Three years after Steven Spielberg, Jeffrey Katzenberg and David Geffen formed DreamWorks SKG in 1994, the company seemed to make good on...

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LOS ANGELES — Three years after Steven Spielberg, Jeffrey Katzenberg and David Geffen formed DreamWorks SKG in 1994, the company seemed to make good on its ambitious promise by capturing the best picture Oscar for “American Beauty.”

Over the years, the studio produced a hit television series, “Spin City,” and the most successful animated film ever, “Shrek,” and had success with its music label.

But DreamWorks simply could not afford to take the kind of risks requiring the capital that only giant media conglomerates have.

Last year, it spun off its highly profitable DreamWorks Animation. And Sunday, DreamWorks agreed to be sold to Viacom’s Paramount Pictures in a deal worth $1.6 billion in cash and debt.

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The sale comes 11 years into what was an industry-shaking partnership of three entertainment titans: former Walt Disney Co. executive Katzenberg, recording mogul Geffen and Hollywood’s most successful director.

“When Steven, Jeffrey and I started the company and had to put an entire infrastructure together from day one, we had hoped to be able to make enough films to rationalize the cost of being our own distributor,” Geffen said Sunday.

“Sadly, we were never able to make enough films to make that economically sound.”

The company was forced to scale back its ventures over the years. It abandoned plans to build a high-tech studio lot in Los Angeles in 1999, sold DreamWorks Records to Universal Music Group in 2004 and curtailed its TV production.

But the company will retain some of its independence. DreamWorks plans to make four to six films a year that Paramount will distribute under the DreamWorks banner. The deal is seen as critical for Paramount, which Viacom has ordered to reverse its troubled fortunes.

Paramount will pay $775 million in cash and assume $825 million in debt and other obligations.

The studio will finance the deal by selling the DreamWorks film library, which Paramount values at between $850 million and $1 billion.

Paramount will retain distribution rights to the 59 library titles, which include such hits as “American Beauty” and “Gladiator.”

The agreement does not include DreamWorks Animation SKG, which went public last year. Paramount does gain the right to distribute the animation studio’s lucrative films for the next seven years, including the “Shrek” franchise.

Upon completion of the deal, expected to close early next year, Paramount would sign new employment agreements with Spielberg as a producer and director, and Geffen, who will become chairman of DreamWorks.

Paramount put its offer together just last week, after DreamWorks had been discussing terms with NBC Universal for nine months.

NBC Universal made an offer in September, then reduced it at the last minute.