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May 10, 2002 -- New York.

A Conversation with Barry Diller

with Barry Diller and Ken Auletta.

Sponsored by:
The Newhouse School at Syracuse University, The New Yorker, Cushman & Wakefield, UBS Warburg, and Booz Allen Hamilton

Last month, the New Yorker writer Ken Auletta conducted a breakfast interview with Barry Diller, the chairman and C.E.O. of the Universal Entertainment Group and the head of USA Interactive. Here are excerpts from the conversation.

KEN AULETTA: Barry Diller's career started at ABC, with the "Movie of the Week," which he kind of invented. Then we think about his running Paramount successfully, for ten or so years, and then about the launch of the Fox network, or the Home Shopping Network, or USA Network. When I think of Barry, I think of a statement he made when he tried to acquire Paramount. I think it was 1993, and he lost—one of several takeovers he has lost—and at the end of it he said one of the most elegant things I've ever heard a loser say. He said, "They won, we lost. Next." My memorable experience with Barry was ten years ago, when I launched a column in The New Yorker. I wrote a piece about Barry's use of his PowerBook, and his PowerBook became a kind of parable for the future, and I have never gotten as many responses to any piece I've ever done as I got for that piece. And I got it, I think, because people thought that Barry Diller saw around the corner, and maybe saw the future in a clearer way than many other people. So I'd like to welcome Barry.

BARRY DILLER: Thank you, Ken.

It's all downhill from now.

Well, I think it's nice for me to be known as an elegant loser.

Barry, you made a bet in 1992 on cable: that cable would be, in fact, the future. Would you still make that bet? Because it seems like you wouldn't, today.

Oh, no, that's not true. I absolutely believe that it's cable's to lose. I think that cable is the incumbent. And while there's going to be competition from the sky—and I'm certainly hopeful that the EchoStar-DirecTV merger comes through, because I think that the only way you're going to get competition with cable is from a consolidated satellite system—I absolutely believe that unless cable really screws it up, the cable plant, and the cable system, is going to continue to be the monopoly it has been.

Yet, over the last ten years or so, you've made two bids for two networks.

Some of that is a bit apocryphal.

CBS and NBC are apocryphal?

CBS was for sure.

And NBC?

Well, you know, it's not for sure. How's that? You like that?

Not good enough. No, I don't, actually. You were having conversations . . .

Well, you know, if you talk about the conversations that I and others have had about doing this or doing that, Howard Stringer and I would be joined together in more than matrimony.

So you've never had a conversation with Jack Welch and Bob Wright about whether you would like to acquire NBC?

Oh, about every other day. But that's not exactly an operative, functioning thing, to have a conversation with somebody.

But you say that cable will continue to be a monopoly, and yet you've talked about acquiring a broadcast network. In fact, you started a broadcast network of your own, not just Fox but USA. And then you talked about Vivendi making a ten-per-cent acquisition of EchoStar satellite. All those are aimed at ending the cable monopoly.

No network is going to end the dominance of cable. No new, old, combined, etc., networks are going to have any effect on cable. The only thing that is going to have an effect upon cable is if there are other delivery systems. The only other delivery system that is mass, and that can now also be local because there is enough bandwidth in the sky, is a satellite system. Other than that, where are you going to get your stuff from?

And what about Internet connectivity? Do you see it through the cable wire, or the telephone wire, or some other wire?

I think it's going to come from lots of places. I think that, from what I have seen, cable-modem penetration is growing, is efficient, people love it as a service. But it is wildly overpriced. It racks in at forty dollars a month, and the profits are huge. But the customer likes it. You would have thought that the telephone company would be right there from the first hour of the first day offering high-speed connection. I don't know where you live, but in New York City try and get a DSL connection in your house. It took me three months, and every part of the experience was a train wreck. So they have not done that. And cable has.

I had the same DSL experience you did. Barry, let me ask you another question. You had said, when you did a search for the future and decided on cable in '92, that you would never work for anyone again.

Yeah?

Today, you work for someone.

Well, first of all, let's deal with it literally. I never said that. I never made that statement. Here's what I did say. You want to pull it out?

Yeah, actually, I think I probably have a tape somewhere.

O.K., get it. Get your stuff. Here's what I said when I left Fox. I said that what I wanted to do was to engage in an enterprise that I could build for myself to the extent of whatever size I wanted. That's what I said. The actual working for somebody was never really an issue for me. I wanted to have an enterprise of my own. And I had one. And I also have a night job. But the idea of working for somebody? The truth of it is that I always loved the collaboration I had with people I worked for, and I have worked for some very interesting people. I worked for Charlie Bludhorn.

Interesting?

More than interesting. Bludhorn is one of the great tales of the twentieth century. I worked for Rupert Murdoch, an extremely interesting person, and great fun to work with. Rupert is a great good time. And working for somebody in a collaboration is actually great. I mean, it's very stimulating. That hierarchical little process, you know, played with some conflict and tension, gets very good stuff, I think. So that was not my trouble. Now, do I really want somebody's thumb on my forehead? No, I don't, but I'm not really in that position. What I wanted was to have something of an entrepreneurial life. Because I'd been a corporatist all my life, until I was forty-nine. And then I kind of claimed some independence.

So, in the collaboration that you do with Jean-Marie Messier, what do you say to him about how he screwed up?

You know, it would be very wrong of me to talk, obviously, about direct conversations that I have had with anybody. But, first of all, I think this has largely been a stirred tempest in a French pot. The leading candidates in the Presidential election—all three of them, Chirac, Jospin, and Le Pen—attacked Messier. Now, you know, you add to this all of the stuff that's going around in the chaotic markets today, and all of the things about the accounting rules at this very moment. So, like every other company that's acquired anything—because the accounting rules changed—they had to take a write-down, a huge amount of money. And at that moment the French elections happened, and all these things converged. That spotlight is going to pick you up very harshly.

That begs a question: Did Messier make a mistake in jumping onto that public stage so soon?

Well, when you say did he make a mistake . . .

Granting interviews, profiles.

Everybody deals with the public part of their executive life in different ways, and I don't think it's bad or good. It's dicey. It does take a kind of burglar's guts, but those are the guts that got and transformed this water company into, and I don't say that demeaningly, by any stretch, but . . .

Hell, you may be running the company.

I will not be. But taking this water company and, in a very short time, transforming it into a media-telecom business—and, by the way, the other thing, which is probably the most important thing to add to all of this, is that companies in technology, media, and telecommunications have lost approximately two-thirds of their value. All of them, the entire sector. And Vivendi is plus or minus an inch or more. Actually, it probably held itself up a bit longer than most, because of a steeper drop post-January. So that contributed to it. Is it a mistake or not? Again, I think it's a somewhat high-risk, high-reward plot, if you're going to get out there on the stage and talk about stuff.

A reason that Messier became controversial in France is for something he said in America.

Yeah.

He said that the French cultural exception is dead. In France, they are very concerned about American cultural imperialism, as they call it. And he said that the idea of subsidizing French industry and favoring French industry is in effect dead, in this global economy. Was he right?

Sure, he was right. Now, to paraphrase what you said earlier, it was an inelegant phrase at that particular political moment. I think we've been in those situations where something kind of flies out of our mouth and we can't catch it back. A few hours later, he put it in the context of what he meant. Because what he did not mean is that French culture is dead. What he said, which has validity, is that here is the state-supported Canal Plus, which is not the kind of broadcast-regulatory situation that we have here. That x per cent of its revenues go toward supporting local film is, as a proposition, at least questionable. Because, by the way, it is not the thing that has made French cinema really thrive recently. As a matter of fact, an endless number of turkeys have been baked in that regulated oven. What's made it happen is the commercial side, financing "Amélie" and so on. So I think, again, it was clearly unwise on the eve of the election in France. You might say that the missteps of this kind have been rhetorical rather than functional. The truth is that Vivendi has, unlike most companies that operate in media, telecommunications, and tech, met and exceeded its guidance.

I know Howard Stringer talked about this the other day in a speech he made, but what does that say about Wall Street? I mean, you're saying that Vivendi, in fact, has exceeded expectations, is much stronger than, in fact, the market and the analysts give it credit for.

Well, sure it is.

Why the disparity?

Oh, my God. I mean, you don't really want me on the markets.

No, I'm just a potted plant sitting here.

[Audience laughter.]

Well, you're growing better than that. [Audience laughter.] Look, we're in a period where it's hard to pull yourself out and look in with any objectivity. We are in a period where it is very hard to understand it with any rhythm. We've been in a recession. People aren't spending money on capital goods. So technology and telecommunications had incredible overcapacity. Now, this overcapacity, over a bit of time, will get digested, like all things do, and then it'll be dear, and the prices will rise, and the whole thing will change. So I don't think that market to market has any real relevance. Now, it's different for me; I have a company that has been countercyclical to this. The security of our company is close to its highs and we have had great growth over the last several years. I do say to my colleagues at Vivendi, "Shut up about the stock." You know, it's very destructive. First of all, people who have the stock options talk about them literally all day long, which I think is really terrible. And they're depressed by it. And, by the way, these ain't poor folk. I mean, not that you don't want to be able to build some wealth, which is certainly a worthy ambition, but to talk about it at a time when there's nothing you can do about it—I believe these stocks aren't going to rise for a year or two years.

Another thing they talk about incessantly is the virtue of concentration, and about synergy, and about extending the brand.

Yeah, yeah.

There's a big story in the Wall Street Journal today about how media concentration has been less successful—the AOLs, the Murdochs. Vivendi was another example cited. Do you think that that's correct, that concentration is rushing off in the wrong place?

No. Again, it's fine that it attracts this kind of instant analysis. Why bother complaining about it? It just is. But to say about AOL Time Warner that it was the worst deal ever made in history—a tragedy, that it doesn't work, etc.—is silly. It's, what, a year, a year and a half old?

About fifteen months.

The mistake they made, and it's similar to the Messier mistake, is that they should have remembered that they had to integrate two totally foreign cultures with each other. They should have said, "We have to integrate the AOL sensibility and the Time Warner sensibility. We have to figure out how these businesses operate, how they relate to each other, so we're not going to make predictions about our earnings. We're not going to do this, we're not going to do that. We're going to long-term define, because this is a good thing we have done." Whatever. Don't let me make up the wondrous words. Instead, unfortunately, they said, "We're going to have thirty-per-cent growth," which, by the way, when everybody heard it, they said, "Oh, wow. That's really unbelievable." Well, the truth is it was unbelievable. But the truth also is that it was an elective. They didn't have to do it. Having said it, they hoist themselves out there, and they've gotten crucified for it. Nobody is going to know whether AOL Time is going to make any sense for years. It takes time to do all this stuff.

Do you believe in synergy?

No. Let me qualify, because it's too much of a bimbo answer.

You see, unlike the Vivendi chief, he does it right away. Corrects himself, I mean.

Oh, yeah, ever-careful me. [Audience laughter.] As a strategy, synergy is senseless. I mean, in other words, that I don't think that you can operate an enterprise synergistically. Because if you try and do that and impose that, nothing really happens. Everybody hates each other anyway in these companies. There are different divisions with sibling hatred. I have no great prescriptions for much of anything, but what you really have to do is operate the individual pieces as strongly as you can, and then let some natural law take effect. Because there is natural law here. There is absolutely a relationship between this asset, that asset, and another asset. That's unquestionable. But if you actually organize it for synergy, unless you have a totalitarian regime like Disney . . . [Audience laughter.] No, no, no, no, no, no, no . . .

We're not interrupting you.

[Audience laughter.]

Exactly. Let me explain what I mean, as they say. Put it in context. What Disney did was part of its original purpose; it was the Walt Disney Company of a man who lived and who made things. The Disney brand is the complete company, and so in a company where the brand is Disney you can force every single person in a totalitarian way; you can force them to do in every case what serves that brand. And that is fine. And that's not synergy. But if you're a Time Warner, or if you're Viacom, it's different. All these articles—particularly all of the recent ones—say that agglomeration is a questionable strategy. But at Viacom, which has organized itself, integrated itself extremely well, natural synergies start working after a period of time. And that's one where an awful lot of disparate assets work wonderfully together. The idea of saying, as this morning's Journal did, that here Viacom had this great strategy for selling all of its properties together, and along came the advertising slump. Well, frankly, who cares about an advertising slump, so long as you have enough capital to get you through the period until it comes back? It has nothing to do with structure.

You served on the Gore Commission a couple of years ago, which was determined to try to define what the public interest was and what government's role would be for broadcasting. When we talk about concentration of ownership and these companies getting larger, what, in your judgment as a liberal Democrat, if you still are . . .

No, of course not, I'm a big Republican now.

[Audience laughter.]

That'll be my follow-up question. [Audience laughter.] But what is government's proper role? Should government be involved and engaged and policing some of these mergers?

Absolutely. I mean, I actually think that there is a real argument to be made for separating production and distribution, particularly when you have a situation where if A.T. & T. and Comcast combine twenty-two million subscriptions and Time Warner has twelve million, there'll be complete concentration one way or the other from the cable and pipe distribution. I believe there'll be complete concentration in the sky to compete with it. Because I think that's the only way you'll have any effective competition. So, when you've got that kind of power, distribution power—and, by the way, even if you get competition, it is still going to be a business in which the margins are extremely good—then I don't believe you should also have the ability to own programs as well, except in a very minor way.

Let me make sure I understand that. So Comcast, which owns, say, QVC . . .

Yes.

. . . or AOL Time Warner, which owns cable and Warner Bros. and other network and television assets, should be asked to divest? Is that what you're saying?

Yeah. We were recently trying to look at the effects of all of these things. We looked at programs that were owned by cable M.S.O.s [multiple-system operators] and programs that were not owned by M.S.O.s. And the differences of preferences were so categorical in every case—the disadvantage of anybody who has an unaligned program service, as against an aligned program service, is so glaring.

Well, tell the story about one of your cable networks. What was the channel you were relegated to, in one of them? I guess by Time Warner, right?

Time Warner moved us, moved USA, down the dial. It's not like this little thing. This was a nickel-and-dime little study we did, this was hardly some big deal. But it was so extraordinary, the difference, and when you think that there's going to be more concentration rather than less concentration, you say, well, what is good public policy? Well, good public policy is certainly having a situation where what is essentially a monopoly—this rigged game, so to speak—is going to have some bad effects over a very long period of time. I'm not talking about this in terms of diversity. I'm just talking about it in terms of a frightening kind of economic power.

So, if I wrote a headline from this breakfast saying, "DILLER FAVORS BREAKUP OF AOL TIME WARNER CONTENT FROM DELIVERY SYSTEMS," is that fair?

It's not a fair headline, because, again, you have to put it in the context in which it is done. If you say to me, "What is good public policy?," I think that first of all you have to deal with the A.T. & T.-Comcast merger.

That's my second headline. I can have that headline?

You can have the headline saying that they ought to look very carefully at the relationship of programming to distribution, because it's a real issue. I do not believe necessarily that you're going to have to break these things up. But what I do think is that there is going to have to be some levelling of this process, as it were. I don't believe that breakup is practical, but I do think that there are ways that you can deal with this issue, where you can rebalance this. And I do think that when you're going to approve the Comcast-A.T. & T. merger you have an absolute moment in time where you can say, "We will approve it under these conditions." And the EchoStar-DirecTV merger has the same issues, and government should put itself into that process, and be activist about it.

But the principle that government should follow, which you enunciated ten minutes ago, was that government should not allow a company to own both the pipe and the content that travels on that pipe.

If, in fact, that pipe's concentration is at a level that precludes any player's being able to get a program service onto it with reasonable terms, conditions, and parity with owned systems. There are different ways of achieving that, but, yes, I think that's absolutely true.

You have talked about making, over the next two years, nine billion years' worth of acquisitions, mostly e-commerce.

And you think Mr. Messier has a big mouth? [Audience laughter.]

Is that your plan?

Well, here's what we did. We were in this incredibly unique situation with USA Interactive. We were at a moment where we were at the very beginning. The challenges in front of the media business are really tough. Fractionalization, all of these issues that are clanging down, is really tough to figure out. But in the world that I live in a good part of my day, interactivity is at the very beginning. It has only opportunity in front of it. Now, my company may screw it up, but we are in a position where we're this intermediary between supply and customers—delivering goods, figuring out goods and services, and how to make it so the consumer can access them in all sorts of different ways. Because of the sale to Vivendi, we are now surely organized in these areas of interactivity. We have three billion dollars in cash. We have a very good currency, and we have no debt, and we can basically write whatever we want on the blank page. So what a great time to actually be in the situation we're in. There is, of course, a big chance that, given all of those advantages, we will screw it up. But what we wanted to do, because of the position we were in, was to talk to our investors about the future, and the future for us absolutely does mean acquisitions. Every business we have is growing at alarming rates. But, of course, there are acquisitions in our future, and we wanted to talk about them. Because of regulations that require that if you disclose your plans to one person you've got to tell everybody, what we did was file a speculative plan for the future. We said, Here's a road map. We're about eight per cent of all interactive commerce, and we want to grow to twenty per cent in the next couple of years.

[AUDIENCE QUESTIONS]

Question: You've said that the advertising recession is cyclical, but you've also indicated that pricing pressures are going to be a pretty permanent part of the scene. What does an environment of permanent pricing pressure on advertising do to the financial stability of these large companies?

It's an enormous challenge. I mean, you take that together with what I believe will be in almost every household within five years—I would say three, but I'll keep it more conservative—some sort of TV box, some digital recorder that allows you to store programs and race through them, skipping over various important moments. [Audience laughter.] This is going to have all sorts of effects. While this pricing pressure is going to be around, and we're going to live in an increasingly complicated time, I do think there's going to be a period of euphoria again. I think there's going to be more demand than there is supply at some point. So I think there's going to be some buoyancy here. I don't know when it's going to be. And in the things that I'm engaged in, on the Vivendi Universal side, you are going to absolutely make investment in new program services. In the next year to two years, you're going to see us invest probably five hundred million dollars in new program services. So I don't have the answer, except that I sure as hell would watch my costs. But, other than that, it's currently an unmet challenge.

Question: You've been a student of the film industry for many years. What are your views on the current state of the movie industry?

Well, I think the movie business, industry, whatever you call it, is absolutely fantastic. When you think about the movie business against these other businesses, the first market, the theatres—there's no competition for it. None. People want to go to theatres. They will go to theatres. There's nothing that's going to stop them, take away their time there, etc. So your first market is absolutely protected, forever. The only thing better than that is the aftermarkets, with DVDs and the incredible amount of times that you can slice this film and dice it into different things and packages. The only problem in the movie business is how much it costs to make them and market them. But that's an elective.

K.A.: So where do you see the impact of technology? We've seen the impact of technology on the music business. Do you see it actually enhancing the movie business?

Well, I would hope that the movie companies do not act as the music companies have—they were protective and said that they were going to stand on the railroad track with their arm out while technology ran them over. But the movie business is engaged now in figuring it out before it happens to them—before you get the digital files up there and able to be downloaded with any speed and with any clarity, before that develops. And I'm hopeful that the film business will get out there with products that will keep tech piracy at reasonable bay. I think that's achievable. I mean, you think about the film business—technology has been the movie business's greatest friend ever. Something else would have probably come along, but when videocassettes came along for film, that was incredible. So was sequential distribution, in terms of how you distributed a film—I don't know how many it used to be when we were young, the theatre and one run on television on a network, a station before the networks, before the Saturday NBC movie. See my little historical stuff? But the thing is that technology has enabled this. And the next tech will enable it more. And I think that a well-operated movie company still has got incredible potential for asset creation.

K.A.: Two Hollywood figures have been in the press of late, and I thought maybe you might like to comment. One is Michael Ovitz, of whom we read the saga of the fall and the further fall. What's your take on that?

I'm amazed. Look, I've known Mike Ovitz a very long time, and actually Mike Ovitz and I were never really good friends, during the whole period of when everybody was his good friend. I was never really his good friend. I was a friend of his, and we obviously operated, but we did very little actual business together. We certainly were engaged with joint enterprise, meaning what he did and what I did. But I'm amazed at the amount of people who continue to say, continue to be more than—it's more than glee. I mean, it is kind of a killing ground. Of course, he stirred up all of these kinds of things in people. To watch this process, as he's gone through this incredibly difficult period, is really, really, really bad.

K.A.: The second figure is Harvey Weinstein. He has been criticized for mounting campaigns against contending Oscar movies. What's your take on Harvey Weinstein?

Well, I'm not going to do a take on Harvey Weinstein. The only thing I would say is that the one issue that I've had with him is when he threatened an executive at Universal, and I find the tactics of threat and intimidation and thuggery to be not allowed. And so, when that happened, I reacted somewhat strongly. And that's all I know about that. Other than that, he's a fine competitor. [Audience laughter.]

K.A.: Headline: "BARRY DILLER CALLS WEINSTEIN A THUG"?

No, no, no, no. You're going to keep doing headlines? I'll take your paper away. What I say is simple. I do absolutely believe that if you threaten somebody and if you are not called to account for it—in other words, if people let that happen as daily course of life I think they're fools. If somebody threatens somebody, the other person or people around him should say, "You ever do it again, we will come after you in any place we can find you, and within the limits of the law we will prosecute you." [Applause.]

Question: Can you tell us about your conversion from a liberal Democrat to a Republican?

Oh, my God, that was a joke! Oh, my God. I'm taken literally! That's terrible.

K.A.: You must be a journalist.

I'm certainly a Democrat. I don't know how big-"D" I am. I don't know that I would be classified except in some respects as a liberal Democrat, but I'm certainly a Democrat, and I always will be.

Question: You brought a whole new life to television with Fox a couple of years ago. Who's doing that today, and what are the best shows?

Ah, what are the best shows? Well, "The Osbournes," you know. How do you get more interesting than that? I must say—because I watch television, I like television—that I find in lots of programs really good work. I actually think the creative work of television is superb. You watch a good half-hour television comedy, you're watching Patek Philippe watchmaking. I mean, this is as good as you can do. You watch an hour-long television program, whether it's our "Law & Order," or whether it's "West Wing," or whether it's "C.S.I."—I mean, there are a dozen first-rate hours, really good work. And, if you take the cable services, almost everybody's got something interesting going on.

K.A.: So Bruce Springsteen was wrong.

Yeah.

Question: But what do you love?

I think I just said. I mean, the ones that I can recall fast are the ones I watch. You know, I still kind of watch "Friends," I think "Will & Grace," on so many levels, is a great television program. And the amazing thing about these half-hours? That ensemble work, when those casts come together, and they get comfortable with themselves, and they get comfortable in their skin, in the skin of their series, that's joyful. I love those shows.



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