Expedia 2007 Annual Report Download - page 22

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of enhancing infrastructure to attain improved stability and redundancy may be time consuming and expensive
and may require resources and expertise that are difficult to obtain.
Intense competition for advertising revenue may adversely affect our ability to achieve or maintain
market share and operate profitably.
Expedia, Inc. websites, including in particular the TripAdvisor Media Network, compete for advertising
dollars with large internet portal sites, such as American Online, MSN and Yahoo!, that offer listing or other
advertising opportunities for travel-related companies. These companies have significantly greater financial,
technical, marketing and other resources and large client bases. We also compete with search engines like
Google and Yahoo! Search that offer pay-per-click advertising services. In addition, we compete with
newspapers, magazines and other traditional media companies that provide offline and online advertising
opportunities. We expect to face additional competition as other established and emerging companies,
including print media companies, enter the online advertising market. Competition could results in reduced
margins on our advertising services, loss of market share or less use of our sites by travel companies and
travelers. If we are not able to compete effectively with current or future competitors as a result of these and
other factors, our business could be materially adversely affected. In addition, the TripAdvisor Media Network
is increasingly reliant on natural and paid search traffic from major search engines, whose per unit costs have
been increasing.
Mr. Diller currently controls Expedia. If Mr. Diller ceases to control the company, Liberty Media
Corporation may effectively control the company.
Subject to the terms of a Stockholders Agreement between Mr. Diller and Liberty Media Corporation,
Mr. Diller holds an irrevocable proxy to vote shares of Expedia stock held by Liberty. Accordingly, Mr. Diller
effectively controls the outcome of all matters submitted to a vote or for the consent of our stockholders (other
than with respect to the election by the holders of common stock of 25% of the members of the Board of
Directors and matters as to which Delaware law requires a separate class vote). Upon Mr. Diller’s permanent
departure from Expedia, the irrevocable proxy would terminate and depending on the capitalization of Expedia
at such time, Liberty could effectively control the voting power of our capital stock. Mr. Diller, through shares
he owns beneficially as well as those subject to the irrevocable proxy, controlled approximately 60% of the
combined voting power of the outstanding Expedia capital stock as of December 31, 2007.
In addition, under a Governance Agreement among Mr. Diller, Liberty Media Corporation and Expedia,
Inc., as amended, each of Mr. Diller and Liberty generally has the right to consent to limited matters in the
event that we incur debt such that our ratio of total debt to EBITDA, as defined in the Governance Agreement,
equals or exceeds 8:1 over a continuous 12-month period. We cannot assure you that Mr. Diller and Liberty
will consent to any such matter at a time when we are highly leveraged, in which case we would not be able
to engage in such transactions or take such actions.
As a result of Mr. Diller’s ownership interests and voting power, and Liberty’s ownership interests and
voting power upon Mr. Diller’s permanent departure from us, Mr. Diller is currently, and in the future Liberty
may be, in a position to control or influence significant corporate actions, including, corporate transactions
such as mergers, business combinations or dispositions of assets and determinations with respect to our
significant business direction and policies. This concentrated control could discourage others from initiating
any potential merger, takeover or other change of control transaction that may otherwise be beneficial to us.
Actual or potential conflicts of interest may develop between Expedia management and directors,
on the one hand, and the management and directors of IAC, on the other.
Mr. Diller serves as our Chairman of the Board of Directors and Senior Executive, while retaining his
role as Chairman and Chief Executive Officer of IAC, and Mr. Kaufman serves as Vice Chairman of both
Expedia and IAC. The fact that Messrs. Diller and Kaufman hold positions with both companies and own both
IAC and Expedia stock could create, or appear to create, potential conflicts of interest for each of
Messrs. Diller and Kaufman when facing decisions that may affect both IAC and Expedia. Both Messrs. Diller
and Kaufman may also face conflicts of interest with regard to the allocation of their time between IAC and
Expedia.
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