Edgar Bronfman's Visionary Script
By Ron Grover
So where was Edgar Bronfman Jr. when USA Networks Chairman Barry Diller and Vivendi Seagram CEO Jean-Marie Messier announced their blockbuster $10.3 billion deal to merge USA's TV operations with Vivendi's film and music business on Dec. 17? He was there at New York's St. Regis Hotel, where the announcement was made. But all the attention quickly focused on Diller and Messier. The 46-year old Bronfman, who resigned his executive responsibilities as vice-chairman at Vivendi on Dec. 6, was largely ignored in the shuffle.
He deserves better than that. For years, folks have snickered that Diller really took Bronfman for a ride back in early 1998, when Bronfman agreed to sell Diller the USA and Sci Fi cable channels, as well as Universal's TV production arm, all of which were controlled by Bronfman's Seagram Co. Portrayed by many as a starstruck rich boy, Bronfman kept the Universal film studio and its record business. As it turned out, all have prospered. And he doesn't get nearly enough of the well-deserved credit.
Truth is, Bronfman made the Dec. 17 deal possible. He knew Diller had the talent to make cable channels grow. Bronfman found people to do likewise with the music division and the film- and TV-production businesses. His plan was to eventually reunite healthy cable channels with equally robust production and music units. And that's what Vivendi -- which bought Bronfman's Seagram Co. last year -- did on Dec. 17.
Granted, both Messier and Diller acknowledged Bronfman's role when they announced their new media baby. "I am pleased to see Edgar Bronfman Jr.'s vision come into reality," said Messier. Diller went even further, calling the criticism of Bronfman "hogwash." Said Diller: "What Mr. Bronfman did was sell his television assets...for what was then a full and fair price with the hope, clearly stated at the time, that they would grow in value better than they could inside Seagram and with absolute certainty, be repatriated back to the company."
Bronfman's heavy lifting actually began in 1995, when he bought 80% of MCA Corp., the parent of Universal Studio. Back then, it was easy to criticize him -- after all, he went right out and bought a flashy house in Malibu, Calif. But in the following years, he hired and put in place some of the media world's better managers.
He got former talent agent Ron Meyer to run the Universal film studio. Meyer, who is one of Hollywood's most highly respected and best-liked guys, set about luring top talent to the studio. Filmmaking was put in the hands of Stacy Snider, who turned out to have an eye for what moviegoers want. Under Meyer and Snider, Universal has become Hollywood's hottest shop, with three straight years of such blockbusters as The Mummy, Meet the Parents, and The Fast and the Furious.
"LET BARRY DO IT."
And Bronfman, who is as quiet and civil a media executive I have ever met, allowed his managers to manage. By the time he sold Seagram to Vivendi in 2000, he had built a heck of company, doubling the size of its music operation to make it the world's largest and bringing Universal's film studio back from the Hollywood heap.
"It was clear that Edgar realized that he didn't have the management team to fix the TV assets, so he let Barry do it," says USB Warburg analyst Christopher Dixon. "Edgar wanted to work on the other aspects of the company."
Diller, meanwhile, was beefing up the programming at SciFi Channel with new shows like Taken, produced by Steven Spielberg, and bringing in major sporting events like the U.S. Open tennis championships. He also had ramped up Universal's TV operation, helping to make Law and Order into a late-blooming hit for NBC and coaxing TV producer Dick Wolf into making two more Law and Order spin-offs that have also become NBC hits. Revenues at the cable and TV studio have jumped by 31% since Diller began running them, to $1.6 billion, with earnings increasing by nearly three-fold, to $600 million.
As business partners, Bronfman and Diller didn't always get along. Bronfman squelched Diller's bid to buy NBC in 1999 (which Bronfman had the power to do because of a complicated stock-ownership arrangement). After Diller's dream was dashed, the two spoke less often, and the buzz was that they were estranged. They're still not as close as they were before the 1998 deal, when they would often have dinner together in New York.
Whatever their personal feelings, they still share a vision of a major media company, including a TV operation with a robust production arm and a brace of cable networks to deliver the product. And it didn't cost Vivendi a ton of money to repatriate those now-healthy assets. Vivendi got the TV properties by trading back to Diller the same 314 million USA shares Bronfman had been given as part of the 1998 deal. Vivendi paid a $3 billion premium on those shares because that's how much they had appreciated under Diller's watch.
Now the fun begins. In December, Vivendi also made a deal to invest $1.5 billion in satellite TV company EchoStar Communications. That will give Vivendi a 10% stake in the 6 million-subscriber service and the right to launch five new channels over the next three years. If EchoStar gets Washington's antitrust approval to merge with General Motors' DirecTV satellite service, Vivendi will have a total of more than 17 million subscribers for its various channels -- not to mention a majour outlet for its entertainment product.
This looks like a media company in the making to me. Sure, more deals will come. Messier hinted that he and Diller would make smaller ones, probably to pick up more cable channels. And you just know Diller is again contemplating a deal to buy or merge with NBC. Bronfman, whose family still owns a 3% stake in Vivendi, is no longer in a position to veto such a merger. And I'm not so sure he would in any event. Bronfman's vision is complete. Now maybe it's time for Diller to take the stage again.
Grover is Los Angeles bureau chief for BusinessWeek. Follow his weekly Power Lunch column, only on BusinessWeek Online
Edited by Patricia O'Connell