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Here’s the entire text of the Q&A from InterActiveCorp’s (ticker: IACI) Q3 2005 conference call. The prepared remarks are in a separate article. We recognize that this transcript may contain inaccuracies - if you find any, please post a comment below and we’ll incorporate your corrections. And please note: this conference call transcript is a Seeking Alpha product, so feel free to link to it but reproduction is not permitted without the explicit permission of Seeking Alpha.

[Operator] Our first question is from Michael Savner from Banc of America Securities. Please go ahead.

[Q - Michael Savner]

Hi, good morning. Thanks. If I could ask two questions. Barry, it looks like you were quite aggressive in your share repurchases during the quarter since the spin-off, with only 7 million remaining under the current program. Would you consider expanding that authorization so you have the flexibility to buy more shares should the opportunity arise? That's my first question. And second, on Ask Jeeves, the market share increase in search queries looks to be 25% from the beginning of the year. Been trying to figure out how much of the market share might be attributable to the lower rates and the rebranding effort. And what we're getting is there risk that marketshare corrode once you try to exercise some pricing power? Or are you already seeing some pricing power with certain advertisers? Thank you.

[A - Barry Diller]

The answer to your first question is yes. What we have really seen is that when we're just -- as Thomas McInerney said a short while ago, the amount we expect it to get, in terms of decreasing the ads, which increases the queries -- the plot we have been on now for some 10 months, but increasingly actually in the last four or five months, when we really adopted it. Two months is it, Tom?

[A - Tom McInerney]

Yes, about 2 1/2, right after we reported it.

[A - Barry Diller]

It's shorter than I thought. We have been experimenting for some time to prove it though. The early indications are that it's exactly, plus a nickel, what we thought it would be. I think that's going to increase. And certainly, indications are that that when you reduce the number of ads above the fold, queries come. And from queries, without any question, we get revenue. So I think it's all on track. As far as rebranding is concerned, we haven't begun. I would say that you would look for the -- if you can call it rebranding. I would just call it telling people the wonderful differentiating points of Ask as against other global search engines really will begin in the first and second quarter of next year. And that's when we would expect, we have been gaining a little share, but that's when we would expect to make a real run for share. Won't happen overnight, but it will happen, we hope, over a year or so.

[Q - Michael Savner]

Thanks very much.

[A - Barry Diller]

Thank you.

[Operator]

Next question is from the line of Justin Post from Merrill Lynch. Please go ahead.

[Q - Justin Post]

Two quick questions. Tom, could you give us a little bit of your outlook for free cash flow in the fourth quarter and maybe into 2006? And also, if the Cap Ex on the building starts to come down? And then secondly, can you give us a little help with the Ask Jeeves margin outlook? I think the margins for that group were 11% this quarter. Does that improve into next year?

[A - Tom McInerney]

Sure, Justin. In terms of free cash flow, just a couple of comments. One is, we don't want to give a specific guidance on Q4, but I'll point a couple of things out. One is that last year the number was -- for IAC as currently configured, $133 million, so it represented about 40% of the year's total. And with the travel businesses now gone, every year will be a new story, but I say in general, with Retailing being a bigger percentage than our discounts business, Q4 is more important from a free cash flow perspective than before. As you said or implied, it was exacerbated this year by our corporate headquarters building. And on a year-over-year basis, '05 to '06, the spin will be approximately flat, perhaps up slightly on that project. It will continue but it will not hurt year-over-year comparisons as it has this year relative to the prior year. On an overall basis, you look at our trailing 12 months on a free cash flow basis, we were at $355 million -- that factor in kind of the Q4 seasonality gives you a better indication of the current free cash flow generation of the businesses. With respect to Ask Jeeves -- I think, look, we're -- as Barry said, we're very early in this process. I think last quarter we said our first priority was growing share. The nature of this business -- the physics of this business is such that if you grow share, particularly in a rising market environment, even if you only hold share -- our intent is to grow share -- then you get very high incremental margins which will flow through to the bottom line. We're not running Ask either for near-term percentage margins this quarter or even next year. At the same time, we're not going in and completely transforming the economic model. Our intent is to take profits as we can, but the first focus is making the investments necessary to compete. And I think we'll -- we'll keep you posted as it goes. The only thing I will point out is on Q3, that is a seasonally very low quarter for Ask, given the natural seasonality of the business in the summer and things like that.

[Q - Justin Post]

Thank you.

[A - Barry Diller]

Next question.

[Operator]

Next question is from the line of Mark Mahaney from Citigroup. Please go ahead.

[Q - Mark Mahaney]

Thank you, I wanted to delve in a little bit more just on the HSN part of the business. Last quarter, you'd express some concerns about that business and some talk about some changes you wanted to implement. It looks like the results from this quarter seem to have supported all of those changes. How sustainable are those changes? Is that kind of growth rate that you did in the quarter organically year-over-year, is that sustainable going forward? Thank you very much.

[A - Barry Diller]

Yes, I do think it's -- what I hope is more than sustainable. I hope it accelerates. We have put in -- we always do, but I mean increasingly, several initiatives. And that, plus what Tom spoke about in terms of Cornerstone, where we're going to get very aggressive now that we laid all of the -- actually the track of figuring out how to put the products on air in the best way, but that really goes into '07. So -- I'm sorry, '06. So I would -- I would hope, yes. What happens when you have -- in this business, we have it, QVC has it -- when you have a difficult quarter, you fall into a bit of a draw. It takes -- it takes a while to climb out of it. And it wasn't that deep for us, but it wasn't anything like we had planned. And that depresses things in the next quarter because you built up merchandise that you got, to not take particularly large gains with, in terms of margin. So I do think that there is no question that you just look at it every day -- which this is a business run every minute -- but every day, you see the definite solidifying and improvement. Tom, you want to add anything to that?

[A - Tom McInerney]

I think only that the macro conditions, longer-term, which favor, we think, a cross channel retailing -- people that can combine, in our case, the compelling power of television with the compelling convenience of the internet in increasingly value-added ways for the consumer. The wind is at the back in that context. The short-term execution issues are as Barry suggested. And our challenge and objective is to execute well so we can take advantage of those longer-term favorable conditions.

[A - Barry Diller]

Next question. Thank you.

[Operator]

Next question is from the line of Anthony Noto from Goldman Sachs. Please go ahead.

[Q - Anthony Noto]

Thank you very much. Barry and Tom, as I look at the QF growth -- for the Lending business it's been extremely strong, accelerating for the third consecutive quarter, from 26% growth year-over-year in March to 39% in June and 52% this quarter. I wondered if you could give us insight into what is driving that acceleration on the QF's and do you think it will continue? And then Barry, on Ask Jeeves, obviously reducing the amount of ads on the page will improve the search experience and drive more queries. As I think about the second, third, fourth steps beyond this -- being able to put the right ad in front of the right consumer will drive higher click-through rates and ultimately drive better conversion rates in the back-end and better ROI's for the advertisers which, would really be the additional leverage in the business, which it really requires owing both the algorithmic technology and the monetization technology. Could you talk a little bit about where you are on the second piece of that technology? And what talent you may need to bring into the Company to be able to have that second, third and fourth step down the road? Thanks.

[A - Tom McInerney]

On the -- Anthony, I'll take the first of your questions, in terms of Lending. If you say the 52% is very strong QF growth for the quarter, and I think -- it's a number of initiatives. The ones I would call out first, is getting the site to work as efficiently as possible. The QF process and the LendingTree's value to its lenders and to its participating lenders, is it delivers highly qualified leads to those lenders. That means consumers go through a QF process where they fill out the form. The key is to make that as efficient as possible for the consumers and the lenders. The consumers are doing it quickly and the lenders, on the other hand, are getting the information they need. And we continue to get better and better at that, which increases throughput and conversion. If we can tweak up conversion of someone we bring to the site to complete the QF process, that allows us to be more aggressive on the marketing side. And so we have had a number of initiatives there. Working with our lenders -- I highlighted this in my remarks, but lenders want the right leads at the right time in predictable volumes. And that's simple to say but complicated to execute. And we're getting better and better at that. Which, again, allows us to convert a higher percentage of those QF's to close loans, which allows us to make more money, which allows to go back and market more aggressively. And lastly piece is just being more aggressive in marketing. LendingTree's hallmark strength was creating this great brand -- as Barry said, 80% awareness -- that the challenge for them has been -- and the success, thus far with more to come, has been broadening that marketing outreach to be much more, number of varieties to include direct response, targeted specific lending products, much more extensive online -- to just cast a wider net for what is essentially, a better way of borrowing money and getting that to the right lender. So it's all of those things. And they kind of work in tandem and the more successful you are, make more money, allows you, again, go be more aggressive to cast that net and things are clicking.

[A - Barry Diller]

On Ask Jeeves. Yes, there is no question, the queries go up, the satisfaction goes up when you get the ads down to the three -- basically three or four above the bar -- above the algorithmic free search results. As far as the ad works system, as I think you all know, we're with Google for another two years at least. And you certainly know that Google is an efficient server of ads. So, what we're doing internally is, we're beginning to build the system where we will -- and we are doing it in small amounts now -- where we will increasingly -- which we have the right to do under our agreement with Google -- but we will -- we will increase this to the extent that we think is sensible. We both use our own tools in-house, we have extremely good technology. We don't necessarily have every smart person in the universe at levels above 187, which is what Google seems to claim. But we've got really, really good people in technology. In both internal and external things that we're using -- methods that we're using to build our own ad works. But, in a couple of years, I think we're going to be in this great position. We will have gotten it built. We will use it to the extent it makes sense. We think it will be a much more important factor in in Google's ad search, which would put us in a very good situation with at least three other ad search engines, plus our own, to plot the next course.

[Q - Anthony Noto]

Great, thank you.

[A - Barry Diller]

Pleasure. Next question, please.

[Operator]

The next question is Michael Millman’s from Soleil Securities. Please go ahead.

[Q - Michael Millman]

Thank you. On the LendingTree and in particular, can you talk about the share that is going to Lending -- of these QFs that are going to LendingTree loans? And also, maybe talk about how Lending Tree loans makes its money. Is it secureitizing loans, is it whole loans, sales or something in between -- basically how it records profits and reserves?

[A - Tom McInerney]

Sure. The percentage bounces around from quarter-to-quarter, month-to-month, et cetera -- but I'd say right now, we're trending less than 20% of the front-door leads that come through LendingTree getting closed by LendingTree loans in our own name. In terms of how it makes money -- it's essentially -- it's closing loans, what is technically called in the industry a correspondent. It closes loans in its own name, so it does all of the underwriting and paperwork -- so it collects the documentation and does the hard manual labor of A; selling the consumer the mortgage and enrolling the consumer, if you will, putting all of the paperwork together, putting the loan files together, closing the loan in its name while simultaneously selling that to one of different investment vehicles or investors. And it's done in different ways -- the secondary market activities, what we call secondary market activities, depending on the nature of the loan. It's essentially -- by doing that work, that kind of hard work of converting the consumer to a closed loan, closing the loan and then selling it off, it makes margin on that particular transaction.

[Q - Michael Millman]

And it sells these then as a whole loan with no liability?

[A - Tom McInerney]

Yes.

[Q - Michael Millman]

And also, are they all prime loans? Are they subprime and prime loans?

[A - Tom McInerney]

There is a mixture that I would say generally parallels the market. And they are selling the entire loan, including the servicing rights and everything that goes with it.

[Q - Michael Millman]

Thank you.

[A - Tom McInerney]

Thank you.

[A - Barry Diller]

Next question, please.

[Operator]

The next question is from the line of Imran Khan from J.P. Morgan. Please go ahead.

[Q - Imran Khan]

Yes, hi guys. A couple of questions. Can you give us an update on Ask Jeeves International plans. It seems like a big growth in search coming from international markets. What is your plan to roll out the product -- search product beyond UK and the Spain market? Secondly, a follow-up to Ask Jeeves, in terms of integration process, it seems that you have Ask search box in most of IAC sites. I was trying to get a sense -- what's the next step, in terms of -- are you focusing on tool bar? Or maybe integration with the shopping channel part by HSN? Can you comment on that? Thanks.

[A - Barry Diller]

I'll take the latter part first. All over the place, Ask is beginning to integrate itself with IAC and to push these initiatives, which go from certainly tool bar, where we have a very, very good business and all of the IAC properties. Yes, you will see on everything -- and you will see a search -- an Ask search bar. You will see -- it on Expedia, beginning, probably, right after the first of the year. And it's -- again, these are -- these are new things that we're doing. Which is to line up the symbiosis, which is natural between a search engine and these fantastic -- forgive my word fantastic, I shouldn't say it. But I think it is, actually. We have the best vertical services. So, whether it's the search and traveller, the search for loans or it's the search for -- I mean I can rifle through them all -- but they're true content value-added services. And as you -- as you integrate them into this global search engine, you really do give the consumer just a much better -- really value-add than they would get anyplace else. That's part of the differentiation of what Ask is and will be in the future. And I think it's in the differentiation that we will gain share.

[A - Tom McInerney]

Just one quick add-on to that. The people that want a quick visual, just a -- literally a tiny example. But if you search today on anniversary gifts on Ask, we have a very small, just started business called Gifts.com -- which I would encourage you to check out -- we have done a quick integration, just to get it up for Q4 and the gift-giving season. And it just gives you an example, if you look at that return on Ask -- of the type of integration. And this from a Gifts.com business, that has been in business for about six months -- not to the level of our other leading verticals. So, plenty of promise. On the international question, we just came out of Beta in Spain, as you alluded to. And we are very -- in the very near-term, going to launch Beta sites in Germany, France, Italy, and the Netherlands. And so we're very much focused on the European and ultimately global opportunity but it's early days.

[Q - Imran Khan]

Thank you.

[A - Barry Diller]

Next question, please.

[Operator]

The next question is from the line of Jeetil Patel from Deutsche Securities. Please go ahead.

[Q - Jeetil Patel]

Thank you very much. A couple of questions. You guys saw a QF growth of 52% and obviously shifting the model from agency to principle. Can you give us the sense of -- should we expect the Lending growth to be comparable to that 50% growth as we look out over the next year? Especially given the shift from agency to principle on that side of the business. Second, not to beat a dead horse, but everyone's excited about Ask Jeeves still. And I think the key question I have around the business is, are you see anything sort of lift -- any way to characterize what kind of lift you're seeing as you have integrated the Jeeves search box across the different brands out there? Which seems to be a major source of leverage for you as you go forward?

[A - Tom McInerney]

On the first one. Again, we're not going to give specific guidance, in terms of going forward. All I will say is the 52% QF growth is a good indication of unit volume growth in this particular quarter. In fact, if you go back in proforma LendingTree loans, it was not included in the Q3 a year-ago period, if you proforma that in and look at apples-to-apples, we grew topline 87% and OIDA growth 142%. There is plenty of organic growth in our Lending business. And where that goes in Q4 and '06 remains to be seen. But when you think about the -- as Barry would say, the pitiful share of the market we currently have and that this is simply a better way, and we're the leader, it adds up to a nice equation.

[Q - Jeetil Patel]

Where do you think you can take the mix from, 80/20? Where do you think that goes over time?

[A - Barry Diller]

I don't think that we want to predict exactly where it goes. I think it'll -- we have got this enormous demand at the front door. And we have a very good network -- lending network. And we have a very good emerging network -- not network, but emerging loan closing operation of our own. So, I don't think that -- what I do think is important here is that we are very much -- there is so much runway in front of this business, because LendingTree continues to get its proposition across and imbedded with people that it's a better way to access loans. And to the extent that we keep doing that and to the extent we keep fulfilling as efficiently as we have, I think it's -- and given our tiny percentage of the market currently, I think that's all you need to know at the present. I don't think you can percentagize it, so to speak, to the future. On Ask, it is very much -- the integration of our search boxes, we're not seeing any particular lift -- now that they've been up for two months, three months -- some taken down and re-put up. You really have to tinker with it to get it right. That's going to take us months to do and not years, but it will take us months to get this symbiosis right. To get the relationship between our vertical search and Ask's Global Search in the right balance. As I said before, I don't think there is any question that over time, all of these things converge into a search box -- Global Search will be the entrance. It's the gateway to all information, goods and services. And the more information that you have got, the more good content that you got is, I think, going to be a very good differentiator. And there is no question, we have a lot of very good content that we have been building for years. Next question, please.

[Operator]

Next question is from the line of Heath Terry from Credit Suisse First Boston. Please go ahead.

[Q - Heath Terry]

Great. Thanks. There has obviously been a lot of talk about the holiday season -- the holiday shopping season starting later this year on the back of general consumer spending concerns. Can you talk a little bit about what you're seeing in the HSN business relative to last year? And how you view the online component of that HSN.com having an impact on the business's growth and, of course, profitability?

[A - Tom McInerney]

Sure. I think we have always said -- and I have always said, that the macroenvironment for retailing affects HSN but it doesn't drive HSN. And that remains our best sense of it. When the consumer is focusing on gas prices or anything else, it can't help, but at the end of the day, it's not the driver. And the same is true when it's positive trends. It's much more about our own execution, our own merchandising and our own service, et cetera. The macroenvironment is something we're looking at, for sure. I would say in terms of --the only specifics I would say at this point, the general trends we have seen in Q3 continue. Not marketably better or not markedly worse. And we're guardedly, cautiously, insert your word, optimistic for Q4. In terms of HSN.com, every single day -- and I don't think this is an exaggeration. Every single day, we find important and interesting ways to relate our on-air and our online businesses. Very simple things like having people come to HSN.com and tell us that they want to be notified via e-mail when their particular favorite vendor or guest or brand is coming up on air. We call those 'when to watch e-mails'. It's a simple concept, but it's very much taken up steam and it's a very important tool for consumers. We have launched customer ratings on HSN.com, which allows consumers to rate products, nothing novel in that. What is novel, when you have the television network, is, you can then use that to build programming shows. So we have had programming on air, where we only feature products that customers on .com have rated four or five stars. Very successful. Those are two examples and it continues. These two services continue to be highly complimentary and we think -- it goes back to what I said earlier. The reason we think longer-term -- over the long-term, multichannel retailing, particularly with this configuration of assets -- the wind is on our back, because of examples like -- examples like that.

[A - Barry Diller]

Thank you. Next question, please.

[Operator]

The next question is from the line of Douglas Anmuth from Lehman Brothers. Please go ahead.

[Q - Douglas Anmuth]

Thank you. Barry, you mentioned earlier in the call, if you would be making more investments in the business in '06, which we would all expect, especially given the early nature of many of them, Can you elaborate on some of those investments? If there is anything in particular, to comment on, it's incremental. In terms of the Ticketing business, I think in the release you said there is increased cross-selling on behalf of the other IAC businesses. Can you talk about that a bit? And were there any new relationships? Any specific drivers here that increased things in 3Q? Thank you.

[A - Barry Diller]

As far as investments for next year, what I really wanted to signal is that there is no one of our businesses that we are not investing some in -- something in. Because there is no sector that we have got that we don't think has growth worth chasing. So, I wouldn't want to break anything out, Not at this stage. But I think, again -- without being redundant about it -- that businesses that obviously have higher growth, actually don't take that much additional investment. It's opening up new areas, new initiatives where in fact, we're going to go and start this travel club in interval. We're starting two new -- one new service in Match.com and we have some other announcements that we'll be making about Match.com soon that take additional investment. We think it's -- we -- contrary to everybody else, we think the Personals catagory is anything but saturated. We think it has got enormous growth ahead of it and very worthy of investment. You can just pack down almost -- at HSN and at Cornerstone, because we think we're going to sell much more Cornerstone product -- there is some infrastructure you have to add. You actually have to have a deal with warehouses and the inventorying of goods -- and where you're going for a much bigger reach sales goal, which we are. So I think that's what it is. Again, we'll balance investments with return -- we balance investments with our current operating profit. We don't want to trash anything, but we certainly don't want to not make an investment on a timely basis or make an investment -- not make an investment because of some expectation here or there. If we're doing our jobs correctly -- we're making the correct investments for the long-term without sacrificing a single thing short-term that is sensible of -- to keep as it is.

[Q - Douglas Anmuth]

On the Ticketing business -- the cross-selling?

[A - Barry Diller]

Well, we do some cross-selling with several other of our IAC's businesses. There is some natural -- some kind of obvious natural things. We do some with our discount programs, we do some with Expedia -- it's good for Expedia and good for Ticketmaster. And Ticketmaster is such a good service unto itself. And we're a bit cherry about using the Ticketmaster audience to cross-sell. Not that we won't do some, hopefully, natural and good -- good efforts there. But we don't want to overburden the consumer.

[Q - Douglas Anmuth]

Thank you.

[A - Barry Diller]

Next question.

[Operator]

The next question is from the line of Robert Peck from Bear Stearns. Please go ahead.

[Q - Robert Peck]

Hi, guys. Just a couple of quick questions. One, Barry, I think that Clear Channel accounts for somewhere around 20% of Ticketmaster's revenues. Can you talk about your current relationship with Clear Channel? And how it may evolve going forward? Number two, I wanted to get your general thoughts on what you thought about AOL. There has been speculation about AOL paring up with some of the search engines. I wanted to get your thoughts there. And lastly, I wanted your opinion on the shortage for the Vacations division and whether you see that sort of clearing up anywhere in the near-term?

[A - Barry Diller]

First on -- well, what was your first question?

[Q - Douglas Anmuth]

Clear Channel and Ticketmaster.

[A - Barry Diller]

Clear Channel is less than 20% -- it's between 15% and 20%. Our relationship is very good with Clear Channel. They made a management change. We're supportive of that. We think their new management is excellent. We're always in conversation with ---we're probably at the -- at our smoothest point. Any time between distributer -- supplier or these kinds of relationships -- they often have friction in them. Just as kind of a general understanding of their relationship, but we're doing many things with Clear Channel. They're very supportive of some of the really great initiatives inside Ticketmaster that deal with TicketExchange and getting into the secondary ticketing business, et cetera. So I would say it's very solid now. At the same time, I think that Clear Channel is probably going to say, all options are open, as they move into -- as they do end up moving into independent status as it relates to ticketing and other matters. But, again, we just exercised our option for another three years. So we're together, we're going to be together and we hope we'll be together for a long time. As far as AOL is concerned -- I don't have anything to say about that, except I think that -- I hope that Time-Warner also takes care of the long-term. And I think they have a great business in AOL and I hope it doesn't get clogged up.

[A - Tom McInerney]

On Vacation -- let me jump in on that one. There has been a number of factors which have affected top-line growth. As you have seen throughout the year, profit growth has been very strong. Part of this is -- in a tighter-supply environment -- travel supply, hotel occupancy, supply environment, there is less available inventory in the system. And it's kind of a complicated equation how inventory -- condo inventory ends up in the system available for exchange, but developers can put it in on their own. And in a tighter environment, they're selling some of that separately. We're actually in a tighter environment, as in essence a distributor, in this sense. We're seeing lower exchanges and lower -- what we call 'getaways,' which is when someone books ancillary travel in connection with the timeshare exchange. We think an element of that is industry cycle. The movement to the web has been a positive -- you see the metrics on this and the release -- it's been a positive from a profit perspective. It's simply a more efficient way of doing business. It hurt us a bit on the revenue side, because without that phone operator -- call center, operator interaction with the customer, you are not getting as much travel upsale and ancillary services provided. We think that's solvable over time. We've solved it in other businesses. And that's a work in process. And the last piece is international growth. Interval has a reasonable international business and for a variety of country-by-country reasons, the international environment has been tough. There are pockets of the world we're now optimistic about. And I think the same things that have fueled the growth in the domestic industry ultimately will prevail in international markets and we should be well-positioned to take advantage of that. But it's kind of macro factors that will play out over some time. Finally, Barry mentioned in his remarks, the launch of Live It Up, which is our travel club. We think it's an exciting new initiative which will, for the first time, make Interval's tremendous supply of unused condo inventory available to the general public. And encourage people to check out the site as it moves from Alpha to Beta to full production over the coming period. And we think there is tremendous deals for families taking vacations.

[Q - Robert Peck]

Thanks, guys.

[A - Barry Diller]

Next question.

[Operator]

The next question is from the line of Paul Keung from CIBC World Markets. Please go ahead. Paul Keung, your line is open.

[Q - Paul Keung]

Hi, Barry. Hi, Tom.

[A - Barry Diller]

Hi.

[Q - Paul Keung]

Thanks. Most of my questions are answered. One that you kind-of touched up on, that's on the Retailing side. We're seeing mixed results right now from retails and catalog orders out there. I am curious what relative strength or weakness are you seeing, either by segment in Retail or by demographic? And I guess specific to you in Cornerstone, between home decor and the apparel categories?

[A - Tom McInerney]

It's interesting. When we think about the Cornerstone brands, and as you know, there are now seven principle brands plus some derivative-developed titles, we have strength and weakness in each of both, home and apparel. We have multiple brands in each of those areas. And in the home area, I think we called out in the release or in my remarks, we have had a strong year and continue to. At Ballard -- Front Gate, which is the other large home business in the portfolio, has had a much tougher and softer environment and that continues. So, very mixed. Just a function of the merchandise and a variety of merchandising initiatives. On the apparel side, TravelSmith has been very strong. Not all travel, but partly. Whereas other apparel businesses within the portfolio has not been as strong. I'd say the same is true for HSN. In retail, it usually doesn't get down to broad generalizations, it gets down to very specific product classification and execution issues. And the nice thing about Cornerstone is they do have a portfolio of brands, all of which are significant and material to our Retailing business, and so usually we're able to offset weakness with strength in other parts.

[A - Barry Diller]

We have a very, very good retail portfolio now. Between catalog, on-air and online. And we -- we now are on so many multiple burners that you're going to have both good news and bad news. Overall -- the overall pull of our business is -- is just completely positive.

[Q - Paul Keung]

Okay. And one housekeeping question, if I may.

[A - Barry Diller]

Sure.

[Q - Paul Keung]

Looking at the tax payouts, the secures -- you've increased those secures of what benefit you have had from paying out the more and trying to [trade more] partners there.

[A - Tom McInerney]

I'm sorry, could you repeat the question?

[Q - Paul Keung]

I was wondering what benefits have you had in increasing your payouts to your network partners within Ask Jeeves?

[A - Tom McInerney]

Which partnerships -- ?

[A - Barry Diller]

Paying out to network partnerships for Ask Jeeves.

[Q - Paul Keung]

What trends are you seeing in your payment of your tax? Are you increasing them or decreasing them? And what benefits have you had, either way, in terms of where you're spending the tax?

[A - Tom McInerney]

Let me try -- let me take a shot at it, if I understand the question. I think Ask has a number of different methods to apply to our customer -- distribution methods that range from customized portal deals to search integration deals to other forms of -- obviously in the tool bar business, a variety of downloadable online marketing tactics. And I would say in general, all of -- the market for all of those customers are competitive. We have seen some pressure in spot areas. I don't think any of it's game changing. But obviously with a highly competitive search market that continues to grow very rapidly, our arbitraged opportunities and opportunities to make margin are going to get arbitraged away by competitors. But then you go find other opportunities. It's constantly a competitive game. I don't think anything is sea changing there. It's something we focus on every day.

[A - Barry Diller]

One last question. Operator.

[Operator]

You're done with Mr. Keung?

[A - Barry Diller]

Yes, thank you. We'll take one last question.

[Operator]

Thank you. We have that last question from the line of Scott Kessler from Standard & Poor's. Please go ahead.

[Q - Scott Kessler]

Hi, thanks very much. Two questions, if I may. First, can you explain why the Ask Jeeves percentage of revenue from proprietary sources declined in the quarter on a sequential basis? Does this reflect at all the new sponsor links offering? And how is that going at this point? The second question is a bigger question -- I wanted to know if you could talk a little about your vision for becoming more of a player in interactive media. Things have been referenced over the past several quarters. You guys are doing some things in that area. Where do you think there could be opportunities in that particular area, given your current base of assets? Thanks a lot.

[A - Tom McInerney]

On the -- on your first question, you really have to -- given the seasonality in the business, you really have to look year-over-year. We think that's the right comparison in this particular one. Because the source of revenue does move around seasonally, and so Q3 is a lower seasonal quarter for some of the proprietary as opposed to the network. Flat year-over-year, we think, is indicative in the current trend in the business.

[A - Barry Diller]

As far as the future, which I am -- look to be much of a predictor about. But what I would say -- actually now, I will go and do it -- which is, and I don't think it's very much a prediction to tell you the truth. It's hardly looking around the corner. But clearly, video -- digital video is going to be increasingly, increasingly a part of the interactive internet world. As bandwidth increases and you do get the ability for rich media, for video, that is a whole world. Now, we are already in the closest thing to it. Because at HSN we have video, now all digitized. And we have, as we talked during this call, enormous amount of efforts that relate between HSN and the symbiosis with HSN.COM and their interrelationship, which will more and more merge. Each will be always separate but they'll be very much true sisters of each other. There are all sorts of other things that are going to happen through digital video. And this Company does intend to begin to make investments -- small investments at this stage, because I think it's really probably -- it's certainly off, meaning off by some digit of years. I don't think all that many or we wouldn't --or we would just wait. So I think it is sensible for us to begin in various forms of content creation, of digital delivery, et cetera, those forms where we're going to start to make small investments in the next year or two.

[Q - Scott Kessler]

And if I could just follow-up, do you think right now your company has the assets that you'd like to kind of pursue what is going on in interactive media? Specifically, are you thinking about proprietary elements of this type of area? Or are you thinking about what you have done historically, which is essentially connecting buyers and sellers in a variety of different areas?

[A - Barry Diller]

Well, I don't know yet, to tell you the truth. I don't think -- actually, I don't think we should know yet. It's too -- it's too much early days. This Company is very much concentrated on -- on being of service to consumers. We -- in being of service to consumers about goods and information. The next forms, which will be probably more -- if you could say it, I mean they're all content-based. But maybe in the narrative area, may not. Don't really know yet. Certainly will be in the area of news through Ask, which is very much now in it and thinking about how to aggregate services for the future. So I don't yet know where it's going to go. I do know that the areas that we think about deal with gaming, they deal with gaming of all kinds. We have some little embryonic efforts of that right now. One in the UK -- two in the UK, actually. So whether it's gaming or whether it's entertainment, narrative, et cetera, I don't know yet. But, again, as I say, it's not an area of capital deployment at this stage. I don't believe it will be one for awhile. And I think you got to look probably towards the end of next year, the following year, for anything really significant to develop there.

[Q - Scott Kessler]

Great, thank you very much.

[Barry Diller, Chairman and CEO]

It's our pleasure. On behalf of Tom and my colleagues and I at IAC, thanks for listening. And we'll be back with you, I think, sometime in February. So, an early wish for a nice holiday. Thank you and good day.

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