A nightmarish end is expected for Paramount-DreamWorks marriage

[Elano]

David Geffen, Jeffrey Katzenberg and Steven Spielberg appear to have experienced some difficulty adjusting to the move of DreamWorks SKG's live-action studio to Viacom.

Tensions escalate over who should get credit for recent box-office hits. Spielberg would have to leave a lot behind if he goes.

Less than two years after director Steven Spielberg and his partners sold DreamWorks SKG to Viacom Inc.'s Paramount Pictures for $1.6 billion, a divorce seems inevitable.

Spielberg and his partner David Geffen have felt slighted that they haven't gotten more autonomy and credit within Viacom, given the success of their movies this summer. Recent box-office hits such as "Transformers" and "Blades of Glory" have lifted Paramount out of the doldrums and heightened resentment between the DreamWorks founders and the company's owners that has been mounting since the deal went down 19 months ago.


That's what happens in Hollywood when big egos collide. Geffen has butted heads with Viacom's 84-year-old Chairman Sumner Redstone. Internal power struggles, backbiting, perceived snubs and accusations of credit grabbing have also marred the marriage.

Smarting from sellers' remorse, the DreamWorks principals are expected to bolt as soon as they are free to do so late next year. Already, Geffen has been telling people in Hollywood that he and Spielberg plan to look for a new financial backer and studio home.

Any breakup is sure to be messy for both sides as Spielberg is knee-deep in a number of major movie productions at the Melrose Avenue studio. He and his DreamWorks partners would be forced to leave behind hundreds of projects including a planned movie version of the bestseller "The Lovely Bones," to be directed by Peter Jackson, which Spielberg pursued for many years. They would also abandon key executives at DreamWorks as well as those they installed in senior positions at Paramount.

Essentially, Spielberg & Co. would have to start from scratch, returning them to where they were in 1994, when they formed DreamWorks.

Their departure would lead to an even more bitter rivalry with Paramount as the two camps would then compete head-to-head for movie projects, talent and consumer dollars.

The questions for Paramount then become: Did the studio get its money's worth from the expensive bet it made when it bought the 11-year-old live-action studio from Spielberg, Geffen and Jeffrey Katzenberg? And what value do the remains of DreamWorks have without the talents of the self-described "Dream Team"?

At the time of the acquisition, Paramount was highly criticized for overpaying, but its top executives say the purchase will easily pay for itself. "The deal for us has been highly profitable and is ahead of schedule," said Paramount Pictures Chairman Brad Grey in an interview Thursday. "It would always be better to have Steven and DreamWorks with us, but of course we'll be OK" if they leave.

Grey acknowledged that the DreamWorks deal "really accelerated our turnaround."

DreamWorks' hits, which also included "Norbit," "Disturbia" and "Dreamgirls," have played a major role in the recovery of Paramount, which had few projects in the pipeline when Grey took the helm in early 2005. At a time when Paramount's own movies, including the expensive flop "Stardust," have been underperforming, DreamWorks hits have catapulted its owner from last to first place in market share among its rivals.

Geffen has made no secret of his bitter feelings toward Viacom's controlling shareholder, Sumner Redstone, and has privately told rival studio executives that he plans to exercise an out in his contract that frees him to leave as of next year. If he does, Spielberg has the right to follow him out the door. If Spielberg leaves, his close ally, Stacey Snider, who runs DreamWorks, can also walk.

After news circulated in Hollywood about Geffen's chronic unhappiness and desire to leave Paramount, the brass at Viacom took the gloves off this week.

At an investor conference in New York on Tuesday, Viacom Chief Executive Philippe Dauman said of the likely divorce, "We're planning for that." He went on to assure investors that the financial effect on Paramount and Viacom would be "completely immaterial."

That comment ratcheted up the ill will that already existed between the DreamWorks and Paramount camps.

Jumping to the defense of his partner, Katzenberg shot back Wednesday: "To suggest that not having Steven Spielberg is completely immaterial just seems ill-advised," he said to the same group of investors in New York. "I think calmer heads need to prevail here," suggested Katzenberg, who separately runs publicly held DreamWorks Animation, which is not owned by Paramount but has a multiyear distribution deal with the studio.

Given a business as unpredictable as Hollywood, DreamWorks and Paramount could wind up having a rapprochement and renegotiate new employment contracts. But most industry observers believe that's a long shot.

Grey, however, said he remains hopeful that they can stay in business together.

"The temperature has to go down a little bit," Grey said. "If there's an economically prudent deal that makes sense for us, of course I want Steven and DreamWorks to be part of Viacom. No one respects Steven and David more than I do."

The DreamWorks partners declined to comment.

In December 2005, when Paramount agreed to acquire DreamWorks, players on both sides heralded the union as a win-win. Geffen was thrilled when Paramount's Grey persuaded the Viacom board to buy the company after extensive negotiations with NBC Universal went south in the eleventh hour.

For Grey, landing DreamWorks was a huge coup. Not only could the former talent manager, who had never run a studio, benefit from the expertise of such industry heavyweights as Geffen, Spielberg and Katzenberg, it also gave him a way to fill Paramount's nearly empty production and distribution pipeline with ready-made movies.

To help finance the $1.6-billion acquisition, Paramount sold DreamWorks' 59 film library, which includes the Oscar-winning hits "American Beauty" and "Gladiator," to a private equity group headed by billionaire George Soros for $900 million. That brought Paramount's net investment to $700 million.

Paramount receives revenue from several DreamWorks-related pots.

The studio retained worldwide distribution rights to the library, which throws off millions of dollars in fees a year.

It also collects an 8% distribution fees on every movie it releases for DreamWorks Animation, which was spun off to the public from the live-action studio in 2004. Paramount has earned about $60 million a movie from such animated blockbusters as "Shrek The Third." Over the course of the seven-year deal with DreamWorks Animation, Paramount could potentially reap $800 million in fees from the two movies a year it releases if the historical performance of computer-generated hits is an indicator.

Paramount also reaps millions of dollars in movie ticket sales from DreamWork's live-action hits. This summer, "Transformers," which Paramount co-owned before buying DreamWorks, has grossed close to $700 million worldwide. It is also expected to be a giant DVD seller later this year. Some industry experts believe that "Transformers" alone, which gave Paramount a much-needed new film franchise that will spawn several sequels and other cash-generating opportunities, made the DreamWorks acquisition worthwhile. Paramount could net as much as $200 million on the first installment once all revenue streams are counted.

That's not to say Paramount hasn't lost money on any DreamWorks movie. For one, director Clint Eastwood's expensive war drama "Flags of Our Fathers," which grossed less than $35 million domestically, lost about $40 million for Paramount and its co-financing partner, Warner Bros.

"We looked at this as a long-term deal," Grey said. "Clearly in 2007, it went even better than we imagined. I'm delighted we made the deal."

Even if he leaves, Spielberg will remain the crown jewel of the acquisition for many years. He and director Michael Bay have already signed on to make "Transformers 2," which is expected to hit theaters in summer 2009.

Spielberg, who is currently shooting "Indiana Jones and the Kingdom of the Crystal Skull" for Paramount, is also planning to direct another movie in the coming months, a drama based on a script by "The West Wing" creator Aaron Sorkin.

Paramount also has been able to build a first-class global distribution operation by plucking several top DreamWorks executives, including the heads of its theatrical distribution, home video and international television units.

For DreamWorks, Paramount's marketing and distribution team has contributed mightily to its success. Yet, privately Geffen has told associates that he resents lining Paramount's pockets with money from DreamWorks' hits even though he was the one who orchestrated the sale.

Geffen has also complained to friends that Paramount got a huge discount when it bought the company. What he is forgetting is that DreamWorks was coming off a major cold streak in 2005 with such costly flops as "The Island," which prompted NBC Universal parent General Electric to slash its bid for the studio by $100 million at the last minute.

Not long after making the Paramount deal, Geffen and his partners acquired a nasty case of seller's remorse.

The first signs of tension erupted late last year when Geffen accused Grey of grabbing too much credit for his pet project "Dreamgirls," which was co-financed by Paramount.

Spielberg was also miffed that Paramount executives habitually referred to DreamWorks releases as their own. The director also didn't think Paramount was honoring its contractual promise to give him and DreamWorks the kind of autonomy and identity they deserved.

Moreover, Spielberg was upset that his longtime alley, former Universal Pictures Chairman Stacey Snider, who runs DreamWorks, felt belittled by Grey, accusing him of not giving her the respect she deserved.

This past spring, relations between Spielberg and Paramount were so strained, Grey agreed to revise the deal to give he and Snider more power and money. Paramount upped DreamWorks' annual production allotment to between $350 million and $400 million and its overhead and development fund to $60 million. Also, DreamWorks can now greenlight any Spielberg-directed movie costing up to $140 million and any film not directed by him up to $100 million.

If the DreamWorks honchos vacate Paramount as predicted, they are allowed to take their company name and logo with them.

But it's what they can't take with them that may prove more significant: Hundreds of movie scripts, pitches and book rights accumulated over many years would remain at Paramount, as would all the negatives of the movies they've made in tandem.

There's rampant speculation that Spielberg and DreamWorks will return to Universal Pictures, where the director began his career decades ago. However, Geffen is talking to several studios as a potential new home.

For Grey, losing Spielberg and the Dream team would be viewed as nothing less than a black eye.

Does he have any regrets that the relationship went south?

"In any new relationship, there are going to be bumps in the road," he said. "And certainly we've had bumps in the road. But the results have been stunning and I'm feeling confident that Paramount is running on all cylinders with a wide portfolio and we are well positioned for the future."

[BANANAS]

I know I'll be having nightmares

[Sikotic™]

All these Jews are rich as hell. Who gives a fuck?