Paramount Pictures has signed a contract to acquire DreamWorks SKGfor $1.6bn in cash and assumption of debt in a move that offers a timely boostto Paramount's domestic and international ambitions.

The deal includes all of DreamWorks' current projects indevelopment, its live-action library, television division and its properties,and an ongoing production partnership with Steven Spielberg and David Geffen.

Furthermore Paramount acquires an exclusive worldwide distributionagreement with DreamWorks Animation beginning in 2006 as well as exclusiverights to future DreamWorks Animation characters in television shows, whichparent company Viacom should have little trouble exploiting across its mediaempire.

Paramount top brass view the deal primarily as a global pipelineboost and to this end intend to sell off the DreamWorks library shortly afterthe deal closes. Advanced talks are ongoing with a third party investor,however the studio will hold on to distribution rights to the library, whichincludes Gladiatorand American Beauty.

The deal puts the kibosh on Universal's acquisitive ambitionsfollowing a lengthy courtship with DreamWorks that eventually crumbled afterthe parties were unable to agree on the price tag and other terms.

For Paramount, arguably the most ambitious studio in town underthe aegis of chairman Brad Grey, the deal offers a chance to assert itsauthority not just in North America but across the world.

Beginning January 2007 Paramount will dissolve their long-standingrelationship with international distributor UIP and set up direct releasingoperations in the key territories of the UK, France, Mexico, Australia, Brazil,as well as New Zealand and Ireland. Universal will also assume control ofselect territories under a similar arrangement.

"With the incredible talents of Steven Spielberg, Hollywood'smost gifted and respected director and producer, and David Geffen, the mostcreative mind in show business, Paramount will be able to significantly enhanceits pipeline of groundbreaking motion pictures - a key strategic objectivein restoring Paramount's stature as a leader in filmedentertainment," Grey said.

"Further, our new distribution partnership with JeffreyKatzenberg and DreamWorks Animation will be an important driver in building ourbusiness internationally. All together, the worldwide marketing firepower andcreativity of the New Viacom brands like Nickelodeon and MTV make Paramount anideal home for DreamWorks and a fantastic partner for DreamWorks Animation."

In a statement Spielberg added:"I am thrilled by today's announcement of the deal with Viacom/Paramount,who came recently to the table and were able to conclude and sign agreementsquickly.

"Due to my very long history and my loyalty to Universal, I wassaddened that after long negotiations and many compromises - we wereunable to come to terms with Universal's parent company, GE. Nevertheless, I amtruly looking forward to working with Tom Freston [Viacom co-chief executiveofficer], Brad Grey and Gail Berman [Paramount president], as this is anexciting opportunity for each of us to embark on a new adventuretogether."

"Brad and his team are a first-class organisation and thechance to work with Paramount and promote our movies on Viacom's network providesus a unique platform to showcase our products and build our brand,"DreamWorks Animation chief executive officer Jeffrey Katzenberg said.

"DreamWorks Animation is a company that strives to reach thebroadest audience with its films and now with access to Nickelodeon and therest of the MTV Networks brands, I believe we have a great partner for helpingus achieve that goal."