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IAC

IAC InterActiveCorp (US)

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Though it is often counted as a digital group in its own right, IAC (or InterActive Corporation) is primarily an umbrella for the extensive and diverse portfolio of investments of media mogul Barry Diller, closer in nature to Warren Buffett's Berkshire Hathaway than to integrated digital media groups like Google or Facebook. Several of these have outgrown the umbrella structure for one reason or another and been floated as separate companies. That process kicked off in 2005 when IAC demerged its collection of travel-related businesses into a standalone unit, Expedia Inc. One of these, TripAdvisor, was itself spun out a few years later. In 2008, IAC completed a string of further divestitures, separating out the cable TV service Home Shopping Network (HSN), global ticket agency Ticketmaster, and consumer finance site Lending Tree as standalone companies. They have been replaced by new launches and acquisitions, with the result that IAC still houses more than 150 different online brands and products. The best-known are arguably dating site Match.com and its spin-off service Tinder, video streaming archive Vimeo and irreverent culture and politics commentator The Daily Beast.

Advertising

Who handles advertising? Click here for Agency Account Assignments. The group declared advertising expenses of $1.2bn for 2018.

Competitors

See Media Sector for other companies

Brands & Activities

Until it spun off Expedia into a separate company, IAC was one of America's three biggest interactive companies, larger by combined revenues in 2005 than even Google and Yahoo. However, unlike any of the other players in this field, it had long lacked a single big brand, and several of its businesses, such as the Home Shopping Network and Ticketmaster were "interactive" only in the more traditional sense, rather than as internet-based businesses. Barry Diller's strategy had many undeniable advantages, not least the ability to spread risk widely between separate properties. But the downside was that many of the group's subsidiaries had low profit margins, as well as a comparatively downscale perceived image. As a result, Diller announced another huge restructuring in 2007, in which slower-growing businesses would be spun off to allow IAC to focus on high-growth internet properties. That process was held up for almost a year by a legal battle with Diller's investment partner John Malone, another giant in the US media industry.

Following the spin-off of HSN, Ticketmaster and other units in 2008, IAC consists only of online businesses. The group describes its mission as "to harness the power of interactivity to make daily life easier and more productive for people all over the world". However it is less like an integrated group (along the lines of Yahoo or even Google) than an investment vehicle, closer in form to an online Berkshire Hathaway. And it still lacks a single megabrand.

The group's various assets are currently divided into five divisions, several of which are themselves separately quoted but controlled by IAC via a majority shareholding.

The Match Group houses the group's collection of dating services properties. The twin core businesses are Match.com and Meetic, the leading subscription-based online personals services in the US and Europe respectively, with around 3.5m subscribers. Match also operates a network of affiliated sites in more than 40 other countries around the world, as well as various premium or added value sub-stands of its own including UK-based Udate.com and Chemistry.com. In 2009, the group sold control of its various European subsidiaries to local market leader Meetic in return for a minority stake in the enlarged company. It increased this holding to over 80% in 2011. US competitors OKCupid and Singlesnet were also acquired that year. In 2013 the group launched dating app Tinder, which it had developed inhouse, to phenomenal success. In 2015, it acquired PlentyOfFish.com and its associated sites for $575m. Also that year, IAC issued an IPO of around 14% of the equity in Match Group, but it still controls almost 98% of voting rights. Match Group is IAC's biggest business, with revenues up 20% in 2016 to $1.22bn, mainly through subscription fees. Operating income was $306m.

Angi HomeServices was created in 2017 from the merger of the group's existing HomeAdvisor division into separately quoted classified services supplier Angie's List. IAC has an 87% holding in the new group. HomeAdvisor (previously known as ServiceMagic) is a specialist search engine and web directory which connects residential customers in the US with home service professionals, including builders, plumbers, electricians and decorators. The group's database contained details for more than 80,000 different suppliers, each of whom pays an annual enrolment fee as well as commission on customer enquiries. In 2016, the group acquired German homeservices marketplace MyHammer. Other regional sites include MyBuilder in the UK, Travaux in France, Instapro in Italy and Werkspot in the Netherlands. The HomeAdvisor division reported revenues of $499m in 2016. Proforma revenues for the merged ANGI HomeServices company were around $890m in 2017.

Video is a rather diversified collection of streamed entertainment sites. IAC has owned streaming video site Vimeo.com since 2006. Unlike similar sites such as YouTube or Daily Motion, Vimeo is positioned primarily as a professional video sharing service. It also gave gave financial backing to entertainment production company Electus, founded by media entrepreneur Ben Silverman. The division also houses a collection of comedy sites including CollegeHumor.com, and fitness and training site DailyBurn. RushmoreDrive is a jobs, news and lifestyle site targeting the African-American market. Combined revenues were $229m in 2016.

Applications houses a collection of free desktop or mobile apps targeted either at consumers or as custom-built services for partner organisations. The best-known are PDF-converter FromDocToPDF, mapping service MapGalaxy and forecasting app WeatherBlink. Almost all link in to Google's search database, and are funded by advertising revenues generated from Google. Combined revenues were $604m, of which 87% was derived from Google.

Publishing houses a collection of editorial sites or content-based sites. Its lead brand is upscale opinion and culture website The Daily Beast, founded and run by former Vanity Fair and New Yorker editor Tina Brown. For a period between 2010 and 2013, the Beast was itself partnered with the once-renowned current affairs magazine Newsweek. IAC took charge of Newsweek in 2010, originally in a a joint venture with Harman Industries. However, the merger of the two titles never gelled - IAC CEO Barry Diller conceded that the strategy had been a mistake - and Newsweek was sold on again in 2013 to the International Business Times for an undisclosed sum.

Also sitting within the Publishing division is all that remains of search engine Ask.com, once one of IAC's biggest brands. Ask has struggled to carve out a distinct niche for itself, and has tried a number of different strategies. It first joined the IAC portfolio in March 2005, acquired for approximately $1.85bn in stock. It was then known as AskJeeves.com, a reference to the all-knowing butler in the stories by English writer PG Wodehouse. About a year later, however, brand mascot Jeeves was given the sack and the site relaunched as Ask.com. It still claims to offer the web's most naturalistic search, encouraging the use of full questions rather than simple keywords. That approach was dropped for a while, along with the Jeeves mascot, before being reintroduced in 2008. In 2009, the Jeeves character too was resurrected in the UK, and the site relaunched as AskJeeves.co.uk. However, the expansion of Google and the sheer extent of its database has made smaller services such as Ask virtually irrelevant.

Ask is partnered in the media & advertising division by Dictionary.com and Thesaurus.com, both acquired in 2008. In summer 2012, IAC agreed to acquire online reference and how-to site About.com from the New York Times for $300m, trumping a rival offer from Answers.com. It was relaunched as DotDash. This unit also houses local information search engine Citygrid which offers entertainment and activities guides for major US cities.

The group's remaining web properties are grouped under the heading of "other businesses", and include a variety of different assets. Several have been sold including social questioning service Ask.fm and ecommerce sites Shoebuy and PriceRunner in 2016; and The Princeton Review and Tutor.com (to ST Unitas in 2017).

Financials

IAC's group revenues peaked in 2006 at $6.3bn, but have fallen back dramatically following the demerger of several of its largest subsidiaries. Topline slumped to a low of just $1.35bn in 2009 before gradually rising once more. For 2016, revenues were $3.14bn, down around 3% on the previous year. Net earnings have been similarly volatile, with 2015's $119m profit followed by a net loss of $41m for 2016. The latter primarily the result of a large impairment charge against various properties in the Publishing portfolio.

Historically, a large percentage of IAC's revenues have been derived from Google, which supplies all paid search and much of the group's display advertising. However, this relationship is gradually being dissolved, with the result that revenues from Google have fallen from 45% of the group total in 2014 to 26% in 2016, equivalent to $824m. The group is carrying significant debt of around $1.6bn at the end of 2016.

John Malone's Liberty Media group was for many years the biggest individual shareholder in IAC, with around 27% of its equity. However, for historical reasons, Malone had granted irrevocable voting power over the majority of his shares to IAC chairman Barry Diller. This led to a legal tussle in 2007 when Malone initially blocked Diller's plan to spin off IAC's lower-margin businesses. Diller and Malone finally resolved their long and occasionally fractious partnership towards the end of 2010. Malone surrendered all of his shares in IAC in return for $220m in cash and the transfer of full ownership of former subsidiaries Gifts.com and Evite, as well as IAC's advertising solutions division. Diller ended up as the largest single shareholder in the group, with direct control of around 45% of its voting shares.

Background

Barry Diller has a long and impressive track record in the US entertainment industry. He first made his name at ABC Television during the 1970s, where he developed that network's Movie of the Week strand, a series of hugely successful made-for-TV feature films which broke the iron grip of NBC and CBS on US network television audiences. Towards the end of the decade he moved on to become CEO of Paramount Pictures, where he oversaw hits such as Saturday Night Fever and Grease, the Indiana Jones series and the Star Trek franchise, as well as long-running TV comedies Taxi and Cheers. Diller moved on again in 1984, this time to 20th Century Fox, just prior to its acquisition by Rupert Murdoch. There he oversaw the creation of a new broadcasting division, replicating the success he had already enjoyed at ABC to establish Fox as the country's newest national network. In the process, Diller earned a reputation as a skilled and aggressive dealmaker, and in the early 1990s he took the decision to use those skills for his own benefit rather than as an employee in someone else's company.

In 1992, Diller astonished the industry when he quit Fox, reportedly after Rupert Murdoch refused him a partnership stake in the company. Instead he used his handsome pay-off to acquire a $25m stake in home shopping television channel QVC. At first this seemed an unusual shift of gear for Diller, from a mainstream studio to the comparative backwaters of QVC, but he professed himself to be greatly intrigued by the potential of interactive selling. He threw himself into two new deals: an attempt to merge QVC with its smaller rival HSN, and also a rival bid for former employer Paramount Pictures, then under offer from fast-expanding cable group Viacom. But Viacom was not easily countered and a bruising and time-consuming five month bidding war ensued, forcing QVC to abandon its HSN merger. Diller was finally forced to admit defeat over Paramount as well after Viacom raised its own offer to more than $10bn. Instead he bounced back with a daring $7bn bid for broadcast network CBS. The terms of this deal were agreed, but it was derailed at the last moment when cable group Comcast, a major shareholder in QVC, opposed the deal and instead mounted its own takeover of QVC, backed by Liberty Media.

Stung by the failure of these deals, Diller resigned from QVC in 1995. At that time, Liberty Media's owner, entrepreneur John Malone, was attempting to take control of Silver Wing Communications, a small group of regional television stations which were local affiliates of the Home Shopping Network. However FCC regulations prohibited companies from controlling broadcast stations in the same markets in which they owned cable systems. As a result, Malone and Diller teamed up to acquire the business, with Malone acquiring Silver Wing, but transferring voting control over the business to Diller. A year later, Malone agreed to merge Silver Wing and HSN under Diller's control. From that point onwards the deals came thick and fast as Diller rapidly began assembling a new media empire.

In 1997, HSN acquired Microsoft co-founder Paul Allen's 50% shareholding in ticket agency Ticketmaster. The following year, Diller agreed a joint venture with beverages and media group Seagram to merge HSN with the Canadian group's recently acquired television interests, which included the USA Network and the Sci-Fi Channel as well as a busy TV production studio. As a result of this new deal, HSN changed its name again, becoming USA Networks. The same year, Diller bought out Ticketmaster's remaining shareholders and merged that business with local information services provider CitySearch to form Ticketmaster-CitySearch (TMCS), floating its online operations at the end of the year. Diller now sat at the head of two separate groups, the USA Networks joint venture with Seagram, and the part-public ticketing and local information operator TMCS.

Further deals followed, including the purchase of Hotel Reservations Network (later Hotels.com) and Microsoft's Sidewalk city guides in 1999, then Precision Response, Match.com and eVite in 2000. Another potentially ground-breaking deal to acquire US-based search engine and portal Lycos was blocked by the latter's shareholders, who felt they could get a better price elsewhere. Had it taken place, the USA Networks-Lycos deal would have marked the the first merger between the online and traditional media industries, predating the AOL-TimeWarner tie-up by almost a year.

By now, however, Diller's partner Seagram was having difficulties of its own, and was widely reported to be seeking a buyer. The successful bidder turned out to be French utilities group Vivendi. As a consequence, USA Networks was split into two, with Vivendi buying out Diller for his shareholding in the entertainment assets, which were transferred across to the newly formed Vivendi Universal. However Diller kept hold of his two hats - Vivendi retained him as executive chairman of Vivendi Universal Entertainment, while also letting him carry on with the interactive businesses, now regrouped as USA Interactive. When Vivendi Universal itself burned out in 2003, Diller was able to negotiate himself another handsome personal payout to surrender his call on the cable businesses and allow them to be sold to NBC.

Released from the burden of Vivendi Universal Entertainment, Diller devoted himself to the development of USA Interactive, which adopted yet another new name of InterActive Corporation. Convinced that interactive businesses would bounce back from their post-burn-out lows, Diller took advantage of the distressed state of what remained of the dot.com industry to buy a number of struggling online properties at what were often bargain basement prices. During 2002 the group acquired a controlling interest in travel business Expedia, originally launched by Microsoft and floated in 1999, as well as cable travel reseller TV Travel Shop. In 2003, the group reacquired the public shares in TMCS, as well as UK dating service Udate, mortgage service LendingTree, Hotwire, Anyway.com, RealEstate.com and GetSmart. Further deals followed in 2004, including ZeroDegrees, TripAdvisor and ServiceMagic.

However, a growing perception of IAC as a travel company placed limits on the number of stock-based deals IAC could negotiate with non-travel-related businesses. At the end of 2004, IAC announced plans to spin off its entire travel services division as a separately traded public company, Expedia Inc. The separation was completed in August 2005, although the two businesses remain closely linked, not least by Barry Diller who, true to form, remains chairman of both companies. At around the same time, Diller sold his interest in Vivendi Universal Entertainment, and also paid $725m to acquire Cornerstone Brands, a collection of mail order and online retail sites selling home furnishings, leisure and casual apparel.

By now though the group's share price was trading at historic lows, held back by investor concern at its bewilderingly diverse collection of assets. In particular, shareholders felt that performance was being held back by low margin businesses like Ticketmaster and HSN. As a result, Diller announced a bold plan to break up the group, spinning off four of its less dynamic divisions as separate quoted companies.

Almost immediately, this strategy was blocked by IAC's biggest shareholder John Malone's Liberty Media Group. Since the acquisition of Silver Wing in 1995, Malone had controlled what was effectively 62% of the group's equity through a special category of shares. However, in order to get around FCC regulations over media ownership, Malone had granted irrevocable voting power over the majority of these shares to Diller. Now, Malone opposed Diller's break-up plan because it involved the elimination of Liberty's "supervoting" shares, effectively reducing Malone's investment stake in each of the individual spin-offs from 62% to around 30%. Coming on top of the group's already lacklustre share performance, this caused a rift in the relationship between the two media tycoons. Malone attempted to block Diller's break-up plans, leading to an exchange of law suits in December 2007 and January 2008. Malone's suit accused Diller of attempting to mount a "corporate coup". After an increasingly bitter exchange of insults, a US judge eventually sided with Diller in March 2008. The two tycoons eventually agreed to resolve their differences in May, and the spin-off was completed in August.

Home Shopping Network and the Cornerstone mail order portfolio were combined to form HSN Inc, Lending Tree and its associated real estate interests were consolidated as Tree.com Inc, and Ticketmaster and timeshare vacation club Interval Leisure Group were re-established as two separate companies.

Last full revision 30th January 2018

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