4TH (AND TODAY'S FINAL) UPDATED WRITETHRU:I hear DreamWorks' deal with Disney is done and will be announced on Monday. But, wait, didn't DreamWorks already hype a distribution pact with Universal just four months ago? I can report exclusively that financially desperate DreamWorks needed $250 million -- $100M immediately and $150M later in the second tranche -- to save its foundering Bollywood partnership. So Stacey Snider and Steven Spielberg demanded to change the terms of their deal with Universal already announced to the world so it would now include straight distribution and a $250M investment. But Universal balked. The studio was very reluctant to even invest $100M.
But there's also another side to this. Spielberg was irritated that Universal came to him asking to renegotiate his longstanding 2% theme parks deal dating back to the days when Lew Wasserman/Sid Sheinberg controlled the studio. These days, that's worth $50 million a year to the director. And Universal also asked to delay for 5 years Spielberg's '"put" deal -- his right to have the studio buy him out of the parks deal in a year. But it was also just one of a laundry list of blue sky terms that Universal asked for on the very first day of negotiations, just like DreamWorks had its own laundry list of blue sky terms. When Spielberg balked, Uni took back the proposal within 24 hours. So this was far from the "straw that broke the camel's back" of the DW-Uni bargaining.
As the negotiations dragged on for weeks, that's when DreamWorks began secret talks with Disney, which by all accounts would be a more strategic and enthusiastic partner. I first found out about the DreamWorks/Disney talks two months ago. I kept quiet because they were still formative. But then last night I was alerted that a deal between them was "imminent" -- to my amazement, especially given the rancorous history between both companies dating back 15 years. So I did what any journalist does: I began to chase the story. DreamWorks suddenly began ducking my calls because Disney wasn't ready to go public with any deal. And because Snider/Spielberg have been moving heaven and earth to make sure no one in the media found out the true details of just what a fiscal crisis their company is in. Also last night, I confirmed that Universal didn't even know that any DreamWorks talks were going on with Disney much less in the final stages until I asked about them. You see, DreamWorks had hoped to play Disney and Universal off one another and snag the best deal for itself within the next 48 hours.
I have now learned that, Thursday night, a flurry of memos and calls were exchanged between Universal and DreamWorks about where exactly their deal stood vis a vis the one in the works at Disney. Finally, this morning, Universal got sick and tired of it all and pulled out. "We weren't going further. This deal got to the point where it's not in our interest," a furious Universal bigwig told me. "And then when you learn they're negotiating behind your back, it reflects upon what kind of partners you're getting into business with." A DreamWorks insider replies, "Everybody has the right in business to change the rules of the game. Universal is understandably upset. But there are no victims and no villains. It became very clear at the end of the day that DreamWorks had a better deal with Disney."
I've also learned that, today, Snider phoned Universal Studios prez/COO Ron Meyer to apologize. "We had to do this. Our backs were against the wall. We couldn't tell anyone about our discussions with Disney." To which Meyer replied, "What you did was wrong on every level. You guys behaved like pigs." I have since heard that Snider, who was once Meyer's lieutenant, is deeply offended he called her that. But that's a relationship torn asunder. Especially amazing because Uni and DW used to be such pals.
But this is not the first time DreamWorks went behind Uni's back. First, DreamWorks 1.0 negotiated until the 11th hour to sell itself to Uni's parent company General Electric until the big conglomerate tried to roll back terms at the last minute. So DreamWorks wrapped up a quick negotiation with Paramount and let Universal know about it after the fact. And Universal had to hear from others that Spielberg was hiring away Snider to be DreamWorks chief. So this was the third strike.
But Hollywood is a town where relationships are more important than numbers. And to see this level of animosity between two former partners, DreamWorks and Universal, is rare indeed. Then again, it happened to DreamWorks 1.0 and its owner Viacom/ Paramount as well. The war of words between Sumner Redstone and David Geffen, for instance, had Hollywood transfixed since their companies' marriage deteriorated almost immediately and then resulted in divorce. Paramount sat back quietly today watching the Universal/DreamWorks mess unfold. "It justifies everything they went through for the last 2 1/2 years," one insider tells me. "You have to know that Brad Grey and Rob Moore must be the happiest people in the world."
DreamWorks 2.0 immediately spent all day today at Disney finalizing terms so that the deal could be announced on Monday. Given Disney's reputation for hard-nosed negotiations, it's dicey that without a rival bidder Disney gave DreamWorks everything it wanted. But I have no doubt that the deal is better than what Universal was offering. (That's certainly true regarding pay slots; more on that below.)
Although not part of the DreamWorks discussions, I've also been hearing for months that the Mouse House has been wanting to "unload" Miramax, and my sources believe that the DreamWorks deal will light a fire under Disney to sell the specialty unit that once belonged to Harvey and Bob Weinstein.
Here's the Universal statement: "Universal Pictures has ended discussions with DreamWorks for a distribution agreement. Over the past several weeks DreamWorks has demanded material changes to previously agreed upon terms. It is clear that DreamWorks' needs and Universal’s business interests are no longer in alignment. We wish them luck in their pursuit of funding and distribution of their future endeavors."
DreamWorks has yet to give out a statement. That will be done in a joint press release with Disney Monday.
Dreamworks 2.0 has been haunted by the worldwide financial crisis which has delayed the contemplated bank financing it needs to complete its big Bollywood deal and raise a total of about $1.25 billion in equity and debt. Right now, DreamWorks has claimed it has half the necessary lender commitments -- supposedly $150 million of the first phase of the $325 million bank syndication -- before it can secure a matching contribution by biz partner Reliance Big Entertainment based in Mumbai, India. DreamWorks insiders keep expressing confidence publicly that the other half of the money will come in by March 31st. But that was much later than originally planned and now Hollywood knows the extent of the jitters -- and it's not just because Spielberg is personally funding his new company's overhead alongside Reliance. Now it becomes clear that DreamWorks understandably is desperate to lay its hands on all the money it can and by any means possible. "Less senior financing means less equity financing from Reliance. Less overall capital means less films and less overhead," says one of my film financing sources. "Spielberg and Snider finally realized they didn't have enough rope."
Here's what happened: Suddenly, because of its financing crisis, DreamWorks 2.0 decided that its straight distribution deal announced with Universal wouldn't be enough to save its Reliance partnership. So then Dreamworks went to Universal with demands for an investment of $250 million as well as distribution. You see, Dreamworks still does not have any formal agreement with Universal which is something of a surprise after all this time. But it's because DreamWorks kept making more and more demands for overhead, production, and ultimately investment money. That isn't what Uni bargained for so negotiations have been dragging on for weeks. "Universal is trying to resolve what they need. But it's a lot more money than the studio is willing to give them," one of my sources says before the proverbial shit hit the fan. Another tells me, "The deal for Universal isn't as attractive as before. What was once free is now going to cost."
One huge factor that affected the deal is that DreamWorks originally said it would be coming with its own HBO deal. Those pay slots are very valuable in Hollywood so Universal was counting on that. But then DreamWorks quietly confided that it couldn't make the HBO deal so now wanted to make use of Universal's pay slots. Even though it didn't want to, Universal stepped up and agreed. But next DreamWorks confided that it was not able to raise its bank financing to partner with Reliance so now demanded investment money from Universal. DreamWorks' number kept changing up and down, early and late in the financing. Finally, they asked for $250 million from Universal. After a lot of hemming and hawing, Uni came back with an offer of just $100 million.
Here's the thinking that went into the offer. First, Spielberg gets the richest gross deals in Hollywood. "So rich that when he finally does a movie with you, you can't make any money," one insider complains. He was offering no collateral. And Universal conducted so-called "Monte Carlo's", an analysis of the probable scenario of the returns on a future slate of motion pictures. The studio decided that those DreamWorks projections under the current circumstances did not look very favorable. It would not, and could not, give DreamWorks more of a deal.
At Disney, meanwhile, CEO Bob Iger has wanted to be in biz with Steven Spielberg and Stacey Snider since they started thinking about leaving Paramount. I do know it was David Geffen's first choice for DreamWorks 2.0 (followed closely by Fox, and Universal only a distant 3rd), but he couldn't talk Spielberg out of "going back home" to Universal where the director's Amblin office has long been on the lot. DreamWorks 2.0 would be especially enticing to Disney because Spielberg/Snider are planning to make only about 6 films a year (though with their current financing that figure has dropped down to 2 or 3 a year), and Disney is now rolling out just 12 pics annually -- the least of any of the majors -- so it could use more product. Whereas Universal already puts out a slate of 17 films annually so has more than enough in the pipeline. Plus, Spielberg personally has always loved Disney's family fare and admired Disney's incredible marketing machine worldwide, so there's tremendous synergy there. "The Disney deal has always been strategically better on paper," one DreamWorks insider tells me.
Even better, Disney has a pay deal with Starz for virtually unlimited slots so that suited DreamWorks as well.
More Disney synergy is that Spielberg has tremendous interest in the theme parks business and its creative possibilities.
So all in all, this is a scenario that no one, least of all me, could ever have anticipated. One of the reasons DreamWorks 1.0 began was because Jeffrey Katzenberg was passed over for the presidency of Disney by then chairman/CEO Michael Eisner. After that, the two companies competed bitterly for bragging rights in animation. Now, Katzenberg is ensconced at DreamWorks Animation which is a publicly held company with distribution from Paramount and separation from DreamWorks 2.0. And Steven Spielberg is about to make his professional home at Disney. Even though his offices will probably stay at Universal like they always have. For at least awhile. Go figure.