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Uni Dream Deal Would Mean More Home Video Market Muscle

5 Aug, 2005 By: Erik Gruenwedel

Anchorman: The Legend of Ron Burgundy

A possible union between Universal Studios and DreamWorks SKG could strengthen Universal Studios Home Entertainment's muscle in the business, analysts say.

The General Electric board has greenlighted overtures by NBC Universal to acquire private DreamWorks SKG, according to published reports.

Analyst David Miller with Sanders Morris Harris said that because Universal already distributes DreamWorks' home video product, acquiring the studio would create greater “scale” for the combined film libraries.

“Owning a film library is like owning a house,” Miller said. “It is basically real estate that virtually rises in value every year. They realize that the cash-flow yielder for film libraries tends to be a perpetuity income stream. That's why Sony took out MGM.”

Notwithstanding recent successes of Collateral, Anchorman: The Legend of Ron Burgundy and The Ring, DreamWorks, founded 10 years ago by Steven Spielberg, David Geffen, and Jeffrey Katzenberg, would appear to be in a funk lately following the poor theatrical showing of The Island.

DreamWorks Animation SKG, creator of the “Shrek” franchise, is a separate company and not part of any reported potential acquisition.

Representatives from NBC Universal and DreamWorks were not immediately available for comment.

With a catalog approaching 140 titles — including television product “Las Vegas,” “The Contender” and “Into the West,” among others — DreamWorks' relatively small release schedule could be melded into Universal's release calendar to produce a stronger line-up, analysts say.

“It would mean less movies coming out, because DreamWorks and Universal would combine schedules, and they wouldn't have to do as many title pick-ups,” said retail analyst Dennis McAlpine with McAlpine Associates.

However, both analysts said the likelihood of a deal is less than 50 percent, due in part to the reported $1 billion price tag, shrinking and flattening growth in the theatrical and home entertainment markets, respectively, and lack of financial information about DreamWorks, which is a private company.

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