Paramount snaps up DreamWorks to end Spielberg's big studio ambitions

For about $1.6bn (£910m), including about $400m of debt, Paramount earned the right to distribute the DreamWorks slate of films, nine of which are set for release next year.

Paramount - part of the sprawling Viacom media empire - scooped DreamWorks' library of 60 titles, including Saving Private Ryan. It is guaranteed half of the profits of anything Mr Spielberg directs, regardless of which studio finances him.

The wheels have been slowly coming off DreamWorks, for several years. First it abandoned plans to build a new studio lot on an environmentally sensitive piece of land in Los Angeles. Then it sold off its music and videogame divisions.

DreamWorks Animation, which encouraged British animator Nick Park to give his Wallace and Gromit characters full-length feature treatment in The Curse of the Were-Rabbit, became a separate company last year.

Finally, Mr Spielberg demonstrated he was more interested in directing films than in financing and distributing them. This year alone, he has directed War of the Worlds and the upcoming Munich, a thriller set in the aftermath of the killing of 11 Israeli athletes at the 1972 Olympics.

DreamWorks, launched to great fanfare in 1994, was never in serious financial peril. Thanks to the prestige of its principals, it managed to pump out a steady series of critical and commercial hits, including the back-to-back Best Picture Oscar winners American Beauty and Gladiator.

But in a film business dominated by international media conglomerates with fingers in every conceivable pie - television, music, news organisations, even video and DVD rental outlets - it suffered from an intrinsic competitive disadvantage.

The lack of an extensive library, the lifeblood of a second-tier studio like MGM which lives largely on the royalties of its past, was also a crimp on its financial stability. In the end, it became easier to operate as an unusually prestigious production company rather than a full-blown studio.

Buyers had been circling DreamWorks, which Mr Spielberg co-owns with entertainment executives Jeffrey Katzenberg and David Geffen, for some time. Until recently, the most likely purchaser appeared to be NBC Universal, under whose roof Mr Spielberg set up his Amblin Pictures production company in the 1980s. In the end, Paramount made the more attractive offer and turned out to be the more attractive fit.

Paramount, recently taken over by a new studio chief, Bray Grey, was suffering from a thin roster for 2006. Now it will automatically inherit several prestige projects, including Clint Eastwood's next film, Flags of Our Fathers, about the Second World War battle for Iwo Jima.

DreamWorks' most enduring legacy in Hollywood history may be its successful challenge to the dominance of Disney in the animation field. Mr Katzenberg, who worked at Disney for 10 years before falling out with his boss, Michael Eisner, appeared to relish the opportunity to stick it to his former masters. Off-screen, he won $250m in a court case in which he and Mr Eisner traded deliciously public insults. On screen, he made sure that Shrek, the stinking if lovable green ogre, was endowed with Mr Eisner's facial features. More significantly, Disney has been reduced to producing box-office bombs such asTreasure Planet and the recent Chicken Little.

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