For IAC, a fresh start in a tough climate

InterActiveCorp, the sprawling conglomerate of brands helmed by media titan Barry Diller, is formally splitting into five separate companies Thursday. And it hopes to do so quietly.

The story is familiar by now: Diller, determined to solidify himself as capable of mastering both old and new media, has long insisted that a lack of confidence on Wall Street has suppressed IAC's stock price. So last November, Diller made the big announcement that IAC would be slimming down to a core of ad- and subscription-supported Internet media brands such as Ask.com, Match.com, Bloglines, Citysearch, Vimeo, and Evite.

The rest of its brands would be spun off, grouped into one of four publicly traded companies: ticketing company Ticketmaster, travel company Interval Leisure, retailer HSN (the Home Shopping Network and catalog company Cornerstone), and Tree.com (the set of real-estate and lending brands that encompasses the troubled LendingTree).

This has been talked up as an almost spiritual renewal for IAC, which simultaneously weathered a bitter proxy battle with powerful shareholder John Malone of Liberty Media. With that over, and the blueprints laid for the split, Diller festooned the June cover of Portfolio, with the magazine proclaiming a "ninth life" for the former Hollywood mogul. But Diller's renaissance may be coming at an awkward time, as the outlook for the online-ad industry--the foundation for the new IAC--is not exactly certain.

Market research firm eMarketer has reduced its estimates for online-ad spending in the past few months--twice. Fox Interactive Media, the digital subsidiary of News Corp., missed its annual revenue goal this spring. Even this year's Olympics are evidence that online advertising is a tough market, even without economic woes taken into account: just look at NBC's reluctance to stream some of the more "blockbuster" events live.

Online advertising is a relatively nascent sector of an industry that is starting to see the effects of a rough economy. That could be part of the reasoning behind why IAC's five-way split and subsequent refocus on online ads are being treated internally as business protocol rather than a ribbon-cutting spectacle.

There will be a press release but no major fanfare, an IAC representative told CNET News on Monday. There also won't be any disruption over at IAC's gleaming glass headquarters on Manhattan's West Side, as no one is getting relocated. Of the brands to be spun off, only the Los Angeles-based Ticketmaster actually has employees in the New York flagship office, and they will remain there even after the split.

That's not to say that it's a bad move on the part of IAC's board. The Malone spat aside, splitting up IAC was a decision met with nods of approval, with the harshest criticism often being that Diller shouldn't have gotten himself into such a pickle in the first place. (In 2006, New York Times columnist Nicholas D. Kristof dedicated an op-ed to him, entitled "America's Laziest Man?" for taking home a fat salary while IAC's stock languished.)

On a general level, the split will make IAC and its perception on the Street less of a mess: nobody's going to argue that it's not a true Internet media company now.

More specifically, IAC is shedding some properties that were threatening to stall, if not sink, the company's progress. LendingTree was pummeled by the subprime mortgage crisis. A $300 million writedown on Cornerstone Brands was the main culprit in IAC's second-quarter losses this year. Ticketmaster continues to perform well, but with the loss of its biggest promoter, Live Nation, the future might not be quite as bright.

However, IAC won't be permanently severing its ties with these companies, thanks to a recently announced ad network that will handle inventory for Ticketmaster, LendingTree, and HSN, as well as the company internally known as "New IAC." This means that Diller, who will remain a shareholder in all five post-split corporations, might not be fully unloading his company's problems.

IAC executives have been encouraging shareholders to look toward the company's future for months now, and with losses from the soon-to-be-gone brands set aside, IAC actually beat Wall Street's estimates for its second-quarter earnings. But on Thursday, when they're dealing with the revamped IAC hands-on for the first time, many of the old issues won't be gone. It's simply a difficult time to be in the business of online media.

IAC is no exception. Despite starting to inch up in the wake of Diller's November announcement, the company's stock has now resumed the general downturn it's been on since a high point in 2003, and there's little certainty as to what it might do on Thursday.

The company still has the task of building new properties such as FiLife and RushmoreDrive. Other brands could use some resuscitation too: Evite finally has some plucky competitors, Match.com by no means has a lock on the online-dating industry, and the IAC split won't change the fact that Ask.com still has to compete with Google. Compete.com says traffic has been tepid at CollegeHumor, the fratty entertainment site in which IAC bought a majority stake in 2006, giving Diller a legitimate shot at 21st-century youth savviness (though, to be fair, traffic has been on the rise at sister site Vimeo since early this year).

The company should nevertheless be optimistic, of course, especially considering that the Malone saga could've taken a turn for the worse and doomed the split in the first place. It's already weathered a few tough skirmishes.

With some major money losers cast off, IAC will have more financial and human resources to devote to the remaining brands, and less head shaking from Wall Street about what, exactly, the company does.

To use a nautical metaphor--yacht aficionado Diller is a fan of those--IAC has upgraded to a more streamlined fleet of ships. That, unfortunately, doesn't get rid of the thunderheads.