In a move that caught even Hollywood insiders off-guard, DreamWorks SKG--the studio run by industry titans Steven Spielberg, Jeffrey Katzenberg and David Geffen--announced that it had pulled the plug on plans to build a $250 million studio near the Pacific Ocean west of Los Angeles.
The announcement late on Thursday was a surprise because in April DreamWorks had finally taken ownership of a 47-acre parcel of land at the Playa Vista development after four years of tussling with the developer, environmental activists and investment banks.
The state-of-the-art studio was to include sound stages, a lake, a campus and access to new residential housing. It was to anchor a $4 billion development near the Los Angeles airport. But in a statement, DreamWorks said that financing problems and construction costs led the three executives to change their minds.
"We have always maintained that we would move forward with Playa Vista only if the financial terms of the deal made good business sense for DreamWorks," Katzenberg said in the official release. "It is clear that this move is no longer in DreamWorks' best interest. It was simply not meant to be."
But few in Hollywood accepted this as the whole story. After all, even by DreamWorks' account, the two sides were only $50 million apart. Any of the high-powered DreamWorks executives or their main investor, billionaire Paul Allen, could have probably found this sum without too much effort.
Instead, it seemed that various factors--including ongoing financial losses at the studio, entrenched opposition from environmentalists who claimed the new campus would destroy a rare wetlands area, and overall fatigue in coming to financial terms as Hollywood has entered an economic downturn--took their toll.
"They were very enthusiastic five years ago when they were new, fresh and a new home made a lot of sense. But as usual, the devil's in the details," said Mike Steed, senior vice president for the District-based Union Labor Life Insurance Co. (ULLICO), which announced a financing agreement with DreamWorks in 1997.
"If they really, honestly wanted to build this, they could have done it. But the studio is not in a place where it can sustain a long, difficult, complex construction period. It now will be focusing on what it does best--making movies and music."
Indeed, sources close to the negotiation said that the studio had lost between $175 million and $200 million last year. The sources said that the biggest drain on the company was its television division, which has had several flops, a modest success, "it's like, you know . . .", and only one hit, "Spin City." The movie division had mixed results--the only major hit so far has been "Saving Private Ryan," while the animated "Prince of Egypt" was a modest success. The music division is only beginning to release new artists.
These less-than-encouraging returns coincide with a mini-recession in Hollywood, as studios have cut back on moviemaking and tightened budgets. Many studios have shifted production to cheaper locations such as Canada. Said Variety editor Peter Bart, "They may have looked around, saw a lot of empty sound stages and thought, 'Maybe this is not such a great time to build a huge studio.' "
Meanwhile, environmental groups that have been fighting the whole development project for years hailed the DreamWorks' announcement as a victory.
"I think they finally got the message that this is an environmental issue," said Marcia Hanscom of the Wetlands Action Network.
But a spokesman for Playa Capital, the developer that is now funded by Wall Street banks and ULLICO, said the project would move full speed ahead, with or without the participation of DreamWorks.
Since its founding with great fanfare in 1994, DreamWorks has trumpeted plans to build itself a grand, modern home. During the prolonged negotiations, DreamWorks executives have been working from offices on the Universal studio lot, where Spielberg had his production offices for many years. DreamWorks also built a new animation studio in nearby Glendale, and the statement said DreamWorks will explore expanding those facilities. A spokesman for the studio did not return calls asking for comment.