IAC/InterActiveCorp.'s (IACI) group of Internet properties reported Tuesday a third-quarter profit despite declining revenue, as Chief Executive Barry Diller said he plans to invest some of the company's cash in new media content businesses.

Diller also said he's open to "consolidating transactions" in the Internet search business and that he held unsuccessful negotiations with fellow media mogul John Malone's company, Liberty Media Corp. (LCAPA, LINTA, LMDIA), about a "large transaction."

IAC's results exceeded expectations despite continued revenue declines that underscored the slump in ad markets and the uncertainty facing Diller as he angles further into the business of content creation, where investors have largely failed to drive returns amid the rise of the Internet.

"If you're going to build a business, you have to invest to get there," said Diller, addressing widespread concerns among investors that IAC will deplete its $1.8 billion cash pile on acquisitions. He added that IAC plans to invest roughly 10% of its cash reserves on media acquisitions over the next several years, while using the rest to grow existing businesses or return value to shareholders.

While he expressed confidence that premium media content creation will evolve into a growth business with multiple revenue streams outside of advertising, Diller also said display advertising won't be able to support online content businesses.

Kerry Rice, analyst with Wedbush Morgan Securities Inc., said Diller is likely moving in the right direction.

"It's been difficult to figure out the right way to monetize content on the Internet, but the popularity of sites like Hulu has proven this will be an area of Internet and media convergence that is going to be a huge opportunity," said Rice.

TV network owners with a stake in Hulu, like News Corp. (which owns this newswire and The Wall Street Journal) and NBC Universal, have said they're considering an online subscription business to boost profitability on the popular web video site. Meanwhile, Time Warner Inc. (TWX) recently spun off its cable distribution business to focus on content creation, and Comcast Corp. (CMCSA), the nation's largest cable provider, is in talks with General Electric Corp. (GE) about taking a majority stake in NBCU.

For its part, IAC owns The Daily Beast, an Internet journalism outlet, and it has partnered with Ben Silverman, the former head of NBC Entertainment, on a media production startup called Electus.

Divestitures, like the sale of its Match Europe unit and shares of OpenTable Inc. (OPEN), boosted IAC to a quarterly profit. It earned $21.3 million, or 16 cents a share, compared with a year-earlier loss of $15.2 million, or 11 cents a share. Last year's results included expenses tied to the company's breakup.

Excluding items, IAC's earnings were 34 cents a share, compared with a year-ago loss of 14 cents a share. Analysts surveyed by Thomson Reuters projected earnings of 13 cents a share.

Revenue decreased 8.9% to $336.6 million but also beat expectations for revenue of $335 million.

Shares of IAC were recently trading up by 9 cents a share to $19.45 after rising by more than 4% in earlier trading.

The parent of properties like Ask.com and Match.com, which split into five different companies just over a year ago to slim down its sprawling portfolio, has posted a profit in three of the past four quarters following the restructuring. Revenue, meanwhile, has been falling in a weak advertising environment.

On a conference call following its earnings release, Diller said the competitive environment in search is "fierce" and he said growth prospects for the company's largest search business, Ask.com, has become "speculative." He said he would be open to a "consolidating deal" with IAC's search assets while noting it's unlikely that IAC would be the consolidator.

Currently, IAC outsources paid search advertising on Ask.com to Google Inc. (GOOG), and Diller's comments suggest he would consider merging the entire business with a larger rival since business has failed to grow its market share. ComScore recently reported that Ask.com's search market share held steady in September at 3.9%, while Google controlled 65% of the market, Yahoo Inc. (YHOO) held 18.8% and Microsoft Corp. (MSFT) had 9.4%.

Meanwhile, Diller said the company "spent several months sorting through" a potential deal with Liberty in the third quarter, but the talks ended unsuccessfully for "technical reasons," even though both sides wanted to proceed.

Diller said he wouldn't rule out a resumption of deal talks with Liberty in the future, but the negotiations are now over, in his view. He declined to comment further on the subject.

Liberty has sold about 4 million Class A shares of IAC since September, and the company has a contractual obligation to sell 7.5 million more shares in the market before February. A spokeswoman for Liberty couldn't be reached for comment.

-By Nat Worden, Dow Jones Newswires; 212-416-2472; nat.worden@dowjones.com

(John Kell contributed to this story.)