CURTAIN FALLS ON STUDIO; DREAMWORKS QUITS PROJECT NEAR BEACH.

Byline: Dave McNary Staff Writer

DreamWorks SKG decided Thursday to abandon its long-stalled effort to build a major studio in the marshes north of Los Angeles International Airport, keeping most of its operations in the San Fernando Valley area.

The 5-year-old studio announced it had formally given up on its ambitious plans to build a $250 million state-of-the-art studio at the Playa Vista development near Marina del Rey.

Co-founder Steven Spielberg also announced that DreamWorks would ``explore other options'' for a permanent home but did not elaborate. A studio spokesman said expansion of DreamWorks' animation campus in Glendale is under active consideration.

The Playa Vista project, beset by seemingly endless delays since it was announced in 1995, would have been the first new studio in the Los Angeles area since the Great Depression. Indications had been growing in recent weeks that DreamWorks, founded by Spielberg and fellow moguls Jeffrey Katzenberg and David Geffen, had lost the desire for the project due to financing difficulties.

``We have always maintained we would move forward with Playa Vista only if the financial terms of the deal made good business sense for DreamWorks,'' Katzenberg said in a statement. ``We have learned a great deal during the past four years, and it is clear that this move is no longer in DreamWorks' best interest. It was simply not meant to be.''

Instead, DreamWorks will make do in the Valley, where most of its 1,600 employees now work. DreamWorks will remain at its three main locations - its headquarters in Universal City, its animation operation in Glendale and its music division in Beverly Hills - and move employees at other locations to those three sites.

DreamWorks has enough land adjacent to the Italian-style animation campus to build on 150,000 square feet to go with the 350,000 square feet it already occupies,said studio spokesman Andy Spahn.

``Expanding the animation campus is an attractive option but it's not something we have to do right away.''

DreamWorks, which previously has threatened to walk away from the Playa Vista project, insisted it's the end of the road for that plan. Spahn insisted DreamWorks is not bluffing.

``This is like Michael Jordan's retirement, where he said it was 99.9 percent sure,'' Spahn said. ``It's extremely unlikely that we would return to Playa Vista.''

The 1995 announcement of the new studio took place at its supposed future home, an abandoned industrial site where Howard Hughes had built his legendary Spruce Goose airplane. But negotiations with developers and the city turned contentious and the Playa Vista project drew lawsuits by environmentalists over the threat to endangered species.

The city of Burbank, already home to the Walt Disney Co., Warner Bros. and NBC's West Coast headquarters, wooed DreamWorks extensively with various proposals for a studio campus on properties that had been used by defense contractors. The city even took out an ad in Daily Variety with the headline ``Burbank - where dreams work.''

``If they had agreed to a deal with Burbank, DreamWorks would be open for business in Burbank by now,'' said City Manager Robert ``Bud'' Ovrom. ``We had a proven track record with working on master plans for Disney, Warner and NBC but we no longer have sites. It's too bad.''

The DreamWorks studio would have been the anchor of the massive $8 billion Playa Vista development. Spahn said DreamWorks' 47-acre parcel, which the studio bought two months ago for $20 million, will transfer back to Playa Vista.

The 1,087-acre Playa Vista project will include 600,000 square feet of retail stores, 13,200 townhouses and condominiums, and more than 500 acres of open space. Other prospective tenants have avoided committing to the project due to the uncertainty over the DreamWorks deal.

The Los Angeles City Council approved $35 million in tax credits in May for Playa Vista due to p`rojections of 21,000 jobs created on the property over the next three decades. The pullout by DreamWorks could jeopardize those subsidies since they were specifically crafted with the studio in mind.

Reports emerged last week that DreamWorks had reached an impasse in financing the studio campus with two of Playa Vista's owners, Union Labor Life Insurance Co. and Los Angeles investor Gary Winnick. Thursday's announcement said rising construction costs and changes in financing terms in recent years had prompted DreamWorks to back off from the project.

``Clearly, we are disappointed,''Playa Vista President Peter B. Denniston said in a statement.

But he also insisted the owners of the property still intend to build a studio at Playa Vista for another tenant.

``We are working closely with Councilwoman Ruth Galanter and Mayor Richard Riordan, and we intend to give the city of Los Angeles her first new movie studio in over a generation,'' Denniston said. ``We take this commitment seriously and will not fail in its pursuit.''

Denniston noted that DreamWorks represented only 4 percent of the project and pointed out that last week the state of California approved Playa Vista's request for $40 million in tax-exempt bonds for the construction of affordable housing at the project.