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R-Adag close to a deal with DreamWorks

R-Adag close to a deal with DreamWorks
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First Published: Thu, Jun 19 2008. 01 20 AM IST

Close ties: Jeffrey Katzenberg (left) and Steven Spielberg during an NBA basketball match in Los Angeles. DreamWorks was founded in 1994 by Spielberg, Katzenberg and David Geffen who form the SKG of t
Close ties: Jeffrey Katzenberg (left) and Steven Spielberg during an NBA basketball match in Los Angeles. DreamWorks was founded in 1994 by Spielberg, Katzenberg and David Geffen who form the SKG of t
Updated: Thu, Jun 19 2008. 01 20 AM IST
Los Angeles: The principals of DreamWorks SKG are close to a deal with one of India’s biggest entertainment conglomerates to form a new movie venture, according to people familiar with the situation, a move that would give director Steven Spielberg the cash to finance his DreamWorks team’s departure from Viacom Inc.’s Paramount Pictures later this year.
Spielberg’s DreamWorks is in talks with the Reliance-Anil Dhirubhai Ambani Group (R-Adag), a move that would give the director the cash to regain his independence.
Mumbai-based R-Adag would provide Spielberg and company with $500-600 million (Rs2,145-2,574 crore) in equity, moving them one step closer to ending one of Hollywood’s most contentious and closely watched battles.
In R-Adag, the DreamWorks team would also have an unusual and ambitious partner in the film business: an Indian firm with interests in telecommunications, financial services and entertainment that wants to build a media empire by financing Hollywood pictures.
The deal amounts to a marriage of some of the biggest names in the Hollywood and Indian business worlds, with R-Adag getting a large stake in the new company. DreamWorks, which makes live-action films that have included last year’s Blades of Glory and Dreamgirls in 2006, would likely seek another $500 million or so in debt financing elsewhere to give its new venture enough money to make a slate of about six films a year. The company would then choose a studio to distribute the films, which is still an open question. General Electric Co.’s Universal Pictures, where Spielberg began his career, is thought to be the director’s preference to release his future works, but News Corp.’s Twentieth Century Fox is also thought to be a serious contender. (News Corp. is the owner of Dow Jones and Co., publisher of The Wall Street Journal, which has an exclusive content partnership in India with Mint.)
A spokesman for DreamWorks declined to comment.
Close ties: Jeffrey Katzenberg (left) and Steven Spielberg during an NBA basketball match in Los Angeles. DreamWorks was founded in 1994 by Spielberg, Katzenberg and David Geffen who form the SKG of the logo. ( Kevork Djansezian /AP)
The film industry has been closely monitoring the fate of the 61-year-old Spielberg and partner David Geffen, co-founders of DreamWorks SKG. DreamWorks was sold to Viacom in 2006 after a decade-plus run as a private company. But a tense relationship soon developed between DreamWorks and Paramount, and last year DreamWorks began to signal publicly that it might leave the studio in 2008, when the contracts of Spielberg and Geffen allow it. Another provision of their complex arrangement will likely allow them to keep using the DreamWorks SKG name, though Viacom would retain rights to the films they created during their short time at Paramount.
The fractured relations reached a boiling point last fall when, threatened by rumours that Spielberg might bolt, Viacom chief executive Philippe Dauman said that any such departure would be “completely immaterial” to the company’s financial future. Dauman and executives at Paramount have since then scrambled to repair relations with Spielberg and Geffen, to no avail.
When the dust settles, Spielberg is expected to be joined in the venture by current DreamWorks CEO Stacey Snider, who has become a key ally and collaborator since joining Spielberg in 2006. The former head of Universal Pictures, Snider would give R-Adag a tested Hollywood manager for its biggest entry into the global movie business.
Although the DreamWorks team’s possible partnership with R-Adag seems like an unlikely meeting of the minds, it’s actually in line with Hollywood’s current landscape, where a dearth of Wall Street financing has opened up the door to foreign investors.
R-Adag’s entertainment division, Reliance Big Entertainment, has already announced a slate of investments in Hollywood projects last month at the Cannes Film Festival. Those include providing financing to a handful of Hollywood top talent with production houses, such as Jim Carrey, George Clooney, Tom Hanks and Brad Pitt. The company had also said then it would spend more than $1 billion over the next 18 months building its entertainment empire in India and abroad.
R-Adag would provide funding to allow talent such as Clooney and Pitt, who have their own production houses, to acquire film projects before taking them to major studios with which they have previous agreements. R-Adag could then go into business with the Hollywood studios, as a partner financing up to 50% of the film’s production. These pacts are commonly referred to as “development silos”.
Leading the charge
Rajesh Sawhney, president of Reliance Big Entertainment, is leading the charge into Hollywood. Reliance’s plunge into Hollywood is part of a broader push among India’s corporate titans to take their place on the global stage. The country has now produced global players in software, steel, autos and is building a growing powerhouse in telecom.
India’s rise was at first confined to software and outsourcing. But more recently, Indian firms, spurred by rapid growth in their home market, have expanded abroad aggressively.
In some cases, they have scooped up storied Western brands. Earlier this year, for instance, Tata Motors Ltd, part of the Tata group, agreed to buy Britain’s Jaguar and Land Rover brands from Ford Motor Co. for $2.3 billion.
In recent years, Mumbai-based film industry, known as Bollywood, has found a growing global appeal for its products. As it has expanded, it has drawn investment from Hollywood as well. For example, Walt Disney Co. has a large stake in UTV Software Communications Ltd, one of India’s leading production houses. Other large US media firms have also invested in India.
In the Reliance parent company, the DreamWorks team will find another internal feud—among the Ambani family owners, one of India’s most prominent industrial dynasties. Anil Ambani, 49, controls Reliance Communications Ltd (RCom), one of the major mobile phone players in India. He has pushed to become a major player in the country’s media world, is married to a former Bollywood actress and is eager to make the leap to Hollywood. He and his older brother Mukesh Ambani are currently engaged in a feud over a multibillion-dollar telecom deal with MTN Group Ltd of South Africa. Mukesh’s company, Reliance Industries Ltd, has sought to assert that it has the right of first refusal over RCom in the event of a sale.
In leaving Paramount, Geffen and Spielberg will put behind them a painful period in their storied careers. The duo have made clear for the past year that they are eager to part ways with Paramount after a series of personal clashes with executives at the studio and its Viacom parent. In an interview last September, Geffen had said: “We want to function independently and get credit for our successes and failures”.
DreamWorks was founded with great fanfare in 1994 by Spielberg, Jeffrey Katzenberg and Geffen, who set out to build a vast multimedia enterprise. The trio, who form the SKG of the logo, found that success was not easy to come by, however. While they scored hits such as Saving Private Ryan, they also made flops such as The Island and fared poorly in side businesses such as music.
In 2004, DreamWorks spun off the animation arm that Katzenberg was running into a stand-alone public company. DreamWorks Animation SKG, which also distributes its films through Paramount in a deal that runs for several more years, is the creator of hits such as Shrek and Kung Fu Panda.
Bidding war
The live-action arm of DreamWorks became the object of a fierce bidding war in 2005, with Viacom scooping up the studio and its venerable founders from under the nose of GE’s NBC Universal. Viacom paid $1.6 billion—at the time a healthy price for an 11-year-old studio with mixed returns.
The honeymoon period was brief, however. Not long after the deal was consummated, Spielberg and Geffen were struggling with their loss of independence. They railed against their new master: Paramount chief Brad Grey. Spielberg privately complained about Paramount taking credit for DreamWorks movies. They also felt they were not being afforded the appropriate level of respect from Grey and his Viacom bosses. Tensions between the two sides came to a head at the end of 2006 over Dreamgirls. Geffen, who became a billionaire through the music industry, was heavily invested in the musical, having shepherded it from the stage to the big screen. He took enormous offence because he felt Grey seemed to take credit for the movie at several public events, according to people familiar with the situation.
Perhaps sensing that the DreamWorks camp was heading for the door, Viacom chief Dauman dropped a bombshell last September. He told an investor conference that their departure would be “completely immaterial” to Viacom. While Paramount and DreamWorks are both small elements of Viacom’s bottom line, the comment infuriated the DreamWorks team. Publicly defending Spielberg, fellow DreamWorks founder Katzenberg said: “To suggest that not having Steven Spielberg is completely immaterial just seems ill-advised.” He added, “I think calmer heads need to prevail here.”
Katzenberg finds himself in an awkward situation with the departure of his long-time colleagues. As part of the sale to Paramount, the studio landed a distribution deal with DreamWorks Animation. He and the animation firm will be left behind at Paramount when Geffen and Spielberg depart.
For Viacom and its Paramount studio, the departure of the DreamWorks camp will create a hole in its slate. But it will also remove a distraction that has taken up a lot of executives’ time. Paramount is emerging from its revamp and has finally some hits to its name, including this summer’s Iron Man. A key advocate for the DreamWorks deal originally, Grey has taken the brunt of attacks from the DreamWorks crew, according to people familiar with the situation.
Still, Paramount may remain in business with DreamWorks for some time to come. The two share the rights to scores of projects, such as a sequel to last year’s hit Transformers, though people close to the situation say Spielberg’s crew may bargain with Paramount to take certain projects with them. Aware of this, Dauman has made a special effort in recent months to smooth things with Spielberg, visiting him regularly in Los Angeles.
wsj@livemint.com
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First Published: Thu, Jun 19 2008. 01 20 AM IST
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