Dreamworks in talks with India's Reliance ADA

LOS ANGELES (Reuters) - The first act of a big Hollywood drama is nearing an end as Steven Spielberg’s DreamWorks SKG closes in on up to $600 million in financing from an Indian conglomerate to further its scheme to exit Paramount, a person close to the talks said on Wednesday.

Steven Spielberg watches the Los Angeles Lakers play the Boston Celtics during Game 3 of the NBA Finals basketball championship in Los Angeles, June 10, 2008. REUTERS/Lucy Nicholson

The $500 million to $600 million deal with Reliance ADA, one of the biggest names in Indian business, is the initial step in Spielberg’s and DreamWorks co-founder David Geffen’s plan to leave Paramount and set up their own studio to make films to be distributed by a soon-to-be-determined studio.

Reliance ADA would retain a large stake in the new company in exchange for its funding, according to the person familiar with the matter who said DreamWorks was talking with other studios about distributing its films once it arranges further financing to enable it to make about six films a year.

The person close to the talks said the entire package, including the distribution partnership, should be wrapped up in the next six to eight weeks.

While Paramount was not totally out of the question as a potential distributor, this was not probable, the person said, adding that General Electric Co’s Universal Pictures, where Spielberg started his career, and News Corp’s Twentieth Century Fox were among the top choices.

Speculation has swirled for months regarding the next probable move for Spielberg and Geffen as their long-troubled relationship with DreamWorks parent Paramount, a unit of Viacom Inc, flared up publicly last fall.

“This is not a surprise ending even though it’s not done yet,” said Christopher Marangi, associate portfolio manager at Gabelli & Co, who said the breakup, while not ideal for Viacom, would have minimal impact to its bottom line as both Paramount and DreamWorks are small contributors to its overall business.

The departure of DreamWorks would also be offset by the fact that it comes as Paramount has a few big hits, like “Iron Man,” on the market.

DreamWorks was acquired by Viacom’s Paramount Pictures in 2006 for $1.6 billion and produced such hits as “Dreamgirls” while under Paramount’s roof.

“As far as the impact to Paramount, obviously the studio would rather have Spielberg than not, but Paramount got what it needed out of the acquisition, which was a slate of some movies and what should be some profitable sequels,” Marangi said.

He noted Paramount also has a profitable distribution deal through 2012 with DreamWorks Animation SKG Inc, which was spun into a publicly traded company in 2004.

While Paramount would retain the rights to films created during the DreamWorks stint, Geffen and Spielberg will take the DreamWorks name to their new venture due to a licensing agreement with Katzenberg, the person close to the talks said.

One particularly messy issue in the DreamWorks exit strategy will be in determining which projects DreamWorks will take with it, according to several industry sources.

The New York Times reported in March that Paramount has a development pool of more than 100 projects, including about 30 attached to Spielberg.

The person familiar with the matter said discussions regarding projects could drag on beyond the DreamWorks exit and will probably play out on a case-by-case basis.

The Reliance deal, first reported by the Wall Street Journal on Tuesday, links the DreamWorks co-founders with an Indian company that has been making inroads in Hollywood.

In May, the company, controlled by billionaire Anil Ambani, signed deals with eight Hollywood production houses, including George Clooney’s Smokehouse Productions, Tom Hanks’s Playtone Productions, Brad Pitt’s Plan B Entertainment, Chris Columbus’s 1492 Pictures and Nicolas Cage’s Saturn Productions.

DreamWorks, Viacom and representatives for Geffen, Spielberg and Reliance all declined to comment.

Editing by Gary Hill and Braden Reddall