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DreamWorks deal with Reliance waiting for debt financing

September 8, 2008 |  3:06 pm

Ctlogo_2Man, you know the debt markets are something awful when even Steven Spielberg is having a tough time getting a loan.

But that’s exactly what’s holding up the DreamWorks co-founder and his cohorts from launching their new movie company with an equity infusion from India’s Reliance Big Entertainment. Although Reliance is poised to invest $500 million in the venture for a 50% ownership stake, that deal hinges on the group getting a firm guarantee from lead bank JPMorgan Chase to raise up to $700 million in debt financing to satisfy the business plan to make four to six movies a year. JPMorgan, which will not underwrite the entire portion of the loan as DreamWorks had hoped, will now attempt to syndicate it -- and that could take months. People close to the matter say that DreamWorks is still looking for further clarification on the term sheet it recently received from the lead bank and that negotiations are continuing.

All of this means that the protracted deal that DreamWorks was hoping to have locked up by now may not happen until November or December. And you can just imagine how pleased this must make Spielberg’s DreamWorks colleagues David Geffen and Stacey Snider, who have been champing at the bit to leave Paramount Pictures after a stormy 2½-year relationship with studio chairman Brad Grey. Grey and his team at the Viacom Inc.-owned studio, which bought DreamWorks for $1.6 billion in 2006, also can’t wait to be free of the DreamWorks foxes in the henhouse.

Of course, there’s always a chance that the stars may align sooner and this overly talked-about deal will finally get done. Geffen, who had an option to get out in his Paramount contract in January of this year, still hasn’t given the studio official notice. Once he does, both Spielberg and Snider can leave 60 days later, but no earlier than Oct. 31 of this year without getting Paramount’s blessing. Paramount is not expected to stand in their way if they want to leave sooner.

One of the other outstanding elements is that DreamWorks needs to land a distribution deal with a new studio to release its films and DVDs. When banks lend this kind of money to a production company, they typically want to know there’s a U.S. distributor in place, say industry observers. Not that there’s any shortage of studios who want to be in business with Spielberg. In the coming weeks, DreamWorks presumably will begin to have formal talks with potential new studio partners. The company is looking to make a straight “rent-a-system” deal in which it simply pays a studio a distribution fee much like the arrangement George Lucas has with his “Star Wars” franchise at 20th Century Fox.

DreamWorks declined to comment. JPMorgan didn't respond to a request for comment.

It’s no secret that Spielberg’s No. 1 choice for a new distributor has always been and remains Universal Pictures, where he began his career with such hits as “Jaws” and “E.T. The Extra-Terrestrial” and still maintains offices on the back lot.

There’s no guarantee, however, that Universal Pictures president Ron Meyer will automatically consent to all of DreamWorks' demands. Some Universal executives have complained that they don’t necessarily want their former movie chief, Stacey Snider, who co-heads DreamWorks, sitting in on their marketing meetings. Of course, there’s always Fox, where Geffen has a close relationship with media mogul Rupert Murdoch, whose News Corp. owns the Century City studio.

And, though it’s an intriguing long shot, Spielberg could decide to keep Paramount as his new company’s distributor since, stressed relations notwithstanding, he was happy with how the studio marketed this summer’s blockbuster “Indiana Jones and the Kingdom of the Crystal Skull.” The sequel racked up $100 million in U.S. ticket sales its first three days of release, handing him his biggest opening ever for a movie he directed. He's also pleased with how Paramount handled the release of “Tropic Thunder,” directed by Ben Stiller, which was the top-grossing film for three consecutive weekends after opening Aug. 13.

-- Claudia Eller

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