A Super Shopping Channel Brand

Editor's comment: The remote shopping environment is developing fast. The two "big guns" of teleshopping have much to offer. They are under attack from Web-based retail so would they be stronger if they merged?

Does 1+1=2 or 1+1=1.7?

The future of TV Home Shopping in the U.S.A. has never looked so foggy. While international expansion booms ahead with projects developing in China, India, Russia and just about everywhere else, the US market has matured and is about to be challenged as never before.

Ever since I began in the TV Homeshopping industry, some 15 years ago I think, there have been rumours of QVC and HSN merging or working as separate entities but owned by the same group. And recently, especially with the dips in the both of their stock price, all the crafty positioning and recent lawsuit between Barry Diller IAC) and John Malone (Liberty Media - LINTA plus a holding in IAC), we see gossip reported but little detailed insight as to the repercussions of such a merger. Certainly these two great deal makers will use their flair and flamboyant egos and professional skill and dynamism to distract and pressure to get their companies the best deals possible so we must take a lot of the press reporting with a grain (a bag more like it!) of salt. The world of media is their natural environment and stage.

It is easy to be sceptical, especially when there is so much empirical evidence to support a negative opinion of such any merger, many do not work out as well as imagined. Companies hardly ever take the time to properly research and analyze the consequences of such a large move. It is not a simple task, you must evaluate the cost of the merger and integration against what a similar investment in other areas of the company would reasonably return. Externally, jobs will be lost and the human toll, often painful if nor severe, is rarely recognised. Internally, it is very difficult to evaluate the cost of the disruption to the business. It is rare that companies seriously consider all of the implications and, if they try, few get it right.

Competitive landscape: There are only five major shopping channels in the USA: Jewellery Television, which also operates internationally and achieves $500 million+ while ShopNBC has a turnover of about $700 million and then the much smaller but expanding Gems TV. Two jewellery channels as well as the gems stones and gold/silver commodity inflation of late have impacted negatively upon HSN & QVC who are still somewhat reliant upon jewellery sales. Jewellery typically carries excellent margins. Expect many more shop channels to emerge soon with the implementation of digital TV in the USA, bandwidth for channels will become much more affordable and TV will become democratized. The UK has some 43 dedicated shop channels (live, infomercial, auction/price drop and travel) today and I believe this trend will spread to the American market.

Does 1+1=2? I think in this case, 1+1=1.7.

I think it is obvious that many mergers, especially big ones such as Time Warner & AOL, actually do not work that well and can cause severe disruption for the companies involved. This combination as it is sometimes referred to would result in a $12 billion+ deal.

Mergers do not always result in immediate or obvious benefits or efficiencies. There are always claims that the best will be kept but my experience is one company will dominate at the expense of the other. Look at the takeover of British Satellite Broadcasting (BSB) by Sky TV and you start to see what I am thinking here. Often they take years, after much restructuring to become profitable and then it is hard to know if they would have been more profitable if they had remained separate. Sometimes, mergers create an improper mix, oil and water, and do not produce the anticipated or projected results.

The term synergy often means areas of overlap where efficiencies can be realised. And what is the main efficiency most often cited? Reducing the labour force and dropping redundant departments or services. The pain of a lost job magnified by a factor of hundreds when looking at the workforce of several thousands is difficult to quantify because in a difficult economic period new employment for these people may be impossible to find.

There is always talk of synergies between two companies, in similar industries, involved or rumoured to be involved in a merger. One company always dominates the other to their own advantage. So if QVC & HSN merged the more efficient and larger group would dominate meaning job reductions at HSN because QVC is easily twice as big and 4 X more profitable than HSN. This is not socialism, this is all about free market capitalism and the rule is to grow, expand market share and be profitable.

Loyal Customers: Think of merging two fast food companies such as Burger King and McDonald's. Those who like one are loyal and rarely switch between the two indiscriminately. Take two traditional combative sporting franchises in major markets, let's use major League Baseball as our analogy. If the Yankees and the Dodgers merged, would die hard Dodger fans feel happy sitting next to hardcore Yankee fans? Could their allegiances forged over generations of loyalty be funnelled directly into the new franchise? Take this one step further and if the Yankees used their economic dominance and acquired all the valuable power hitters, great fielders and pitchers how would the Dodger fans feel and how would their team perform? Would the Yankees use the Dodgers as a farm club and reap the advantage of cherry-picking all the top quality? Would the two teams perform better, negotiate better contracts with players, fill more seats and sell more merchandise and hot dogs? I fear we hold a bias about mergers and assume that the sum of the parts will equate to a greater total.

Corporate Culture: Both HSN & QVC have a long history of competition with each other. They also both possess call centres, fulfilment & warehouse, broadcast facilities and vast merchandise departments with global offices. But many of those loyal to one brand or format are not interested in the other. If the brands changed and started to became blurred would this result in more sales? It is not difficult to find good examples such as the merger of Daimler & Chrysler.

INT: There are a couple other areas of concern. HSN has failed with several attempts at international expansion except in one case their Japan Shop Channel partnership and that’s mostly due to a strong local partner. There are seriously important advantages, especially in today's global economy, with having diversified revenues from various major markets. QVC has excelled at this mostly because of their patience and ability to transfer their success abroad. It has been a diversion, it is not easy especially with recent regulatory issues in Japan and Germany, but it does contribute significantly to their turnover and success.

Convergence: And convergence changes everything as more bandwidth equates to lower cost of entry for new channels. In the UK, the Sky digital platform supports 43 dedicated shop channels and soon, with the move over to digital, in America you will see many more channels start to appear and many more shop channels. Several hundred new channels means that the advertiser spend will be spread thinly and broadcasting companies will need to cooperate more with infomercial and TV shop channels and the resulting share of revenues this will produce. Special Delivery is a clever company that links products seen on TV programmes such as Desperate Housewives with the ability to order so you too can have the same paint used in the kitchen or bedroom as your favourite character.

Web streaming will also permit anyone who now can operate a Web site to move easily to live video streaming and archival capability. I could stream to my TV a live channel from China called “ShangBy” and source much cheaper even when calculating the S&H, and at similar quality, directly from stores in Shanghai. I can even interact directly with them. In some cases I can source directly from the manufacturer who might SMS or TXT me when a product is ready. The role of traditional retailer is already being seriously challenged by eCommerce. TV home shopping retailers, who excel at Web sales today due to the tremendous impact of TV, will begin to lose their uniqueness as the market and retail system opens up to universal competition. Please give this technology about two years before anyone notices any impact, but it will change the retailing market and consumer behaviour.

If these two colossus direct marketing retailers were merged they would perform less well together than in direct competition. Competition drives innovation, risk and motivates the work force to work harder, better, smarter and more efficiently. There is a choice today although HSN has moved closer to mimic QVC.

Will it be possible to own two companies and keep them separate? Can HSN & QVC work together in the same group? Maybe, maybe not. I personally do not think it is possible. When Diller was at QVC he met a lot of resistance from those “pioneers” who started up QVC with Joseph Segal and that tension was within the same company! The culture at HSN and QVC is very different and there is a possibility that they would clash and only one can rule.

Recent improvements at HSN does not mean long term success or guaranteed growth and with the upcoming economic instability and possible recession the risk for failure have increased. In fact, if you look at the facts and remove the upbeat polish or spin, the revenue for the 4Q 07’ was up 3% but operating income dropped 7%. HSN reported that sales efficiency improved for most of their merchandise categories and that their customers spent more but the total number of active customers, a key metric nearly as vital as margins in this industry, remained flat. With lower gross margins and higher operating expenses in the 4th Quarter, operating income was effected negatively.

HSN has to become much more appealing, unique and competitive as well as flexible and that means they have to innovate and work much harder and better than they do today. They have to succeed at international expansion because this is where significant growth comes from and what has helped QVC to maintain profitability and expand on their leadership position.

Both companies are relying on streaming Web video, but their next great frontier is not something to bank upon. For some reason, these companies have not tried a global approach. Why not offer a superior Web shopping experience in 20 languages as well as a global product range and global delivery? The Internet is their biggest threat, an arena where they can be out-manoeuvred and out-classed by many swifter and smaller global players.

InterActiveCorp’s strategy to date is to buy Web companies of various sizes and bring them into the fold to grow the business. Sometimes this works and sometimes it does not. They bought the UK’s very successful The Travel Channel and tried to merge it with Expedia and The Travel Channel has not been heard of since. There have been a few other disasters and they continue to make investments. When it becomes apparent that they did not fit in, they sell off, lick their wounds and move on.

A company as complex as IAC is difficult to monitor or control and the financial community simply does not get what it all adds up to. Diller controls voting shares held by John Malone’s Liberty Media and a court case is in the works to settle if this agreement can continue. It can delay matters and this mess needs to be sorted out sooner rather than later.

The new strategy is to spin-off all these units into five new companies which is meant to provide more clarity for investors and more apparent value to each new company. IAC reported that it lost $369.9 million in the 4Q 07’ and attributes this to higher taxes, difficulty in its mortgage referral unit and costs for the proposed spin-offs.

IAC should sell off many of its units and become a lean, mean and aggressive money making machine. Malone probably wants nothing to do with HSN and just wants to extract the most value from his position.

And for Clearwater, Florida and the other hubs of HSN commerce? I think it is time the city awaken, just in case the merger does go ahead, and start to campaign for HSN to remain independent or loose many local jobs and some significant tax base.


	*Number 39: Winter 2008*
	: : : : : : : : : : : : : : : : : : : : :
About Budd Margolis E-commerce Index	Does HSN + QVC = a Super TV Shopping Channel Brand? *by Budd Margolis* Editor's comment: The remote shopping environment is developing fast. The two "big guns" of teleshopping have much to offer. They are under attack from Web-based retail so would they be stronger if they merged? Does 1+1=2 or 1+1=1.7? The future of TV Home Shopping in the U.S.A. has never looked so foggy. While international expansion booms ahead with projects developing in China, India, Russia and just about everywhere else, the US market has matured and is about to be challenged as never before. Ever since I began in the TV Homeshopping industry, some 15 years ago I think, there have been rumours of QVC and HSN merging or working as separate entities but owned by the same group. And recently, especially with the dips in the both of their stock price, all the crafty positioning and recent lawsuit between Barry Diller IAC) and John Malone (Liberty Media - LINTA plus a holding in IAC), we see gossip reported but little detailed insight as to the repercussions of such a merger. Certainly these two great deal makers will use their flair and flamboyant egos and professional skill and dynamism to distract and pressure to get their companies the best deals possible so we must take a lot of the press reporting with a grain (a bag more like it!) of salt. The world of media is their natural environment and stage. It is easy to be sceptical, especially when there is so much empirical evidence to support a negative opinion of such any merger, many do not work out as well as imagined. Companies hardly ever take the time to properly research and analyze the consequences of such a large move. It is not a simple task, you must evaluate the cost of the merger and integration against what a similar investment in other areas of the company would reasonably return. Externally, jobs will be lost and the human toll, often painful if nor severe, is rarely recognised. Internally, it is very difficult to evaluate the cost of the disruption to the business. It is rare that companies seriously consider all of the implications and, if they try, few get it right. Competitive landscape: There are only five major shopping channels in the USA: Jewellery Television, which also operates internationally and achieves $500 million+ while ShopNBC has a turnover of about $700 million and then the much smaller but expanding Gems TV. Two jewellery channels as well as the gems stones and gold/silver commodity inflation of late have impacted negatively upon HSN & QVC who are still somewhat reliant upon jewellery sales. Jewellery typically carries excellent margins. Expect many more shop channels to emerge soon with the implementation of digital TV in the USA, bandwidth for channels will become much more affordable and TV will become democratized. The UK has some 43 dedicated shop channels (live, infomercial, auction/price drop and travel) today and I believe this trend will spread to the American market. Does 1+1=2? I think in this case, 1+1=1.7. I think it is obvious that many mergers, especially big ones such as Time Warner & AOL, actually do not work that well and can cause severe disruption for the companies involved. This combination as it is sometimes referred to would result in a $12 billion+ deal. Mergers do not always result in immediate or obvious benefits or efficiencies. There are always claims that the best will be kept but my experience is one company will dominate at the expense of the other. Look at the takeover of British Satellite Broadcasting (BSB) by Sky TV and you start to see what I am thinking here. Often they take years, after much restructuring to become profitable and then it is hard to know if they would have been more profitable if they had remained separate. Sometimes, mergers create an improper mix, oil and water, and do not produce the anticipated or projected results. The term synergy often means areas of overlap where efficiencies can be realised. And what is the main efficiency most often cited? Reducing the labour force and dropping redundant departments or services. The pain of a lost job magnified by a factor of hundreds when looking at the workforce of several thousands is difficult to quantify because in a difficult economic period new employment for these people may be impossible to find. There is always talk of synergies between two companies, in similar industries, involved or rumoured to be involved in a merger. One company always dominates the other to their own advantage. So if QVC & HSN merged the more efficient and larger group would dominate meaning job reductions at HSN because QVC is easily twice as big and 4 X more profitable than HSN. This is not socialism, this is all about free market capitalism and the rule is to grow, expand market share and be profitable. Loyal Customers: Think of merging two fast food companies such as Burger King and McDonald's. Those who like one are loyal and rarely switch between the two indiscriminately. Take two traditional combative sporting franchises in major markets, let's use major League Baseball as our analogy. If the Yankees and the Dodgers merged, would die hard Dodger fans feel happy sitting next to hardcore Yankee fans? Could their allegiances forged over generations of loyalty be funnelled directly into the new franchise? Take this one step further and if the Yankees used their economic dominance and acquired all the valuable power hitters, great fielders and pitchers how would the Dodger fans feel and how would their team perform? Would the Yankees use the Dodgers as a farm club and reap the advantage of cherry-picking all the top quality? Would the two teams perform better, negotiate better contracts with players, fill more seats and sell more merchandise and hot dogs? I fear we hold a bias about mergers and assume that the sum of the parts will equate to a greater total. Corporate Culture: Both HSN & QVC have a long history of competition with each other. They also both possess call centres, fulfilment & warehouse, broadcast facilities and vast merchandise departments with global offices. But many of those loyal to one brand or format are not interested in the other. If the brands changed and started to became blurred would this result in more sales? It is not difficult to find good examples such as the merger of Daimler & Chrysler. INT: There are a couple other areas of concern. HSN has failed with several attempts at international expansion except in one case their Japan Shop Channel partnership and that’s mostly due to a strong local partner. There are seriously important advantages, especially in today's global economy, with having diversified revenues from various major markets. QVC has excelled at this mostly because of their patience and ability to transfer their success abroad. It has been a diversion, it is not easy especially with recent regulatory issues in Japan and Germany, but it does contribute significantly to their turnover and success. Convergence: And convergence changes everything as more bandwidth equates to lower cost of entry for new channels. In the UK, the Sky digital platform supports 43 dedicated shop channels and soon, with the move over to digital, in America you will see many more channels start to appear and many more shop channels. Several hundred new channels means that the advertiser spend will be spread thinly and broadcasting companies will need to cooperate more with infomercial and TV shop channels and the resulting share of revenues this will produce. Special Delivery is a clever company that links products seen on TV programmes such as Desperate Housewives with the ability to order so you too can have the same paint used in the kitchen or bedroom as your favourite character. Web streaming will also permit anyone who now can operate a Web site to move easily to live video streaming and archival capability. I could stream to my TV a live channel from China called “ShangBy” and source much cheaper even when calculating the S&H, and at similar quality, directly from stores in Shanghai. I can even interact directly with them. In some cases I can source directly from the manufacturer who might SMS or TXT me when a product is ready. The role of traditional retailer is already being seriously challenged by eCommerce. TV home shopping retailers, who excel at Web sales today due to the tremendous impact of TV, will begin to lose their uniqueness as the market and retail system opens up to universal competition. Please give this technology about two years before anyone notices any impact, but it will change the retailing market and consumer behaviour. If these two colossus direct marketing retailers were merged they would perform less well together than in direct competition. Competition drives innovation, risk and motivates the work force to work harder, better, smarter and more efficiently. There is a choice today although HSN has moved closer to mimic QVC. Will it be possible to own two companies and keep them separate? Can HSN & QVC work together in the same group? Maybe, maybe not. I personally do not think it is possible. When Diller was at QVC he met a lot of resistance from those “pioneers” who started up QVC with Joseph Segal and that tension was within the same company! The culture at HSN and QVC is very different and there is a possibility that they would clash and only one can rule. Recent improvements at HSN does not mean long term success or guaranteed growth and with the upcoming economic instability and possible recession the risk for failure have increased. In fact, if you look at the facts and remove the upbeat polish or spin, the revenue for the 4Q 07’ was up 3% but operating income dropped 7%. HSN reported that sales efficiency improved for most of their merchandise categories and that their customers spent more but the total number of active customers, a key metric nearly as vital as margins in this industry, remained flat. With lower gross margins and higher operating expenses in the 4th Quarter, operating income was effected negatively. HSN has to become much more appealing, unique and competitive as well as flexible and that means they have to innovate and work much harder and better than they do today. They have to succeed at international expansion because this is where significant growth comes from and what has helped QVC to maintain profitability and expand on their leadership position. Both companies are relying on streaming Web video, but their next great frontier is not something to bank upon. For some reason, these companies have not tried a global approach. Why not offer a superior Web shopping experience in 20 languages as well as a global product range and global delivery? The Internet is their biggest threat, an arena where they can be out-manoeuvred and out-classed by many swifter and smaller global players. InterActiveCorp’s strategy to date is to buy Web companies of various sizes and bring them into the fold to grow the business. Sometimes this works and sometimes it does not. They bought the UK’s very successful The Travel Channel and tried to merge it with Expedia and The Travel Channel has not been heard of since. There have been a few other disasters and they continue to make investments. When it becomes apparent that they did not fit in, they sell off, lick their wounds and move on. A company as complex as IAC is difficult to monitor or control and the financial community simply does not get what it all adds up to. Diller controls voting shares held by John Malone’s Liberty Media and a court case is in the works to settle if this agreement can continue. It can delay matters and this mess needs to be sorted out sooner rather than later. The new strategy is to spin-off all these units into five new companies which is meant to provide more clarity for investors and more apparent value to each new company. IAC reported that it lost $369.9 million in the 4Q 07’ and attributes this to higher taxes, difficulty in its mortgage referral unit and costs for the proposed spin-offs. IAC should sell off many of its units and become a lean, mean and aggressive money making machine. Malone probably wants nothing to do with HSN and just wants to extract the most value from his position. And for Clearwater, Florida and the other hubs of HSN commerce? I think it is time the city awaken, just in case the merger does go ahead, and start to campaign for HSN to remain independent or loose many local jobs and some significant tax base.
Disclaimer Contact Webmaster Pool Version 2.0 © Budd Margolis / Making Time Marketing Ltd 1998-2008