With new backing, DreamWorks crafts delicate exit

By Carl DiOrio and Jay A. Fernandez

LOS ANGELES (Hollywood Reporter) - Steven Spielberg finally has his rupees, but now comes the tricky bit.

Having wrapped up negotiations with India's Reliance Big Entertainment, Spielberg and other DreamWorks executives begin potentially complicated exit discussions with DreamWorks owner Paramount.

Reliance will provide $550 million in equity funding and JPMorgan Securities will lead a $500 million-$700 million bank syndication to reconstitute DreamWorks as a private company separate from Paramount. Team Spielberg hopes to get a first wholly DreamWorks-produced project into production by September 2009, but DreamWorks executives also are expected to negotiate for the right to take one or more development projects with them.

Other pending issues include the matter of who will distribute films produced by the new DreamWorks. Paramount could maintain a distributor relationship with the new company, but it is far more likely that Spielberg and DreamWorks CEO Stacey Snider will sign a deal with Universal, where they have maintained offices even while Paramount employees.

Fox and Disney also are possible distribution partners. DreamWorks executives have been happy enough with the marketing and distribution of their films at Paramount, but relations with corporate execs at Paramount and parent Viacom have been difficult.

Complicating exit talks with Paramount, the Melrose studio intends to make Spielberg pay for the right to take with him any of the film projects developed by DreamWorks execs at the studio. He could participate as a producer on such films in any event, but they would be released as Paramount films barring a mutually acceptable monetary settlement, a top Paramount exec said.

Meantime, Paramount has offered to fund Spielberg's Paramount-based passion project "Tintin" entirely, following the collapse of talks with Universal to co-finance the motion-capture production. The offer is contingent on the $130 million project being produced under unspecified financial terms, which Spielberg might or might not accept.

In a statement issued Friday, Paramount lauded the DreamWorks trio.

"We congratulate Steven, David (Geffen) and Stacey, and wish them well as they start their newest venture," the studio said. "Steven is one of the world's great storytellers and a legend in the motion picture business. It has been an honor working closely with him and the DreamWorks team over the last three years, and we expect to continue our successful collaboration with Steven in the future."

Indeed, a high-profile DreamWorks/Paramount project -- "Transformers: Revenge of the Fallen" -- is being filmed.

Several DreamWorks executives have been expected to follow the corporate brass in exiting the studio, but Paramount is allowing the label's entire work force of 150 or so to depart. The DreamWorks trio had exit clauses in their respective contracts allowing them to leave by year's end, but others needed Paramount permission.

"To facilitate a timely and smooth transition, Paramount has waived certain provisions from the original deal to clear the way for the DreamWorks principals and their employees to join their new company without delay," the studio said.

DreamWorks and Reliance reps shook hands on final deal terms Thursday night, and then advised Paramount of the developments while paperwork was distributed and signed by deal participants Friday.

Technically, rights to the DreamWorks name reside with the separate, publicly traded DreamWorks Animation. But Spielberg will have no problem securing use of the name for his new company from DWA topper Jeffrey Katzenberg, onetime principal in the original DreamWorks SKG.

Paramount retains the right to distribute the 59-title library acquired in its DreamWorks acquisition. But it sold a controlling interest in those library assets to Soros Group and Dune Capital for $900 million in May 2006.