E.W. Scripps Co., looking to buy into the booming $6 billion home-shopping market, is taking a 70 percent stake in electronic retailing channel Shop at Home, officials said last week.
Scripps, parent of Home & Garden Television and Food Network, will pay $49.5 million for its controlling interest in Nashville, Tenn.-based Shop at Home, which has 42 million full-time subscribers. The shopping channel's parent, Shop at Home Inc., will keep the remaining 30 percent of the cable network, and retain ownership of the five TV stations it owns.
Scripps has an option to buy the remaining 30 percent of the Shop at Home network in five years, according to company officials.
Under terms of last week's deal, Scripps will also lend Shop at Home Inc. $47.5 million, due back in three years, to retire debt.
Scripps views Shop at Home as an avenue for it — and its advertisers — to pursue consumers directly.
"When HGTV was conceived, we envisioned building some type of commerce-based business around the lifestyle-programming category served by our cable-television networks," E.W. Scripps CEO Ken Lowe said during a conference call last week. "This [Shop at Home] is a platform to merge content and commerce, and to diversify away from just pure advertising."
From its inception, Scripps chose not to permit product placements on its core networks, such as HGTV, according to Lowe. Having Shop at Home as a retail outlet "will allow us to get into those relationships in a much more meaningful way."
Shop at Home, which posted $177.6 million in revenue last fiscal year, is a fourth-place also-ran in the competitive home-shopping field, dominated by QVC ($4 billion in revenue) and HSN ($2 billion). ShopNBC is the third player, ahead of Shop at Home.
Unlike those three electronic retailers, the 16-year-old Shop at Home lacks a powerful strategic partner, thus it's struggled to become profitable and gain distribution.
Lowe thinks that will change now that Scripps can bring its affiliate-sales expertise to bear for Shop at Home.
"It has been viewed as an isolated standalone that had very little leverage it could bring to the table in distribution negotiations," Lowe said.
Shop at Home's rivals have plenty of leverage, through their owners. Comcast Corp. and Liberty Media Corp. own QVC, and HSN is part of Barry Diller's fiefdom. ShopNBC's partner and part owner is NBC.
Shop at Home has paid $1.25 a year, per subscriber, for carriage. "We're willing to spend quite a bit more to secure better distribution," Scripps executive vice president Richard Boehne said.
Lowe noted that Scripps already has good relations with advertisers that can help Shop at Home, since some of those clients now want to sell directly to consumers.
The major home-shopping networks are increasingly selling merchandise in the home-and-garden and food categories, which are Scripps' specialties, he added. There are also opportunities for cross-promotion not only on Scripps's cable networks, but through its newspapers and TV stations.
Lowe also suggested that some talent from Scripps' cable networks might "migrate" to Shop at Home. Food Network's Emeril Lagasse has already sold goods on QVC, and HGTV talent Rebecca Kolls of Rebecca's Garden
has pitched wares on ShopNBC.
In addition to HGTV and Food Network, Scripps owns Do It Yourself and Fine Living.
For the nine months ended March 31, Shop at Home reported $142 million in net revenue, with a loss of $7.7 million before accounting for interest, taxes, depreciation and amortization.
Shop at Home's five TV stations account for 5 million of the cable network's 42 million subscribers. The rest of its distribution is a combination of other TV stations, cable and direct-broadcast satellite.