Diller Role at Seagram Seen After TV Sale

On the eve of Universal Studios’ formal spinoff of its television business to Barry Diller, speculation continues to mount that the entertainment mogul is destined for a much larger role at the studio.

Many Hollywood executives are convinced that Diller eventually will run not just the television operations but the movie division and perhaps all of Seagram Co.’s entertainment assets.

But sources close to Seagram’s top management insist that nothing could be further from the truth. Diller--whose HSN Inc.--parent of Home Shopping Network--will officially take charge of most of Universal’s television business later this week, pending shareholder approval--has repeatedly said he won’t work for anyone, not even his close friend Edgar Bronfman Jr., Seagram’s chief executive.

Diller has also said time and again that he has no interest in the movie business. A longtime Diller associate asserts: “It’s not going to happen.”

At the moment, associates say, he is focused on assembling assets that will drive a television empire for the modern age. He is bringing together cable channels, a group of television stations, electronic retailing and the Ticketmaster Group under a new corporate banner, USA Networks Inc., which would be owned by Diller, Seagram and cable heavyweight Liberty Media Corp., the programming arm of Tele-Communications Inc.

Bronfman told analysts last week that contrary to Wall Street speculation, he would not split the company into two parts--entertainment and beverage.

Emphatic denials, however, have done little to quell uncertainty among Universal’s movie executives. Sources suggest that since Universal’s top brass, including Chief Executive Frank Biondi, were blindsided by the TV deal, the feeling in the ranks is that a similar bombshell could be dropped on the movie division.

“I don’t think anything will happen for a while, but my feeling is, when the fox is in the henhouse. . . .” says one key executive, who calls himself a Diller fan.

Another source close to Bronfman warned, “Don’t count it out,” adding that the entertainment group could be structured as a separate stock.

Some sources submit that the tension within the movie division is more a function of its lack of hits than anything else. While the studio made hay last year with Imagine Films’ Jim Carrey comedy “Liar, Liar” and Steven Spielberg’s “Jurassic Park” sequel, “Lost World,” it’s had a long string of duds, including recent releases “For Richer or Poorer,” “The Jackal” and “Blues Brothers 2000.”

But declining morale may also have something to do with the changing structure. Universal executives are concerned that splitting television from the movie side has put Universal at a disadvantage in making talent deals.

Studios today commonly make deals with stars, writers, directors and producers to work in both mediums. When a star such as Will Smith was shopping around recently to base his production company at a studio, Universal could offer him only movies because the television component would have to be sanctioned by Diller separately.

As it was, the actor did make a deal with Universal. But, as one veteran studio executive suggested, “This puts Universal at a definite disadvantage to other studios like Disney or Fox at a time when the two businesses are more integrated and there’s such a talent overlap.”

Yet sources say Bronfman cares little if Universal sacrifices a few big talent deals on his way to creating $5 billion in value for Seagram shareholders by spinning off Universal’s television business to Diller. (When Seagram bought 80% of Universal--then MCA--for $5.7 billion three years ago, the television business was losing $50 million or more a year.)

Friends of Bronfman’s say critics are shortsighted and threatened by new ways of thinking on how to grow entertainment assets. In Bronfman’s view, television has a better chance of growing under Diller than as part of Universal.

At some future time, to be determined by Diller, Universal--which would own 45% of USA Networks Inc.--would be able to buy control of the enterprise. Until that time, Universal retains veto power over critical strategic decisions.

That would include a network play. Analysts and industry executives have speculated that splitting up the studio could set the stage for an acquisition of CBS by Diller. Federal restrictions on foreign ownership of broadcast stations prevent the Canadian-owned beverage company from making a run at a network. Seagram, which has struggled without a hit comedy since “Coach,” has also lacked a major distribution outlet at a time when rivals such as 20th Century Fox, Walt Disney, Paramount Pictures and Warner Bros. all own broadcast outlets.

While Diller has long coveted CBS--and was close to buying it before its sale to Westinghouse Electric Corp.--sources insist that the broadcaster’s stock price is far too inflated to make such an acquisition practical. “Not in the next 12 months--at least,” says one Diller associate.

Diller’s lieutenants say the next step is to see what assets Liberty Media will throw into USA Networks Inc. to bring its stake in the company to 25% from 15%. Liberty has apparently given Diller a short list from which to choose with certain United Video and TCI Music assets likely to make the cut. United Video would be a cash cow for financing Diller’s expansion, and brings in more than $50 million cash flow for providing satellite transmissions for the WGN superstation to cable operators.

TCI Music could dovetail with Diller’s other collection of assets. In addition to an assembly of digital audio channels, TCI Music includes The Box, an MTV competitor with limited distribution. It shares Diller’s local emphasis, with the ability to customize its playlists for local markets and take requests from local viewers. Through his station group, Diller is trying to build a new type of television network aimed at young adults and kids featuring local programming that he calls CityVision.

If Diller takes charge of The Box, he could develop interactive programming and retailing options. People calling the request line could be sold CDs, tickets to local concerts and other merchandise using Home Shopping Network’s back-office order fulfillment operation as well as Ticketmaster’s ties to music venues.