Los Angeles: The Walt Disney Co.’s motion picture arm said on Monday it has agreed to a long-term exclusive distribution deal with Steven Spielberg’s DreamWorks SKG production company after a similar agreement between DreamWorks and Universal Pictures fell apart last week.
Burbank-based Walt Disney Studios will handle distribution and marketing for around six live-action DreamWorks films a year, for a total of 30, under its Touchstone Pictures brand beginning in 2010.
The companies did not disclose any financial details.
The deal came after Universal balked last week at a demand for $250 million in an upfront loan by DreamWorks’ principals, co-founder Spielberg and Chief Executive Stacey Snider. Universal, a unit of General Electric Co.’s NBC Universal, has been cutting costs across the board.
It also follows a difficult quarter for Disney’s studio, which experienced a 64% drop in operating profits. Disney also recently declined the option to co-finance future Narnia movies with Walden Media after the second installment in the big-budget series, The Chronicles of Narnia: Prince Caspian, failed to live up to expectations.
Analyst David Miller of Caris & Co. said Disney will now look for Spielberg to hit a home run for its studio and perhaps bolster its theme park and consumer products businesses.
Disney has in recent years cut back its film release slate to about 12 per year, compared to about 20 at other studios. Snider said that gives Disney the available marketing muscle to help DreamWorks releases.
The deal also allows DreamWorks to sell all of its movies to the pay TV market through Disney’s ongoing deal with Starz LLC, a unit of Liberty Media Corp.
When studios become distribution partners, they typically pick up the costs of marketing and film prints in exchange for upfront cost coverage, around 8% of the box office gross and a share of home video sales later.
DreamWorks’ films will be co-financed with Reliance Big Entertainment of India, its partner since October when DreamWorks left Viacom Inc.’s Paramount Pictures.
The rapidly deteriorating credit markets had complicated that split, however, which led the company to seek better terms from its distribution partner.
Reliance said it would match loans made by JPMorgan Chase & Co. totaling $550 million to finance new movies over the next 7 years. But JPMorgan’s fundraising has been delayed and the bank now plans to raise $325 million by the end of next month.
The new partnership with Disney was key to securing that tranche of funds. DreamWorks and Universal announced a distribution deal in October, but with DreamWorks asking for better terms, talks fell apart.
Although they share the same name, Spielberg’s DreamWorks SKG is a private company and operated separately from DreamWorks Animation SKG Inc., a publicly traded company behind the Shrek franchise and Kung Fu Panda.
The DreamWorks offices, and its approximately 60 employees, are expected to remain on the Universal backlot.
Disney had always been in contention to distribute DreamWorks films after it announced it was leaving Paramount, but Spielberg had chosen Universal because of a sentimental attachment to his longtime home and backer of films such as E.T.: The Extra-Terrestrial and Jurassic Park.