Tough Times, Even in Tinseltown

Think of all the producers or directors who have the pull to plunk down at the studio of his choice and make any film he pleases. It's a short list, even in the best of times. Steven Spielberg would be at the top.

But even Spielberg's status was being called into question for a while this summer as his much discussed financing deal with India's huge Reliance Group conglomerate seemed unable to close.

The Mumbai money finally came through this week, as Reliance, along with JP Morgan Chase, said it would underwrite the near future of Spielberg's studio, DreamWorks. (The cash will let him and Stacey Snider, the former Universal production chief, quit their unhappy home at Paramount, though without original DreamWorks partner David Geffen, who seems to be fed up with the film biz.)

Make no mistake: Spielberg is still a king in Hollywood. But in these tough times, even he had to spin his wheels before Reliance found a partner to fund his next Dreamworks slate. And he had to put up with Universal, his former longtime home, declining to pay for his long-awaited collaboration with Peter Jackson on an adaptation of the Belgian comic Tintin.

Viacom came not-quite-galloping to the rescue with a proffer of $130 million for the computer-animated movie. True, that's a rich bankroll for most filmmakers, but perhaps a little undernourished for the likes of Spielberg and Jackson. As of today, the deal still sat on the table for the mega-auteurs to contemplate.

The Tintin news might have seemed better if it wasn't bookended by an otherwise chilly ending to Spielberg's relationship with Paramount. The studio's parent, Viacom, paid $1.6 billion to acquire DreamWorks in 2005, but Paramount C.E.O. Brad Grey seemed to regard it as a prideful fiefdom.

DreamWorks' partners accused Grey of taking more credit for their successes than was due, a sentiment that was hardly put to rest by Viacom C.E.O. Philippe Dauman's offhand comment to analysts that the departure of DreamWorks wouldn't be "material" to his company.

Even the relationship with Reliance, which has worked out, hasn't worked smoothly. Spielberg and Reliance have for months been due -- then overdue -- to announce that funding for DreamWorks' day-to-day operations was finally in place.

The presumed holdup was finding the Western bankers who wanted in on the debt. As hedge funds and private equity investors -- Ryan Kavanaugh's Relativity Media being the most notable example -- began to supplant the old-line bank loans, it has become harder and harder for Hollywood to find capital.

The collapse this summer of a long-building production fund that Deutsche Bank had been planning for Paramount was a landmark piece of bad news.

Some, like analyst Harold Vogel, whose Vogel Capital management is a longtime player in Hollywood's hurly-burly, remain sanguine despite the naked pessimism of some studio executives and analysts amid Wall Street's implosion.

"That is, I think, too extreme and pessimistic a view," Vogel said of Hollywood's sky-is-falling feeling. "There will be money, there will be deals done -- they just won't be done at the same price as they were six months or a year ago and there won't be as many of them."

Even as he was speaking this week, Universal and Relativity announced a major enhancement of the existing partnership.

But the largest recent one is still the Reliance move.

The deal would be valued at $1.2 billion, with $500 million of it coming from longtime film-friendly JP Morgan Chase. Yet as rich as that sounds, it didn't seem quite so large when it became clear that Paramount had no interest in underwriting the day-to-day cost of the working part of DreamWorks, its 100-plus employees, and in-house producers like Ben Stiller. That overhead amounts to a reported $50 million a year.

The announcement and subsequent accounts of what it foretells were scanty on details about who would actually have what equity stake in the enterprise. "What mystifies me," says Vogel, "is how much of the equity Spielberg and his associates retain."

Given the usual practice in which even elite director-producers like Spielberg need a second opinion from a higher up before greenlighting movies of a certain size -- something near $100 million isn't unusual -- Vogel says he wonders what kind of controls Reliance and JP Morgan attached to their check.

The funding triggered the earnest part of DreamWorks' hunt for a distributor, as Paramount quickly backed away. (In a classic Hollywood press release that sounded chummy but really meant Don't let the door hit you in the ass on the way out, Paramount gushed:

("We congratulate Steven, David and Stacey, and wish them well as they start their newest venture. Steven is one of the world's great story-tellers and a legend in the motion picture business. It has been an honor working closely with him and the DreamWorks team over the last three years, and we expect to continue our successful collaboration with Steven in the future.")

Indeed, Paramount still has a dozen DreamWorks pictures in its pipeline; but perhaps buoyed by their homegrown slate, including G.I. Joe, J.J. Abrams' Star Trek, and an Iron Man sequel, studio executives were apparently never seriously interested in keeping DreamWorks' costly personnel and infrastructure around for what they might bring to the party.

They did hurry to assert their rights to certain Spielberg projects nurtured under their banner, like his Abraham Lincoln biopic and The Trial of the Chicago 7.

Variety perhaps summed it up best: "In short, Paramount is giving up everything that costs money and is keeping everything that has already been paid for -- a shrewd business move by Paramount chief Brad Grey that is certain to exacerbate ongoing bitterness between the two camps."

All in all, the enthusiasm of Wall Street and outside investors is beginning to reflect the generally diminished expectations for Hollywood. The movie industry seems to be about to test the theory, prevalent since the film business rode out the Great Depression, that big-time entertainment is somewhat fireproof in hard times -- and the money men aren't sure of the answer.

Vogel, for one, thinks Wall Street was wrong from the start.

"The first major mistake" in recent film financing rounds, he says, "was that the hedge funds and private equity bought into this industry for the wrong reasons. In most cases the reason given was that it was a [specialized] asset class --meaning, 'Oh gosh, if the stock market goes down, then gold will go up or movies will be great, because movies are not correlated with the stock market movements.'

"I don't believe that is correct," Vogel adds, "and you're starting to see that right now."

Photograph of Steven Spielberg by Marcel Hartmann/Sygma/Corbis; drawing of Tintin and his dog Snowy courtesy of the Everett Collection

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