Disney's Iger: DreamWorks Is a 'Perfect Fit'

Steven Spielberg's studio signs a distribution deal with Disney after its deal with Universal Studios goes sour

By Ronald Grover

Sometimes, in a CEO's life, you really do get a second chance. Just ask Walt Disney (DIS) Chief Executive Bob Iger, whose company announced on Feb. 9 that it had snagged the distribution rights to Steven Spielberg's DreamWorks Studio films. Financial details weren't publicly announced.

Only last week Spielberg's studio was thought to be in business with Universal Studios (GE), which had announced in October that it signed DreamWorks. But that deal went sour, and Disney got back in the picture.

According to Iger, Spielberg had negotiated with Disney this summer, and a deal might have been done, but Spielberg "had an emotional attachment to Universal and decided he wanted to go there instead." Indeed, other sources with knowledge of the talks say Disney offered a pretty cushy deal last year, taking a rock-bottom 8% of the revenues for distributing the six or so films the new studio wanted to make.

Spielberg Changed His Mind

But DreamWorks, which at the time was splitting from an often stormy three-year association with Paramount Pictures (VIAB), went to Universal, where the superstar director had spent his early years and turned out such blockbusters as E.T. The Extra Terrestrial and Jaws. At Universal, DreamWorks was to pay the same 8% distribution fee.

But by January, says Iger, Spielberg had made it known that he no longer wanted to stick to his Universal deal. "I got news that he was rethinking his decision and that he felt that Disney was the place he should have gone to all along," Iger said. But, Iger said, "the world had changed since then, and the terms of the agreement had to change as well."

Iger says the changes in the deal terms were "not earthshaking." In fact, sources with knowledge of the new pact say that Disney gets a better distribution fee—it gets 10% instead of the original 8% —and that it is prepared to give the new DreamWorks partners a line of credit of less than $150 million to help jump-start production. The first DreamWorks picture is expected to hit theaters in 2010, according to Disney.

Disney's Cable Slots Were Appealing

So how did Iger get his second chance? Part of it has to do with the slack economy. Spielberg and longtime production partner Stacey Snider, who own the company in a 50-50 joint venture with Indian media giant Reliance Big Entertainment, had been having trouble raising money to launch the studio. With banks tightening their lending, the duo had asked Universal, which had agreed to provide a $125 million line of credit if they couldn't get enough financing, to make a $250 million investment in the company.

Universal would go only as high as $200 million. DreamWorks also wasn't assured of getting enough of Universal's slots from HBO to make the films profitable. Disney, meanwhile, had available pay TV slots under its deal with Liberty Media's (L) Starz cable network. Moreover, as Iger said, Disney is now more focused on making Disney-branded films. That makes DreamWorks' brand of action, comedy, and other flicks —which would be distributed under Disney's Touchstone label aimed at adults—"a perfect fit for us."

Grover is Los Angeles bureau chief for BusinessWeek.