Pact completes Paramount exit

DreamWorks is free at last, but its emancipation from Paramount Pictures may come at a price.

As principals David Geffen, Steven Spielberg and Stacey Snider closed a deal Friday with India-based Reliance to create a stand-alone production company and end DreamWorks’ unhappy three-year union with the Melrose studio, the wrangling over assets is looking ugly, even by Hollywood standards.

Surprisingly, Par waived its right to keep any DreamWorks execs or DreamWorks-based producers in its fold. But the studio is playing hardball and laying claim to DreamWorks’ entire development slate, including such Spielberg passion projects as “Lincoln,” “The Trial of the Chicago 7” and “The 39 Clues.”

A source familiar with the inner workings of the split said DreamWorks’ principals seemed surprised and confused by Paramount’s play.

Perhaps they shouldn’t be: Par is basically giving up everything that costs money and keeping everything that has already been paid for — a shrewd business move by Paramount chief Brad Grey that is likely to exacerbate the bitterness between the two camps.

However, if Par moves forward with any films that Spielberg is attached to direct or produce, it will have to pay the DreamWorks principal some 7.5% of the gross — a costly proposition for Paramount.

Also caught in the middle of the divorce is Spielberg and Peter Jackson’s “Tintin.” Before the Reliance deal closed, DreamWorks approached Universal, which had an option on the foreign rights, to co-finance the 3-D adaptation of the Belgian comic at a negative cost of $130 million, but U balked at that price point because the two filmmakers command as much as 30% of the backend gross.

But Paramount made an unexpected proposal Thursday to the filmmakers to fully finance the film for $130 million and is awaiting a response from Spielberg and Jackson. The move served as a reminder to the departing Spielberg that the new DreamWorks will still be dependent on studio largesse when it comes to financing big-budget tentpoles.

Though the Reliance deal, which is valued at $500 million (an additional $700 million is still being raised via bank financing), has been anticipated for some time, what had been unclear was the fate of DreamWorks’ execs and producers, who would have been contractually obligated to remain with Paramount. DreamWorks’ producers include Parkes/MacDonald, Ben Stiller’s Red Hour and Ivan Reitman and Tom Pollock’s Montecito Pictures.

DreamWorks seemed to be caught off-guard by Par’s actions Friday, declining comment and promising a statement today. It must decide the fate of its employees, including prexy of production Adam Goodman, who has 18 months left on his contract. It’s unlikely he will segue to the new venture in his current capacity. In fact, DreamWorks will be hard pressed to keep its current roster intact given that it will be working under a tighter budget. Prior to DreamWorks’ exit, Par was paying $50 million a year in overhead for DreamWorks.

It remains unclear what will happen to the DreamWorks employees that Snider and Spielberg won’t take to their new venture. It’s possible Paramount will be contractually obligated to pay the salaries remaining on their contracts.

“We congratulate Steven, David and Stacey and wish them well as they start their newest venture,” Par said in a statement. “Steven is one of the world’s great storytellers and a legend in the motion picture business. It has been an honor working closely with him and the DreamWorks team over the last three years, and we expect to continue our successful collaboration with Steven in the future.”

Though the statement seemed congenial on the surface, the two camps have been at odds since DreamWorks sold to Paramount parent company Viacom for $1.6 billion in 2006. At the time, analysts thought Viacom had overpaid for the mini-major. But it soon became clear that Grey had brokered a better deal than anyone had anticipated. For famed dealmaker Geffen, seller’s remorse set in quickly. DreamWorks pics boosted Par to No. 1 in market share with $1.5 billion in 2007.

Spielberg and Snider thought they were a satellite company working alongside Paramount — even serviced by the studio on some level. But Grey made it clear that he considered DreamWorks to be not a sibling company but one of several labels answering to him, like MTV Films or Paramount Vantage. Furthermore, Spielberg took issue with the fact that he was not paid a salary for the day-to-day running of DreamWorks with Snider.

The next step for DreamWorks is to land a major studio distributor. DreamWorks can commence official talks on a distribution deal. Universal — a previous DreamWorks distribution partner for a decade — remains the most likely candidate, but according to U sources, no talks have begun. Even before the Reliance deal closed, Paramount had already removed itself from the running. Par sources said the studio wasn’t interested in inking a distrib pact with the new company and is high on its upcoming slate, which includes J.J. Abrams’ “Star Trek,” “G.I. Joe,” “The Curious Case of Benjamin Button” and a Marvel “Iron Man” sequel.

Sources at DreamWorks say that any distribution deal is at least weeks away.

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