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Barry Diller's Brash New Strategy


The former e-commerce impresario is placing a contrarian wager on sponsored Web content

Few moguls have reinvented themselves more often than Barry Diller. Over the past 17 years he has been a TV executive, home shopping baron, and, most recently, e-commerce impresario. Now, Diller is at it again, and his Act Four is decidedly contrarian.

At a time when content providers are struggling to make money from online news, blogs, movies, music, and more, Diller is diving in. "[What] we're running now is a media-based interactive company," he says, speaking from his 300-foot yacht, Eos, off Indonesia. Yes, but what about the digerati who insist "information wants to be free"? Diller is having none of it. "The era of a free Internet was created by technology people who wouldn't know content if they tripped over it," he says. "They had no idea how to monetize what people were watching."

So how will Diller make money where so many others have failed? He is creating a model where companies don't just sponsor or advertise against online articles and video, but also pay for customized content about their businesses—from three-part series to Web shows built around their products. Eventually, he also hopes to sell subscriptions for content, too.

LITTLE CHOICE

Diller's new vision isn't universally praised. "His media play is a bit of a long shot," says Cowen & Co. analyst Jim Friedland. The 67-year-old dealmaker has little choice but to look for new opportunities for his company, IAC (IACI). Last year, with IAC's stock languishing, Diller spun off Ticketmaster, mortgage site LendingTree, and HSN, the home shopping network. His two largest remaining assets—search engine Ask.com and the highly profitable dating site Match.com—are maturing. Friedland expects the shrunken and recession-hit IAC to earn $6.5 million this year on revenues of $1.3 billion.

Besides the search engine and dating site, Diller owns ServiceMagic, which helps homeowners find plumbers and other contractors, and a handful of media sites he bought or launched that aren't yet profitable. Among the best known are GarageGames, which develops games; The Daily Beast, an artsy news site edited by celebrity editor Tina Brown; and the raunchy video site CollegeHumor.com. Last month, Diller agreed to seed former NBC programming chief Ben Silverman in a venture that will make TV shows for the Web.

Diller has put Ask.com at the center of his media ambitions. The site has 4% of the search market and depends heavily on Google-placed ads for its estimated $650 million in revenue. So Diller is creating channels that focus on specific markets. The first to sign on is Nascar. Ask.com paid $10 million to promote Nascar and to become the official search engine for the hugely popular car races. "Millions of Nascar fans are using Ask.com," says Nascar spokesman Andrew Giangola. Ask's news page displays racing news and results—even before national, business, and sports news. Traffic to Ask jumped after it started promoting Nascar in February, according to tracker ComScore (SCOR). Fox (NWS) has since advertised its Ben Stiller movie Night at the Museum: Battle of the Smithsonian on the Ask search page. Diller says he is looking for other sponsorship deals.

Diller's pure media sites are already well on their way. The Daily Beast recently ran a three-part series on Bottega Veneta, paid for by the luxury luggage maker; crime writer Patricia Cornwell paid the Beast to create a book channel featuring an excerpt of her latest novel. (Both were identified as sponsored content.) "Barry wanted us to make sponsored content interesting enough that it would become an interactive experience," says Daily Beast General Manager Caroline Marks. She figures as many as 20% of the series' readers clicked through to Bottega Veneta's ad, several times the normal rate.

CollegeHumor, meanwhile, created an entire episode of Hardly Working—a comedy about office slackers—around Nestea. The slackers drink Nestea for much of the show. In another segment developed for Colgate-Palmolive (CL), a comedian repeatedly mentions the company's Wisp mini-toothbrush as he stumbles through New York City. Diller says the venture with ex-NBCer Silverman, though not yet fully fleshed out, eventually will charge advertisers to create Web shows that feature their products and services in the story lines.

The chameleon mogul acknowledges that his media ventures won't generate meaningful revenues for a while. "The time is coming when every newspaper puts its content behind walls, and people will have to pay," Diller says. "[But] it will be five years, maybe longer, before habits change." In the meantime, Diller will have to rely on ad revenues from Ask.com (which generates half of IAC's sales), subscriptions from Match.com, and payments from contractors using ServiceMagic. There isn't much wiggle room. The Ask advertising deal with Google expires in 2012. As Barry Diller returns to his media roots, he's placing a big bet on the notion that you actually can go home again.

Grover is Los Angeles bureau chief for BusinessWeek.

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