Deal chatter heats up in Hollywood

By Anupreeta Das and Jui Chakravorty Das

NEW YORK (Reuters) - Dealmaking in Hollywood could get hot and heavy in coming months as movie studios explore ways to fight tumbling DVD sales and distribute entertainment in new formats.

Even as the recession squeezes financing from Wall Street banks and funds, the deal chatter has picked up because studios have already cut expenses and are looking for new growth opportunities for their movies, TV series and other content.

Viacom Inc's Paramount Studios is in early talks with several studios, including News Corp's Fox and Sony Corp's Sony Pictures, to cut costs by combining DVD manufacturing and distribution operations, a source familiar with the matter told Reuters on Tuesday.

Time Warner Inc, which owns the Warner Bros studio, is considering a bid for DreamWorks Animation SKG Inc, according to Variety columnist Peter Bart.

And Liberty Media Corp chief John Malone told shareholders last week that Sony Pictures and privately held Metro-Goldwyn-Mayer could be up for sale soon.

"What we're hearing is everybody's talking to each other on how to get joint ventures and structure costs," said veteran investor Mario Gabelli, whose Gamco Investors owns Viacom stock. "It's driven by how do you reduce costs, how do you raise financing, how do you distribute products globally."

With little hope of DVD sales picking up -- as online and mobile technologies change the way people view entertainment -- media bankers expect consolidation, but say more studios will prefer to combine units or strike partnerships and joint ventures rather than buy each other outright.

Traditional M&A may raise the hackles of antitrust regulators since there are only six major studios and a handful of smaller players, one banker said. "Studios will tend toward creating JVs to bring them together so that there is some pricing power over content," the banker added.