Is DreamWorks’ deal stalling?

Financial crunch threatens studio's future

DreamWorks’ lofty ambitions have been put on hold by the financial crunch.

The studio and Universal Pictures have a deal to distribute five to six movies for an 8% distribution fee a year. But that deal is now in jeopardy.

India’s Reliance Big Entertainment was putting up $500 million in equity for DreamWorks against an expected $750 million in loans with the ultimate aim of funding a slate of 36 movies over a period of seven years. However, DreamWorks reps are still struggling to acquire the bank portion of the leveraged deal.

Despite the blue-ribbon nature of the DreamWorks enterprise, banks in general are slamming the door on this sort of funding — or any funding at all.

As DreamWorks limps along on some $75 million in bridge financing, they face a deadline in mid-January to fork over $20 million to acquire the 17 projects they were to make at Paramount. After the AIG collapse, JP Morgan had delayed until January its plan to raise loan pledges from a number of other banks. The bank’s official position is one of optimism: They expect to raise $300 million in the first quarter as they pursue a more modest staged financing approach.

The odds of raising the originally planned hundreds of millions are slim. Universal has committed a loan of $150 million as well, but that isn’t going to kick in until after the other money has been spent.

The global credit crunch that has radically shifted the financial landscape in the last four months is slowing down DreamWorks’ ability to build their $1.5 billion film company. Their problem: they will only get as much cash from Reliance as they are able to raise.

DreamWorks’ precarious position begs the question: if they had to do it all over again, would DreamWorks co-founder Steven Spielberg and his partner Stacey Snider have left their lucrative deal at Paramount Pictures, where their slate of films had thrived, if they had foreseen the worsening financial environment?

DreamWorks has recently been in talks for Spyglass to board the expensive Parkes/MacDonald comedy “Dinner for Schmucks,” with director Jay Roach and Steve Carell attached.

DreamWorks has also been trying to pact again with HBO, but can’t repeat the same lucrative terms they had before. But DreamWorks will probably still get their Pay-TV slots. And Universal might be willing to fund a month or two of overhead via a short-term transition loan. But like the $20 million check to Paramount (which at this point may come from Spielberg’s checkbook), these are the least of DreamWorks’ problems.

Snider has always said that there were two DreamWorks game-plans: for a bigger company and a smaller one. The credit crisis may force Spielberg and Snider to trim their sails in the short term and make fewer, smaller movies. Or they may have to reinvent it as a studio-backed venture like Amblin Entertainment.

Ironically, one tentpole Spielberg picture is going forward: “Tintin,” a $130 million 3-D motion capture adventure backed by Paramount and Sony.

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