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The Biggest Deal in 'Sillywood'

REDMOND, Washington -- The world's most powerful software corporation joined with some of the biggest entertainment industry powerhouses as Microsoft Corp. said it will become a minority investor in DreamWorks SKG and participate in a venture to create a new generation of Hollywood-inspired interactive software.


Microsoft and DreamWorks -- the studio started last fall by moguls Steven Spielberg, Jeffrey Katzenberg and David Geffen -- each will contribute half of the $30 million start-up funding for the venture, which will focus initially on producing adventure games and interactive stories.


Called DreamWorks Interactive, the new company will be based largely in Los Angeles with a smaller group near Microsoft headquarters in Redmond.


By bringing together the technical expertise and distribution power of the world's dominant software firm with some of the top talent in the entertainment industry, the venture hopes to be at the forefront of exploiting new forms of popular culture in the digital future.


The DreamWorks' star team flew to an overcast Seattle to join Microsoft founder Bill Gates in a news conference last week. Gates is the richest man in America and the four combined are estimated to be worth more than $11 billion.


Seated on high director's chairs -- not standard furniture at the software firm's headquarters -- the group symbolized the ultimate in the "Sillywood" phenomenon that has driven numerous similar deals recently as Hollywood and Silicon Valley have come together to create new digital-age entertainment.


"I'm spoiled," said Spielberg, who sported a brown leather jacket and a black baseball cap with the yellow smiley logo of one of Microsoft's consumer software products. "I worked with the best studios and the best actors and it would be silly to get into the interactive business without Microsoft. They're the best company in the world. It does seem like a marriage that was destined to happen."


A self-described "video junkie" dating back to the days when the ancient video game Pong was popular in the 1970s, Spielberg insisted he and his partners commit the necessary time to interactive projects despite their busy schedules.


Analysts and interactive industry veterans for the most part applauded the deal, which they said lends legitimacy to the nascent multimedia industry and would help to expand the market for CD-ROMs and other interactive software.


"These guys are obviously very talented and what they're doing can only help this industry," said Tom Kalinske, chief executive of Sega of America.


Some questioned Gates' projections that the new venture would have revenues of several hundred million dollars within two to three years. "Like the movies, this is a hit-driven business," said Bruce Ryon, multimedia analyst with Dataquest. "And it's not necessarily easy to get a hit."


Many of the new interactive ventures have suffered from a clash of wildly different personalities and cultures spanning Hollywood and the computer world. Some industry observers questioned whether the software giant and the new studio could bridge the gap.


All four men are known for being obsessed with detail and taking a very hands-on approach to their businesses. Microsoft also has a reputation for dominating the companies it works with.


But Spielberg went out of his way to praise Gates, who has been under fire from rivals alleging that Microsoft has been heavy-handed in competing with them. The company's operating system software runs about 80 percent of the personal computers sold today. The software giant has been the target of anti-trust charges.


"One thing we've already learned from the last couple of months is that they are not predators, they are collaborators," Spielberg said. Although the company will begin with a budget of just $30 million, Gates said finding good people and good project ideas would be the primary constraint rather than financing. Katzenberg said the money would go almost exclusively toward hiring people. He estimated that the company would soon employ about 75 people.


The new company is expected to come up with as many as two dozen titles a year, with its first original interactive products available for Christmas 1996 and its first potential projects based on its movies and television shows available the following year.


The announcement comes three days after Microsoft co-founder Paul Allen confirmed that he will invest $500 million in the studio.


Sources said Microsoft will own about 1 percent of DreamWorks, with the amount invested around $9 million. Although small, given Microsoft's size, the investment is important symbolically for DreamWorks. Microsoft's involvement marks another vote of confidence in the DreamWorks plan, and links the company up with what is the United States' most successful entrepreneurial company in the past 20 years.


"I think we've now set the stage for our principal businesses," Katzenberg said. "Now we're going to get building and running them."


Given the marquee power of Spielberg's name, some executives in Hollywood believe that an original, exclusive interactive story from the producer-director could be a potential best-seller for DreamWorks.


Another possibility is licensing arrangements to turn some of Spielberg's past hit movies into interactive products.


Spielberg said he hasn't thought yet about whether he will create an original interactive product. He said it is possible that DreamWorks could make interactive licensing deals involving films he's made, but stressed that he is more interested in plowing new ground. "I'm looking ahead at original ideas, not looking back at some of the things I've already created," Spielberg said.


Gates said the new company will get immediate help from a group of Microsoft programmers and would have the necessary combination of talents to make interactive technology work.


"You need the best talents in terms of making the computer sing and dance and you need great entertainment talent," Gates said. "It really will be a meeting of two worlds."

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