NEW YORK--Barry Diller doesn't want to predict the future.
"I'm not a great predictor of these things," the IAC/InterActiveCorp CEO said onstage at his Wednesday keynote for the Advertising 2.0 conference, when interviewer and BusinessWeek reporter Jon Fine asked him when he thought the depressing economic news would finally end. (His personal belief is that it won't get much worse.) "Not that, by the way, anybody's predictions are worth very much to anybody." And he was particularly wary of commenting on the macro economy. "Oh, you certainly don't want to hear from me on that," Diller said. "You've heard from every baboon in the world on the macro economy."
IAC's Barry Diller
Advertising 2.0 was co-hosted by IAC and held in the digital conglomerate's airy, glass-walled headquarters along the West Side Highway in Manhattan's Chelsea neighborhood. The building, designed by architect Frank Gehry, opened in 2007. Less than a year later, Diller announced plans to split the sprawling IAC into five separate publicly traded businesses. The slimmed-down company now focuses primarily on online media brands like Citysearch, Match.com, Evite, and Ask.
"What we thought was that agglomeration, putting disparate assets together was fine in the great building stage...where we started about 12 years ago," Diller said. "We built up a fairly large number of disparate businesses. All of them had some form of interactivity, but they were all from selling mortgages to dating...It wasn't giving investors or commentators or anyone else a clear picture of what the company was."
Then there was a battle for board control with shareholder John Malone of Liberty Media. The two now have a "good relationship," Diller said.
While much of the "new IAC" relies on advertising revenue, Diller declared at the conference that strictly relying on advertising as a business model is not sustainable. "I absolutely believe that the Internet is passing from its free phase into a paid system," he predicted (though, keep in mind, Diller did say he doesn't like to predict). "Inevitably, I promise you, it will be paid. Not every single thing, but everything of any value. Again, take commodity away from it."
The wealth of free content on the Internet was a matter of short-sightedness, Diller explained. In his opinion, it came out of the fear of piracy.
"People were so frightened of not being dinosaurs, and baring their heads, and not having what happened to the music industry happen to them, they just slapped everything up on the Internet for free," he said. "That's an accidental historical moment that will absolutely be corrected."
Diller doesn't believe that the poor economy will make it more difficult to get people to pay for things online. One of his subscription-based businesses, dating site Match.com, is doing very well right now: "It would not shock any of you that I think that of the things that, actually, people will do when enduring a storm, financial disaster, or otherwise, is want to hook up in one way or another with other people," Diller said.
Why is he such a believer in the triumph of paid content? Look at the iPhone, Diller told the audience, and the wild success of its App Store.
"The iPhone is a great example of what's going to happen," he pointed out. ""One of the greatest barriers to buying things is the steps that it takes, and we all know the difference when you go to Amazon and you just push your little thing and it's bought, paid for, delivered, billed, et cetera., instantly, and how much that has enabled or how much that has made the difference between just browsing and buying...that little thing, that in fact you scroll it, you do it, it comes, everything else is taken care of, is the answer to what's going to happen on the Internet when, in fact, we get the applicability of that broadly."
He acknowledged that media outlets' readership rates may drop, but that their profits will stabilize once again.
Another thing that Diller was willing to predict? His own demise. Sort of. Interestingly enough, he said he's of the belief that a modern media company is unlikely to outlast its original founder successfully.
"News Corp. makes sense because News Corp. is the absolute extension, to the fingertips, of one person," he said, referring of course to Rupert Murdoch. "I think (in) every case other than that, is that once that original founder has gone, for whatever reason, then the truth is it should all be taken apart because they make no sense. You can't replace with a suit somebody who's built the thing up and understands all of its bits and pieces in the rhythm of their heartbeat."
Interviewer Jon Fine wanted to know if that would be IAC's fate, too.
"I think that's true," Diller said.
A report on PaidContent suggests that InterActiveCorp, the media conglomerate owned by Barry Diller, may be looking to sell off some of its smaller ad-supported content properties--effectively, tossing assets overboard to lighten the load during rough financial seas.
According to PaidContent, IAC may be "dissolving" its "programming" group, a set of ad-supported content businesses that includes CollegeHumor, 236.com (a joint venture with The Huffington Post), Very Short List, and the brand-new The Daily Beast. The restructuring reportedly involves the departure of Nick Lehman, chief operating officer of the programming group.
A CollegeHumor executive told CNET News in an e-mail that the comedy site would not be sold. IAC took a majority stake in its parent company, Connected Ventures, which also owns BustedTees and Vimeo, two years ago.
More likely? News comedy site 236 may become wholly owned by The Huffington Post, which just raised $25 million in funding. Very Short List, an e-mail newsletter, may also be up for sale.
IAC underwent a five-way split earlier this year as Diller, convinced that the unfocused nature of the conglomerate was keeping share prices down, spun off properties such as Ticketmaster and LendingTree in order to focus on online media businesses.
InterActiveCorp, the sprawling conglomerate of brands helmed by media titan Barry Diller, is formally splitting into five separate companies Thursday. And it hopes to do so quietly.
The story is familiar by now: Diller, determined to solidify himself as capable of mastering both old and new media, has long insisted that a lack of confidence on Wall Street has suppressed IAC's stock price. So last November, Diller made the big announcement that IAC would be slimming down to a core of ad- and subscription-supported Internet media brands such as Ask.com, Match.com, Bloglines, Citysearch, Vimeo, and Evite.
IAC Chairman and CEO Barry Diller
(Credit: Dan Farber)The rest of its brands would be spun off, grouped into one of four publicly traded companies: ticketing company Ticketmaster, travel company Interval Leisure, retailer HSN (the Home Shopping Network and catalog company Cornerstone), and Tree.com (the set of real-estate and lending brands that encompasses the troubled LendingTree).
This has been talked up as an almost spiritual renewal for IAC, which simultaneously weathered a bitter proxy battle with powerful shareholder John Malone of Liberty Media. With that over, and the blueprints laid for the split, Diller festooned the June cover of Portfolio, with the magazine proclaiming a "ninth life" for the former Hollywood mogul. But Diller's renaissance may be coming at an awkward time, as the outlook for the online-ad industry--the foundation for the new IAC--is not exactly certain.
Market research firm eMarketer has reduced its estimates for online-ad spending in the past few months--twice. Fox Interactive Media, the digital subsidiary of News Corp., missed its annual revenue goal this spring. Even this year's Olympics are evidence that online advertising is a tough market, even without economic woes taken into account: just look at NBC's reluctance to stream some of the more "blockbuster" events live.
Online advertising is a relatively nascent sector of an industry that is starting to see the effects of a rough economy. That could be part of the reasoning behind why IAC's five-way split and subsequent refocus on online ads are being treated internally as business protocol rather than a ribbon-cutting spectacle.
There will be a press release but no major fanfare, an IAC representative told CNET News on Monday. There also won't be any disruption over at IAC's gleaming glass headquarters on Manhattan's West Side, as no one is getting relocated. Of the brands to be spun off, only the Los Angeles-based Ticketmaster actually has employees in the New York flagship office, and they will remain there even after the split.
That's not to say that it's a bad move on the part of IAC's board. The Malone spat aside, splitting up IAC was a decision met with nods of approval, with the harshest criticism often being that Diller shouldn't have gotten himself into such a pickle in the first place. (In 2006, New York Times columnist Nicholas D. Kristof dedicated an op-ed to him, entitled "America's Laziest Man?" for taking home a fat salary while IAC's stock languished.)
On a general level, the split will make IAC and its perception on the Street less of a mess: nobody's going to argue that it's not a true Internet media company now.
More specifically, IAC is shedding some properties that were threatening to stall, if not sink, the company's progress. LendingTree was pummeled by the subprime mortgage crisis. A $300 million writedown on Cornerstone Brands was the main culprit in IAC's second-quarter losses this year. Ticketmaster continues to perform well, but with the loss of its biggest promoter, Live Nation, the future might not be quite as bright.
However, IAC won't be permanently severing its ties with these companies, thanks to a recently announced ad network that will handle inventory for Ticketmaster, LendingTree, and HSN, as well as the company internally known as "New IAC." This means that Diller, who will remain a shareholder in all five post-split corporations, might not be fully unloading his company's problems.
IAC executives have been encouraging shareholders to look toward the company's future for months now, and with losses from the soon-to-be-gone brands set aside, IAC actually beat Wall Street's estimates for its second-quarter earnings. But on Thursday, when they're dealing with the revamped IAC hands-on for the first time, many of the old issues won't be gone. It's simply a difficult time to be in the business of online media.
IAC is no exception. Despite starting to inch up in the wake of Diller's November announcement, the company's stock has now resumed the general downturn it's been on since a high point in 2003, and there's little certainty as to what it might do on Thursday.
The company still has the task of building new properties such as FiLife and RushmoreDrive. Other brands could use some resuscitation too: Evite finally has some plucky competitors, Match.com by no means has a lock on the online-dating industry, and the IAC split won't change the fact that Ask.com still has to compete with Google. Compete.com says traffic has been tepid at CollegeHumor, the fratty entertainment site in which IAC bought a majority stake in 2006, giving Diller a legitimate shot at 21st-century youth savviness (though, to be fair, traffic has been on the rise at sister site Vimeo since early this year).
The company should nevertheless be optimistic, of course, especially considering that the Malone saga could've taken a turn for the worse and doomed the split in the first place. It's already weathered a few tough skirmishes.
With some major money losers cast off, IAC will have more financial and human resources to devote to the remaining brands, and less head shaking from Wall Street about what, exactly, the company does.
To use a nautical metaphor--yacht aficionado Diller is a fan of those--IAC has upgraded to a more streamlined fleet of ships. That, unfortunately, doesn't get rid of the thunderheads.
It's no secret that InterActiveCorp is facing a corporate hurricane. But CEO Barry Diller's plan to split the company in five parts might not calm the waters.
In the fall, the sprawling new media conglomerate announced a plan to spin off many of its brands into a total of five publicly traded companies, focusing its core business on ad-supported media, in order to revive investor confidence. It needs that revival: on Wednesday morning, the company posted its 2007 fourth-quarter earnings, reporting a net loss of $369.9 million as revenues rose eight percent to $1.86 billion.
InterActiveCorp CEO Barry Diller
IAC has acknowledged that it has spread itself too thin, and splitting up is its only way out. But the company is basing its corporate outlook on a restructuring that hasn't happened yet; it could get messy, and it won't solve every problem.
Right off the bat, even the proposed split itself faces a court challenge. One of IAC's biggest shareholders, Liberty Media's John Malone, has made it clear that he's willing to do anything to prevent that split, including oust Diller from the board. The cable mogul claims that a slimmed-down IAC will hit Liberty Media where it hurts, knocking down its voting power within the company.
Malone's lawsuit is expected to go to court on March 10.
The power of five
Here's how Barry Diller's breakup of IAC will play out, if it goes as planned.
The "new" IAC. This will consist primarily of InterActiveCorp's ad-supported media brands, like Evite, Citysearch, Ask, Match.com, Bloglines, and Excite; also staying put is IAC's "emerging media" group, with sites like Gifts.com, Vimeo, and CollegeHumor.
Ticketmaster. One of IAC's biggest successes becomes its own publicly traded company, taking with it other IAC ticketing brands like Ticketweb, Echomusic, Admission.com, and TicketsNow. Also included here will be investments in Frontline and iLike.
HSN. The shop-at-home TV channel will spin off with a handful of IAC's retail brands, like the Cornerstone Brands catalog group and shopping sites like Shoebuy.com and Bagsbuy.com.
Interval International. The vacation timeshare company will become a separate publicly traded entity.
LendingTree. IAC's troubled lending company, hit hard by the subprime mortgage crisis, will spin off into a separate company where Diller hopes it will stand on its own.
"It doesn't make a lot of sense to me why they're protesting," Piper Jaffray analyst Aaron Kessler said of Liberty Media. The judge in the Delaware chancery court where the suit was filed might not agree, though: "I think it's always hard to say how the courts are going to roll," Kessler added. Either way, executive-level instability can make any company's outlook about as clear as mud, and could offset some of that coveted shareholder confidence.
Not only that, it could mean that IAC's five-way split is dragged out or delayed, or that it doesn't unfold as expected. Diller said in Wednesday's investor call that he anticipates Malone's lawsuit will be resolved in a matter of weeks. "Our planning is continuing just as it was," he said, but then admitted that the process could stall. "Realistically, this could push us back. It could push us back quite some time." Diller added that he hoped it would not delay the split by more than a month, but he could not be sure.
The way IAC's executives see it, the core of the company--ad-supported, Web-based media brands--will remain as the "new IAC." Events retail site Ticketmaster will become its own company along with other IAC-owned ticketing sites like TicketsNow and TicketWeb. Travel and timeshare brands will spin off under the Interval International title, and the LendingTree loan marketplace, hit hard by the subprime mortgage crisis, will also split from IAC.
Diller and other IAC executives have high hopes for new, ad-focused vision of the company. "Last week, we had an all-day planning meeting for the state of the new IAC. It was nothing but exciting," Diller said in the investor call, citing that queries at Ask.com are up (even though market share isn't), and dating site Match.com has seen notable subscriber growth. "IAC is going to be a very compelling high-growth company for investors."
By keeping the new-media sites under IAC's umbrella, Diller and the rest of the company will indeed be retaining the brands that have fared the best out of the pre-split IAC. Ad-supported media brands like Ask, Evite, and Citysearch, which will make up the bulk of the "new IAC" after much of the rest of the company has been spun off, posted decent revenues that climbed 42 percent from the previous year's fourth quarter. That's promising.
And when IAC spins off its non-media brands, the company will shed some weight that's been dragging it down. It was a poor quarter for the company's retail catalog division, and LendingTree's revenues shrank 58 percent. Even Ticketmaster, which hit a record sales volume worldwide in the fourth quarter of 2007, is about to run into tough times as it faces the loss of its biggest client, concert promoter Live Nation, in 2009. This is the sort of impending problem that IAC isn't going to want going ahead.
Piper Jaffray's Kessler said that there's no reason to believe that the split won't go through. "I think, at the end of the day, they will find a buyer or spin off each of the companies," he said, and added that it shouldn't leave any scars on IAC. "Once they're spun off, there's not going to be an impact of one business on another."
But with the current economic conditions, as well as market-shaking tech industry moves like Microsoft's proposed acquisition of Yahoo, nothing is really certain. But this "new IAC" doesn't exist yet, and for all we know, it won't turn out exactly as planned. If even one of the proposed spinoffs doesn't work, it would result in bad PR, diminished shareholder value--and IAC would still be stuck with a company it didn't want.
Even if the split goes through smoothly, IAC's shakeup might still be far from over. The company plans to keep its "emerging media" brands like Vimeo and GarageGames, but these aren't exactly moneymakers.
"Those are all fairly small still right now, only about $30 million of revenue in 2007 with a net loss of about $12 million," Kessler said. IAC executives said in Wednesday's earnings call that the losses on its emerging media division may be double that in 2008. "(IAC) may decide to take a write-off, or separate some of these emerging businesses as well, or sell them off potentially," he added. If they're not contributing much to IAC's revenue, the company might decide it doesn't need them. Kessler estimated, "They'll be about two percent of revenue even after the split."
And that's the final word: revenue. The new IAC, whatever it turns out to be, will be reliant on ad dollars, and Diller is convinced that this is where the real money is on the Internet. Online ad spending, particularly in "conversational" niches like videos and and social-networking sites, is projected to keep growing, and IAC plans to create a strong ad network to become a major player in new-media marketing.
Given the current economic landscape, this is not a guarantee; research firm eMarketer has said that while online ad spending is still growing, that growth is going to slow down. "There's always a risk you'll see a slowdown," analyst Aaron Kessler said, but added that he thinks online advertising won't be hurt by a recession as much as traditional media. "We think advertisers are more likely to cut their offline advertising before they cut online right now." In other words, IAC might face continued tough times, but it'll be in the right place overall.
And Diller is pushing forward, as he should: the split, however messy, is IAC's best chance at revival. Its former buy-it-all strategy might have led to a sprawling company without clear focus, but in Wednesday's call he asserted that IAC's acquisition habits brought the conglomerate "tremendous value." He's also convinced that Liberty Media won't prevail in its lawsuit. "I shouldn't even comment on it," he said in Wednesday's call. "It's ridiculous."
This post was updated at 9:18 a.m. PST.
InterActiveCorp CEO Barry Diller was remarkably candid in his acknowledgment Monday that his media conglomerate will be splitting up into five publicly traded companies because it's simply spread itself too thin.
"We've been a complex enterprise almost from the very beginning 12 years ago, with hundreds of transactions over those years," Diller said in the company's announcement. "And while we've created a lot of value; I've always believed (that) our complexity and many mouthfuls of sentences to explain who we are and what our strategy is have hampered clarity and understanding with all our constituencies, particularly investors."
The new plan was given the go-ahead by IAC's board of directors on Friday and is expected to be complete in the second or third quarter of 2008; final details have not yet been approved. The transaction--which is expected to be tax-free--will allow IAC's shareholders to retain all of the equity in the five companies.
With brands ranging from dot-coms to mail-order catalogs, InterActiveCorp has grown into a large and amorphous mass that Diller said was difficult to explain and allegedly hurt the company's valuation. "Hot air--or any air--won't do it in terms of what IAC is," Diller said during a call on Monday with press, investors, and analysts. "It's confusing to every constituency."
"In a way, IAC is starting again," he asserted. "At least, it feels that way to me, so it's very invigorating."
Barry Diller
One of the five companies will remain under the name IAC and will include many of the company's popular online media brands, including Ask.com, Bloglines, BustedTees, Citysearch, CollegeHumor, Evite, Excite, Gifts.com, iWon, Match.com, Vimeo, and Zwinky. In addition, this new pared-down IAC will include the company's current investments in brands like Active.com, Brightcove, and OpenTable.
The "new IAC," as Diller underscored during the investor call, will be all-Internet. "We now can stand on our own with an IAC that's a perfectly integrated Internet conglomerate across business lines, across business sectors, that's primarily in advertising and in media."
Diller also announced that Google will be providing sponsored listings on its online brands--including its search engine, Ask. "Just hours ago, we concluded an arrangement with Google to be our sponsored listings provider for the next five years," he explained, "and the value off that transaction to us will be in excess of three and a half billion dollars."
But not all of IAC's dot-coms will remain--namely, retail brands have been dropped. Ticketmaster.com, under the new plan, will spin off into its own publicly traded company, along with other IAC-owned global ticket brands like Admission.com, Echomusic, and TicketWeb, as well as the company's investments in Frontline and social music service iLike. "Ticketmaster is entering the most dynamic era in its history," Diller said in the statement, "and its ability to participate fully (with its own currency) in shaping the live entertainment industry is critical." Sean Moriarty, currently president and CEO of Ticketmaster, will retain that role in the new company.
"That business is evolving," Diller said on the investor call, referring to shakeups in the music industry that have gone far beyond piracy and record label controversies. "I think Ticketmaster has to evolve with it."
HSN will also spin off along with a number of IAC's retail brands and catalogs, like HSN TV, Frontgate, Garnet Hill, and TravelSmith. Additionally, several of IAC's vacationing brands will join the title Interval International, and the company's LendingTree brand will also become a publicly traded company.
LendingTree has been a particular burden on IAC in the wake of the subprime mortgage crisis. "That is going to be hurt for a period of time, but by the way, that will be over. There will clearly be a lot of blood on the floor," Diller acknowledged in the press call, "but at some point it's going to be over, and when it's over, LendingTree is going to grow to be in great shape."
In IAC's official press release on Monday morning, quotations from Diller projected a clean split. "Each of these spun-off businesses is in fact a distinct business sector, and each will benefit from standing on its own, with its own capital structure, its own currency which will enhance its ability to attract and retain superior talent and make acquisitions, and a focused story investors can clearly understand and buy into," he said.
But when asked on the press call, Diller spoke only vaguely with regard to how business relationships between the newly separate companies would unfold. "The truth is, the companies go their own ways," he said.
This is not the first time that IAC has shrunk itself; in 2005, the company ditched its Expedia travel brand. "If you total all of the assets that include Expedia and IAC, it's an enterprise of about $19.5 billion," Diller said in the press call. "We thought Expedia was certainly large enough to stand on its own, and we thought that it would be enhanced as a standalone company, and that has certainly proven true."
Now that IAC's consumer-focused Web companies have matured, Diller said, IAC has been able to shake off some of the older brands that are no longer needed to bolster the development of their younger brethren. "We've been characterized as having old assets, and new assets meeting old assets meeting old hard assets in the retail business or transaction business," he explained, "and our strategy was really to use those businesses and their cash flow to start and to acquire all sorts of online businesses, which is of course where we have wanted to go since the very first time we talked about interactivity in 1992."
With new developments in Internet advertising on the forefront of Silicon Valley chatter these days, IAC's ad-focused restructuring is a sign that Diller and his company don't want to be left behind. "There's no question that Internet advertising is effective in every way. Not only is it effective, (but) against scattershot, wide advertising, it's absolutely trackable," he said on the call.
"I couldn't imagine a sector that has more wind at its back than online advertising of every kind."
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