the Hollywood studio shuffle

I see from Business Week Online that yesterday Parmount Pictures agreed to buy independent film studio DreamWorks SKG Inc, which was founded by Steven Spielberg, Jeffrey Katzenberg and David Geffen 11 years ago.

Moreover, the DreamWorks acquisition is seen as a critical gambit for Paramount, which has been under orders from parent company Viacom Inc. to improve the quality of both its movies and earnings.

Paramount will pay $775 million in cash and assume $825 million in debt and other obligations, the company said.

“We see this at Paramount as a transforming event for the studio,” said Brad Grey, Paramount’s chairman and CEO.

The studio will finance the deal by immediately selling the DreamWorks film library, which Paramount values at between $850 million and $1 billion. The company said it is in advanced talks with several parties and expects to have a deal within weeks.

This deal doesn’t include DreamWorks Animation SKG Inc., which went public last year, and is the most profitable department of the company. It will be seven years before Paramount gets the right to distribute some of the studio’s best known films, such as the Shrek series. However, Paramount will have the right to develop television shows for DreamWorks Animation characters. Paramount already produces films with Viacom’s Nickelodeon and MTV cable channels.

Upon completion of the deal, expected to close early next year, Paramount would sign new employment agreements with Spielberg as a producer and director, and Geffen, who will become chairman of DreamWorks.

Spielberg and Geffen will be responsible for producing four to six live action films a year, Paramount said. The move will increase its overall annual production to between 14 and 16 titles annually.

While at Screenwriting Expo in L.A. last month an ex-studio exec noted that when she entered the industry 9 years earlier there had been approximately 20 buyers (i.e. studios), but in the intervening period it had shrunk to 8/9 buyers.

I feel bad for anyone who had a film in development with DreamWorks. It’s going to be some time before those kinds of issues are resolved.