LOS ANGELES (Reuters) - DreamWorks SKG, the privately held movie studio controlled by Steven Spielberg, is in advanced talks on a film distribution deal with Walt Disney Studios Co, a source familiar with the talks said on Friday.
Universal Studios, Spielberg's longtime producing and distribution partner, said on Friday it had broken off "several weeks" of talks on a distribution deal after the smaller studio "demanded material changes to previously agreed upon terms."
In October, the two studios said they reached a deal for Universal to distribute films by DreamWorks in its new partnership with Reliance ADA Group of India.
At that time, DreamWorks said Universal was to take an 8 percent fee on a slate of roughly six films per year over the seven-year life of the contract, which begins this year.
A second source familiar with the talks said DreamWorks had been asking for new terms that were too rich and that Universal already had a full slate of its own films for 2009.
A Disney representative could not be reached for comment on reports that a deal could come as soon as Friday. A DreamWorks spokesman declined to comment.
Movie distribution deals can be very lucrative, with the distributor taking a flat percentage of a film's box office. In the case of DreamWorks and a movie like "Transformers," which had worldwide ticket sales of $708 million, the distribution fee easily runs into the tens of millions of dollars.
Disney showed its marketing and distribution prowess with its campaigns for films by Pixar Animation Studios, such as "Toy Story," before it acquired Pixar in 2006.
Spielberg had a two decade career with Universal as a director and producer until he formed DreamWorks with music mogul David Geffen and ex-Disney Studios Chief Jeffrey Katzenberg.
Katzenberg took over DreamWorks Animation SKG Inc when the studio spun it off in 2004.
Spielberg and Geffen sold DreamWorks to Paramount Pictures in 2006, leaving behind its former distribution partner Universal Pictures.
DreamWorks had produced hits such as "Saving Private Ryan," "Shrek" and "Schindler's List," and Universal released those pictures to movie theaters around the world.
Because of Spielberg's long-time association with Universal, industry watchers expected him to close a new distribution deal with Universal following the DreamWorks teams' departure from Paramount Pictures last year.
But sources said Universal and DreamWorks were unable to come to terms on an agreement and they cited the declining economy as one reason.
Disney, meanwhile, had been courting DreamWorks for the past several months and source said a DreamWorks-Disney tie-up made sense because of their complimentary slates of movies.
Disney cut its film slate in 2006 to concentrate on big- budget family oriented fare. DreamWorks, on the other hand, produces a range of movies, from action-oriented "Transformers" to adult drama such as "Memoirs of a Geisha."
Also, DreamWorks would release roughly six to eight films a year, which would help boost Disney's overall slate of films.
Disney's shares were up 4.1 percent at $19.48 in late afternoon trading on the New York Stock Exchange, outpacing the Dow Jones Industrial Average's 2.9 percent gain.
Universal is a unit of General Electric Co.
Editing by Richard Chang and Andre Grenon