By Ron Grover As married couples are prone to do, Vivendi and USA Networks are having a tiff. Media watchers have been expecting it for months now. The fight is over Studios USA TV, which is USA Networks' television production unit and churns out such shows as Law & Order, The District, and Maury. Barry Diller, who runs USA Networks (USAI), is the partner with the upper hand, and Vivendi Universal (V) Chairman Jean-Marie Messier, judging from his recent comments, doesn't seem to like it.
A little background: USA Networks CEO Diller, who owns a fairly small stake in the company, has built a sturdy little media empire out of a collection of shopping assets (see BW, 9/10/01, "The New Barry Diller"). In addition to Studios USA TV, USA Networks includes cable-channel-unit USA Network and Home Shopping Network, as well as Ticketmaster and several online sites.
Diller and USA Networks picked up Studios USA TV in 1998 from Seagram for $1.6 billon and a 45.8% stake in USA Networks. As part of that deal, Seagram Chairman Edgar Bronfman Jr. agreed to a most unusual provision: Seagram granted Diller, who's a spry 59, the right to vote Seagram's shares in USA Networks -- regardless of who should own them -- until Diller died or decided on his own to quit. French media conglomerate Vivendi came along last year and picked up that 45.8% stake in USA Networks when it bought Seagram, which owned the Universal film studio and record company.
"JUST NOISE." That share-voting arrangement doesn't thrill Messier. True, like Bronfman, he appreciates Diller's credentials as a media visionary and figures Diller will eventually make him a pile of money. But right now Messier is feeling a little hamstrung. "I want to make sure that we don't leave money on the table," Messier told reporters recently.
Later in the same conversation, he said he's concerned that Diller's TV operation isn't making TV shows based on Universal's movie library or doing much of anything else to otherwise "leverage Universal's success." Silly Messier. No doubt he figures that his 45.8% stake in USA Networks entitles him to a few phone call from Diller, maybe a deal or two, and definitely the right to help make some of those TV shows that Diller is turning out.
Unfortunately, Messier seems to be out of luck. At least that's what Diller recently told trade publication Electronic Media. "He can say what he wants," Diller said of the Messier comments. "We own it, all talk aside. If there were anything to talk about, we'd talk about it. Otherwise, it's just noise." As for any loopholes in the original 1998 Seagram agreement that Messier might use to force Diller to change the way he operates the TV unit? "Zero, nothing," according to Diller.
DEFINITE HINDRANCE. Those who know Diller tell me this clash was inevitable. In the past, the mercurial media mogul has ended up in the crosshairs of all his former bosses, including Paramount CEO Martin Davis and News Corp. Chairman Rupert Murdoch. And as in Diller's other relationships, Messier initially seemed only too happy to work with and accommodate Diller. "He is a key asset all by himself," Messier said not long after the deal to buy Seagram was announced in June, 2000. And shortly before Messier jetted to New York to see Diller for the first time, Messier said: "I'm ready to hear his projects and see how best we can support them."
Alas, it seems the honeymoon is over. Messier, who clearly wants to expand his media empire, considers Diller a definite hindrance to his goal of getting a larger U.S. presence for Universal's movies. He has so little faith left in getting help from Diller that Messier is said to have talked with NBC about jointly buying a cable channel that would likely be branded the Universal Channel. And Messier may have had discussions with Sony about doing the same thing. To date, not much has come from either discussion. The companies had no comment.
There's no room for Diller in either deal. Ironically, it was only a few months back that Diller and Messier were talking about a joint venture. Back then, Diller wanted to buy Rainbow Programming, which controls several cable channels, including Bravo and American Movie Classics. When the bidding got to $4 billion, Messier agreed to help foot some of the bill with Vivendi stock. Diller pulled out when Cablevision decided to put Rainbow up for auction.
WHAT'S IN IT FOR ME? Apparently, Diller and Messier have tussled as well over Messier's aim to sell off Vivendi's 21% stake in Rupert Murdoch's BSkyB cable operation in Britain. Messier wants to swap that stake to John Malone's Liberty Media for Liberty's 21% stake in USA Networks. Thanks to the management-control deal he made with Bronfman, Diller can block both parts of any such agreement.
Diller, sources say, has offered to let Malone swap his stock to Messier, but only if Diller gets something in return. In this case, according to sources, Diller wants to get his hands on the Discovery Channel, in which Malone owns a 49% stake. Diller has declined to comment on those talks.
So now we have the interesting spectacle of Diller and Messier, both empire builders, locking horns very publicly over what to do with USA's TV-production arm. Under that 1998 Seagram deal, Universal can't go into the TV-production business as long as USA operates its TV unit. That leaves Vivendi on the sidelines while the rest of the media world is scrambling to create and own content for the ever-expanding world of cable TV.
CHANNEL SHOPPING? Diller, meanwhile, still harbors ambitions to own NBC or some other network. Interestingly, Vivendi can block Diller's move to buy NBC if it chooses. Thanks to that same 1998 Seagram deal that gave Diller so much power, when Vivendi bought Universal from Seagram in 2000 it inherited the ability to block any USA Networks deal north of $2 billion in value.
If this all looks like a giant Gordian knot, welcome to Barry's world. Years back, Diller decided he wouldn't work again for someone else, so he structured his USA Networks arrangements in such a way that his investors had to stand back and watch him operate. Messier has very few arrows in his quiver, but he could still block Diller from the one big deal he probably still wants. Interesting? You bet. But then again, some marriages always are. Grover is Los Angeles bureau chief for BusinessWeek. Follow his weekly Power Lunch column, only on BW Online