By David Poland firstname.lastname@example.org
The WSJ Story On The Par/DW Merger
I rarely do this, because it is, for all intents and purposes, illegal. And it will come down with the flcik of one e-mail from the Wall Street Journal. But many who don’t get the Saturday WSJ or the WSJ Online have been asking to see the content of this excellent Marr/Kelly story.
So… take a look after the junp. A couple days old, I think it is safe…
Aftermath of Fight For Movie Studio Vexes Both Camps
Paramount Gets DreamWorks Plus a Pile of Merger Woes;
For Loser Universal, Gloom Spielberg’s DVD Squabble
By MERISSA MARR and KATE KELLY
February 25, 2006; Page A1
The December sale of DreamWorks SKG, the studio co-founded by Steven Spielberg, is causing troubles for both the winning and losing bidders.
Viacom Inc.’s Paramount Pictures, which swooped in at the last minute to snag the $1.6 billion prize, is feeling strains from a rushed, six-week integration of the two companies. The decision to ax dozens of veteran Paramount employees left some remaining staffers anxious that Mr. Spielberg and his co-founders, Jeffrey Katzenberg and David Geffen, were calling the shots. This week Paramount chief Brad Grey had to call a town-hall meeting to soothe the nerves of senior managers.
The losing side, General Electric Co.’s Universal Pictures, is also dealing with difficult fallout. Some senior executives staked their careers on the deal and came to believe, after it fell through, that GE doesn’t consider the movie business a priority. In what would break up one of Hollywood’s closest teams, studio Chairman Stacey Snider is close to jumping ship — to Paramount, where she is being courted for a job running DreamWorks’s live-action film unit.
Final details were being hashed out late yesterday, according to a person familiar with the talks. Ms. Snider’s possible departure could kick off a broader management shake-up at the studio.
Snagging DreamWorks was supposed to help Paramount and Universal tackle problems facing the entire movie industry as new technology shakes up its business model. Studios are hungry for big brands and popular characters that will sustain ticket and merchandise sales by appealing to existing fan bases. DreamWorks offered instantly recognizable names such as “Shrek” as well as the coveted Spielberg pedigree.
Last year, U.S. movie theater attendance dropped 7% as families rebelled against high ticket prices, some of the studios’ planned blockbusters fell flat, and videogames continued siphoning the attention of younger moviegoers.
DVD sales have been a gold mine for movie companies, but recently sales have plateaued after movie and TV studios flooded the market with new titles. The Internet presents a potentially exciting new avenue to reach audiences, but it will also aid online piracy and new forms of distribution that threaten the way Hollywood works today.
Mr. Grey, 48 years old, was hired by Viacom Chief Executive Tom Freston last year to run Paramount after a career spent largely as a talent manager and TV producer. Mr. Freston hoped Mr. Grey would bring a fresh approach to an industry in need of new ideas. The Paramount chief’s first move was to hire another movie-business novice to head production: former Fox TV executive Gail Berman.
The duo set about learning the ropes even as they tried to fix Paramount, which had fallen on hard times. It was known as a studio where little changed, even the cafeteria furniture, and one that was miserly with budgets. Some big-name directors didn’t want to work there because of Paramount’s emphasis on cost cutting. The studio constantly ranked near the bottom of the industry’s revenue scorecards.
After his turnaround plan got off to a slow start, Mr. Grey began to regard DreamWorks as a solution. It would help fill a sparse movie pipeline and inject an entrepreneurial spirit into the studio. Mr. Spielberg and his co-founders were attracted by a Paramount promise to retain the bulk of DreamWorks’s staff. Another lure: Paramount agreed to give DreamWorks free creative rein over live-action movies with budgets under $85 million.
Once the deal was inked, Mr. Grey decided to integrate DreamWorks quickly. He gave Rob Moore, head of Paramount’s day-to-day operations, the job of merging the two studios. Mr. Moore spent hours evaluating each company with Mr. Katzenberg and his team. They set a six-week timetable to pick the winners and losers. “We wanted to get this done in the most efficient way possible,” says Mr. Moore in an interview.
Mr. Katzenberg, who many years earlier headed production at Paramount, quickly emerged as an influential player. In addition to being a DreamWorks co-founder, he is also chief executive of DreamWorks Animation SKG Inc., a publicly traded company that was spun off from the main studio in 2004. DreamWorks Animation produces the lucrative “Shrek” series, which Paramount will now get to distribute.
Many of the staffers who kept their jobs in areas such as distribution were Mr. Katzenberg’s people, giving some Paramount staffers the impression that the DreamWorks founders were taking over. In the feverish Hollywood gossip circuit, Mr. Spielberg’s new parking space next to Mr. Grey’s helped fuel such speculation. A Paramount spokeswoman calls the notion “ridiculous, given that only three senior DreamWorks executives took Paramount positions.”
The rush to get the integration done forced some tough decisions. Over the holidays, Mr. Moore recalls, he had to tell Paramount distribution chief Wayne Lewellen, a Paramount veteran of 33 years, that he was being replaced by his DreamWorks counterpart. By the time Paramount closed the DreamWorks deal this month, it had fired 125 people and earmarked a further 125 to be cut, in total 10% of the new combined work force.
To help fund the deal, Paramount is trying to sell the DreamWorks library, which contains 59 films including “Gladiator” and “American Beauty.” It has held exclusive negotiations with financier George Soros’s private-equity team but didn’t reach an agreement. Viacom told Wall Street this week it was “close to a deal,” although people familiar with the situation say Paramount has opened the process to a broader range of investors and doesn’t expect to finalize a sale until later this spring.
Last week, Mr. Freston flew into town and met with Mr. Grey to discuss the problems integrating the two companies. Paramount is the weak spot in Viacom’s efforts to sell itself to Wall Street as a company with big growth prospects. In a conference call with Wall Street analysts this week, Mr. Freston acknowledged that “change can be wrenching,” but said the goal was to take the best both companies and create a stronger studio.
On Wednesday, Mr. Grey gathered 250 senior managers at a plush theater on the Paramount lot and tried to assure them that the worst was over. He introduced the new team and made light of the recent troubles. Presenting Abe Wong, a former DreamWorks executive who is now Paramount’s chief information officer, Mr. Grey joked: “Abe, you are charged once and for all for getting us off Lotus Notes,” referring to Paramount’s outdated email system, a symbol among staffers of Paramount’s antiquated operations.
Paramount’s new team faces a big test this summer with the release of Tom Cruise’s “Mission: Impossible 3″ and DreamWorks Animation’s “Over the Hedge,” a story of a raccoon and a turtle battling suburban developments. Other films slated for later this year are the Jack Black comedy “Nacho Libre” and Oliver Stone’s Sept. 11 movie, “World Trade Center,” both of which are Ms. Berman’s picks. Mr. Moore, the operations chief, predicts that Paramount will be among the top three studios for the last eight months of the year.
At GE’s Universal, the problem is not living with DreamWorks — it’s living without it. Universal distributed DreamWorks movies on DVD and in overseas theaters, and many including Mr. Spielberg thought the two companies were a natural fit. But GE turned the negotiations into number-crunching sessions that lasted months and played hardball on elements of the deal important to DreamWorks.
The deal’s loss is clouding the future of Ms. Snider, 44, a lawyer by training who once worked in a talent-agency mailroom. She has managed Universal alongside her boss, Universal Studio’s president and chief operating officer Ron Meyer, for nine years. The pair revived a company in the doldrums, driven in part by Ms. Snider’s approach to moviemaking that combined large-scale action pictures with comedies and more experimental fare. Lucrative franchises they created included “American Pie,” “The Mummy” and “The Bourne Identity.”
GE renegotiated Mr. Meyer’s contract last year but Ms. Snider, whose contract runs out at the end of 2006, held off to mull her future.
A few days after news broke that Paramount had won, she spoke candidly about the debacle during a gathering of some 15 of her lieutenants, according to three people who attended. The DreamWorks news is “enormously disappointing,” she told the group. It was time now to focus on how to do business “in a post-DreamWorks world.”
The Dec. 14 opening of “King Kong,” the Peter Jackson remake of the 1933 classic, was another disappointment. The movie had a respectable five-day opening of $66 million in the U.S., and in the weeks that followed took in more than $542 million world-wide. But breaking even has taken longer than Universal executives had hoped after sharing ticket revenue with theater operators and Mr. Jackson. An additional drain: marketing and production expenses that totaled about $250 million.
Around the New Year, GE executives started worrying that the reaction to December’s bad news could hurt Universal’s business. In phone calls to Ms. Snider, GE Chairman and Chief Executive Jeffrey Immelt stated his support for the studio chairman and her production slate, people familiar with the matter say. He urged her to push ahead with new initiatives and reminded her of GE’s commitment to the movie business, these people add.
By mid-January, Mr. Spielberg and Universal were squabbling. The director has a long history with the studio and still keeps an office there belonging to one of his first production companies, Amblin Entertainment. But his fondness for the studio was damped by the modest box-office performance of “Munich,” his historical thriller that Universal co-produced and marketed.
Mr. Spielberg wanted to leave six months between the movie’s theatrical release and its appearance on DVD, according to people familiar with the negotiations, in order to keep the movie in theaters for as long as possible. That’s nearly twice as long as the regular gap and risked missing the sweet spot for video sales. After six months, the marketing for the movie may have faded from consumers’ memories.
The dispute is unresolved. Mr. Spielberg’s spokesman declined to comment, saying he’s unaware of the discussions.
Mr. Meyer, 61, attempted to keep spirits up by making personal gestures such as attending each of his company’s 19 employee screenings of “King Kong” in Los Angeles. He personally introduced the picture at every one.
GE, meanwhile, tried mending some fences. One such move, say people at the companies, was to preserve the annual bonus pool even though Universal fell short of its financial targets. GE executives also made a point of noting the free rein they gave Universal over “King Kong,” despite the huge production costs.
About a month ago, Ms. Snider informed Mr. Meyer of her desire to explore other options, including leaving the company, say people with knowledge of their discussion. Shortly after, she met Messrs. Spielberg and Geffen to discuss the job running DreamWorks’ live-action studio. That position carries less responsibility than her current job, but Ms. Snider — who is in the thick of talks with Paramount — is attracted by the creative autonomy and the opportunity to work with Mr. Spielberg, say people familiar with her thinking.
Ms. Snider’s potential departure could have a ripple effect if her top deputy, vice chairman Marc Shmuger, is not named her successor and chooses instead to depart.
Write to Merissa Marr at email@example.com and Kate Kelly at firstname.lastname@example.org