The Barry and Larry Show

By RICHARD CORLISS

At a Manhattan dinner party three weeks ago, Barry Diller was constantly asked what he was going to do next. The flinty mogul, whose QVC cable network had lost an expensive bid to buy Paramount Communications, would say only, "I'm onto something." Late in the evening, he stood at the door chatting with Don Hewitt, executive producer of CBS's 60 Minutes, and Hewitt's wife, TV newswoman Marilyn Berger. "Barry," Berger said nonchalantly, "you really should come around the show more often." Diller, twinkling and almost winking, replied, "Oh, I'll be around."

Around? Diller is never just around. And he is always onto something -- usually on top. In the '70s he successfully ran Paramount's empire of movies. In the '80s, at Fox, he achieved the impossible: launching a fourth network and making it flower. In 1992 he became a partner in the home-shopping channel QVC, a roadside fruit stand on the new information superhighway. Instead of instantly upgrading the network's programming, Diller used QVC as a piggy bank for the hostile raid on Paramount. For once, he was vanquished, by Viacom Inc., and when the battle was over Diller issued this statement, as prophetic as it was sardonic: "They won. We lost. Next."

Next, it turns out, was CBS. Last week Diller and CBS chairman Laurence Tisch announced that the Eye network would acquire QVC. CBS shareholders would own about 53% of the company, QVC shareholders the rest. If the deal goes through, Tisch will be chairman of the merged companies, and Diller will be president, CEO and chairman of the executive committee. QVC will designate five of the 12 members of the board of directors, including Diller. Tisch will own about 10% of the combined company (through his family-held company, Loews Corp., he owns 20% of the current CBS), but, he declared, "Barry will be the boss."

Wall Street wasn't sure who would be boss, but it responded emphatically. The day the merger was announced, the stock of both CBS and QVC rocketed 19%. It pumped up a QVC stock value that had been cut sharply after the Paramount sortie. And it brought Tisch's company almost back to its May level, before CBS got a black eye by losing eight of its affiliate stations to Fox. CBS had also suffered wounds from an earlier affiliate raid by Rupert Murdoch, owner of the News Corp. (which includes the Fox network), and Revlon magnate Ronald Perelman. "CBS had to do something to break out of the doldrums," says Christopher Dixon, media analyst with PaineWebber. "With this move they enter the modern age -- albeit laughing, kicking, struggling and crying. They are now where they need to be to be able to compete in the rapidly developing broadcast world of the '90s."

Media mavens were quick to applaud the mix of CBS and the tough, widely respected Diller. "He's probably the one executive," says analyst Larry Gerbrandt of Paul Kagan Associates, "that just about everybody in the industry would salute." Diller, a high-profile schmoozer to whom networking is both a pleasure and a job description, was quickly at ease in the company he hopes will be his big new home. The day the deal was announced, he called Evening News co-anchor Dan Rather for a chat and was escorted around the network's New York City broadcast center on 57th Street by Howard Stringer, CBS's Broadcast Group president. Tisch said Stringer would stay on in the new regime. And Diller, who has often castigated the bigger networks as boring and bloated, promised that there would be no ticker-tape parade of pink slips.

But before Diller can make policy, he must make the deal. He must help sell it to the boards and shareholders of both companies, and help keep it from enticing other companies avid for a big buy. Diller may even have to convince himself that Tisch -- a proud man, stung by accusations that he is a timid blunderer in the high-speed world of entertainment commerce -- is not using the Diller name to entice a corporate behemoth with a fatter wallet.

If the CBS-QVC merger were a TV series, then everything up to now would be just the pilot. Consider the potential plot twists. For a start, the CBS and QVC boards do not convene (separately) to discuss the merger until July 13. "It's not like the board is coming in tomorrow ratifying to do it," says a TV industry executive who is close to both Diller and Tisch. "It's not coming in for another 10 days! You got the July Fourth weekend -- what do you think is going to happen over that time? A lot of meetings. You can name 10 possible suitors for CBS: all the studios that could afford to pick up a 5 or 6 billion dollar tab, telephone companies, how many is that right there?"

Tisch insists that "this company will not be shopped. This deal will not be shopped. We are not selling. We are simply merging two companies, and it's a genuine merger." But many on Wall Street do not believe him. "CBS is clearly in play," says Bruce Thorp, an analyst for PNC Bank. "This deal implies that it's open to all comers." Some analysts insist that CBS is worth $6.4 billion, or $400 a share -- nearly $100 more than last week's closing price. CBS must look mighty fetching to companies (like Disney and other studios) with an itch for a takeover and the stamina to endure the inevitable court battles and regulatory disputes. Billionaire oilman Marvin Davis, said to be interested in acquiring NBC, could find a CBS deal seductive, though Tisch last week reportedly said he would never sell his stock to Davis.

If the deal does hold, most industry analysts see it as a smart move toward the future by CBS, a conservative outfit with a maturing lineup of shows in that old fogey of the video market, network television. "Diller will create synergy," says Bishop Cheen, a Kagan analyst, "by wearing three hats. Number one, the network hat, and there's he's a Hall of Famer. Two, the programming hat: he will create good and cheap programming. And third, merchandiser -- a hat that has never been worn at CBS with any great authority. He'll merge two favorite American pastimes: shopping and watching TV."

The favorite pastime on Wall Street is watching megamergers come together -- and then, sometimes, picking them apart. In this one, the prime mover was Daniel R. Tisch, second son of Larry Tisch and general partner of the risk and arbitrage investment firm Mentor Partners. Says Danny, who encouraged Tisch to buy CBS stock in 1985: "My father has four very smart sons -- or three very smart sons and myself -- and my basic business is trading in securities and investing in securities and takeovers and in mergers and acquisitions. So I do have a fairly good idea of any of the issues that might arise in any merger. And I guess he just opted at this point to turn to me for some advice."

In February, as Diller's Paramount proposal waxed, waned and went under, Daniel Tisch first broached the CBS-QVC deal to takeover lawyer Martin Lipton, one of whose clients was Diller. The chat with Lipton, says Danny Tisch, "wasn't done with Larry Tisch's okaying or not okaying. It was just saying, gee, if the Paramount-QVC transaction looks good, think about what a CBS-QVC fit would look like. Lots of sex appeal in it."

In late May, Fox sideswiped CBS, stealing eight affiliates to bolster its station roster. For Larry Tisch, 71, this was a humbling, sapping loss. After < huddling with family members, he put out the word that he was ready to consider any good offer seriously. In marched Diller, 52 and still hungry.

According to several sources, QVC's subsequent offer included a cash buyout of CBS, a move CBS declined. Then Diller, with Lipton and Herbert Allen of Allen & Co., whom Danny Tisch calls "the real financial architects of this transaction," rejiggered the proposal as a merger between equal parties. "Around June 10," recalls Danny, "we sat down -- my father, my brother Jimmy, who is executive vice president at Loews, and I -- with Marty Lipton. We didn't really come up with any negatives."

In the past year, the network that Larry Tisch is credited with turning around has experienced positives and negatives in equal measure. CBS had become the first network to lead the ratings in daytime (with hot soap operas like The Young and the Restless), prime time (with aging but still potent shows like 60 Minutes and Murphy Brown) and late night (with the boffo debut of David Letterman). But its triumphs on the air were clouded by fiascos in the conference rooms. Losing the affiliates to Fox was only part of it. The Eye web had fumbled its rights to N.F.L. games, a CBS staple since 1956, and allowed Fox to pick them up. CBS also looked inept when, unlike abc, nbc and Fox, it did not demand that cable systems commit to accept some jerry-built CBS cable channel in return for retransmission rights to the network's programming. "CBS could have gotten a cable channel for almost nothing," says the TV-industry executive. "They would just have to have invested some start-up money. But to Tisch it didn't mean anything because he doesn't feel it in his gut, like a Murdoch or a Diller does. He walked away from every deal he was presented! He has no vision about what the mass-media business is going to be, no feeling for where the future is."

Two of CBS's largest institutional investors expressed unhappiness over these events. They saw Tisch as a shopkeeper and not the right kind of dreamer. "It's that vision thing," says Harold Vogel of Merrill Lynch. "His idea of a vision is another year of winning the ratings war, and that's it. That's not the way you grow a network." The only thing that was growing at this network was the list of jokes about it. Rush Limbaugh recently referred to "the three major networks -- four, if you count CBS."

You would have to count a lot higher before you got to QVC. It is one of cable's quieter moneymakers: lots of cash, little cachet. In Diller's first year at QVC, its revenues rose 14%. John Malone, the zillionaire head of Tele- Communications, Inc., had lured Diller to the home-shopping network at the end of 1992, shortly after he left Fox. Perhaps there had been a dispute with Murdoch, his boss, over a Diller request for equity in the company; perhaps he was just tired, as he said, of working for other people.

The son of a Beverly Hills builder, Diller joined abc in 1966. This was a young man in a hurry. Diller was soon developing two important formats: the mini-series (QB VII) and the made-for-TV movie (such as Duel, Steven Spielberg's debut feature). In 1974 he moved to Paramount, where he, Michael Eisner, Jeffrey Katzenberg, Frank Mancuso and some other sharp people spurred a renaissance of the studio, with such hits as Saturday Night Fever, Grease, Raiders of the Lost Ark, Flashdance and Terms of Endearment.

In 1984 Diller tangled with Martin Davis, chairman of Gulf & Western, which owned Paramount, and left the studio to become chairman of Fox. (The same year, Eisner and Katzenberg went to Disney; Mancuso stayed to run Paramount.) Murdoch, who bought the studio a year later, gave Diller the mandate to create a fourth prime-time network. That he did, with his patented management style: creative listening. "What Barry does," says Garth Ancier, Fox's TV programming chief under Diller, "is assemble teams of people and then bring them into the room to debate different ideas. He obviously ran the whole thing, but he really acts as an editor. And he's a very good editor."

Some would say he was also a very good predator. Stories of Diller's temper and hauteur still raise hackles around many a Hollywood campfire. It's said that Diller, furious at Fox programmer Stephen Chao, threw a videotape past Chao, making a dent in the wall; Chao framed the dent. Thus does Diller, whose stare can go through you like a power drill, inspire passions and animosities. Says a studio executive: "People who have worked for Barry and then escaped have a secret handshake. They consider themselves lucky survivors, like the Schindler Jews."

That harsh phrase has been used before about Diller, and all it does is add the glamour of menace to his mystique. No question that this hard-driving entrepreneur has an intimidating manner and visage ("He looks like his head is meant only to cover his brain," says one former Fox executive). But he $ wouldn't have succeeded just by being a slick shark among the entertainment industry's countless barracudas. He made his reputation by making movies and TV shows, by making things happen, by making money for men with more money.

But after moving from broadcast TV to cable, Diller never quite answered one question posed by the ordinary viewers: Can you turn QVC's programming into something approaching mainstream entertainment? After two years -- about the time it took for Diller to start up Fox's first night of network programming -- QVC was still an electronic flea market, selling flashy bracelets one moment and beanbag chairs the next. Clearly, most of Diller's creative energies were directed elsewhere. "When Barry went to QVC," says a business colleague, "he saw this mainly as the platform to do a big, transforming acquisition."

Now Diller is close to it, and that could create some rancor among QVC shareholders. As the business colleague notes, "They could say, 'Hey, you worked on this for a year and a half, and all you did was get me five bucks over what it was worth when you came in, and this half of what it was worth a year ago.' "

Whatever the obstacles, the CBS-QVC merger could be a quick, happy fix for two media barons under pressure. Diller gets to make a network grow into a giant of cable, broadcasting and only he knows what else (theatrical movies? video games? TV serials for home shoppers?). And CBS gets Diller. In essence, to secure an heir, Tisch bought a company. And a legacy. "Larry gets to walk out," says the TV-industry executive, "not as a failure, but as someone who took the company and turned it around. Now he's a winner: he's probably $400 million ahead of his original investment, and he's still got 10% of the new entity." Merril Lynch's Vogel sees the merger as "Tisch's exit strategy. He was having a problem chasing out. This is one way of solving that problem."

On its face, at least, the merger solves so many problems. Says the TV exec: "Here you put together two companies that seemingly were in trouble. QVC is basically a single great executive with an asset that has no future. CBS is a great asset with a great future but an executive that has no vision. So it was a perfect marriage."

A perfect marriage it may be, but the wedding day is far off, and rival swains are surely on the prowl. Right now CBS looks like a pretty blond in a lowcut dress who goes to a singles bar to announce her engagement. The leaking of the news so far in advance of the board meeting suggests at least that Tisch intends to consider other offers, which would further inflate the stock. One CBS executive admitted that Tisch went public with the merger news because "he fervently believes in doing a deal that makes the best sense for the shareholder. If the shareholders end up determining that there's a better deal, then . . ." Then the shareholders make a bundle. And who is CBS's largest shareholder? Larry Tisch.

To those with a taste for both melodrama and irony, it would be appealing if Tisch -- widely considered the duller of the two men -- were cunning enough to use Diller as bait for an even more robust suitor. Why, it would be the stuff of network television. Greed! Lust! Power! Infighting! Backbiting! The Barry and Larry Show, with a few mystery guest stars, could be CBS's hottest program this summer.

CHART: NOT AVAILABLE

CREDIT: [TMFONT 1 d #666666 d {Source: Paul Kagan & Associates}]CAPTION: THE VALUE OF CBS

With reporting by Massimo Calabresi and Thomas McCarroll/New York and Jeffrey Ressner/Los Angeles