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Home Shopping Network, Inc. is perhaps best known for overseeing the operations of the Home Shopping Club, which sells consumer goods and services via a live cable television program during which viewers may make purchases by phoning a toll-free number. Once a public company involved solely in an array of direct marketing activities through its subsidiaries, over time the Home Shopping Network became the hub around which a media empire built by Barry Diller was based.
The idea for the Home Shopping Network originated in the 1970s, when Lowell W. Paxson owned an AM radio station in Clearwater, Florida, that began to lose listeners to FM alternatives. Paxson also lost advertisers. He decided to try selling merchandise directly over the air, switching from an easy-listening music format to an at-home radio shopping service called The Bargaineers. To finance the new format, Paxson turned to Roy M. Speer, a lawyer and real estate developer. Speer would later become Home Shopping's chairman.
Almost immediately after the switch in format the station's revenues swelled so much that Paxson was eager to try out his home shopping idea on television. Speer liked the idea of expanding to television but wanted to proceed slowly. Speer invested $500,000 for a 60 percent stake and set out to make sure that viewers would not be disappointed before he gave the go-ahead in July 1982.
Speer and Paxson called their local TV program the Home Shopping Club (HSC). Within three months it was turning a profit. After two more Tampa Bay-area cable companies decided to carry HSC, Speer and Paxson began to explore markets in Fort Lauderdale and Miami. By 1985 HSC was so successful that it went national, calling itself the Home Shopping Network. Speer based his decision to expand on the belief that the profiles of Tampa Bay customers would be the same for people all over the United States.
Speer commissioned the development of a computer system that would have the capacity to respond to customers' needs immediately. He acquired a large number of phone lines and hired many operators, all in an effort to make a return customer of that first-time buyer. Within three months Home Shopping had become the world's first network to broadcast live 24 hours a day, and its number of employees had grown from 300 to 1,280. Speer's approach was successful; in just one year he was able to take the company public.
Public Offering in the Mid-1980s
In February 1986 Merrill Lynch underwrote the company's initial public offering at $18 a share. An investment banker who helped with the offering commented on Speer's wisdom in pricing Home Shopping's stock so low, because it was still perceived as a risky company in an untried industry. At that time Home Shopping was still in the process of trying to convince cable operators to carry its show over other alternative programming. Speer's move assured interested stock buyers at the specialist-broker's stand. Home Shopping stock became the fastest rising new issue of 1986, registering a 137 percent gain by the end of the day. Since the initial offering, Home Shopping stock went on to split twice, the first time at three for one, and the second time at two for one.
The Home Shopping Club had developed three formats: Home Shopping Network 1 (HSN 1), Home Shopping Network 2 (HSN 2), and Home Shopping Spree. HSN 1 was available live, 24 hours a day, seven days a week, and was produced exclusively for cable. HSN 2, which offered upscale merchandise, was also available live, 24 hours a day, seven days a week, but was marketed to both broadcast and cable television. Home Shopping Spree offered limited-time or 24-hour programming to broadcast stations.
Opinions on the quickly increasing popularity of Home Shopping Club's HSN 1 and HSN 2 stations varied. Perhaps viewers were attracted to the fact they automatically became members the first time they placed an order, and that they received a $5 credit applicable to the next purchase. Another reason may have been that the shows' hosts gave no warning as to what items would appear on the TV screen and when. As viewers could only purchase items for as long as the products appeared on their screens, anywhere from two to ten minutes, the typical member would watch the program for several hours each day in an effort to find the best deals on products they wanted.
The hosts of the program, almost all of whom had a background in retail sales, developed personas, complete with nicknames and a fan following. As Home Shopping's success grew, competing stations began popping up, causing host as well as viewer defections. As competition continued to grow, many stations in the industry, including Home Shopping, turned to celebrity endorsements and hosts.
Another more conventional way that Home Shopping ensured that customers kept coming back was by allowing the return of any purchase if for any reason a member was not satisfied. Credit card purchases would be credited, or for a cash sale a refund check would be issued for the whole purchase cost, including shipping and handling. Home Shopping also assured shipment within 48 hours after an order was placed with a credit card, or within 48 hours after a check for payment had been received.
In 1987 Home Shopping acquired Sky Merchant, Inc., a TV shopping service viewed by at least one million subscribers of Jones Intercable, Inc. As Home Shopping grew, so did the companies that supported it. Home Shopping was one of United Parcel Service's largest accounts, and many suppliers owed their success to Home Shopping. A new product could be introduced to the nation on the network and within minutes, thousands of items could be sold. While some of the merchandise sold over Home Shopping came from closeouts, overstocks, or overruns, the company's purchasing clout was evident in the fact that at least 60 percent of the company's sales in 1987 consisted of products made specifically for Home Shopping and sold to them for rock-bottom prices.
Not everything, however, was on the upswing in 1987. In that year alone more than 15 television shop-at-home programs went off the air. Stock market analysts began to question how long Home Shopping could sustain its rapid growth rate. Sales in the period between February and May 1985, for example, were $3.6 million; for the same period in 1986, sales were $42.6 million. Some believed that members would eventually reach their credit card limits. Some thought the company was paying too much for its acquisitions of UHF television stations and burdening itself with excessive debt. Some believed the company would lose market share to its ever-growing number of competitors who offered improvements on Home Shopping's unpredictable format, such as the plan J.C. Penney and Sears announced for Telaction, which would allow customers to use their phone to select items from their screens.
In one year, between March 1987 and March 1988, Home Shopping stock had experienced a market slip of 18.95 percent, compared to a 6.76 percent drop in the Dow Jones Industrial Average. The company lost no time in reacting, however; as early as 1987 it was looking around for better ways to harness its market. In January 1987 Home Shopping announced plans to build a new telecommunications center and corporate headquarters in St. Petersburg, Florida. By September the company had started using the UHF television stations it had been acquiring, and the network began broadcasting from its new 180,000 square-foot telecommunications facility, hoping to beat down its competitors with better reception. In September 1987 Home Shopping announced its plans for a major corporate restructuring with HSN Inc. becoming a holding company for the various subsidiaries conducting its businesses.
Distinctions such as fast delivery and guaranteed products, the ability to process orders rapidly and reduce labor costs, and the higher quality of television reception provided by its own TV stations enabled HSN to preserve its market share, as well as distance itself from all but one of its competitors. It also reported good annual sales gains, passing the $1 billion mark in 1990. However, these distinctions still had not succeeded in recapturing wary investors. There was worry about the stability of the home shopping industry in the face of recession years. HSN stock, nevertheless, moved to the New York Stock Exchange from the smaller American Stock Exchange in 1990, and the company began a stock repurchase program.
New Owners in the 1990s
In May 1993, Liberty Media Corporation acquired HSN. Then a month later HSN experienced some trouble in the forms of civil suits accusing the company of taking kickbacks and unavailable lines of credit. Nonetheless, HSN offered to help R. H. Macy & Company set up its own cable television shopping channel. The channel featured the merchandise found in Macy's stores on a 24-hour, seven-days-a-week basis. HSN provided the technical knowledge to operate the teleshopping operation, as well as offered warehouses and distribution services to the financially challenged Macy's. According to Macy chairman Myron E. Ullman in WWD, "HSN has the telephone answering services to respond to customer inquiries and process merchandise orders promptly. Coupled with the merchandising, programming, management and cable distribution expertise already assembled for TV Macy's, HSN fulfillment operations would greatly enhance TV Macy's. We anticipate using HSN systems to process customers' orders, maintain records, control inventory and to facilitate payments."
The following month--in February 1992--the home shopping industry threatened to consolidate when rival company QVC proposed a merger with HSN. The combined company, QVC Network, "would be good for electronic retailing, overall," observed Michael Rourke of QVC in Communications Daily. "We'll be more streamlined, and be able to offer the consumer a greater diversity of product, advanced services, and superior convenience. This is going to push the whole evolution of electronic retailing forward, because as a result of our offering better service and product selection and greater convenience, more people will use the service. As we get more people to shop via television, the area will grow and develop." However, by November HSN and QVC ended their merger discussions when QVC decided to pursue the acquisition of Paramount Communications Inc.
HSN began 1994 with global aspirations. The company prepared to partner with Tele-Communications Inc. to launch an international teleshopping service. In August 1993, HSN established an international division, headed by Michael W. D. McMullen, to explore international television opportunities. Known as Home Shopping International, the service countered the international activities of HSN rival QVC, which earlier had established two shopping services in the United Kingdom and Mexico. HSN appointed McMullen to oversee the operations of Home Shopping International.
In an effort to diversity and expand its services, HSN also tested a video-on-demand service through Waterbury, Connecticut's Sammons Communication cable television system early in 1994. MCI also agreed to a three-year $38 million contract providing 800 service to the Home Shopping Network.
HSN launched its first international venture--a home shopping company in Japan--in February 1994. Cable television was not widely available in Japan, but it was available to the wealthy, so HSN planned to develop a home shopping program for more upscale viewers. HSN intended to export products to the Japanese market, but also stated a commitment to developing businesses there, especially for apparel and other products that might depend on native appeal. As McMullen explained in WWD: "We will set up buying operations to see whether we can find local products that we can also bring back to the United States. We think it's politically important that we enhance local industries."
About this time, HSN and Prodigy Services Company began working together on an online store to debut in the fall of 1994. Selling housewares, electronics, fashions, jewelry, and other products to personal-computer users, the service was the first to use full-color photos rather than drawings of merchandise. In addition to the shopping aspects, the service also provided a bulletin board for contacting HSN hosts and celebrity guests. HSN also established HSN Interactive, a new division headed by Jeff Gentry.
Beginning in May 1994, HSN worked on expanding its viewer base. The company again entered into an agreement with Tele-Communications Inc. that added 500,000 viewers to its Home Shopping Club in the form of new Tele-Communications Inc. subscribers. The federal government's Cable Act of 1992 ensured that 4.8 million other homes also would be covered through the agreement, since the rules specified that cable operators must carry all broadcasters with signals in the areas. In addition, HSN renewed contracts with ten cable operators with seven million subscribers, including Continental Cablevision, a system with three million subscribers. HSN added 16 million subscribers though agreements with five additional cable television companies that would carry Home Shopping Network programming the following month.
In order to compete financially with the revenues generated by commercials aired on other home shopping networks, HSN initiated a division to produce infomercials and distribute them globally in July 1994. HSN Direct, located at the HSN headquarters in St. Petersburg, Florida, aired its infomercials on cable networks and through broadcast services--excluding HSN's home shopping vehicles, which were not formatted for long commercials. HSN embarked upon a joint venture to produce the infomercials. Headed by Kevin Harrington, a past vice-president at National Media and co-owner of the venture, HSN Direct positioned Home Shopping Network to sell to a European audience. "My primary mission is to begin getting things rolling domestically," Harrington admitted to WWD, "but it doesn't take long before you have to start looking internationally. I've done it before and I certainly will be looking into international." Harrington was responsible for developing the infomercial in Europe through Quantum International, a company he formed in 1988. He expected HSN to create infomercials for housewares, exercise equipment, and other products--especially merchandise produced by manufacturers unaware of the infomercial potential of their goods or for products with a history of success on HSN. HSN selected a past executive of Turner Broadcasting--Bob Swift&mdashø serve as chief operating officer of HSN Direct.
During mid-1994, HSN took part in several new ventures. The company assisted the Black Entertainment Television Inc. with establishing a weekly, two-hour home shopping program targeting African-Americans as a test of the viability of a shopping network exclusively for this consumer group. HSN also purchased the online merchandising company Internet Shopping Network, a service first offered in June 1994 for selling computer-related products to consumers. HSN acquired the Internet Shopping Network in an effort to establish an online shopping mall through which to market its products and those of other retailers.
HSN began to sell its merchandise through the online services CompuServe and Prodigy beginning in September 1994. While these services allowed HSN to market its products, they did not facilitate the shopping mall concept that the company wanted to develop. "We hope to be on all of the online services," Gentry explained to Broadcasting & Cable. "There will always be a place for live, analog retailing on TV. But you're going to have to learn to be prepared for digital television." During October 1994, HSN allied with Macromedia Inc. to produce software that would "dazzle" consumers browsing on its Internet Shopping Network. The software utilized advanced graphics, animation, and sound.
New Directions in the Mid-1990s
From 1994 to 1995, HSN underwent a transformation. The network redesigned sets, changed the format of programs, and improved the merchandise that it offered. Nevertheless, it remained unprofitable and posted millions of dollars in losses until Barry Diller was named chairman and chief executive at HSN. Diller came to HSN with a proven track record. He successfully managed Paramount Pictures and engineered the creation of the Fox network. Under his direction, QVC, the competing home shopping network, flourished. Diller demonstrated a knack for interesting high-profile investors in his projects, such as John Malone, owner of 39 percent of Silver King Communications, and billionaire David Geffen.
The company pursued growth through technological innovations. HSN's interactive shopping program Global Plaza, for instance, sold electronics and jewelry through the Internet. In May 1995, HSN supplied Global Plaza to Microsoft's Interactive Television service and to Intel's CablePort, which connected personal computers to broadband networks faster than standard modems. (CablePort also offered books and art through HSN's Master-Works and fine jewelry through its Chatelaine program.) HSN then worked with Lockheed Martin Missiles & Space Media Systems Integration on a product for the commercial interactive broadband market. Called the Decision Support System, the software personalized online computer shopping for individual consumers.
Diller became a member of the HSN board in August 1995. His Arrow Holdings recently had purchased a percentage of Silver King Communications, a group of television stations carrying HSN programs. Diller also served as chairman of Silver King Communications, which serviced eight of the larger U.S. markets through 12 television stations. In November of that year, HSN named Diller as its new chairman. The move prompted HSN's president, Gerald Hogan, to resign, and David Dyer, formerly an executive with Lands' End, became the next president.
At the same time, Silver King Communications gained a controlling interest in HSN by trading its stock for that of Liberty Media Corporation, the programming agent of Tele-Communications Inc., owner of 80 percent of HSN stock. Silver King also acquired Savoy Pictures Entertainment Inc. as a wholly owned subsidiary at this time. The merger gave Silver King television stations in New Orleans, Louisiana; Mobile, Alabama; Honolulu, Hawaii; and Green Bay, Wisconsin&mdash-ough stations, with Silver King's other 11&mdashø start a new, fifth network. "These steps will add early fiber to the company, quickening our ability to proceed with our ambitions for the development of Silver King," Diller told WWD. "Obviously. I did then and do now believe in the future of electronic retailing, just as I did then and do now believe in the future of free, over-the-air broadcasting," he added.
Diller's appointment at HSN created excitement and anticipation within the industry. Janney Montgomery analyst Terry McEvoy observed in WWD: "If he [Diller] has a freer hand, maybe he can take home shopping to the next level." Analysts expected Diller to continue to improve programming at HSN and to develop the true value of the company. For example, observers assumed that Diller, well-connected with high-profile designers and celebrities, would utilize his contacts to enhance HSN's offerings and contacts. "Electronic retailing has great potential, and I'm looking forward to what he's [Diller's] going to do with it and what he will do for the whole industry," designer, and Diller's friend, Diana Von Furstenberg said in WWD. "With him leaving QVC, the industry kind of flopped a bit. I think he will stir the whole industry. He was not able to do what he wanted to do at QVC and I'm sure this time he will, and will bring everybody out with him," she commented.
Diller sought to purchase the cash-rich Savoy Pictures Entertainment Inc. in December 1995 to add its four VHF television stations to his holdings. However, many industry observers questioned the motives of this move. "People think that you do things for the dumbest reasons," Diller lamented in Fortune, explaining "I'm doing this to make this work. I may screw it up, but I have an absolute, clear idea of what businesses I want to build." Part of Diller's strategy included Silver King Communications buying back HSN from Liberty Media Corporation for a $1.3 billion stock exchange in September 1996. A Federal Communications Commission ruling limiting broadcasters from owning more than a 22 percent interest in a cable company, caused the companies to renegotiate an earlier agreement through which Liberty Media would have transferred ownership of HSN to Silver King Communications in exchange for 45 percent ownership. The move allowed Diller to position HSN as a cable network instead of a broadcast-delivered service.
Upon completion of the deal, Silver King controlled more than 80 percent of HSN, leaving Liberty Media with less than 20 percent ownership. HSN common stock converted to .45 of a share of Silver King stock, while HSN Class B stock--"super voting" stock worth ten votes per share and owned in full by Liberty Media--became .54 of a share of Class B Silver King stock.
Silver King Communications' primary source of revenue was the Home Shopping Network programming carried by its 12 UHF broadcast stations. Diller, also this company's chairman, positioned Silver King Communications to purchase HSN in 1995 and initiated a stock swap in 1996. "The companies combined should do wonderfully," Diller revealed in the Multichannel News.
Ironically, at one time Silver King Communications was part of HSN. Company founder Roy Speer purchased Silver King in order for its broadcast stations to carry HSN programming. Speer sold the company in 1993 when he needed to divest HSN stock in order to comply with federal laws restricting ownership of cable systems and broadcast stations within the same market. Tele-Communications Inc. purchased HSN.
Stockholders approved the merger of Home Shopping Network, Silver King Communications, and Savoy Pictures on December 19, 1995. Diller continued as the chairman of the new parent company, HSN Inc.
In a stock-for-stock transaction during the summer of 1997, HSN gained control of Ticketmaster, a broker of entertainment tickets. Valued at about $209 million, the merger created opportunities for both companies. HSN greatly expanded its distribution system. "HSN looks at Ticketmaster as a distribution network," noted Mark Hardie, a senior analyst at Forrester Research, adding "and Ticketmaster wants to move away from strictly ticketing." HSN's network provided Ticketmaster with a massive venue through which to market concert, theater, and other entertainment event tickets. "HSN has recognized that Ticketmaster is a great asset," Ticketmaster president Fred Rosen, who maintained his position in the merger, told Billboard. "The combination between commercial electronic transactions and broadcasting opens up a world of exciting possibilities," he noted. Founder Paul Allen sold his controlling interest in Ticketmaster in exchange for 11 percent of HSN. He also became a member of HSN's board, as did Frederic Rosen and William Savoy.
Expansion continued after the merger, especially on an international level. Earlier, with Sumitomo Corporation, a large Japanese trading company, HSN brought televised home shopping to Japan through 30-minute programs broadcast in Tokyo, Osaka, and nearby regions beginning in 1996. Similarly, Jupiter Programming and HSN introduced the SHOP channel in Japan in November 1997. After success in Japan, HSN developed a shopping channel for Germany in conjunction with Quelle, a European catalog company, and Kirch Media Interests of Germany.
Then, with Spanish-language broadcaster Univision, HSN initiated a Spanish-language shopping channel in 1997 for full operations in 1998. "As we looked to develop this venture," McMullen revealed to Broadcasting & Cable, "our logical choice was to team with Univision, because they are the strongest Spanish broadcasting group in the United States and because of their partners in Mexico and Venezuela." Univision secured U.S. distribution, and HSN controlled operations of the channel target for seven million Hispanic households in the United States. Since HSN recognized more than 500 million Spanish-speaking consumers worldwide, the company planned to expand the shopping channel into Latin America and Spain, both of which had millions of existing or cable-ready households.
In November 1997, Diller sold an HSN network in Baltimore, Maryland--WHSW--in order to set the groundwork for his Silver King Communications' planned joint venture with the Universal Television Group and the USA Networks. Diller negotiated with the parent company of Universal Studios--Seagram&mdashø join HSN with the television unit of Universal Studios. In exchange for more than $1 million and a 45 percent share of HSN, Seagram, Universal TV's owner, sold its USA Networks and its domestic television business. Diller purchased the lion's share of Universal TV Studios operations in the United States, including production and distribution of such hit television programs as Law and Order and Xena: Warrior Princess, in a billion-dollar deal. Though Universal Studios retained part ownership in the newly formed company, HSN gained the domestic and some of the international activities of the USA Network (a popular cable station) and the Sci-Fi Network. In addition to the merger on the domestic scene, HSN and Universal worked together on a venture for international television.
Diller remained as chairman of the new company. Executives from Universal TV and its parent company, Seagram, joined the USA Networks board; Diller assumed a seat as a director of Seagram. Shareholders approved HSN's purchase of Universal TV for $4 billion, changing the company's name to USA Networks Inc.
In 1998, HSN joined with the Scandinavian Broadcasting System to bring home shopping to Italy. Distributed by Rete Mia TV, the HSN-SBS Italia network reached 20 million homes. This venture, as HSN's earlier efforts, reinforced its commitment to growth and expansion under the direction of Barry Diller. Diller "would rather die than fail," according to his friend billionaire David Geffen in Fortune, adding "He will not fail."
Principal Subsidiaries: Diversified Marketing and Media Services, Inc.; HSN 800/900 Corp.; HSN Health Services Inc.; HSN Telemation Inc.; Home Shopping Club Inc.; Internet Shopping Network; Mistix Corporation; Precision Systems Inc.; Vela Research Inc.
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