Paramount Pictures' agreement to buy DreamWorks SKG for US$774 million reflects an effort by new Paramount chief Brad Grey to revive the sixth-ranked movie studio.
DreamWorks founders Steven Spielberg, Jeffrey Katzenberg and David Geffen said on Saturday they agreed to sell their Hollywood studio to Paramount after spending nine months in talks with NBC Universal. As negotiations with NBC stumbled, Grey called the founders last week and sealed a deal within days, Geffen said.
"Brad called me up and said he wanted to get into this," Geffen said yesterday on a conference call with reporters. "In one week they managed to deliver."
The deal, which values DreamWorks at US$1.6 billion, shows Grey's drive to rebuild Paramount, creator of "The Godfather" and "Indiana Jones" series, after a decline in box office rankings. Grey, a 47-year-old talent agent known for representing stars such as Brad Pitt and Jennifer Aniston, hadn't run a studio before Viacom Inc. Chairman Sumner Redstone hired him in January. At the time, Redstone pushed Grey's history as a "dealmaker."
"Brad Grey is signaling this is a new era for Paramount," said Hal Vogel, chief executive of New York-based Vogel Capital and author of "Entertainment Industry Economics." "Paramount looks quick, smart and aggressive. That's the signal they want to send to Wall Street and to Hollywood."
Los Angeles-based Paramount agreed to take on about US$826 million in DreamWorks debt, taking the enterprise value of DreamWorks to US$1.6 billion. To pay for the purchase, Paramount will sell DreamWorks's library of 59 films for as much as US$1 billion. Paramount will end up investing US$500 million to US$650 million, Chief Financial Officer Michael Dolan said on the call.
With Glendale, California-based DreamWorks, Paramount will increase its slate of movies to 14 to 16 a year, from the 11 it had planned. The studio will a also secure the talents of Spielberg, 57, who with Geffen will produce four to six movies in 2006 for Paramount.
The addition of DreamWorks is a "transforming" event for Paramount, Grey said on a conference call yesterday.
The purchase of DreamWorks dovetails with Grey's plans to ramp up movie output and take on more big-budget productions. Paramount's movie releases track below that of rivals such as Walt Disney Co., which produces about 20 a year.
After Paramount finished seventh at the box-office in 2004, Redstone, 82, hired Grey to revamp the studio. Redstone relaxed a policy of keeping movie budgets below US$100 million to help attract blockbuster movies. Paramount moved up to sixth place this year with receipts of US$792.2 million.
The DreamWorks purchase will add to profit and cash flow next year, Paramount said. That may not last, Vogel said. Operating profit at Viacom's entertainment unit, which includes Paramount, fell 6.4 percent in 2004 to US$254 million from a year earlier.
"The history of these deals long-term is either they peter out and don't result in much profitability," Vogel said.