(FORTUNE Magazine) – Barry Diller doesn't blink. When you meet him, that's the first thing you notice. His stare feels demanding--though some of the many journalists who have called on Diller in the past have described it more harshly, including one from Time who said it "go[es] through you like a power drill." You understand why his employees say they never want to talk with him unprepared.

Barry Diller also has a temper, or so I'm told. The most famous story about Diller's temper happens to be true. Steven Chao is now head of programming for USA Network and the Sci-Fi Channel (the cable centerpieces of Diller's company, USA Networks Inc.). He worked for Diller in the mid-1980s, back when Diller transformed Fox into the fourth network. In a meeting one day, Diller hurled a three-quarter-inch videotape at Chao, and it went through the wall. Chao had that section of the wall framed, a memento that's now somewhere in his garage. Years later he asked Diller to sign it. "He probably wrote, 'Sorry I missed,' " Chao says, laughing.

You may well know the rest of the formal portrait: Diller the former William Morris mailroom boy who turned Los Angeles on its ear; Diller squiring Diane von Furstenberg; Diller the "visionary," who returned from a trip around the country with a PowerBook in 1992, a prophet of interactivity (at least according to the writer who called it Diller's "John the Baptist phase"); Diller who reportedly turned down the top job at MCA/Universal and the No. 2 job at Disney; Diller hosting a pre-Oscars lunch for Vanity Fair editor Graydon Carter; Diller who, despite deal after complex deal, each duly noted in the pages of the daily business press, remains just shy of his supposed Holy Grail, control of a major studio or network.

The trouble with this picture is that while the parts are true enough, the whole is off. Some people may actually find it interesting that Barry Diller has an intense stare, and a lot of people insist on calling the man a media visionary. But what's more interesting, and more tangible, is that over the past three years, Diller has taken a company with a market capitalization of $250 million and turned it into one with a market cap of $12.2 billion. He has done so by investing carefully in a collection of assets--the cable networks, a production company called Studios USA, the Home Shopping Network (HSN), Ticketmaster, some UHF television stations, and Web ventures like the Internet Shopping Network online mall (ISN) and 60% of Ticketmaster Online/CitySearch (TMCS)--that he has managed so well they throw off $600 million in cash a year. (He is close to completing a deal to buy October Films and Gramercy Pictures from Seagram's Universal Studios, and he is also eyeing the Bravo and American Movie Classics cable channels.) Now, if Diller succeeds in his goal to merge HSN and certain other assets with Internet portal Lycos, USA could become an e-commerce giant. That's an ambitious goal, but if Diller gets there, it'll be because he's as much Sam Walton as Michael Eisner (let alone John the Baptist).

That is a pretty big "if." The proposed acquisition of Lycos in a stock swap is anything but a sure thing. On Feb. 9, Diller and Lycos CEO Bob Davis announced that USA Networks would merge its online and retailing assets--which include Ticketmaster, CitySearch (which operates Websites that serve as guides to a number of U.S. cities), ISN, and HSN--with Lycos, one of the most heavily trafficked sites on the Web. Davis would be CEO and Diller chairman of the new company, an entity called USA-Lycos Interactive Network that would have $1.5 billion in annual revenues, $165 million in cash flow, and $250 million on a pristine balance sheet. The day before the deal was announced, Lycos shares were at $127--up 130% this year. The deal valued Lycos, with $72 million in revenues over its past four quarters, at $6.2 billion (which is, according to some analysts, about what the NBC network might fetch if GE put it on the market).

Some investors might be pleased by such a lofty valuation. Not Lycos shareholders. They were receiving a tiny premium for their shares, and they bailed. The stock fell 31% in two days, though it has recovered a bit since then. David Wetherell, a Lycos director and head of CMGI, a holding company that is the portal's largest shareholder, then decided that he couldn't vote for the deal he had previously supported. He has been sniping at Diller ever since. After shopping Lycos to other potential suitors, last week CMGI announced that it would let shareholders vote on the deal.

In the out-of-whack world of Internet investing, the concept that takeover potential might be priced into a stock that's up 130% in 40 days seems to have eluded investors. The take from Netheads: Diller was stealing the company, fleecing the lambs who manage Lycos. Money manager Jim Cramer weighed in on TheStreet.com about Bob Davis: "This guy can't deal with the level of glitz that Diller dangles. I have been in there with those sharp glamour people. They force you to take your eye off the ball."

Glitz. Glamour. Diller's Hollywood legacy makes it difficult for the press to assess a Barry Diller deal as, well, a deal. Or to accept that he really believes e-commerce is the wave of the future. Just after the proposed merger was announced, USA Today wrote, "Still, there's a feeling that Diller longs to leave the geeks of the Internet and return to the glitterati of Hollywood." The Wall Street Journal framed the struggle between Diller and Wetherell as a clash between "two moguls--one from Hollywood, the other from cyberspace." Everyone assumes that Diller really wants to run Paramount or NBC, and that Lycos is just a pit stop on the way.

To be fair, Diller has given people reason to believe that a network is more his style. After all, he did mount bids for Paramount and CBS, and he has also taken a run at NBC. Diller's former proteges dot the network landscape: Garth Ancier and Scott Sassa at NBC, Adam Ware at UPN, and Jamie Kellner at WB. As they have since he left Fox, friends insist that Diller still covets a network. Diller himself freely admits, "If we were presented with the chance to acquire something, on sensible terms, that networks 98% of the U.S. television population we would do it for certain." And he has always tried to spin big. Even today he quotes Heraclitus and Plato in speeches about the "new convergence." Put all that together, and it's not surprising that some see Diller as a new Bugsy Siegel, trying to raise Las Vegas out of the desert and not caring how much it costs to do it.

The only problem is that the myth has little to do with the reality of how Diller has managed the businesses he's run over the past 30 years, or with what he'll do if he gets his hands on Lycos. In an industry in which failing upward is a way of life, Diller has succeeded everywhere he's been: first as head of programming at ABC (where he invented the Movie of the Week and the miniseries), then as CEO of Paramount (where he and his young execs, known as "Killer Dillers," brought to the screen Star Trek, Raiders of the Lost Ark, Saturday Night Fever, Terms of Endearment, and Reds), and most impressively at Fox (where Diller rescued the company from near bankruptcy and then created the first new television network in 40 years).

In 1992, Diller, backed by Comcast and John Malone's Liberty Media, bought into QVC, a decidedly unsexy cable shopping channel, in a deal that valued the company at just about $1 billion. "When I invested in QVC, all my friends humored me, and on the side they said to each other, 'He's gone crazy,' " Diller says. "People said either that I couldn't get anything else, or they said, 'This is really surprising. He's in it for the money. We never knew he was like that.' " In 1994, after Diller attempted to merge QVC with first Paramount and then CBS, Comcast stepped in and bought QVC out from under him for $1.5 billion. Diller walked away with $100 million.

Then, Diller says, "they said, 'That's the last home shopping will ever see of him. He'll take the money he's made and run straight back to little Hollywood.' Instead, I ran straight to St. Petersburg and bought into HSN. That's what I did. That's the fact."

The skepticism only increased as Diller assembled Silver King (the collection of UHF channels), HSN, the USA and Sci-Fi cable channels, and Ticketmaster. Even as the company's stock soared, it was hard for many people to see how the pieces fit together, especially when the pieces themselves were unglamorous. "People tended to look down their noses at the fact that he was running HSN rather than a movie studio," says S.G. Cowen analyst Edward Hatch. What they missed was that Diller, investing with his own money and others', was accumulating a collection of assets that--measured by profits, revenues, and market-cap growth--amounted to a better business than the established networks and movie studios.

In an age of almost unlimited channels on cable and, of course, over the Internet, network television is not a business that works as well as it once did. At USA, by contrast, Diller has developed a business that does work. And he has managed it--as he did Fox and Paramount--with a bottom-line rigor that is, to say the least, uncharacteristic of Hollywood.

In the first place, Diller has refused to overpay for assets, making stock deals in which he wielded a high-multiple stock. As a result, USA has just $700 million in long-term debt. Diller has then unlocked value in those cheap assets he acquired, all of which now throw off lots of cash. By bringing in better management and improving the product mix at HSN, for example, he has turned a company whose revenues were actually declining into one that generates twice as much cash flow as ABC, despite having a third of its revenues; and he helped the broadcast division deliver cash flow of $330 million last year, more than any network except NBC.

That record helps explain why in February 1998, Seagram CEO Edgar Bronfman Jr. sold Diller his Universal television assets--USA network (the nation's most-watched cable channel), the Sci-Fi Channel, and production studios--in return for a 45% stake in Diller's company and $1.2 billion in cash. Vats of ink have been spilled over the question of whether Diller fleeced Bronfman, or vice versa. But in retrospect the deal looks fairly simple: Diller got the ingredients for a coherent cable strategy, while Bronfman--by taking that equity stake--got to benefit from having Diller manage assets that were languishing at Universal. And according to the terms of the agreement, if Diller leaves USA, Seagram can step in and buy the company outright, allowing it to reap what Diller has sown.

"If you look at Barry's history," says Mark Bozek, the new head of the Home Shopping Network, "he's been very focused on profits and losses. More than being some gigantic grand visionary, he's an opportunist, and that makes a lot of sense, right now especially. With things changing as fast as they are, having five-year or ten-year plans is as rhetorical as anything can be. What he has tried to do is pick his spots and not follow a traditional path to building either a media company or a retail company."

Diller seems to have built both: His properties do fall into the two camps of broadcast and direct sales, or content and commerce. At first glance it's hard to see what one group has to do with the other. It's also hard at second glance, even after you've had it explained by Barry Baker, USA's new president. "With the configuration of assets we have--direct retailing, terrific Internet sites, TV production and distribution, strong local identities, and cable networks with real reach--you have the media company of the future, and it's not even a media company at all," says Baker. "As an entrepreneur, I would not want to own any one of our businesses as a stand-alone entity. If the USA network or the Sci-Fi Channel were by themselves, they'd get leveraged by the cable companies. CitySearch on its own has to compete with all these other local portals. HSN is behind QVC. But CitySearch tied to Ticketmaster is a much better business. USA tied to Studios and to Sci-Fi and to HSN is much stronger. You start to see how the whole can be bigger than the parts."

Talk of "parts" and "whole" necessarily raises that chimera, synergy, in pursuit of which so many billions of dollars have been wasted. Diller says, "I'm not a great believer in synergy." That may be because, for now, he doesn't have anything like synergy between the parts of his company. Instead, Diller looks for what he calls "natural alliances," which means vertical integration within the two sides of USA: broadcast (USA Studios produce, while USA, Sci-Fi, and the station group distribute) and direct selling (CitySearch and HSN--and possibly Lycos--aggregate consumers, while Ticketmaster and HSN sell).

It's easy to see how this works on the broadcast side. Given access to the studios, USA's cable networks are protected from being held up by TV and film producers. Given access to the USA and Sci-Fi channels, the studios, which under President Bob Fleming now produce such hits as Law and Order, Jerry Springer, and Xena, Warrior Princess, can't be forced by the big television networks to sell their shows cheaply. And if Diller succeeds in his plans (currently being implemented at WAMI, in Miami) to reinvent his general entertainment stations with a mix of local programming and national content from USA, the studios will add an outlet for their shows, and Diller will be able to reach 90% of the U.S. television audience.

On the direct-selling side, vertical integration is a work in progress. Ticketmaster Online/CitySearch is an example of how this is supposed to function. In theory, someone in New York visits newyork.citysearch.com to check out concerts, say. After browsing through many options, he finds one he likes, clicks on a button, and buys tickets online. But the key to creating a vertically integrated direct-sales powerhouse for the Information Age is Lycos. Add Lycos to USA's holdings, and the company should be able offer the portal's 28 million monthly visitors (HSN claims ten million customers) a variety of goods and services to buy, then fulfill those purchases with HSN's infrastructure, which is able to ship more than 70,000 packages a day.

That, finally, is the theory behind the deal. "You can take a through line from Ticketmaster/CitySearch through Lycos to ISN and HSN," Diller says. "You can. It's a management bitch, but if your company is organized for it, then it's a natural alliance, maybe unnaturally created. The thing to worry about is execution. The ideas may be good, but you must execute."

The tortured "natural-unnatural" phrasing suggests just how hard this may be. But some believe Diller can pull it off. Analyst Paul Noglows of Hambrecht & Quist praises the Lycos deal, saying that by pairing with USA, Lycos "has made the transition from an advertising-supported portal/Internet service to a multidimensional e-commerce powerhouse." Others are more skeptical. Ryan Jacob, who manages the $200 million in assets of the Internet Fund, dumped his Lycos shares when the deal was announced and is convinced the company would be better off alone or with a big-media partner. And Wetherell has called Diller too much of an old-media thinker to thrive in the new world.

Coming from someone known as one of the savviest Internet investors around, that's a weird comment. But Diller's rep as a "media mogul" has made it hard to see that USA's merging with Lycos is not like Disney's investing in Infoseek. The Lycos deal is not a "media" deal at all. It is about commerce. It's about selling goods to consumers, not marketing eyeballs to advertisers.

The irony is that since the mid-1980s it has been Diller who has made the case that traditional advertising was not going to be enough to support broadcast properties, and that direct selling would play an increasingly large role in consumers' lives. And if that may eventually be true about television, it's already true about the Net. In the limitless realm of the Internet, advertising space is a commodity (see "The Trouble With Web Advertising" in Techno File). But selling stuff to consumers is a business model that seems to work. Says Lycos CEO Davis: "The ability to turn consumers into buyers in real time is to me the future of the Web. The Web is all about commerce. You see it, you click on it, and you own it."

This doesn't seem too far from the dreams of Jeff Bezos. The difference is that instead of selling books and CDs, Davis and Diller want to sell thousands of items, everything from sweaters to PCs (HSN sold $23 million worth in one day last year). That's why they place such emphasis on HSN's infrastructure. "Books are easy to do; pallets come with lots of them--you can grab them, throw them," Diller says. "But to mix tens of thousands of stock-keeping units [SKUs], pack and ship them efficiently--really there are only a couple of players who can do that right now: HSN and QVC. Others will learn, but it's an advantage."

Diller hates Wetherell's dismissal of him as an old-media guy. "I got interested in interactivity in 1992," he says. "The only interactivity in scale then was on QVC and HSN. I've said this too many times, but [seeing QVC] was an epiphany for me. I thought the world was beginning to change, and I thought that the things I was going to do were going to be in that world. So I started with HSN, and since then I've been opportunistic and tried to bring into this company assets that were on this tree of the new convergence."

From SKUs to the new convergence-- that's Barry Diller, the 1990s edition. Look at just about anything he's involved in now, and you'll find this blend of the mundane and the highbrow. For instance, as Diller looks to make USA a true force in this new-media world, he can't just manage his assets well. He also needs to synthesize them into something new and bigger.

"We have to do more than just execute," he says. "We absolutely have to extend that through line from our broadcasting assets to our e-commerce assets, and pull consumers through from beginning to end. If we do that, that is what will set us apart."

What might that through line--a.k.a. synergy across the whole of his company--actually look like? Certainly the Lycos deal is an important step. Next, presumably, would be widespread cross-promotion. Ideally, the reach of USA, Sci-Fi, and the station group would be used to push Lycos, TMCS, and HSN. The cable networks, meanwhile, would replace more of their ads with direct selling from HSN, thus creating a third source of revenue to add to advertising and subscriber fees from cable companies. The added cash flow for the TV side would make possible greater investments in original programming, which would generate higher ratings and better promotion for the direct-selling side, and so on. This is the virtuous circle, the Shangri-la that USA is seeking.

Now, this is a...well, vision...into which a major network would fit nicely. But if Diller were to acquire a network, it wouldn't be for the traditional broadcasting business. It would be because the bigger the platform for his new business model, the better. And it would only be if he thought that he could run a network profitably. As Jon Miller of USA Broadcasting says, "Diller thinks you buy the ability to be visionary by having a strong operating company underneath you. You only get to reach if your reach is founded on real solid businesses."

Diller's reach may exceed his grasp, and certainly expanding on as many fronts at once as USA is doing is risky. But he is reaching from a very solid base, and his record suggests that whatever he does, he won't do it unless it makes financial sense. That may not be the most glamorous way of doing business. It does seem to be the Diller way. And by some definitions it may even be visionary.

REPORTER ASSOCIATES Patty de Llosa, Natasha Tarpley