Barry Diller's Universal Appeal
By Ron Grover
Call it the Barry Diller sweepstakes. Diller is the one-time chairman of the Paramount and Fox movie studios who now heads electronic-shopping giant USA Interactive (USAI ). And, if you believe the Hollywood rumor mill, he's the guy who'll be controlling the Universal movie studio -- as soon as Universal's parent company, the embattled and debt-laden Vivendi Universal (V ), rearranges its finances and sells it off.
Power lunchers are already spinning the possibilities. One scenario has Diller leading a buyout of the studio himself, putting together some investors and taking a large piece of the company that he's now chairman of and in which he already has a 1.5% stake, thanks to an earlier deal with Vivendi. Another scheme being bruited: Someone out there with a lot of cash is willing to pony up the $20-odd billion it would take to buy the studio and then install Diller as chairman. Given the moguls's successful track record with finding movie hits, that's not such an unlikely scenario.
So who's going to enter the sweepstakes? One name getting tossed around a lot is MGM (MGM ), which has made no secret of its desire to merge with another studio. MGM and its acquisition-minded chairman, Alex Yemenidjian, would probably love to add Universal's library of films and TV shows to its own 4,000-title library. Doing so would create a large enough content play and give MGM the leverage to bring about a merger with NBC, Comcast (CMCSA ), or some other distribution outlet.
MGM, which is in the middle of a box-office cold streak, could also use Universal's very potent duo of creative honchos, Ron Meyer and Stacey Snider. The problem is that Yemenidjian, MGM owner Kirk Kerkorian's top lieutenant, isn't likely to offer the kind of control USA Interactive chief Diller wants.
Dreamworks, too, might want in on the action. The studio has had a hot run of blockbusters over the last few years, including Gladiator and Shrek. But it needs a library like Universal's to help it withstand the inevitable cold streaks that all studios encounter. Still, the Dreamworks Dream Team -- David Geffen, Jeffrey Katzenberg, and Steven Spielberg -- have already rejected a merger bid from MGM, balking at the idea of Kerkorian and Yemenidjian controlling their company. It's not likely they'd let Diller run the show for them either. Both Yemenidjian and Dreamworks declined to comment for this article.
Diller, too, isn't talking. But the list of deep-pocketed players dwindles from here. Cable giant Comcast has said it wants to buy content after it completes its $52 billion acquisition of AT&T's cable properties. And Bertlesmann is rumored to be interested, and it has lots of cash to burn. But the Roberts family that runs Comcast and Bertlesmann CEO Thomas Middelhoff are known to be control-freaks. Besides, Diller has already worked for the Roberts clan, when he ran QVC for Comcast. The family and Diller had a major dust-up over his attempts to buy CBS without checking with his bosses, which led to Diller's leaving the company.
Even someone were willing to give Diller the reins, there would be a catch. Anyone who puts up the dough for the studio and turns it over to Diller had better be prepared to have his CEO spend half his time in Hollywood and the other half in commerce-land. Diller has made no secret of his love for USA Interactive -- which counts the Home Shopping Network, Ticketmaster, and Match.com among its properties -- and has said he doesn't want to leave the company. Who can blame him? He owns a sizable stake and has iron-clad control.
Funny thing is, Diller has already been splitting his time between two very demanding jobs for the last seven months -- ever since his USA Networks collected a cool $11 billion by selling Vivendi its USA cable network, the Sci-Fi Channel, and the TV-production operation that churns out all those Law and Order shows. As part of that deal, Diller got then-Vivendi Chairman Jean-Marie Messier to name him chairman of Vivendi Entertainment, a new, wholly owned subsidiary that Messier created for the Hollywood properties. Diller doesn't get a salary, but he has a 1.5% stake -- valued at $275 million -- in Vivendi Entertainment.
Diller, say Universal executives, spends only about a day or two a week at Universal and hasn't made many major changes in the company that has been churning out hits like The Fast and the Furious and The Scorpion King. But if Diller ever wants that 1.5% stake to be worth more than $275 million, he's almost certainly going to have to help engineer a purchase that would split the studio from its cash-hobbled parent.
One new and interesting entrant in the Diller derby is cable mogul John Malone, who said at a recent media retreat that he "wouldn't rule out" making a bid for Vivendi's Hollywood assets. Malone has backed Diller before, most recently setting him up with a string of Silver King TV stations in 1995 that became the launching pad for Diller's current USA Interactive empire.
Malone also lets his managers manage and would likely give Diller free rein. But Malone has said in the past that he would just as soon blow his money on horse racing than invest in the high-stakes, hit-or-miss studio business, so that could just as easily rule out such a bid.
The best match for Diller might be the least obvious -- Paul Allen. Several Hollywood sources say the billionaire Microsoft co-founder has been taking a serious look at Universal's finances. Certainly, with a fortune estimated north of $30 billion, Allen could easily afford Universal's $20 billion price tag. Moreover, he has been spending a lot of time over the last year unloading his once-loved Internet properties, from Priceline to InfoSpace, a company that provides Internet access through wireless devices. In the last six months alone, Allen has sold more than $700 million worth of his Microsoft stock.
He also owns a 20% stake in Dreamworks. But while Allen loves Hollywood -- he has a flashy place in Beverly Hills and never misses an Oscar ceremony -- he's also famous for letting the guys who know what they're doing do their thing. At Dreamworks, David, Jeffrey and Steven run the place, not Paul.
Allen's investment in Dreamworks was always seen as one of his many plays to feed content to Charter Communications (CHTR ), the nation's fourth-largest cable company, which is majority-owned by Allen. As successful as Dreamworks has been, its library is still tiny compared to Universal's. (Executives at Allen's Vulcan Ventures did not return calls.)
But alas, even this seemingly perfect scenario has its flaws. Allen and Diller have already given it a go once. Until recently, Allen was one of Diller's biggest USA Interactive investors. Allen got out of USA in May, having sold his shares for more than $800 million before departing.
Charter's stock performance might be enough to tempt Allen into giving Diller another shot. The stock has cost Allen some serious money of late, trading at just over $3 a share, one-seventh what it was last year at this time. Sounds like a good time for Allen to take in a movie -- or maybe even a movie studio. Maybe he wouldn't mind doing it with Diller.
Grover is Los Angeles bureau chief for BusinessWeek. Follow his weekly Power Lunch column, only on BusinessWeek Online
Edited by Patricia O'Connell