Hollywood's Digital Godzilla

Ever wonder how many gigantic egos can fit in one room? After adding a couple of meganames to its roster of partners, DreamWorks SKG, the nascent movie studio formed by Steven Spielberg, Jeffrey Katzenberg, and David Geffen may be the test case. First, on Mar. 19, Microsoft Corp. co-founder Paul G. Allen said he will invest $500 million in the outfit. Then, three days later, Microsoft CEO William H. Gates III announced that his company will form a new electronic-entertainment joint venture with DreamWorks--tentatively dubbed DreamWorks Interactive.

Big names--and egos--to be sure. But the new Microsoft-DreamWorks tie-up has a solid business purpose: to link Microsoft's technology with the best Hollywood creative talent the Dream Team can attract. The focus will be on developing interactive entertainment, primarily adventure-based games and children's stories. And it will be designed to exploit any device the next decade produces, from computers to video-game machines to new electronic networks to interactive television. "Whether it's online networks or interactive movies, we'll be making software for it," says Spielberg. Plus, says Gates: "Steve [Spielberg] and I will primarily be sitting down and talking to the product teams about their ideas." The venture's first products--probably computer games--should be on the market by Christmas, 1996.

FIFTY-FIFTY. Making DreamWorks Interactive work, though, will require considerable mutual trust between Microsoft and DreamWorks SKG. The new company is being set up as a 50-50 partnership, with headquarters in Hollywood and development teams there and at Microsoft's headquarters in Redmond, Wash. Each side will ante up about $15 million initially, and Microsoft is making an undisclosed equity investment in DreamWorks SKG. Each side will contribute employees to the new company. Moreover, Katzenberg says it will have access to all of Microsoft's research and development. "To have these assets from Microsoft made available to us--there's no price you can put on it," he says.

Indeed, Microsoft should bring an impressive array of new technologies to the new venture. Dataquest Inc. figures Microsoft sold more than $180 million worth of interactive games last year, and it now owns much of the latest in digital movie-making technology. Last June, it paid $120 million to buy Softimage, a Canadian company that makes special-effects software for Hollywood. And later this year, it will launch Microsoft Network, a new online service similar to America Online Inc. that promises to be a lucrative new playground for computer-game addicts. Microsoft also is creating programming tools for gamemakers and designing networks for interactive television.

Still, can these guys really work together? Big egos aside, plenty of other tensions may be inherent in the partnership. Although DreamWorks Interactive is starting out in the adventure-game category, where Microsoft has little presence so far, it eventually will compete directly with its parent. Meanwhile, rival companies, such as Rocket Science Games, Spectrum Holobyte, and Knowledge Adventure (in which Spielberg owns a minority stake), are already trying to combine Hollywood storytelling magic with programming talent.

Spielberg and Gates, at least, seem to speak the same language. After trying out some of Microsoft's latest games under development a couple of months ago, Spielberg sent a six-page memo suggesting creative changes. "I love this stuff," says Spielberg. "It's a hobby for me, like movies." Hobby, indeed: Dataquest estimates that video- and computer-game software already add up to a nearly $4 billion business. Just the kind of hobby Bill Gates would get into.

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