Wheeler Diller

Whether Barry Diller can turn USA Network and the other television assets he plans to purchase from Seagram Co. into a powerhouse media enterprise remains to be seen.

But the media mogul has proved that his touch on Wall Street is golden. The stock of his holding company, HSN Inc., has bumped up every time he’s added another property to his ledger over the last two years--even if it’s unclear how well those pieces fit together.

While Diller’s deal making has been good for shareholders, it’s been even better for him personally.

Indeed, the $5-million investment he made in Silver King Communications when he became chairman in August 1995 was financed largely by the company itself, based on an interest-free promissory note. Today, Diller controls options on more than 8 million shares, representing more than 10% of the shares of HSN, which merged with Silver King and Savoy Pictures Entertainment last year.

That stake is valued at more than $200 million.

Though Diller does not collect a salary, he earned bonuses of $2.5 million in both 1996 and 1997, according to company documents.

There’s no doubt that Diller has a remarkable record of achievement in the entertainment business. The former ABC programmer and chief of Paramount Pictures is credited with building Fox into a fourth television network. But there are two schools of thought about whether Diller’s accomplishments at HSN are commensurate with such a large return.

Some say the run-up in the stock came from Diller’s hard work. The executive methodically turned around his biggest asset, the Home Shopping Network, by bringing in a new management team, cutting costs and improving the merchandising mix.

Art Rockwell of Yaeger Capital Markets said, “Wall Street considers Diller a disciplined player, not an ego player. He’s building an empire on other people’s backs.”

The more cynical view, however, is that Diller so far has been more of a deal maker than an operator and, in essence, taken a personal cut of each deal. Those critics say he has become enamored of how easy it is to charm Wall Street and make money in the public markets.

After toiling in the bruising television business, Diller learned how to trade on his name, a few press releases and a good growth story.

“Barry is a very bankable asset,” noted one Wall Street source.

Diller’s associates describe a step-by-step growth plan. The first step was taking control of Home Shopping Network, an ailing retail channel with the potential of throwing off cash to finance Diller’s expansion, which has included the purchase of TV stations and soon, a production studio. The network is expected to generate $170 million in cash flow this year, a huge improvement over the $60 million it was losing when Diller took charge.

While cost cutting accounts for some of those improvements, analysts say a retooling of the product mix helped most. The average cost of an item is now under $50, down from $75, making it less tempting for customers to return their purchases. A better quality product mix also is being sold.

Additionally, Home Shopping is well positioned for the day when Internet shopping takes off. “HSN has more cash flow than ABC Network” based on less than half the revenues, said Edward Hatch, an analyst at UBS Securities. “In the next five years, electronic commerce will grow from $2 billion to $50 billion. That beats network television growth by a long shot.”

The turnaround has fueled a brisk uptick in HSN stock, which has doubled since Diller took control of the company, closing at $43.13 a share on Nasdaq on Friday.

It ran up again this week after HSN announced a $4-billion deal with Seagram. In a testament to the pull of Diller’s name, the stock jumped 22% in three days, to $47 a share, before retreating with the overall downturn on Wall Street.

Hatch predicts that the stock will surge to $56 in the next year, with the addition of the Seagram assets. Those properties will give HSN a market capitalization of about $8 billion, he said, putting it in the same league as Viacom Inc. Based on that valuation, Diller’s share of the company will be worth nearly $500 million.

Some analysts are not convinced of Home Shopping’s or HSN’s growth prospects.

“It’s a marginal asset in a very competitive retail business,” Rockwell said. “QVC has the clear lead in the business.”

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A Diller, Some Dollars

Entertainment mogul Barry Diller has been good for the stock price of Silver King Communications and HSN, the companies he has managed since August, 1995. The companies also have been good to Diller. Through a series of stock purchases and grants of options as part of his compensation deal, Diller has parlayed a small investment in Silver King into holding worth more than $200 million.

Silver King/HSN stock

Monthly closes and latest:

1. Aug. 25, 1995: Diller announces his purchase of a 20% stake in Silver King and joins the board of HSN. Silver King stock jumps 50%.

2. Nov. 27, 1995: Diller is named chairman of HSN and is granted an option to buy more shares. Silver King becomes part of HSN.

3. Feb. 16, 1996: HSN reports a larger-than-expected fourth-quarter loss of $25.7 million and fires 100 people (2.5% of its work force).

4. Dec. 19, 1996: Shareholders of the three companies vote to approve the merger of Silver King, HSN and failed Savoy Pictures Entertainment.

5. May 20, 1997: HSN announced plans to acquire Paul Allen’s half interest in Ticketmaster in a stock swap. HSN later proposes to buy the rest of Ticketmaster.

6. Oct. 21, 1997: HSN and Universal Studios announce the sale of most of Universal’s television assets to HSN for $4.08 billion in cash and stock.

Friday close: $43.13

See How It Grows

1995: Diller invested $5 million loaned to him, interest-free, by Silver King.

1997: Diller currently owns stock and options valued at more than $204 million as a result of that investment and subsequent stock grants.

Source: Bloomberg News

Researched by MARLA MATZER / Los Angeles Times