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USA Networks-NBA deal foreshadows Diller's ambitions

USA Networks is suiting up for its partnership with the NBA, launching in a service Saturday that lets fans buy tickets and merchandise through CEO Barry Diller's far-flung Web and TV empire.

USA Networks is suiting up for its partnership with the NBA, launching a service Saturday that lets fans buy tickets and merchandise through CEO Barry Diller's far-flung Web and TV empire.

Stripped to its bare elements, the plan may not sound revolutionary. Beginning this weekend, the NBA will sell game tickets on Ticketmaster.com, peddle merchandise to TV viewers on the Home Shopping Network (HSN), and offer services to help basketball fans plan their trips to games through CitySearch and the Hotel Reservations Network.

But for Diller, the launch is far more significant, setting the stage for his grand vision of the future of Internet media and commerce.

"What convergence will be is when you have point-and-click seamless ordering from a television set and where the context of the message is not only directed to you because of your interests, but is integrated into the space of the programs as well," Diller said in an interview.

The NBA deal represents a major gamble for Diller, who has spent massively to acquire Internet properties and bolster USA Networks' position in the race to be a leader in the new economy.

Unlike other big media companies, which have been trying to increase their audiences with Web content offerings, USA Networks is looking to score with shopping.

Companies such as Viacom, General Electric's NBC, and Walt Disney have invested in Web content but have encountered more headaches than victories. Time Warner walked down the Internet path with the early launch and demise of pre-portal site Pathfinder, stumbled with an unsuccessful switch to Web hubs such as Entertaindom, and then settled for a merger with Internet giant America Online.

Diller has placed his bets on e-commerce and has purchased companies that are involved in every step of the e-tailing process--from developing e-commerce sites to creating shopper databases and fulfilling orders via television and the Web.

Executives at USA Networks say many of its commerce plays, such as HSN and Hotel Reservations Network, are profitable or will achieve profitability soon. But questions remain about whether e-commerce is the right bet for USA Networks.

"There is a very real question as to how severe this shakeout is going to be in the e-commerce arena," said David Leibowitz, an analyst at Burnham Securities. "By combining the disparate strengths and capabilities of these various units, the cross-marketing opportunities and increased critical mass may help the financial health of these various companies."

Whether Diller has put his finger on the next phase in media entertainment remains to be seen. The entertainment mogul built his resume by poking holes in convention--inventing the TV miniseries in the '70s during his stint at the ABC network, serving as Rupert Murdoch's point man in revving up the Fox Network, and heading Paramount Studios.

If nothing else, the NBA deal underscores Diller's most well-known ability: packaging a hodgepodge of holdings into a bigger product, or what he labels the "sum of parts."

Building a behemoth
Since 1996, Diller has been on a buying spree. He began by assembling a collection of TV networks, starting with HSN, but gained a major step when Seagram sold him the USA Networks and Sci Fi cable channels in early 1998.

Diller then turned his sights to the Web. In the fall of 1998, USA Networks acquired CitySearch, which was then closely held by Net entrepreneur Bill Gross' Idealab, and merged it with Ticketmaster Online. Nearly a year later, Diller added Hotel Reservations Network to his list and then acquired Microsoft's Sidewalk city guide to strengthen and expand CitySearch.

USA Networks has since divided its businesses into three categories: entertainment, electronic retailing, and information and services, where most of its Internet assets reside.

So, does Diller think he has all the pieces?

"We need nothing," Diller said emphatically. "Everything we need is under the tent."

But the lingering question is whether Diller's collection of small-name companies can inject enough fuel for USA Networks to overtake the monster trucks of big media.

Media companies are undergoing an unprecedented phase of consolidation, including AOL's You've got 
Time Warner pending merger with Time Warner, Viacom's acquisition of CBS, and Vivendi's buyout of Seagram, which has a 43 percent stake in USA Networks.

Media companies are beefing up to ensure their content gets to the most viewers, listeners and Web surfers. AOL Time Warner, for instance, will control an array of revenue streams: AOL's online subscriptions, cable programming via CNN and Turner Broadcasting, magazines such as Time, and especially advertising. Viacom has CBS for a broadcast network, an array of popular cable channels such as MTV and Nickelodeon, movie studio Paramount, and radio network Infinity Broadcasting, to name a few. With the acquisition of Seagram by Vivendi, there may be opportunities for USA Networks to ink more partnerships through Vivendi's Internet holdings.

But in many ways, smaller companies such as USA Networks remain watching on the sidelines as the giants come together. The question is whether USA Networks needs to make a move on its own or hold its position.

"The pace of change in the industry is coming at an ever-accelerating rate," said Burnham's Leibowitz. "How the shakeout resolves itself remains to be seen, but it is likely that the playing field is going to look much different in 18 to 24 months from today. And in that brave new world, the only guarantee is that competition will be more fierce than it is today."

Watching big media get bigger could turn up the heat on USA Networks. Diller has long fancied the idea of buying a major network to give him the distribution he covets. Analysts said Diller has fiddled around with the idea of buying NBC, the last remaining broadcast network that is not owned by a big media company.

Diller reportedly has come close to doing the deal but was blocked by Seagram CEO Edgar Bronfman Jr. Once Vivendi completes its acquisition of Seagram, however, Diller is expected to have more freedom to spread his wings.

"I still think they'd love to own a network like NBC," said Victor Miller, an analyst at Bear Stearns. "I think they'd like to buy a cable network."

Diller remained evasive on the subject of his next big acquisition. Although he says he now has what he needs, USA Networks remains a far cry from the new breed of megamedia companies. For now, Diller will sit on his kingdom to see how big it can really get.

"You can create world-class companies that are smaller-scale if you know which assets to develop," Miller said. "He'll make every effort in the next couple of years to build his media business in a significant way."