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Universal Sells Most of Its TV Assets to Diller

October 21, 1997|SALLIE HOFMEISTER | TIMES STAFF WRITER

Hollywood giant Universal Studios announced Monday that it is selling its major television assets to a company controlled by entertainment mogul Barry Diller, creating a novel alliance that would use both cable and broadcast television as a backbone for a new national network.

The transaction, valued at $4.1 billion, is the boldest initiative yet in the remolding of Universal since it was purchased in 1995 by Seagram Co., the Canadian beverage and spirits giant.

The deal also propels Diller, a storied Hollywood executive who is credited with building Fox into a fourth major television network, back into the big leagues after several years of assembling assets under Home Shopping Network, the company he now runs.

The new company, to be named USA Networks Inc., will be one of the largest television companies in the United States. Among its assets will be most of Universal's television operations--including the USA Network cable channel and prime-time programs such as "Law & Order"--as well as the Home Shopping Network cable channel, the Ticketmaster Group, and a dozen broadcast television stations.

Universal will receive $1.2 billion in cash and 45% of the outstanding shares in Home Shopping Network, with an option to buy a controlling share when Diller leaves the company. Diller will join the Seagram board while Universal takes three seats on the Home Shopping Network board.

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The deal grew out of the close friendship of Seagram scion Edgar Bronfman Jr. and Diller, who has slowly been trying to build a national network by weaning the Silver King group of UHF stations from home shopping fare to local news and entertainment. The new company provides Diller with the production assets and cable channels to help achieve his vision.

Wall Street liked the idea of uniting Universal's television assets with Diller's know-how, and the value of both companies' shares rose. Seagram shares jumped $2.81 to $35.25 on the New York Stock Exchange. Home Shopping Network shares leaped $3.25, to $41.88 on Nasdaq.

"This puts Universal's television business into the hands of a master chef with a five-star rating," said Mario Gabelli, whose Gabelli mutual funds hold shares in Home Shopping Network and in Seagram Co.

Diller, who left Fox Broadcasting Co. in 1992, said the stations will tap Universal's production studio to create exclusive programming while drawing upon its established programs already on the air, including the Sally Jessy Raphael talk show and action-adventure dramas "Hercules: The Legendary Journeys" and "Xena: Warrior Princess."

Although most national television networks are built primarily on a broadcasting base, the USA Networks partnership will combine broadcast and cable. Diller, for example, might simultaneously air original programming both on broadcast stations and on the USA Network cable channel in an effort to reach as many viewers as a major network such as NBC.

Diller's Silver King stations reach more than 30% of the nation's 100 million households, and USA reaches more than 70 million homes, with some overlap between the two outlets. The expanded reach could help both the broadcast stations and USA compete for the higher advertising rates enjoyed by networks like NBC, ABC, CBS and Fox.

Bronfman, the president and chief executive of Seagram, rejected the view expressed by some Hollywood executives that the deal is an admission of defeat by Universal, which would become the only major studio without control of a full-fledged television arm. Under the deal, Home Shopping Network will assume control of all domestic production except Universal's substantial television library, comedy development and Universal's 50% interest in Brillstein-Grey Entertainment, which produces such shows as "The Naked Truth," "NewsRadio" and "Just Shoot Me."

Universal and Home Shopping Network will run international television operations as a 50-50 joint venture.

Bronfman said the deal allows Universal to leverage what was a weak asset when Seagram acquired the Hollywood studio, which also owns Universal CityWalk, a theme park in Florida, a movie studio and a major music business.

He said the TV group, which was losing $50 million three years ago, will make $100 million in profits this year, in part because of lucrative international deals and the purchase of Metromedia's talk shows.

"What this does say is that no matter how great you are and your management team is, that we don't have real distribution," said Bronfman, who has been criticized by shareholders for selling Seagram's 25% stake in DuPont to enter the entertainment business. The DuPont stock has since appreciated much more rapidly than Seagram shares.

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