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DreamWorks Deal at Disney Soured as Conglomerate Focused on Bigger Fish

When DreamWorks signed a deal in 2009 for its films to be distributed and partly funded by Disney, it appeared to be a victory for both sides. The addition of Steven Spielberg’s studio would give a then stripped-down Disney film slate a considerable boost, and DreamWorks would have a strong partner to help promote its brand worldwide.

Within just seven months, though, the Disney executive who drove the deal was gone, the Mouse House had made the second of three big deals that would put it firmly in the tentpole business, and one of Hollywood’s most celebrated directors felt like he was nowhere near a top priority for the entertainment conglomerate.

That reversal of allegiances comes front and center now, as sources confirm that Disney will not renew the pact with DreamWorks. Although several studios are discussing the possibility of bringing DreamWorks into the fold, insiders say that Universal has the best shot at becoming DreamWorks’ new distribution partner when the previous deal runs its course next August.

The change comes at at a low point for the studio, which has been bruised by a series of film flops such as “Need for Speed,” “The Fifth Estate” and “Delivery Man,” and has struggled to find consistent sources of new financing.

There is a comfort level in returning to Universal, the site of many of Spielberg’s greatest commercial triumphs, such as “Jurassic Park” and “E.T.” and the place where he launched his career. Friends say the director still speaks lovingly of his time at the studio and the mentors he had there in his early days, including former studio leaders Lew Wasserman and Sidney Sheinberg.

“You always go back to where you were the most successful,” said one industry executive. “I see it more and more. When something doesn’t work, you want to replicate what did work in your past.”

The move would put Spielberg in partnership with the studio where he already keeps his home office. And DreamWorks, under chief executive Michael Wright, expects an additional recharging in the form of a $200 million investment from Participant Media. The Beverly Hills-based entertainment concern, owned by tech billionaire Jeff Skoll, is finalizing the funding agreement with DreamWorks, sources confirmed. The goal is to make four to five films annually, insiders say.

Wright has made rejuvenating Spielberg’s Amblin Entertainment brand a key priority, debuting a new logo for the production company with this summer’s “Jurassic World.” The plan is for Amblin to field more commercial, tentpole movies like the upcoming bestselling novel adaptation “Ready Player One,” while DreamWorks remains associated with more adult-oriented dramas like “The Help” and “Munich.”

The investment makes sense to Participant insiders, as the company has been in the midst of reorganization, following the resignation under pressure earlier this year of CEO Jim Berk. While Skoll has been disappointed in his company’s reach in TV and online, he has been more pleased with his film operation and, particularly, with past collaborations with DreamWorks.

Participant helped fund Spielberg’s upcoming “Bridge of Spies,” set for an Oct. 16 release, and Skoll’s company has previously put money into at least half a dozen other DreamWorks pictures — “The Hundred Foot Journey,” “Lincoln,” “The Help,” “The Fifth Estate,” “The Kite Runner” and “The Soloist.” Those films garnered a total of 17 Academy Award nominations.  Skoll is said to be interested in bolstering a film division that he already considers one of his company’s strengths.

It’s not clear, however, how far the capital infusion will go.

“You can leverage that up to $300 million through borrowings and it helps, but, these days, what does that get you? A movie or a movie and a quarter?” said longtime entertainment industry analyst Hal Vogel. “Still it puts them in a stronger position.”

DreamWorks certainly needs a restart. Several of its releases with Disney were lackluster at best. And the film company’s primary financial backer, India’s Reliance Entertainment, does not plan to reup its investment in DreamWorks.

There were other issues as well. DreamWorks suffered from a prolonged leadership vacuum during the many months that the studio searched for a replacement for Stacey Snider, the chief who departed last year for a senior role at Fox’s movie division.

As DreamWorks hopes to return to the fray re-energized and recapitalized, it faces a rapidly changing landscape. The tentpole craze that Spielberg helped usher in with “Jaws” and “Close Encounters of the Third Kind” has metastasized to the point where there is little room in the marketplace for other kinds of movies. “Lincoln” may have been an Oscar-winning hit, but those kind of thoughtful dramas increasingly face uphill climbs to profitability.

Moreover, there are a number of well-capitalized players that have entered the fray while DreamWorks languished, namely, Broad Green Pictures and STX Entertainment, both of which are establishing footholds in making the kinds of movies that put DreamWorks on the map two decades ago. The competition has grown fiercer and the climate more hostile.

For Disney, currently readying a slew of new “Avengers” and “Star Wars” sequels and spin-offs, the loss of DreamWorks will barely register.

“Disney has such a full plate of releases in the next three years, I can’t see why it would make a significant difference to either the company’s earnings or to its shareholders,” said Vogel. “It’s a relatively small segment in their giant operation, which ranges over so many areas.”

Although he hasn’t commented on the pact with Disney publicly, Spielberg was said to be frustrated that the conglomerate had less time and energy for DreamWorks as it became more focused on its new subsidiaries:  Pixar (acquired in 2006),  Marvel (acquired in 2009) and Lucasfilm (2012). “There was a new team in charge there at Disney and I would say he didn’t feel he got the same care and attention as when the deal was first made,” said a Spielberg associate, who asked not to be named.

If Spielberg does return to Universal — a studio that’s riding high on a wave of hits like “Furious 7” and “Jurassic World” — he will try to disprove the old adage that you can’t go home again.

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