Dreamworks' Three Amigos and GE

If Universal's likely new owner doesn't satisfy Spielberg, Katzenberg, and Geffen, the trio could nix a $60 million-plus distribution deal

By Ronald Grover

It seems after months of showdowns and name-calling, the little drama called the Vivendi Universal Auction is finally over. On Sept. 2, General Electric's NBC (GE ) unit won the rights to exclusively negotiate with Vivendi to merge NBC's entertainment assets with those of Vivendi (V ). So, now it's a straight shot to the winner's circle, right?

Perhaps not. There's the matter of negotiating a final deal, of course. And Vivendi still needs to settle up with Barry Diller, the media mogul whose InteractiveCorp. (IACI ) owns a 5.4% stake in Vivendi's Hollywood assets. Diller has made no secret that he intends to extract a fat price for agreeing to go away. Both matters seem to be well in hand. But then there's the Dreamworks factor.


  In 1994, the studio started by Steven Spielberg, Jeffrey Katzenberg, and David Geffen signed to have Universal distribute Dreamwork' films in the U.S. The deal, which has almost three years to run, compensates Universal handsomely indeed. Last year, Dreamworks paid Universal more than $60 million to use its distribution system, in addition to footing the bill for some of Universal's overhead costs, which amount to roughly 10% of the films' revenues.

NBC wants to hang on to this lucrative piece of business. Dreamworks isn't threatening to leave, but under its agreement with Universal, it has the right to take its scripts and steno pads elsewhere, after giving only six months' notice. And what would make Dreamworks take its collection of wannabe hits elsewhere? NBC Chairman Bob Wright is on record as saying he's looking for $400 million in cuts over the first three-or-so years of the Vivendi deal. If those cuts include distribution executives and marketing folks -- the people who helped turn Dreamworks movies like The Ring and Catch Me If You Can into hits -- Spielberg, Katzenberg, and Geffen may be sending out change-of-address cards.

To his credit, Wright has said little about layoff and has openly worried that such talk could drive good folks out the door before his deal closes (see BW Online, 9/5/03, "Bob Wright's Post-Vivendi Schmoozathon "). Still, GE is notorious for its cost-cutting ways with acquisitions. NBC did not comment for this article.

Little wonder then that other studios -- namely Warner Bros. (AOL ) and Sony (SNE ), among others -- have already been calling Geffen, Katzenberg, and Spielberg to tell them how pleased they would be to welcome the Three Amigos. Though the studio has had a bit of a cold streak, it did dream up Shrek, which generated some $267 million at the box office in 2001 and sold zillions of DVDs. Shrek 2 is scheduled for next spring.


  Don't expect any change-of-address cards to go out soon. "We're very happy with NBC," says Dreamworks principal Geffen, the trio's major dealmaker. "We have a great relationship, and we don't plan on going anywhere." In fact, Dreamworks is making a pair of TV shows for NBC's current fall lineup: the second-year cop shows Boomtown and the sexy new drama Vegas. Those deals involve upfront license fees that go to Dreamworks' bottom line. And the network and the studio are also knee-deep in collaboration on an ambitious computer-generated comedy called Father of the Pride, about a pack of white lions performing in Siegfried & Roy's Las Vegas show.

Dreamworks' future with NBC should be clarified in the next few months. NBC and Vivendi say they expect to have a final, $14 billion deal on paper by the end of the year, and to close it in early 2004. The Dreamworks folks haven't sat down yet with the NBC biggies -- in fact, Dreamworks wasn't even on the list of drop-ins that Wright made during a whirlwind day of meetings and press interviews on Sept. 3. No big deal, say both sides. According to my sources, Geffen and Wright say they'll catch up the next time the NBC boss is in town. It should be a very interesting meeting.

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

Edited by Patricia O'Connell

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