Paramount and DreamWorks: Splitsville?

(page 2 of 2)

Spielberg, who is famously loyal and shuns public conflict, also fumed at how Paramount and Viacom treated his friends. He was upset last year when Viacom Chairman Sumner Redstone fired and then publicly trashed actor Tom Cruise, who worked with Spielberg on two films. (Spielberg and Redstone later had a makeup dinner.) Nor did Spielberg like it when Paramount executives criticized Clint Eastwood's marketing plans for Flags of Our Fathers, a DreamWorks production.

Spielberg was especially incensed over slights directed at DreamWorks CEO Stacey Snider, the former Universal Pictures chairman who followed Spielberg to Paramount. Snider, like Spielberg, is a talent magnet, and has a strong following among key filmmakers like Ben Stiller, who produced the Will Ferrell comedy Blades of Glory. Last August, Grey and Snider got into a shouting match. At issue: news articles about a Paramount restructuring in which Grey lumped Snider in with other unit chiefs who reported to him. While true on paper, Snider and Spielberg had been promised autonomy, says an industry executive, and saw the press accounts as a Paramount effort to undermine their freedom.

Grey badly needed to make peace with Spielberg. And to do that he first had to get with Geffen, who was threatening to walk once his contract was up this autumn. In the spring the Paramount CEO sat down with him and over several meetings negotiated a new arrangement that gave DreamWorks more power and autonomy.

Since then the DreamWorks' name has become more prominent in press releases and marketing materials. DreamWorks is hiring its own corporate public-relations executive. And Snider now has the authority to green-light films with a $100 million budget, up from $85 million. If DreamWorks is producing a Spielberg movie, she can spend $150 million. The upshot: DreamWorks is essentially an independent studio inside a studio. "There were moments when it was really challenging," Grey told BusinessWeek in the spring. "But we've put together an extraordinary team, and we're working together to produce excellent movies."

The smart money is betting that Spielberg will move on, despite Grey's charm offensive. "Things are better between them—marginally," says a Hollywood executive who has worked with Paramount. "If it continues like it is, they're gone." In the meantime, Grey has been beefing up the Paramount slate of movies, signing the likes of director Martin Scorsese and Lost creator J.J. Abrams. But if DreamWorks pulls out, watch the talent flee. One of the first to go would be Snider, who has a "key man" contract that allows her to leave if Spielberg pulls out.

What's more, Spielberg could set up an entirely new company called, yes, DreamWorks. That's because DreamWorks Animation, which was spun out of the main DreamWorks studio, controls the name. (Paramount distributes Shrek and other animated films produced by DreamWorks Animation but doesn't own them.)

Spielberg's star wattage is such that other studios would fall over themselves to lavish him with money and autonomy. Private equity shops say they would be only too happy to spot Spielberg a billion or two, but suspect he would feel more comfortable inside another studio. For the moment the director is incommunicado, working in Hawaii on Paramount's Indiana Jones sequel. But the next big action story on his calendar may just be called Escape from Paramount.

Grover is Los Angeles bureau chief for BusinessWeek.