Barry Diller's air of tech savvy hasn't paid off for shareholders

Not so very long ago, when media moguls stalked the Earth in all their arrogant glory, Barry Diller was among the biggest of the big.

He occupied that top echelon of giants known by their first names, like Sumner (Redstone), Rupert (Murdoch), and Cher.

But Diller had something they lacked -- a reputation for intellectual depth.

He seemed to understand better than his fellow moguls the havoc that digital technology would wreak on their Hollywood sandboxes. Despite his roots in conventional media -- he has at times been chief of Paramount Pictures, head of prime-time TV at ABC, chairman of Fox, and CEO of Vivendi Universal -- he saw that once customers could get their entertainment from the Internet and interact with the TV set, a whole new world of opportunities, and risks, would open up.

But as the typically tepid results turned in recently by his IAC/InterActiveCorp demonstrate, he still hasn't figured out how to squeeze riches for shareholders from his vision.

The company earned $41 million, or 28 cents a share, for the quarter that ended June 30. That was an improvement over its $422-million loss a year earlier. But excluding one-time items such as asset sales, the earnings worked out to just 7 cents a share, slightly less than the 9 cents a share analysts expected.

But Diller's reputation for clairvoyance doesn't depend on anything so mundane as quarterly results. It's of much older vintage, predating his departure from Fox in 1992 and subsequent linkup with cable moguls John Malone and Brian Roberts as partners in QVC, the home shopping cable channel. QVC's downscale tawdriness could have rubbed off some of his sheen; instead, the shopping network gained glamour from his visionary sparkle.

Since then, the domain of the traditional moguls has indeed shrunk, and Diller has continued to pursue the grail of interactive profits. Driven from QVC in 1995, he reconnected with Malone to build a new company around Home Shopping Network, one of its rivals. Eventually that company became IAC/InterActiveCorp, which has consistently underwhelmed investors with its results while leading them ahead with its ideas for novel ventures. Late last month, for example, IAC made news by hiring the one-time TV wunderkind Ben Silverman to run a venture in new-media synergy.

Meanwhile, Diller, 67, proclaimed at an industry conference that the end of free online media was "absolutely inevitable."

"People will pay for content; they always have," he stated.

This was echt-Diller: giving investors a glimpse of the technological future while leaving them to wonder whether they'll ever get a piece of the action.

But that's the hitch in managing industries under attack from transformative technologies such as television, movies, and (not to put too fine a point on things) newspapers -- it's hard to know what lies ahead, but even that's easier than figuring out how to make money in the new era.

Thanks to his skill at describing the future with a broad brush, Diller's ability to enthrall onlookers never wanes. (He and IAC didn't respond to my request to hear more from the horse's mouth.) Soon after the Silverman announcement, BusinessWeek reported that his vision of "the merging of the Internet and advertising into a single piece of video that is part commercial and part entertainment" could create a "real bonanza."

Maybe yes, maybe no. Diller doesn't seem to have divined how to exploit this interactivity bonanza any better than anyone else. One reason may be that online businesses are subject to the same vagaries of the consumer market as their off-line cousins. When the economy stinks, sales fall at HSN (spun off last year from IAC) -- which they did by 8% in the quarter that ended June 30, compared with a year earlier -- just like they do at retailers such as J.C. Penney and Nordstrom.

Another obstacle may be the sheer diffuseness of IAC's holdings, a salmagundi of more than 50 Web-based retailers and services including Ask.com, which held down all of 2% of the U.S. search market at year-end 2008, as well as Kazulah (astrology) and Bustedtees (funny T-shirts).

That hints at one of the defining qualities -- or maybe a defining flaw -- of Diller as an operating executive. Technology fanciers would undoubtedly recognize him as an "early adopter" -- someone so fascinated with tech that he must own every new gadget, or, in Diller's case, every new e-media concept.

A 1993 New Yorker profile described him as so enraptured with his new Apple PowerBook laptop that he ignored what went on around him in corporate meetings while tapping at its keys, like a modern BlackBerry addict. (Though it also revealed that he hired a tutor to learn how to use it.)

One hallmark of the early adopter is a short attention span -- his attic typically looks like a museum of outdated technology. One might think of IAC as an attic filled with dot-coms. Diller acquires cutting-edge businesses, such as Expedia, Home Shopping Network, Ticketmaster and LendingTree, then spins them off when they fail to perform as expected, or they get old, or a deal comes knocking. That often makes it look as though what's left is just what can't be unloaded.

Indeed, for all the apercus Diller emits about technology and interactivity and new media versus old media, his deal making is what makes him a favorite of Wall Street players and ensures that he need never lunch alone at the annual Allen & Co. media moguls' convention in Sun Valley, Idaho. Wall Street doesn't care so much about new technology, but it loves deals.

Consider the multiple spinoff he executed last year. Every share of IAC was converted into a one-fifth share in each of three new companies -- Ticketmaster, Home Shopping Network, and Interval Leisure Group (a marketer of vacation time shares) -- plus one-thirtieth of a share in Lending Tree and a half-share in the stump of IAC. From Wall Street's standpoint, the deal looked like this: fees, fees, fees, fees, and fees.

The deal also provoked John Malone, a cable mogul and a big IAC shareholder who thought he was getting chiseled, to sue. That added the litigation bar to the transaction's fan base. (Fees!) The court eventually ruled in Diller's favor.

All this deck-shuffling makes it very hard to figure out how much money IAC shareholders have made over time, if any. An IAC share was worth $56.52 in August 2005, just before it spun off Expedia in an earlier fee-producing maneuver. If a shareholder hung on to that IAC share, plus the spun-off Expedia share, plus the fractional shares distributed in Ticketmaster and the other "Baby Barrys" of 2008, it looks like he or she would be holding $46.71 today, for a decline of about 17.4%.

I think that's right; unfortunately, my calculator turned into a smoking hulk partway through the calculations. Anyway, if you invested in a Nasdaq basket you would have lost 7.6%, and you wouldn't have needed higher math to know where you stood.

(In the shorter term, investors have fared better. IAC shares have increased 17.5% since Jan. 1, closing Friday at $18.49).

IAC is difficult to compare to competitors, because there aren't other companies quite like it. Suffice to say that in 2002, Diller was quoted bragging that his company, then called USA Interactive, had booked more revenue in 2001 than Amazon.com, $5.28 billion to $3.12 billion.

Last year Amazon recorded $19.2 billion in sales; IAC -- even counting the spinoffs' revenues at 100%, rather than the fractions distributed to IAC shareholders -- $9.2 billion. One common criticism of Diller is that he's done much better for himself -- Forbes lists his net worth at $1 billion.

None of this necessarily makes Diller's thinking any less interesting to contemplate; at least he keeps the rest of us from believing we can ward off change. The world can always gain from prophets like Barry Diller, even if it's not by owning his stock.

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Michael Hiltzik's column appears Mondays and Thursdays.

Reach him at michael.hiltzik@latimes.com, read previous columns at www.latimes.com/hiltzik, and follow @latimeshiltzik on Twitter.

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