Smart Shopper : Diller’s Strength Lies in What He Bought--and Passed Up

One little-noticed reason that Barry Diller’s attempt to build a network from a group of UHF television stations most people can’t even find with their channel changers is taken so seriously has nothing to do with what he’s done in the past.

Rather, it’s what he didn’t do.

Diller is one of the few executives in the entertainment business who can raise billions of dollars with just his name and vision as collateral. The key to enhancing that status among investors on Wall Street has been two decisions Diller made in the past two years. One was throwing in the towel in 1993 in a frenetic bidding war for Paramount Communications Inc. with eventual winner Viacom Inc. The competition had pushed the price to a staggering $10 billion. Another was showing restraint in deciding not to try to put together a bid to trump Westinghouse Electric Corp.’s $5.4-billion cash bid earlier this month for CBS Inc.

In both cases, entertainment executives say, Diller sent the kind of signal investors like: that he will forgo a dream when the price gets too high.

“He’s not like the rest of us out here in Hollywood when it comes to spending money,” joked one entertainment lawyer, referring to the industry’s notoriously spendthrift habits.

Added one senior executive who worked for Diller when he ran Fox Inc.: “Barry’s problem was that he was too smart to overpay for CBS.”

Those actions have bolstered the kind of confidence among investors that will be critical as Diller develops his new venture, Silver King Communications. On Friday, he announced that he now controls the owner of 12 UHF stations. Analysts expect that to be the cornerstone of a program service to compete with the networks. As testimony to Diller’s stature among investors, Silver King’s stock price soared $13.625, or 53%, to close at $39.375 on Friday.

To be sure, it helps that Diller is aligned with John Malone, chief executive of cable giant Tele-Communications Inc. Equally critical is Diller’s track record, from running Paramount Pictures to helping Rupert Murdoch build Fox’s now-healthy fourth network.

The reaction in Silver King’s stock was reminiscent of what happened when Diller took over home shopping network QVC Inc. in 1992. That company’s stock jumped on little more than faith in Diller’s abilities, enabling him to use the stock as currency in bidding for Paramount. Diller also forged a takeover deal for CBS, which was eventually scuttled last year by cable company Comcast, a major QVC shareholder.

Diller left QVC last February, taking with him more than $100 million because of stock options and other incentives. Sources say he declined an invitation by Seagram Co. and its chief executive, Edgar Bronfman Jr., to run entertainment giant MCA Inc. for a tidy sum shortly after Seagram agreed to buy 80% of that company. Instead, friends say, he has continued aiming toward building a TV company.

Numerous entertainment executives--including such names as former Paramount Communications President Stanley Jaffe and former TriStar Chairman Mike Medavoy--have been out raising money both on Wall Street and among international financiers for their ventures. Investors and analysts clearly consider Diller the most bankable. “He has the confidence of the investment community,” one entertainment deal maker said.

A college dropout who grew up in Beverly Hills, Diller, now 53, earned his reputation working under Gulf + Western head Charles Bludhorn when the conglomerate owned Paramount. At Paramount, Diller was responsible for such innovations as television movies of the week. He employed a host of future entertainment executives, including Walt Disney Co. Chairman Michael Eisner and Jeffrey Katzenberg, the former Walt Disney Studios chief who now is a partner in DreamWorks SKG. Moving to Fox after a falling-out with Bludhorn’s successor, Martin Davis, Diller carried out Murdoch’s vision for a fourth network, which this past season beat CBS in key demographic categories.

Diller, a brusque, often-feared executive who frequently pits workers against one another to get the most out of them, has left a lasting impression on former employees. Said one senior Fox executive: “His ghost still walks the halls here. There are certain management practices that still exist from the Diller era.”

Sandy Grushow, a Diller protege at Fox who is now president of Tele-TV, an interactive venture of three major phone companies, says Diller “stands head and shoulders” above other executives in the industry in intelligence, ability and vision.

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