Diller Says Convergence Is Working

Jul 25 2001

For Barry Diller, it might as well be 1999 all over again. Talk of "near-broadband" and robust online sales peppered Diller's sometimes meandering sermon on USA Networks' second-quarter earnings announcement Wednesday morning.

USA Networks reported a loss of $7.5 million , compared with a loss of $26.9 million in the same period last year on a pro forma basis. In reporting its earnings, the company noted the complicated arrangement it has with shareholders Vivendi Universal and Liberty Media. Both companies own USA shares through subsidiaries, and this "causes USA to record net losses in situations where net income would otherwise have been recorded if their ownership were entirely in USA common stock," according to a prepared statement.

On a fully converted basis, USA would have recorded profits of $27.7 million , compared with a loss of $7 million in the same period a year earlier.

Earnings before interest, tax, depreciation and amortization on operating businesses grew 18 percent in the second quarter, to a record $290.9 million.

Revenues from combined businesses grew 18 percent to $1.37 billion, from $1.1 billion in the same period a year earlier.

Revenue from cable and studios increased 14 percent to $444.2 million, and operating earnings went up by 23 percent to $171.3 million.

Combined home shopping revenues also surged 15 percent to $462 million, with EBITDA up 7 percent to $61.1 million. Home Shopping Network drew in 525,000 new customers in the U.S., a 12 percent jump over the same period last year. During the conference call, Diller said HSN.com helped attract customers who are not accustomed to shopping via television. Revenues at HSN.com, which accounts for about 10 percent of HSN's revenues, jumped 350 percent.

Even at the riskiest businesses among USA's myriad units, the news was encouraging. Operating losses at its "emerging businesses" sector, which includes Citysearch, Match.com, Styleclick and Electronic Commerce Solutions, narrowed to $35.8 million from $43.5 million.

One exception was the company's Precision Response, a unit that offers customer-relations services and call centers. Precision's EBITDA tumbled 15 percent to $10.2 million, on 8 percent higher revenues of $75.6 million. USA Vice Chairman Victor Kaufman cited a declining demand for these services amid a tough economy.

One area of uncertainty concerns USA's plans to launch a travel unit to be named USA Travel. Last week Diller announced plans to acquire a controlling stake in the publicly traded travel site Expedia, in a complicated transaction that could be worth $1.5 billion. In addition, USA Networks plans to launch a dedicated cable TV channel to hawk travel packages.

When asked about the economic impact of launching a cable TV service at a time when media companies are contracting, Diller said, "It will take some time. ... It will take a couple of years."

Diller's 1995 prognostications of a transaction-based media company co-existing on television and online - once shunned by competitors - may finally be taking shape elsewhere. AOL Time Warner announced this week a plan to invest $100 million in Amazon.com. As part of the deal, SEC filings revealed provisions for a potential takeover of Amazon. Neither side is commenting on any talks or impending deals.

USA shares closed up 80 cents, or 3.06 percent, to $26.95.