DreamWorks SKG and Microsoft Corp. each will contribute 50 percent of the funding required to create the joint venture, which is to be called DreamWorks Interactive.
Microsoft also said it would become a minority investor in DreamWorks, the entertainment studio formed last fall by movie director Steven Spielberg, movie producer Jeffrey Katzenberg and music producer David Geffen. Terms were not disclosed.
While Hollywood studios have increasingly developed relationships with software developers or created departments that make computer products. However, the Microsoft-DreamWorks alliance surpasses earlier ventures at least in star power and perhaps in capital.
``It really will be the meeting of two different worlds,'' Microsoft Chairman Bill Gates said at a news conference. ``In the final analysis, we won't be judged by our fame but the product we put out.''
Spielberg said, ``The wide line dividing this technology from the kind of technology that I've been working in, which is basically the art of storytelling, is disappearing with every year.''
The executives did not announce specific products. They said they are looking for a person to lead the joint venture, which will have operations in both Los Angeles and Seattle.
Talks between the two companies have gone on for months and are believed at one point to have focused heavily on securing Gates, the richest man in the country, as an investor in the entertainment company.
On Sunday, DreamWorks announced that Microsoft co-founder Paul Allen was investing $500 million for an 18.5 percent stake in the company. Allen owns and invests in a number of companies involved in digital communications but remains a Microsoft director.
Formed last fall, DreamWorks will produce motion pictures, animated films, television shows, records and interactive entertainment. Its first movie is due out in 1996 and its first animated movie in 1998.
DreamWorks has previously made agreements with Capital Cities-ABC Inc. to develop programming and Home Box Office to license films.
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