QVC

"Buffett, after a long period of relative inactivity stretching back to the immediate aftermath of 9/11, has had one of the most active periods of his long career. Since the fourth quarter of 2008, he has deployed over $80 billion (over $15 billion of it in the first twenty-five days after the Lehman collapse) in a wide variety of investing activities: • Purchased $8 billion of convertible preferred stock from Goldman Sachs and General Electric • Made a number of common stock purchases (including Constellation Energy): $9 billion • Provided mezzanine financing to Mars/Wrigley ($6.5 billion) and Dow Chemical ($3 billion) • Bought various distressed debt securities in the open market: $8.9 billion • In Berkshire’s largest deal ever by dollar value, bought the 77.5 percent of Burlington Northern that he didn’t already own for $26.5 billion • Acquired Lubrizol, a leading, publicly traded lubricant company for $8.7 billion • Announced a sizable ($10.9 billion) new investment in IBM stock Over the same period, John Malone has been quietly conducting an extended experiment in aggressive capital allocation across the disparate entities that were spun out of TCI’s original programming arm, Liberty Media. In the depths of the financial crisis, Malone: • Implemented a “leveraged equity growth” strategy at satellite programming giant DIRECTV—increasing debt and aggressively repurchasing stock (over 40 percent of shares outstanding in the last twenty-four months). • Initiated a series of moves across the former Liberty entities, including the spin-off of cable programmer Starz/Encore and a debt-for-equity swap between Liberty Capital (owner of Malone’s polyglot collection of public and private assets) and Liberty Interactive (home of the QVC shopping network and other online entities)."

"We would ultimately merge QVC with HSN more than twenty years later. And even with the rise of Amazon and online shopping, TV shopping remains a valuable business, with QVC, HSN, and online retailer Zulily delivering nearly $11 billion through the QVC Group. Yielding to a better, smaller competitor taught me that when you lack a special expertise, it is better to own a small piece of a thriving enterprise rather than to own 100 percent of a struggling one you don’t know how to run."

"Eventually, the ordering system was replaced, and sales grew. But we were still not up to par with the Home Shopping Network. And over in Philadelphia, a fellow by the name of Joseph Segel was doing a much more elegant job of selling merchandise on a network call QVC. Joe was a polished businessperson who had founded the Franklin Mint, which ran sophisticated ads in magazines to sell commemorative coins, medallions, figurines, and other collectibles. He, too, had seen HSN and launched QVC as the Saks Fifth Avenue to HSN’s Walmart. QVC’s hosts were smoother, and its merchandise comprised of more high-margin products. So TCI took an equity stake in QVC, along with Comcast and others. Literally dozens of companies announced new shopping networks, far too many for the market to support. And the market quickly thinned out. The Fashion Channel, in which TCI owned a stake, would go bankrupt and be folded into CVN. Many retailers saw the vision, but few could make it work in time. Still, there was opportunity for the right player."

"QVC under Joe Segel, a seasoned merchant, with backing from Comcast, had outperformed CVN on margins, operational efficiency, and product quality. So, in July 1989, after conversations with Comcast chairman Ralph Roberts, his son Brian, and vice chairman Julian Brodsky, we struck a deal to sell our Cable Value Network to QVC, even though CVN was the much bigger network. Roberts really wanted to retain effective control, and it was clear Joe Segel was his person. I knew we’d make more money as an investor, not an operator. Sometimes it helps to know what you’re good at and what you’re not."

"Joe Segel at QVC"

"We could not simply spin Liberty off into its own company—it did not meet the spin-off rules at the time, which required majority ownership of the entity for five years. So with the help of a smart accounting advisor, we came up with the idea of a “simultaneous incorporation,” in which a newly spun-out entity is legally incorporated at the time it receives the assets and stock of a qualifying business from the parent—and is tax-free under IRS rules. Liberty Media would hold the stakes in programming networks, including 50 percent of American Movie Classics, 16 percent of the Family Channel, and 30 percent of QVC, and interests in fourteen regional sports networks, as well as fourteen cable systems. TCI shareholders would get the “right” to buy one Liberty share for every two hundred shares of TCI they owned. And each right allowed an investor the option to swap in sixteen shares of TCI stock for a single share of Liberty Media. Liberty was expected to own 10 percent of TCI’s outstanding shares on a fully diluted basis."

"At ABC, Paramount, and Fox, I had known what could be done with video screens: we told stories on them. But when I went to QVC in that eventful year of 1992, I watched a screen do something I’d never realized it could do. It wasn’t just a passive one-way delivery system of content. At QVC I witnessed the primitive convergence of telephones and televisions and computers all working together. They were interactive. There was a little video monitor on the set that showed the number of calls coming in when a product was offered for sale. The vertical lines representing the calls rose during the period of the sales pitch, and then, when it ended, they subsided. I was thunderstruck. To me, those calls were like watching waves coming to shore. I thought, *Screens don’t have to be just for narrative, for telling stories. Screens can interact with consumers—*that was the epiphany. It was clunky and rudimentary and I had no clear idea how to turn that revelation into action, but it sat there for a while warming up on the back plate of my brain."

"Brian broke the silence: “We know this is going to make you very angry. But we’re going to stop the CBS merger. We came here to personally tell you that we’re going to buy all of QVC at a twenty-five percent premium to today’s stock price.” Wowser. All I could think to say was “You can’t do that. You gave your word. And besides, we have the two-out-of-three rule, and Malone and I have agreed to proceed.” They coolly said that, nevertheless, they had a separate right to make any offer they wanted for QVC, and the shareholders could decide to buy into this merger or just sell out now for a high price. They handed me a formal letter with the proposal, repeatedly saying they were “really sorry.” Not sorry enough to have held off making the letter public. They had released a copy of it five minutes before my plane landed. I don’t believe they did it maliciously—they needed to put CBS on notice before they formally voted on the merger."

"I then called Larry Tisch. “Congratulations, Barry—you just made a lot of money,” he bellowed at me with his booming voice (the QVC stock I had bought for $25 million was now worth $125 million). He must have gotten their proposal over the wire a few minutes before. Now I was doubly stunned. I quickly said we could easily compete with the Comcast offer and I was sure John Malone and Liberty would back our deal instead of just selling out. Tisch interrupted me, saying, “If you think I’m going to overbid them, you’re smoking something. I’m going to the board dinner right now and I’m going to tell them we should authorize a one-point-five-billion-dollar dividend instead of doing this deal because we’re not going to get caught up in some bidding contest for a home-shopping company.”"

"“You don’t have to bid against anyone. This merger makes more sense to QVC shareholders than being bought out for a premium.” Tisch, without a pause, snapped back: “I don’t get into contests, and I don’t look at what might have been.” He announced that night that the QVC deal was dead and buried and he was going to give a dividend of a billion-plus dollars to their shareholders to make them happy. It was over—my year and a half since storming out of the Fox gates with so much heat and moment was ending in ignominy."

"It was kind of pathetic that this little toad of a company was all that seemed to fit my minimum conditions. Hoping he wouldn’t laugh at the idea, I told John Malone I’d take Silver King, but only if I could also get control of HSN itself (Malone’s Liberty Media owned a controlling stake in it, too). I still believed home shopping was the entrance to e-commerce. QVC had steadily taken market share from HSN, which had been mismanaged for many years and was losing money, but I knew enough about the category to be sure I could turn it around. The problem was that HSN had been accused of various fraudulent practices and was in a legal mess with the Justice Department. That asset was frozen for now, so my only option, pitiful as it was, was to take Silver King and await HSN’s unfreezing."

"By this point both sides were stretched to the max. Sumner was quoted as saying that I was his great friend who’d betrayed him and that little “crummy” QVC was no match for the great Viacom. I responded, “This is about the future of Paramount—which I led for seven straight years when it was number one in the industry. So do you want this fifty-year-old person or this seventy-year-old? I’m young, I’m vigorous, and he’s old.” Oh, do I now rue trashing a seventy-year-old for his age."

"The match had been struck! Serendipity über alles! I instantly perked up and stopped him short. “QVC, really?” I said, leaning forward, suddenly completely engaged. “I was just there last month and was amazed and excited by the interactivity of selling on television.” Ralph looked astonished. While he was proud of it, it was a small-time operation and way outside mainstream media. They both were looking at me weirdly, and then at each other. *Why would Barry Diller be interested in a home-shopping company?* Until then I had been utterly passive and now, suddenly, my eyes were lit. “Tell me more about QVC. I want to know everything.” All I’ve ever needed was pure curiosity, and here it was, raging. I was rapt—my divining fork was twitching furiously. QVC was a successful concern, making around $60 million a year. But it was not something the Robertses thought would be their ticket into big-time media. Ralph then mentioned, mostly as an aside, that Joe Segel was soon going to retire, and he planned to sell the 15 percent of the company he owned."

"It was a dramatic story: me and my Paramount history and upstart QVC buying that fabled old studio. I was twenty-four years old when Charlie Bluhdorn barged into my office to save his recent acquisition of Paramount from going bust, and here I was twenty-five years later bidding to buy the whole company. The afternoon we made the offer, I called Martin Davis to tell him an official letter would soon arrive on his desk."

"This was percolating in the background as I was busy getting to know the CBS executives, and while Larry Tisch, in his fashion, began nibbling away at the edges of our deal. First he said it would be better for him to stay as chairman for the first year or so since he’d still own 20 percent of the company. I’d be president and CEO. Then he told Marty Lipton that his translation of my stock award at QVC into CBS stock would mean I’d get vastly fewer shares in the combined company, cutting me from 5 million to 800,000."

"Over the next twenty years we feasted on 155 separate internet business transactions. A more apt description of me might be “internet opportunist.” I didn’t have any great foresight. I wasn’t a “visionary”—another overused term. I had no overarching plan. Everything emerged organically from my first visit to QVC, when I realized screens could *and would* be used for something other than telling stories. And then out of thin air—or more precisely, thin wire—came the internet to supercharge it all."

"It was only a few months after I’d bought into QVC that Enrique Senior, an investment banker at Allen & Company, called to say he had a big idea for me, one that needed total secrecy. He wouldn’t say anything more over the phone and wanted me to come over to his office. Intrigued, I canceled my next meeting and went over there. He took me through a slide presentation about the growing value of QVC and its possibilities—the most exciting of which was that we should… wait for it… buy Paramount."

"I was now a mogul manqué. I’d made two attempts at the big time and failed at both. And lost QVC in the bargain. *Congratulations, Barry, you are now really and truly independent and under no one’s thumb other than your own. Yes, you presciently forged your way into the beginnings of e-commerce, but now you’ve got no job and no prospects*. I was back where I started after leaving Fox, except now I was nationally known damaged goods. With a stone-cold blood oath I resolved I’d never do anything again where I didn’t have hard and absolute control, even if it was owning a corner delicatessen. And that wasn’t too far from what was in my future."

"I’d told Ralph and Brian that I’d promised myself to never again sign an employment agreement and that I’d report to a board, but not to an individual. QVC was a public company, and the other major owner was John Malone’s Liberty Media. Malone had become the overlord of cable media. He controlled the largest cable network, and with Liberty, he owned most of the programming. He was known both as the Cable Cowboy and, in a swipe from then–vice president Al Gore, as the Darth Vader of media. He was and always has been the smartest person in media, with an extraordinarily subtle and ingenious mind in the body of an outdoorsman conservationist libertarian who’s never met a tax he wanted to pay. I didn’t want to ever be stuck between them and would only agree to a three-way partnership where any two members could decide an issue, as long as I was one of the two. This made them more than uncomfortable, but I was adamant—I’d never do anything again where I wasn’t in some position of control."

"My taking over QVC was announced in December 1992. I agreed to purchase $25 million in common stock, or 3 percent of the company (with options to buy another 15 percent), and to form a partnership with Liberty Media, which would hold 21 percent of the stock, and Comcast, which would control 14 percent. *The New York Times* said, “People who know Mr. Diller and are familiar with the deal said that… he plans to turn the shopping channel into an on-line entertainment and merchandising service in which the subscriber and the cable company can freely interact.”"

"Until, that is, one momentous day when Diane told me about a television shopping channel called QVC, the acronym for Quality Value Convenience. It sold all sorts of merchandise directly to viewers. I’d never heard of it before. She said since I was stuck in this limbo, I ought to go to the wilds of Pennsylvania, where it was located, to see the operation and report back if it would be worthwhile for her to sell her clothes on the channel. It is no understatement to say that trip gave me one of the purest and most powerful epiphanies of my life. I didn’t know it then, but it would turn out to be my way forward."

"I was close to hopeless as I neared the end of my meandering up the Intracoastal. Could I end my career with such a whimper? Where could I find the match that would light my next move? I was down to less than a matchstick when I spoke with John Malone early in 1995. I told him the trouble I was having finding something to get me off zero. Joking and dismissive, he said, “Well, I control Silver King. You can have that if you want.” Silver King? What the hell is that? It turned out to be a string of UHF television stations that didn’t actually broadcast anything; they were repeater stations for the programming of the Home Shopping Network. HSN was the forerunner to QVC. It actually invented the interactive-shopping category. Silver King had revenues of only $40 million a year with no prospects other than its income from the Home Shopping Network."

"I spluttered, “I don’t know, but QVC is this primitive clay I want to get hold of and use it to pursue *interactivity.*” That was mostly babble, because all I really knew was that this was the first time in months I’d been intrigued by anything. Ralph and Brian knew they’d just hooked the big fish, but were bewildered by the small stream it wanted to inhabit."