NEXT FOR ‘WORKS: DOMESTIC DISTRIB’N

With DreamWorks SKG last week sealing a 10-year alliance with MCA Inc. to distribute its films overseas, the next step for the 8-month-old multimedia company is to start up its own domestic theatrical distribution outlet.

While it’s admittedly easier to start up a domestic outlet than an international distribution network, factors such as operating costs, staffing and product flow are seen as potential stumbling blocks.

Fighting for independence

But company principals Jeffrey Katzenberg, Steven Spielberg and David Geffen are keen to establish DreamWorks as a separate, major studio by setting up a full-service shop – and distribution is a major component.

DreamWorks has not yet revealed how the domestic distribution system will be set up nor who will run it. Some studio and distribution execs viewed the undertaking with skepticism, and noted that most recent ventures by startup mini-majors with distribution capability have been dismal. Both De Laurentiis Entertainment Group and Weintraub Entertainment Group shuttered within two years, and the jury is still in session about Savoy Pictures.

Skeptical analysis

“You’re looking at an annual outlay for a full-service company of $15 million-$20 million to keep your doors open,” said one studio distribution exec. “It’s a lot of money if you only have a handful of pictures to release a year.”

But at least several high-ranking studio sources suggest the Spielberg and Katzenberg names will make for an easy sell. Still other sources pointed out that the plans are not set in stone.

“They haven’t made any hires, so the films could still wind up going through a major or several companies initially as Orion did for a couple of years,” said one senior studio exec.

That scenario was given credence by several other industry reps, who noted that most of the key, seasoned distribution personnel have long-term contracts with the majors. One source pointed out that clout and relationships with the top theatrical chains are crucial in this arena and have remained relatively consistent for about 20 years.

Under the MCA-DreamWorks deal finalized June 13 between Seagram Co. president and CEO Edgar Bronfman Jr. and DreamWorks principal Geffen on behalf of his partners, MCA will distribute the company’s films overseas and its homevideos and music product worldwide. The deal appears to be particularly sweet for MCA, with DreamWorks set to finance and market its own movies.

Based on DreamWorks’ business plans, sources suggest the deal will be worth in excess of $1 billion in fees to MCA over the course of the agreement.

The MCA-DreamWorks deal, in the works since last October, came one week after Seagram closed its purchase of 80% of MCA for $5.7 billion and negotiations collapsed with Creative Artists Agency’s Michael Ovitz to run the studio. Sources said MCA is also expected to acquire 2% of DreamWorks for about $54 million as part of the agreement.

The first DreamWorks film is due out late next year, with its first animated feature expected to follow in 1998. Currently on the company’s development slate is a live-action “Zorro” film. The first animated project announced by DreamWorks is “Prince of Egypt,” a biblical tale.

MCA will distribute DreamWorks projects overseas through United Intl. Pictures, the foreign distribution partnership of MCA, Paramount Pictures and MGM/UA. Spielberg’s pictures through UIP have brought in close to $3 billion at the box office.

While the MCA-DreamWorks agreement covers feature films, homevid, music and gives MCA the rights to use DreamWorks characters and concepts in its theme parks, the two companies still are exploring other opportunities in filmed entertainment, image-based software programs, interactive entertainment, consumer products, book publishing, merchandising and licensing. DreamWorks plans to handle its own TV operations and retains TV rights to its films.

Spielberg has folded his Amblin Entertainment into DreamWorks, with Universal projects that predate the DreamWorks partnership being developed in partnership with Universal. The studio will produce remakes and sequels of Amblin-Universal projects. Sequels and remakes of already-released Amblin-Universal projects will remain with MCA. Universal-Amblin projects in development will be made with each company putting up half and splitting the profits. MCA has plans for sequels to many of Spielberg’s movies, including “Casper,” “The Flintstones” and “Jurassic Park.”

On the Universal lot, management issues have yet to be resolved and likely won’t be for at least several months, sources said. Bronfman has said he plans to learn more about the company’s operations before offering the CEO slot to anyone else.

MCA president Sidney Sheinberg said June 14 he will stay on as long as needed to achieve a smooth transition in ownership of the company before seguing to another arrangement with MCA. Other management issues have yet to be resolved, although sources expect MCA chairman Lew Wasserman eventually to move to chairman emeritus. The contracts of Wasserman and Sheinberg expire this year.

Several sources suggest that MCA motion picture group chairman Tom Pollock might move to another corporate position within the company, which would enable him to focus on dealmaking. He has been credited with negotiating many points of the DreamWorks deal.

But the deal likely would not have happened unless Spielberg was assured that his mentors Sheinberg and Wasserman would be dealt with fairly.

“I believe that Mr. Bronfman is a very honorable guy and people of good will can resolve whatever is to be resolved,” Sheinberg said.

While DreamWorks will remain housed in Spielberg’s Amblin headquarters on the Universal lot for the time being, sources said the company is in advanced negotiations to move its operation to Playa Vista to a former Howard Hughes facility.

Concurrently, telco GTE has upgraded its Marina del Rey switching station – which serves Playa Vista – with the latest equipment. GTE also has laced the site with fiber-optic lines that will accommodate high-bandwidth audio/video transmissions. Sources said GTE has consulted with DreamWorks, but GTE would not confirm the talks.

Anita M. Busch and Rex Weiner contributed to this report

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