DreamWorks Animation down to the wire in talks with Sony and Fox

With just three weeks to go until a self-imposed Labor Day deadline, DreamWorks Animation is coming down to the wire in talks for a distribution deal with 20th Century Fox or Sony Pictures.

Those two studios are now the top candidates to replace Paramount Pictures as the distributor of DreamWorks movies beginning next year, according to knowledgeable people not authorized to discuss the matter publicly.

Forged in 2006, the partnership between Glendale-based DreamWorks and Paramount has been largely successful, with both studios benefiting from hits such as the “Madagascar,” “Shrek” and “Kung Fu Panda” series. But the studios sparred over the terms of a contract renewal. Under the current deal, Paramount collects 8% of revenue generated by DreamWorks releases.

Negotiations to secure a new partner, however, have been complicated by numerous issues, and neither Fox nor Sony is ready to commit to a multiyear, worldwide deal, sources said. One sticking point: How to balance DreamWorks Chief Executive Jeffrey Katzenberg’s desire for the best release dates for his movies with the need to support a studio’s own pictures. Both Sony and Fox have their own animation units.

Another sticking point is that DreamWorks is seeking to hold on to all deal-making rights and revenue for its movies on television and digital platforms, the people said. Last year, the studio signed a deal to use Netflix as its pay cable distributor, for instance, and the studio intends to keep all of that money itself. Under its current deal, Paramount gets a cut of the revenue when DreamWorks movies air on pay cable channel HBO.

In addition, DreamWorks, which recently announced plans to develop its own family entertainment cable channel, wants to hold onto the rights to release its movies on other television channels. The company also wants to retain digital distribution rights, such as video-on-demand and download-to-own.
If Fox or Sony agreed to those terms, it would only have a cut of DreamWorks Animation revenue from theatrical and DVD distribution, a smaller pie than Paramount currently receives.

Representatives for DreamWorks, Sony and Fox declined to comment on the talks.

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