Company Town : DreamWorks Courting Right People for Easy Sailing in Building Site
The three moguls behind DreamWorks, having spent the past five months selling their idea of a new studio to Hollywood and Wall Street, are now greasing the wheels of government.
Founded by Jeffrey Katzenberg, Steven Spielberg and David Geffen, the company quietly commissioned an “economic impact” study that touts the start-up as having the potential to create thousands of high-paying jobs, add billions to the state’s coffers and play a critical role in helping replace lost aerospace work in Los Angeles with high-technology entertainment ventures.
The study by Larry J. Kimbell, director of the UCLA Business Forecasting Project, estimates that by 2004, the DreamWorks studio will directly and indirectly add more than $10 billion a year to the personal income of the state, add about $700 million to its tax revenues and support 14,300 “very high”-paying jobs. All told, Kimbell estimates, the ripple effect through the economy will support nearly 90,000 jobs in California by 2004.
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After getting the study back last week, the trio immediately made copies for important government players such as Los Angeles Mayor Richard Riordan and Gov. Pete Wilson. By schmoozing the right people at an early stage, the three hope for easy sailing with the powers that be when it comes time to pour the concrete. Even in the home of entertainment, the expansion of studio facilities isn’t always welcomed by neighbors, as Twentieth Century Fox found out.
The study could play a major role in the next 60 to 90 days as the three decide where to base their permanent home. All plans are now on hold pending the resolution of a conflict between MCA’s top two executives, Chairman Lew Wasserman and President Sidney J. Sheinberg, and the company’s Japanese parent, Matsushita Electric Industrial.
MCA’s Universal City back lot in Los Angeles County territory is a top contender as a site, although Los Angeles city officials and developers are pushing hard to persuade DreamWorks to locate within the city limits, most likely at a Playa Vista project near Marina del Rey. Downtown Los Angeles near the Convention Center is even being considered, said Steve MacDonald, deputy director of the Riordan-organized L.A. Business Team.
No matter where DreamWorks ends up, a study on economic benefits is the kind of ammunition needed when facing the inevitable myriad of zoning, planning and environmental approvals that will be needed. Big plans can mean more bureaucratic headaches. One source close to the company estimates that getting permits and building facilities could take at least two years.
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Several sources suggested that the study also won’t hurt DreamWorks’ efforts to persuade the giant California Public Employees Retirement System pension fund--which is considering investing from $150 million to $200 million in the company--that putting up cash is good for the state. Other potential investors include billionaire and Microsoft Corp. co-founder Paul Allen.
Kimbell says the study isn’t meant to be an endorsement for investors. Still, he clearly is a DreamWorks booster.
“DreamWorks represents an outstanding opportunity for a new economic energy source for revitalizing California’s economy. I strongly recommend support for its promotion and location in California,” he wrote in his report.
The study is unique in that Kimbell usually does these projections when California is trying to hang on to operations that might flee the state or are in danger of being cut back, such as those involving Northrop Grumman, Rockwell International and the Jet Propulsion Laboratory. What makes the study even more unusual is that DreamWorks has yet to generate a dime of revenue, and its main asset remains three of the best resumes in town.
Kimbell’s optimistic estimates--which include the creation by 2004 of 47,700 service jobs, 10,500 state and government jobs and 10,200 finance, insurance and real estate jobs--hinge on predicted revenue and job figures supplied by DreamWorks itself from its ambitious 10-year business plan. Economic impact
studies aren’t an exact science to begin with, and economists often disagree on whether the economic ripple a business generates can be measured accurately.
Kimbell readily acknowledges that he has “no basis for knowing if their plan is viable” and says he did not make any evaluation or judgment about the business plan itself. He said that, assuming the business plan works, the new operation is “really important for California’s future” and will play a role in helping revitalize the state economy.
Kimbell stressed that one reason to be optimistic about the company’s prospects is the booming global market for American movies, TV shows, music and other entertainment products.
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DreamWorks--which sees itself as a multimedia company involved in live-action films, animation, music, television and interactive software--has been circulating its business plan to investors. The company projects revenue of $3.2 billion by 2004, according to numbers in Kimbell’s study.
Team Dream is betting heavily that it can mirror the success in animation that Katzenberg helped build when he was chairman of Walt Disney Studios with such hits as “The Lion King” and “Aladdin.” The company isn’t expected to release its first animated film for three years. But by 2003, the company projects, $355 million of its pretax income will come from animation, compared to $230 million from live-action films, $95 million from music and $65 million from television.
Kimbell said one of the most unusual aspects of the study is the assumption that the average wage paid by DreamWorks will be about $100,000 in 1996. That compares to about $60,000 on average in aerospace. (Some in Hollywood might find the high-wage numbers ironic, given the reputation of the three for being tightfisted businessmen.)
“The project looks like it would be supporting high-wage earners, and we need that in California,” Kimbell said.
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Dream Impact?
The new DreamWorks studio will boost California’s overall personal income by $10.3 billion and create 89,500 new jobs by 2004, according to UCLA economist Larry J. Kimbell, who was hired by DreamWorks. The overall estimates include the studio’s direct impact from payments such as wages and taxes, as well as the “ripple” effect on suppliers, restaurants and other businesses. Projected impact, in millions of dollars:
DIRECT IMPACT
1996 1998 2000 2004 Revenue $293.2 $1,223.5 $1,784.0 $3,230.0 Wages $205.2 $856.5 $1,248.8 $2,261.0 Jobs 2,100 7,700 10,100 14,300
OVERALL IMPACT
1996 1998 2000 2004 Personal inc. $798.3 $3,648.2 $5,653.3 $10,341.7 Wages $588.5 $2,675.8 $4,165.0 $7,758.7 Tax revenue $55.9 $255.4 $395.7 $723.9 Jobs 8,200 36,700 56,100 89,500
Source: Larry J. Kimbell, UCLA Business Forecasting Project
