Spielberg prepares for deal linking Hollywood with Bollywood mogul

As one unhappy alliance ends, Hollywood's biggest director is looking east. Stephen Foley reports

The legendary Hollywood director Steven Spielberg is edging closer to ending his fractious two-year relationship with Paramount Pictures – and is readying an alternative alliance with one of India's richest men.

Anil Ambani's Mumbai-based conglomerate, Reliance ADA – one of the biggest producers of Bollywood films – is planning to invest more than $500m (£255m) in Spielberg's production house DreamWorks SKG, which the Schindler's List director runs jointly with David Geffen.

Spielberg and Geffen have been feuding with Paramount almost since DreamWorks was acquired by the company in 2005, and the cool relationship between the pair and Paramount boss Brad Grey has been a staple of Hollywood gossip. Mr Grey riled them both by taking what they say is more than his fair share of the credit for hits such as Dreamgirls, and relations hit a low last autumn when Philippe Dauman, chief executive of Paramount's parent company, Viacom, claimed that the departure of Spielberg would be "completely immaterial" to the company.

The break-up of the marriage has since been only a matter of time, and under the 2005 deal Spielberg and Geffen are allowed to leave Paramount this year.

A cash infusion of $500-$600m from Reliance ADA, with debt financing of a further $500m, would allow an independent DreamWorks to produce half a dozen movies a year. Major Hollywood studios, including General Electric's Universal Studios and Rupert Murdoch's Twentieth Century Fox, are vying to distribute those films. Sources said that an agreement between Reliance and DreamWorks could be announced within the next few weeks.

Mr Ambani – the younger brother of India's richest man, Mukesh Ambani – controls an empire spanning telecoms, financial services, utilities and, increasingly, media and entertainment. During the Cannes Film Festival last month, a Reliance subsidiary said it had signed agreements with several major Hollywood stars, including Jim Carrey, George Clooney, Tom Hanks and Brad Pitt, to help fund movies through their independent production companies. "The agreements are the first major building block in the creation of a virtual studio, or new-generation media company," the company said at the time.

"They are part of Reliance Entertainment's long-term strategy for media investments in Hollywood, as it continues to build a fully integrated movie company with substantial holdings in production, distribution and exhibition."

The younger Mr Ambani has been expanding his interests overseas as his brother concentrates mainly on building his Reliance Industries business empire within India – although the two are locked in a feud over the future of a telecoms investment in South Africa.

DreamWorks declined to comment yesterday, as did spokesmen for Reliance ADA and Viacom. It is understood that Paramount executives have taken a much more conciliatory tone in their dealings with Spielberg and Geffen in the past few months, as the two sides seek to unpick the details of their complicated 2005 agreement.

DreamWorks SKG was set up in 1994 with ambitions to become a major, all-purpose movie producer and distributor. Jeffrey Katzenberg – the K of SKG – now runs DreamWorks Animation, the maker of Shrek, as a standalone company which distributes its films through Paramount.