With Financing in Place, DreamWorks to Produce Six Movies a Year

DreamWorks is able to achieve what many Hollywood producers have been unable to do: secure new sources of film funding in financially difficult times.

DreamWorks’ backing includes $325 million in bank debt and a matching equity investment of $325 million from Spielberg’s 50% partner, India’s Reliance. Importantly, as part of DreamWorks’ recent distribution deal with Walt Disney Co., Disney will lend DreamWorks up to $175 million to fund its movies. Although the $825 million falls far short of the $1.25 billion Spielberg had originally sought, DreamWorks was able to accomplish what most in Hollywood have been unable to do: secure new sources of film funding in financially precarious times. The funds will enable DreamWorks to make 18 to 20 films over the next three years.

 

Producers, buyers, and sellers have found that the film business is experiencing deep structural changes in how business is conducted and financed. Many deals are shifting to producing or acquiring films a la carte instead of funding larger slates; private equity, rather than debt, is playing a bigger role in film financing; and distributors and sales agents are moving far more aggressively into production as a means to maintain creative control over projects and keep hold of film rights. Furthermore, the old business model was a vertical one -- people from writers to distributors try to make money from the process of making the film rather than the success of the film. The current shift is toward a horizontal model, where each part of the chain works together to make the film profitable and thus earn their cut from sales and earnings.

 

Spielberg and his business partner Stacey Snider have not been able to fund a new movie since DreamWorks’ contentious split from Paramount last fall. Now DreamWorks, as a funded independent studio, will allow Steven Spielberg the financial resources to greenlight his own movies. Currently, DreamWorks plans to make five to six movies a year, including “one big tent pole” and four to five others. It is believed that Reliance has given the studio a liberal greenlighting cap somewhere above $100 million.

 

The studio has said that it would eventually raise a second phase of funding as credit markets improve which would trigger an additional equity investment by Reliance. The Mumbai-based Reliance originally said it was prepared to invest as much as $550 million in Spielberg’s new studio. Reliance Big Entertainment will retain distribution rights in India and Disney will market and distribute approximately six live-action films a year for the studio outside of India. The first release under Disney's distribution deal is expected in 2010.