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[TMZ]

Image: Getty

Nikki Finke passes along word that Viacom boss Phillipe Dauman "wanted to get a jump" on retaining Grey, whose current contract expires at the end of the year but whose tenure — however much money he spent and partners he deported to India — has been distinguished enough to ask back for another five-year run. We salute his longevity/survival against the odds and hope he'll return our meek waves of support should our paths ever cross his daily executive motorcade down Melrose.

• Viacom Extends Brad Grey's Contract [DHD]

The shift guarantees that everyone from senior debtholders at Merrill Lynch to smaller equity backers around Wall Street are locks to lose on the $231 million slate financing deal. As recently as March, the investors were rumored to be considering suing the 'Mount and its free-spending chief Grey after the dramatic underperformance of The Stepford Wives, Alfie and other films partially underwritten by Melrose (the funders signed on during the Sherry Lansing/Jim Dolgen regime but had no say where their money went once they were gone). Viacom CEO Phillippe Dauman himself intervened, we hear, and based on renegotiated terms for Melrose Partners' second round of financing (and Grey's belt-tightening), the mutiny was defused. For now.

• Paramount's Melrose on shaky ground [THR]

Such modesty! To a point, anyway: If and/or when his Reliance Big Entertainment honeymoon ever tapers off, Spielberg and DreamWorks president Stacey Snider really won't have the Geffen touch to help woo another international conglomerate into bed. But by then Spielberg, 62, will probably be ready to scale back anyway, and survival will be less about braintrust than brand (and the library it manages to develop with its new distribution partners at Universal). He shouldn't even be there now, if one of his more illuminating disclosures today is to be believed:

In describing Mr. Geffen’s role at DreamWorks, Mr. Spielberg likened it to a family relationship. “Jeffrey and I were like the kids,” he said, while Mr. Geffen built the house and saw that the bills were paid. [...]

By his own recollection, Mr. Spielberg was initially reluctant to join in creating the original DreamWorks studio, which was conceived by Mr. Katzenberg shortly after he was fired as chairman of the Walt Disney Company’s studio operation in 1994. But Mr. Katzenberg begged for a meeting, and asked to bring a friend. The friend was Mr. Geffen, who not only did all the talking, but insisted to Mr. Spielberg: “I am representing your best interests.”

That assurance was to become the theme of Mr. Geffen’s dealings with Mr. Spielberg, who describes Mr. Geffen’s efforts for him over the years as a kind of “altruism.”

Aww! That shouldn't imply Spielberg was in a hurry to race out the door at Paramount, though, where Geffen reportedly had a short stay in mind even before he clashed with Brad Grey in 2006 over credit for Dreamgirls; "I do not like change," the director told the NY Times. And even if we have Tom Freston's firing and other, seemingly circumstantial evidence to vouch for that philosophy, everyone knows the bottom line: The sex just isn't the same off the Paramount lot. Wait and see — he'll be back.

• David Geffen Makes a Sudden Exit [NYT]

Or not, studio sources are eager to emphasize — it's business as usual on Melrose! We're not so sure, though, and neither are most of the other observers whose reactions we survey after the jump.

Most can agree that the culprit in the imploded Deutsche Bank deal is the same credit crunch that's overextended most other American industries. The Financial Times (which broke the story Monday) notes that equity and junior debt were covered, but the senior debt was too risky for anyone to bite without terms too steep for Paramount. Wall Street's caution is such that Deutsche Bank shuttered its entire film-financing unit for lack of investors; thus, for now, the 'Mount misses out on 25% production financing, up to $30 million per picture.

That's where the "experts" come in. Nikki Finke has the company line from sources at Paramount, one of whom says Viacom isn't the slightest bit peeved about the deal falling through. But the FT story adds that Viacom could be left holding the bag if other partners can't be found for the projects that are "likely to be released as scheduled." And in fact, that's the likeliest scenario when we consider Grey's rumored mishandling of Melrose Partners II and confirmed mishandling of DreamWorks, among other, smaller deals that proved Paramount as a bona-fide money loser for pretty much everyone but its talent.

David Poland has perhaps the cleanest analysis of how this dynamic would likely have played out between Deutsche Bank and Paramount:

In fact, just the four films mentioned as expected to be part of the deal - Transformers 2, Star Trek, Tropic Thunder, and Benjamin Button - would, under terms suggested in the FT story (25% of production), represent an investment of $150 million of the $450 total that claims to be intended to cover 30 films.

Considering that if these four films — expected hits — generated $1 billion worldwide, Paramount would have a float of about $100 million on distribution fees alone. That would mean that Deutsche Bank would still be about $100 million in the hole after theatrical while Paramount would be in profit, as a corporation.

And that is projecting 4 significant hits!

Then you have less than $10 million per film under the rest of this package, allegedly meaning that all the films together would average $40 million or less to produce.

Anyway, the 'Mount will land on its feet, just as it always does. We hear Cash-Machine Manoj knows a few people who might be able to help. And there is always Dubai.

• Paramount to shelve $450m film financing as crunch hits [Financial Times]

In a nutshell, Eller writes, the scenario works like this:

Untangling the rights to various properties could be tricky. Steven Spielberg has attached himself as a producer to at least 30 DreamWorks projects, which Paramount will not be able to make unless it pays him substantial fees. The filmmaker is guaranteed 7.5% of every box-office dollar collected by Paramount until the movie breaks even. Once the studio recovers its cost and earns a distribution fee, Spielberg is then entitled to 50% of the film's profit.

And that's not even the worst part for the 'Mount: Take away Marvel's Iron Man, DreamWorks Animation's Kung Fu Panda, and DreamWorks' Tropic Thunder, and the only internally developed films in Paramount's Blockbuster Class of '08 are Indy 4 (directed by Spielberg) and The Love Guru (an abomination to God and man). What's in the pipeline if it sheds the 'Works? Benjamin Button? Star Trek? Mission: Impossible 4 (maybe)?

Moreover, will Brad Grey be as quick to claim credit for Paramount's future misfires as he was for DreamWorks' successes? Or will he even be around long enough to pat himself on the back for Untitled Wayans Brothers Comedy? Come to think of it, we kind of wish these guys would stay together for the children.

• DreamWorks- Viacom breakup could get ugly [LAT]

Despite the severed relationship, Cruise, 45, is in talks with Paramount to star in a fourth Mission: Impossible film. Viacom is Paramount's parent company.

"I consider Tom Cruise a great actor and a good friend," Redstone said. "And if Paramount decides — and they will make the decision — to move ahead with him, I will not object."

Redstone, who was seen dining with Cruise in Beverly Hills in March, was responding to a reporter's question after a speech at a conference in South Korea.

No word on whether or not Cruise and Paula Wagner's stalled United Artists tank might follow behind (especially as Dreamworks scouts new bungalows around town), but seeing as MGM still has a UA deal, M:I4 remains a separate matter. In any case, Redstone won't be leaving that one up to Grey, unless perhaps through some miracle of timing and imagination the principals develop M:I4 as a perfect midsummer companion to Valkyrie. Maybe the latter could be an origin story — Ethan Hunt descended from one-eyed Nazis? Don't think Redstone hasn't pitched it.

• Mogul Redstone: Cruise can star in next 'Mission Impossible' [AP]

In the end, the studios just wanted more for their films' pay-cable rights than Showtime was willing to pay. This much was somewhat old news; Viacom and Paramount haven't quite seen eye-to-eye with CBS boss Les Moonves and Showtime chief Matt Blank for some time. The vertical integration implied by their output deals — Showtime had rights to Paramount releases through the end of 2007 — was less a function of convenience than an increasingly forced pairing, especially as Showtime's original programming (Weeds, Dexter, The Tudors) took off over the last few years. Showtime's output deals with MGM and Lionsgate — booked through the end of this year — were just as fragile in the Redstone and Viacom CEO Phillipe Dauman's volatile corporate culture.

Nikki Finke was first on the scene when news broke on Sunday:

Moonves wanted to drastically cut the price for Paramount pics, arguing that "the pay channel world isn't what it used to be" and the value of movies on pay TV has decreased while the importance of hot new scripted original series have increased. I'm told that, as the bargaining dragged on, the Paramount/Viacom camp, once optimistic that it would all work out, lost patience with Moonves' "hard line" and resented being lowballed. Now it looks like Les over-negotiated because Paramount, MGM and Lionsgate have found refuge thanks to Viacom. This new premium TV channel by Viacom, Paramount, MGM and Lionsgate is that old Hollywood maxim at work: Don't get mad. Get even.

Well, yeah. One observer told Finke that Moonves is "royally screwed" — for starters, there are no studios left on the market for output deals. A defiant Blank, however, is standing tall this morning in Variety:

"We're not willing to sell our network down the river for product that's not as valuable as it used to be," he said. "We wish them well. ...

"We've been having unbelievable success with our original programming," Blank said. "Can you name one movie Showtime has aired in the last three years? But people sure do know The Tudors and Californication and Dexter and Weeds."

Take that spin for what you will, but we're of a mind with David Poland: Apart from drunken Sunday-afternoon pissing contests, what's really in this for the 'Mount? Showtime keeps the studio's library for a while still, leaving MGM and Lionsgate's libraries (along with upcoming, inconsistent Paramount product ranging from Iron Man to The Love Guru) the primary source of programming. (DreamWorks films are aligned separately with HBO.) As such, reports The New York Times, original programming may be in the cards when the new channel launches in late 2009. But why pay hundreds of millions to enter that fray when HBO and Showtime have spent years establishing the institutional upper hand?

Sometimes there is no explanation for this kind of stuff besides entertaining Emperor Redstone — and us. We could watch Brad Grey cannibalize Les Moonves all day. Nevertheless, somebody out there knows something the rest of us don't; maybe an original program is jumping ship? Moonves lost a poker bet with MGM chief Harry Sloan over the weekend? Your guesses are as good as ours.

[Photo Credit: Getty Images]

• Studios team on VOD venture [Variety]

A key issue, these people said, turns on the extent to which Mr. Spielberg's personal contract, which expires in January 2010, grants him power over projects to which he has some creative attachment.

The DreamWorks side might assert that he, by virtue of his position with DreamWorks, is effectively attached to the entire development pool — more than 100 projects have been listed by the Studio System, an industry data base owned by The New York Times Company — not just the 30 projects or so with which he has been actively involved.

Given the reach of Mr. Spielberg's contract, attachment to all the projects could let him block Paramount from using them without his consent — enormous leverage in any negotiation over taking the projects elsewhere.

As is so frequently the case in high-powered Hollywood divorces, the silent victims here are the kids—those still-in-development projects conceived during the blissful post-honeymoon phase, who could well wind up irreversibly scarred by all the parental infighting. The best case scenario at this point is that little Transformers 2, Shrek Goes Fourth, and the rest become the beneficiaries of a joint custody ruling, spending week days with their three SKG daddies, then piling into the station wagon and getting plopped at the Bronson Gate for some quality time with "the person who nearly broke my back carrying you for nine months—and don't you ever forget it," Brad Grey.

• In Potential Studio Split, Who Keeps the Movies? [NY Times]

We can hear the legal saber-rattling from here, but we also know there's precedent — and it favors Wall Street.

In a nutshell, the two-phase Melrose fund underwrote up to 20% of net production costs on films like Mean Girls, War of the Worlds and even The Stepford Wives — titles with wide-ranging but ultimately profitable gross performances based on factors beyond box office (product placement, television licensing, toy deals and more). The Melrose group said that results for Melrose I "collapsed" after Dolgen and Lansing left, with even successful films failing to turn a profit for the investors.

Making matters worse, a source close to the situation tells Defamer that spending on P&A went up almost 50% under ex-Paramount COO Rob Friedman and nearly doubled under Grey; an advisor to the group describes Grey's takeover as "[o]ne of the most stunning exercises in spending (he's) ever seen in his thirty-five years."

A studio source said the results of Melrose II "make Melrose I look like investing in Google pre-IPO," while an investor said: "Since we had no say in what movies were being made, what [we] were backing was Dolgen's conservative risk management strategy which had proven successful in the past. Once he was gone, fiscal controls began to deteriorate and when Brad Grey took over they went out the window altogether."

With Melrose II still in force and Grey apparently tightening the reins of late, we hear the investors reportedly want Paramount to credit a "retroactive reduction in P&A spending" to its account — like, yesterday. Again, this isn't necessarily new: Sony agreed to something similar earlier this year for investors in its Gun Hill Road fund. But Melrose's financial terms aren't specific, and best of all, even Viacom CEO Phillippe Dauman reportedly has told the investors to stand down or face a counterclaim.

It's not the sexiest contretemps in the Official History of Hollywood Pissing Contests, but with Grey on the hook, it bears noting. What do you know about it?

[Photo Credit: Getty Images]

In his long-awaited testimony in the wiretapping and racketeering trial of Pellicano, Grey said that the decision to hire the private eye was made by the law firm hired by Grey's former entertainment management company and the law firm's well-known litigator Bert Fields.

The law firm and Fields, Grey said, were hired to defend against lawsuits filed by comedian Garry Shandling and writer-producer Bo Zenga. In both cases, Grey said, Pellicano was paid $25,000 for his investigative services.

And while Grey said he fully endorsed the selection of Pellicano, he said he was never made aware of Pellicano's day-to-day findings or his investigative methods.

Pellicano has been representing himself at the trial, but relinquished cross-examination duties to his lawyer, who only briefly grilled Grey about his sworn ignorance of the P.I.'s wiretapping practices. Perhaps just a few more pointed questions could have dislodged far juicier and more damning testimony, such as a recollection of a fateful lunch at The Grill in which Scary Hollywood Lawyer Bert Fields placed a warm, steady palm over Grey's trembling, salad-fork-clasping hand, and reassured, "Relax. If Shandling so much as farts in a minor key, this guy will get it on tape," before turning to a passing busboy to request another helping of sesame flatbreads.

• Paramount's Grey says he knew of no illegal activity by Pellicano [LAT]

The prosecutor asked Shandling if he knew Pellicano was on board working against him.

The comedian said yes — and claimed that 5 yrs earlier Brad Grey had told him that, "With Bert Fields, you get Anthony Pellicano." Shandling went on to explain that his friend, security expert Gavin De Becker, immediately recommended they do a "bug sweep of Shandlings' phones "because of 'Bert Fields' reputation' ".

Shandling alleged that "they [presumably Brad Grey and/or Bert Fields and/or Anthony Pellicano] began a spin campaign to destroy my reputation by planting stories in newspapers that amounted to character assassination. It was a spiritual test." Shandling turned to the jury and spoke about "The creep factor. It's a feeling that's hard to communicate when you read articles about yourself that aren't accurate. I put up with a lot of pain and soul-searching to get through it."

Sensing what this kind of stinging indictment might do to his reputation as the firm but fair-minded Emperor of the Paramount kingdom, Grey has already issued a response to Shandling's morning testimony:

"I am extremely saddened by Garry's recollection of events dating back more than a decade. His representation is very different than what I remember and what I know to be true. Garry and I had a long personal and professional relationship, which frankly ended when he hired David Boies, and sued me and Brillstein Grey for $100 million. His actions forced us to hire our own lawyer — Bert Fields — and our friendship was overtaken by a legal process that was directed by lawyers and which ended with an equitable settlement. Even though we haven't spoken since that time, he remains one of the most talented people I have known and I wish him only the best."

It's a sad example of the damage Hollywood success can reap on an interpersonal level: One day, you're chasing aspiring actress ass with your best friend and client as you plot his eventual conquest of the primetime TV landscape; the next, the two of you are locked in a bitter feud, and some tech-savvy surveillance whiz your lawyer only calls "The Ears" is monitoring his conversation with a Morton's hostess for anything that might poke holes in a nine-figure lawsuit.

• WHAT A MORNING! Garry Shandling Gives Brutal Testimony About Brad Grey And Bert Fields At Pellicano Wiretapping Trial [Deadline Hollywood Daily]

Like a triple-dog-dare calling out to Bin Laden—whom we strongly suspect is Cloverfield-obsessed io9 commenter Slush-O-Matic—there exists right now perhaps no better temporary monument to Americans' unwavering desire to have the shit scared out of them in the face of growing global adversity.

[Photo: Curbed LA]

• Headless Lady Liberty Being Pimped Out On Melrose [CurbedLA]

But after all the bad blood generated by a very public spat, the gesture may not be dramatic enough to soothe the directing deity's damaged feelings enough to salvage the partnership that's been so lucrative for Paramount, leading the Melrose lot's emperor to undertake an even humbler expression of his appreciation of the DW team's contributions, announcing the immediate establishment of the "Thank You, Steven Spielberg, For Making The High-Grossing DreamWorks Filmed Entertainments That Allow Me To Keep My Job, Love, Brad Grey" banner in tomorrow's trades.

• DreamWorks maintaining its identity [Variety]
• Previously: More Aftershocks From The Two Little Words That Shook Hollywood [Defamer]<./li>

"The deal for us has been highly profitable and is ahead of schedule," Paramount Pictures Chairman Brad Grey said in an interview Thursday. "It would always be better to have Steven and DreamWorks with us, but of course we'll be OK" if they leave. [...]

In a business as unpredictable as Hollywood, DreamWorks and Paramount could wind up having a rapprochement and drawing up new employment contracts.

Grey said he remains hopeful. "The temperature has to go down a little bit," he said. "If there's an economically prudent deal that makes sense for us, of course I want Steven and DreamWorks to be part of Viacom. No one respects Steven and David more than I do."

Should the proverbial cooler heads not prevail, look for Grey's Viacom masters to demand that their studio boss make a more dramatic display of how little a dumping by Spielberg will hurt them. Inviting all of his Paramount family to meet him for a "fun afternoon break" via an internal e-mail, hundreds of employees will join their leader around the Melrose lot's beautiful fountain, into which Grey will blithely toss each and every one of the two-hundred photographs of Spielberg that adorn his office's walls, telling his underlings, "See how much Steven means to me? Sploosh! Didn't feel a thing!" as each lovingly framed memento of their relationship sinks into its bubbling waters

• Fleeing a close encounter with Viacom [LAT]
• Dauman/Katzenberg Feud Over Spielberg Officially Upgraded To Catfight [Defamer]

"It's proved that when you offer people great stories that also deliver state-of-the-art effects and stunts, they want to go out and experience it together. It becomes an event," said DreamWorks CEO/co-chair Stacey Snider, whose studio and Paramount turned out "Transformers."

Of course, it doesn't hurt when those great stories, state-of-the-art effects, and amazing stunts enhance a communal experience constructed around hugely successful animated ogre, spandex-clad superhero, or sexually ambiguous pirate franchises, but whatever. This is not a time for cynicism, it's one for celebration: As we speak, famously generous Paramount emperor Brad Grey is finalizing his plans to end August with a Free Bag of Money Social on the Melrose lot, in which he'll personally reward each employee for their contributions to Shrek the Third and Transformers' incredible run of success.

[Chart via Digital Variety]

• Hollywood hits new highs [Variety]

Geffen himself, calling from his yacht, insisted Friday that "Steven and I are very happy with the performance of Paramount's marketing and distribution teams in handling our films." He cited Rob Moore and Jim Tharp, among others, as contributing to the success of such DreamWorks-Paramount releases as "Transformers" and "Disturbia."

And on the Grey-Spielberg front, DHD's Nikki Finke reports that the embattled Paramount emperor, dejected about the BusinessWeek story, reached out to the director on his Indiana Jones 4 location shoot to be cheered up:

A few weeks ago, when Brad Grey visited Steven Spielberg in Connecticut where Indiana Jones 4 was shooting on location, the DreamWorks partner put the Paramount boss's mind at ease. "Steven said to Brad that he intended to be in business with him a long time," a source tells me. As a result, Grey was flabbergasted when he saw the headline "Paramount & DreamWorks: Splitsville?" from the new issue of Business Week which was reporting how it's "entirely possible" that Spielberg could want to leave Paramount as soon as late next year. The timing couldn't have been worse for Grey. Thanks to yet another DreamWorks pic Transformers performing spectacularly at the summer box office, not only had Paramount climbed to No. 1 in studio market share this year but boasted a new movie franchise to exploit. Grey had been celebrating. Now, because of the article, Brad was "bummed out", a source close to him told me. Also Grey knew that every other Hollywood mogul like him attending Jack Valenti's memorial service last Thursday had heard about the bombshell. So the Paramount chief needed to know if this was real or not. He spoke to Spielberg right away. This time, the director was on location in Hawaii. "And Steven continued to tell Brad he is 'very happy'," an insider tells me.

Hopefully, Grey has had his bruised feelings adequately soothed by Spielberg's assertions of happiness and promises of a long, fulfilling relationship (well, at least one that survives into 2009), allowing him to finally halt the hourly deliveries of FTD's popular "Please Tell Me I'm Pretty Again" flower arrangements to the Indiana Jones set, the alarming frequency of which was starting to seem "a little needy" to the busy director.

[Photo: Getty Images]

• Geffen, Spielberg may walk [Variety]
• Spielberg Tells Grey He's "Very Happy" [DHD]
• Paramount and DreamWorks: Splitsville? [BusinessWeek]