Paramount talks to rivals on combining DVD ops

LOS ANGELES (Reuters) - Viacom Inc's VIAb.N Paramount Studios is considering combining its DVD manufacturing and distribution operations with those of a rival studio to cut costs, a source close to talks said on Tuesday.

Paramount was in preliminary talks with several studios, including News Corp's (NWSA.O) Fox and Sony Corp's (6758.T) Pictures, the source said.

The goal would be to cut costs by combining some back office operations, including production and distribution, in sort of joint venture, a second source familiar with the talks said.

Hollywood studios are cutting expenses to cope with the global economic crisis, stagnant video sales and up-and-coming technology that is steering consumers away from traditional home entertainment formats.

Paramount is contemplating keeping its DVD marketing operations in house and trying to achieve economies of scale by combining other operations with those of another studio, the first source said.

No deal is imminent and Paramount has not identified a savings target it wants to reach, the first source said.

A Paramount spokeswoman would not confirm the talks. Neither Sony nor Fox would comment on the talks. A Disney spokeswoman could not immediately be reached for comment.

DVD sales, while still a moneymaker for the studios, flattened starting in 2005, leading executives to consider how to scale down home entertainment operations that once supported much higher sales volumes.

The talks between Paramount and the other studios on ways to make long-term cost-cuts could signal that entertainment companies have adjusted expectations for a boost in DVD sales from the high-definition format, including Sony's Blu-Ray format.

(Reporting by Gina Keating; Editing by Phil Berlowitz and Steve Orlofsky)