DreamWorks SKG: Following the wrong leader

What does the sale of DreamWorks SKG to Paramount mean?

If you believe this piece from the Los Angeles Times, it's an indicator of just how hard it is to succeed as an independent operator in today's Hollywood, dominated by lumbering mega-media brontosauruses. Claudia Eller and Sallie Hofmeister write:

When the self-proclaimed Dream Team announced the formation of DreamWorks SKG at the Peninsula Hotel 11 years ago, director Steven Spielberg said that he and his partners, Jeffrey Katzenberg and David Geffen, were creating a multifaceted entertainment empire that would "outlive us all."

It didn't.

This week, the trio reached an agreement for their studio to be acquired by Viacom Inc.'s Paramount Pictures, underscoring how hard it is for independent firms to survive among media giants. The pending sale, the latest evidence that stand-alone movie studios are a losing proposition, also prompted the question: If S, K and G can't do it, who can?

I would argue that DreamWorks' fatal flaw was that it patterned itself after the major studios, rather than envisioning a new way of operating. Small companies that want to be influential (and profitable) need to take advantage of their size, nimbleness, and clever ideas - rather than trying to mimic the big guys.

I had a conversation this past week with Tom Sherak of Revolution Studios, in which I found myself asking the same questions I often ask of people in the movie business: why are studios focused on making fewer (not more) movies, for bigger (not smaller) budgets? Why do star salaries (and their back-end takes) keep rising even as their ability to open a movie seems to be declining?

Sherak replied, basically, by saying, if you're making an action movie and someone tells you you can have Tom Cruise for $20 million, are you gonna go and make that movie without Tom Cruise? (Well, yeah, I might.)

From my perspective, DreamWorks, started by Hollywood insiders, got sucked into that Hollywood groupthink mentality. The founding trinity (S, K, and G) also ensured that they were all paid as moguls from the very start - rather than as entrepreneurs. That probably lent the studio the atmosphere of having already arrived - rather than struggling to make a different kind of mark. Here's another snippet from the Times story:

Sources at studios that have distributed films that Spielberg directed say he typically is guaranteed as much as 25% of a studio's gross.

As a result, the 2002 hit "Minority Report," which grossed $354 million at the worldwide box office, made only a small profit for DreamWorks and its partner, News Corp.'s Twentieth Century Fox, according to people familiar with the financial details who requested anonymity for confidentiality reasons.

Based on typical industry practices, DreamWorks would have had to release at least twice as many movies a year as the seven it averaged to justify its $100-million annual overhead.

One other question I posed to Sherak: why don't studios make more movies like "Napoleon Dynamite" or "My Big Fat Greek Wedding" or "Memento," movies with tiny budgets (and no stars) that turn into giant hits. "That's like catching lightning in a bottle," Sherak said, adding that it's impossible to know beforehand what movies will explode like that.

But why not use those kinds of movies as a model - cheap and original, with unknown and charming actors - rather than using the behemoth tent-pole movies as a model? Studios like DreamWorks spend so much time and energy focusing on big-budget, star-laden, potentially-franchise-creating films ("The Island," anyone?) - when they could be doing something different.

My take: DreamWorks SKG didn't fail because its founders tried to clear a new path. It failed because they followed the old one.