Investor to Put $500 Million in New Studio

High-tech billionaire Paul Allen disclosed Sunday that he is committing $500 million to DreamWorks SKG, giving the new studio being formed by entertainment moguls Steven Spielberg, Jeffrey Katzenberg and David Geffen its single biggest investment.

The computer software entrepreneur’s commitment, which had been rumored for several weeks, is an important financial vote of confidence in the fledgling firm, which is Hollywood’s biggest and most highly anticipated start-up ever.

It also instantly makes the company a leading player in the evolving multimedia field, in which Allen is one of the nation’s most active investors.

With Allen’s money, the company’s initial goal of raising $2 billion from investors and banks to launch the studio is close to being reached.

Allen’s investment is part of about $900 million that the three moguls are raising in exchange for a one-third stake in the firm. Sources say about $750 million of that sum is firmly committed. Allen’s investment would give him close to 20% of the new company.

Some of DreamWorks’ strategic investors are likely to include Capital Cities/ABC, Microsoft Corp. and, possibly, a major entertainment company such as MCA. Separately, Spielberg, Katzenberg and Geffen have pooled $100 million of their own money as well.

Finally, DreamWorks is expected to raise another $1 billion soon in the form of a loan from Chemical Bank.

Allen, 42, who lives in the Seattle area, co-founded software giant Microsoft Corp. in 1975 with prep school chum Bill Gates. Allen left the company in 1983 after being diagnosed with Hodgkin’s disease, which is in remission, but has kept stock now worth about $3 billion.

Forbes magazine estimates that Allen is worth $3.9 billion. His investments range from owning the Portland Trail Blazers professional basketball team to 80% of ticketing giant Ticketmaster, although his main companies are the software and multimedia company Asymetrix and the research firm Interval Research. Allen has invested in scores of high-tech companies with mixed success over the years, and now has money in more than 25 of them.

In an interview, Allen cited his interest in the convergence of entertainment and technology as the main reason for his investment, but added that he and his advisers at the Bear, Stearns investment bank believe that the DreamWorks business plan makes sense as well.

“This magnitude of investment is something you do very carefully,” Allen said, adding that he formally signed off on the investment Friday.

Katzenberg said Allen’s investment is about double what he originally considered making.

Allen becomes what DreamWorks termed the “majority outside investor” in the company. He also will serve on an operating board of directors and a soon-to-be-formed strategic board.

He is expected to have a significant say in company strategy, notably as it develops multimedia and interactive entertainment projects. He said he does not expect to be involved in film and music decisions.

Despite Allen’s investment, the core principals in the company will remain Spielberg, Katzenberg and Geffen. In a statement, they called Allen “the perfect partner for a company that is committed to building the digital studio of the 21st Century.”

Allen was brought into the picture largely through the efforts of music mogul Geffen, who said he first met Allen last year at an annual summer retreat organized by Wall Street entertainment investment banker Herbert Allen.

Geffen began courting Paul Allen as an investor after the three DreamWorks founders announced their new endeavor five months ago, and Allen discussed the project in depth with the trio at a recent dinner at filmmaker Spielberg’s Los Angeles home.

Katzenberg, the former Walt Disney Studios chairman who left last autumn after a tense falling-out with Walt Disney Co. Chairman Michael D. Eisner, said Allen’s easygoing personality was an important factor in taking him on as a partner.

“I can’t stress how important that is,” he said.

Geffen characterized Allen’s joining the three as stemming from something of a “mutual admiration society.”

“He’s an admirer of all of our accomplishments, as we are of his,” Geffen said.

First announced in October, DreamWorks is expected to soon be a major force in the live-action film, animation, television, music and multimedia businesses.

The company combines three of the most powerful players in entertainment. Spielberg directed Hollywood’s two biggest hits--”E.T.” and “Jurassic Park”--as well as the Oscar-winning “Schindler’s List.” Geffen arguably has the best track record in rock music. Katzenberg led Walt Disney’s movie-making operation during its turnaround, overseeing such hits as “Beauty and the Beast,” “Sister Act” and, most recently, “The Lion King.”

Plans for the new studio have been greeted with both enthusiasm and skepticism in Hollywood. Supporters point to the accomplishments of the three founders as evidence that the new company can’t miss. Skeptics say such a huge start-up is a risky venture, especially when it is betting so much on success in animation--a field that Walt Disney Co. dominates and into which virtually every studio has launched a major push.

DreamWorks is evolving quickly, as evidenced by the fact that the “SKG,” the initials of the founders, has been added to the name again after the three requested that the press drop it.

The company is looking to form an alliance with a major studio operation--with MCA Inc. the front-runner--which would distribute much of its product initially.

Part of the delay in forming that alliance stems from an ongoing impasse between MCA’s top two executives, Chairman Lew Wasserman and President Sidney J. Sheinberg, and MCA’s Japanese parent, Matsushita Electric Industrial, over a number of key management issues.

Should the trio not hook up with MCA, other possibilities include Time Warner, which sources said has offered a place on the Warner Ranch in Burbank as a headquarters for DreamWorks. In addition, Sony Corp. is said to be making a major effort to court DreamWorks.

Still more capital is expected to eventually be made available to the new firm.

The company just signed a $1-billion, 10-year pay television agreement with Home Box Office. More funds could come in the form of payments for foreign television, video and other rights. All told, one source estimated that the company could have as much as $5 billion at its disposal on an ongoing basis when operations get up to speed in the next couple of years.

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Profile: Paul Allen

* Age: 42.

* Residence: Seattle area.

* Education: Attended Washington State University.

* Family: single.

* Resume: In 1975, co-founded Microsoft Corp. with Bill Gates, a friend Allen met at Seattle’s exclusive Lakeside School. Allen is credited with writing most of the computer code for their first, dramatically successful software product. Allen left Microsoft in 1983 but has invested in or bought a wide range of companies, including real estate, Asymetrix Corp., Starwave Corp., Interval Research and the lucrative Portland Trail Blazers basketball team. Vulcan Northwest, the Paul Allen Group and a parent company, Vulcan Ventures Inc., control his investments. In 1993, Allen bought about 80% of Los Angeles-based Ticketmaster for more than $300 million.

* Business philosophy: “(T)he good life is doing creative things, whether making music, trying to figure out how to do a particular piece of code or putting together investments.”

* Quote: On Jimi Hendrix, rock guitarist and a hero to Allen, who is a garage-band guitarist himself: “Listening to Jimi’s music is a very inspiring thing. I’m strictly an amateur musician, but here’s someone who is self-taught who did some incredible stuff.”