We’ve seen it all before: strong-willed media moguls presiding over massive corporate mergers with all the best intentions and facing great odds.
In the case of the new Vivendi Universal Entertainment, the combination and complement of assets and operations makes perfect sense, given explosive opportunities to promote and distribute content globally across multiple platforms.
But the larger-than-life personalities at the top could get in the way.
Make no mistake about it. Merging the television and film assets of USA Networks and Vivendi Universal is the brainchild and ultimate domain of Vivendi Universal Chairman Jean-Marie Messier.
The 45-year-old former investment banker knows that having USA Networks Chairman Barry Diller serve as chairman and chief executive of the new entity gives it instant credibility and support on Wall Street. But in fact, the prospects for a long-term “people” alliance don’t look good.
The entrepreneurial Mr. Diller, 59, has made no concrete commitment. Working without a contract (just as he did in 1992 at Fox) or salary, Mr. Diller can walk away from the joint venture at any time for any reason. He will spend much of his time spending a $3 billion war chest to expand his solely owned USA Interactive and eventually spin off or realign its core businesses, such as HSN and Ticketmaster, with Vivendi Universal Entertainment businesses.
Personal ambitions
VUE’s fate rests on whether the moguls’ mutual desire to own and control the production, marketing and distribution of global content is stronger than their desire to control each other.
As Mr. Messier-a virtual unknown just two years ago as the head of a French water utility-jockeys to take his place with consummate deal-makers such as Mr. Diller and John Malone, he needs a backup plan for executing his global entertainment vision.
Fortunately for Mr. Messier, Mr. Diller is motivated by his love of the film and television business and by his desire to pursue his personal ambitions of owning a major broadcast network and playing with the big guys.
But history shows that strong-minded, controlling decision makers-however bright-have difficulty co-existing for long at the top of media and entertainment companies. Mr. Diller acknowledged as much in the press conference announcing the joint venture when he conceded that as chairman and chief executive of the new Vivendi Universal Entertainment he will answer to Mr. Messier-and then abruptly declined to engage in a “handshake” photo with his new “boss” at the request of hungry press. “I have grown to like Mr. Messier. … I think we can do some stimulating work,” Mr. Diller said.
Clearly, Mr. Diller will continue to be his own boss-not only because he will be chairman and CEO of his stand-alone USA Interactive but also because it is his defining style.
Mr. Diller can promise not to meddle in Universal’s capable senior management and daily operations, but Mr. Messier has publicly said he needs Mr. Diller to bring his expertise and contacts to bear on pushing Vivendi Universal’s U.S. content distribution to the next level, which can’t happen without “meddling.” That begins immediately with the integration of USA Films, Studios USA, Universal Focus and Studio Canal.
Universal Studios President Ron Meyer said he has been given “assurances” from Mr. Diller and Mr. Messier that studio operations will remain status quo.
But Mr. Diller has said he is committed to creating new, more profitable business models for TV and film production.
Yield justifies the means
Bringing Mr. Diller, his ideas and talents to the new mix is a gift and a risk Mr. Messier must take because he is a deal-maker, not an operator or a creator.
He’s already reeling from fickle investors who have pushed Vivendi’s stock down 25 percent during this transition year on fears it will be a more vulnerable cyclical concern, even though its revenues remain only 5 percent dependent on advertising.
If his ride with Mr. Diller is a bumpy one, Mr. Messier can only hope the executive structure under him remains intact. Mr. Diller is a brilliant creator whose demanding, micromanaging style has driven away many a fine manager. But he also has yielded a return of better than 450 percent on USA Networks shares since he took control of the company in 1995. Now he is selling back the USA Networks assets he originally acquired from Universal in 1997 for more than twice the $4 billion he paid for them.
Mr. Diller already has demonstrated at places such as Paramount Pictures and Fox that he can increase values. But even with a recent $1.5 billion investment in EchoStar Communications, Mr. Diller is expected to grow VUE’s $22 billion worth by investing in still more distribution through broadcast networks and TV stations if he can find a way around U.S. foreign ownership rules. If Mr. Diller is unsuccessful in prying NBC from General Electric Co., he could seek to snare ABC from The Walt Disney Co. or pursue Paxson Communications, analysts say.
Mr. Diller also will play a key role in helping to develop and launch branded digital content channels that will draw on the new company’s Universal and USA film and television libraries. He could also tap Universal’s libraries to bolster USA Network’s sliding ratings.
But as we have seen in other media megadeals, such as Disney’s acquisition of ABC, securing a critical mass is not enough to ensure success. Personalities and egos and unmanageable forces such as cyclical ratings get in the way. Right now VUE is purely a proposition of principal and economic gain for Mr. Diller.
Mutual greatness
With a 1.5 percent personal stake of his own (currently valued at $275 million) and a 5.5 percent stake for USA Interactive in the new Vivendi Universal Entertainment, Mr. Diller stands to gain personally from any value he builds. He will have a larger 10 percent stake in USA Interactive, which will be valued at about $10 billion.
In recent interviews, Mr. Meyer, who now will report to Mr. Diller, talked about enjoying “autonomy” at Universal. Mr. Messier talked about the merger being fueled by his and Mr. Diller’s mutual ambition and “mutual independence” and said the two might actually be spurred to greatness by having little hold over each other.
But independence will play second fiddle to budgets, earnings targets and shareholders.
At a Los Angeles press conference shortly after the merger announcement, from which Mr. Diller was noticeably absent, Mr. Messier reiterated his forecast for double-digit organic growth in 2002 revenues and earnings, paying little heed to the uncomfortable backpedaling being done by AOL Time Warner after it fell short of its ambitious targets.
“I don’t care about egos. I do care about talent, and this business is all about talent,” Mr. Messier declared, discounting the fact that ego drives industry talent.
As if there weren’t already enough headstrong personalities involved, Vivendi also is buying the 21 percent stake in USA Networks held by John Malone’s Liberty Media. That will give Mr. Malone and his company a 20 percent stake in USA Interactive and the equivalent in treasury shares of a 3.6 percent stake in Vivendi Universal-making it that company’s single-largest shareholder.
Liberty also is preparing to make investments with USA Networks outside the United States and is being solicited by Mr. Messier to create a powerful pan-European programming partnership serving emerging cable platforms such as those that Liberty owns in Germany.
Mr. Malone’s track record as an influential strategic shareholder in companies such as News Corp. and AOL Time Warner suggests Liberty could quietly emerge as the only sure, safe big winner of Vivendi and USA’s big boom. So much for team playing. It’s every media mogul for himself.