Disney finalizes DreamWorks deal

Will handle distribution, marketing for six pics a year

Rulers of the Magic Kingdom have decreed: Disney is a distributor for hire.

Three years after acquiring Pixar because Disney's animation output was lagging, the Burbank studio has agreed to distribute DreamWorks films to fill gaping capacity in Disney's theatrical pipeline after the major reduced its film slate to 12-14 pictures per year.

DreamWorks will pay Disney a fixed distribution fee -- believed to be set at 9% of boxoffice -- to release six movies per year starting in 2010. Disney will provide cash-starved DreamWorks an unspecified capital infusion to be repaid as mezzanine debt.

The 30-picture deal is expected to run about seven years and also features lucrative pay TV slots. The agreement was effectively completed Friday and announced Monday.

The Disney pact was widely expected following Friday's surprise announcement that Universal and DreamWorks had been unable to finalize their previously trumpeted distribution arrangement. DreamWorks brass bolted Paramount in October to re-establish DreamWorks as a privately operated company and soon after struck a preliminary agreement with Universal to distribute its pictures.

With the Disney deal now done, DreamWorks executives can focus more fully on the development of 17 film properties brought over from their time at Paramount. Three seem to have particularly good traction: the political thriller "Motorcade," literary adaptation "The 39 Clues" and fact-based drama "The Trial of the Chicago Seven."

DreamWorks co-founder Steven Spielberg called Disney "the birthplace of imagination."

DreamWorks chief Stacey Snider said the Burbank studio "represents the highest standard of quality in our industry."

In a previously announced deal, Reliance Big Entertainment of Mumbai, India has pledged $325 million in start-up capital to DreamWorks. JPMorgan Securities is leading a loan syndication that targets raising another $325 million by March 31.

It's believed Disney has committed about $250 million in further funding. Universal rejected DreamWorks demand for a $250 million loan with delayed recoupment, though it earlier agreed to $150 million in contingency financing.

"We're both thrilled and honored to be marketing and distributing all of DreamWorks' signature upcoming live-action motion pictures and to begin a new relationship with such respected colleagues as Steven, Stacey and their creative team at DreamWorks," Walt Disney Studios chairman Dick Cook said. "Steven has made some of the biggest and most loved films of all time and continues to be one of the great icons of our industry. Stacey has an impeccable reputation and a phenomenal track record for making a wide variety of quality films."

Disney CEO Bob Iger hailed Spielberg's "artistic vision and commitment to quality filmmaking."

Universal was expected to face tough choices on release slots after agreeing in the fall to take on the DreamWorks output, though Disney should be far less challenged. Yet the DreamWorks announcement will cause some producers on the lot to step up vigilance over their own release needs.

Some industryites also questioned Disney's long-term commitment to its Miramax film label now that Team Spielberg is part of the extended Disney family. Miramax releases about four to six films annually.

Wall Street responded to the deal with a yawn, as Disney shares closed down 1 cent at $19.44. Investment firm Miller Tabak reiterated a neutral ring on the stock, noting continued weakness in DVD sales while suggesting DreamWorks distribution fees could shore up studio cash flow.

Generally, distributors who release films produced elsewhere get fees of up to 15% for their efforts. But distribution operations carry stiff overhead costs, so a studio with open capacity is more likely to accept lower fees to help pay for those infrastructure costs.
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