s animated pics.

DreamWorks Animation’s most recent pic, “Madagascar,” has grossed more than $500 million worldwide. Last year’s “Shrek 2” was the highest-grossing animated film of all time.

DreamWorks would also provide Par with product. The need for more projects in the Par pipeline has emerged in recent months partly because recently appointed Grey and his exec team have been reluctant to greenlight pics developed during former Par topper Sherry Lansing’s regime.

Thin slate

At this point Par’s slate for 2006 looks fairly thin, with fewer than a dozen pics: “Last Holiday,” “Failure to Launch,” “Mission: Impossible 3,” “Charlotte’s Web,” “The Oliver Stone World Trade Center Rescue Project,” “Zodiac,” “Babel” and “The Barnyard.”

Furthermore, DreamWorks is a known commodity at Par. The two studios have collaborated on films such as “Saving Private Ryan,” “Collateral” and, most recently, “War of the Worlds.” Last week, Par became a partner on DreamWorks’ upcoming film “Dreamgirls,” based on the Broadway musical. (That film is another 2006 release.)

However, a source said that DreamWorks’ demand for a cash payment may deter a deal.

No deal would expected to be made until January, however, as neither DreamWorks nor U wants the sale on their books this year for tax purposes.

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