Spielberg Nears a Deal with Reliance

The director appears close to signing a lucrative package that would make India's Reliance Communications a 50% owner of his DreamWorks studio

What does a superstar director want after a long summer in the Hamptons? A new studio to call his own.

That's what Steven Spielberg may get this week, according to well-placed industry sources. They say that Hollywood's most powerful director is meeting in New York with, and will likely announce a deal with, India's Reliance Communications to restart the DreamWorks studio that he is relocating from Paramount Pictures (VIAB) in an acrimonious split. Spielberg, who traditionally spends his summers in the Hamptons, is meeting with Anil Ambani, the billionaire chairman of Reliance Communications, to finalize what's expected to be up to a $1.2 billion transaction that would make the Indian conglomerate a 50% owner of Spielberg's new studio.

A DreamWorks spokesman did not immediately return phone calls. BusinessWeek first reported the Paramount and DreamWorks split (BusinessWeek.com, 07/19/07) in July 2007.

Reliance's Star Power

The Reliance-DreamWorks deal has been rumored for two months (BusinessWeek, 6/19/08) and is assumed to include a $500 million equity infusion from Reliance, which has been beefing up its interest in Hollywood production. In May, its Reliance Big Entertainment unit signed agreements to finance projects with the likes of George Clooney, Brad Pitt, and Will Smith. The Spielberg transaction is expected to also include financing of as much as $750 million for DreamWorks' film production with JPMorgan Chase (JPM).

The deal will almost certainly spell the end of Spielberg's three-year, often stormy relationship with Viacom's Paramount, where he is contractually committed through Oct. 31. Spielberg has agreed to discuss a possible new pact with Paramount, sources say, although he is unlikely to stay. The talks are more likely to involve ongoing Paramount-based projects on which Spielberg and his team have been working, and which Spielberg—even after his departure—will maintain a financial interest. (Under his contract with that studio, after he leaves he will get a hefty percentage of the profits for films in which he serves as producer, which include the megafranchise film Transformers.)

That's why Spielberg is likely to announce a second venture down the road with another Hollywood studio to distribute the films his new DreamWorks studio will make. The lead candidate is Universal Pictures (GE), where Spielberg still maintains his adobe-style headquarters, a gift from Universal after his 1982 blockbuster E.T.: The Extra Terrestrial.

A Tale of Two DreamWorks

Spielberg still considers Universal his second home, say those close to him. The Twentieth-Century Fox studio (NWS) is considered a long shot to house DreamWorks. Whoever wins the contest to house the producer will likely strike an agreement with him to distribute the new DreamWorks' films in theaters, on DVD, and on the Internet. Spielberg's company maintains a long-standing relationship with HBO, which would continue to distribute DreamWorks films on its premium TV channel.

The new DreamWorks will be a private company separate from the publicly traded DreamWorks Animation (DWA), which was separated from the live-action unit in 2004. The newly created company being funded by Reliance would likely be nearly 50% owned by Spielberg, with his top production executive, DreamWorks CEO and Co-Chairman Stacey Snider, owning a small equity piece as well. Snider, a former Universal Pictures chairman, is considered key to the transaction and was also allowed to leave her Paramount contract as part of a "key man" provision that permitted Spielberg to take top executives with him when he left.

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