Pod Deal Safe in Studio Purchase

Dec 19, 2005  •  Post A Comment

The purchase of DreamWorks SKG by Viacom’s Paramount Pictures is unlikely to have any impact on the three-year pod deal that DreamWorks’ television division has with NBC Universal, though sources said it is probable that the partnership won’t be extended when it comes up for renewal in 2007.

Even though DreamWorks’ TV production operation is included in Paramount’s $1.6 billion purchase last week of the overall DreamWorks studio, people familiar with the situation do not expect the deal to be altered in light of the Paramount acquisition, particularly given that there could be just a year or so left on it by the time Paramount closes the DreamWorks purchase.

How the DreamWorks Television operation will fit into the Viacom stable is unknown, though it is unlikely that CBS will take over the operation. CBS officials said the DreamWorks deal is not connected to CBS and there are no plans to combine the two operations. However, DreamWorks’ content could find a home with Viacom’s cable channels and could continue to produce content for other networks, as it does today.

NBCU and DreamWorks struck their latest pod deal in August 2004, extending a previous two-year alliance between the two companies under which NBCU is guaranteed a first look at all potential DreamWorks series in exchange for covering DreamWorks Television’s overhead costs. Justin Falvey and Darryl Frank oversee DreamWorks Television.

The relationship helped put the series “Las Vegas” on NBC, which DreamWorks co-produces with NBC Universal Television Studio, though there are no restrictions on DreamWorks working with other networks. DreamWorks also co-produces the FX drama “Rescue Me” with Sony Pictures Television. In November the studio received an order from Comedy Central for 10 episodes of a documentary-style improvisational series called “American Lives.” DreamWorks Television’s first success came in 1996 with the comedy “Spin City,” which ran on ABC for six seasons.

The next step for DreamWorks Television following the expiration of the NBCU pod deal is unclear, but several sources said they do not expect the alliance to be renewed.

NBCU officials declined to comment. DreamWorks and Viacom officials were unavailable for comment.

Viacom reached an agreement Dec. 11 under which it will pay $774 million and assume around $840 million in debt to purchase the studio responsible for such films as “American Beauty,” “Saving Private Ryan” and “Gladiator.” Immediately upon the closing of the transaction, Paramount said, it will sell the DreamWorks 59-title film library for between $850 million and $1 billion, which could reduce the purchase price to between $500 million and $650 million.

Viacom officials said they will sell the film library because the assets have a declining cash flow that isn’t in keeping with Viacom’s asset mix. The company said it has already received interest in the library from a number of financial buyers.

Also included in the deal are exclusive rights to future DreamWorks Animation characters in television shows. Viacom officials said they are particularly interested in identifying opportunities to produce shows for Nickelodeon. The publicly traded DreamWorks Animation is not included in the sale.

Upon completion of the sale, DreamWorks principals Steven Spielberg and David Geffen will enter into new employment contracts, assuming the titles of producer/director and chairman, respectively, at Paramount. DreamWorks Animation CEO Jeffrey Katzenberg’s title will not change.

Analysts said the DreamWorks purchase speeds up a turnaround at Paramount that was expected to take two to three years to complete and adds four to six more films to Paramount’s planned slate of 14 to 16 films.

“In addition to increased free cash flow, the deal is an important step in turning around the Paramount film studio,” said Merrill Lynch analyst Jessica Reif Cohen in a research note. “The increased output will allow Paramount to quickly reach its target release schedule of 14 to 16 films per year and will add needed scale as it builds out its own international distribution platform,” following the dissolution of Paramount’s existing international distribution channel.

The sale comes on the eve of the planned split of Viacom into two publicly traded companies. One company, to retain the Viacom name, will include MTV Networks and Paramount, while the other company, to be named CBS Corp., will include the broadcast television and radio assets, along with cable network Showtime.

Even though the new Viacom will be left with no TV assets, the purchase of DreamWorks has suggested that Paramount Pictures topper Brad Grey, who made his career in television, is interested in developing a business for the small screen. An article in last Thursday’s Los Angeles Times reported Mr. Grey would like to snag the talents of producer and series creator J.J. Abrams, who is currently working on the studio’s latest “Mission Impossible” feature film franchise. Mr. Abrams’ Bad Robot, which has a deal with Touchstone Television, is the company behind ABC’s “Alias” and “Lost.” If Mr. Grey decides to go forward in television, however, he would not be able to use the company moniker “Paramount Television”-that name remains the property of CBS Corp.

Christopher Lisotta contributed to this report.