Microsoft Corp. is close to entering a major interactive product alliance with DreamWorks, bringing to fruition a long-simmering deal that will combine the talents of Microsoft's chairman with three of Hollywood's most powerful players.
Each side gets what it needs: Microsoft will gain access to some of the most bankable creative minds in Hollywood. DreamWorks will get access to Microsoft's distribution channels, marketing clout, digital technology and money.
DreamWorks needs "the broadest distribution they can get," said Tim Bajarin, president of Creative Strategies Research International, a San Jose, Calif., market researcher that follows the interactive field. "They want to go with a master of digital distribution, and there's no one better than Gates and Microsoft. This shows every potential of being a blockbuster relationship."
The venture has been in the works since last fall, when the Dream Team of acclaimed producer/director Steven Spielberg, former Disney Studios Chairman Jeffrey Katzenberg and music and film mogul David Geffen set up DreamWorks, a Hollywood studio.
A Microsoft spokeswoman acknowledged talks between the parties, saying: "We believe [DreamWorks is] a great creative team but have nothing to announce at this time." DreamWorks wouldn't comment. But sources indicate the parties are preparing to make their dream deal official.
Also last week, it was reported Microsoft co-founder and billionaire Paul Allen is investing about $500 million into DreamWorks, and Microsoft and IBM Corp. are investing $20 million to $30 million each. Chemical Bank has extended a $1 billion line of credit.
DreamWorks' interactive deal with Microsoft appears similar in intent to the studio's TV production and distribution alliance with Capital Cities/ABC.
The Microsoft deal will give DreamWorks access to creative talent and immediate credibility in the interactive software market, where Microsoft has a leading presence.
As part of his plan to turn Microsoft into a household franchise, Mr. Gates has repeatedly expressed his intent to form ventures in Hollywood to produce consumer software. Mr. Gates has shown particular interest in animation, a field where Mr. Katzenberg excels.
Microsoft conceivably could market and distribute DreamWorks' interactive products through CD-ROM, computer online offerings and interactive TV.
The DreamWorks alliance could also be a springboard for Microsoft to develop other relationships in the entertainment industry.
Microsoft will enter the computer online field in August with Microsoft Network. In interactive TV, Microsoft will supply set-top box software and video server software for tests that Tele-Communications Inc. and SBC Communications will start later this year. DreamWorks conceivably could provide programming.
Mr. Tyrer is Los Angeles bureau chief for Electronic Media. Advertising Age's Debra Aho Williamson contributed to this story.