DreamWorks close to Disney deal

Spielberg's company to leave Universal

DreamWorks is close to inking a distribution deal with Disney that would replace a pact DreamWorks and Universal Pictures agreed upon in October but never signed.

Sources close to the DreamWorks-Disney talks said lawyers from both camps were working all weekend and called a deal imminent, saying that it would likely close today or Tuesday.

Disney executives have declined comment and would not even confirm that they are in talks with their DreamWorks counterparts.

Given the public nature of the negotiations, Disney clearly enjoys a better bargaining position as talks continue. DreamWorks, run by Steven Spielberg and Stacey Snider, had hoped to close a deal with the Mouse House before information leaked to the press Friday that the two sides were talking. That surprise disclosure prompted Universal to immediately sever its ties with DreamWorks just four months after hammering out a much-ballyhooed distribution deal with the company. The end of that relationship came after DreamWorks’ relations with Paramount became notoriously frosty.

DreamWorks principal Spielberg is on set filming “Tintin,” and it’s not known what his involvement is in the Disney discussions.

U had been engaged in talks with DreamWorks for the past two weeks to improve the deal. DreamWorks recently approached Universal to modify the terms of the pact after it became clear that new company was having problems raising the money necessary to finance six films a year.

Universal was willing to make concessions — including investing in the restructured company — considering how much the global economic climate has changed since the deal was originally struck in October. But the studio balked at DreamWorks demands to reduce the distribution fee below 8%, which would have been an unprecedented rate in Hollywood. What U didn’t know was that DreamWorks was also negotiating with Disney to replace Universal as its studio partner. attorney Alan Levine is leading the negotiations for DreamWorks.

A U source called DreamWorks’ behavior “despicable and deplorable.” Publicly, the studio released a statement saying it “has ended discussions with DreamWorks for a distribution agreement. … It is clear that DreamWorks’ needs and Universal’s business interests are no longer in alignment. We wish them luck in their pursuit of funding and distribution of their future endeavors.”

DreamWorks, which declined comment, is now scrambling to make a deal with Disney, which is expected to help the company raise mezzanine funding. Disney, which was among three original suitors to land a distribution deal with DreamWorks following DreamWorks’ split with Par (Fox and U were the others), would provide DreamWorks with P&A funds, pay-cable slots and possible production co-financing for DreamWorks’ intended six pictures per year. If a DreamWorks-Disney deal unravels, DreamWorks will have exhausted any hope of striking a distribution deal with three of the six major studios, with Sony and Warner Bros. never having really expressed interest in such a partnership.

So far, DreamWorks has secured a $325 million commitment from Mumbai-based Reliance that’s contingent upon DreamWorks raising an additional $325 million in debt via its bankers at JPMorgan. Reliance and Spielberg have been splitting the company’s bills, which include development and overhead costs. But DreamWorks’ lack of capital has begun to take a toll on the company. Ben Stiller’s Red Hour shingle exited DreamWorks on Thursday and inked a deal with Fox.

Reliance execs spoke up over the weekend to stress their continued support for DreamWorks’ Spielberg and Snider in the wake of the sudden breakup with Universal and expected distribution pact with Disney. A Reliance rep told Daily Variety that Spielberg and Snider retained the company’s backing.

While a partnership with Disney would most certainly help DreamWorks, it wouldn’t necessarily make sense for the Mouse House. Since the success of “The Pirates of the Caribbean” franchise, Disney has been strictly focused on making movies that fit its brand. That means family movies it can fully exploit across all of its divisions, including theme parks, the Internet, homevid, videogames and merchandising.

DreamWorks doesn’t necessarily make those kinds of movies. For example, such horror pics as “The Uninvited” and “The Ruins,” edgy musicals like Tim Burton’s “Sweeney Todd” or R-rated comedies like “Tropic Thunder” or “The Heartbreak Kid” would never be greenlit at Disney these days.

Disney, which declined comment, has also been steering clear of partnering on pics, preferring to make marketing and release date decisions on its own. That’s one reason the studio severed its ties with Walden Media and the “Narnia” franchise.

And bringing aboard DreamWorks would add more pics to Disney’s release sked, which it had strategically winnowed down to 14 pics per year. That’s a number Disney has been happy with: Fewer films enable it to spend more time developing and promoting those pics upon their release across all of its divisions, making them appear more high profile, with an eye toward earning more at the B.O.

DreamWorks brass feel Disney is a better fit for its company than was Universal, though it is unclear why the company didn’t strike a deal with the Mouse House back in October.

As one DreamWorks insider put it, “Steven made the deal with Universal for sentimental reasons,” referring to the studio where the helmer began his career. “But now, he realizes Disney is a better business match.”

Meanwhile, many Universal-based producers breathed a sigh of relief that DreamWorks will no longer eat up such a large slice of the studio’s release schedule. With DreamWorks out of the picture, there is less competition for the summer and holiday slots that DreamWorks would have been playing for. Conversely, producers on the Disney lot are holding their breath, anticipating that the studio’s already downsized release schedule may become significantly more crowded.

(Marc Graser, Ali Jaafar and Michael Fleming contributed to this report.)

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