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Inside Move: Dream team packs parachute

Co. may opt out of U pact if trio unhappy with new owners

HOLLYWOOD– As if dealing with the fickle French weren’t enough, the headaches of the bidders going after Universal Studios won’t end even after the Vivendi auction is over: A top item on the agenda for the eventual winner will be tending to U’s relationship with DreamWorks.

For the last eight years, U has handled foreign theatrical and homevid biz for DreamWorks. In 2001, after DreamWorks publicly flirted with Warner Bros., it renewed the U agreement for five years.

But DreamWorks — in anticipation of the sale of U — has asked for, and received, a new clause in the pact that allows partners Steven Spielberg, Jeffrey Katzenberg and David Geffen to take their foreign distrib and homevid biz elsewhere if they’re unhappy with the new owners at U.

“There is a provision in the contract allowing us a six-month opt-out,” says a DreamWorks exec.

As though to bolster its bargaining power, DreamWorks has been working hard to enhance its slate of movies for 2004-05 and is closing in on several superstar projects. Its 2003 slate admittedly has represented a down year so far for the company, but 2004 holds brighter prospects. And a strong slate could help facilitate a better foreign distribution deal.

What U received in return for the new opt-out clause is unclear, but the fact that the company gave it to DreamWorks underscores the importance the studio places on the alliance.

For U, the pact generates significant distribution fees. DreamWorks pics grossed $200 million in foreign runs last year; U’s take is somewhere in the ballpark of 10%.

The relationship is not just about cash. Also important to U is the increased market share and the prestige of being in business with Spielberg. Losing that tie would be an embarrassing first step for the new U owners.

But, with an opt-out clause, DreamWorks is now effectively in the driver’s seat, and may get better deal terms from whoever buys U.

DreamWorks could also look elsewhere for another partner.

In 2001, Warners balked at a deal when DreamWorks asked for a $250 million cash infusion, effectively a loan, which Viv U ponied up.

At the time, DreamWorks wasn’t “comfortable” with the deal proffered by Warners’ homevid division. But with the exit of homevid topper Warren Lieberfarb last year, perhaps DreamWorks would be more amenable to forging a new deal.

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