Hollywood's Golden Boys Shop for a Sweet Deal

The three DreamWorks moguls have the muscle -- and the Oscars -- to cut another favorable distribution pact

By Ronald Grover

It looks like all the goodies from last weekend's Academy Awards ceremonies haven't been handed out. Oh, sure, we all watched Julia tell the guy with "the stick" to sit down so she could thank the hordes for her Oscar. And we watched as Russell Crowe's evening-long scowl turn into a self-satisfied grin. Now we await the thank-yous that will be coming soon from the folks who could end up being the biggest winners of all from Oscar night: Steven, David, and Jeffrey.

You know those guys. Steven Spielberg, David Geffen, and Jeffrey Katzenberg, the three moguls who created DreamWorks back in 1995. For the last two years they've ruled Oscar night, racking up a Best Picture statue for Gladiator to go with the one they got last year for American Beauty.

Now, it looks as if DreamWorks is ready to convert all those little statues into gold -- and then some. Specifically: a huge deal with one of the major studios to distribute DreamWorks' films on video and DVD, and outside of North America.

For the past few months, DreamWorks' executives have been on their own road trip, lining up prospective partners willing to pony up outrageous sums to distribute DreamWorks films for the next five years. Hollywood buzz has the front-runner as Warner Bros., the AOL Time Warner unit that has been going through a few so-so years and wouldn't mind adding some hefty new firepower.


  Also in the mix, incredibly, is Walt Disney Co., Jeffrey Katzenberg's former home. Sources tell me that Disney looked over the DreamWorks deal -- as much because archenemy Time Warner was interested as to land their former studio chief and his company. Disney seems to have conveniently overlooked the fact that, not so long ago, it was embroiled in nasty, high-profile litigation with Katzenberg over just how much he was owed following his 1994 resignation.

Katzenberg declined to comment on any of this, but he has to love that his old bosses have come a-callin'. That's what you call power in this town, and it comes from making films that sell tickets. And DreamWorks sure does that. Last year, it turned out not just Gladiator ($180 million in U.S. ticket sales) but other blockbusters such as What Lies Beneath ($155.4 million), and Chicken Run ($106.8 million). The studio averaged a very impressive $66.3 million for each of the nine films it released in 2000, a figure that's hard to beat by Hollywood's boom-or-bust standards.

All of this adds up to serious money for the distributor who gets a chance to be in business with these guys. Traditionally, distributors take something like 15% of the money that's generated by video, DVD, and foreign sales. But DreamWorks cut a substantially better deal than that with Universal back in 1995. Word around town is that DreamWorks gives up closer to 10% of revenues. That's because, back then, Universal was desperate to be in business with the Big Three and especially wanted to get Spielberg to make some more films for them. (Ironically, his office sits right smack in the middle of the Universal lot, but he has made some of his biggest hits recently for Paramount and is working on one now for Warner Bros.) That 1995 deal was struck by Edgar Bronfman, who was new to Hollywood and no doubt wanted to be part of what he figured would be the hottest show in town.


  It seems that Universal's newest owners aren't nearly as thrilled to attend that show. Indeed, DreamWorks and Vivendi, which bought Universal from Bronfman, seem to be at odds over whether Steven, Jeffrey, and David will be staying on after their deal expires later this year. In an interview with the French daily La Tribune, Pierre Lescure, who heads Vivendi's Canal+ film unit, said Universal is "strong enough today to prevent this becoming a national drama."

Lescure recently went to great lengths to tell me he thought the comments, as translated and reported by Variety, were taken out of context. Still, while he said he didn't particularly want to lose DreamWorks, Lescure did point out that Universal still has deals with Ron Howard's Imagine Entertainment and Jersey Films, the Danny DeVito operation that made Erin Brockovich for Universal. "If we lose DreamWorks, we still have strong associations with quality filmmakers," he declared.

Lescure figures he has several things going for him, including the fact that Spielberg "grew up" on the Universal lot, where he made his first hit, Jaws, and went on to make the megablockbuster ET. He even mentioned something about Spielberg and his wife, actress Kate Capshaw, liking the food at Canal+ headquarters. Moreover, as Lescure points out, apart from DreamWorks, Spielberg is still at work on some projects for Universal, including an upcoming third installment of the Jurassic Park saga. Universal also had a piece of the Gladiator action and would be likely to jointly produce films with DreamWorks again.


  That's all well and good. But I figure the DreamWorks trio isn't going to let any of that stand in the way of squeezing the most from whoever is willing to give it. That's exactly what Ron Howard and his company did last year, after first testing the waters at Fox before re-signing their own deal with Universal. Word around town is that Howard extracted a hugely expensive deal from Universal, which got the major hit How the Grinch Stole Christmas from him in 2000.

You have to figure that DreamWorks isn't going to come any cheaper than Howard's outfit, so it all boils down to this: Who wants to pony up for a red-hot studio when it's at its most sizzling. Sure, everyone loves you when you win an Oscar. But there's no need to love them back -- you can just take their money.

Grover is Los Angeles bureau chief for BusinessWeek. Follow his weekly Power Lunch column, only on BW Online

Edited by Patricia O'Connell