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DreamWorks SKG's dream studio plans have turned nightmarish.

The DreamWorks moguls--Steven Spielberg, Jeffrey Katzenberg and David Geffen--announced late Thursday that they are scuttling plans for their controversial $250 million studio by the sea, blaming financing problems.

The move follows a tenuous, often contentious relationship between the upstart studio and the development company--a relationship DreamWorks threatened to sever many times, before kissing and making up.

But with the Hollywood Reporter and Wall Street Journal saying the studio deal was on shaky ground last week, and Business Week readying a similar story for its July 12 issue, the divorce appeared inevitable.

And, ultimately, the financing rift was irreparable. "We have always maintained we would move forward with Playa Vista only if the financial terms of the deal made good business sense for DreamWorks," Katzenberg said in a statement. "We have learned a great deal during the past four years, and it is clear that this move is no longer in DreamWorks' best interest. It was simply not meant to be."

Added Spielberg: "Building our own studio has been a dream for Jeffrey, David and me since the inception of our company, and not building at Playa Vista in no way deters us from that goal.

"I am committed first and foremost to doing what is best for our company, and look forward to exploring other options for our permanent home."

DreamWorks is already planning to expand its animation studio in Glendale, California, to accommodate more staffers, Business Week says.

The scrapped seaside studio--the first to be built in Los Angeles since Warners Bros. raised its soundstages in the 1930s--was to be erected on a sprawling, 47-acre "campus" near Los Angeles International Airport, on a parcel of land that was once the site of Howard Hughes' aircraft factory. The studio campus would have been the focal point of a larger, 1,100-acre development featuring high-tech companies, new housing and a giant manmade lake.

Heartened by the forecast of 50,000-plus new jobs, local government cheered the project on, pledging tens of millions in tax breaks.

Not everyone will be sad to see the studio go, however. Media-savvy environmentalists, unhappy with construction on endangered wetlands, proved to be a huge headache to DreamWorks, launching headline-grabbing sit-ins and lawsuits and demonstrations at movie premieres. A representative for the Wetlands Action Network called DreamWorks' exit a "victory for the environment."

Still, the site's owner, Playa Vista, says it will continue developing the 1,100-acre area even without DreamWorks as the anchor tenant.