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DreamWorks, Disney ink distribution deal

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Steven Spielberg’s DreamWorks finalized a distribution deal with Disney today, giving the filmmaker key financial demands he failed to extract from his longtime studio alley Universal Pictures: a commitment to risk hundreds of millions in film prints and advertising costs and to share its valuable pay TV slots.

As part of the deal, Disney will also give DreamWorks -- which has been struggling to raise money for its new studio -- a cash advance of about $100 million and a potential $75-million credit line which Spielberg & Co. can draw on for future productions. Disney’s total outlay of $175 million is taking the form of a loan and is not an equity investment.

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But, here’s the catch. While DreamWorks desperately needs the cash advance to get its slate of movies rolling, it can’t access Disney’s money until it raises the first phase of its debt financing -- $325 million -- which will trigger a matching equity investment by Spielberg’s new studio partner India’s Reliance Entertainment.

‘Disney has given us all the support we need to be in a position to raise our money and launch our company,’ said Stacey Snider, partner and chief executive of DreamWorks.

DreamWorks initially hoped to close its bank financing by the the end of the first quarter, but that now appears to be unlikely. A person close to the matter said that a more realistic time frame is late April.

Spielberg and Reliance will continue to fund overhead at DreamWorks, which employs about 60 people, until the deal is completed.

Disney’s distribution agreement calls for DreamWorks to deliver up to 30 movies over the term of the deal. DreamWorks hopes to make up to six films a year for Disney’s Touchstone Films banner. The first release -- yet to be identified -- will be in 2010.

Disney will market and release the movies worldwide everywhere except India, where Mumbai-based Reliance retains the distribution rights.

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The Burbank studio will advance all the prints and advertising costs in exchange for collecting a distribution fee of what could amount to as much as 10%.

DreamWorks will also be able to piggyback on Disney’s pay cable deal with Starz Entertainment, which provides movie producers with a significant revenue stream worth hundreds of millions of dollars. Last year, DreamWorks had failed at an attempt to secure its own pay-TV deal with HBO.

Spielberg hooked up with Reliance last year in a 50-50 venture to relaunch DreamWorks as a new studio with hoped-for funding of $1.25 billion. Reliance agreed to match in equity what DreamWorks raises in debt, but those efforts have been greatly hampered by the global credit crisis.

Surprising news of a pending deal between DreamWorks and Disney came late last week after a previously announced agreement between the Spielberg studio and Universal Pictures fell apart. Last fall, Universal had beat Disney and other potential distributors to the punch by cinching the right to distribute DreamWorks new movies. But, as DreamWorks’ attempts to raise all of its funding by early this year became derailed by the financial markets, Spielberg and Reliance put pressure on Universal to change the original terms of its distribution deal.

Among sticking points between Universal and DreamWorks was that Universal refused to put up hundreds of millions in funds for prints and ads of DreamWorks movies -- an extremely risky investment in the volatile film business. DreamWorks also wanted more movie slots from Universal’s deal with HBO than the studio was able to provide.

-- Claudia Eller

Left photo: Steven Spielberg. Credit: Hector Mata / AFP

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Right photo: Stacey Snider. Credit: Vince Bucci / Getty Images

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