DreamWorks gets Disney cash in distribution deal

Steven Spielberg’s DreamWorks studio finalized a distribution deal with Walt Disney Co. on Monday after winning key financial commitments that it had failed to extract from its presumed partner, Universal Pictures.

Under the deal, Disney will put up hundreds of millions of dollars for film print and advertising costs and will share its valuable pay television slots with DreamWorks.

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 can draw on for future productions.

Disney’s $175-million outlay is taking the form of a loan rather than an equity investment, according to people close to the matter.

DreamWorks desperately needs the cash to get its slate of movies rolling, but it can’t access Disney’s funds until Spielberg raises $325 million in debt financing, which will trigger a matching equity investment by his Indian partner, 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, chief executive and partner of DreamWorks.

DreamWorks had hoped to have its bank financing in place by the end of the first quarter, but that now appears unlikely. A person close to the matter said April was more feasible.

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. DreamWorks hopes to make up to six films a year for Disney’s Touchstone Films label. The first release, yet to be identified, is expected in 2010.

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

The Burbank studio will advance all the film printing and advertising costs in exchange for collecting a distribution fee of as much as 10%.

DreamWorks will also be able to air its movies in program slots that Disney has with pay-TV outlet Starz. Pay TV deals provide a significant revenue stream for movie companies. DreamWorks recently failed to secure its own pay-TV deal with HBO.

Spielberg hooked up with Reliance in September in a 50-50 venture to re-launch DreamWorks as a new studio following its split from parent Paramount Pictures. Reliance agreed to match in equity what DreamWorks raised in debt, but those efforts have been greatly hampered by the global credit crisis.

DreamWorks ultimately aims to raise $1.25 billion in financing for the new studio.

The deal between DreamWorks and Disney came to light late last week after a previously announced agreement with Universal Pictures fell apart. Universal had earlier beat Disney and other suitors to the punch by apparently cinching the right to distribute DreamWorks’ new movies.

But, as DreamWorks’ efforts to raise funding on schedule were hindered by the roiling financial markets, Spielberg and Reliance put pressure on Universal to change the original terms of the agreement.

Among the sticking points was Universal’s refusal to put up funds for prints and marketing of DreamWorks movies -- an extremely risky investment given the uncertainty of the film business. DreamWorks also wanted more movie slots from Universal’s deal with HBO than the studio was prepared to provide.

--

[email protected]