Dreamworks Acquired by Paramount

After an 11-year run, DreamWorks SKG Inc. was sold to Paramount Pictures on Sunday.

Paramount paid $775 million in cash for the independent movie studio, owned by Steven Spielberg, Jeffrey Katzenberg and David Geffen; company officials said it would assume the $825 million in debt and other obligations.

The once-ambitious DreamWorks was formed in 1994 to be a diversified entertainment company, with far-reaching goals to include television, music, movies and the Internet.

Alas, they had to curtail such goals as–despite some giant hits over the years–they’ve suffered some severe box-office disasters, the most recent of which being this summer’s The Island.

Viacom Inc., Paramount’s parent company, will use this transaction as a first step towards reversing its recent financial woes.

Paramount will begin by selling DreamWorks’ film catalogue, which the company says is valued between $850 million and $1 billion; however, Paramount will retain distribution rights to the films. It will also gain distribution rights for the next seven years for DreamWorks’ most profitable asset, Dreamworks Animation SKG Inc, including the mammoth Shrek franchise.

Brad Grey, Paramount’s chairman and CEO, said such an arrangement would make Paramount, already producing films with Viacom-owned MTV and Nickelodeon, transition more into family and children’s movies.

Katzenberg, chief executive officer of DreamWorks Animation, sees this partnership with Paramount as a possibility for expansion in several of its divisions. “We are pleased with the benefits this new relationship provides DreamWorks Animation. The existing talent of DreamWorks Studios and the resources available at Paramount Pictures will result in a very strong distribution partner that will create great opportunities for our products in the marketplace.”

Paramount said the deal stipulates that Spielberg, as a producer and director, and Geffen, as the chairman of DreamWorks, will be responsible for producing four to six live action films per year, increasing its annual output to between 14 and 16 titles.

NBC Universal initially made an offer in September, before a last-minute reduction–a move that drew the ire of Geffen (who claims he was still talking with NBC Universal as late as Friday before finally accepting Paramount’s proposal).