• by Diane Mermigas , June 26, 2008

What does Bollywood see in Steven Spielberg that the U.S. entertainment investment community doesn't? At a time when America's natural resources are attracting foreign investors, it is worth wondering whether we risk losing some of our best and brightest. Surely the director of "ET" and "Indiana Jones," who happily concedes "I dream for a living," ranks right up there with major American treasures we would never allow to fall into international hands.

With a reported $150 billion in available investment funds sidelined during the current economic downturn, surely someone in the U.S. must think Spielberg is a sure bet.

However, it is Reliance Entertainment--part of the Indian conglomerate controlled by telecommunications mogul Anil Ambani--that is offering to finance Spielberg's work, as part of its plan to build a $10 billion digital media empire mirroring Hollywood. India's plentiful money is chasing U.S. proven talent with assurances of creative autonomy and opportunity to innovate.

Other Hollywood directors--from Chris Columbus and Brad Pitt to George Clooney and Jay Roach--recently made their own financing deals with Reliance, which caters to the exploding desires and economic prosperity of India's growing middle class. Spielberg and DreamWorks CEO Stacey Snider would receive an investment of as much as $2 billion in cash for film production in exchange for an equity stake in a newly established independent company. A search for cash infusion and deals was triggered by Viacom's Paramount Pictures indicating that it may not fight to keep DreamWorks in-house. Raising anywhere from $600 million to $2 billion from outside investors, Spielberg could relocate DreamWorks to Universal Studios, where he has past ties and still maintains an office.

That Paramount would not fight to keep DreamWorks seems, on the surface, creatively derelict. Sure, Spielberg reportedly is worth $3 billion and has four Oscars, which barely account for his sweeping success.

JP Morgan Chase analyst Imran Khan points out that DreamWorks is "a high cost supplier of films to Paramount," and that its exit could actually lower costs at a time when Viacom is reducing corporate expenses to offset its exposure to weak advertising markets. Viacom brass say they are "willing" to negotiate an agreement with DreamWorks when the current partnership pact expires in November. That seems a strangely aloof attitude for a company whose majority owner, chairman Sumner Redstone, has embraced the mantra "content is king!"

Khan says DreamWorks accounted for $157 million or 35% of administrative expenses in 2007, which contributed to a 23% drop in the operating income of Viacom's filmed entertainment unit. Since selling DreamWorks to Viacom for $1.6 billion in 2006, Spielberg, Geffen and Jeffrey Katzenberg have produced seven of Paramount's 24 film releases. Box-office successes such as "The Transformers" and the fourth "Indiana Jones" film were offset by underperformers like "The Heartbreak Kid."

Producing more titles under the MTV and Nickelodeon labels could improve profitability by reducing downside risk. Twentieth Century Fox and Disney are considered to be better-performing studios because they have more downside control in film production. Given its relative small size, Paramount's bottom line can be disproportionately impacted by a large budget film flop, Khan says. DreamWorks maintains a large creative staff covered by an annual budget of about $400 million to cover at least half a dozen new movies. In the past year, DreamWorks's slate and library have played a critical role in rebuilding Paramount's overall film slate and momentum.

In the case of a split, Paramount would continue to distribute DreamWorks' live-action film library through 2010 and distribute releases from DreamWorks Animation SKG, an independent company led by Katzenberg. The five-year distribution pact gives Paramount access to the prior film hits that yield surer, immediate returns.

Still, what is missing from such a by-the-numbers business discussion is Spielberg's unique brand of American film creativity. Filmgoers have embraced his adventurous, swashbuckling films and leading men--from "Jaws" to "Raiders of the Lost Ark." As he matured in the profession, his sense of moral payback came in the form of socially and politically poignant films, like "Saving Private Ryan" and "Schindler's List."

"If storytelling becomes a byproduct of the digital revolution, then the medium itself is corrupted," Spielberg said about his craft. "Our one goal is to give the world a taste of peace, friendship and understanding. Through the visual arts, the art of celebration of life, we are dedicated to making this the most emotional opening ceremony ever," Spielberg has said. Most film directors, producers, stars and critics just don't talk that way any more.

Because film is the universal language, it seems fitting that fans, artists and investors outside the U.S. should appreciate Spielberg's gifts. Does it matter where the money comes from to give Spielberg and DreamWorks a new lease on life? Not really. But it does say something abut the American attitude toward preserving and supporting our own art and artists--of Steven Spielberg's stature. And that picture is not pretty.