IMPACT OF THE PARAMOUNT DEAL : Memo to Diller: Paramount Was Never for You, Babe

To: Barry Diller, QVC Network

Ex: Mickey the Agent

Re: What’s Next?

Can’t tell you how sorry I am about Paramount. You know I was rooting for you all the way. I mean that. Sincerely. And when John Malone pulled that switcheroo to merge TCI into that Baby Bell instead of backing you to the hilt--well, I could have just. . . . It’s just like you told the New Yorker--the man’s got a Teflon mind.

But you don’t, Barry. I’ve always said you’re the smartest guy in Hollywood. The only thing Sumner had over you is money. But, hey, let’s be honest--you didn’t really want to spend $10 billion for Paramount, did you? Way too pricey. That’s not you. You’re a visionary. You don’t just buy media empires, you build them.

That’s why everyone’s waiting to see what you’ll do next.

Now I know that Ovitz, Berg and the investment bankers are whispering in your ear: Maybe you can get Jack Welch to cut a special deal for NBC--or, now that Tom Murphy is back, maybe CapCities/ABC is ripe for an offer. Tribune Co.--with its blend of TV stations, cable and syndication--also looks tasty. Heck, perhaps Sony or Matsushita would be thrilled to offload Columbia/TriStar or MCA. Who knows?

But, Barry, you’ve got to ignore them. Trust me on this. You know all this chatter about “content” and “distribution” being the keys to multimedia success is just the whiny echo of conventional wisdom. You know better than anyone that creating content in the ‘90s will be easier than it ever was. New technologies have radically cut production costs; financing is a snap. And let’s face it, creative people have always wanted to work with you.

Sure, having a library is nice--but, Barry, I never thought you wanted to be King of the Reruns. Creating the kind of network genres you did at Fox in the 1980s won’t be a technical or a financial challenge--just a creative one.

As for distribution--hey, you heard Rupert Murdoch snipe at Time Warner’s Levin about cable access at that panel at Gore’s superhighway summit. Let’s get real. Do you honestly think the feds are going to allow a Ray Smith, a John Malone or a Gerry Levin to deny guys like you equal access to their networks? No way! Distributors in the future will be compelled to carry services on a non-discriminatory basis, or the antitrust folks will have a field day. Tomorrow’s information superhighway will have to carry all traffic. What’s more, the Bell Atlantic/TCIs will discover that repaving their information highways will be far more costly than they expected.

No, Barry, you’re already in the best and fastest-growing media business of all. With QVC, you’re not selling “entertainment” or “distribution” or even those lovely Dianne von Furstenberg gowns ( do give her my best!). You’re selling response.

That’s what interactivity is all about--getting people to respond, getting people to pick up the phone and do something or buy something that they otherwise wouldn’t. Barry, you need to reposition QVC as the direct-response company of the New Media Age. You’re creating the network software that generates direct, measurable responses and transactions.

To do that, you don’t want a movie studio or a cable system; you want direct-mail companies and telemarketing firms. So don’t buy a King World. Snap up a top direct-mail firm like Ogily & Mather Direct, Rapp Collins Marcoa or Wunderman Cato Johnson. They have the databases, they have the mailing lists, they understand print-generated response. Their strengths dovetail perfectly with your video capabilities.

So don’t buy a CBS. Do a joint equity telemarketing venture with an MCI or AT&T.; Or acquire, say, Matrixx Marketing from Cincinnati Bell. Heck, BellSouth was one of your own backers, talk with them.

Even catalogue companies like L. L. Bean and Williams-Sonoma fit comfortably into the direct-response theme.

By the way, take a look at Apple Computer’s CD-ROM-based catalogue as a possible model. Why not invest in a video game company or two? Everyone from MCA to HBO already is, but only you can figure out how to turn video games into an on-line, direct-response medium.

Or consider CUC International--the fast-growing Stamford, Conn.-based company that offers discount buying services. For $50 a year, members can get shopping, travel, dining and other discounts. Comp-U-Card has over 20 million members, and the company already sells its services through networks like CompuServe and America Online. CUC is also part of pilot interactive cable ventures with Time Warner and AT&T.;

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Of course, at 45 times earnings, CUC is among the 10 most expensive stocks on the New York Stock Exchange. But, Barry, you’ve already demonstrated that you’re prepared to pay top dollar to create new media synergies. This could be a better buy than Paramount. If you’re not careful, maybe CUC will buy QVC!

The point is not that you should chain yourself to electronic shopping, but that direct mail and telemarketing will put your company in a unique position to understand audiences--and customize software for them around the concept of response.

Vendors will love it, advertisers will love it, and, of course, Wall Street will love it. You’ll be creating new genres of entertainment and interaction that can define the media era. Isn’t that what you want? Gotta hop. Geez, it’s Marty Davis on the other line. Should I give him your regards?