Barry Diller spoke with Bloomberg's Erik Schatzker about Donald Trump, the state of the TV industry, Tinder, Jack Dorsey and more at the Bloomberg Markets Most Influential Summit in New York today.
On Trump: "If Donald Trump doesn't fall, I'll either move out of the country or join the resistance...I just think it's a phenomenon of reality television as politics and I think that that is how it started. Reality television, as you all know, is based on conflict...All he is is about conflict and it's all about the negative conflict...He's a self-promoting huckster who found a vein, a vein of meanness and nastiness."
On TV networks and distributors: "Any business model that relies on a closed system is vulnerable...The business model, though, of believing that you can increase prices on the consumer to infinity -- which is what has happened over the last 20 some-odd five years, that's over. When you think that you can instead price your own programming at a cumulative premium, people who will, I think, do better are people who own individual programming because individual programs can be priced. "Game of Thrones" can be priced. "The Good Wife," tiny little example. I went on last night because I had been gone, whatever, and "The Good Wife" came on and it's on Netflix or Apple. And I like "The Good Wife" a lot but I don't really watch broadcast television very much. So I punched it up; $44 for the season. You know, I bought it. Now I'm not the normal consumer, I grant you. But the ability to price individual programs for people who like them, you need much fewer people by definition because you can price them essentially advantageously."
On Jack Dorsey: "You know, it's not like, people say how do you allocate your time? Nobody I know who runs more than a soda stand does the kind of precise time allocation; he'll bop from one to the other as issues arise. And if he has capacity as a manager, which we don't know yet because Square is a developing company and he really did not manage Twitter -- he founded it. He's the creative drive of it. So, if he's a good manager, handling two public companies is not that big a trick."
On Tinder: "It's blooming itself along and on every metric -- and it's now starting to actually have revenue, net revenue...I've now pretty sure it's gone past the phase where if it wasn't sustainable, it would have dropped."
Full transcript below.
ERIK SCHATZKER, BLOOMBERG TV HOST: Good afternoon, everybody, friends, invited guests, Bloomberg television viewers around the world.
Great to be here, Barry. Great to see you again.
BARRY DILLER, CHAIRMAN AND SENIOR EXECUTIVE, IAC AND EXPEDIA: Well, thank you.
What can I do?
SCHATZKER: Well, answer some questions, how about that?
DILLER: Oh, god. OK.
SCHATZKER: Why don't we begin...
You know because we've done this before that I like to ask you questions about valuations because you bring a different perspective to the question than, say, a trader would or a money manager would or a venture capitalist would.
And I want to begin with what I call and other people might also call the unicorn problem. They're supposed to be rare, but there are, at last count, at least 131 privately held startups with a valuation of $1 billion or more.
Does that make sense to you?
DILLER: Well, I mean, it only makes 31 -- it only makes sense in a close circle where it doesn't matter because it's all it is about really is dilution, which means that when you go with various financing rounds, the latter financing round dilutes the original. And so they have no reality. It's not like -- it's not like anybody actually believes these valuations. What they are is new money coming in and old money argues the least dilution et cetera since they're all betting on an unimaginably high upside. It does not matter.
So the only thing that matters is when the shoes drop. And what we've had is an enormous amount of money coming in, continuing money coming in and no shoes dropping yet of any real size.
When that begins to happen -- because none of these companies make any money -- so some certainly will. But when it begins to happen reality (INAUDIBLE), then in fact, valuations will be come more rational.
They're just not now.
SCHATZKER: Is it possible to --
DILLER: And it doesn't matter because it's all --
SCHATZKER: If it doesn't matter, should we be -- should we collectively be paying less attention to it?
SCHATZKER: Just pretend it doesn't exist?
DILLER: Yes, because it doesn't exist.
SCHATZKER: Doesn't matter if Uber's worth $54 billion?
DILLER: Of course it doesn't matter.
Why would it matter to nobody other than the people are being diluted they used to own X percent now they own Y because they brought in all this money. They got these presumably intelligent folk to say, OK to a $50 million, billion valuation or a $40 billion or whatever it is. But that's because what they were buying into -- and they're investing in many different things. They're buying into the, you know, not the 80-20, it's probably the 99-1 concept, which is you hit 1, it pays for everything else.
So it does not matter. It's no economic consequences.
SCHATZKER: Why does the surreality -- let's call it that -- then persist?
Because we have seen some shoes drop. I can think for example of King Digital. That shoe dropped pretty hard. Zynga's another shoe that dropped pretty hard.
DILLER: Yes, but it's not -- you know, in the scheme of it, more money has come in very few. We're in a period now because we're in this period of in -- of the close-up mobile more than anything else. But also the natural development of the Internet. We're now in this period of kind of hyper invention, hyper business formation of business, hyper idea formation.
So you're going to have to see a whole sequence of things happen which they will happen and that will dry up the money. The valuations will get rational. And then you have also on the other side of this in the -- on the buying side, not the selling side -- you have people trying, paying opportunity costs. They buy something for $900 million; Disney buys Maker. It doesn't make any money. This price, again, only makes sense if you're saying I'm over here in this non-digital age. I want to get into this. I'll pay this huge opportunity cost and maybe I'll make something of it.
So you have those two forces. Eventually, I would say -- I mean, I don't want to predict this. I think it's silly. But at some reasonable year, relatively near term, rationality, it'll fall. I don't mean it'll fall -- you'll take the big pressures off both the buying and the VCing, the investing. But in the meantime, well, in the meantime, it's craziness.
SCHATZKER: Well, and also, it maybe craziness, but in the meantime, you manage a portfolio. You're in the business of buying things and selling things.
DILLER: But we don't buy things at multiples that we don't think are rational. We just don't.
So if something is -- first of all, we tend -- we start things that have no revenue. We're very happy. We started Tinder, cost us $500,000, really, that's something like that. I mean, it didn't cost us anything, really. I mean, it was an incubation thing.
SCHATZKER: And now it's worth what?
DILLER: Who knows. Make up your number. I have no idea.
DILLER: I don't. It's blooming itself along and on every metric -- and it's now starting to actually have revenue, net revenue, and on -- without any question it's going to -- it is -- I've now pretty sure it's gone past the phase where if it wasn't sustainable, it would have dropped. It's held its growth for so long enough. So it's real.
But you know, contrast that again, we invested in that. We didn't invest very much. If we buy a business, first of all, we tend to buy businesses that actually have revenues and --
SCHATZKER: Like Plenty of Fish, for example?
DILLER: Yes, we bought Plenty of Fish for almost $600 million.
SCHATZKER: This was back in July.
DILLER: I promise you, it has a lot of revenue and a lot of netter things, otherwise we wouldn't have paid the price for it.
So we -- if we're buying something rather than where we would say it's an opportunity cost, which we do -- I mean, I can't even think of one recently -- we will buy things that we can buy. And the rest we can't. And there are many things -- I would love to own and we can't do it because they're rationally priced.
SCHATZKER: Is it better to be a seller then?
DILLER: Well, yes, in this environment, it's...
Look, with -- when it's at this level, you can say, well, sell everything. But you know, that's a --
SCHATZKER: -- like this a couple of years ago.
DILLER: Yes, well, that's a cycle. But if you're a company like ours, which has been creating assets and then spinning off companies -- 2,000 --
SCHATZKER: Multiple times -- and you'll be doing it again when you take the Match Group public.
DILLER: Yes, that's the nice one, I think.
So that's our business formation. We either buy at an early stage or create businesses that we hope to get to a point that they will stand on their own and their independence is good for them and good for shareholders. And that's what we do.
So to us, to -- we're not in the business of saying, well, look one thing out of 60 works. We're happy. That's just not our model.
SCHATZKER: How, then, do you approach the challenge of recycling the capital that you'll have when this Match IPO, this liquidity event comes along?
DILLER: Buy, buy things rationally, at least that we think are rational.
SCHATZKER: You may have to wait.
DILLER: Well, yes. I mean, wait or not. The one thing I've learned: waiting doesn't usually work. OK? I mean, you say, we'll wait for the world to turn rational again. And then you sit and, you know, and suck.
So that doesn't make to me a lot of sense. What you do is what you can do. And there's always something you can do. And we like both on businesses towards (INAUDIBLE) business. We do a lot of that. We do it as in our travel business. We just bought Orbitz. We paid a good price for Orbitz, a business of $600 million. But I promise you that on any counting metric, that's a rational price.
So it's not like we won't go. It's just our filter is devoid of extraneous silliness, except our own silliness.
SCHATZKER: Do you find that the money you're competing with, which might be rational money and it might be irrational money, is getting better at spotting the kinds of opportunities you look for?
SCHATZKER: Why, do you think?
DILLER: Why would they?
SCHATZKER: Well, maybe they've been burned a few times and learned a few lessons.
DILLER: That doesn't necessarily -- you know, I mean, the getting -- again, they do -- for their investors, I suppose, I don't really know. I'm not an investor (INAUDIBLE).
But their record has been I don't know. I really don't know exactly. But some would say good; some would say average over the last period of time.
But their ability --
SCHATZKER: And it depends, I think, on whether you're counting it on the basis of IRR or cash in and cash out.
DILLER: Well, yes. I mean, eventually. But reality does eventually become reality except on television and in our current national political situation.
DILLER: -- but in this case -- ah, sorry. Just to answer your question --
DILLER: -- to say is what I said originally, no.
SCHATZKER: Let's talk about your portfolio.
Are you happy with it, the way it's built right now?
Or do you see trends developing or technologies emerging that you want to take advantage of in a way that would require you to restructure to do something different?
DILLER: Well, look, we're just -- Expedia is the -- our travel business is on a very good growth track which now is being recognized and it was under kind of a bit of a cloud, not cloud by an extraneous events, but just its competitive set, et cetera.
But now it's a worldwide business. It is growing. We have been very inquisitive. We will continue to be inquisitive. The track is very clear. The path is very wide. Travel is not going anywhere except it's going to continue --
DILLER: -- tomorrow no matter what. Yes, well...
I'm not going.
DILLER: But there's no -- so Expedia's a tech company, pure, really pure tech company because in order to do what it does, which is to take this extraordinary amount of information and be able to pull it down into an instant practically, I mean, millisecond response to a request to do this or that is an immense task of constant innovation and technology. So that's its future.
So long as it continues to invest in technology, I have no worries about it nor any desire to kind of redefine it. As far as I see, that company is -- it was a spinoff of Match, it's well capitalized. It can go in any direction it likes and it will go where it has always gone, for opportunity. It's totally -- we're totally opportunistic, which is any idea that comes in the door that we think is a good idea, we will put the money down. We will not worry short-term, long-term, we do not -- doesn't disturb us to invest in building things.
And it doesn't really -- you know, it doesn't disturb to put a stick in it any moment in time and essentially say that's enough other than saying we failed. And that, we're pretty good at. When we say, you know what, we thought it was a good idea. We did this. We screwed it up. It was a good idea, somebody else, da-da-da. At that point, we -- not happily, but easily digestible -- we eat it and go on. We -- the only thing I don't ever want us to do is to make a big mistake.
The big mistake means something that essentially changes the net process that the company is engaged in, being to continue to build, buy businesses and get them to a level where they can stand on their own.
SCHATZKER: So outside --
DILLER: It's a unique model. No one has -- no one else does it --
DILLER: -- it's either -- if -- unique doesn't mean it's smart.
Although it's been on the record fairly good.
SCHATZKER: Outside of travel then, which is Expedia Travel and Technology and dating, which is going to be the Match Group IPO, there are four main businesses that IAC Interactive is in, right, you have Vimeo. You have Home Adviser. You have this sort of applications business and you have your content of digital publishing.
SCHATZKER: Business which includes things like "The Daily Beast" and Investopedia, dictionary.com and --
SCHATZKER: -- which of those holds the most promise right now?
DILLER: I don't know. I mean, each of them, the most -- I can give you a good little argument why each has runways, has possibilities --
DILLER: -- it really depends. It now depends upon execution. And you know, some things we get right and some things we don't. Some things are time; some things are not in our, you know, (INAUDIBLE). But the thing is is I can't -- I don't think it's wise to say, well, this one. They all -- truthfully, all of the areas we in -- we're in have promise and potential, all of them. The question is whether or not we can execute any of them sufficiently. And we may do well over here or not well over there. It's been in our history.
But so I can't go there. Or I've just gone there and not very productively.
SCHATZKER: If it's true -- well, let's contemplate for a moment the flip side of the valuations question, as opposed to buying selling, market conditions, as you know, since late August, have been immensely challenging and Match is going to be going public into a market that could continue to be challenging if what we're witnessing now persists.
If that's the case, you wait.
DILLER: I mean, do we not do the IPO?
SCHATZKER: When you think you're going to do the IPO, do you wait until market conditions improve?
DILLER: Well, it -- look, here's the thing. We -- the consideration for us is can we begin it at what we consider a minimum decent value. And that's not a value that we hope will go up crazily next day or week and a year later fall. That is a base upon which we hope that if we do the work well, continue to do the work well with the Match Group, that in a few years it will be worth much more than it is now.
So our consideration is not the last dollar. Our consideration is -- if it falls below what we think is the minimum, then we won't. And we can't predict because you can't predict much of anything today.
DILLER: Except for (INAUDIBLE) certain political figures.
SCHATZKER: We'll get to that.
August was also notable for another day, one that we might say won't soon be forgotten in American media. August the 4th, the date Disney's CEO, Bob Iger, said ESPN takes experience. Some moderate subscriber losses.
Well, some of you may know that since then -- and we can show you -- Disney shares are down 15 percent; FOX is down 15 percent. Discovery is down 17 percent and the list goes on.
Was that a watershed moment for the American television industry?
DILLER: You mean the announcement of it? What, it --
DILLER: -- the reality of --
SCHATZKER: Yes, something sunk in.
DILLER: -- this happening?
Well, sure. I mean, the watershed is that you have been -- you, America -- has been in close communication systems since radio. Why? Radio was a limited spectrum. Television was limited broadcast television, is limited spectrum.
Satellite and cable was much less limited but the people who owned it wanted to tell everyone how limited it was so that they could grab from them rights that otherwise they couldn't get.
So it's -- we have lived up until you know, really five, seven years ago, when you could transmit video at speeds that were able to be received, real broadband, in other words.
Yes. So once you had broadband, that said, oh, wait. There is unlimited absolute capacity. You can drive any train down that track. All right? Once that happened, these closed systems became and are vulnerable. And so when you have a closed system, you can price things essentially without much precision in terms of the consumer.
But once you have transmission systems that allow you to pick and choose and that have enormous capacity, then all that goes away. So I'm -- I was kind of surprised at this realization came at the latest it did because these -- the closed systems means no one inside it any longer has real pricing power.
Previously, they had pricing power with the consumer, without any question. And they had pricing power, cable channels had pricing power, cable programming had pricing power to a degree over cable ownership. So did broadcast, as every transmission consent came and all of that.
All that pricing power is going to disappear. So think they are vulnerable.
SCHATZKER: So unbundling is very much for real.
DILLER: Well, of course it is. It has to be. Once you chink that armor of the closed system, once you do it, it really is, you know, the -- no finger in the dam is going to hold it back. As you know, major content producers tried hard. You know, they said, we're -- what, are you crazy? We're not doing any -- we're really happy. We want the most people paying the most money without any discrimination because then we get the most money.
Once that armor is breached, once that happens, it is inevitable. Does not mean cable's going away. It means that the words -- you think about it -- cable, broadcast, satellite -- they're all going to disappear because cable systems now really are data transmission systems. And they transmit cable programming, broadcast programming, anybody's programming and digital programming.
So all those historic things go kind of up in smoke.
SCHATZKER: So let's think for a moment then about the major players in this industry -- I mentioned a couple of them -- and you referenced broadly speaking a couple of others -- whose business models are most resilient? Whose are most vulnerable?
DILLER: Well, any business model that relies on a closed system is vulnerable. That's not mean, again, they're going out of business. They'll develop other businesses. They'll do what they have always done, which is they'll find, if they can, something else to colonize.
So the business model, though, of believing that you can increase prices on the consumer to infinity -- which is what has happened over the last 20 some-odd five years, that's over. When you think that you can instead price your own programming at a cumulative premium (INAUDIBLE), people who will, I think, do better are people who own individual programming because individual programs can be priced. "Game of Thrones" can be priced.
"The Good Wife," tiny little example. I went on last night because I had been gone, whatever, and I -- "The Good Wife" came on and it's on Netflix or Apple. And I like "The Good Wife" a lot but I don't really watch broadcast television very much. So I punched it up; $44 for the season. You know, I bought it.
Now I'm not the normal consumer. I grant you. But the -- but the ability to price individual programs for people who like them, you need much fewer people by definition because you can price them essentially advantageously.
So those formations, I think, you know, there's going to be a lot of productivity there. The rest is going to be a series. You know, there's good business model, bad business model. The thing is going to happen is there could be a lot of creative destruction. Out of that --
SCHATZKER: That's what I'm wondering, what happens to the Viacoms? What happens to the boxes? What happens to the...?
DILLER: I think they do what they're doing. They're trying to diversify. They're trying to get any way they can into this other areas. As several of them have said what they don't want to do is give away dollars for pennies. But you know, which is why in the early period they wanted the dollar of the closed system as against the pennies of the open system, right? That's lovely until you don't get the dollar anymore.
And that's kind of inevitable. So all sorts of things are going to happen.
SCHATZKER: So that was my question.
DILLER: But you know, I don't know.
SCHATZKER: Well, I definitely don't know.
That was my question for the former -- they guy who built FOX Broadcasting, the guy who built USA Broadcasting. Here's my question for the guy who was chairman and CEO of Paramount.
Is virtual reality for real?
DILLER: You know, it's really interesting. I've looked at -- I've probably seen everything that's out there and a few of the things that are still in prototype. And it is a different experience. It's most applicable to me to games, maybe sports because of the ability to get different angles.
I don't think -- and again, this is just me. I'm an old horse. So you know, in narrative storytelling, I don't think it's for storytelling. But I -- a horse could be completely wrong. I think it's definitely -- you know, it is another dimension. 3D was another dimension. We fooled around. Everybody thought a few years ago 3D is everything. Well, it isn't everything because it's only applicable this way. I suspect the same is true of VR. And I'm not talking about VR as it relates to science, to health, to things where its applicability can be -- I'm just simply talking about it as an entertainment -- an entertainment medium.
SCHATZKER: All right. Before we run out of time, let's go back to that politics issue, shall we?
DILLER: Oh, I think not.
SCHATZKER: Well, whose fall were you predicting?
DILLER: Well, if Donald Trump doesn't fall, I'll either move out of the country or join the resistance.
SCHATZKER: Oh, aren't you already part of the resistance?
DILLER: No, I mean, what will be necessary. The real resistance.
SCHATZKER: Is he the only candidate you're worried about?
DILLER: No, I'm not -- by the way, I am truly -- I'm not moving and I don't think I'm joining the resistance because I -- (INAUDIBLE) I take any bet that it won't happen. So I just think it's a phenomenon of reality television as politics and I think that that is how it started. It is -- reality television, as you all know, is based on conflict. Nobody wants to watch reality television of two housewives sitting in a room talking about where they're going to go get their hair done.
It's all about conflict. And Donald Trump, all he is is about conflict and it's all about the negative conflict. It's all about saying this -- I mean, the idea that anybody gets away with saying John McCain is not a hero because I like people who don't get caught is an insane -- why would you think of -- why would you -- even that I'm saying it is so silly, because why would you even think about it?
All he is is a huckster, you know, he's somebody who learned long ago in real estate that if you can make a big name for yourself, it can get you an extra dollar. So all he's doing, he's a self-promoting huckster who found a vein, a vein of meanness and nastiness.
SCHATZKER: So you wouldn't credit him with anything --
DILLER: Zero, because --
SCHATZKER: -- anything to do with --
DILLER: -- I think -- no. I don't think it's got anything to do with American anger at the elites or this or that.
SCHATZKER: What about his communication strategy?
DILLER: He has no communication strategy except to be what he has always been, a nasty, mean person, criticizing people and doing, you know, silly, kind of showman stuff. So you know, where did he get a national reputation? From "The Apprentice."
What did he do on "The Apprentice"? He fired people. Now that's, you know, kind of lasts a little while until it doesn't last and then you got to get -- be in the celebrities to come and do the same kind of viral thing.
SCHATZKER: So before we run out of time, what do you think will prove to be the most successful approach or strategy as this campaign moves forward?
What's going to win?
I mean, what's going to win is you're eventually going to have two candidates, hopefully with some qualifications and one of them will win. I don't know, you know --
DILLER: -- what else is there?
SCHATZKER: We have run out of time. But I -- it occurs to me there's one last question.
DILLER: Yes, sir.
SCHATZKER: You've had the rare experience of running multiple companies at the same time.
SCHATZKER: What's your advice to Jack Dorsey?
How does he make a success of Square and Twitter at the same time?
DILLER: Well, I do think there is the capacity to run multiple businesses. So I think that's what he does. He runs them. You know, it's not like, you know, people say how do you allocate your time? Nobody I know who runs more than a soda stand does the kind of precise time allocation; he'll bop from one to the other as issues arise. And if he has capacity as a manager, which we don't know yet because Square is a developing company and he really did not manage Twitter -- he founded it. He's the creative drive of it.
So if he's a good manager, and handling two public companies is not that big a trick.
SCHATZKER: Square's not public yet.
DILLER: Yes, I know. That's true, but it intends to be.
SCHATZKER: All right. Barry, on that note, we end our conversation. Thank you very much, sir. Thank you.
Thank you to Barry Diller.
DILLER: Thank you.