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The New Barry Diller

Vivendi Universal’s senior entertainment executives were sure of two things when they unpacked their polar tecs at Robert Redford’s Sundance ski resort the first Monday of the Olympic Winter Games. One: No matter how much work there was to do back at their Universal City offices, this four-day retreat, Vivendi Universal Chairman Jean Marie Messier’s months-in-the-planning Olympic moment, came first. Messier wanted to bond with his top staff, and nothing was to get in the way of his familial yearnings. Two: Barry Diller--the newly named chairman of Vivendi Universal’s movie, television and theme park divisions, the Hollywood luminary who Messier had proudly announced would be melding them into a powerhouse team--would not be joining them.

Where was Diller? Front row at a fashion show in Manhattan. What was a mandatory outing for other top Vivendi Universal entertainment executives was optional for Diller, who begged off the retreat, citing social obligations with his wife, designer Diane von Furstenberg, during New York’s Fashion Week.

This is Diller’s third go-round as the head of a movie studio. And this time, he’s taking a decidedly laid-back approach to one of the most demanding jobs in the hotly competitive media industry. Three months into it, Diller hasn’t seized power nor has he taken charge of Universal, meeting only sporadically with his senior executives and almost never with mid-level staff. He spends less than a quarter of his time in Los Angeles, splitting the rest of his days among his three boats, homes in Europe and Connecticut and his preferred base in New York City. He’s the same opinionated bulldog he always was, say colleagues, who cite Diller’s continued ferocity as justification for anonymity. But in business meetings he seems to have lost the need to win every argument--very un-mogul-like behavior for someone known as one of the last of that dying breed.

Diller just isn’t Diller these days. He hasn’t been yelling much over at Universal; there are no reports of his throwing anything. And for many in Hollywood, that’s confusing. Diller says he’s always been misunderstood. He acknowledges that he doesn’t always bring out the best in others. While some former underlings, including Fox television chief Sandy Grushow, say that working for Diller is “energizing,” others say it’s debilitating.

“There are people who shouldn’t be in the room with me,” Diller says. And, yes, he is known more for poking his underlings in the eye than patting them on the back, adding: “I’m not a cheerleader.”

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He’s well aware that his ascendancy to the top floor of Universal Studios’ black tower has created anxiety within the industry that’s akin to an anthrax scare, but the 60-year-old mogul says his reputation as a screamer is exaggerated. His relentless questioning of his staff is not mean-spirited, Diller says; he’s just naturally curious.

What has Hollywood curious is the deal that brought Diller to Vivendi Universal, a complicated and costly bit of corporate gamesmanship that illuminates the ambition--and desperation--of Messier, the latest out-of-towner to try his hand at show business. U.S. investors have been shunning Messier’s stock, so the 45-year-old French business school grad, who hungers to be called a “first-tier” media baron, convinced Diller to lend him some of the cachet that he lacks.

The agreement is part of Messier’s $10.3-billion acquisition of the entertainment assets of Diller’s USA Networks--including the USA Network, Sci-Fi Channel, a television production company and a specialty film company--resources Vivendi Universal needs to become a full-fledged media powerhouse.

Diller is left running the remnants of USA Networks, now called USAI, a tightly focused collection of companies (including Home Shopping Network, Ticketmaster and Expedia.com) that buy and sell goods and services on television and over the Internet. Diller’s stake in USAI is worth more than $1 billion, twice the value of his holdings in the months before the deal. What’s more, Diller can cash a no-strings-attached bonus of at least $275 million one year after the deal closes.

Diller could have taken that money and just focused his energies on building USAI into an Internet titan. Instead, he agreed to the second job: managing Vivendi Universal’s entertainment businesses--excluding music, a business in which he says he is tone deaf.

“You can say that the arrangement makes no friggin’ sense,” says Diller. “But it certainly makes sense to those of us who did the deal. It makes perfect sense to me.” What makes “no friggin’ sense” is that Diller signed no employment contract, nor will he receive a salary. He has no specific responsibilities or marching orders from Messier.

Diller owns no stock in Vivendi Universal. “It is not incumbent on me to do anything,” says Diller, noting that this arrangement is “without precedent. And so, by the way, is my whole life.”

That may be an understatement. Diller grew up in Beverly Hills and attended UCLA in the early 1960s, but dropped out after a few weeks. He was an instant success in Hollywood, moving quickly from the famed mail room at the William Morris Agency to the ABC broadcast network, where he launched the Movie of the Week. At 31, Diller became chairman of Paramount Pictures Corp. In the mid-1980s, he jumped to Fox Inc., where, as chairman, he rewrote the rules of broadcast television by creating a fourth broadcast network.

“Barry is a man with total self-confidence,” says one of his oldest friends, Sue Mengers, a formidable Hollywood talent agent in the years that Diller’s star was rising. “Barry didn’t make it on charisma. He doles out his charm sparingly. He’s just smart.” Diller took on mythological status in 1992 when he announced he was leaving Fox to start his own company; he would be his own boss. After a decade spent wandering the media landscape, suffering one disappointment after another, Diller now has what he says he started out to find: USAI, a company of his own with a stellar future.

And life no longer revolves around work, Diller says, rattling off a list of more important things: family, sailboats, travel. “Previously, I woke up, put on my little suit, went to my office and stayed there until it got very, very dark. All that changed when I left institutional life and entered an entrepreneurial life. You can never, ever go back,” says Diller, who adds with a certain smugness: “I would never give up independence. I don’t think I would give up anything for anything. Why would I?”

“I don’t expect [Barry’s involvement with Universal] to be long term,” says John Malone, a cable industry titan who has a long and close association with Diller. Malone’s company, Liberty Media, has backed several Diller ventures, including USAI. Liberty also holds a significant chunk of Vivendi Universal stock. “Ultimately, his energies will go toward his own company, USAI,” which, Malone notes, is a better long-term investment.

Others who know Diller are not so quick to dismiss his interest in Vivendi Universal. The power he can wield as the head of a traditional entertainment company far outstrips the prestige Diller enjoys as the head of a collection of Internet ventures. “He’s right in the middle of the flow of Hollywood at Universal,” says one close friend, who asked not to be identified. “Why not do it? He has command of all of these powerful assets and nothing to lose.”

Diller describes his assignment in less Machiavellian terms. “I feel committed to help organize the integration of television and films as well as I can,” he says, sounding as if he’s been rehearsing this sound-bite for months. But he blows smoke rings around the future: “I’m genuinely energized by the possibilities of collaborating with Messier, in moving this company to first rank status.”

What, exactly, does that mean?

The person closest to Diller, Diane von Furstenberg, his longtime companion who last year became his wife, cautions against trying to define her husband in traditional terms. “Why does anyone bother with anything? He certainly doesn’t need the money. It’s because our work is so much a part of our identity, for the fun of doing it, for the sport.”

Camping out in the office suite that once was the exclusive domain of legendary Universal founder Jules Stein, Diller has decided he’s ready to explain himself, but the language he uses isn’t exactly English; it’s mogul speak, full of references to “fractionalization” and “consolidation.”

Dressed in his version of casual (black jeans, black sneakers, a long-sleeve white shirt with the cuffs buttoned and a yellow silk striped tie thrown on as an afterthought), he repeatedly gets up, walks over to his desk and checks his computer, anxiously awaiting an e-mail. Electronic mail is Diller’s favorite form of communication. He may send hundreds of them in a day. Today’s urgent message concerns the finalization of USAI’s latest acquisition, Expedia.com. Barry Diller may be the chairman of Vivendi Universal Entertainment, but his obsession that day is with his USAI deals.

Besides his state-of-the-art computer, there is little in the Universal City office that belongs to Diller. The art--vintage movie posters for “Dracula,” “Frankenstein” and “Cobra Woman"--was selected by the office’s former occupant, Edgar Bronfman Jr., the scion to the Seagram liquor dynasty who tried but failed to transform his family’s fortune into a media empire when he bought Universal in June 1995. Bronfman sold Universal to Vivendi in December 2000.

Diller understands that his arrangement with Vivendi Universal has industry types scratching their heads. He has one of Hollywood’s crown jewels at his command, but he hasn’t said if he has specific plans to do anything with it. It’s a nail-biter at the movie studio, where a team led by Universal Pictures chairman Stacey Snider and her boss, Universal Studios president Ron Meyer, has created one of the industry’s most collegial executive suites. Coming off of the studio’s best year in ages (“A Beautiful Mind,” “The Mummy Returns”), the team is nervously waiting for Diller to swing into action. “What possible mar1667787118Diller. “The thing that I hope is that Vivendi Universal can compete in the first rank of media companies. It certainly already competes in the first rank of movie companies.” Diller hopes to calm fears at Universal. “My work here is not to [cleave] the culture of Universal to mine. I tend to go to where the trouble is.”

The immediate “trouble” at Vivendi Universal is a simple management exercise: integrate the USA Networks assets and program five new satellite channels created in December when the company bought a $1.5-billion stake in EchoStar. By and large, the process will be invisible to the public, except, perhaps for art film lovers. With three specialty film companies--USA Films, Universal Focus and StudioCanal--to be melded into one operation, the company will produce fewer alternative films, but there won’t be a dramatic falloff. Only one of the companies, USA Films, has been on a roll, producing movies such as last year’s hit “Traffic” and this year’s Oscar contender “Gosford Park.”

“Contrary to what the outside world was speculating,” says Meyer, “Barry is not micro-managing the studio. I run the studio day to day. Barry is focusing on growth.”

Diller attends meetings with top staff whenever he is in town and is on the phone with Meyer every day. But the man known for his autocratic style has shifted gears at Universal, according to several executives. “I’ve been running this company very democratically,” says Meyer. “I listen to everyone’s input. Then we make the final decision based on what everyone has said. We all have input.” Diller is part of that process.

Snider notes that Diller hasn’t attended any of the meetings where executives decide which movies to make and how to market them. And he has yet to set foot on the set of a movie in the making. “He does e-mail like a fiend,” Snider says. “Sunday mornings must be the time when he sits and thinks. I get a lot of e-mails then.”

The movie studio is the business he knows best, and yet it is the area where he feels most misunderstood. “All that silliness about how I was going to come here with a new financial model for the movie business,” Diller says with disdain. “Against all other businesses of entertainment, making movies is classically, fundamentally the best and the least futurely troubled. The only issue is how much it costs to make them and market them. But those are electives that are within your control.

“This company has done a pretty good job, really good,” says Diller, noting that he is happy with the way things are run at Universal Studios.

Meyer and Snider both say that the company needs Diller to chart its future, and Vivendi Universal’s big challenge is to create more ways to distribute movies, television shows and other entertainment. That means either buying or building cable networks or a broadcast network, or satellite distribution. Diller, who once tried to purchase CBS and later considered a run at NBC, remains obsessed with overseeing a major broadcast network. “We’ve absolutely got to have distribution outlets, whether we buy them or build them or venture them,” says Diller.

Messier needs Diller to do more than just help him with distribution; Vivendi Universal stock has fallen 25% since the deal with Diller was announced in December. American investors don’t think Messier knows what he’s doing in Hollywood. They don’t trust European accounting rules. And they don’t trust Messier with the future of the company. When he bought Universal, he was effusive about the ability of his wireless company to distribute movies, music and TV shows through cell phones and Palm Pilots. Now that company, Vizzavi, is worthless and there is no sign that anyone wants to use a cell phone to watch “A Beautiful Mind.”

“The common view [on Wall Street] is that Diller’s role at Universal is ceremonial,” says Dennis Leibowitz, an investment fund manager with holdings in Diller’s USAI but not Vivendi Universal. Edgar Bronfman also questions the decision to give Diller a role. “Barry is who he is,” says Bronfman. “He will focus on where he feels he has the greatest opportunity to shine.”

But Messier is banking on Diller. “I am giving him the means of his ambitions and I will benefit from the realization of his ambitions.”

The ultimate decision on everything at Universal belongs to Messier, and Diller doesn’t seem to have a problem with that. “All of this stuff about ‘Oh, my God, he said he would never work for anyone else,’ ” Diller says dismissively. “With the one exception of 13 months with Marty Davis at Paramount, I have always loved” working for someone else. Working with Messier is a “walk in the park.”

What’s so wonderful? His “ambition is wholly appealing,” Diller says. “It is almost affectionate ambition. It doesn’t have a cold element to it.

“The ambition is to establish his company and himself on this world stage of business with an emphasis on media. Most people’s ambitions are hidden, have a guilty flavor, or a complex mix of God knows what. Messier’s isn’t hidden.”

In 1974, Diller was hired to take over Paramount Pictures, a studio in financial disarray. “He brought control back to the studio,” says Peter Biskind, who wrote about those years in his book, “Easy Riders, Raging Bulls.” “The drugs, movies going over budget, it was a runaway train,” Biskind says. Championing populist entertainment such as “Grease,” “Saturday Night Fever” and “Raiders of the Lost Ark,” Diller “took the asylum back from the inmates.”

A withering stare and belittling Socratic interrogations became Diller’s trademark management tools. He disdained the foolish, which was anything that didn’t make immediate bottom-line sense to him. Underlings remember Diller’s constant refrain at both Paramount and Fox: “Not good enough.” Disney chairman Michael Eisner, who ran Paramount Pictures under Diller, says if he went in with something Diller thought was a stupid idea, by the time he left the office, “generally I’d think it was too.” Eisner says, however, he’d “rather negotiate with Diller than anyone else. When he shakes your hand, that’s it. You never need to worry about paper.” Still close friends, the two men take frequent bike rides together in the Malibu hills. “People have trouble holding confidences. Barry doesn’t,” Eisner says.

Diller was a taskmaster. “Before Barry went to Fox, I would walk down the halls at 5 p.m. and they would be empty,” says veteran entertainment attorney Bert Fields. “After he arrived, you could go there at 10 p.m. and all the lights were on. There’d be people everywhere. If you went to work for Barry, you damn well didn’t leave at 5 p.m.”

Despite the constant tension, more than a few executives thrived in the confrontational culture he created. “Barry is a very quick study,” says Jamie Kellner, the head of AOL Time-Warner’s Turner Broadcasting and head of the Fox network in its nascent years. “He has good instincts about where things are going.”

Diller relished risk, originating the idea of building a fourth broadcast network. “Barry deserves credit for phenomenal willpower,” says Peter Chernin, who joined Fox in the network’s early years and has since risen to be the second-highest ranking News Corp. executive, after chairman Rupert Murdoch. Calling Diller a “tough” boss, Chernin says, “He willed the network into success--pushing, exploiting success, taking chances. Barry was hard-driving, but he was fun. You could engage him.”

Diller’s track record for training executives is unparalleled in modern Hollywood. Besides Chernin, many of the top executives at Fox today, including Grushow, are Diller alumni. At Paramount, Diller not only hired Eisner but also Jeffrey Katzenberg, now a partner in DreamWorks SKG. Kellner and Scott Sassa, NBC West Coast president, both started their network television careers under Diller.

When he left Fox in 1992, Diller was on top, and he believed he would quickly reestablish himself with his own company. But he was a disappointed suitor in a bid first to buy Paramount Pictures, and then CBS. While he failed to achieve his acquisitive ambitions, he did succeed in making money. In 1992, he invested $25 million in the home shopping company QVC and then sold that stake for $130 million after a year and a half. By that time, the jokes about being the king of cubic zirconium didn’t matter.

“Barry’s been the golden boy with the press,” says Loews Corp. chairman Laurence Tisch, who owned CBS when Diller attempted to buy the network. “They love him,” noting that his failure to purchase Paramount and CBS ended up reading like good fights. There’s a reason for the favorable treatment, says Herbert Allen Jr., whose Allen & Co. has acted as Diller’s investment banker on several deals. “Every time he goes to work, shareholders benefit,” he says, noting that he always takes a stake in any company that Diller controls.

After QVC, that loyalty was tested. In 1995, Diller, who was still enamored with interactive shopping, bought into the Home Shopping Network. He hoped to turn the television stations that carried HSN into a chain of stations running purely local programming (think of local radio with visuals). “It was a mess,” says Larry Haverty, a portfolio manager with State Street who has invested in all of Diller’s companies. “He lost $50 million to $75 million in the process.”

Along the way, Diller acquired Ticketmaster and other transaction-oriented companies to complement HSN. But not until he bought a stake in Universal’s TV assets (including the USA Network and Sci-Fi Channel) did Wall Street start to take note. Diller was back doing what Diller did best: traditional media. Four years later, when he sold those assets back to Vivendi Universal, investors were rewarded; the stock of Diller’s company had skyrocketed.

“He often doesn’t know how he will get out of it,” says von Furstenberg. “But he always does.”

Seeing Diller in the New York offices that Naomi Leff designed for him at USAI, a suite of top floors in a 57th Street building with outdoor terraces facing the Hudson River, leaves a very different impression than a visit at Universal Studios. The building is anchored by one of his favorite haunts, the Russian Tea Room, next door to Carnegie Hall. Here Diller appears at home. His office is filled with memorabilia, fresh orchids, an 1860 painting of elephants by Andre Maire, a bust of Zeus as a young man, antique maps.

In his tailored pinstriped suit, Diller still doesn’t sit down and relax. He shifts his wedding ring from finger to finger, picks at his nails and pops Listerine tabs into his mouth. He walks around the office, lecturing about life, work and the state of the media industry, a subject he relishes.

The future belongs to the strong and the swift, according to Diller. “Media is going to continue its trend of consolidation, which mirrors the ongoing globalization. This is a natural law. It is in-ev-i-ta-ble,” he says, sounding out each syllable. “The other development is fractionalization. More options for consumers, more choice, smaller audience counts.” Interactive businesses such as his will be a key element in these conglomerates, he says.

“I grew up in a business where you certainly didn’t need to know anything factual. Entertainment business is built on instinct and willfulness,” says Diller, noting that the entertainment industry became more complicated in the 1990s. “These businesses, the interrelationships inside them, the way they function, is so complex now. There will be lots of dysfunction and reorganization of the next 10 years, and then, I believe, the tracks will be laid. It will be done. There will be fewer companies trying to capture audiences in various sizes and shapes and relate them to each other.

“I have thought, and think it more and more every day, to be relatively young and be able to play a role in this period of so much change is just the greatest good luck,” says Diller, rocking back and forth on the edge of his chair, smiling.

Maybe Barry Diller isn’t laid back; maybe he’s just biding his time.

*

Corie Brown covers the media industry for The Times.


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