HOME SHOPPING HISTORY: HSN & QVC
HOME SHOPPING HISTORY
In the 50’s + 60’s television gave birth to the infomercial which provided a
supply of “choppers and slicers” to the American viewing public. Infomercials
were heavily regulated as were commercials at the time. A new form or
innovation known as home shopping developed in the late 70’s. This new form
of electronic retail was to quickly become a powerful retail distribution channel.
By studying the early history (CEE-ZEEasic?) you will begin to see how this
concept has evolved and who will lead home shopping into the next century.
Electronic and digital retail are converging into one. Many of the lessons
learned in electronic retailing and direct marketing in particular will be useful
in the future. This history article takes a look first at HSN and then QVC,
two billion dollar plus American companies which have dominated the industry
and account for most of its sales.
HSN HOME SHOPPING NETWORK: THE PIONEER
In 1977, WWQT a news and talk radio station in Clearwater, Florida was having
difficulty selling air time and meeting the pay-roll of six employees. The station
manager, Lowell 'Bud' Paxson went out to collect from delinquent clients one of
which was an appliance store. The store was also having cash flow problems.
Paxson was offered a gross (112) of electric can openers in lieu of payment for
his advertising bill. Paxson returned to the station and told a talk show host
Bob Circosta, that after the 5 minute news bulletin he wanted Circosta to sell a
can opener. The can opener would sell at $9.95 and listeners could come down
to the station and pick it up. Circosta recalls his utter surprise and shock at the
thought, after all he was a newsman, he had ethics, integrity... Paxson told him
he would get a dollar for every can opener sold and Circosta replied "Boy that's
a great looking can opener." Listeners had to drive to the radio station to pick up
their can openers. The can openers sold out and Paxson realised that this was
easier and more profitable than trying to sell air time. The programme was
titled "The Suncoast Bargaineer" and the selling slot soon grew from five to
thirty minutes.
Paxson and the station owner Roy Speer realised that this could work on TV as
well. The Home Shopping Club was launched on a local cable system in June
of 1982. Daily sales were consistently $60-70,000 per day and in 1984 attained
sales of $11 million.* Of course it was soon obvious to Speer and Paxson that
this could work state-wide but upon investigation it was more practical for the
cost to go national, and on July 1st, 1985 the Home Shopping Network began.
Speer gave Paxson a share in the enterprise. The first presenter or show host
was Bob Circosta. His first words were "All you have to do is call this number
and we will send you a 14K gold neck chain absolutely free and we will even
pay the shipping and handling." Nobody called. Five hours on the first day they
did a total of $352, but all of the orders they did receive were Fedexed so that the
customer would receive them the next day and that was the birth of the
testimonial. People could call up the next day and say they got the item and
were happy with it and that's how HSN developed into one of the most exciting
concepts in retail history. Circosta has been selling on air for over 11,000 hours
and is credited with sales of over $1 billion.
HSN's programmes were transmitted via cable and terrestrial systems.
HSN offered many different types of products in a style meant to grab customers
by constantly slashing prices and pressuring the potential customer with a "sold
out never to be seen again" frenzy. It was like running through a shopping mall,
you had no idea what was going to come up next and that was enough to hold
the viewers attention for a moment. Total 1994 sales for HSN were $1.1 billion.
In 1990 Speer and Paxson sold their share of HSN. Speer was reported to have
walked away with $500 million. There was a period where talks to merge
HSN & QVC went on, but there were rumours that due to some irregular activities
at HSN the deal was not possible and when QVC started its Paramount take-over
activities, all other interests fell by the way side. It is important to note that
although HSN’s sales were growing under Speer & Paxson, there were rumours
that the company was not being run effectively. Interpret that as you wish, it is
common that those who start a company may not be the best suited to continue
its operations but the pioneers did develop the first dollar retail sales channel.
GERRY HOGAN - HSN's NEW VISION
But the rate of growth slowed and the QVC method caught up and overtook
HSN. Gerry Hogan (49 in 1995) a former Turner Broadcasting System executive
was named C.E.O. in 1993 after TCI increased their control over the company.
Hogan realised that HSN had fallen into some poor habits and needed to be
reformed in order to grow, compete and increase sales and profits.
In Early April Home Shopping Spree a 24 hour terrestrial service was
minimised to night time only. Spree would be re-launched as HSN Classic to
about 15 million homes only this time it is thought the channel will not have horns
as HSN did in the beginning
On June 5th, HSC1 & HSC2 the two 24 hour channels consolidate into one big
network similar in style to QVC. It is planned that 75% to 80% of income will
come from this channel alone.
Hogan made other changes. Like QVC, customers would not be pressurised into
buying at the moment, but can buy any time. Several merchandise buyers who
defected from QVC to the failed Fingerhut "S" channel in Las Vegas, were
picked up by HSN and are now working in Florida. Quality control and fulfilment
would be revitalised with new staff. The production team has been disassembled
and new people (some with QVC experience) have been brought in.
The work force has been cut by 13% to 5,200 which will reduce costs.
HSN will lower the average price of an item from $45 to $40 dollars and
speed up delivery from 7 to 10 days to 3 to 5 days. Also, multiple items will
be shipped together in order to save customers extra expense. In the last two
years the number of cable homes has increased by 40% to 39.5 million and the
net sales for 94' increased 7.6%.
All this to stop the decline which is indicated by the fact that during the last quarter
of 1994, revenue per home fell 6.5%. HSN's share of the $2.5 billion home
shopping market fell to 44% while QVC grew to 52%. QVC has higher sales
per home, higher margins on goods sold and fewer customer returns of
merchandise and better merchandise.
In the Fall of 94' Keith Harrington was made HSN Direct CEO and president.
Harrington is known as one of the founders of the infomercial industry, he has
made over 150 infomercials which have generated over $1 billion in total sales.
Joining Harrington is Bob Swift, a 10-year veteran of Turner Broadcasting Sales,
Inc., who will serve as HSN Direct COO. February 10th, 1995 HSN merges
HSN Showcase their short form DRTV company with HSN Direct.
Towards the end of 1994, David Dyer was made the C.O.O. Dyer was vice
chairman of merchandising and sales at Lands' End and will add a great deal
of sophistication to the HSN style and operation.
Gerry Hogan has set up his management team and is now in a position to start
the process of fighting back, he is on the right track but this is a risky venture
especially for someone with no previous home shopping experience.
By merging the two channels HSN will loose some sales initially and then
hopefully make a comeback before Xmas. If not, then HSN would have to
undergo a major re-engineering process and possible merger with QVC or
change in ownership
THE HOGAN ERA ENDS
On Friday, August 24th, 1995 news that Barry Diller had bought the HSN TV
distribution company Silver King sent a shock wave through HSN. Silver King
is the nations sixth largest TV group with 12 TV stations. The company was
spun off from HSN several years ago. Diller announced that he had bought 20%
of the company for $45 million and that TCI’s Malone had given him 70% of the
voting shares. Diller also announced that he would turn this asset into a national
entertainment network which had long been his dream. Bud Paxson twice
attempted to buy back HSN but his offer of $14 per share was not successful.
Diller had been eyeing Silver King for two years and the stock increased 53%
the day of the announcement. The news was not front page because at the time
Disney and ABC had announced their megamerger.
There was also an announcement that Gerry Hogan had resigned and that
David Dyer had been voted as the HSN President. John Malone President of
TCI, Peter Barton President of TCI owned Liberty Media and Barry Diller
were voted onto the HSN board. One well placed inside source said that Malone
told Hogan that the decision to have him run HSN had been “one of the worst
decisions I have ever made.” And at a meeting between the HSN’s top
executives Diller looked at the programming schedule and asked what is this?
Dyer replied “that’s our programming schedule.” Diller then said “you guys
have no idea what your doing and (looking at Dyer) you know less than they do”.
At a time in HSN’s history when the company needed to innovate, Hogan
decided to imitate their chief competitor QVC. The move was quick, too quick
for the viewers who always had the choice of watching QVC if that’s what they
wanted. The concept needed new product more than anything, but for the third
time in two years, HSN spend $2.5 million reworking the graphics, adding new
sets and equipment. Sets and graphics do not sell and HSN was operating at a
10% profit margin average and by the August announcement had lost $18.5
million. HSN tried to imitate something they did not fully understand and even
more surprisingly they were not even interested in knowing.
A corporate arrogance is more to blame than simple ignorance.
Massive changes at HSN need to be taken and taken soon for the company to
recover. The first significant announcement to follow was that HSN would sell
its men’s mail order shoe company Ortho Vent, Inc. Much more needs to be done
however and David Dyer does not seem like the person who can innovate a new
popular format to win back the HSN customers.
DILLER TAKES OVER
For those who do not know about Barry Diller and his role with QVC, may I
advise you to skip this section and read through the QVC history and then return
in order to put events in chronological perspective.
November 24, 1995 news that Barry Diller would take over HSN became known.
Diller offered $300 million in newly issued Silver King stock for TCI’s 35 million
shares of HSN. It was also announced that Diller’s Silver King will use $210
million in Silver King stock to buy Savoy Pictures Entertainment and the four
television stations it owns which would bring the total of Silver King television
(already the sixth largest American network) stations to 16.
With Diller in control of HSN, his ambition to run a national network is now
taking shape because HSN can provide the equity or cash to expand his network.
Diller now has the power to control the outcome of events. He did not have as
much control at paramount, Fox or QVC.
Diller has appointed James Held as the new HSN CEO. Held is a former
QVC President who has been working in a designer apparel firm for the past
11 months.. David Dyer resigns from the company.
What does this mean for HSN? Expect Diller to ask Held to trim out the
management waste of which there is plenty. The operation needs to be
slimmed. Diller is an efficient, bare-bones operator who can turn the
company quickly around. I expect there is still a possibility that the company
can be sold especially if Diller needs additional funding to launch his network.
Diller will need to buy more stations and put content together. For HSN, Diller
wants to return to the more traditional HSN product and increase per item
purchases. Currently HSN average customer order is $18 while QVC’s is $28.
Diller could use HSN to provide commercial revenues for his network, but we are
talking about a paradigm shift of massive levels and quite frankly it is uncertain
whether he has the management in place to accomplish this. Time will tell.
Silver King must still carry the HSN signal for one more year. Diller has said that
he will build his newly acquired media holdings into a national network starting at
the local level, much the he crafted the fast growing Fox television network.
"We're going to put infrastructure in place in all of our owned and operated
markets to do original programming in serious numbers," Diller told reporters
at a Cable Show in California.
Diller was recently quoted "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." As everyone knows, when Diller speaks, people listen.
QVC's FOUNDER
Joseph Segel is the classic American entrepreneur. At the age of 13 he started a
successful printing business. At 16, he entered the Wharton School of Business
Administration at the University of Pennsylvania in Philadelphia. By the age of 36
Joe was worth over a million dollars and controlled several businesses. He started
the National Commemorative Society which marketed limited edition collectable
coins. He came up with the idea after seeing lines of people at banks trying to
buy up the last silver dollars. Later he developed the General Numismatics
Corporation to mint the coins for the growing number of collectors.
GNC became the Franklin Mint in 1964. At the Franklin Mint, Segel developed
many successful collectible’s ideas. He developed products and collecting
schemes to attract repeat customers to the gasoline pumps for some of the major
American oil companies He also minted coins for the casinos of Las Vegas.
Segel founded the Franklin Mint in 1964 with an initial investment of $21,000.
The Franklin Mint that produces everything from collectable car models, porcelain
dolls, a luxurious edition of the Monopoly game, etc. for the mail order business,
posted sales in 1991 of $500 million. He left the Franklin Mint in 1973. Its of
interest to note how many former Franklin Mint “Boys” are in leadership
positions throughout the electronic retail industry
QUALITY VALUE CONVENIENCE
Joseph Segel at sixty-three years of age, was interested in developing a new form
of direct marketing business. He decided to start QVC after watching the Home
Shopping Network for a few minutes in Florida. Immediately he identified
improvements that could be made in everything from the items offered for sale,
to the hard sell manner of the presenters.
1986 Segel raised over $20 million to start QVC. Initially Segel lined up 7.6
million TV homes for the November 24th launch, by offering cable companies
stocks for as little as .20˘ a share. Publicly offered at $10, QVC stock closed its
first trading day at $20 per share. QVC began November 24th. 1986 from
7:30 p.m. to 12:00 midnight. The first broadcast was carried by 58 cable systems
in 20 states. The stock awards were the reason that both QVC and HSN ended up
with partners like TCI's Liberty Media (worlds fourth largest TV company) and
Comcast (39th largest) which are America's largest cable operators. To lend
credibility to the new company, QVC made a two year deal to sell Sears products.
Segel demanded that the Presenters sell by informing not pressuring the viewers
about the product. This meant that Presenters would have to study each product,
explain the many benefits of the product, and know the products sales history in
order to make the sell more informative and entertaining. All this in order to sell
the QVC way. There would be no hard sell and unlike HSN, customers could
purchase any time, there would be no last minute price cuts, and no high pressure
tactics.
In late 1989, Segel decided that the next important step in expanding QVC's sales
potential, would be to acquire Cable Value Network. Based in Minnesota, CVN
was QVC's closest competitor and twice it's size. CVN was bought by QVC for
$380 million.
The first few years were difficult and QVC almost went bankrupt after the first
six months. The purchase of CVN that was once described as a python
swallowing an elephant, gave QVC a loss of $17 million for the following
quarter. The move to expand was a necessary gamble for QVC's survival.
The gamble paid off!
QVC started with 25 employees who would finish a regular day's work, then
moonlight as order-takers, receptionist or box-packers. The President of
Electronic Retail Doug Briggs, who came over from the Franklin Mint with
Segel recalls how he would answer calls, take inventory and pack products.
If a product was selling well, a yellow light would flash and everyone from
secretaries to vice presidents would go to the phones. In 1986 there were 17
other new shopping channels, only one would survive, and that one was QVC.
Later that year QVC grew to 370 employees. Today at the West Chester Head
Quarters just outside Philadelphia about 2,600 people are employed. The
company employs a total of 4,500 people when counting their other
switchboard and warehouse facilities. There are 22 Presenters.
Joseph Segel retired from QVC in 1993.
THE DILLER ERA
Barry Diller put QVC into the limelight by his concept for the future. Diller
would link the super highway, convergence technology, entertainment and
electronic retailing. On December 10, 1992 Barry Diller became CEO of
QVC. His investment of $25 million bought him roughly 12% of the
company. On the strength of his involvement alone, over the next two weeks,
he watched the stock rise from $30 to $40. By the following summer, it had
broken $60. With his stocks and options his personal wealth increased by
$70 million.
Barry Diller was the college-drop out of a wealthy Beverly Hills real-estate
developer. In 1967 he got his start in Hollywood in the mail room of the
William Morris Agency in Los Angeles using the influence of Danny
Thomas, father of his childhood friend Marlo. He read everything and
learned everything he could about show business.
At the age of 23, he met Leonard Goldberg, then head of programming for
ABC. At a party he got into an argument with Goldberg defending the William
Morris Agency policies. Goldberg was so impressed with Diller's unrelenting
passion that he offered him a job as his assistant. Diller quickly advanced to
the position of Vice President of prime-time programming, where he created
The Movie of the Week and the "mini-series" with shows like Rich Man
Poor Man, and QB VII.
After ABC's 74'-75' poor season, Diller left at the age of 32. He was asked by
Charles Bluhorn the founder of Gulf-Western, parent company of Paramount,
to become the studio's chairman and CEO. The news of a young TV man
stepping into a film studio head position rocked Hollywood. Diller brought
Michael Eisner to replace head of studio Frank Yablans. Almost from the start,
films Diller approved such as, Saturday Night Fever, Raiders of the Lost Ark,
Flashdance, Airplane, and Star Trek, began to fill Paramount's coffers, making
the studio the hottest in Hollywood. Diller's Success with Paramount hit TV
series Happy Days and Laverne and Shirley was just icing on the success cake.
Bluhorn died of a heart attack in 1993 and Martin Davis, a Bluhorn subordinate
was chosen to replace Bluhorn. Diller did not appreciate this and the relationship
with Davis never developed. In 1984 Diller announced that he would leave
Paramount, and would head Martin Davis' 20th Century Fox. There the Diller
magic continued. He brought Joel Silver over from Paramount, and created
feature films Die Hard, and Predator, as well as box office hits Big,
Broadcast News, and Working Girl.
It was the Fox Network that made Diller a household name in America.
He encouraged Fox's new owner Rupert Murdoch, to buy several local
television stations and create an alternative to the three big networks. In the
beginning the only original programming was Saturday, and eventually there
were prime-time hours on Sunday and Monday. He filled them with lowbrow
teen fare such as Married... with Children, and 21 Jump Street. Eventually,
shows like Cops, Married, The Simpsons, Americas Most Wanted and
Beverly Hills 90210 began to generate the big business. He did this by rewriting
the rules, operating with a lean staff, a fraction of the size of the Big Three, and
experimenting with off beat shows. Diller the conservative manager, Diller the
passionate debater, Diller the forward thinker, made 20th Century Fox
America's fourth network.
It has been speculated that Diller wanted more control in the company's
development and Murdoch would have none of it. In February 1992 Diller left
Fox with $150 million, a few of which went towards a 13 seat Gulfstream jet.
Diller criss-crossed the country, seeking out a new venture. He met with Steve
Jobs Co-founder of Apple computers, who is now developing NeXT Computers,
Bill Gates of Microsoft, 3DO a video game manufacturer, Massachusetts
Institute of Technologies, Brian Roberts of Comcast, and John Malone of TCI.
Malone began efforts to recruit Diller the moment he left Fox. At one time,
there was speculation that Diller would try to wrest NBC from General Electric,
but in the end it was his old friend the fashion designer Dianne Von Furstenberg,
who brought him to QVC.
The designer brought Diller to the nerve centre of QVC the day she was selling
her Silk Assets line. Diller stood behind one of the 80 operators in the studio
and watched a graph rise on a computer screen as 29,000 orders for the clothing
came in just two hours. As one Diller employee said "That was the moment
Barry was hooked. He loves visual representations of success." Diller said "It's
a direct, honest way of selling goods and services. You can see the product, get
a lot of information about it, and order it with no-nonsense swiftness. Compare
that with going to a suburban shopping mall which is getting close to being no
fun at all."
Diller came to QVC with a vision to turn this incredible retail concept into
something much bigger, something that would sail the winds of technological
marketing advancement. Diller pushed for two experimental channels, two
Foreign channels, an entry into the computer information services market, and
research into new technology and it's retail implications that included interactive
sales and many other innovations. Diller wanted to reach those viewers, (92%)
who had watched QVC but had not yet purchased.
PARAMOUNT & CBS
Dillers quest after Paramount and later CBS, was an effort to acquire properties
in entertainment which the QVC method of sales (through the still developing
convergence technology) would take advantage of. Diller also wanted to get
back to Hollywood. The man is about bold strokes and this was another brave
leap into diversification for the young company. The bid for Paramount failed
and the company was purchased by Viacom. Diller's only comment after the
loss was ," They won, we lost, NEXT!" The Paramount situation did temporarily
shift QVC's focus. It was after all, a huge event for the company and the attention
by the media was incredible. QVC would re-focus its efforts on other properties.
The move to take over CBS, a $7.1 billion dollar merger did not drag on long and
was over shortly after it began. One problem was that many saw QVC's bid for
CBS's stock as low and other parties became interested. QVC did not want to get
involved in another bidding war like Paramount.
The failure to acquire CBS set up the scenario for Comcast and John Malone's
TCI Liberty Media to announce that they would like to increase their holdings in
QVC. This would mean that Diller would be replaced as the Chairman and CEO.
An investigation by the United States government's Federal Trade Commission,
into whether Comcast and TCI, America's two biggest cable operators (who also
own HSN: 1993 sales of $1.1 billion) would be operating a TV home shopping
monopoly. Together QVC and HSN control over 90% of the American home
shopping market. On February 3rd, 1995 the FTC made a statement that they
had closed their investigation and that the take-over could go ahead.
On February 10th, 1995 the Comcast take-over went through and Doug Briggs
was made President of QVC. This began a new conservative era certainly much
different from the previous few years. Briggs is a micro-manager. He likes
detail and want control over every aspect of the business. If he is a genius and
has super human powers, he may revolutionise the company. It has yet to be
proven that he has the ability to create such innovation. He has set off on a
programme to reduce Presidents in the company which would solidify his
control and decrease costs. He also hired an outside company to access QVC’s
strengths so that he could concentrate in these areas. It is obvious from his
pattern that the international side will take a back seat and slow down even
though there is still some interest in the German market. The questions that are
of concern will be about QVC's involvement with diversification, new technology,
European and global expansion. As in any business, increasing profits will be
the main goal. Diller's impact will not be as significant as the media once thought.
He walks away from QVC with $110 million for which 10% goes to Diane Von
Furstenberg who helped him locate QVC. Diller did succeed in creating an
incredible amount of PR for the industry and his main contribution was to put
home shopping on the worlds map.
HSN took steps to improve their position and poor profit performance by
converging their HSC1 & HSC2 channels into the biggest home shopping
channel in America. They decided to clone the QVC style and try to offer
some very serious competition to QVC. This could have created pressure on
QVC’s share of the industry, but HSN never got the right product in place and
made changes too quickly which scared off viewers used to the original concept.
TCI & COMCAST
TCI and Comcast are the two giants in the American cable television industry.
Without these companies, QVC or HSN would hardly be able to exist. It is with
their blessing and part ownership that an industry exists. For without TCI and
Comcast there would not be the large customer base and audience reach
necessary to produce the sales volume required for profitability.
JOHN MALONE CHAIRMAN TCI
John C. Malone is the most powerful figure in American television today.
He is also referred to as the most powerful gatekeeper of them all, for if a cable
network makes it onto Malone's system they are almost assured the reach that will
provide success. Usually if your operation makes it onto Malone's system, the
rest of the industry will follow. Reach is the critical factor in survival and
Malone controls much of that factor. John Malone has a PhD in industrial
engineering and serves as the chairman of Cable-Labs, which is an American
cable funded communications research centre in Boulder, Colorado. Malone
controls TCI which is the world's third biggest (1995 TBI figures rank Time
Warner and Capital Cities/ABC as bigger) television company. TCI has 11.7
million subscribers and in 1994 created $4,153 billion in revenues.
He is involved in many futuristic research and development partnerships with
the likes of A.T.& T., US West, McCaw Cellular, the Fox Network and Digital
Equipment Corporation among others. When Malone declared that TCI
would rebuild their cable network in order to provide 500 channel capacity,
here was little doubt that his competitors would have to follow. Those
companies that could not make the investment necessary to modernise would
have to sell off to those that could.
Because of Malone's vision, TCI has become the world's largest consumer of
fibre optic cable. TCI is also expanding into global markets and is now the
largest cable operator in England. TCI has twenty percent of Americas cabled
homes, and has a bigger cash flow than ABC, CBS and NBC combined! Malone
is another visionary, disliked by competitors and politicians because he is
considered ruthless and is not afraid to exert his power to get what he is after.
THE COMCAST ROBERTS
Ralph J. Roberts heads Comcast which is another major (the 1995 TBI ranking
places Comcast as the world's 30th largest TV operation with revenues in 1994
of $1.095 billion) American cable operator. Comcast is Americas fourth largest
cable company with 3.4 million subscribers. Comcast is also heavily involved in
the cellular telephone market. Comcast's Brian Roberts, son of Ralph J. Roberts
was elevated to President nearly two years ago. Comcast has expressed interest
in the new communications technologies as a way to take a share of the American
telephone business, the home video market, and further develop pay per view
television. Comcast's biggest weakness is their lack of programming. They have
the hardware but no software. That is why both Comcast and TCI were originally
interested in having Barry Diller become Chairman of QVC in 1992. Both of these
companies have said that one of their reasons for increasing their participation in
QVC is the fact that QVC has a bright global fut