Internet Video

Cable’s Shopping Frenzy

4/24/2005 8:00 PM Eastern

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Can ITV Add Gold to TV’s Shopping Binge?

In 1977, broadcast pioneer Lowell “Bud” Paxson was chasing down a few advertisers who hadn’t paid for spots they purchased on his small Clearwater, Fla., radio station. One debtor offered 112 electric can openers in lieu of cash. Paxson accepted and promptly sold them all over the air for $10 a pop. But it turns out the gadgets opened a whole lot more than cans; they uncovered a new industry.

Paxson started selling products on the radio every week, and in 1985 he debuted a national TV service, the Home Shopping Network. In 2004, the network, now known as HSN, posted $2.4 billion in revenues and boasts a core audience of about 5 million viewers. Its largest rival, QVC, which launched in 1986, reels in annual revenues of $5.7 billion, eclipsing even some broadcast networks.

Those two answers to shopoholic dreams have been joined by a bevy of other services such as ShopAtHome, ShopNBC, Ultimate Shopping Network and Worldwide Shopping Source. Specialty channels like Jewelry Television and Gem Shopping Network have added sparkle to the mix. EchoStar Communications Corp.’s Dish Network in February struck a deal with The Sharper Image retail chain to bring an interactive home-shopping channel to its lineup using OpenTV middleware.

The increasingly crowded home-shopping field hasn’t exactly struck fear into the hearts of HSN and QVC. But the competition has pushed them to improve their presentations in recent years. “It’s not the same production it was five years ago,” says John McDevitt, HSN vice president of finance. “It’s a sharp, good viewer experience.” From his point of view, “Whether you have two viewers or 2 million viewers, you still have the same production costs.”

But you certainly don’t have the same degree of customer-service logistics. In 2004, QVC shipped about 106 million items to more than 7 million Americans. It processed 160 million phone calls. Al Ulozas, QVC’s senior vice president of affiliate sales and marketing, says 93% of QVC’s business comes from repeat customers.

Despite the market power of HSN and QVC, other home-shopping channels continue to gain carriage and assert themselves. E.W. Scripps Co.-owned ShopAtHome, for example, targets a younger demographic. “While the other networks are very successful, [their] audiences tend to skew old, and they’re not attracting new audiences,” claims the network’s president Judy Girard. Adam Rockmore, ShopAtHome senior vice president of marketing and interactive commerce, says a younger audience also allows the channel to integrate Web offerings with more success. Says Girard: “We have an audience already engaged in the category.”

But even with the Internet’s prevalence, most home-shopping networks report that 80% to 90% of their customers still use the phone to place orders. Online orders, however, are increasing, and the ratio between Web and phone transactions is likely to even out in coming years, says ShopAtHome’s Rockmore.

As that happens, home-shopping channels may find themselves in even greater competition with online retailers ranging from Amazon.com to tiny mom-and-pop outlets. “It is a peril for the industry,” says Michael Reinstein, co-founder of Ultimate Shopping Network, which launched in May 2003 to target high-end customers (some of whom spend more than $100,000 per year buying products on USN). He says many branded products are readily available through multiple Web retailers — often at bargain-basement prices. So as more home-shopping sales migrate to the Web, consumers will demand lower prices that can only be satisfied by retailers able to handle large volumes. “It’s going to squeeze out the little guys,” he says.

Some Web retailers are adding video presentations to sell products, which could eventually put them in direct competition with the shopping networks. “As soon as you get into video production, then you’re in our business,” says Shop- NBC president and CEO Will Lansing. “But you need the skills to present those products. It’s not something that comes easy.” Lansing says the Web will continue growing in importance for home-shopping networks. “The No. 1 biggest change is the Web,” he says. “Besides the convenience of ordering and increasing the relationship building, it frees the customer from the serial nature of television.”

To be sure, some home-shopping channels are more focused on the Web and new technologies than others. The Internet age hasn’t slowed down Jewelry Television (formerly America’s Collectible Network). Its revenues have exploded from $5.3 million in 1997 to $327 million in 2004 — even though only 10% of its mostly 45-and-older audience buys anything through its Web site.

Harris Bagley, Jewelry Television’s executive vice president of distribution, says older audiences can be “a little fearful of new technologies.” Just the same, Bagley says he’s watching closely the industry’s forays into Web integration and even interactive TV.

One recent example of new technology at play is HSN’s deal with interactive software firm GoldPocket Interactive (see story below). In March, HSN agreed to use GoldPocket’s software to allow any viewer with an addressable digital set-top box to buy the item being displayed live on HSN (as well as the two items immediately preceding it) through their remote control.

HSN hopes to offer more than just a TV version of the Web. “You have to build the application for the medium it’s in,” says McDevitt. “We have a great Web site, but I wouldn’t want to shop on it with my remote control from 10 feet away.”

HSN demonstrated the new system at the National Show and hopes consumers will appreciate its simplicity and ease of use (all credit-card and address information is pre-cached). “It’s got to be that instant gratification,” says HSN director of technology Gerard Johnson. Says McDevitt: “We think it’s a training thing for interactive TV. You can really get people educated about it.”

QVC, meanwhile, has enjoyed “strong acceptance” with its proprietary buy-button technology, dubbed “QVC Active,” in the United Kingdom, says QVC’s Ulozas. “In the U.S., we’re just beginning to explore what the digital future will look like,” he says. Though the network hasn’t revealed its specific interactive plans, Ulozas says they will leverage the network’s strengths. “While QVC’s business is built on technology, our culture and brand identity is very human,” he says.

Of course, that human element can also present potential conundrums that have been on the minds of home-shopping executives since talk of ITV became all the rage a decade ago.

“There’s a danger of making this too easy, where people can just click, click and click and then have buyer’s remorse, and they send a lot of things back,” says Philip Swann, president and CEO of research firm TVPredictions. “It’s something these guys have to be mindful of. They’re giddy with the prospect of the potential, but they understand if they go too far with this stuff, people are liable to say, 'Oh, I’ve had enough.’ ” But Swann says the home-shopping industry is well positioned. “With the shopping channels, it’s the perfect meeting of the minds,” he says. “It’s a natural. It’s a very interesting test case for ITV.”

Of course, interactive home shopping could actually take many forms that go beyond the simple migration of customer orders from the phone to the remote control. “The biggest trend in this area is the merging of traditional home shopping and entertainment,” says Scott Stawski, vice president of the media and telecommunications practice at consulting firm Inforte Corp. “Product placement embedded in broadcasts is already becoming very important. In the age of interactivity, that product placement is going to turn into e-commerce.”

Indeed, object-tracking technology could allow viewers to buy any product present in the shot. As a result, Stawski says traditional TV shows “will start infringing on 24-hour home shopping, but somewhere down the road, those trends are going to merge.”

Adds Reinstein: “People like us are going to partner with entertainment companies to embed commerce in entertainment.”

The biggest wildcard may be consumers themselves. “The technology is not the hard part,” says ShopNBC’s Lansing. Rather, it’s getting people to use it.

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