annals of communications
The New Yorker - February 22, 1993
barry diller's search for the future
Diller's new venture began with a laptop and a home-shopping cable network--and it stunned Hollywood. But it may make him billions.
When Barry Diller, the former chairman of Fox, Inc., speaks of his Apple PowerBook, a laptop computer, he grows rhapsodic. "My odyssey began with the PowerBook," Diller said recently of the months he spent after leaving Fox. The odyssey was Diller's ten-month search among the seven industries hoping to dominate global communications --studios, TV networks, cable companies, telephone companies, computer companies, consumer-electronics companies, and publishers--to decide where he should stake out his own future. In fact, the search began in the fall of 1991, several months after Diller and Rupert Murdoch, whose News Corporation owns Fox, met to discuss Diller's future. After being head of prime-time television for ABC Entertainment in the early seventies, and chief of Paramount Pictures for ten years--into the first half of the eighties--and then guiding Fox into the nineties, Diller told Murdoch that he wanted to be a principal, not just a well-paid employee. Murdoch, who had moved to Hollywood and plunged into Fox's business--Diller's business--asked for a few days to consider Diller's request. When he had done so, he responded bluntly, Diller recalls, saying, "There is only one principal in this company."
Diller was grateful for the candor, he conceded, but, with his fiftieth birthday approaching, he began to think about leaving. Lifting up his PowerBook, he explained, "I learned it to leave Fox."
A tutor taught him how to use it. The machine's allure was that it promised a certain kind of freedom--from secretaries, meetings, memos, press leaks. Diller used it to compose his resignation statement; to fax draft copies of the statement to Murdoch and to his own closest friend, the clothing designer Diane Von Fur-stenberg; to list things he must do before issu-ing the statement; to sort from his copious address book the three hundred people he wanted to have received the resignation statement before they heard or read about it; to jot down notions of what he might like to do next and whom he might consult. The PowerBook went with him everywhere. Diller punched keys in the middle of meetings, while others were left to stare at the top of his bald head or to listen as he related the many extraordinary feats his machine could perform. "He's had an unbelievable love affair with his computer," Von Furstenberg says. "It has expanded his horizon. No question that his relationship with his little screen--which is irritating to everybody in the room--has altered his life."
Among other things, the machine helped Diller better understand the new video democracy. Through it he could see how technology, with incredible speed, was transforming dumb television sets into smart ones, making it possible for viewers to select, organize, and interact with programming and information rather than passively consuming what was offered on fifty, or even five hundred, channels. The PowerBook became for him a means of looking into the future, for he uses the laptop the way Apple Computer, which makes it, hopes that people will use a book-size machine, referred to as a personal digital assistant, that is right over the horizon. Just as Diller could convert his laptop into a word processor, a fax, a file cabinet, a spreadsheet, a conveyor of commands, or a link to various networks of news or data, so in the next few years, he came to understand, viewers will receive video on demand--be able to watch what they want when they want. With the click of a remote-control or a telephone button, they will summon up movies from the equivalent of a video jukebox. In an instant, they will send for and receive a paperless newspaper, a program they missed last night, a weather report.
Still, as the day when Diller would announce his departure from Fox neared, he felt vulnerable. "I liked my life," he says. "I liked power." He worried that no one would call, that he might lose his conspicuous seat in restaurants, that it might appear that Murdoch had dismissed him, that the story would leak before he was ready.
Diller issued a statement on February 24, 1992, which came as a complete surprise to the Fox employees and to Hollywood. In it Diller said he "yearned" to be an entrepreneur like Murdoch, whom he called an "inspiration." Murdoch responded with wide praise for his many accomplishments, from creating a fourth TV network, which in 1991 made more money than either NBC or CBS, to engineering the comeback of the Fox film studio. "It's nice to read your obituary while you're living," friends told him. Diller left Fox in good financial condition. He received a severance, bonus, and stock-payment package that a Diller intimate says was worth more than a hundred and fifty million dollars, and a Murdoch intimate says was worth half that; and, upon his departure, he bought a thirteen-seat Fox Gulfstream jet for some five million dollars.
Within days, thirty-three execu-tives offered either to back Diller or to become his partner in any future venture, and their names were immediately filed in his PowerBook. Among the most persistent of these suitors in the months that followed were John Malone, the chief executive officer of Tele-Communications, Inc. (TCI), which is the nation's largest cable company, and Brian L. Roberts, the president of the Comcast Corporation, which is the nation's fourth-largest cable company. Both men believed that cable's weakness--programming--was Diller's strength. They knew that technology would allow a virtually unlimited number of channels, but they also knew that viewers watched programs, not tech-nology.
For months, rumors chased Diller. It was said that he might be acquiring NBC from General Electric, and that he might be asked to run Time Warner. Whenever he was seen lunching with a wealthy financier, such as Ronald O. Perelman, the news would appear in the columns, increasing speculation that Diller was about to launch something big.
Ten months after his Fox announcement, Diller's plans were still a mystery. People in the entertainment and communications worlds began to say that he couldn't be a principal, because he had no capital. "A guy who's an employer is a guy who writes checks, and he can't," one Hollywood power broker said. Then, on December 10, 1992, it was announced that Diller had become a partner of Malone's and Roberts' in something called QVC Network, a twenty-four-hour home-shopping cable network. People passing Diller at his regular table in the Grill Room of the Four Seasons had almost embarrassed expressions as, uncharacteristically, he kept looking around, as if for applause. Those who knew Diller waved a greeting, but they seemed to be thinking, Barry Diller's going to run what? A home-shopping network? You've got to be kidding!
"All they care about is status," Diller said some weeks later, in a suite at the Waldorf Towers. "That's why they can't understand why I'm doing this. They say, 'It's not very glamorous.' " Every now and then, he glanced over at his PowerBook, which was sitting on a coffee table relaying minute-to-minute QVC sales. In 1991, QVC made a net profit of nearly twenty million dollars; in the first nine months of 1992, it already showed a profit of thirty-six million dollars. It was recently rated America's "fastest-growing small public company" by the magazine Inc.
The people who found QVC insufficiently glamorous probably weren't aware of those numbers. Or, if they were, they wondered why Diller, who had done so much to attract mass audiences, was now in the narrowcasting business. Worse, they wondered why he was hawking "tacky" merchandise. Diller has pretended to be unfazed, but friends admit that he is sensitive. "Remember, the royalty of America is Hollywood," one friend said. "We are the place of fantasy and intrigue and overnight rags to riches. For the time being, Barry is concerned that he's out of that limelight. He feels that what he's in is a bit undignified."
Diller seeks to counter the skepticism in several ways. After ten months of searching for the future, he thinks that he has become a pioneer in a new form of interactive television--one that began with home shopping and will soon include news and programming. He thinks of QVC not as just two televised shopping channels, which is what it is now, but as a springboard to a universe beyond the limited world of channels. He also thinks of QVC as a gold mine. Within two weeks of the announcement that he would run QVC, its stock rose from about thirty dollars a share to forty. On paper, Diller's seven million shares climbed in worth by seventy million dollars, yielding half as much in two weeks as he got when he left Fox. "If he fulfills his vision at QVC, he'll be the richest person any of us know," says Jeffrey Katzenberg, the chairman of Walt Disney Studios, who is a close friend. "Barry Diller will be worth many billions of dollars."
A YEAR ago, as Diller contemplated his future, he said to himself, "There are a couple of concrete possibilities--NBC is one. The others are all large enterprises, the kind I have always run. O.K., but what else is interesting? I don't know very much. I know topic headings, that's all. Some part of me is urging me to take advantage of this gift of time."
The PowerBook taught Diller that he could work at home, so he had his pool house, in Beverly Hills, converted into an office for himself, constructed an additional office for his secretaries, and moved to his beach house, in Malibu. Meanwhile, his phone was not quiet. Of all those in Diller's wide circle of well-known intimates--the music impresario David Geffen, the designer Calvin Klein, the producer Sandy Gallin, the actor Warren Beatty--the friend he confided in was Diane Von Furstenberg. She says that they spoke, and still speak, at least three times a day. "He's like a husband, really," she says.
On February 29th last year, Von Furstenberg visited QVC's headquarters, in West Chester, Pennsylvania, and the trip amazed her. As soon as she returned, she told Diller on the phone that she and several other people, including Marvin Traub, a former chairman of Bloomingdale's, had just gone on a "field trip" to a place outside Philadelphia to see something called QVC, which stands for "Quality, Value, and Convenience." When they arrived, she said, they sat in a studio behind several banks of telephone operators and watched the soap-opera star Susan Lucci pitch a hair-care product carrying her name.
Suddenly, the phones lit up. "It was amazing. She sold over four hundred and fifty thousand dollars' worth of hair products in an hour," Von Furstenberg told Diller. She described how the operators had punched in the orders on computer screens in front of them, charged each order to a credit card, and then pressed a key to send the order to a warehouse, which promised delivery usually within seven days. "There you have the potential of talking to millions of people all at once, and you don't have to rely on an in-between," she said. "It's more honest." Sure, much of the merchandise was tacky, she told Diller. But that was correctable. What mattered was the directness of the system. "Barry, you've got to go there," she said.
Diller wanted to go, if for no other reason than that over the years he had personally negotiated most of Von Furstenberg's business contracts. But home shopping did sound--well, small for his ambition. He wouldn't physically leave Fox until the spring, and he thought, he said later, that then "I'd have this big, long holiday."
Through the winter and into spring, Diller fiddled with his PowerBook for at least a couple of hours every day, typing options, lists of things he might do; he raised money for his fellow-Democrats Bill Clinton and Bob Kerrey; he read a few books; and by May he was exhausted with leisure. He was ready to begin his odyssey. I don't need a wall to stare at, he remembers thinking. I need new data. He decided to combine a lifelong wish to travel across the country with stops at such potential outposts of the future as the Massachusetts Institute of Technology's Media Lab, William Gates' Microsoft, near Seattle, and Bill Clinton's Governor's Mansion, in Little Rock.
Diller knew from the entertainment business the lightning impact of technology. He remembered how the studios had fought the videocassette recorder and, before that, television, and how both had eventually swelled studio profits. The PowerBook gave Diller some further technical insights. He came to call it "an enabler," because it allowed him to do many different things at once--to be alone and still be able to communicate instantly. In the spring, Brian Roberts, of Comcast, called Diller to chat. He wanted to invite Diller once again to join the cable team. The two men wound up talking about the PowerBook; Roberts had just bought one and was still trying to figure it out. "I wanted to understand it for the cable business," Roberts says. Diller shared his impressions of what computers mean for the future. One day, he speculated, the computer screen might become a TV set, and the keyboard would be a mechanism for summoning anything. The speed would be astonishing. A billion bits of information per second would travel over a wire, contrasted with only a few thousand bits a second sent by a PowerBook fax. Diller had read that these bits of information would perhaps be retrieved by a powerful microprocessor in a cable-converter box inside or beside the screen, and perhaps computer software would make remote-control devices user-friendly, like a computer mouse, permitting viewers to choose what they watch not only by surfing among five hundred or more channels but also by specifying categories--movies, comedy, sports, books, information services.
As Diller thought about the competing interests of the cable companies, Hollywood studios, TV networks, computer hardware and software companies, publishers, telephone companies, and assorted consumer-electronics powerhouses, like Sony--many of which already did business with one another--he realized that each one hoped someday to control either the wire highway to each home or the switching mechanism that would someday direct video traffic or the computer data bases that would serve as a library or the technology that converted pictures and programming to digital signals and back again. He knew that the current system of sending analog signals to TV sets would eventually be replaced, because these electrical impulses took up too much space on the highway, or bandwidth, that they travelled over, limiting the number of channels. What he didn't understand was the digital-compression technology that would replace it. Nor did Diller know--in fact, no one knew, or knows now--whether the future means of delivering television signals would be through back-yard or rooftop dishes (direct-broadcast satellite) or over expensive but almost limitless fibre-optic cables or through some hybrid of fibre-optic cables and existing coaxial cables, or whether those cables would be owned by cable companies or the telephone company or the government. No one knew or knows what will happen as the cable box mates with the computer; the phone with the cable wire; the networks with the studios; the studios with cable; the computer with the studios or with telephone, publishing, or electronics companies. To do any of this, Diller understood, required a convergence of three distinct forces: the emergence of "enabling technologies"; alliances among business adversaries; and government approval.
In the spring of 1992, the borders between the rivals' domains were blurring. Each rival dreamed of becoming a vertically integrated giant--able to control every step in the process, from the idea to the manufacture of it and on to distribution--only to find that such integration was too expensive or too complicated without partners. So Apple Computer already had a joint venture with Sharp Electronics, Pacific Bell, Random House, Motorola, Bellcore, and SkyTel, to provide software and communications through the hand-held personal digital assistant, which Apple is calling the Newton. Toshiba, a Japanese electronics conglomerate that excels in appliances and P.C.s, owned a minority stake in Time Warner. Sony made consumer electronics and owned a film studio and a record company, and so did Matsushita. Overseas, Hollywood studios and TV networks had been seeking local partners, in the hope of avoiding protectionist barriers and making the entertainment product more palatable to national tastes. Cable companies like TCI and Comcast had pushed into the telephone business, and the seven Baby Bells had petitioned the government to relax restrictions so that they, too, could provide cable and other information services in their own regions. (Last week, Southwestern Bell pushed into the cable business in another way, by buying two cable systems near Washington, D.C.) A.T. & T., having been barred from providing wired domestic phone service, had gone into the cellular-phone business and was already poised to make the chips that might convert analog to digital signals.
The first of Diller's field visits was to San Mateo, California, to see an electronics company called 3DO. The date was May 13th. 3DO has developed what it calls a universal box--a device that will make home-entertainment and computing equipment compatible, and able to communicate with each other.
Diller travelled on to Fremont, and there he toured the NeXT Computer plant and had dinner at the Palo Alto home of its founder, Steven P. Jobs, who was seeking to re-create the success he had had when he co-founded Apple, in 1975. After studying NeXT's brilliant software and graphics--"It's the most magical computer," Diller says--he recalls telling Jobs, "You've made this thing too hard. It shouldn't be this hard."
"No," Jobs answered. "It's like learning to drive. It takes two months."
"No, it takes very little time to drive," Diller said. "A computer is not that--it's hard. Why make it harder?"
This exchange reinforced Diller's conviction that the technocrats were too insular, and so did his visit to M.I.T., seven days later. While the Media Lab impressed him as a sort of Disney World of the future, with its hundreds of gadgets and technologies, he was unimpressed with the practicality of what he saw. But he did see something useful. "What I learned there is how digital can and needs to work," he says. Digital technology meant that television and radio would no longer be bounded by the narrowness of the highway over which they transmitted pictures or sound; instead, the signals would be converted into tiny numbers. In a universe exploding with channel choices, ten digitalized channels would be able to travel along a bandwidth formerly reserved for a single analog signal. Eventually, as digital-compression technology was perfected, the picture quality would improve.
Throughout the summer, Diller talked on the telephone and met several times in New York with Brian Roberts, of Comcast. Roberts had recently been elevated to president by his father, Ralph J. Roberts, who was the chairman, and he was launched on a parallel odyssey. The two men enjoyed comparing notes. In a long telephone conversation on the morning of June 12th, they swapped information about their PowerBooks and about their latest technological sightings. Roberts remembers telling Diller that services like Prodigy, which allowed computer users to do their banking from home and to call up the news and weather, were maddeningly slow and dull, especially compared with what was coming. Too many offerings were not user-friendly. Roberts knew, as Diller now did, that the "techies" were often brilliant but in some ways dumb.
Roberts talked about Comcast. The company's income, principally from cable subscriptions and cellular telephones--two of the country's fastest-growing businesses--was up eleven per cent in 1991, he said. He reviewed Comcast's varied holdings. He talked about QVC, of which Comcast and John Malone, of TCI, owned a controlling majority of the stock. He talked about how Comcast, jointly with TCI and others, had opened cable and telephone beachheads in England and was looking elsewhere overseas, and about Comcast's pay-per-view services and how digital compression and fibre-optic highways would permit hundreds--thousands--of viewer choices. Roberts said he believed that the next step for Comcast and the cable industry, a twenty-two-billion-dollar-a-year business, was to target the twelve-billion-dollar video-rental business. "If I get a quarter of the video business, that's huge," he says. Comcast also had its eye on the eighty-billion-dollar American telephone business. Annually, A.T. & T. and MCI and other long-distance carriers pay roughly twenty-five billion dollars to local carriers, including the seven Baby Bells, for access to customers, Roberts said. Once the cable companies installed fibre-optic wire, they could handle long-distance interconnections, not to mention local telephone calls. "They can pay us ten per cent less. We'll do it," Roberts said. "That's what we're doing in England, where some twenty per cent of the accessible homes are switching to our cable telephone."
But the most important piece of the puzzle for Comcast, Roberts emphasized to Diller, was also its most glaring weakness: programming. Unlike TCI or Time Warner, Comcast had not invested in programming. It had the hardware; now it needed software. Join us as a partner, he told Diller, and together we can make science fiction real. As the cable and the computer box and the telephone become linked, we can be pioneers. With Barry Diller, he said, cable can make programs that people want to see.
Diller wasn't ready to make choices, but he does remember thinking, This is one of the people I'm definitely going to talk with. First, however, he would be visiting Microsoft, in July, and he was looking forward to it. In many ways, Microsoft was a model of what Diller was seeking, for it created the software that enabled powerful personal computers to function. At Microsoft's corporate campus, in Redmond, Washington, not far from Seattle, he was taken on a tour by Rob Glaser, the vice-president for multimedia and consumer systems, and was shown what Microsoft was currently producing and what was to come. Then he had lunch with the company's chairman and founder, Bill Gates.
Diller assaulted his hosts with questions. He was particularly fascinated by Microsoft's attempts to devise cable boxes that could decode compressed digital signals, retrieve vast amounts of information, and allow viewers to interact with their TV sets. Gates has described such a system as "information at your fingertips"--a world in which, with a few clicks of a mouse, a customer can summon any movie, any program, any sporting event, any weather or news report, from a video warehouse with nearly unlimited storage capacity. "Our vision is to facilitate, to play the same enabling role that we did with home computers," Glaser says. "Today, people don't think of their TV set as having an operating system."
Microsoft's vision is not limited to TV sets. Diller learned--as Brian Roberts had on a visit to Apple Computer--how the personal digital assistant might work. With a hand-held device, doctors would be able to swap X-rays instantly for a second opinion, or review a patient's full medical history without riffling through a file, or monitor patients at home, or, with a pen, jot a prescription on the screen and send it to a pharmacy. Using the same built-in codes that identify shoppers, citizens would be able to vote from home. With interactive remote-control devices, children, instead of sitting passively before TV sets, would take part in customized tutorials and quizzes, or play chess.
Many people have visited Microsoft's campus, including Rupert Murdoch; Martin Davis, the chairman of Paramount Communications; and John Malone, of TCI. "But," Glaser says, "of all the folks that have come by, Diller was the most engaged in the stuff we are doing." Diller said later, "Everything blew my mind. I knew little. And each thing I saw made me think in ways I had not thought before." What he saw was that "a communications enabler could be inside the TV or beside it." He thought that a software company like Microsoft might provide the operating system for anything electronic in the home, just as it did for P.C.s.
ALSO in July, Diller accompanied Von Furstenberg to QVC's headquarters. He was captivated by the reach of QVC; through cable, this live, twenty-four-hour home-shopping network and its separate fashion channel reached a potential forty-five million homes. He was staggered by what he saw in the studio: instead of the usual army of producers, camera operators, production assistants, and high-priced anchors, a single producer and a group of product cooerdinators, accompanied by five robotic cameras, with a director and two engineers in the control room, above, followed the host--described as an "explainer"--as he or she displayed merchandise or interviewed celebrities and designers who marketed products carrying their signatures.
Diller liked the pleasant efficiency of the trained telephone agents there. Each agent completes a transaction in about two minutes, and there is a backup system that can answer up to a thousand calls automatically. Each transaction is recorded in an I.B.M. mainframe computer, and the order is then dispatched to one of three shipping sites, which fill an average of a hundred thousand orders a day. Even more, Diller liked the way QVC made its money: it marked up each item it sold by up to a hundred per cent; and because it purchased in huge quantities it still undersold stores.
Von Furstenberg was already preparing to do business with QVC, and Diller would negotiate the deal. She would design what she called Silk Assets--dresses, skirts, pants, and a blouse--under her own label and exclusively for QVC. She would design the clothes and select a manufacturer, but she wanted no responsibility for dealing with distributing or storing the inventory. That task would fall to QVC.
Before the summer ended, Diller made another visit to QVC, to complete the negotiations, and to look around again. But he still wasn't ready to jump. He had more to see; for one thing, he was to pay a visit in early August to John Malone, Comcast's major partner in QVC. Unbeknownst to Roberts, Malone had pursued Diller over the telephone from the day he received word that Diller was leaving Fox. Diller and Malone had known each other for a number of years. Diller didn't have to be told that Malone was easily one of the most powerful figures in television, and not just because his company controlled one of every five cable connections in the United States (about ten million in all), or because it had a bigger cash flow than ABC, CBS, and NBC combined. Malone's influence extended into programming, since TCI had an interest in the Discovery Channel and the Learning Channel, and owned twenty-two per cent of the Turner Broadcasting System, including CNN. Liberty Media Corporation, a cable-operations-and-programming company that Malone had spun off (although he is the chairman), partly to silence congressional complaints that TCI was a monopoly, also had a stake in a number of other cable-programming networks. These included QVC; the Family Channel; Black Entertainment Television; American Movie Classics; Court TV; and X*PRESS X*CHANGE, a home computer-information service. It also owned or had an interest in twelve regional sports networks and in the Prime Network, a national sports-programming service. Another Malone subsidiary, Netlink, USA, was the largest provider of cable programming to owners of satellite dishes. And Malone had plans, which would not be announced for several months, to introduce digital compression, which would deliver about five hundred channels, beginning in 1994.
In preparing for those channels, TCI has already become the world's largest industrial consumer of fibre-optic cable. It is also the largest cable operator in England. And it has partnerships in various future-oriented endeavors with A.T. & T., US West, McCaw Cellular, the Fox network, and Digital Equipment Corporation, among others. In addition, Malone, who has a Ph.D. in industrial engineering, serves as chairman of CableLabs, a cable-funded communications-research center in Boulder, Colorado.
"He's one of the great visionaries of our time," Martin Davis, of Paramount, says of Malone. A cable-programming C.E.O. who believes Malone squeezes cable networks for discount rates in exchange for the right to appear on his cable box says, "He's an evil genius." Then, there are Malone's difficulties with Washington. Last year, when Congress was able to override a veto by President Bush and thus impose new regulations on cable, Malone was cited by fellow cable operators as the sort of person the legislation was aimed at. "John Malone is a monopo-list bent on dominating the television marketplace," Senator Albert Gore declared.
To better understand Malone, it helps to see him out West, at his office in Englewood, Colorado, just outside Denver. Here he came to work on a recent day wearing a leather jacket, a blue knit shirt, checked gray slacks, and loafers, not the sombre suits in which he appears on visits to New York or on industry panels. He is square-jawed, dark-haired, and, at six feet one, has the build of a lumberjack. His passion for sailing is reflected in a large model sailboat that rests on a credenza behind his desk. In New York, Malone often appears brusque. Here he speaks so languidly, so casually, that he can sound like Gary Cooper. His office windows stare out at miles of empty plains, bordered by the Rockies. This is a place that obviously gives Malone and TCI a sense of freedom: there is space to roam and few competitors or customers to encounter. "It's an outsider culture," Robert Thomson, senior vice-president of communications and policy planning, explains. "It's a culture that doesn't define itself as establishment. It's not Eastern. It's a Western culture. Like in 'Butch Cassidy and the Sundance Kid'--Who are those guys? That's us."
Although Diller is no cowboy, he does swagger about how he cares not a whit about "status" or "glamour" and wants only to be an entrepreneur. Diller may look like a Fortune 500 executive, in his dark suits and white shirts, but he thinks of himself as a buccaneer, like Murdoch or Malone. That's one reason that, in early August, he was eager to fly to Denver and spend a few days visiting Malone.
"What's going on?" Diller asked.
Malone explained that instead of sailing in Maine, as he usually did, he and Brian Roberts and the executive committee of CableLabs had been on the road visiting computer companies, including I.B.M., Apple, and Microsoft. Technology was herding industries together, he said. As broad fibre-optic cable highways became available, and digital compression decreased the space needed on those highways, the cable industry would look for technical help from computer and software companies, and help from television programmers like Diller. The computer companies, he believed, "were stalled a little bit--they have penetrated the workplace but not the home." That's why they looked to cable. The seven communications powers circled one another warily. "It's all a blur," he said. He predicted a media landscape where cable companies operated in the phone-company business, and vice-versa. And network broadcasters were bought by cable, and vice-versa. "It really all comes down to government regulation." One day soon, he said, tech-nology would make possible a digital-compression box "more powerful than any P.C.," and will transform the TV set into "an input/output device." He went on, "The TV remote control will become like a computer mouse. You've got to personalize television. If there are five hundred channels, you can't just give the consumer a scroll. That's the world of the future." So the one-word answer to Diller's question--"What's going on?"--was "Invention."
What particularly impressed Diller was that Malone, like Brian Roberts and others in cable, seemed to invest time in thinking and learning about technology. In October, Malone and Roberts and the CableLabs group planned to tour Europe, meeting with such electronic corporate giants as Holland's Philips N.V. and France's Thomson S.A., looking at technical advances and exploring possible partnerships. A year before, the same contingent travelled to Japan, where they met with the heads of Sony, Matsushita, Toshiba, and Pioneer.
Malone asked Diller what he was thinking of doing, and Diller said he had narrowed his search to four options: he might buy into cable; he might run a movie company; he might team up with a computer-software company; or he might acquire a television network. They spoke about QVC, and Malone sketched a vision of how technology could customize home shopping, allowing viewers to treat their remote-control devices like personal robots, for ordering merchandise, paying bills, collecting information on airline departures. And, he said, such a system would make a bundle of money. Malone told Diller that he hoped he might join forces with cable.
Diller still had a number of other visits planned, including trips that week to two telephone companies. He came away from those visits convinced that the telephone companies were strong in the laboratory and in cash but weak in one crucial area: although they had a wire reaching into every home, those wires might have to be replaced to carry high-quality video signals. To wire even half the homes in the nation with fibre-optic cable would cost the phone companies perhaps a hundred and fifty billion dollars and could take fifteen years to complete. And Diller suspected that the phone companies, after years of being operated as government-regulated monopolies, did not have the kind of entrepreneurial culture typified by Malone.
It was hard for Diller to abandon the idea of owning NBC, even though that option seemed less and less attractive. Everything he was learning made it clear that more viewer choices would continue to drain customers from the networks. He believed that viewers no longer needed a network middleman--that technology would enable people to do their own programming. The networks were reliant on a single source of revenue--advertising--at a time when cable enjoyed two sources, ads and subscription fees. He thought that the networks, with about four thousand employees each, were freighted with too much overhead. Yet Diller was tempted. He thought that he could raise the money, and he hoped that he could prevail upon General Electric, which owns NBC, to sell it to him for a lot less than the four billion dollars G.E. was reported to want. He had spent too many years fathering TV programs--pioneering made-for-TV movies and the miniseries form for ABC, and promoting shows with an "attitude," like "The Simpsons," on the upstart Fox network--not to believe in himself. Besides, he had a vision of making the network a healthy business again. There was the possiblity of a twenty-four-hour worldwide news service, going toe to toe with CNN. There was also the possibility of dumping the two hundred-plus stations that constitute NBC's distribution system and replacing them with cable affiliates. This would save the hundred million dollars NBC pays to its stations in compensation for carrying network programs. Instead of paying stations, grateful cable affiliates would pay subscription fees to NBC. Thus, NBC--if the federal government allowed it--would no longer be in the free-TV business. There are NBC executives who have thought about such a revenue-rich plan, but they fear that the government would never permit them to use the public airwaves in this way.
Diller's conversations with NBC stretched into the fall. Owning a network "would be fun," Diller said recently. "But, even as I say it, I bore myself. In the end, I thought, it only involves ego." By the end of the summer, Diller had decided, more or less, where his future lay. He had come to believe that cable had the pole position in the race to control access to the home. Unlike the networks, it had its own distribution system, through its coaxial cable. Unlike the telephone companies, cable companies had wire already in place that could handle the video needs of the near future. It was possi-ble, he knew, that a fourth option--direct-broadcast satellites sending sig-nals to home satellite dishes--would win favor. However, he guessed that this technology was too expensive for consumers, and was years away; in any case, cable operators like Malone had hedged by investing in this technology as well.
The future, Diller concluded, would be "led by the cable systems." Sixty-three per cent of all American homes were already wired for cable. Cable companies could charge for much of their programming, by pay per view, thereby perhaps alleviating government concerns about steep cable prices. In the words of TCI's chief operating officer, Brendan Clouston, "Cable will go a la carte. You pay for what you watch. Like your phone bill." And Diller agreed with Brian Roberts that some of that eighty billion dollars in telephone bills could be siphoned off by cable. Finally, Diller came to believe that the cable people treated technology not as an adversary but as an ally. "They're livelier than most of the competition in their thinking," Diller says. "Talk to the cable people, as opposed to senior people in the news-gathering business, or at the TV networks, or in the studios. Just line them up, and you find that people in the leadership of cable are students of technology and spend vast amounts of time and capital thinking issues through."
Diller knew that he could bring several things to the cable table, starting with a flair for showmanship: only more programming could allow cable to fill those five hundred-plus channels and also spruce up the presentation of home shopping, or of information and interactive games. Another asset was Diller's relationships in Washington, particularly with the incoming Clinton Administration. At a time when government would have more say--in whether to impose new strictures on unpopular cable systems that in recent years had raised rates twice as fast as inflation, in regulating how the Baby Bells would participate in the video-information-and-entertainment business, in whether to lift regulations inhibiting networks from plunging into the production-and-syndication business, in whether to invest in and own the fibre-optic cables--the cable industry needed political friends. "We bet on Bush," Brendan Clouston says. "We lost."
By the end of the summer, Diller and Brian Roberts had spoken so frequently that they had become friends. Roberts proposed that Diller should be cable's programmer. But Diller wasn't interested in being in the service business; he wanted ownership. The cost of buying a cable system was too high. If Comcast was serious about Diller, Roberts realized late in August, he would have to give up some ownership to make him a partner. But in what?
Diller had arranged to be in Philadelphia, where Comcast has its headquarters, on September 28th, and to meet with Brian and Ralph Roberts. They spent the entire morning in a suite at the Four Seasons Hotel, looking for an idea they could all agree on. At one point, Diller mentioned his two visits to QVC, noting what an incredible operation it was. He said that he was thinking of producing an on-air segment for Diane Von Furstenberg's Silk Assets. Brian Roberts pointed out that QVC had an operating cash flow of a hundred and thirty million dollars in 1991 and was nearly debt free. He said that each cable operator received five per cent of QVC's sales in its territory, which gave the operators an incentive to promote QVC and open more channels for it. Diller perked up.
For the remainder of the morning, the three men spoke of nothing but QVC. An idea popped into Ralph Roberts' head--how to make Diller a partner--and he sketched it out. He recounted how, five years earlier, he had helped the entrepreneur Joseph M. Segel start QVC. Segel had launched eighteen businesses, he said, and he enjoyed start-up situations. Now Segel was hoping to leave QVC at the end of the year. "There's an opportunity, if it is something of interest," Ralph Roberts remembers telling Diller. QVC, he thought, might be the means by which to marry Diller not just to home shopping but also to the cable industry's appetite for more programming. John Malone was already a part owner, and if Comcast and Malone were allied, as they usually were, they controlled a majority of the stock. Brian Roberts pointed out as an added feature that much of the cable industry had a piece of QVC, for in order to get home shopping launched on their systems most of the other cable companies had been offered stock in QVC. And there was always the prospect that QVC's main competitor, the Home Shopping Network, which Malone would soon own part of, could be merged with QVC.
"That was it," Diller recalled later. "After that meeting, I thought I was really on to something. Once I left that day, I thought it would be QVC."
Diller and the Robertses talked again at the Atlantic City Cable Show, in mid-October. By then, Malone was involved and enthusiastic. It could be a three-way partnership, with QVC as the vehicle for Diller's programming expertise. "Having a couple of good partners is as good as doing your own thing," the elder Roberts told Diller. Partners would provide deeper pockets and guarantee distribution of whatever programs or products Diller produced.
Diller made one more visit to QVC, at 9 A.M. on Saturday, November 7th, for Diane Von Furstenberg's first sale. Surrounded by her silk clothing, she sat beside the host on a small stage in a large brick cavern. Diller stood behind one of eighty telephone operators there and watched the toll-free calls pour in.
Diller was awed. At one point, he looked up and saw that Von Furstenberg was chatting with a woman from Brewster, New York. At another point, he looked down and noticed a colored bar on a computer screen surging, to register an increased number of calls. In less than two hours, the computer showed, Von Furstenberg had sold twenty-nine thousand items to nineteen thousand customers, for a total of a million two hundred thousand dollars. "This was the clincher," Brian Roberts said. "It was the ultimate Nielsen rating. The phones light up. You don't wait till you come into the office tomorrow to find out how you did." And Diller said, "It was the closest link I've ever seen between action and reaction."
Diller and Roberts flew to Colorado on a Saturday to spend a day with Malone, and a commitment to pursue a deal was forged between Comcast and Malone's Liberty Media. The deal ultimately called for Diller to invest twenty-five million two hundred thousand dollars to acquire eight hundred and forty thousand shares (roughly three per cent) of QVC stock; he would also have an option to buy six million more shares, at an average price of just over thirty dollars a share. Diller would become the chief executive officer of QVC; when he exercised his option and his partners sold each other shares, he would own a third of the controlling interest in the company. Peter Barton, the C.E.O. of Liberty, was thrilled. "I think Barry Diller's going to be punching a hole in the sky," he said. The lawyers for the three partners were instructed to move quickly.
Diller obviously sees QVC as much more than a shopping network, and so does John Malone. "The shopping business itself can become a big business," Malone said recently. "How big is the shopping-catalogue business? QVC does a billion dollars a year, and it's just scratching the surface." He believes QVC can be as huge as Walmart. He makes it clear, however, that home shopping is not the ultimate aim of QVC. "It's about whatever we can cook up," he says. "It's a vehicle. It's a platform for Barry. We just look at Barry as firepower. We're delighted that he's wearing one of our uniforms."
A MONTH after the December announcement, Diller began spending about three days a week on QVC's corporate campus, in West Chester, Pennsylvania. He has a corner office on the second floor of a two-story red brick building which faces a ridge of evergreens; they are so close that Diller can see none of the rolling countryside. Along the wall to the left of his desk are nine TV sets. In rural Pennsylvania, Diller is no less concerned with details than he was in Hollywood. He interrupts conversations to pick up his glasses and stare at QVC or the Home Shopping Network. "Why does Home Shopping sell pillows all the time?" he asks. "Maybe we should be selling pillows?" A few moments later, he spots a QVC game wheel, much like the one on "Wheel of Fortune," and says he intends to get rid of it, because it looks cheap. He often refers to QVC as "them" and says, "They've had such explosive growth in their business that they're reluctant to change."
Diller wants to persuade QVC to think of itself as more than just a channel. QVC can also be a shopping catalogue, and a brand name, like L. L. Bean--a catalogue that Diller can program pictures for. He thinks that QVC's full shopping potential won't be tapped until it becomes truly interactive. As Diller envisions it, the customer will say, "I want a raincoat. Instantly! I want an umbrella," and it will figure out the cheapest ones, and deliver them to the door. He predicts, "Three years from now, you'll say, 'I want shoes.' You'll press a button and see yourself in various shoes on the screen." From their homes, he says, consumers will be able to roam the aisles of Bloomingdale's; avoid the last-minute Christmas rush by calling up a special selection of gifts for the "special person," choosing one, and having it delivered the next day; find a hotel in the Caribbean, inspect its rooms and amenities on the TV screen, and then press a button to make a reservation.
Diller foresees selling QVC and other packages or services to disparate customers, including Time Warner, which recently unveiled a digital system that it plans to test in Tampa, Florida, late this year--a system that Gerald Levin, Time Warner's chairman, has hailed as "the electronic superhighway of the twenty-first century." If it is successful, it will allow viewers to select their own channels and packages.
The direction the video business is taking is toward lessening the power of the middleman. Networks and independent stations are middlemen, in that they schedule programs on certain days and at certain hours, or give the viewers the news they deem important. Con-sumers watching what they want when they want will gain a sense of partici-pation, of empowerment. To this end, Diller envisions QVC providing viewers with news stories that present more historical sweep and context, and also with instant news. "Information services are something I plan to have a real role in," he says.
Diller also says that in several years he expects to be "in the storytelling form as well." He is sure that there will be some interactive element. He is uncertain at the moment whether his entertainment programs will be distributed over QVC channels or sold as packages. "That's around a dark corner," he says.
THE economic and social consequences of the technology revolution that Diller envisions are also unclear, of course, and so is the larger philosophical question of whether his efforts--and those of technology in general--may further weaken our already fragile sense of community. Neil Postman, who has written about television as a narcotic, has now written a book about technology, entitled "Technopoly: The Surrender of Culture to Technology." Although Postman speaks specifically of computers, he is making a broader point, and it is one that could be extended to QVC:
Now comes the computer, carrying anew the banner of private learning and individual problem-solving. Will the widespread use of computers in the classroom defeat once and for all the claims of communal speech? Will the computer raise egocentrism to the status of a virtue?
Diller was asked in an interview whether by creating narrowcasting channels and catering to individual cravings through video on demand he is further weakening the bonds of community and shared experience that, whatever the many vices of broadcasting, were, at least, a virtue.
"It's an interesting question, as a question," Diller said. "We don't know enough yet. We don't know yet what 'good' is in a more fractionated world of communication. I'm not interested in narrowcasting--that's not the direction I'm going in. As to what its value will be, later gets to judge." (c)