R-Adag venture with Spielberg slashes by half investment plan

R-Adag venture with Spielberg slashes by half investment plan
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First Published: Thu, Apr 09 2009. 01 15 AM IST

Smaller dreams: Steven Spielberg. Danny Moloshok / Reuters
Smaller dreams: Steven Spielberg. Danny Moloshok / Reuters
Updated: Thu, Apr 09 2009. 09 43 AM IST
Mumbai: The size of the high-profile joint venture between iconic Hollywood producer Steven Spielberg’s DreamWorks SKG and the Reliance- Anil Dhirubhai Ambani Group (R-Adag) has been halved, because the economic downturn has made it tougher for the partners to borrow funds even as it has helped push down film production costs.
The joint venture will now be worth $700 million (Rs3,535 crore) against the original plan of $1.4 billion, according to an R-Adag executive familiar with the development.
Smaller dreams: Steven Spielberg. Danny Moloshok / Reuters
The film production and distribution deal between the Hollywood studio and the diversified Indian conglomerate —hailed as a “first” of sorts and milestone in sector study in February this year by industry group Federation of Indian Chambers of Commerce and Industry (Ficci) and audit and consulting firm KPMG—was announced in the second half of 2008, capping months of speculation of a tie-up as well as feuding between Spielberg and his DreamWorks co-founder David Geffen with executives from Paramount Pictures Corp. and its corporate parent, Viacom Inc.
The DreamWorks-R-Adag tie-up allowed Spielberg to sever ties with Paramount Pictures and seek independent funding from Reliance Big Entertainment Pvt. Ltd, R-Adag’s entertainment arm with global ambitions, at a time when even the biggest names such as his were hamstrung in funding his projects in Hollywood.
The global meltdown and financial institutions’ unwillingness to lend since then have caught up with his Indian partner as well.
“DreamWorks was supposed to bring in $700 million of debt and R-Adag, (another) $700 million of equity as per the initial agreement between the two groups. Since the world itself is going through a financial crisis, DreamWorks has decided to pare its contribution to $350 million. Correspondingly, R-Adag will also bring in only that much equity to the venture,” said the executive, under condition of anonymity.
The Hollywood studio had appointed global investment bank JP Morgan Chase and Co. to syndicate the debt component.
Rajesh Sawhney, president of Reliance Big Entertainment, said the company “cannot comment on such issues”.
An emailed questionnaire sent to Chip Sullivan, DreamWorks’ spokesman, went unanswered.
A DreamWorks executive, who did not want to be identified, told Mint late night that the commitment has not changed from other party but the fund infusion will be done in two stages.
“At the first stage, each partner is putting in dollar 325 each in the venture. At an appropriate time in future, when market settles, we will go in for second tranch of funding. There is no deadline for it. ’’
A spokeswoman for JP Morgan India Pvt. Ltd, involved in the fund-raising exercise, declined comment.
“Lower investment could affect the number of productions this tie-up was planning to make. This, however, has to be seen in the context that anyway lesser number of films will be going on the floor in Hollywood this year. The production costs (there) are down, talent costs are down and, therefore, scaling down of investment is natural in the current scenario,” said Smita Jha, media expert with audit and consulting firm PricewaterhouseCoopers.
Another industry executive in the know of the DreamWorks-R-Adag tie-up, who did not want to be quoted as he is not authorized to speak to the media, said there was less need now to invest the money that had been planned earlier since project costs had come down, making film projects cheaper.
“Also, films that will be released will generate revenues that can, in turn, be ploughed back in to put more films on the floor,” he explained.
A media and entertainment sector study, titled In the interval but ready for the next act, released in mid-February by Ficci and KPMG had called the pact a “Big step for Indian Cinema” where DreamWorks will “have access to a stable source of financing from Reliance”, while R-Adag will get “distribution rights in India for future film releases by DreamWorks across platforms— theatres, television, DTH (direct-to-home) and HomeVideo—for a period of six years”.
R-Adag will not have any creative control over the studio, said the report, adding that Anil Ambani’s funding was “contingent on the additional money being raised as debt”.
The study had pegged the size of the Indian film industry at Rs10,930 crore in 2008, projecting it to grow by nearly 54% into a Rs16,860 crore market by 2013, and marked “internationalization” as a crucial link in the sector’s growth and spread.
In May 2008 during the Cannes Film Festival, Reliance Big Entertainment had announced production deals with some of the biggest names in Hollywood such as Brad Pitt, George Clooney, Tom Hanks, Jim Carrey and Nicholas Cage—a clear indication of the company’s global ambitions.
In March 2008, “through its exhibition arm Adlabs, Reliance had bought several multiplexes in (the) US, giving it 250 screens in 28 North American cities, including New York, Los Angeles, Chicago and Washington...bought another 50 theatres in Malaysia and some were also taken over in Mauritius and Nepal”, according to the Ficci-KPMG study.
Another entertainment project of R-Adag that seems to have taken a back seat due to the financial turmoil is the launch of a bouquet of 20 channels under its two new companies—Reliance Big TV Entertainment Pvt. Ltd and Reliance Big TV News Pvt. Ltd.
The plan for now has been put on hold, said the other industry executive quoted before.
sanat.v@livemint.com
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First Published: Thu, Apr 09 2009. 01 15 AM IST