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BY ERIK WEMPLE
?This is a very talented individualistic woman with a perspective on creative business affairs,? Diller says of new wife (and USA board member) Diane Von Furstenberg.
?The Internet is the most efficient direct-selling mechanism,? says Diller, whose Ticketmaster and HSN units are exploiting interactivity.
For most of the past decade, Barry Diller ? the onetime agent's assistant who rose to the top ranks of Hollywood ? has been building an empire of his own.
His USA Networks Inc., a media, retail and information conglomerate with a market value of $17.1 billion and annual revenues of nearly $5 billion, started as a small chain of UHF television stations and now includes assets as diverse as the ticket broker Ticketmaster, an online dating service and a handful of cable networks. (Meanwhile, the stations just sold for $1.1 billion.) While many investors still have a hard time puzzling through Diller's complicated company ? which has a hand in everything from network-TV production to home shopping ? USA Networks makes four times as much from transactions such as ticket buying and retail sales than advertising. That may help explain why the stock has outperformed industry titans such as Viacom and Walt Disney during the current ad slowdown. (Diller has a minority interest in Brill Media Holdings L.P, which has an ownership interest in Media Central, the parent company of CableWorld.)
CableWorld contributing editor STACI D. KRAMER recently interviewed Diller, 59, both in his 43rd floor offices at Carnegie Hall Tower and on the phone. During much of the in-person portion, the restless mogul ? long known as one of the most feared and demanding bosses in the entertainment industry ? remained on his feet, gesturing passionately as he explained the philosophy behind one of the few media companies actually making money on the Internet.
Some excerpts:
CW: One analyst has described USA and Sci-Fi as essentially promotional vehicles for the rest of your empire.
BD: [That's] silly. I don't agree with that?. The Sopranos is a great promotional vehicle if you are in the business of selling subscriptions for the HBO service owned by Time Warner?. But what is it really? It's a great entertainment program, obviously.
Definitely our entertainment services are combined with an extraordinarily powerful interactive infrastructure. [And] I would argue, also an extraordinarily powerful retailing and merchandising sensibility.
USAi provides e-commerce services for companies that you compete with in cable programming. How does that work?
It has to do with the things that we do but they don't do?. Our company is a kind of interesting intersection of prosaically old entertainment media and interactivity. That's because of our fairly long-toothed interest in interactivity. We didn't come to interactivity because the Internet exploded and we got worried about being displaced.
Interactivity for us, for me, started in ?92, when I went to QVC and I knew that [the] convergence of televisions and telephones and computers was wildly going to change things. I just didn't know how. So my somewhat serendipitous quest since then has been, so to speak, one dumb foot in front of the other, but it led us to Ticketmaster, it led us to Citysearch, it led us to Hotel Reservations Network, it led us to a series of 20 or so acquisitions in various forms of interactivity. It led us to?customer-care businesses like Precision Response Corporation, which is the second-leading teleservices company in the world, and this process of developing, deepening these interactive paths ? all of which are tied to two parts of the same heart apparatus.
On one side, it's a real sense of retailing. On the other side, we have an old-fashioned entertainment editorial program heart, and it's the mix of these two worlds and these two disciplines that gives us the ability to ? at real-scale ? have real electronic commerce all the way around the current and future possibilities?. We're just a series of networks and systems that may be competitive with Turner or Viacom (we're doing their [CBS] Sportsline commerce sites), and I think we will be doing, so to speak, business with all program distributors and all program services over time because that's how our company is being organized. Our company is organized differently from other organizations who are tier-two media companies ? because we're not in the top tier-four companies, the names of which you know ? but we are a tier-one interactive company and that easily is just a fact?. We started three years before there was an Internet ? before the World Wide Web, there was an Internet, but the Internet didn't really start until ?95, [that] really was the very, very beginning of the Internet. And it wasn't until ? interestingly enough, we live in such warp speed time ? '97, '98 that the lunacy began.
You didn't completely escape the lunacy. You did the Ticketmaster-Citysearch IPO in December 1998 ?
No, no, no. What we did ? when you say escape it, we opportunistically exploited it. Absolutely. We took a tiny slice of Ticketmaster ? i.e. its online business ? and we merged it into Citysearch, and we took that entity public and it shot to the moon and it's now come back down, but it still has market capitalization of two billion.
When you first went to QVC in 1992, a lot of people wondered, ?What is Barry Diller doing??
Absolutely.
You must have seen something that other people didn't. But you can't say that even back then you saw the future of interactivity, can you?
The only thing that I knew when I got to QVC in the summer of ?92, and I saw interactivity at scale for the first time, the only [thing] I knew was wow!? I grew up in a world of passive entertainment. All my life I had been engaged in various forms of passive entertainment: theatrical motion-picture production, distribution and financing, television motion-picture financing, distribution, etc. Passive entertainment. Fox network is the definition of a passive entertainment service?. The first thing that happened to me is I left Fox for all these reasons that are well known and?I started learning about computers because I was intrigued? I thought ?I don't know anything about it ? that's interesting.? And then I came upon interactivity ? which by its definition is not passive ? at QVC. I saw a cable interactive medium: See it, take an action and something happens. The epiphany I got was when I saw computer screens that show these waves of calls coming in and orders being filled tied to a television set tied to a computer. All it said to me was, ?Wow, things will change because of that.? I didn't know about the Internet. There was no World Wide Web. But I was curious. My curiosity was aroused, just as my curiosity's been aroused by different things in the past in my life?. By the way, that's not a big deal. It really isn't a big deal. I don't prize it that highly because it isn't some big intellectual [thing], it's hardly [like] original creation. It is not discovering theories of matter and things like that. It's just a small instinct. It's just a recognition of a good idea. Interactivity's a good idea, and I followed it.
A lot of the same discussions keep cropping up about e-commerce, t-commerce, interactivity. People say ?It's coming, it's coming.? But are we getting any closer? Are we closer to critical mass?
Sure you are. We already have critical mass in terms of Internet usage. We don't yet have the kind of graphical interface and ease of use ?
But you don't have enough set-top boxes.
You are at the beginning period of necessarily smart set-top-box interactive systems. I understand what you're saying. I was on that stage with John Malone ten years ago when the 500-channel universe was invented?. I'm very hopeful that Mr. Murdoch gets DirecTV, because I think it will further accelerate the development of smart television sets?. It's in the next three to five years where you get to a critical-mass number. It is inevitable.
How do you define critical mass? You're at a point where you have reached critical mass in interactivity in certain places, but you're in the same boat with everybody else to a certain extent when it comes to this reliance on set-top boxes.
Absolutely.
How many set-top boxes is it going to take to reach profitability?
I think that for us it's profitable from the first hour the first day because all of our infrastructure is already there. It's just an extension?.
We have Internet services that make this television-set experience something now of a hybrid from this picture you see on television and this three-feet-, two-feet-away Internet appliance that's working in tandem. If you look at HSN on the air, our HSN.com is truly an Internet extension of this 70-million household electronic-retail-program service that we have. There are all kinds of examples of the relationships from one to the other. We end a program and a chat with that person immediately begins on HSN.com. Selling relationships between the two media have begun to merge, so now [we have] this seamless point-and-click ordering on a television set. I believe, by the way, it will take some years to get that number into the, let's say, 10 million critical-mass level. It has to happen, however. It is now inevitable. It will happen faster if there's more competition between the sky and the ground but it'll happen nevertheless.
The things we're talking about HSN, QVC, back-door solutions ? those are completely unsexy to most people. Nobody would have imagined you in these contexts a few years ago.
What in God's name am I doing there?
So the natural question becomes: do you need the creative side, the networks, the studios?
I actually think they're interrelated. I'm absolutely a believer that the advertiser-supported models are going to have a third stream of revenue: direct selling. And direct selling is obviously an extremely large part of what we do. I believe there is going to be ? there is ? an interrelationship between the two. I think that interrelationship is just the end of the beginning, not the end of this maturing. When I started in direct selling at QVC and bought into HSN, that's pure direct selling.
The Internet is the most efficient direct-selling mechanism, because there's no one between the merchant and the customer. It's only true in the last six months as we've come through this period and as our businesses, some of our business, not only emerged but the connecting dots between them now seem to be more visible to people. We've been active now for five years so it's easier for us?. I'm speaking now with a whole different level of certainty about our activities.
Do you see any time when the entertainment and interactive sides might split?
I'll keep saying this till they drag me away for one reason or the other that there is this real convergence of entertainment, information and direct selling. Now I believe that?[in] converging, coming together, the parts are beginning to relate to each other, become powerful
In light of your billion-plus acquisition fund, would the structure you've put together at USA be something you could apply to a company like Amazon and make it more efficient and able to make money?
It's complicated, it's complicated?. I really don't know its applicability to Amazon. It's possible, but it's too speculative.
How does USAi make money when you provide e-commerce for other companies? Does it come from a service cost, from getting a cut of their revenues?
It's certainly inside services, but given that we create value certainly we have revenue.
Eventually do you see a menu of services beyond merchandise involving your networks and your other ventures? For instance, somebody could not only buy merchandise from Trio but click on a button and buy a Broadway package with hotels booked through HSN and tickets through Ticketmaster and dinner reservations via Citysearch.
All of those things are possible. Those are the kinds of things we will do once you have those infrastructures down and these program services on the side, and when you get more convergent, those are the things we will more naturalistically do and our competitors will do.
On the programming side, how do you see the development of Trio into a culture channel affecting the rest of the company?
I see it as an evolution [of] a program service over a period of time. I think it will do quite well.
And the way it fits in with the other networks would be the convergent possibilities?
They're program services that are in a fractionated world. They're niche services that, if they succeed, will create real value.
You ended up not going after Rainbow Media. There's been word that you've said no to Fox Family Channel as well. Is that accurate?
Yes, though we wouldn't confirm it. We just wouldn't make a statement about it; [that's] not appropriate for us.
But it's not something you're interested in ?
No, it's not.
What are you interested in going forward?
[That's] much too speculative.
Are you more interested in going after established entities or in creating more upstart networks, like, say, the Crime Channel?
We'd do either, but that's opportunistic. It just depends upon the circumstances.
There's also been a great deal of speculation about a swap of Vivendi's bSkyb shares for Liberty's USA shares, in a way that makes it sound as though you have no say in the matter. You were pretty emphatic when you left Fox that you wanted to control your environment. What kind of control do you have?
It's fairly straightforward. It's inside the shareholders' agreement between the three parties with Vivendi succeeding Seagram's and Liberty and myself. It's quite clear-cut. It gives rights and responsibilities to the parties. It gives large shareholders ? Vivendi and Liberty ? the right to veto transactions above 10% of our capitalization on a rolling six-month basis and other than that it reposes voting control in my hands.
Can they swap without your permission?
No.
Has this gotten anywhere beyond the stages of people talking about it in the press?
It's just drama. I can understand writing for the drama, but that's what I think it is.
Do you think people are just waiting for shoes to drop post-Vivendi?
I think that's probably true. Totally reasonable but they don't concern me very much.
Is there anything that would get you to give up control of USAi?
The only thing?would be if the company's growth were circumscribed to such a degree that I felt it would be to the detriment of long-term shareholders ? that the only way to solve that would be to, so to speak, sell the company. Then I would agree.
Maybe the most famous deal that you didn't get in the last few years is the proposed purchase of Lycos. That got derailed in part by someone who argued over the value of a company. Had you been able to complete Lycos, would you be as comfortable where you are today given what happened in the Internet world?
It's too speculative. Because of the nature on the basis of which we were going to do it, I think we would be fine, because we were doing it expecting an Internet reevaluation. So I think we would be OK and would be further progressing down road x rather than road y?.
Your wife [designer and socialite] Diane Von Furstenberg is on the board of USA Networks. What does her background bring to USA?
This is an area of absolute nonobjectivity so?but that said, I would put in the hands of any objective questioner the easily seen fact that this is a very uniquely talented individualistic woman with a perspective on not only business but all forms of creative business affairs. This board is very lucky to have her no matter how she got on it.
Are you yet used to the fact that people are still completely fascinated by your marriage?
I know people are. It's interesting just because we've been in each other's lives for so many years, but the best thing to do is smile and say thank you. What else are we going to do?
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