I first visited Israel exactly 10 years ago, on a 5-week teen tour with the B’nai B’rith Youth Organization. I arrived here with that as my frame of reference, by which I mean lots of sight-seeing and touristy stops, laminated with an abundance of laughter.

Diller is definitely all that, but it’s also much more, making it quite unlike any other program I’ve heard or read about. The bicultural and educational elements of the program infuse every activity with learning and community-building. I don’t have my 1998 journal with me as a reference, but I’m pretty sure anything I internalized or analyzed was done so in an informal bus conversation, with a bunch of other Americans. Diller, in contrast, hinges on daily (sometimes more than that) Israel-American interaction and guided group reflection, led by teens, not adults.

For anyone who’s not familiar with Diller, here’s a synopsis: Seventeen Bay Area teens and 17 Israeli teens from the Upper Galilee began meeting in January. (This year, similar partnerships happened in Baltimore/Ashkelon, Cleveland/Beit She’an, northern Jersey/Rishon L’tzion and Los Angeles/Tel Aviv.) During twice-monhtly workshops and periodic retreats, they talk about leadership, Judaism, tikkun olam and Israel. They correspond on Facebook.The Upper Galilee kids come to San Francisco in April, stay in their American counterparts’ homes and visit their schools; the Bay Area teens come to Israel for 3 weeks in July/August. The goal is to cultivate a new crop of leaders who love Israel — not just the land, but the people, too.

Judging from the way American and Israeli teens hug, laugh, hold hands, joke and capture every moment with digital and cell phone cameras, I’d say it’s working.

As a young girl from Los Angeles told me, “I’ve been to Israel before. But this time, I’m connecting to people, not just rocks and stones.”

Before I arrived, the kids spent a Shabbat in the homes of the Upper Galilee participants, trekked through the Negev, hiked Anne Gedde and floated in the Dead Sea. I caught up with them when they arrived in Jerusalem, at which point they met up with the Diller teens from other cities for a week of learning and touring.

Each group boasts their own collective attitude, and I have to admit, there’s something special between the San Francisco-Etzba Hagalil teens. They’re no less funny and light-hearted than the other groups, but they approach the activities, tours and reflections with a maturity I’ve never seen among a group of 34 teenagers.

The trip’s staff — Erica and Jeremy from the Bay, Liat from Kiryat Shmona — are fantastic, and certainly set the tone. They command the kids’ respect, but they also always step back and let the teens take the wheel, allowing the Leaders of the Day to create programs, lead group discussions and get the attention of the group. They expect a lot, and the Dillers aspire to those high standards.
Every experience shephards in reflection, or “debriefing,” as its referred to by the teens. This usually happens every night in two rooms, one for the Israelis (so they can speak b’ivrit) and one for the Americans. They are open, honest and respectfully challenge each other’s ideas. What frusrated you? What made you proud? What made you smile? What gave you hope? They are protective of their debriefs; several times they voted about my presence. Lucky for me, no one objected.

Anyway, you probably want to know what they’ve been up to. At times the SF-Galilee kids have been only with each other, and at times they’ve attended things with the other 150 teens. They seem happy to be in the big group, but reluctant to make friends beyond their circle ... One participant, Shoshana from Marin, explained why this is. She said that while she likes the other teens, she loves the Bay Area and Upper Galilee friends she’s made, so much so that she’d rather spend the remainder of her time in Israel building upon already strong friendships, rather than creating new ones.

On their itinerary: The Old City and the Kotel. Ben Yehudah Street. An afternoon of workshops about Israeli and Middle East politics, and another set of workshops about current issues in Israeli society (the environment, immigration, coexistance, disengagement, the IDF). A day of arts workshops ranging from theater to dance to painting to photography.

I must admit that for the first time, I felt unmoved by my visit to the Kotel. But many of the teens felt the opposite. The leaders of the day (chanichim toranim) noticed some of their peers moved to tears, and so decided to have a debrief session right there, in a shady corner of the Old City. They sat in two circles, collectively analyzing why the Kotel is or is not spiritual, imprompu conversations that were relaxed yet impassioned, in Hebrew and English.

Since most of the SF-Galilee kids chose to attend a workshop on disengagement, I did as well. An amazing experience. We first watched a movie, “Unsettled,” about the pullout from Gaza. Add this to your Netflix queue immediately. There was a lot of crying — I handed out all the tissues I didn’t need for myself. After, we met with a Gaza evacuee, an intelligent, interesting and angry woman. I think we were all happy to hear her opinion, but several of the Israeli teens felt frustrated by her tone (somewhat patronizing), and spoke up. Lots of brash Hebrew was exchanged, and one teen left the room. Later, Oren Massey, Diller’s national education director, seemed thrilled about this. “We want them to have their assumptions and opinions challenged,” he said. He was so proud they raised their hands and their voices to confront the speaker.

Today was dedicated to a series of arts workshops. I went with those to kibbutz Nativ Halamed Hey, where an eco-arts village made their home one year ago. They created mosaics, canvas paintings, a bench out of mud bricks, and a modern dance routine. The Bay Area kids seemed especially comfortable in the eco-arts village, with its composting toilet and reusable everything. They also seemed proud of their creations.

Tonight, they’re at a concert for a band called, in English, Strong Black Coffee, while I sit typing in my hotel room, looking at the twinkling lights of Jerusalem, drained but oh-so-lucky to spend a week in the life of these teenagers.

Tomorrow, the Dillers hold their first Youth Congress, during which they’ll collectively determine a new agenda for the North American and Israeli Jewish communities. Seriously. I’ve got 10 years on these teens and sometimes I feel as though I’m the one who has some growing up to do.

At the Federation, we're in the midst of preparing the official announcements of both our 2008 Diller Teen Tikkun Olam awardees and putting out the call for nominees for the 2009 cycle, but before we go there, we would like to introduce you to last year's winners.

They are an inspiring group that amongst their many projects, enabled an entire junior class to visit the Museum of Tolerance in Los Angeles, raised awareness about genocide in Darfur, and led a group of their peers to build homes for the homeless in Mexico.

The above YouTube video can also be watched at:
http://www.youtube.com/watch?v=WaIhiMzFHEQ

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http://www.boredomisyourfault.com/blog/2007/06/25/blur-building/

Diller & Scofidio
Blur Building

“ An inhabitable cloud whirling above a lake”

Diller + Scofidio

The news comes as Diller faces pressure from restive shareholder John Malone of Liberty Media (LINTA), who isn't happy with Diller's plan to split IAC in five and is presumably less than overjoyed at the steep decline in IAC shares. But Diller, who previously responded to a suit filed by Liberty by questioning Malone's sanity, remains undeterred. "There is good news and bad news this quarter," he said in Wednesday's press release, "the mix of which is another reason why our previously announced plans to reorganize IAC into five independent public companies makes more and more sense."

IAC/InterActiveCorp is currently engaged in a hotly contested battle with Liberty Media Corp. Once partners, Barry Diller of IAC and John Malone of Liberty Media are suing each other in Delaware Chancery Court to gain control over IAC's operations amid a not so steller stock performance.

Diller wants to split up IAC into separate units to spur life back into the Internet behemoth. As separate units, Diller wants to effectively limit the influence of Liberty. Liberty owns 30% of IAC, yet through a special, supervoting arrangement, have a 61.7% majority voting interest in the company. If the new companies form, Liberty would only be able to vote its 30% stake.

If that wasn't enough, since the mid-90s, Diller has been able to vote Liberty's majority stake. Liberty sought to remove Diller's influence in the company by removing him as the director of the vehicles that control the voting stake and also by filing a complaint seeking to remove him from IAC's board.

The poor performance of IAC has effectively ended the 20 year partnership of these two media titans.

With the drying up of liquidity, the future for AOL is now made much more complex. There were lots of folk betting on a private equity consortium stepping in to take AOL of TWX’s books. That path now has little or no chance of succeeding in this environment.

What next then for AOL? I am not sure. Under the assumption that the aggregate AOL entity moves into a model of flat to low single digits growth, I am not sure TWX can afford to continue to have it roll up into the aggregate numbers. It makes TWX’s ability to position itself as a 10+% annual growth business a real challenge. If we assume that some structural move is in AOL’s future, what are left as options? Most of the prior musing about AOL has its future going down one of five paths:

1. Acquisition by Microsoft

2. Acquisition by Yahoo

3. Acquisition by Google

4. Standalone spinout as public entity

5. Sale to private equity player.

I think all of these options have way too much hair on them. Buying all of AOL brings a lot of financial baggage with it. To begin the dialog, let me give you my view on AOL and its composite parts. AOL is essentially composed of three major segments (this is not how things are necessarily organized, but is the best way to discuss its valuation):

AccessCo – this is the remnant primarily-dial-up access business. It is a great source of free cash, now that the marketing spend has been dialed back to practically zero, but as the last quarter showed, it is on a pretty fast decline (10% subscriber declines in the quarter), and should be modeled and valued appropriately. To me, on a discounted cash flow basis, maybe it is worth $3.5B-$4B (this is a rough justice estimate, given analyst views on sub profitability and an extrapolation of subscriber trends), assuming there is some tail of folk who will stay customers till the end (like what we saw with Compuserve).

PublishCo – these are all the properties that generate the viewership traffic for AOL to monetize. This is a collection of a lot of disparate assets, ranging from things like AIM and MapQuest to the AOL 9.0 user base. Most of PublishCo is best described as Web 1.0 in nature (no franchise model), with the exception of businesses like Userplane. Valuing PublishCo is difficult – The aggregate US pageviews and engagement metrics are pretty huge, but the trajectory is relatively flat, and even with an optimistic lens, it is most probably a low single digits growth business.

AdCo – these are the operations for monetizing the traffic of both PublishCo and third party inventory. I am putting the search operations in here as well. The centerpieces for AdCo are Advertising.com and AOL’s ad sales force. AdCo has been expanded over the last year through acquisitions like Lightningcast, Third Screen Media, Tacoda, and AdTech AG. Performance of elements of AdCo are pretty stunning. On last quarter’s earnings call, Dick Parsons mentioned sales on third party inventory (versus PublishCo’s) were up 32% year over year. This is driven in large part by the performance at Advertising.com. Valuing AdCo is probably the heart of matter in determining AOL’s future. If you focus on the display ad sales business, solving for a combination of sales within AOL’s own properties and sales on third party sites, you can craft a business of 20+% annual growth, with decent, if not exceptional margins. Adding the AOL search business into the mix gives you a lower growth top line story (the 16% year-over-year growth highlighted in last quarter’s financials), but dramatically improved margins, given the sweet economics of the deal with Google. The structural thinking here is the biggest leverage point in any AOL valuation dialog. It’s well worth the effort - if we use the Microsoft acquisition of aQuantive for $6B earlier this year as a comp, some permutation of AdCo (Advertising.com, the search business, a multiyear commitment by TWX to rep the inventory of PublishCo) could be valued at $10+B, assuming the parts hit the magic 20+% annual growth bogey.

So if these are the pieces and parts, what do you do as the parent?

Cowboy up and stick to the script of giving AOL runway to validate its strategy? I think we are rolling down the runway at 220 mph and have about 1000 feet left. Given the lukewarm feedback to the announcement of the $5B in additional stock buyback and the increase in dividend (the TWX stock closed today at 18.66), time is running out for management to remain masters of their own domain. The harsh words by Pali analyst Rich Greenfield are a shot across the bow – the buy side is losing patience. The only question is who is going to play the role of Carl Icahn this time around.

Sell the aggregate entity? I just don’t think that is something that will attract lots of attention. The three majors (Google, Microsoft and Yahoo) wouldn’t want the mass of no-growth components that the aggregate entity brings with it. How many acquisitions bring with them an immediate establishment of a sizable discontinued operations (AccessCo)? Maybe you could see a three party transaction, where the acquirer immediately lays off the declining cash cow to a private equity player...

Sell/spin AdCo? I think this is an attractive path. TWX retains AccessCo in its discontinued operations segment, and uses the free cash generated for more strategic purposes. AdCo is either sold to one of the majors (let’s add Murdoch and Diller to this list), or spun out to create a growth multiple currency to continue to roll up properties. AdCo is a really complementary acquisition by almost every major player out there (unlike what buying the assets of PublishCo would mean to a Yahoo or Microsoft). It also can survive and thrive in a world of disaggregation of traffic (i.e., it’s not a Web 1.0 bet on portals).

What about PublishCo? There are interesting properties (MapQuest, AIM, etc.) that are worth decent valuations. I just think dealing with PublishCo in the same time horizon as AdCo is a tough act. Perhaps Day 1, PublishCo might be combined with other web properties in the TWX family and given a longer event horizon to determine its course. The other option might be a separate aggregate sale to a player with greater web aspirations (e.g., Comcast). I struggle here on an elegant solution for this, but I think PublishCo’s valuation isn’t the big dial to turn in an AOL discussion – it just doesn’t have legs as part of a growth story. You do need the commitment from PublishCo for AdCo to run its inventory (and its search traffic) for 5 years to make the story all hold together, but I think that’s about the full extent you’d want the operational interop between AdCio and PublishCo.

I am a TWX stockholder, and the retreat to 18.66 pains me. I just don’t see an organic path to material success (i.e., 10+% annual growth) for AOL in its existing form, given current course and speed. In this world of inflated valuations and TWX's commitments to stock buybacks consuming the available cash for acquisitions, too many deals will trade away that would help AdCo continue its forward momentum. With all the talk about arming AOL with its own currency over the last few years, it’s time to make it a reality – it just needs to take another form – AdCo currency.