Atypical DreamWorks deal with MCA ends month of speculation.

Ending months of speculation, DreamWorks SKG has entered into a distribution agreement with MCA Inc.

The deal grants MCA, parent company of Universal Pictures, foreign distribution rights to live-action and animated DreamWorks motion pictures. MCA also gets worldwide home video distribution rights and the rights to use DreamWorks characters and concepts in MCA's theme parks.

The announcement also formalized the creation of two DreamWorks recorded-music labels - DreamWorks and SKG. The labels will feature both new recording artists and soundtracks from DreamWorks films. MCA, in turn, will have worldwide distribution rights to DreamWorks music products.

Officials for both companies said that the two are also looking at future opportunities in filmed entertainment, interactive entertainment and consumer products.

Financial details were not released. Also left unclear is where DreamWorks will ultimately locate its headquarters and facilities. MCA's Universal City site is among the contenders, along with the Playa Vista project on Los Angeles' west side.

Key rights retained

But equally important to the rights MCA picked up were the rights that DreamWorks, the entertainment company formed last year by Steven Spielberg, Jeffrey Katzenberg and David Geffen, chose to keep for itself.

Those rights include the all-important domestic distribution for DreamWorks motion pictures. DreamWorks expects to have its first live-action film in theaters next year, with an animated film out by 1998.

"DreamWorks will have to build the domestic infrastructure for this distribution, which won't be cheap," said Mike Adler, an entertainment attorney with Century City-based law firm Mitchell, Silberberg & Knupp. "But it's a lot easier than building that infrastructure to cover the world."

DreamWorks also keeps its worldwide distribution rights to television productions, but since the company has already signed a co-production deal with Capital Cities/ABC Inc., it has no need to find a domestic television distributor.

Some sort of distribution deal with MCA had been expected, as Spielberg and Geffen have long had close ties to the company. Spielberg has created many blockbusters for Universal, while Geffen's Geffen Records label is owned by MCA.

Still, the announcement comes as a feather in the cap to MCA, which had been rocked by troubles with its previous Japanese ownership, the failure to sign Creative Artists Agency Chairman Michael Ovitz to head the company, and massive cost overruns on the forthcoming movie "Waterworld."

"This is a tremendously exciting opportunity for MCA, and I hope that it is emblematic of the potential we see for the company," said Edgar Bronfman Jr., president and CEO of Seagram Co. Ltd., which completed its purchase of 80 percent of MCA from Matsushita Electric Industrial Co. earlier this month. The deal was crucial for Bronfman and Seagram too, wading into Hollywood as comparative novices.

Christopher Borde, associate analyst with Paul Kagan Associates, an entertainment industry research firm, said the deal comes as a boost to MCA, though it is a far cry from the total distribution package the studio would have wanted.

"Still, some money is better than no money," said Borde, who noted that MCA will gain rights to about 50 percent of what DreamWorks produces. The deal also allows MCA, long accustomed to distributing Spielberg films, to keep that relationship with its overseas exhibitor clients.

"Spielberg is the prize of MCA," Borde said. "To lose him to a competing studio would have been a real blow."

Atypical deal

How much money MCA will make off the deal is another question entirely.

Typical distribution deals in Hollywood involve a movie studio fronting a certain amount of financing to the movie's producers in exchange for a piece of the box office revenues. Usually, distributors get about 30 percent of the gross after the exhibitors take their cut.

DreamWorks, however, will be financing its own movies, meaning there is little risk to MCA if a DreamWorks film flops. "It's cash without risk," said Adler. "If you're in the distribution business, that's what you want."

However, industry watchers also note that since MCA's risk is minimal, it will get a far smaller percentage of the gross for distributing DreamWorks' films.

Still, music distribution also could prove to be quite lucrative for MCA and, combined with worldwide video distribution, the deal could ultimately bring $1 billion to MCA over the next 10 years, according to some estimates.