This is the first piece of a two-part deep dive on Barry Diller.
Why Diller? Yesterday, I heard a quote by Dan Zwirn: “the best value investors are as comfortable with securities as they are with operating companies.” I agree. Great businesspeople often straddle the worlds of investing and operating. They are capital allocators, leaders, and creators. Guided by a set of principles they defy the labels of the investor, the entrepreneur, the Chief Executive, the operator. They are multi-faceted and multi-dimensional: they express themselves and their craft in public and private markets, through control and minority stakes, by building, acquiring, and selling assets.
I found Barry Diller to be a great example of someone who married the operating and investing worlds. After rising to the top of Hollywood, he left to take a road trip to the future and built IAC, the “anti-conglomerate,” which acquires, incubates, operates, and spins off technology companies. He has been highly successful: an investment in IAC’s predecessor Silver King, at the time that Diller took control, would have compounded at 16%.
After starting his career at a talent agency, much of Diller’s success can be traced back to his ability to cultivate a different kind of talent. His ability to find, mentor, and develop executives was crucial to his success. He leveraged generations of hungry managers to source ideas and opportunities. He routinely gave his people a hard time, something he called “creative conflict” (and that has been described as an “aggressive advocacy and yelling system”), to unearth their highest conviction ideas. Finally, he “pushed responsibility down” the hierarchy to train and test his people. Diller gained responsibility at lightning speed, was often promoted “out of his competence.” He practiced the same in his companies, “throwing people into the water” to get a “window into their real character.” He let his people take risks and responsibility and promoted them when they flourished. And in the same way that IAC spins off companies as they mature, Diller now finds himself with a diaspora of execs he once mentored.
Diller’s arenas were television, Hollywood, and the Internet. But the lessons of his unique style are relevant to anyone trying to solve the universal business puzzle: the combination of ideas, people, and capital.
Here is how an experienced showrunner described the parallels between making a TV show and starting a business:
“This is what actually happened when a show got on the air: an inventor (I mean "a writer") had an idea. Through a series of channels ("agents") the inventor went to a venture capitalist ("a studio") and got some guidance about developing the product. Together they then took it to a retailer ("network") who agreed to front money to build a prototype ("pilot"), and later, based on that prototype and their extant successes and projected needs (the "shows that they kept from last year and the ones that got cancelled"), they decided to put the entire product line (the "series") on their department store windows (their "air").”
IAC’s CEO Joey Levin wrote “the IAC Way pairs scrappiness and big ambition with the rational patience of permanent capital.” We can find the origins of this philosophy all over Diller’s career.
This first piece will highlight key moments from Diller’s life prior to IAC. In a second (premium) piece I will dive into his system of discovery, debate, and development and highlight some example stories. (For a quick primer on IAC, check out The Generalist. For a perspective on IAC and other stocks in Diller’s universe, take a look at Andrew Walker’s writings. This is not investment advice!).
“What we do to exhaustion, irritation, and, finally, insanity is make arrangements, not movies.”
“I got hired with no experience, no nothing, somebody just took the flyer, as they say. So I have always believed to hire people, bring people into your organization who are young, and who are inexperienced for the job that you give them. And sometimes that works, and sometimes that doesn't work.”1
William Morris and ABC
Barry Diller was born in 1942 and grew up well-off in Beverly Hills. He dropped out of UCLA and went to work at Hollywood’s biggest talent agency, William Morris. All new employees started out in the mail room, which became Diller’s library. He learned the history and inner workings of the entertainment business by reading contracts, memos, and correspondence between agents, studios, and clients.
“They always talk about people being anxious to get out of the mail room. Well, I kept fighting to stay in it. I was 19 years old, and I thought that was a great place to go and learn about the business. I wanted to learn everything that was going on. I'd take these huge stacks of files and read every detail in them. I mean, you go to college to read; that's what I was doing at William Morris. I read their entire file room. It took me three years, but I did it. You know how people say they read at Oxford. Well, I read at William Morris. It may sound pretentious, but it is an accurate analogy, because for me William Morris was the best library in the world.”2
Diller spent a week and a half on Elvis Presley's six-foot-high file. “I was interested in the process of what Elvis was doing. I was like a sponge.”
At a party, he met Leonard Goldberg, a rising executive at ABC. Goldberg wanted to test Diller and provoked him by disparaging the career path as an agent. Impressed by Diller’s knowledge and passion, he hired him to be his assistant. In a stroke of good luck, Goldberg was promoted the day Diller quit his job. "Suddenly, instead of being the assistant to a middle-level VP at a West Coast outpost, I was the assistant to the overall head of programming for the entire network.”
Goldberg was assembling a team of “killers,” of “guys who were smart and tough.” Next to join the team was Michael Eisner whose resume Diller picked up and suggested for Goldberg to interview.
“The wonderful thing about ABC was that it allowed people like Michael Eisner, me, and an endless list of others to take all the responsibility we wanted. It was never a question of waiting for someone to give us responsibility.”3
Michael Eisner remembered:
“We were all in a fish tank at ABC, and the strongest fish dominated, the most creative. Nobody cared what we did as long as we were successful and responsible, as long as we didn’t do junk. If we failed, we would have been thrown out.”4
Goldberg said this about Diller’s time as his assistant: “the best thing about Barry was that you told him to get something done and you could blank it from your mind. You never asked how it got done. Command came easily to him. He was always comfortable with power.”
When Diller joined ABC, it was lagging its rival networks CBS and NBC. It lacked long-term hit shows and financing (there were rumors about a merger with the conglomerate ITT). A running joke in the industry was: “want to end the war in Vietnam? Put it on ABC-TV and it will be over in thirteen weeks.”
Diller quickly gained more responsibility. He was promoted to VP of prime-time programming which put him in charge of acquiring content (primarily films from the studio archives). ABC was desperate for good product and in a weak negotiating position. Diller, who had some ties to Hollywood thanks to his time at William Morris, became the key negotiator. He listened to hundreds of film pitches. Said ABC President Leonard Goldenson: “Barry Diller had quickly evolved into a tough, capable businessman and a hard-nosed negotiator. His forte was negotiating the purchase of rights to feature pictures from the major companies.”
When a producer named Roy Huggins pitched the idea of a weekly show with 90 minute movies produced just for television, Goldenson put him together with Goldberg and Diller. They saw the idea’s potential but were not interested in working exclusively with Huggins as a producer. Instead, Diller and Marty Starger (ABC’s future head of programming) requested a budget of $14 million to make 26 films for the new show, the Movie of the Week. ABC’s board asked Diller to buy the films from Universal which had made movies for ABC before.
Universal, headed by the legendary Lew Wasserman, was open to making the films. But Wasserman asked for exclusivity to provide all future Movie of the Week films to ABC. Diller wanted flexibility to buy from all the studios. He got ABC to propose a one-year exclusivity, expecting the deal to fall apart. When it did, ABC established its own production company. Diller now had complete control over the project and was effectively running a small-scale studio within ABC. He assigned the movies to a mix of independent producers and studios. Universal was forced to return to the negotiating table and compete for its share of the business. “[Universal] laid siege to ABC. They totally folded, which was sweet to watch.”5
“I was responsible for ABC’s movie inventory, buying movies and scheduling them. That’s a remarkable load to put on a kid.”6
“Why in god's name would they give responsibility to a 23-and-a-half-year-old person? And so this very unique thing happened, which is I had total control over making these movies, and total control how to advertise them, which is something nobody ever did on television. It meant next that I got promoted out of my competence. By the third year, we had expanded from one night to three nights. We were making 75 movies a year.”7
Diller was in charge of making movies in addition to buying feature films from the studios. After a few years, he and his small team had gained an enormous amount of experience and responsibility.
“We did it with a tiny staff, just five people in the beginning. At first, every detail of every production, from idea to script to finished movie, was supervised by me and Jerry Eisenberg. Then Michael Eisner joined us along with one or two other people and that was it. It’s amazing what you can do with very few people if you know what you’re trying to do.”
When he was asked how he had achieved his meteoric rise, Diller answered:
“I’d look at them, these well-balanced, relatively calm people who had these normalish lives and I’d say, ‘I can tell you, but you won’t be able to imagine the level of energy and commitment and the things you have to give up if you really want to do something like this.”
On a trip to England, Starger learned about a new format developed by the BBC: the miniseries. The concept turned novels with complex, sprawling stories into six- to eight-hour series. He and Diller adapted the concept for the American market where it took off. The most prominent example, Roots, was greenlit by Diller but aired in 1977, when he had already left ABC.
Diller regularly negotiated with the powerful heads of Hollywood’s studios. One of them was Charlie Bluhdorn, a trader and dealmaker who had built the Gulf + Western conglomerate and acquired the Paramount studio. Bluhdorn loved to negotiate deals and enjoyed sparring with the young Diller.
Early on, Bluhdorn called Diller about a list of Paramount movies. Diller, lounging by the pool of the Bel-Air Hotel, thought the movies offered were “old and tired” and the price too high. His answer to Bluhdorn’s proposal: “over my dead body!” Then he hung up.8
“Charlie Bluhdorn. I gave him a very hard time. He liked that.”9
“When Charlie bought Paramount, he came to ABC to sell these movies. And I said, "You made terrible movies, we're not buying your library." He and I had a really great, fun, contentious relationship. But over five, six, seven years—and he at various times said to me, "You have to come to Paramount, you should run our television." And I would say, "No, I'm not doing that. No, no, no." One day he calls me, and he says, "I want to make you chairman and chief executive of Paramount." I had zero experience in theatrical motion pictures, and actually, it wasn't like I said, "Oh, yeah." I thought, "I don't know if I should do it.”
Paramount was an important investment for Bluhdorn. When he offered it to the 32-year-old Diller, the studio had just produced the Godfather. It was an offer Diller could not refuse. There was little keeping him at ABC as his former mentor Goldberg had already left to join Columbia.
Hiring Diller, a TV executive, to run a movie studio was an unorthodox move. Again, Diller had been promoted “out of his competence” and had to earn the respect of his new peers.
“I was the first person from television to come into the movie business. In later years, one by one by one by one, almost everybody came from television. Because television was, first of all, the more creative medium, interestingly enough. And had much more actual story discipline in certain interesting ways than the tired, old hoary movie business.”10
Diller’s years at Paramount were very successful with movies such Raiders of the Lost Arc, Flashdance, Grease, Saturday Night Fever, Bad News Bears, and Beverly Hills Cop. His team of executives was known as the “Killer Dillers” and represented a new style in Hollywood. And in Bluhdorn he had found a new mentor.
Sometimes called the “Mad Austrian” because of his thick accent, Bluhdorn is virtually unknown today. Born in 1926 in Vienna, he arrived with his parents in America in 1942. He started off as a commodity trader importing coffee before reinvesting his profits into companies. “Bluhdorn acquired things like most people shop in the supermarket. He was buying everything.”
Bluhdorn started with small auto parts and industrial companies, including one called Michigan Plating & Stamping. In 1956, he renamed it Gulf + Western, with the ambition of turning it into a national conglomerate. He acquired hundreds of companies, eventually gobbling up media properties such as Paramount and Simon & Schuster. He was an opportunistic dealmaker, finding success and occasionally failure in a variety of industries. Diller once called him a “romantic businessman.” His influence on Diller is without question:
“Bluhdorn is one of the great tales of the twentieth century.” 11
“Charlie was a genius. He's probably the only person I could ever call that. Charlie was also crazy, in his way. The energy you had to have to just function with him was immense. But more than anything, he and I had fun. At times it was enraging, but fun. Battle as fun!”12
With a passion for the movie business, Bluhdorn liked to keep close tabs on Paramount. When the studio filmed the Godfather in 1972, Bluhdorn involved himself in pre-production, hiring, casting, and sometimes appeared on set.
It seems to me his management style influenced Diller profoundly. Bluhdorn was said to relish debate and subjected his executives to intense questioning. When Diller thought the movie Bad News Bears needed a marketing push to succeed, a furious Bluhdorn called him and yelled “you’re going to bankrupt us!”
“I had a very "noisy" relationship with Charlie Bluhdorn. I think there was great affection between us, which anybody could see. But that's one of the places I learned you'd better be up for the fight.”
Diller also commented that he was impacted by Bluhdorn’s disregard for organization. He learned to do the opposite and gained a reputation for keeping track of details and tight cost control. Diller’s first year at Paramount was difficult and he even offered to resign. But Bluhdorn stuck with him. He gave Diller time to assemble a successful team and refine his process.
The In-House Philosophy
Diller joined Paramount at a time when movie budgets were exploding. Studio profitability was suffering. In the words of Alfred Hitchock: “The worst thing that ever happened to the business was The Sound of Music. That film stimulated everybody into making expensive films.”
Only a few years before, Kirk Kerkorian had acquired MGM and brought in James Aubrey from CBS to turn it around. Aubrey had slashed costs, sold off real estate, and orchestrated a giant yard sale with MGM’s legacy of movie props. It was a nightmare for Hollywood.
Diller saw two ways to rein in costs: more disciplined management and a different relationship with the talent agencies. Early on, he brought the executive suite back to the studio lot from their separate office in Beverly Hills. Whereas producers had previously enjoyed a lot of leeway, he involved himself in the details, scrutinized budgets and cut back on expenses.
“When a contemporary movie shot by a relatively unknown director takes 110 days to shoot, that’s not cost inflation, that’s a travesty of management.”13
Diller had already proven himself to be a tough negotiator. His discipline and willingness to get into the weeds were one of the reasons why he was later hired by Rupert Murdoch who commented: “He was a very conservative manager. He would arm-wrestle movie producers for months.”14
The following quote describes his days at Fox, but it speaks volumes to how his “tone from the top” could change the culture: “Before Barry went to Fox, I would walk down the halls at 5 p.m. and they would be empty,” says veteran entertainment attorney Bert Fields. “After he arrived, you could go there at 10 p.m. and all the lights were on. There’d be people everywhere. If you went to work for Barry, you damn well didn’t leave at 5 p.m.”
Diller also had to tackle the talent agencies. Agents had taken on the work of their clients by creating “packages” of script ideas and acting and directing talent. While this made life easier for the average studio executive, it came with premium pricing, a kind of deal premium. In its more nefarious use, the agencies would also abuse their market power by “packaging” star actors with supporting talent under contract with the agency. This multiplied commissions for a given project and occasionally invited antitrust scrutiny.
To avoid paying the packaging premium, Diller focused on in-house development and incubating ideas at Paramount. In other words, he needed to create deal flow to avoid paying a premium for polished ideas. This required a team of talented and hard-working executives and a lot of legwork. Dawn Steel wrote in her autobiography:
“Diller was our general. He was out to break the agents' hold on Hollywood. He refused to sit around waiting for agents to sell him packages. By and large, movies were much more expensive that way, to say nothing of the fact that you didn't get to choose the combination of talent you wanted to work with. Under Diller, Paramount developed its own movies. It was our responsibility to get our own ideas and develop them. At the time I didn't know how unique this way of doing things was. I thought all studio executives stood on tables and screamed.”15 (I will write more about the screaming in the second essay.)
Peter Biskind wrote about Diller’s disciplined management style: “He brought control back to the studio. The drugs, movies going over budget, it was a runaway train.” The LA Times wrote Diller “took the asylum back from the inmates.”16
The Killer Dillers
Diller made sourcing ideas a top priority. He quadrupled the budget for buying scripts and movie rights to books. And he assembled a team capable of executing his plan. Michael Eisner, Jeffrey Katzenberg, Don Simpson, and Dawn Steel became known as the “Killer Dillers.” Eisner seemed to have the golden touch for finding ideas that would appeal to mainstream taste. Katzenberg was termed the “golden retriever” for his relentless effort and success in finding the latest scripts. We will take a detailed look at his team in the second part.
Life after Paramount
After Charlie Bluhdorn passed away in 1983, his right-hand man Martin Davis became CEO of Gulf + Western. Davis had no emotional attachment to the movie business and started restructuring the conglomerate. He and Diller clashed, and talent started to leave Paramount. Diller joined Rupert Murdoch to head Fox. Eisner departed to lead Disney where he was joined by Katzenberg. Simpson had already joined producer Jerry Bruckheimer. Steel departed to become president of Columbia Pictures.
Diller successfully ran Fox and built the fourth TV network, an idea he had explored at Paramount already. However, he was still an employee, not an owner. In 1991, he ran into resistance trying to implement some of his ideas.
“I had the feeling I was an unwanted voice chiming in. I thought, ‘My God, I really am an employee.’”
Diller wanted to be his own boss and in control of his own destiny at long last. He left Fox to embark on his famous road trip and discovered the magic of “interactivity at scale.” After a brief tenure at shopping network QVC (where he unsuccessfully bid on his old employer Paramount), he took control of competing HSN/Silver King and turned it into the deal-making machine that became IAC. (This (German) write-up has a good timeline of IAC’s deals on page 5.)
Disclaimer. This is not investment advice. This is not a recommendation to buy, hold or sell any securities or other financial instruments. Always do your own research.
Time Magazine, 1993. “An old Fox learns new tricks”
King of Media, Jerome Tucci
The Barry Diller Story
Masters of Scale
New Yorker, 2002
Interview in Playboy Magazine, 1989
1981 NYT Paramount Outsize Films
Time Magazine, 1993. “An old Fox learns new tricks”
They Can Kill You.. but They Can't Eat You, Dawn Steel.