The sale of Dreamworks to Viacom's Paramount unit, for cash and the assumption of debt, is teaching the media and the Bellheads the wrong lesson.

They lesson they're hearing is that distribution trumps production. Phone companies hear this and think that, if they can force information providers to pay for reaching "their" customers (something they can already do with cellular) that they will be in the same "catbird's seat" Viacom and the other media behemoths (Time-Warner, GE, Fox, Disney) are in now.

The background to this deal proves that is not the lesson.

1. Dreamworks co-founders Steven Spielberg and David Geffen come out of this with $1 billion cash and their debts cleared.
2. Viacom itself is splitting in two, with its distribution arm being separated from its production arm. This is because its growth has been sub-par -- the parts are worth more than the whole.
3. Jeffrey Katzenberg, the third member of the Dreamworks triumvirate (the K in SGK) is not part of this deal. His production capacity remains intact. So does Geffen's record company. The only production asset moving is that of Spielberg.
4. Even the assumption this is all about the "library" is bogus, because the library is being spun-off, which Viacom thinks will net nearly $1 billion.

What's really happening is simple:

Spielberg is being hired to run Paramount for $600 million in debt. It's Dreamworks' movie operation that is taking over Viacom's, not the other way around. It takes a peculiar genius, a rare talent, to make money in the movies consistently. Spielberg proved, through his time with Dreamworks, that he has that talent. And that is what Paramount is acquiring. Spielberg will have his own studio, just as Geffen retains his, and Katzenberg retains his. Everybody is happy. It's just that Spielberg's studio will be called Paramount.

Now what should this teach the Bellheads?

1. In terms of content they are, at best, a chain of movie theaters. That's not a good business. The key to success is making your chain a better market for both content providers and consumers.
2. Content is not an easy dollar. It is a very risky business. It is not the kind of business where many find success, and those who do find it do so by concentrating on it to the exclusion of all else.
3. The grass ain't that green over there.

Take a look at this chart, which I just pulled up from Yahoo Finance. It shows how the stocks of Comcast and BellSouth have done over the last five years. They are not that different, and both are down, about 20%.

Comcast has tried to get out of its box with content and failed. BellSouth has tried to get out of its box with wireless and failed.

Both are, in fact, in the position of tobacco barons. Their main businesses are circling the drain. What they should be doing is buying-up unrelated assets, spinning them off, then competing hard to deliver the fastest connections at the lowest-possible price, in order to maximize return.

Is that what they are doing? No, it's not. Instead, they're thinking they can combine content and distribution to gain a stranglehold on the market and lift the value of the whole higher than it should be with monopoly profits.

That trick never works. Either the government steps in eventually or (as currently) the profits aren't what you expect because you're not concentrating on what makes money for the individual units.