Diller May Take Helm at Universal Studios

Vivendi Universal is offering Barry Diller the reins of Universal Studios as part of the complicated negotiations between the French media conglomerate and Diller’s USA Networks Inc. for the acquisition of USA’s television and film assets, according to sources close to the deal.

Executives at Universal said they have been told by Vivendi Chairman Jean-Marie Messier that Diller would become chief executive of Universal Studios, overseeing all television, film and theme park operations, if the deal is consummated.

Universal Studios President Ron Meyer would report directly to Diller, and Stacey Snider would continue to head Universal Pictures, answering to Meyer. Univeral’s huge music and publishing operations would not be under Diller’s supervision.

Diller’s possible role at Universal is expected to be discussed at a regular staff meeting Meyer is holding this morning. Meyer declined to comment late Wednesday. Diller also declined to comment.

The negotiations are fluid and still could break down. Sources close to the talks say any role Diller takes with Universal would not be inconsistent with his longtime pledge never again to have a boss.

They say the mogul, who controls USA Networks, would not be a full-time executive at Universal, because his primary focus would continue to be on the Internet companies he will continue to control.

Sources at the studio say Messier is trying hard to reassure Snider and her team that their jobs will not fundamentally change. Still, Diller’s proposed new role overseeing the studio is creating much anxiety among a group of executives who have presided over a string of box-office hits over the last two years, including “Erin Brockovich,” “The Fast and the Furious” and the “American Pie” and “Mummy” series.

“I’m not thrilled about what I’m hearing,” said one Universal executive who asked not to be identified. “We’ve had a very empowering structure ... which has been a cornerstone to our success.”

But sources caution that Diller’s possible role at Universal would probably be temporary. They characterize it as a goodwill gesture by Diller to help Messier achieve the promise of Vivendi’s year-old purchase of Universal Studios’ parent, Seagram. Messier has struggled to sell his vision to Wall Street and could use Diller to help in that effort. Diller has been a darling of the investment community since his role in building the Fox network for News Corp.

Today, USA, which Diller launched in 1996 with the purchase of the then-ailing Home Shopping Network, is valued at $19 billion.

Diller’s involvement would be part of a separation agreement with Vivendi that would formally end a partnership struck between Diller and Universal’s previous owner, Seagram. Seeking to tap Diller’s expertise in the television business, Seagram sold most of its television assets in 1998 to the mogul for about $4 billion in exchange for a 43% stake in USA Networks.

Under the deal being negotiated, Diller would sell those properties back to Vivendi for more than $10 billion, reuniting the film and television assets that many experts say should never have been separated. The assets include the USA cable network, the Sci-Fi channel and television and film production. Analysts say separating TV from Universal’s film operations made it more difficult for the studio to squeeze value out of blockbuster movies such as “The Mummy Returns” by doing a TV spinoff.

Diller would be selling at a time when the value of cable channels is at an all-time high, with Walt Disney Co. paying a record price this fall for Fox Family Worldwide, now known as the ABC Family channel.

Diller envisioned using the USA television assets as a platform for acquiring the NBC television network and controlling a major media company. But Seagram used its special veto powers to block such an deal, and now NBC, the only independent network, is considered a buyer, not a seller.

Sources close to Diller say the mogul has been frustrated that Wall Street has not given full value to the electronic retailing assets he has assembled over the last five years. They say splitting off those Internet assets into a new company could better highlight their value.

After the sale of the entertainment assets to Vivendi, Diller’s biggest holdings would be Home Shopping Network, Ticketmaster and the Internet travel site Expedia. Under the deal being negotiated, Diller would not have an equity stake in Vivendi. Some analysts say Home Shopping alone is worth nearly $10 billion. Diller is attempting to stake out a lead in electronic retailing over the Internet before the business takes off with the full deployment of broadband.

Under the deal, Liberty Media, which now owns a 21% stake in USA, would have shares in both Vivendi and a new electronic retailing company controlled by Diller. Diller’s leadership role at Universal could help ease any fears of Liberty chief John Malone, who has shied away from the risky movie business in favor of cash cows such as cable programming and distribution.

It is unclear whether USA’s film group would be merged into Universal Pictures. Sources close to Diller say he would bring his entertainment group intact, under its recently appointed president, Michael Jackson. Jackson would continue to report to Diller.

Sources cautioned that the situation with Diller is still in flux, and as one Universal executive said, “It changes every few hours.”

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Staff writer James Bates contributed to this report.