American dreamers

It should have been the stuff of nightmares. Nobody sets up a major film studio in Hollywood from scratch and makes a success of it. Nobody, that is, until Steven Spielberg joined forces with Jeffrey Katzenberg and David Geffen to create DreamWorks. Not yet five years old, they have notched up success after success, from `Antz' to `Saving Private Ryan', and are building the first studio lot in LA for 70 years. Is it all too good to be true?

WHEN Francis Ford Coppola, the last person crazy enough to try to set up a brand new Hollywood studio from scratch, was scouting around for backers to finance his American Zoetrope project back in 1980, he approached Steven Spielberg and asked him for a one-million dollar loan.

"I don't do that kind of thing," Spielberg told him. It was a shrewd decision: Coppola rapidly fell victim to his own self-indulgence, and Zoetrope crashed under a mountain of unpayable debts in two years.

The Spielberg who refused that loan was a long way from the Spielberg of today. True, he was already the boy-wonder director of Jaws and Close Encounters of the Third Kind, but he had yet to be enshrined as the most successful film-maker in history, a man with a seemingly flawless golden touch as both director of his own projects and producer of other people's.

The new Spielberg, by contrast, is very much in the business of loaning out his own money. And so far he appears to be winning the very game that Coppola played and lost. DreamWorks, the studio he established four and a half years ago with his partners Jeffrey Katzenberg and David Geffen, is still basking in the remarkable successes it notched up in 1998, from the high drama of the Spielberg-directed war epic Saving Private Ryan to the technological wonders and broad humour of the computer-generated insect caper Antz.

In just its second year of movie releases, every one of the studio's horses came in a winner, with US box-office receipts averaging an astonishing pounds 65m per film - little short of a freak of nature by industry standards. Worldwide, Ryan made more than pounds 290m, Deep Impact was one of the asteroid blockbusters of the summer and even The Prince of Egypt, the studio's expensive attempt to lure a more sophisticated audience into traditional hand-drawn animation, took in more than pounds 12m in defiance of industry expectations.

Now comes the part that really has studio executives excited. Last month, DreamWorks snapped up a 47-acre parcel of land on the last greenfield building site on Los Angeles's Westside, with the intention of building its very own state-of-the-art production facilities - the first full-scale studio lot to be built in the city in 70 years.

The land came at a bargain-basement rate, just pounds 16m in a part of town where the same amount of land can easily cost eight times that, and the new DreamWorks "campus", expected to cost well in excess of pounds 120m, could be ready as soon as 2001.

Spielberg and his friends have, it seems, struck gold again. But Hollywood is a jungle. Despite the undeniable box-office triumphs of the past year, much of the media gossip on DreamWorks these days is uncertain, full of dark rumours and in some cases downright negative.

How come DreamWorks is making so few movies this year, the industry wags are asking - the count is down to six, compared with nine in 1998? Can the company cover its overhead with so little product?

If Spielberg is so intent on being a studio mogul for the new millennium, how come he has so many personal directing projects up his sleeve, including an adaptation of the Arthur Golden best-seller Memoirs of a Geisha that he has promised to Columbia on an entirely freelance basis? Is he perhaps tiring of the burdens of running a studio and yearning to get back to his creative roots?

There are questions, too, about the land deal, since the greenfield site also happens to be the last coastal wetland left in southern California, which the new development would all but destroy. Why has DreamWorks hoisted itself to such an environmentally unsavoury mast?

Part of the anxiety underlying these questions can be ascribed to the tough conditions prevailing everywhere in the movie industry these days. With the cost of top stars and directors spiralling ever higher, and marketing becoming an ever more central, and extravagant, part of selling a movie, it is becoming increasingly difficult for a major studio to make money.

Even a pounds 60m hit, not so long ago a benchmark for unequivocal success, begins to look puny once you deduct half the revenue for exhibitors' fees, pounds 20m for the cost of making the film, pounds 14m for marketing and a few million more in bonus "points" for the principal artists.

Those kinds of numbers explain why Disney slashed one-third of its overall operating budget for this year, and why movie production is down generally. DreamWorks faces the added obstacle of meeting all its start-up costs - attracting 1,800 employees at competitive salaries, building in a time lag before production can go into full swing, establishing a functioning management structure, and so on.

It does not help that the company is secretive to the point of obsession about its financial position. Little is known about its capital, except in the most general of terms - roughly pounds 600m raised from shareholders, who include Microsoft co-founder Paul Allen and the Korean food and pharmaceutical company Cheil Jedang as well as the three principals, and the same again raised from banks.

Nobody knows how much its state-of-the-art animation facility in Glendale, completed last year, cost to build. And only about six people know for sure how much The Prince of Egypt cost, according to Simon Wells, one of the film's three directors, who says he was kept in the dark himself. When asked, Jeffrey Katzenberg will only hint at DreamWorks' financial performance. Antz, he said, had "far exceeded" expectations, while The Prince of Egypt had only "slightly exceeded" them. Given such enigmatic pronouncements, it is easy to see where dark rumours in a gossipy industry might arise.

In truth, much of this negative chit chat is probably down to professional jealousy. People forget that its founders have extraordinarily deep pockets - Spielberg alone is believed to be worth in excess of $2bn - and also enjoy a remarkable degree of investor trust thanks to their track records. (Katzenberg revived Disney's animation fortunes almost single-handedly in the 1980s and 1990s; Geffen was a successful film executive before making his true fortune with his greatest love, music).

DreamWorks has also deliberately set out to be unlike the other big studios. The live-action division is an outgrowth of Spielberg's old production company, Amblin Entertainment, which sought to bring an independent sensibility to mainstream projects, and the old philosophy has stuck. The idea was always to have hands-on creative film-makers making the key production decisions, and indeed Spielberg's longtime sidekicks, husband-and-wife team Walter Parkes and Laurie MacDonald, are still with him.

The three of them are more interested in quality than quantity, and seem utterly unconcerned that 1999 is shaping up as a bit of a thin year. Films such as Neil Jordan's In Dreams, has bombed at the box office, and small projects, for example Peter Chan's The Love Letter, are giving the jitters to industry columnists on the lookout for blockbusters and Oscar-winners.

But next year promises much more again, with Spielberg directing Tom Cruise in the futuristic thriller Minority Report, Ridley Scott making the big-budget Gladiator, and other projects forthcoming from Robert Redford, Cameron Crowe and Bob Zemeckis.

"At the big studios, you see distribution driving production, rather than the other way around," Parkes says. In other words, executives spend all their time trying to make their 20 to 30 annual releases fit into the right demographic and sales categories, rather than worrying about making good movies.

"When you reach a certain number of films you must deliver each year, there is no way to have the kind of intense emotional involvement with a movie, which is the reason why we are in the business. If we only have six films this year, that's the number of worthwhile projects we found."

That said, the unevenness is almost certainly also the result of early growing pains. Parkes concedes that wearing two hats - as hands-on producer and studio executive - makes him feel "schizophrenic" at times. And others have wondered if the team does not need to be expanded, particularly since Spielberg is forever dreaming up new ways to put demands on his own time - a habit that seems to say more about his creative curiosity than any wavering commitment to DreamWorks.

There are scheduling hiccups on the animation side, too, with no new releases in 1999 at all. But animation is a rather tighter commercial ship overall, run directly by Katzenberg. Partly this is the nature of the beast: a feature-length animation film takes four years to make and involves the constant attention of hundreds of artists and animators. The Prince of Egypt is thus being followed up by two new hand-drawn projects - The Road to El Dorado, which takes two friends on a journey from old Spain to a magical island of their dreams, and Spirit of the West, which is about a horse in frontier territory in the last century. The computer-generated follow-up to Antz, meanwhile, will be Shrek, based on a children's book by William Steig.

Driving the animation division is Katzenberg's barely concealed ambition to beat Disney at its own game. DreamWorks is the only other company in the world to employ a comparable number of artists full time, and its new 14-acre facility at Glendale is a wonder of functional architecture, with every room purpose-built for specific tasks and every department linked fluidly with the next along corridors and walkways between buildings.

Glendale is also a perfect illustration of DreamWorks' unusual corporate culture. Office size is not determined by seniority, but rather by practicality: artists who need to set up storyboards in front of their desks get more space than their supervisors. Dress is totally informal, and access to everyone from Katzenberg down to the lowliest trainee is simply a matter of strolling down a hallway - a hallway almost certainly decorated with artwork from ongoing projects, paintings or stills from old movies whose look the film-makers are seeking to emulate, and colour-coded graphs charting the emotional journey being mapped out for the main characters and the audience.

The company provides a free breakfast and free lunch in exchange for an undertaking that employees will spend an hour each day mixing with their colleagues in the cafeteria. They don't need any encouragement, and the atmosphere is strikingly collegial and highly motivated.

Ron Rocha, the animation chief who thought up many of these innovations, deliberately set out to avoid the old-fashioned ethos of Disney, where he worked for 11 years, amid its strict hierarchies, its echelons of middle management, its culture of fear and intimidation. "In my old job I was always thinking, this is no way to treat artists," Rocha said. "Here it's all about the artists and they are involved in every part of the decision-making process."

If DreamWorks' aspirations to corporate democracy fall down somewhat, it is in the attitude to its three principals. In their different ways, all three end up running the show in fairly autocratic fashion, Spielberg because he is so phenomenally successful and deemed unwaveringly correct on just about anything, Katzenberg because he retains the slightly tyrannical air of his Disney days even if he is in a much better mood now, and Geffen because he remains aloof from day-to-day operations and is an unknown commodity in the whole mix.

The three themselves swear they get along famously, even if they have to snatch meetings between their many individual commitments. Their relationship is clearly the key to the whole thing. If money gets tight, or if one or more of them is perceived to be taking too big a cut of the profits, then the whole enterprise could wobble. But if Spielberg continues his remarkable track record as a film-maker, if Katzenberg revolutionises animation as he hopes, and if Geffen pushes the company into new media fields, then the sky could be the limit.

More Hits Than Misses: The DreamWorks World

AMISTAD

Gross: pounds 30m

worldwide

DEEP IMPACT

Gross: pounds 200m

Worldwide

PRINCE OF EGYPT

Profit: pounds 12m

worldwide

SAVING PRIVATE RYAN

Profit: pounds 290m

worldwide