The John Malone-Barry Diller throwdown

New details: Blowup led to Diller's Live Nation resignation

The complicated relationship between Barry Diller and John Malone has seen the two men as close allies and bitter protagonists -- at this point, mostly the latter. With the news this week that Diller will exit as chairman of the Live Nation board, it appears that a tense detente has been broken and hostilities are out in the open.

As The Hollywood Reporter first reported
, Diller said he would resign as chairman but remain on the board of the giant music company. Sources said Diller left after clashes with board members including Irving Azoff, the top executive at Live Nation; Mark Sharpiro, former CEO of Six Flags; and Ari Emanuel of WME.

But Malone is also a board member, and his role was key. Sources said Malone had been waiting for an opportunity to settle some scores with Diller.

Those sources say that if there is animus between Diller and Malone, it pales in comparison with the hostility between Diller and Greg Maffei, now CEO of Liberty. "Barry Diller and [his associate] Victor Kaufman do not acknowledge that Greg Maffei is alive," said a source, adding that the disdain is mutual.

Asked about his relationship with Malone and Maffei, Diller said in an e-mail: "On Dr. Malone, I think he will agree our relationship is wholly positive in all respects. I've never had a relationship with Mr. Maffei."

Through a spokesman, Malone and Maffei declined comment.

Diller and Malone have known each other and done business at times since the 1970s. They first became business partners in 1992, when Diller took control of the QVC home-shopping network, then known more for its lowbrow merchandise than the kind of highbrow programming on which Diller had built his reputation.

The two biggest investors in QVC were cable magnate Malone, through Liberty Media, and Brian Roberts, who with his father ran the Comcast cable company.

Diller and Malone had ups and downs in their relationship during the ensuing years but the turning point seemed to come after Diller pursued his new-media vision by acquiring a number of Internet related properties, including Ask.com, Match.com, LendingTree, Evite.com and Ticketmaster, which later would be merged with Live Nation.

His big backer in these enterprises -- assembled under the umbrella called IAC -- was Malone, through Liberty, who even signed an agreement allowing Diller to vote his shares, giving Diller control of the company.

With a new empire, Diller began to command extraordinary compensation and wanted a palace-like office building from which to reign. That led him to spend heavily on a new headquarters designed by architect Frank Gehry. His compensation package ($469 million in 2005) and new offices did not play well with Malone, who likes companies in which he holds an interest to spend on products and services rather than bricks, mortar and salaries.

Malone also complained, according to published reports, that Diller was spending too much time on his boat. And he was unhappy that Diller's wife, designer Diane von Furstenberg, was on the IAC board.

Malone put up with it when the stock in Diller's parent company IAC was at $80 a share in mid-2003, but his mood soured as the stock fell below $25 a share as Wall Street shifted its love from Diller's collection of e-commerce assets to social networks like My Space. IAC also was suffering on Wall Street because it had paid a high price for Lending Tree, which had seen its profits and image battered in the mortgage crisis.



Little battles along the way revealed rising tension. In 2006, Diller's HSN and QVC, then run by Malone's interests, fought with each other over who owned the right to use the phrase "Christmas in July" for its sales pitch.

Eventually there were negotiations to swap Liberty's interest in IAC for Diller's interest in HSN, in the type of a tax-free deal that Malone famously likes to make. The lead negotiator on Malone's side was Maffei, who quickly butted heads with Diller. The talks broke down.

At that point, Diller came up with a plan to spin off IAC and split it into five companies. The effect would be to dilute Malone's interests. One new company would essentially be HSN; another Ticketmaster; another LendingTree; another the time-share seller Interval; and finally whatever was left, including CollegeHumor.com, Ask.com and Match.com.

In effect, Diller was going to use the proxy he had been given to vote Liberty's special stock against the wishes of Malone and Liberty. So in 2006, Liberty sued in Delaware, where the company is incorporated.

Among Liberty's aims in the litigation was to force out Diller along with von Furstenberg and other board members known to favor him. This was getting very personal.

Malone was the first witness in the five-day trial, which raked up a number of issues. When Maffei testified, the media noted what appeared to be his hostility, as when Maffei remarked that he and Malone had discussed what they saw as Diller's "delicate psyche." Some weeks later, the judge ruled in Diller's favor, mostly on technical grounds. The effect was to give Diller the right to vote the Liberty shares. Liberty appealed but then reached an accord with Diller allowing him to split up IAC as he wanted.

(The relationship with Maffei did not seem to improve in the aftermath; at an investor conference last year, he described IAC as "just a big pile of cash" and a company with many businesses that were underperforming.)

Observers believe that following the resolution of the litigation, Malone waited patiently for an opportunity to wrest control back from Diller. That opportunity came in the form of Live Nation.

One of the companies that Diller had spun off from IAC, Ticketmaster, held an 83% market share but in 2009 was threatened when the biggest concert booker, Live Nation, announced it would enter the ticketing business as well. Diller's Ticketmaster responded by buying Azoff's Front Line Management, which handles tours for about 200 top music artists. The next move was a merger with Live Nation, which was approved in January.

Some sources believe that the blowup over Diller's control of Live Nation is the first step and that hostilities could spill over into the other IAC companies in which Malone still holds an interest.

Liberty Media will hold an annual conference with analysts Friday; no doubt the relationship with Diller will be a topic.

Alex Ben Block contributed to this report.
comments powered by Disqus