Disney may upstage Universal as DreamWorks’ new studio home

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DreamWorks’ planned distribution deal with Universal Pictures has collapsed as the parties are unable to agree upon final terms.

The failure of the agreement paves the way for Walt Disney Studios, which had earlier sought a distribution deal with DreamWorks, to step in as Steven Spielberg’s new studio home, according to people familiar with the situation.

DreamWorks has been struggling for months to raise funds for its new studio, but efforts to raise the debt portion of its desired $1.25 billion in financing has been hampered by the global credit crisis.

DreamWorks, which split from former owner Paramount Pictures last year, is in need of some serious cash to continue financing overhead and jump-start plans to make about six movies a year. Spielberg’s businesss partner, India’s Reliance Entertainment, will not put up the equity portion of the financing until DreamWorks secures a matching sum in debt. DreamWorks’ lead bank, JPMorgan Chase, so far has received a commitment for less than half of the $325-million loan that Spielberg hopes to have by late March. At that point, Reliance would match the bank contribution. DreamWorks is seeking to raise a total of about $1.25 billion in equity and debt.

Reliance had been pressuring Universal to advance DreamWorks at least $150 million in interim financing. But Universal, which in October announced a multi-year distribution deal with DreamWorks, balked and this morning announced it had halted talks with DreamWorks. ‘Over the past several weeks DreamWorks has demanded material changes to previously agreed-upon terms. It is clear DreamWorks’ needs and Universal’s business interests are no longer in alignment,’ Universal said.

Disney, which had been one of several DreamWorks distribution suitors, is in talks with the Spielberg camp and apparently willing to step in and make the investment needed by the filmmaker. Disney has always been Plan B, although Spielberg’s first choice was Universal, where he began his career. Spielberg’s creative partner Stacey Snider, who runs DreamWorks, used to be chairwoman of Universal Pictures.

This is the second time that Universal let DreamWorks slip away over money issues. Before being sold to Paramount in 2006 for $1.6 billion, DreamWorks had been in serious negotiations with Universal. But at the eleventh hour, Universal lowered its acquisition offer and the deal fell apart.

-- Claudia Eller