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"If they couldn't do it, no one can." That's what folks in Hollywood are saying now that Steven Spielberg, David Geffen and Jeffrey Katzenberg's 11-year dream of a DreamWorks studio has ended with its sale late last week to Paramount Pictures.

But they could have done it, if they had wanted to.

That DreamWorks couldn't survive as a stand-alone company has everything to do with the words "studio" and "independent." The DreamWorks troika thought they were creating a studio. They started off with grandiose fantasies of building a multifaceted company that would churn out movies, animation, TV shows, Internet content and games, all based at a state-of-the-art studio complex in Playa Vista.

It didn't take long for those castles in the air to evaporate. The partners pulled out of a Web site (Pop.com), the games unit and lost millions that they could never recoup in television production. They couldn't afford to build a fancy studio because they owed their billionaire partner Paul Allen some $600 million. (He has now been paid back.) The company's most successful unit, Katzenberg's DreamWorks Animation ("Shrek," "Shark Tale"), was spun off as a publicly traded company in fall 2004.

Spielberg's live-action division, run by Walter Parkes and Laurie MacDonald, managed over the years to attract and then drive away talented filmmakers -- including Bob Zemeckis, Brad Silberling, Bob Cooper, Michael De Luca and William Horberg -- and was never able to produce more than six or seven pictures a year, which was not enough to sustain a studio-level operation. They lacked the drive to assemble a wide-ranging slate, a smorgasbord of projects, year in, year out, that could perform on a global playing field.

Instead, they continued to make the same movies that they had made at Spielberg's Amblin Entertainment: studio-scale movies that were most often adult-oriented and expensive, with major stars. Yes, Spielberg's own movies (often co-financed by studio partners) were hugely successful, as were big-budget entertainments like "What Lies Beneath," "Collateral" and the Oscar-winning "Gladiator."

But for every reasonably produced DreamWorks movie such as "American Beauty," "Red Eye," "The Ring," "Road Trip" or "Anchorman: The Legend of Ron Burgundy" that took off in the marketplace, there was a too-costly flop such as "Forces of Nature," "Almost Famous," "The Legend of Bagger Vance," "Evolution," "The Island," "The Time Machine," "The Tuxedo" and "Just Like Heaven" that could have been conceived and executed on a smaller scale.

The entire DreamWorks scenario might have been different if the company had recognized an opportunity to reinvent the wheel and change the economics of moviemaking. Instead, it continued to produce big-budget entertainments starring such costly movie stars as Tom Hanks and Julia Roberts and Tom Cruise, just like everybody else.

Joe Roth's Revolution Studios, founded six years after DreamWorks, also squandered a similar opportunity to declare its independence from studio models of production instead of continuing to follow existing old-fashioned tropes. If Revolution itself continues after its Sony deal expires in 2007, it will have to take a drastically altered form.

The new Weinstein Co. faces similar challenges as it builds itself from scratch. At least its co-founders, Bob and Harvey Weinstein, while they have a taste for big-budget production, understand how to function at an indie level.

DreamWorks failed as a stand-alone producer-distributor because its partners fancied themselves not as independents, but as a studio. Given what they did produce, without a studio behind them, they could not survive. "We have the economies of scale," one senior studio executive says. "The DVD group, international syndication, pay TV. Volume is the key. The successes have to pay for the failures. Otherwise you have to make small-profile, low-risk movies like Lionsgate. Even they have a library to throw off revenue."

Today's five major studios survive because they are gigantic conglomerates. Rupert Murdoch's News Corp. owns Fox; Sumner Redstone's Viacom owns Paramount; General Electric owns NBC Universal; Disney is a global television, movie and theme park empire; Japan's Sony Corp. owns Sony Pictures Entertainment; and Time Warner owns the Warner Bros. Pictures studio and New Line Cinema.

Interestingly, pressure from Wall Street has pushed Viacom -- and could do the same to Time Warner -- to split into smaller "pure-play" versions of itself: Leslie Moonves' CBS and Tom Freston's new Viacom, which will stand or fall on the performance across worldwide distribution platforms of entertainment content from MTV Networks, Nickelodeon and Paramount Pictures.

Truth is, NBC Universal badly wanted to acquire DreamWorks and wishes GE had made that possible. (NBC's Bob Wright fought hard for the deal.) DreamWorks was sought after, finally, because it does know how to make the high-end quality films that lure filmmakers and stars to a studio. Universal insiders say that they don't know why GE didn't back their play. But it's likely that Universal's deluxe deal with Brian Grazer and Ron Howard's Imagine Entertainment ("A Beautiful Mind," "Cinderella Man") was the primary obstacle for GE. Finally, NBC Universal didn't need DreamWorks as much as Viacom did.

Viacom chairman Freston, whose Paramount Pictures unit was facing a woefully meager lineup over the next two years as it ramped up production, scooped up DreamWorks live-action for $1.6 billion, and plans to sell off its 59-title library for some $850 million to help defray the cost of the sale. "This accelerates the turnaround of Paramount and overnight makes a key contribution to new Viacom's revenues and earnings growth story," Freston told reporters this week.

As part of a major studio, DreamWorks can now afford to be itself, a boutique production company with its own green-light authority. Freston has said that he expects DreamWorks to deliver six movies a year, and Paramount will use DreamWorks staff to augment his new international distribution operation and help sell DreamWorks Animation product.

Meanwhile, the studios themselves are changing the economics of moviemaking. "We're going to make less movies," one major studio production head says. "We'll focus on event pictures. We'll take more partnerships. Revisit marketing costs. Actor deals and gross participation will change. Studios don't go beyond 25% now."

When the best and brightest Hollywood insiders, like DreamWorks co-founders, can't rethink the movie business, maybe it will take an outsider like Freston to do it.

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Read more at Anne Thompson's blog: www.riskybizblog.com
Anne Thompson can be reached at athompson@hollywoodreporter.com.