By Nicole Sperling
February 06, 2009 at 12:00 PM EST

In a surprising turn of events that is stunning Hollywood, DreamWorks was unable to lock in its distribution deal with UniversalPictures and is looking to move to Disney as early as Friday, The New York Times, Deadline Hollywood Daily, and other outlets are reporting.

The news is particularly surprising because Jeffrey Katzenberg cofounded DreamWorks in 1994 with David Geffen and Steven Spielberg in part as an antidote to his time spent as a top executive at Disney. Katzenberg now runs DreamWorks Animation (which is staying put at Paramount Pictures), but the live-action unit may well move its operations to Disney.

This action was prompted by the worldwide financial crisis, which has stunted DreamWorks’ ability to raise the $500 million it needed to match the $500 million that the Indian firm Reliance invested in DreamWorks when it initially split from Paramount Pictures last year. DreamWorks had been trying to rejigger the deal it made with Universal several months ago, which would give DreamWorks cash in addition to the right to distribute the four to six films it expects to make each year. Initially, Geffen and studio head Stacey Snider were interested in aligning with Disney, but Spielberg refused, adamant that he wanted to return to Universal, where his Amblin Entertainment is based. But Universal issued a statement late Friday morning, stating that all discussions with DreamWorks are finished. “Over the past several weeks, DreamWorks has demanded material changes to previously agreed upon terms,” the release says. “It is clear that DreamWorks’ needs and Universal’s business interests are no longer in alignment. We wish them luck in their pursuit of funding and distribution of their future endeavors.”