BEVERLY HILLS, Calif. - Even in a town built on fantasy, the news seemed too fantastic to be true.
Three of entertainment's most successful hitmakers - Steven Spielberg, David Geffen and Jeffrey Katzenberg - promised Wednesday to do nothing less than change the dynamics of showbiz.
"This is a chance to do something that hasn't been done in 59 years," says Spielberg, referring to 20th Century Fox. "We believe the opportunity exists to create a new studio."
With money, talent and clout, the trio is taking on the handful of studios - including Paramount, Disney and Warner - that has dominated Hollywood for decades.
That could be good news for artists with fresh ideas for movies, television, music and interactive entertainment who have been unable to find a company to produce and distribute their products.
But consumers, whose appetite for entertainment has soared to about $91 billion a year, could be the biggest winners as new programs, games and music make their way to the computer, TV, CD player and the big screen.
"It's terrific for the consumer and the industry. The more product that is well-made, and thoughtfully made, the better," says Disney CEO Michael Eisner.
Adds Mark Canton, chairman of Columbia Tristar Motion Picture Co.: "The wise person would try to figure out how to get into business with them, and that includes us."
But most attempts to start independent studios fail. They either lack the creativity, the cash, the connections to talent - or the distribution system needed to succeed.
Some studio execs and Hollywood analysts say the name power of Katzenberg, Spielberg and Geffen alone is capable of attracting all the help they'll need.
Each partner brings two important assets to the as-yet-unnamed company: money and an awesome record of identifying or creating hit movies or records.
"It's the only venture I know of where the principals have more money than the Bank of America," says entertainment analyst Jeffrey Logsdon of Seidler Co. in Los Angeles.
"They're three genuises and the combination . . . is extraordinary. It's formidable," says Sherry Lansing, chairman of Paramount Pictures. Their bios:
-- Spielberg, 46, is Hollywood's hottest movie director. He's also one of the wealthiest Americans; Forbes estimates his net worth at $600 million from such hits as Jurassic Park.
-- Geffen, 51, became a billionaire by discovering and recording top pop music acts of the 1970s and 1980s, such as the Eagles, Elton John, Linda Ronstadt and Guns 'N Roses.
-- Katzenberg, 43, recently resigned as chief of Walt Disney Co.'s movie studio where he championed the revival of its animation operation. Under his regime, The Little Mermaid, Beauty and the Beast, Aladdin and The Lion King earned $13 billion from sales of tickets, home videos and merchandise.
The new company, which will include Spielberg's Amblin Entertainment, will be financed by the founders initially. None of the three would say how much each is contributing to the venture that some estimates value at about $2 billion.
Katzenberg says the partners want to own the business and are not seeking outside backers. But entertainment analysts and executives, who thrive on rumors, offer other scenarios.
Some speculate John Malone, head of No. 1 cable company Tele-Communications Inc., and Bill Gates, founder of Microsoft, would back the deal.
Others say the new venture was put together by Hollywood superagent Michael Ovitz in order to buy Universal owner MCA from Japanese consumer electronics giant Matsushita.
None of these claims could be confirmed.
Katzenberg, Geffen and Spielberg say the idea for the partnership came from Katzenberg, who left Disney in August after being passed over for the No. 2 job.
"I wanted to be in business with friends," Katzenberg says. He and Spielberg are co-owners of Dive!, a Los Angeles restaurant with an underwater theme.
While the partners are known for their egos, speculation is Katzenberg will run the show. Spielberg will frame decisions involving films; Geffen will take the lead on music matters.
For now, Hollywood's new Three Musketeers pledge to bring all of their own new ventures to their company. Spielberg, though, retains the right to direct projects by other studios.
The timing appears to be right. Virtually every major entertainment company has changed management in recent years.
"With the exception of Warner Bros., every studio is in turmoil," says entertainment analyst Christopher Dixon of Paine Webber. "You have an opportunity" to challenge them.
What's more, several companies are starting to nibble away at the market share of Warner Bros., Fox, Paramount, Columbia, Disney and Universal.
Small studios - including MGM, Orion, Savoy and New Line - are gaining a foothold.
As a result, the major studios' share of domestic box office sales has fallen from 94% in 1992 to 86% last year, and probably will continue to drop to the low 70s by 1996, says analyst Alan Kassan of Morgan Stanley & Co.
The big question is whether the partners want only to produce movies, TV shows, games and music - or whether they'll distribute them, too.
This is where the major studios and record companies have a big advantage over the little guys. The established companies have teams of salespeople that have built strong relationships with the companies that send the latest movies and records to local retail outlets - movie theaters, video and record stores.
For example, major studios and theater owners split box office revenue for films. But smaller production firms, because they don't have their own distribution networks, have to pay 15% to 20% of their cut to larger studios to circulate their films. That can be a big slice out of their profits, says analyst Tom Wolzien of Sanford C. Bernstein.
Perhaps that's why Spielberg, Katzenberg and Geffen emphasize their strong ties to the major studios for which they've worked so long.
In deciding to form the new venture, "the first person I went to was my wife," Spielberg says. "The second person I went to was (MCA chief) Sid Sheinberg, my friend and my mentor, who also gave me his blessing."
Says Sheinberg: "I hope the ball bounces in such a way that we're all in business together. It's an extraordinary, high-octane group."
