DreamWorks goes Bollywood

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I’m not going to say TOLDYA!, since that’s someone else’s shtick. But the Wall Street Journal’s scoop this morning that DreamWorks is close to a $500-million-plus equity financing deal with one of India’s biggest entertainment conglomerates essentially confirms my column’s May 6 prediction that DreamWorks would raise money from outside investors as part of its plan to bail out of its unhappy marriage with Viacom-owned Paramount Pictures. It’s a great deal for DreamWorks, which has been looking for a way to regain its autonomy after several years of unhappiness and bruising clashes with Paramount management.

But it looks like an even better deal for the Mumbai-based Reliance ADA Group, which gets instant entry into the film business via DreamWorks, which, while having its ups and downs in terms of pure profitability, has been one of the few studios devoted to making quality commercial films. Reliance gets a company run by Spielberg, America’s preeminent filmmaker, and Stacey Snider, one of Hollywood’s smartest and savviest studio executives. The moves comes just a month or so after Reliance made waves with its announcement that it had struck development deals with a group of top stars, including Tom Hanks, George Clooney and Brad Pitt.

But what does this impending deal tell us about the future of the movie business?

If nothing else, the DreamWorks deal reminds us that--for better or worse--Hollywood remains a magnet for foreign investment, usually from whatever country is riding high in the international marketplace. In the ‘80s, it was the Japanese, then the French. More recently, investors from Dubai, Russia, Saudi Arabia and India have put their cash on the barrelhead. With America’s economy reeling from mortgage crises and a credit crunch, the conventional wisdom has held that the flood of outside money into Hollywood, which has propped up virtually every major studio’s movie slate, would slow to a trickle. The drying up of outside investments has led to rampant speculation that MGM, the weak sister of today’s studio giants, would soon collapse like a house of cards, unable to attract more equity cash to fund its future movie slates.

But with the dollar sinking like a stone, our cheap currency is making investments in American companies an attractive proposition. More importantly, the Reliance deal with DreamWorks is evidence that the movie business is a great investment, especially compared to buying real estate in Miami, Atlanta or Cleveland. With most films making far more money overseas than in America, Hollywood has become a world business, not an American business.

For a company like Reliance, investing in a studio with a good portfolio of films and a solid management structure is a lot safer than taking a flier in the housing market. A studio like DreamWorks has a steady cash flow as well as somewhat predictive results spread out over a 15- to 20-film slate. It can also promise investors continued growth, especially overseas. There are still worries for the future, which we’ll get to in another post, but for now, if you’re sitting pretty in India or China trying to build a media and entertainment empire, an investment in a well-run studio looks a lot more promising than putting your money into L.A. real estate. The movie business often seems to be built on a rickety foundation of economic insecurity, but that cuts both ways--going all the way back to Depression-era America, people are happy to escape their worries by going to the movies.

photo credit: Industrial Light & Magic