Thursday, September 20, 2007

Viacom's life without DreamWorks

Paramount plans for Spielberg, Geffen exits

Philippe DaumanViacom CEO Philippe Dauman

David Geffen
Geffen, Katzenberg, Speilberg


Viacom CEO Philippe Dauman on Tuesday essentially threw down the gauntlet to Steven Spielberg and David Geffen, saying Paramount was making plans for a possible future without the duo and the effect of their ankling would be "completely immaterial" to the studio's bottom line.

Dauman told investors at the Goldman Sachs media confab in Gotham the company was prepping in case the sides couldn't come to terms on a renewal of the deal Geffen and Spielberg inked as part of Viacom's 2005 acquisition of DreamWorks.

"That is a possibility, and we're planning for that," Dauman said.

Jeffrey Katzenberg, the third founder of DreamWorks, runs DreamWorks Animation and maintains voting control over the publicly traded company; a falling-out between Par and Geffen-Spielberg would not affect the Par distribution deal with DWA, which runs through 2013.

During the conference, Dauman also implied that Spielberg and Geffen would have a hard time finding independent financing and getting a return on an investment.

"It's a tough business to get into," Dauman said. "You really have to manage that business carefully and allocate capital carefully."

Dauman added that if the duo left and started over, it would require "someone stepping into the Paul Allen role of a decade ago" -- referring to the financing Allen provided DreamWorks in 1995 -- to provide "a billion or two billion dollars."

Private equity money would be one source of potential capital for a new Geffen-Spielberg venture, though the expected slowdown in that sector could make capital more elusive than it was a few years ago.

Word began circulating this summer that a rift was opening between Par and the powerful duo, and that Spielberg and Geffen may be prepping to exit DreamWorks when their deals expire at the end of 2008.

Par has a number of movies in its pipeline, Dauman said, ticking off J.J. Abrams' "Star Trek" and "Cloverfield" projects, the Marvel property "Iron Man" and the Mike Myers vehicle "The Love Guru" as pics that would fill the void.

"The financial impact to Paramount first and especially to Viacom overall would be completely immaterial," Dauman said.

Comments were notable for Dauman, who in public forums usually speaks in formal, restrained tones.

Exec's decision to acknowledge the possibility of the pair's departures instead of taking the safer route and expressing confidence in reaching a new accord with them seemed designed to send a message to the DreamWorks founders that Viacom would take a firm stance in upcoming negotiations. Given the Wall Street audience, it also seemed aimed at reassuring investors who may be anxious about the prospect of a deal not panning out.

Discussing "Indiana Jones and the Kingdom of the Crystal Skull," Dauman did say Viacom wanted to do "everything possible to make (Spielberg) happy."

If the pair left, the staff and many of the development projects would likely stay behind at Par, though Stacey Snider may be able to exit because of a key-man clause in her contract.

DreamWorks deserves the lion's share of credit for Paramount's year-to-date No. 1 rank in market share; division contributed a string of hits to the Melrose studio, including "Blades of Glory," "Disturbia," "Norbit" and "Transformers," which was a co-production with Paramount.

While Paramount's 2006 purchase of DreamWorks has been touted both in Hollywood and on Wall Street as a coup, cracks have begun to appear.

DreamWorks execs are said to have some regrets about the sale, especially since integration of the two operations hasn't come as fast as some, including Par topper Brad Grey, have been said to want.

DreamWorks declined comment on Dauman's remarks.

Dauman said Par's larger strategy would take it more in the direction of "franchise pictures" that could also gestate at other parts of Viacom in the vein of "The Spiderwick Chronicles," the feature version of the Nickelodeon property that's slated for a 2008 release.

"As I look ahead in the long term of that business, we want to rely on franchise pictures, on our brand -- MTV, Nickelodeon -- and really have that as a core," Dauman said. "Then we can take some chances on a few new franchises."

Katzenberg stands behind Spielberg

DreamWorks Animation chief chides Dauman

The friction between DreamWorks and Paramount showed no signs of dissipating Wednesday, as DreamWorks Animation topper Jeffrey Katzenberg defended Steven Spielberg and threw an elbow at Viacom chief Philippe Dauman.

"As a filmmaker, storyteller, artist and conscience, Steven Spielberg is nothing short of a national treasure," Katzenberg said at the Goldman Sachs Communacopia media confab. "To suggest that not having Steven Spielberg is completely immaterial seems ill-advised. I think calmer heads need to prevail here."

The normally buttoned-down Dauman had said Tuesday at the same Goldman event that re-upping with DreamWorks was a priority, but preemptively declared the troika's potential departure as "completely immaterial" to Viacom's future results. He also suggested it could be tough sledding for the DreamWorks founders should they leave.

During the 40-minute session with Goldman analyst Anthony Noto, Katzenberg emphasized that he could respond mainly in his capacity as a DreamWorks Animation chief. He noted that his company has a "contractual and working relationship that is below the radar of all this."

Par has done "an outstanding job in the servicing of our films and our company," Katzenberg said. From a marketing and distribution standpoint, "you have to give them straight-As, and I'm a pretty tough critic."

Success at the B.O., in fact, is what exacerbated tensions with Paramount, which acquired DreamWorks less than two years ago with some impressive 11th-hour maneuvering around front-runner Universal. Defenders of the deal initially, especially in the exec ranks at the studio, publicly cited the creative clout of Spielberg as a key justification for the pricey buy.

But now, with a bit more than a year left on the DreamWorks deal, Dauman's comments have created additional fences to mend should he endeavor to keep the troika in the fold.

Apart from Dauman and the announcement of a new date for "Monsters vs. Aliens," Katzenberg hit on some other business points. Among them:

  • While not commenting on reports, repeated Tuesday at the confab by News Corp. don Rupert Murdoch and Disney chief Robert Iger, that DreamWorks Animation got $100 million for endorsing Toshiba's HD-DVD format, Katzenberg did retaliate. "It's somewhat disingenuous for other companies to suggest that they were not compensated for endorsing Blu-ray," via either up-front payments, in-kind marketing deals or other incentives, he said.

"Both companies are known as being fiscally responsible," he said of News Corp. and Disney, "and Blu-ray is not a charity."

  • He remains "cautious" about the DVD biz, but said it was "title-specific, not an underlying, bigger issue." A parade of record-setting summer pics, he contended, including "Shrek the Third," comprise "probably the greatest lineup of films ever coming to homevideo," but there are risks of "cannibalization not unlike what we saw at the box office this summer."
  • The domestic-foreign ratio for "Bee Movie," bowing here in early November, will be closer to 1:1 than the overseas-tilted results on many recent Hollywood tentpoles, owing to star/creator Jerry Seinfeld's appeal and "how well it will perform here."