What Diller Knows (And Doesn’t Know)

Barry Diller was the headline maker at last week’s Jupiter Consumer Online conference in New York.

The headline was he won’t sweeten his deal to acquire Lycos, whose shareholders will take a 30% interest in a new outfit that includes Diller’s Home Shopping Channel. Beneath the headline was a lecture in which Diller basically said most of the equity value being created by Internet merchants is phony, and that only real sales and profits matter. The tone of the piece, by Michael Hiltzik, indicated approval for the lecture, but Hiltzik’s employer hasn’t done much better online than Diller, so maybe the gloating came too soon.

I think Diller was right, as far as he went. Sales and profits do matter. But Diller didn’t mention that old media hands like himself have proven incompetent in the ways of the Net. USA has owned the Internet Shopping Network for years, but it’s gone nowhere while Lycos has prospered.

If Diller leaves Lycos Chairman Robert Davis alone to run the new empire, I think history will smile on this deal. The fear of many people is he won’t do this, that he’ll micro-manage Lycos, causing good executives to flee, and then bring in Old Media friends who know as little as he does, leaving the Net’s profits to others. This may be the real reason Wall Street hasn’t approved of this acquisition.

If Lycos shareholders, combined with the owners of Ticketmaster-CitySearch, which is also in this deal, had a majority stake in the new entity, the critics charge, the danger of Diller’s meddling would diminish and the prospects for the group would improve. Diller’s refusal to consider such a sweetener could yet kill the deal. That was the true context in which we should place his remarks last week. Until Barry Diller convinces Wall Street he’ll keep his hands off Lycos, the Street will continue to turn thumbs-down on Diller’s deal.

What do you think? Let’s talk about it.

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