Now It’s Diller Time

After five years, two huge aborted acquisition attempts and a sometimes baffling string of smaller deals, Barry Diller roared back into the big leagues Monday.

His $4.1-billion deal for HSN Inc. to buy most of the television assets of Universal Studios Inc., creating a formidable alliance with the entertainment giant, would put the entertainment mogul at the helm of what has the potential to be a network-caliber television competitor in a new entity dubbed USA Networks Inc.

It also puts the spotlight back on an industry player whose prospective next moves have uniquely fascinated Hollywood, even when he was seemingly up to nothing or making deals whose logic initially escaped many entertainment executives.

The deal unites two friends of 23 years: Seagram Co. Chief Executive Edgar Bronfman Jr., 42, and Diller, 55, who has served as an informal advisor and confidant to Bronfman over the years as the spirits heir diversified his family empire into the entertainment business with

the purchase of Universal in 1995.

Bronfman wants to tap Diller’s legendary programming abilities, reap the financial rewards of it and boost the overall value of Seagram’s entertainment assets. Whenever Diller leaves the venture, according to the deal, Seagram will control a majority of the operation. Seagram has been stung by criticism that its entry into the entertainment industry was ill-timed. The company sold its huge stake in chemical giant DuPont just before the stock took off.

For Diller, the deal is a huge personal coup that, most important, is being dictated on his own terms.

Diller wants the deep pockets Bronfman offers as well as the reach afforded by Universal’s USA cable network. More important, he doesn’t want to be second-guessed. Despite owning 8% of the new entity, Diller would control the majority of votes. That means he could keep his vow never to be a hired hand again, a pledge he made in 1992 when he left Rupert Murdoch’s Fox Inc., where it was clear he would never become an owner.

“This met both our medium- and long-term needs,” Diller said. “I want to have a company of size I’m a principal in, that I control and vote the stock. Edgar Bronfman, Seagram and Universal need a larger, more diversified TV group of assets to build, and at the end of the period--and I get to call when that is--Edgar said to someone it may be five years or 50 years--after I cease to be involved in the company, they will control it,” Diller said.

Or, as Fred Rosen, president of Los Angeles-based Ticketmaster Group, which Diller’s HSN controls, put it: “This isn’t Barry working for Edgar, but Edgar gets all the value of Barry Diller’s mind and energy and passion.”

Putting television assets into the hands of Diller is considered a smart move by other Hollywood executives.

“This is a brilliant executive who stuck to his guns, built up his company and is back in the forefront,” said Walt Disney Co.’s studio chief, Joe Roth, who ran Fox’s movie division under Diller.

Peter Chernin, president and chief operating officer of News Corp., who worked for Diller at Fox from 1989 until 1992, said that from his perspective, the most interesting aspect of the deal is that “it’s a big opportunity to brand and define a general-interest cable network, and no one out there is more up to that challenge than Barry.”

Still, some question whether Universal is giving up too much and whether turning over its TV assets to Diller inhibits the company’s ability to develop its Universal brand name, which is important in developing such areas as theme parks and merchandise in the same way Walt Disney and Warner Bros. have.

Some, for example, found it puzzling that the name USA Networks is being retained.

“Wouldn’t you call it Universal?” asked one top Hollywood executive.

Another question being asked was where the deal left Universal Chief Executive Frank Biondi Jr., who wasn’t brought into the discussions until they were well along. According to Bronfman, Biondi became involved “as we started to get a little traction.” Essentially, Universal is farming out some of its major assets for an outsider to run, a move that has many Universal executives baffled.

Told that some in Hollywood are viewing the deal as a slap to Biondi, Bronfman said, “That’s complete nonsense.” He said Biondi has done a “fabulous job” of boosting Universal’s value and helping build a business that was losing $50 million a year two years ago to one making $100 million a year today.

“He’s a generous man. . . . He’s not someone who’s going to let his ego get in the way of something that makes so much sense,” Bronfman said of Biondi.

The deal clearly stems from the personal friendship of Diller and Bronfman. According to Bronfman, the idea was hatched some five months ago when Bronfman and his wife, Clarissa, dined with Diller, who was one of only a handful of Hollywood figures to be invited to their wedding in Venezuela in 1993.

“This is not a new relationship. I think there’s no question that we trust each other, and I don’t think you could do this transaction without that,” Diller said.

Bronfman asked Diller to arrive at his house early so he could pitch the idea. At the end of the evening, Diller told Bronfman that he had been mulling the proposal in his mind over dinner and liked it. The deal was initially kept to a small circle, with Diller and veteran studio executive Victor Kaufman, who joined Diller when he acquired Kaufman’s Savoy Pictures, on one side and Bronfman and Seagram Vice Chairman Robert W. Matschullat on the other.

One source said Universal executives were initially excluded to prevent the prospective deal from leaking out and because it was viewed “as a Seagram corporate decision on what to do with its assets.”

For Diller, it’s the biggest in a string of acquisitions cobbled together since he left Fox. Initially joining shopping network QVC, Diller aggressively pursued a series of deals, some successful, some not. He made an unsuccessful run at Paramount Communications in 1993 and ‘94, losing to Viacom, and in 1994 had a deal to buy control of CBS, which unraveled.

Diller patched together an eclectic group of assets such as the Home Shopping Network, Savoy, a collection of small TV stations called Silver King and a controlling interest in ticketing giant Ticketmaster. He is said to be interested in buying the rest of Ticketmaster.

Many believe Diller will eventually leverage his position with Universal’s TV assets to make another bid for CBS.

As for speculation that this is only a step to a bigger play, like acquiring a network, Diller said that while the new combined company “will be very under-leveraged so there’s nothing we couldn’t go after, we have no plan.”

“The second shoe has dropped. There’s no need for a network. We have critical mass. We’re the fourth-largest cable programmer, the fifth- or sixth-biggest broadcaster by our distribution footprint. We have a significant interest in electronic commerce with Ticketmaster. So we’re not needing anything that’s critical.”

Conventional wisdom in Hollywood is that Bronfman tried hard to recruit Diller to run Universal when he bought the company, but Bronfman says that isn’t exactly true.

“When he left Fox, he said he’d never work for anyone again. I said to him, ‘No one ever?’ I thought that was a little Draconian. . . . People thought I offered him the MCA job, but I didn’t. . . . We just said to each other, ‘Let’s not start this.’ ”

Bronfman said the two first met when he was a 19-year-old would-be producer and Diller was chairman of Paramount in 1974--in a meeting arranged by Bronfman’s lawyer, Tom Lewyn.

“We hit it off. He never gave me a job or a development deal or anything, but we’ve always been friends,” Bronfman said.

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A Prime-Time Deal

The union of Universal Studios’ television assets with Barry Diller’s Home Shopping Network would create one of the largest television companies in the country. Diller is expected to use the assets to build a new national TV network. Here are some key elements of the deal:

Home Shopping Network:

* Before the deal with Universal, HSN was a company with assets in three major areas: the Home Shopping Channel, the Silver King group of broadcast stations (the nation’s sixth-largest) and a controlling interest in Ticketmaster Group.

* HSN would give Universal $1.2 billion in cash and a 45% stake in the new television co-venture.

* In exchange, HSN would get most of Universal’s television assets, including all the domestic operations and 50% of the international operations of USA Networks (including the USA and Sci-Fi channels), and Universal Television’s U.S. production and distribution operations. Universal’s shows include “Law & Order” and the syndicated “Hercules” and “Xena” series.

* The company would be headed by Diller, architect of the Fox television network and former chairman of Paramount.

Universal Studios:

* Television: The company would have the option of buying a controlling interest in HSN four years from now. Through the new company, Universal would have access to an extensive broadcast television group.

* Music: There’s speculation that the HSN deal could set the stage for Universal to acquire EMI Group, which would create a music unit with the largest U.S. market share that would also be a major global player.

* Films: Universal owns one of the major movie studios. The HSN deal would give the company access to greater television distribution for its films.

* Theme parks: The company is continuing to finance a major expansion in theme parks in Florida, Los Angeles and abroad.

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Barry Diller at a Glance

Age: 55

Residence: New York and Los Angeles

Career: Diller became head of prime-time programming for ABC at 26 and chief of Paramount Pictures at 32. In the 1980s, he built a fourth network, Fox, from the ground up. After taking the top job at QVC, he made a bid for Paramount Pictures but lost out to Sumner Redstone of Viacom.

Recently, Diller has made a series of smaller moves from his perch atop Home Shopping Network.

Monday’s deal with Universal is Diller’s biggest Hollywood play since leaving Fox and caps a longtime friendship between Diller and the Bronfman family, which controls Seagram.

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