Home Shopping Network, Inc.

12000 25th Court North
St. Petersburg, Florida 33716
U.S.A.
(813) 572-8585
Fax: (813) 572-8585, extension 7356

Public Company
Incorporated: 1985
Employees: 5,341
Sales: $1.01 billion
Stock Exchange: New York

The Home Shopping Network (HSN) is most well known as a live television shop-at-home service. It is, however, a holding company that participates in an array of direct marketing activities through its subsidiaries, which include electronic retail sales, catalog and mail order sales, and telemarketing sales for products and services offered by HSN, as well as by other companies on a contractual basis. HSN’s inventory includes electronics, housewares, jewelry, cosmetics and beauty products, soft goods, and home entertainment items. All of HSN’s merchandise is reportedly sold at a deep discount. In the early 1990s, HSN was in the process of diversifying both the products and services offered, making available additional lines of products to include prescription drugs, vitamins, over-the-counter health care items, ticketing and reservation services, insurance, and financial services.

The idea for HSN originated in the 1970s, when Lowell W. Paxson, now the company’s president, 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 a beautiful-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 later became HSN’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 TV but wanted to proceed slowly. Speer invested $500,000 for a 60% stake and set out to make sure that viewers would not be disappointed before he gave the go-ahead in July of 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 (HSN). 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 HSN 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.

In February of 1986 Merrill Lynch underwrote the initial public offering at $18 a share. An investment banker who helped with the offering commented on Speer’s wisdom in pricing HSN’s stock so low, because it was still perceived as a risky company in an untried industry. At that time HSN 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. HSN stock became the fastest rising new issue of 1986, registering a 137% gain by the end of the day. Since the initial offering, HSN 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 is available live, 24 hours a day, 7 days a week, and is produced exclusively for cable. HSN 2, which offers upscale merchandise, is also available live, 24 hours a day, 7 days a week, but is marketed to both broadcast and cable television. Home Shopping Spree offers limited-time or 24-hour programming to broadcast stations.

There are many different opinions on what initially generated the cult-like following of Home Shopping Club, both HSN 1 and HSN 2. One reason could be that viewers automatically become members the first time they place an order, and that they receive a $5 credit applicable to the next purchase. Another reason could be that HSN gives no warning as to what items will appear on the TV screen and when. As viewers may only purchase items for as long as the products appear on their screens, anywhere from two to ten minutes, the typical member will watch the program for several hours each day.

The hosts, almost all of whom have a background in retail sales, develop personas, complete with nicknames and a fan following. As HSN’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 HSN, turned to celebrity endorsements and hosts.

Another more conventional way that HSN ensures that customers keep coming back is by allowing the return of any purchase if for any reason a member is not satisfied. Credit card purchases will be credited, or for a cash sale a refund check will be issued for the whole purchase cost, including shipping and handling. HSN also assures shipment within 48 hours after an order is placed with a credit card, or within 48 hours after a check for payment has been received.

In 1987 HSN acquired Sky Merchant, Inc., a TV shopping service viewed by at least one million subscribers of Jones Intercable, Inc. As HSN grew, so did the companies that supported it. HSN is one of United Parcel Service’s largest accounts. And Many suppliers owe their success to HSN. A new product can be introduced to the nation on the network and within minutes, thousands of items can be sold. While some of the merchandise sold over HSN comes from closeouts, overstocks, or overruns, HSN’s purchasing clout is evident in the fact that at least 60% of the company’s sales in 1987 consisted of products made specifically for HSN and sold to HSN 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 HSN could sustain its rapid growth rate. Sales in the period between February and May of 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 HSN was paying too much for its acquisitions of UHF television stations and burdening itself with excessive debt. Some believed HSN would lose market share to its ever growing number of competitors who offered improvements on HSN’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 of 1987 and March of 1988, HSN stock had experienced a market slip of 18.95%, compared to a 6.76% drop in the Dow Jones Industrial Average. HSN lost no time in reacting, however; as early as 1987 it was looking around for better ways to harness its market. In January 1987 HSN announced plans to build a new telecommunications center and corporate headquarters in St. Petersburg, Florida. By September HSN 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 HSN announced its plans for a major corporate restructuring with HSN 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. These distinctions by 1990, however, still had not succeeded in reinteresting wary investors. There was worry about the stability of the home shopping industry in the face of recession years, as statistics suggest that a great many of its customers are blue-collar workers who face cutbacks during such times. HSN stock, however, moved to the New York Stock Exchange from the smaller American Stock Exchange in 1990, and the company began a stock repurchase program.

Principal Subsidiaries

Home Shopping Club, Inc.; HSN Communications, Inc.; HSN Mistix Corporation; Precision Software, Inc.; HSN Lifeway Health Products, Inc.; HSN Telemation, Inc.; HSN Mail Order, Inc.; HSN Insurance, Inc.; HSN Entertainment, Inc.; HSN Travel, Inc.; HSN Fulfillment, Inc.; Home Shopping Club Outlets, Inc.

Further Reading

James, Ellen L., “So What’s a Billion to Roy Speer?” Venture, May 1987; “Home Shopping Network, Inc.: A History of Growth,” Home Shopping Network, Inc. corporate typescript, [1988].

—Maya Sahafi