The Reasons for Newhouse About-Face : Offer to Back QVC Bid for Paramount Surprises Experts

Earlier this year, the trade magazine Mediaweek quoted publishing baron Samuel I. (Si) Newhouse Jr. in an article on his Conde Nast magazine operations as saying, “We have not diffused our energy by spending a great deal of time in alternate media.”

Now Newhouse is putting a lot of his energy--and cash--into the brave new world of multimedia with a $500-million pledge from his family’s Advance Publications Inc. to back home shopping giant QVC Network’s unsolicited bid for Paramount Communications Inc.

The half-billion-dollar bet by Advance--the umbrella company for the Newhouse family’s vast media holdings that include magazines, cable systems, newspapers and books--came as a surprise. One prominent deal maker described the development, announced Sunday, as “weird.”

Newhouse himself was unavailable to discuss the move, which requires him to make the investment only if QVC succeeds in its merger bid. But acquaintances cite three reasons for it, starting with his close friendship with QVC Chairman Barry Diller.

Newhouse also considers the infusion to be a good investment, they say. Finally--and perhaps more important in the long term--the move would give Newhouse a foothold in the burgeoning interactive, multimedia future that Diller wants to develop by linking such fields as entertainment, technology, information and retailing.

“They’re searching around for a way to get into this new world. This is a perfect way to do it,” one senior entertainment executive said.

Some speculated that Newhouse may also have his sights set on a deal involving the lucrative Paramount Publishing operation--which includes Simon & Schuster, Prentice-Hall and Pocket Books--should Diller’s bid succeed. Advance is the parent of Random House, which includes Alfred A. Knopf, Crown Publishing and Pantheon Books.

Advance is headed by Newhouse, 65, and his brother Donald, 64. Both are very private and very rich; Forbes estimates their net worth “at a conservative $7 billion.”

Little is known about the company’s finances. Forbes has estimated its revenue at $4.6 billion, with profit and cash flow a well-kept secret.

The brothers have been running the operations since the 1979 death of their father, Samuel. His death triggered a lengthy tax battle with the Internal Revenue Service that has largely been favorably settled for the family.

Si Newhouse is no stranger to Hollywood. He is even ranked No. 52 in Entertainment Weekly’s just-published list of the 101 most powerful people in the entertainment business, sandwiched a few notches behind actor Harrison Ford and a few spots ahead of actress Whoopi Goldberg. And his magazines, ranging from Vanity Fair to the Generation X-flavored Details, regularly chronicle events in Hollywood and the lives of stars.

Newhouse, who arrives at work before dawn, is known as a difficult boss, frequently firing editors at his magazines or causing them to quit. Among his most controversial moves was shifting Vanity Fair editor Tina Brown to the New Yorker as editor. That brought protests from longtime fans of the magazine who feel it is going glitzy, but the move has also revived the magazine’s sagging circulation and advertising.

Among the possibilities Newhouse may want to develop in multimedia is electronic home shopping, where such magazines as Vogue and GQ could be a launching point in developing televised shopping programs and video fashion magazines.

Consultants and executives say home shopping could potentially provide a hedge against any future erosion in advertising revenue for Advance’s newspapers and magazines.

Newhouse’s 29 newspapers, a less visible part of his operation, include the Star Ledger in Newark, N.J., the Cleveland Plain Dealer and the New Orleans Times-Picayune.

Newhouse’s Advance hasn’t exactly been standing still in the new-technology arena, forming a task force earlier this year to review technology opportunities. And it has built the eighth-largest cable operation in the nation, with 1.35 million subscribers.

But magazine consultant Martin Walker in New York calls Advance somewhat tardy in getting involved in new technology, even as a number of its competitors have been much more aggressive. “They’ve come to realize they ought to do something or they’ll get left out,” he said.

Times staff writer Jonathan Weber in New York contributed to this report.

* DILLER ADDS PRESSURE: QVC chairman continues to up the ante for Paramount. D4.

The Battle for Paramount

For nearly a month, Viacom Inc. and QVC Network Inc. have been locked in a takeover battle over Paramount Communications Inc., headed by Martin Davis. Each has recruited investors to bolster the cash portion of its bid: Viacom is offering $9.10 per share in cash, QVC $30 in cash. And each could bring in additional partners. The players so far:

QVC

Barry Diller’s QVC Network has lined up four partners to reinforce its bid. Each has agreed to invest $500 million in QVC, including $250 million in common stock and $250 million in convertible, exchangeable preferred stock. In addition, QVC has raised $3 billion in bank financing. The partners are:

* Comcast Corp.: The Philadelphia-based cable TV operator was a founding investor in QVC in 1986 and already owns about 12.5% of the company. After a merger with Paramount, Comcast’s stake would fall to about 10%.

* Liberty Media Corp.: The company, which has stakes in two dozen cable TV networks, was spun off from Tele-Communications Inc. in 1991 and is being remerged with TCI. Liberty owns 22% of QVC and has a 71% voting stake in Home Shopping Network. Liberty has proposed to combine the two TV shopping channels. After the merger, Liberty would own about 10% of QVC.

* Cox Enterprises Inc.: The Atlanta-based media company owns 17 newspapers, TV and radio stations and cable systems serving 1.7 million cable subscribers. After the investment, Cox will own about 5% of QVC. Cox had revenue of $2.5 billion last year and profit of $209 million.

* Advance Publications Inc.: Advance is the privately owned publishing and cable TV empire controlled by the S.I. Newhouse family. Properties range from the New Yorker magazine to the Newark Star-Ledger newspaper. Its cable systems serve 1.35 million subscribers. After the merger, Advance would own about 5% of QVC.

VIACOM

Viacom, headed by Sumner Redstone, had no partners when it announced its merger agreement with Paramount on Sept. 12. Since then, it has brought in two partners that will invest a total of $1.8 billion in the company.

* Blockbuster Entertainment Corp.: The Ft. Lauderdale, Fla.-based home video giant has agreed to invest $600 million in Viacom in exchange for convertible preferred stock. Afterward, Blockbuster will own about 3.1% of Viacom.

* Nynex: The New York-based Baby Bell has agreed to invest $1.2 billion in Viacom, giving it about 6.1% ownership in the company.

Advance Publications at a Glance

* Owners: Controlled by the Newhouse family and led by S.I. Newhouse Jr., 65, followed by Donald Edward Newhouse, 64. Forbes estimated their combined net worth “at a conservative $7 billion.”

* Size: Revenue estimated at $4.6 billion in 1992 by Forbes magazine. Believed to be the biggest privately held media company in the United States.

* Magazines: Fifteen magazines, including the New Yorker, Vanity Fair, Vogue, Mademoiselle, GQ, Details and Architectural Digest.

* Newspapers: Twenty-nine newspapers with a total circulation of more than 3 million. Papers include the Star Ledger in Newark, N.J., the Cleveland Plain Dealer and the New Orleans Times-Picayune.

* Books: Random House division includes Alfred A. Knopf, Crown Publishing and Pantheon Books.

* Cable: Eighth-largest in the country, with 1.35 million subscribers.