Company Town : DreamWorks’ New Suitor: Bronfman

Edgar Bronfman Jr. is wasting little time in moving toward another high-profile deal by seeking a distribution agreement with DreamWorks SKG.

Sources said he is being extremely solicitous of Dream Team founders David Geffen, Jeffrey Katzenberg and Steven Spielberg, with whom preliminary conversations started last week. That’s less than a week after Bronfman formally agreed to buy 80% of MCA Inc. for $5.7 billion. In a standard Securities and Exchange Commission filing that revealed little else, Bronfman’s Seagram Co. said MCA is considering an affiliation with DreamWorks.

In any event, DreamWorks is sitting pretty. The company can play its three main suitors--MCA, Time Warner and Sony--off one another as it seeks to cut the best deal.

What DreamWorks is reportedly offering is international theatrical and worldwide video rights to its movies. The company has said it plans to set up its own domestic theatrical distribution network to directly release its films in the United States and Canada.

Since DreamWorks will be financing its own movies, it will presumably be looking only to pay a small distribution fee to a studio for its services.

So what’s the upside for MCA’s Universal Pictures or Warner Bros.?

The answer is “there’s not a lot of upside if all there is is a small distribution fee,” said a knowledgeable source. “On the other hand, there’s no downside if (DreamWorks is) putting up all the money.”

Naturally, DreamWorks, which will own its own negatives, wants a deal whereby the bulk of the upside will stay with that company.

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When a studio helps finance a picture, the standard distribution fee--which is a percentage of a film’s gross--is about 30%. When the producer brings all the financing to the table, the studio receives a substantially lower fee. For example, last year Universal received a 17.5% fee on all media for distributing “Streetfighter,” starring Jean-Claude Van Damme, which was financed entirely by video game maker Capcom. The studio walked away with an estimated $15 million, having risked nothing.

Even a small piece of a film such as “Jurassic Park,” which grossed $500 million overseas alone, can bring a studio earning a small distribution fee a lot of money.

Sources say there have been no “formal” talks between Bronfman and DreamWorks and no direct discussions at all between DreamWorks and Universal Pictures brass regarding a distribution deal.

DreamWorks’ threat to take its business elsewhere if MCA President Sidney Sheinberg, Spielberg’s mentor, was treated shabbily during the acquisition may pay off. Sheinberg and his boss, Lew Wasserman, were enraged by Matsushita’s decision to keep them out of the loop, but Bronfman has tried to mend fences.

If a deal doesn’t materialize with MCA/Universal, Warner Bros. appears to be in second position to land DreamWorks.

Bronfman, who spent much of last week at MCA and went back home to New York for the holiday weekend, is due back today for more meetings in the Valley.

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More DreamWorks: The people behind Korean electronics giant Samsung have tentatively agreed to invest $300 million in DreamWorks.

One source said the money would come from a niece and nephew of reclusive Samsung Chairman Lee Kun Hee.

But lawyer Alan Grodin, who represents investor Paul Allen, said it is his understanding that the money is coming from Samsung itself.

Samsung, which makes TVs, videocassette recorders and other home electronics products, at one point had wanted to buy the entire $900-million stake DreamWorks wanted to sell, but DreamWorks balked at giving such a large interest to any one party.

Sources said papers have been signed but that Korean government approval is needed.

The money is on top of a $500-million investment from billionaire Allen and a 1% stake being bought by software giant Microsoft for about $27 million. DreamWorks’ goal was selling a one-third stake.

One investor apparently won’t be the huge California Public Employees Retirement System. Sources suggested that the Samsung investment means there is no need for CalPERS to invest.

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Waterlogged? In a filing with the SEC after its MCA agreement, Seagram held out the possibility that there may be a write-down in the future for Universal’s big-budget action film “Waterworld.”

This declaration had some at MCA surprised, because that company never writes down its movies before they are released and their performances are known. “I don’t really understand what they are saying,” said a source.

Seagram said in the filing that it can call off the deal if it finds that MCA’s value is decreased by more than $400 million. Further, Seagram investment banker CS First Boston’s attempts to determine the value can’t include “any write-offs or potential write-offs associated with the film ‘Waterworld’ ” and “any information relating to any services to be rendered or products to be produced” by the DreamWorks trio.