Media mogul, Hollywood studio chief, TV network pioneer, E-commerce czar and deal-maker extraordinaire.
This story first appeared in the November 17, 2003 issue of WWD. Subscribe Today.
These are all words that describe Barry Diller, chairman and chief executive officer of InterActiveCorp., a conglomerate of Internet-based service businesses in the travel, hotel, financial, dating, entertainment and real estate sectors, among others. But perhaps there are two words that capture him even better: contrarian and visionary. In other words, he goes his own way — and others tend to follow.
When a 32-year-old Diller became ceo of Paramount Studios in 1974, he inherited a dying company. But Diller’s contrarian-visionary thinking kicked in and he greenlighted “Saturday Night Fever,” “Taxi,” “Cheers,” “Grease,” “Raiders of the Lost Ark” and “Terms of Endearment,” to name a few, and it became a hit machine. In the mid-Eighties, when nobody in the world thought a fourth TV network was needed, Diller developed the Fox Network. And in 1992, as ceo of QVC, he went against conventional brick-and-mortar retail rules and brought together telephones, televisions, computers and shopping.
When millions fled the dot-com disaster a few years ago, Diller was drawn to it, and today runs InterActive Corp. With a market capitalization of $27 billion; projected 2004 revenues of more than $7 billion; analyst estimates of a quadrupling of net profits next year to $660 million, and an estimated $7 billion in cash, Diller’s desire to forge a path in the world of interactivity is paying off big-time.
Diller sat down with WWD editor in chief Edward Nardoza and talked about his Hollywood days, management style and latest online business venture.
WWD: I think we need to get Hollywood out of the way first.
Diller: I did.
WWD: You were quoted in the Oct. 13 Business Week as saying, “Hollywood is mostly a pain in the ass.” Now, assuming you were quoted accurately, would you care to elaborate on that?
Diller: Quotes that live on and on. I’ve been asked this every day after that. Well, it is. Look, it’s not an easy business. It’s certainly not now an easy business. I mean, there are all these challenges in front of the entertainment business. I was actually doing it in contrast to the business that I’m in, which every day you wake up and you get a headache after a few minutes because it is a whole different kind of challenge. You get to make up the rules as you go, whereas, in the entertainment business, what you’ve really got to do, in a sense, is simply try and survive them. And, because people keep saying — as if it’s a thing that I am compelled, willed to do — I have to be in the entertainment business again or I have to have a studio or I have to have a network. And I was making the contrast between what is a bloated and endlessly heavy piece of old machinery — the film business — without a new idea in its head, every year actually. I mean, I think this last year was the worst year in movies that I’ve probably ever seen. You make hugely expensive films in the hundreds of millions of dollars on basically the theory of how far the merchandising will extend. You’re selling hats and whistles and T-shirts — not to insult the retail part of my life, God knows. I’d rather be in it purely though, rather than to have to make a movie in front of it. So, I just think that the interactive Internet businesses, where it’s very much at the beginning, it’s just so much more exciting than the film business. And for those people who think there’s glamour in the movie business, my God, go to work for an hour.
WWD: Are we overly obsessed with celebrity and entertainment?
Diller: Am I?
WWD: No. Is the culture at large? And what does that say about us?
Diller: Well, every year, having putting on, for my sins, “Entertainment Tonight” in the early Seventies at Paramount, which was really the first of it. But, each year, of course, it grows ever, Bennifer brighter. And so, I just think, that we’re not going to stop until we take close-up pictures of the act itself.
WWD: Can we talk a little bit about your notion of being a contrarian? Does that primarily mean you’re a gambler who likes long shots and underdogs?
Diller: No. I don’t think I am, I mean, I really don’t think I’m much of a gambler. The thing is that if I saw the risk, I don’t think I’d take it. But, for whatever there is, they didn’t give me that gene that sees risk in certain things — God knows I see risk in other things. But, in terms of ideas and things like that, or things that haven’t been done before, but things that are maybe a turn on history or what’s kind of known in evidence. I’m intrigued by those things that kind of aren’t, and I don’t see the risk in pursuing them. I mean, if you tell me it’s a gamble, I’d probably run away.
WWD: Lots of people felt burned by the dot-com experience and the promise of a new economy and fled, as we said before. What did you see that other people didn’t see?
Diller: First, I had very good grounding. I was really lucky because my life turned when I went to QVC, and I got interested in this kind of primitive convergence and that was three years before the Internet, but it was interactive. It was using a television screen that was something other than I had always known it to be used for, which was narrative and passive viewing, and when I saw the power of that interaction, that it could be turned to that powered by a computer, I thought, “Wow.” I didn’t know what, but I thought it was going to change things. When the Internet came along, it was actually a stroke of great good luck for the position that we were in and the fact that we had some capital. My colleagues and I learned what retailing is and we learned it in a very fast, unforgiving environment — not that probably any environment is forgiving. We learned a great thing, which is, it’s good to sell things for more than you pay for them, which was not what most people on the Internet were doing. As a matter of fact, what they were doing was saying, “Let’s do this, let’s sell it actually for less than it costs us and we’ll make it up on marketing or we’ll make it up on other forms of cross-selling.” We thought that was kind of stupid. As we got into interactivity, we tended to get into things that made economic sense and were good ideas.
WWD: Can you talk a little about InterActiveCorp? What is the business, how is it structured? Is it a new business model or tool or method?
Diller: It uses the same distribution pipe, the Internet, for all of the things that it does, but all of the things that it does are very different from each other. We are in the real estate business. We’re in the mortgage business. We’re certainly in the retail business, in several different categories of it. We’re in the flirting business with Match.com. Obviously, a huge part of our company is the travel business. We’re in ticketing. We’re in all of these totally different businesses but they all have in common the distribution pipe of the Internet, so for us that’s kind of the core sensibility. So, organizing that is a bitch. But we make progress, a little every day, step back once or twice, but organizing a business that you simply can’t manage — I mean, I’ve never thought of myself much as a manager really anyway — it would be impossible to manage, except with the most dopey superficiality, businesses that take an endless period of time to understand. So what you’ve really got to do is push authority and responsibility down, which is something I’ve kind of always believed in anyway — except in the film business. But the great lesson that I learned is that in the businesses I came from, the only people that really mattered were at the very top. I mean, the only people who were creating value, real value, were at the very top. Not that other people didn’t do good and valuable things. But in the entertainment business, it’s what the programs are and that’s where the value is. And, as against this world I’m now in, which is the meshing of so many gears that you have to get right before it begins to work, the management is just upended completely. And learning that for a somewhat old dog is a hard trick. But I try.
WWD: What do you look for in a manager? Is it creativity? Is it drive? Is it originality? What are the qualities that are most valuable to you?
Diller: I look for probably willfulness, an entrepreneurial sense and, now more than I used to, when I would tilt at any windmill I could find, I look for practical. The ideas we have are very good. Businesses we’re in and the way we’re conducting business in this new world of interactivity provides it all in a sense that you don’t have to sit in a room and have a lightbulb come into your head.
WWD: How do you approach the business in terms of strategy versus tactics? Do you have to think three, four years out? Or is it getting the transactions done now and quickly?
Diller: It’s tailored to the situation. You used this word visionary before. I’ve never thought of myself in that way, I think it’s a stupid concept. I mean, for geniuses it probably works. I mean, I think you kind of put one dumb foot in front of the other, bounce off the walls, of course correct as you go. Yes, the only time that it is worth, in my opinion, wasting your time on thinking what’s going to happen three or four years away, which is impossible, is when you see, in Andy Groves’ words, the possibility of an inflection point — where something is going to change. You may not know what it is, but you have little clues and things like that, that you maybe pounce on. But I’m not much for, as they say, long-range planning. I say, any figure you write down that’s more than a week in front of you, you’re just making up, so what’s the point? I see plans, businesses that come in and they have those wonderful columns, ’04, 5, 6, 7, 8, 9, and of course in ’03, let’s say, the year you’re in, it’s losing $78 million and by ’08, it’s making a trillion. Now, gee, that’s great! Let’s just file it and buy it and forget about it. So, I think that’s all drivel.
WWD: Well, then how do you manage the Wall Street monster? You seem to do very well. They’re intrigued by what you do, and you’ve done well historically.
Diller: Well, yesterday I’m not so sure that we did. Our stock dropped 7 percent. Though it has had this enormous rise, it dropped 7 percent because essentially we beat all of our budgets for operating the business which, if I was an investor, it’s the only thing that I would actually care about. In fact, the Street had estimates that were greater than that. And we also stopped guidance and issuing our budgets, which is what we had done for a couple of years because it was more transparent. And we just said, for the analyzing community, guess what, we can’t figure this out that far in advance, so we’re certainly not going to give you figures that we, of course, know we’re going to beat, because otherwise why would you put them out unless there’s some train wreck that happens. So, that con game, we think is actually manipulative and at its core, illegal, because when you’re managing numbers, you can’t do that. And there’s nobody that I know of that actually issues guidance and puts their figures out for the Street to analyze, that is not in the managing-of-their-numbers-business quarterly. We did a lot of that stuff yesterday and we traded 57 million shares, which is extraordinary. I mean, when our average day trades are maybe six or seven million. And we loved it because what’s happening then is, we’re going to get the shareholders we deserve. And we only want shareholders — I mean, people can buy and sell and do what they want — but we only want people who are going to think about our company at least the way we do, which is simply creating long-term value and making no compromise for the short term.
WWD: What does your gut tell you when you’re interested in acquiring a company? What in your gut tells you it’s right? Is it the sector that you look at? Is it the individual company? Is it management? The balance sheet? Or just kind of an intuitive feel?
Diller: Certainly never the balance sheet — that’s the last thing we need. I mean, all things considered. First of all, for us now, because we are in this world of interactivity, we know when somebody comes to us with an idea, whether it’s even in the zone or just an easy “No thank you.” That’s a good thing. Beyond that, we look to get excited about what the business is. If you’re starting something, then you know everything about it. If you buy something, at almost any stage, except very early — we’ve bought lots of very early-stage companies, thank God — but you buy midstage companies and I don’t care if you do due diligence for a thousand years, you’re not going to know the rhythm of the business, you’re not going to know so many things. So it’s a very, very dicey business. And we reserve the right, and we tell people, yeah, we may be serial killer acquirers, but up until the day that our board approves it, we say we may run Venezuela on you, so if you want to go through this process with us, it’s OK but understand — we’re not going to mislead you — the last hour of the last day we may say, “You know what, we’ve decided not to do this.” And we’ve done that as many times — no, that’s an exaggeration, we’ve made more than 70 acquisitions — we’ve done that probably five or 10 times. Not the day of, but close.
WWD: You’re sitting on $5 billion worth of cash. Now, are you going to use that for more acquisitions and, if so, will they be in the interactive model or will you look at other formats, maybe a brick- and-click approach? Are there other formats where you might actually own inventory?
Diller: We do own plenty of inventory. In our retail business, we certainly have the goods. I mean, it’s almost all ours. Very little of it is returnable. But we actually think that the acquisition pace for our company is going to slow. We have so much that we have to execute in our current businesses and they have so much growth, and extensions of them have so much growth — which is where we probably will concentrate our acquisitions. But I don’t think, in the next years, that acquisitions are going to be as prime for us. Now, I know as I say it, that around the corner could come an opportunity and we’ll completely contradict that. But, at least in our own thinking, it’s not how we’re thinking about life. We have more than critical mass now. The bubble is beginning to fill. Even though I think we’re at the very earliest stages of the Internet, and I think that its growth is really going to come when you get broadband in more than half the homes in the U.S., which I think you’ll have in about three years, where you get high-speed and you get this complete convergence of television and data-pipe screens of all sizes. But prices right now, multiples for things, including I’ve said, our own company, though as of today, I think that we’re at a more reasonable multiple…but there are really four leaders in the sector: our company, eBay, Amazon and Yahoo. Our company has profits that are literally the combination of the other three, so we lead it, in terms of revenue and profits and stuff like that. We sell at half, little less than half, the multiple of the other three people in the Internet. We’re very happy with that because we don’t think these things are sustainable. So, you don’t go out and spend cash. You might go out and spend stock, but we now believe that our stock is dear so we’re not going to do that too much anymore. I believe that if you’re in businesses like ours, you have to have plenty of cash, plenty of reserves, plenty of so to speak, money that you can lose. Because you’ve got to act with confidence at a time when you’re doing new things and they may or may not work. And so, having big, big capital resources is a really good thing for a business that is on the grow. Now, we can’t sit there with — it was actually $7 billion — we can’t sit there year on year, having it earn a pitiful amount, given that we don’t risk it.
WWD: I’d like to just get back to a very interesting thing you’ve said — you don’t see yourself as much of a manager. Richard Nixon once said, “Both love and fear motivate, but fear motivates better.” You’ve got a reputation for being, let’s say, a demanding boss. Do you agree with Nixon’s statement at all? And how do you get the best out of people?
Diller: Actually, no, I don’t. And, look, I’m a noisy person, that’s for sure. And I’m willful. But the only thing I ever try to create, and the only thing I’m ever interested in, is a passionate argument and I will do a lot of things to create argument. Because I believe that, if you’re dealing with trying to find out what’s true, then you have to scratch it from every which way. You get people together and then you try really hard to get creative conflict in terms of discussion. And creative conflict on business, on anything that you can get multiple voices. Because, if you have a good ear, and it’s partly training, it’s partly just being able to hear, I mean, being able to hear rather than want to speak. If you do that, and you listen, you will figure it out. Now, it may take you 19 hours to do so and people may get tired of it and certain people don’t like that. Lots of people say, “Gee, you know what? I don’t want to argue. Just be quiet and whatever.” And I think that’s lovely, but it’s not a good idea to put them in the room with me or vice versa only because eventually the pressure’s not good. And I don’t like that. It’s not like I’m trying to do anything but make people want to give out their opinion because that’s all I really want to hear. Now, the result of it is, is that it is a noisy process. Those people who like it, really like it. And those who don’t, go out of there and say, “Oh my God, what a monster process this is or he is.” So be it. What can I do?
WWD: If you were not in the business you are in now, what sectors would you be looking at?
Diller: My curiosity, which is the only thing I’ve ever followed, is completely contained inside this world of interactivity. Now, that does not mean I don’t have other thoughts, and those thoughts still go to things in the world of entertainment. But, no, there’s nothing else — if there was anything else, I think I would do it. Somebody said to me the other day, “Why do you work?” And I said, “I work because I’m really still interested.” And, believe me, I’ve changed my life every 10 years, I would feel it if it were any different and then maybe ideas would occur to me.
Audience Question: Have you ever regretted not making an acquisition?
Diller: Oh sure. Lots. I’ll give you the best one, well, not the best one, I have many best ones, but I don’t dwell on them. But in ’93, Steve Case came to me and, I’d gotten to know him — no, this is ’94 — the very, very beginning of AOL when it was really pre-Internet. And Paul Allen had owned 25 percent of the company and they didn’t get along and he agreed to sell it, and we were going to buy it. And we argued over an insignificant amount, I think it was literally a dollar, I mean, truly, literally. I mean, it’s so embarrassing, but there it is. And so because I think there were 40 or 50 million shares, so it was $40 or $50 million dollars, a dollar a share, I mean, even now, it would be worth about a hundred times that amount. That was a really juicy one. But there’s been lots. I learned it kind of early in the film business. Somebody once said, you passed whatever movie it was and was berating somebody in our company who had turned it down at a lower level and I said, “It’s ridiculous. For what you don’t do is of no matter. It’s what you do do.” Now, if you never do anything, then it matters. But that’s how I feel about lost opportunity.
Question: What do you see as the future of fashion online?
Diller: Well, I think retail is only 2 percent of online retail sales. I mean, it’s the slowest-moving, so to speak, online part of the universe, of the world of commerce. I really believe it’s going to take broadband. It’s going to take pictures and it’s going to take the pipe being big enough that you can have movement…And we’re just starting to get some of those tools. And I think as we get them, I think the fashion and other retail categories are, of course, going to move online. Everything is going to move online. Now, by the way, it doesn’t mean that offline, bricks and mortar, is going away. It just means that online is going to be a big part of how everybody does everything. That’s inevitable.
Question: How does someone who is chairman of a conglomerate actually manage a conglomerate?
Diller: That’s what I said, you can’t. In which case, I’m irrelevant. No, actually I’ll tell you what I think you can do and what we’re trying to do. And we have some great help in doing it. One is a person named Jack Welch, who really knows how to do it, and we are one of the three companies he agreed to consult, and we’re, of course, the tiniest because the others are huge things. But what you’ve got to try and do is put in the right kind of infrastructure without putting in bureaucracy. That is a very, very tough thing to do. And the only way we know how to do it, and we are trying to learn and get better at managing this process, is again, to get leaders of businesses. Give them the responsibility and authority to run their businesses. Spend a lot of time on that process, which is a very new thing for me. The first thing Jack Welch said to people in the company at the senior level is, “There is a missing person in this room.” And we said, “Who, Where?” and he said, “Where is the people person, where is the HR [human resources] person?” And we said “HR? I mean, come on.” And he almost hit me, he looked at me, and there is no more withering look than the withering look of a Jack Welch stare. Those little blue eyes. And he explained about people and the process of people. And what happens if you don’t get that right when you’re managing multibusinesses.
Question: You mentioned Amazon, eBay and Yahoo. How much do you see them as competitors to you, and is it possible for new entrants of that scale to enter the market now?
Diller: The great thing about the Internet — and it’s really true — is that it’s free self-publishing. So you know, you could get any idea up there. Now, of course, you have to have some kind of capital if you’re going to do some business behind it, but you can get anything up, you can publish anything. And then the issue is, how do you get an audience? It’s a little harder today to get an audience, but the truth is that if you have a good idea, you’ll get an audience. The perfect example is something called Google, which you all now absolutely know and most of you, I would believe, if you’re on the Internet, are using. Google has never spent anything on advertising — not a penny. Google grew because it was a good idea that people talked about and adopted.