Barry Diller Still Believes - Company Business and Marketing

Industry Standard, The, July 30, 2001 by Kenneth Li

WHILE OTHER MEDIA TYCOONS HAVE BACKED AWAY FROM THE INTERNET, THE ONCE-AND-FUTURE MOGUL KEEPS THE FAITH. AND WITH LAST WEEK'S PURCHASE OF TRAVEL SITE EXPEDIA, HIS HOLDINGS ARE STARTING TO LOOK LIKE A CONVERGENCE EMPIRE.

Maybe spending more than two decades under the klieg lights had finally fried his mind, whispered observers of Barry Diller in 1992.

While still at the apogee of media adoration -- Diller was arguably the first true celebrity mogul, the toast of the Vanity Fair sensibility -- he made a career swerve that left the intelligentsia puzzled and disappointed.

He resigned as chairman and CEO of News Corp.'s Fox unit in February 1992, reportedly chafing under owner Rupert Murdoch's meddling, then took 12 months off. When he reemerged, he announced that he would become chairman and part owner of the QVC Network, a home-shopping cable channel known primarily for hawking cubic zirconium. Leaving QVC two years later to run (and later buy) the underdog Home Shopping Network seemed only to further erode his image -- and to fuel the zirconium jokes. "People passing Diller at his regular table in the Grill Room of the Four Seasons had almost embarrassed expressions as he kept looking around, as if for applause," the New Yorker's Ken Auletta wrote in a 1993 profile documenting the weeks after the QVC news. "They seemed to be thinking: Barry's going to run what? ... You've got to be kidding!" But Auletta himself had described Diller's sabbatical as a period of deep study of the potential of digital technology, so there were those who wondered if it was all part of some grand, visionary plan.

The mystique was further diminished by a series of unsuccessful acquisition attempts: Paramount in 1993, CBS in 1994, NBC in 1998 and Lycos in 1999. Despite these disappointments Diller patiently assembled his new company, exploiting not the public's unquenchable lust for Hollywood glitz but the more prosaic impulse-buying habits of couch potatoes across the nation. He began stitching together a patchwork of acquisitions - a small production studio here, a slice of an Internet company there. He bundled the acquisitions under the general rubric of USA Networks, a loose collection of assets that came to include everything from a movie production studio to an online ticket-selling business. [See page 35.]

But last week Diller was back in the spotlight, bringing his plans for USA Networks into sharper focus and wowing Wall Street. All these years, as talk of set-top boxes and interactive TV droned on without results, Diller has been building a business at the juncture of TV and e-commerce.

USA Networks intends to purchase a controlling stake in online travel site Expedia, striking an agreement with Microsoft to take over its 33.7 million shares, a 70 percent claim in the venture, in a complicated transaction worth up to $1.5 billion.

Travel is the No. 1 online retail category, with sales expected to reach $24 billion this year. (No. 2, PC sales, lags far behind at $7.1 billion.) But Diller has more in mind than just selling Caribbean vacations. The deal may well be a pivotal moment in USA's evolution, with Microsoft potentially playing a larger role with its 3 percent to 5 percent stake in USA Networks, should the deal close. And Vivendi Universal- a 43 percent owner of USA Networks - could turn to Diller and company to open a new front for its global expansion plans. Vivendi and USA Networks quietly struck a deal last week to give Vivendi the option to raise its stake in USA to 50.1 percent. (It would not get voting control.)

Diller hinted at a broad range of ties between his company's media and commerce units and Microsoft's ambitious Internet and software businesses. "One of the aspects of [the Expedia deal] that's most important is this relationship we have with Microsoft," Diller says. Indeed, Microsoft stands to profit handsomely from the deal. Although it sold Expedia at a discount, the software giant could make canny use of USAs database of 30 million consumers to help build HailStorm, the Web services initiative that's key to Microsoft's future.

The deal may be the best example yet of the convergence of entertainment and shopping that has long bewitched global media companies. USA Travel, as the new venture will be called, will combine Expedia with a 24-hour cable channel and the National Leisure Group, a new acquisition that provides private-label vacation packages. USA Travel will rely on Home Shopping Network's sales and production muscle; customer service and fulfillment will be handled by other units of USA's empire.

In Diller's world, customers will book airline tickets using Expedia, find lodgings with the Hotel Reservations Network, peruse restaurant choices on CitySearch and buy their concert and sporting events tickets through Ticketmaster.

This is not, of course, the ultimate convergence that media visionaries have in mind. TV viewers won't be able to click a button, flip over to a Web site and buy everything from a blouse to a boat. Diller isn't waiting for that day to arrive. Instead, he's using today's technology -- old-fashioned cable TV, call centers, and dialup Internet connections -- to cobble together a more-practical convergence. "It's just coming into view for other people to understand," Diller says. "People aren't as likely now to say that these are unrelated assets."