Barry Diller Sees a Big Future
In Internet Shopping, Services
By JULIA ANGWIN
Staff Reporter of THE WALL STREET JOURNAL
Barry Diller is a legend in Hollywood, where he worked his way up from the mailroom to become head of the
Paramount movie studio at age 32. For the past few years, however, he has turned away from "old media" and
morphed into an Internet mogul. He has bought up companies like Hotels.com, Match.com and Expedia.com. On
Monday, Mr. Diller's company acquired LendingTree Inc., an online mortgage exchange, for about $716 million.
A year ago he sold his company's cable, film and TV operations to France's Vivendi Universal SA and kept his
new-media assets in a company he renamed USA Interactive.
Mr. Diller, now 61, vows that USA Interactive will be a dominant
player in e-commerce -- and says e-commerce is ripe for growth, despite the dot-com crash of a few
years ago. He believes the potential is such that he would like USA Interactive to be valued at the lofty
stock-price multiples of eBay Inc. and Amazon.com Inc. But the company's results have been dragged
down by poor performance at its Home Shopping Network unit, which Mr. Diller has hinted he may sell, and uncertainty about how much value he
will gain from his company's 5% stake in Vivendi.
Mr. Diller recently spoke to The Wall Street Journal about the Internet and how he sees the online world shaking out. Here are excerpts:
WSJ: What do you like about the Internet?
MR. DILLER: I adore it. Every day you get to make it up. Every day you get to confront an unstructured life. You get to follow your curiosity. You
get to play in the organizing period of what I believe is the most vibrant activity that exists today. I mean, my God, who do you have to pay to get up
in the morning and do such work?
You have said you have no vision for the Internet. What does that mean?
I have no vision for anything! I've always said this word visionary is so crackpot. I don't see around corners; I don't do any of that stuff. I wouldn't
presume to do that. Either I get curious about something or I get takes on things, or whatever, but I don't have ... no I ain't got no vision. I've got
instincts.
You've been aggressively buying companies in e-commerce. How do you view the landscape? Is the industry consolidating?
It's a little premature to talk about a consolidation of a sector that is this young. You can't consolidate until you establish. I
think we'll be in the establishing phase for several years. Much of this, of course, is dependent on broadband high speed and
about the box [the PC] being on all the time. I think it is happening. Look at cable modem penetration and Wi-Fi [wireless
networks] and other on-all-the-time applications.
Tell us your formula for picking Internet investments.
Firstly, we like fragmented businesses, and financial services is the essence of fragmentation. Second is businesses that are
essentially offline moving online, that have characteristics that are advantaged in being in an online versus offline universe.
Things like personals, dating, travel, information about cities, etc. Finally, we like businesses where the scale and leverage
effect is easy to discern, where you can see that once you have sufficient level of activity, the scale affects are mighty. Those
are the only lessons we intend to give anyone else.
What led you to buy Expedia and Hotels.com?
Curiosity and serendipity. What they did, I liked.
You just agreed to pay a 44% premium for LendingTree. How do you justify paying those kinds of prices?
Well, we're paying a good price for this company. They didn't really want to sell their business. Usually we meet that with a quick goodbye, but we'd
studied this sector for two years and the only company that we wanted to engage was LendingTree.
And I think we've paid a fair price. If you look at their growth and their penetration, of just under 1% of the category they serve, and the natural
properties of the Internet and its leverage, I'm quite satisfied that we paid an even, fair price which will in a year or two be utterly forgotten, just as it
was with other things that we have done. We paid much more for Expedia and it was losing money. Hotels.com had $60 million in revenue when we
bought them, and we paid $120 million for 70% of the business.
Is the current phase of the Internet similar to the early days of television?
If you think of the beginning of television. If you think of electronic communication from radio to television, to cable to satellite. Each of those was
evolutionary, each was a building block on top of a previous block. From pictures to sound. From wired to over the air. Then over the sky to the
ground.
As a full-blown communications medium, the Internet was, I believe, a radical revolution. The reason I've been so fascinated by interactivity, the
reason I still refer to the box [the PC] as magic, is because it does things that still defy your imagining them.
Isn't television magic, too?
It may be that what's magic to me isn't magic to you. But I can comprehend one-way pictures through
the air. This wired, and now unwired, world is an entirely new paradigm because, to me, its magic lies in
computational ability that is now tamed for humans. Watching television moves at your own speed.
There's nothing magical about it. I do believe that interactivity, and the Internet and this sector, is
different than anything I've ever seen before.
How will the development of the Internet affect traditional media?
I think there is the potential for chaos. And chaos is good for new players, good for people who embrace change, not good for those who don't. One
of the reasons I feel so strongly about the current regulatory atmosphere -- the current regulations the FCC is considering deregulating [the broadcast
industry] -- is I don't want to see the world of video-narrative programming mopped up by four or five oligarchs. I don't want to see cable, satellite,
the five oligarchs being able to have a complete stranglehold preventing the both natural and unnatural developments that can come from the far more
open world of Internet activity.
Until recently, you kept a foot in both old media and new media, serving as chief executive of both USA Interactive and Vivendi's entertainment arm.
Was it the right thing to do?
Well, it was the price of the ticket. It wasn't that I made a long-term commitment to Vivendi, because I did not. By definition, I made no commitment.
And I thought -- and I think [then-Vivendi Chief Executive] Jean-Marie [Messier] probably thought, too -- that I would integrate the businesses,
because I had given my word I would do that, I would try to set them on a good strategic course, and then I'd probably go home.
Now, you know, one dumb month later, the place goes up [when Vivendi revealed financial difficulties]. And I felt an obligation to the burning house
to do whatever I could do to help it. I thought I had to participate and help, and I did, and that did take more of my time than I thought originally. And
we got them out of their crisis. I think it was the right thing for us to do.
Is there a situation under which you could end up owning some of those Vivendi entertainment properties?
Well, it's unlikely, but it's not impossible. What we've said is we've made no proposal. We're part of no group. But we said if anybody wants to come
and improve our situation or we see that as an opportunity, we'll fill it. But we, USA Interactive, the company, will not be muddied by media assets.
Why don't you want to "muddy" USA Interactive with media assets? There could be a strategic reason. After all, AOL Time Warner has chosen that
path.
Let me put it this way. There's nothing I think strategically impure about interactivity and media. But I think for our company, at this stage of our lives,
purity in interactivity is very, very important. I'm not saying that [would be true] at another stage depending upon whatever other assets become free
or might be opportunistic.
I think we're at a really extraordinary moment for this company. Right now, we're going to have approaching a billion dollars in cash flow this year.
We're at an area of very high growth. Our businesses are performing well. [Yet] there's a huge execution issue. We are at the very beginning of
interactive activity, I believe. You'd say, concentrate. Focus, concentrate! Frankly, if we're lucky, our attention won't be diverted. That's why.
Why are you thinking about changing your company's name?
USA Interactive was never a good name. It was always kind of a house name that was chosen, that was kept because we didn't want to make up a
name. We didn't want to be Altria or Accenture or whatever.
What's changed in the year since you formed USA Interactive?
It's been like "Bringing Up Baby." We put this thing together with matchsticks and it's very daunting for us, you know... This word "maturity" is, God
forbid, descending on us. Or it's not descending on us.
We essentially live our days avoiding failure. So we almost never have anything good to say about ourselves, which is a very good ethic. And by the
way, it ain't like we just got lucky yesterday. We've been successful for our short life, for some time. But to get actually self-conscious about it is a
disquieting transitional moment. I guess we'll get comfortable with it.
When you created USA Interactive, you announced a grand plan of spending $9 billion on acquisitions in three years, and of dominating 20% of the
e-commerce market. Now that you're back focusing on the company, are those goals back on the table?
Well, certainly the percentage of e-commerce is very much on the table. The $9 billion was a road map that we had to issue because we wanted to talk
about acquisitions from A, small, to B, large. Now we've made, since we've said that, about $2 billion of acquisitions. I never thought it was going to
be nine. I thought nine was a wide enough road map to not get caught by exceeding it.
These days, your employees say you're more likely to be managing from your yacht.
I love boats. I don't say it because I think I have no Calvinist work ethic, but today, particularly the kind of work that I do, being on a boat is an ideal
place. We have high-speed communications and all of that. It used to be that we'd do a lot of meeting stuff, but I'm not on the phone anywhere like I
used to be. E-mail is very much our life and you can do that at anytime from any place. |
