July 13, 1998

Steven Spielberg isn't the only one hustling on DreamWorks' projects. His partner Jeffrey Katzenberg has his own four animated films to complete over the next three years. On a recent June evening, Katzenberg was huddled with composer Hans Zimmer, trying to work out the kinks in the soundtrack of El Dorado, DreamWorks' animated musical about Hernan Cortez and Montezuma. After trying for more than an hour to patch up a poorly sung number, the pair threw up their hands and went out to get a Chinese dinner.

That's DreamWorks in a nutshell, ever since Spielberg, Katzenberg, and David Geffen launched their ambitious new studio back in 1994: lots of work and mixed results. So far, there have been no big hits of the sort envisioned when the studio was first formed. The studio's first theatrical release, The Peacemaker, a George Clooney thriller about a nuclear attack on New York, barely broke even. The same pattern held for Amistad, the true story of a slave-ship uprising and Spielberg's first DreamWorks film. The other two movies DreamWorks has released made only small profits.

Now, that could be about to change. The betting in Hollywood is that DreamWorks will have a couple of big hits by the end of the summer. Over the next two months, the studio is set to release two new films: Spielberg's Saving Private Ryan--which some studio execs say is among his finest work--and Small Soldiers, the Toy Story-gone-bonkers tale of little action figures who take over a town. Later in the year, DreamWorks will release the $73 million animated story of Moses, The Prince of Egypt.

Cranking up the first new Hollywood studio in 65 years has been a slow and enormously expensive undertaking. So far, the studio has burned through nearly half the $2.7 billion in private equity and debt it originally raised. But DreamWorks, which now employs 1,600 people, has been gradually building its film, television, and music units. Spielberg is in charge of feature films and TV animation, while Katzenberg, the former Walt Disney Co. studio chief, takes on his alma mater in animated features and television series. Meanwhile, Geffen is the primary dealmaker and also heads the music business.

Geffen, for one, is predicting that even a modestly successful crop of movies, TV, and CDs should yield $300 million in positive cash flow by the end of 1999. That's about what the DreamWorks team expected from the beginning, they say. ''When we first got started, people wanted drive-through results from us,'' says Katzenberg. ''They weren't ready to wait for the food to be cooked. Now, we're cooking.''

CRAP SHOOT. Already, DreamWorks is getting a hefty boost from its half-interest in the meteor blockbuster Deep Impact. In television, the studio stands to make upwards of $300 million through another Paramount deal to syndicate its ABC hit, Spin City. As with any Hollywood studio, the future is a crap shoot. Budgets are skyrocketing, and competition has never been more intense. Katzenberg is racing to release the computer-generated insect tale Antz on Oct. 2, six weeks ahead of Disney's A Bug's Life, for instance.

DreamWorks is not yet out of the woods. Except for its one hit show, the television unit under Katzenberg has been a disappointment. And plans to construct a huge, state-of-the-art studio near Los Angeles International Airport are only now getting under way after years of legal and environmental obstacles. Still, investors don't seem concerned. ''If they'd sell me more, I'd buy it in an instant,'' says billionaire Paul Allen, who owns 18.5%. Spielberg insists he's happy, and in for the long haul. A good thing, too: Spielberg is DreamWorks' most valuable asset.

By Ronald Grover in Los Angeles