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HSN pitch: must-shop TV

Buoyed by a new leader's fresh ideas, the shop-at-home network is reshaping itself to leave behind its once-predictable format and reclaim its position as industry leader.

By MARK ALBRIGHT
Published September 25, 2006


HSN took its cameras to New Orleans over the weekend to air 12 hours of live shows to salute in its own unusual idiom the comeback of Crescent City commerce.

Esteban, the network's pop music phenom, sold guitars at a free concert benefit for Habitat for Humanity.

Celebrity chef Todd English pitched his new immersible blender from the opening of his new restaurant in Harrah's Riverfront Casino.

Former Saints quarterback Archie Manning tonight is scheduled to field calls on HSN's NFL Shop as the Superdome reopens as a football stadium for Monday Night Football.

Different? You bet. And more remotes are slated for places from Las Vegas to South Beach. It's all part of another attempt to jazz up the St. Petersburg TV shopping network's watchability as it adapts to changing habits the Internet brings to today's far-busier TV shopper.

HSN, which stopped calling itself Home Shopping Network three years ago, had become too predictable. TV shopping is becoming a mature market out of synch with today's shoppers, who don't have time to lounge around for hours aimlessly watching a parade of products one at a time. That's one reason E.W. Scripps Inc. recently sold its loss-ridden Shop-at-Home network to the Jewelry Shopping Channel, which then cut the broadcast day in half. HSN and rival QVC and far smaller ShopNBC have become flashier clones of one another. Worse, HSN's sales went into a nine-month swoon after its managers lost their merchandising touch last holiday season.

HSN domestic sales declined 2.2 percent in the most recent quarter and are not expected to bounce back until later this year at the earliest.

"It was a patch of bad management that got risk averse and really began to skinny down the inventory," meaning they took fewer chances on new products, said Barry Diller, whose IAC/InterActiveCorp gets more than half its revenue from HSN. Now a true multichannel retailer, HSN includes two TV shopping channels, a fast-growing online shopping service and a recently acquired collection of 10 mail-order catalogs including Frontgate, Ballard Designs and TravelSmith.

Diller recruited Mindy Grossman, who earned $2.1-million heading Nike International's apparel unit in 2005, as chief executive of his electronic retailing unit to re-energize the place.

"I've done turnarounds and I've done startups, so I'm not the one you hire if you want to tweak the bottom line for a few extra percentage points," said Grossman, 49. "Frankly, there is too much channel blur in TV shopping. We need to differentiate ourselves and treat HSN as a brand rather than a just platform to sell things."

The convergence of TV and the Internet plays a major role in HSN's evolving strategy, which this year includes some bold and risky steps.

With a mandate to shake the place up, Grossman, who had never bought anything from HSN, wasted little time. She restructured the merchandising team. She ordered more spontaneity and novelty in shows. She's midway through a market research project charting a new brand vision for the types of customers HSN can develop into regulars. She calls them "enlightened shoppers."

They are highly fashion-conscious. They are hungry to learn about new products and advise their friends. They are frequently doing chores, talking on the phone and clicking on a computer nearby while HSN airs as background noise. They are as driven by quality as by price.

Research uncovered some surprises about HSN's regular customers. The network has underestimated their willingness to spend. After they sold scads of European handbags priced as high as $1,400 in one show, executives wonder why HSN apparel offerings are so middle of the road.

So Grossman will try to mix in more aspirational fashion. And she's looking for more creative niches to exploit such as scrap-booking, gardening, and cooking shows such as Wolfgang Puck.

The parade of celebrity product presenters is getting some fresh faces. The network just signed up Bob Vila, the TV home-improvement guru, to sell his first line of tools with HSN-produced lessons on jobs like replacing sprinkler heads or hanging pictures. Melody Thomas Scott, who played Nikki Newman on The Young and the Restless for 27 years, will debut her line of contemporary apparel. Ken Paves, Jessica Simpson's hair stylist, will be selling and doling out advice on hair extensions.

Grossman also found time to buy a waterfront condo in downtown St. Petersburg but will commute on weekends to the family home in New York. That's where her husband, Neil, a JPMorgan Chase bond trader, and her 16-year-old daughter, Lizzie, live.

HSN executives don't see a problem finding new customers. Indeed, the TV network draws 100,000 new buyers every month.

"We are a new-customer machine," said Scott Sanborn, executive vice president of marketing. "Our challenge is to find new ways to engage them."

The look of shows is being slowly tweaked. Sets are more elaborate. Celebrity spokespeople are forbidden to use the hard sell. Hosts are advised to tone down the fawning and gushing by recognizing that not every product can be the greatest.

Product shots are more often demonstrations of how something works or can be used. Soft focus, sharp digital cameras and props that accent them are becoming the new standard

"We romance the product rather than just holding it and talking about it," said Otis Howard, who arrived three years ago as vice president of design and production from a similar job at Martha Stewart's former TV production house. "We show it in warm colors, add appropriate props like a rose to a gold bracelet and use camera motion to create visual interest."

HSN years ago shed its bargain-basement image, so Grossman plans to use television's strength to demonstrate how products work and are used to help sell them wherever customers place orders. HSN.com's contribution to revenues grew from 18 to 25 percent of HSN's $1.9-billion revenue in 2005. But Grossman doesn't consider HSN a TV shopping channel first and foremost.

"I don't look at it that way," she said. "Today we must offer what she wants, how she wants it, when she wants it, wherever she wants it. That can be TV, the Internet or our catalogs."

One sign of the change: A former broadcast studio is now an imaging studio where 30 photographers and product stylists take 400 digital product shots a day for displays on TV, in catalogs or for the Web. There are 75,000 images in the library.

Another sign of the new attitude: Products made for the company's catalogs are beginning to filter into the TV shows and Web site if they fit the HSN customer.

"That integration of new products has really only just begun," Grossman said.

Technology is being used to speed up transactions and put customers in control in ways they never have been. The network is negotiating to get its customers nationwide wired for point-and-one-click ordering by the remote that works their cable box. The first systems are up and running in Hawaii and New York City, where shoppers can buy what's on the screen as easily as changing the channel. This winter HSN begins stockpiling old shows and recorded demonstrations for video-on-demand service on hsn.com. That means TiVo types will be able to summon and order shows from the previous week or recorded product demonstrations from HSN's resident authorities such as health food maker Andrew Lessman. The TV feed is now broadcast live in full-screen version on the Internet.

"We are evolving HSN to be everywhere, all the time, wherever you want it," said John McDevitt, vice president of finance and advance products.

Like many online retailers, HSN.com is adding Internet bulletin boards to its Web sites, where people who have interest in specific products or brands can chat among themselves.

Their complaints are left untouched. One site has a rant about some calls to HSN being answered by operators in the Philippines. Another has several complaints about a vendor not honoring the 75-year guarantee on Ultrex cookware and grousing about HSN only offering a discount for a replacement set.

A computer program automatically combs out profanities, but HSN officials insist they only watch the conversation, not edit content.

"To build trust, it's very important we do not interfere in any of the customer conversations unless asked specifically to respond," said Kris Kulesza, who heads hsn.com.

MORE ABOUT HSN

WHO OWNS IT: IAC/InterActiveCorp, Barry Diller's publicly traded e-commerce conglomerate. IAC's biggest shareholder, with 22 percent of stock, is John Malone's Liberty Media, which owns QVC outright. Diller has a deal to vote most of Liberty's IAC shares, giving him 56 percent of the vote.

HSN'S ROLE IN IAC: Provides cash flow stability to help back other online ventures. Including Cornerstone, HSN contributed 54 percent of IAC revenue and 64 percent of earnings in 2005.

WHAT ELSE DOES IAC OWN? Ask.com, Ticketmaster, Match.com, CitySearch, LendingTree.com.

HOW BIG IS HSN? Employs about 4,000 people, its primary network can be seen in 89-million of 111-million U.S. homes with TV. Its second network, America's Store, can be seen in 21-million. Overall, HSN has about 5-million active customers. Domestic revenue was $1.9-billion in 2005.

SOURCES: HSN, SEC filings

what's new at HSN

HSN is the nation's oldest and second-largest TV shopping network behind QVC. It's based in St. Petersburg but has major operations in Virginia, Iowa and Ohio, and TV shopping ventures in six other countries.

WHAT'S CHANGED: IAC last year acquired Cornerstone Brands, which added $803-million in annual sales and 10 mail-order catalogs to the mix, including Frontgate, TravelSmith, Ballard Designs, Garnet Hill and Grandin Road. Selected products are beginning to be sold on HSN.

NEW TV FEATURE: Cable users in New York City and Hawaii can buy from HSN by clicking their remote control at the cable box once when prompted by the TV picture.

ONLINE: The Web site is being redesigned, but the resolution has been amped up so the TV shopping channel can be viewed live online in a full-screen version. Online shoppers soon will be able to summon past HSN shows and product demonstrations in TiVo-style video-on-demand. New customer bulletin boards offer info swapping with other customers by brands they buy. More than 60,000 customer reviews of products are on file - some good, some bad.

SOURCES: HSN, SEC filings

[Last modified September 24, 2006, 20:50:04]


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