Sticker Shock Hits ShopNBC Shareholders

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Irate investors want ShopNBC parent ValueVision Media to shop the beleaguered network around. But management last week said it's trying to lift the home-shopping network's sagging sales by replacing its CEO and bringing in an executive from industry leader QVC.

The hue and cry surrounding ShopNBC comes at a time when the home-shopping sector as a whole is seeing a slowdown in sales growth.

ValueVision's board faced tough questions and brutal criticism last Monday during a second-quarter conference call, all in the wake of the company posting a 26% drop in revenue, to $142 million, and a net loss of $15.7 million, compared with a net loss of $5.4 million in the year-ago quarter.

“It's frankly a shame that you are not hiring an outside investment banker to put the company up for sale,” Debra Fine of Fine Capital Partners said during the call's question-and-answer session.

Alan Erinson, who said he was a ValueVision founder and shareholder, also spoke up on the call.

“I still own over 100,000 shares and I've seen the stock at $52 and now it's below $3,” he said. “We are, you'll pardon the expression, pissing away our legacy, what we have.”

ValueVision actually announced its second-quarter earnings Aug. 22, the same day that it let go president and CEO Rene Aiu, who had only been with the company since March.

The board replaced her as CEO with John Buck, who had served in that post on an interim basis from November 2007 until Aiu came in. The company also named QVC veteran Keith Stewart president and chief operating officer.

In addition to Aiu, three other officials exited the company: Glenn Leidahl, chief operating officer; Terry Curtis, senior vice president of customer analysis and sales planning; and John Gunder, senior vice president of media and on-air sales.

ValueVision, which is 30% owned by GE Commercial Finance-Equity and NBC Universal, is looking at its options, and hasn't decided if it will hire an investment banker, according to a company spokesman.

During the conference call, Buck acknowledged that shareholders were “upset, frustrated and losing patience, if not already run out.” He apologized for the company's performance.

“The results for the past six months are unacceptable and that's why the board took prompt and decisive action with a leadership change,” Buck said. “I am sorry for the current situation. … We've got such wonderful, wonderful assets, that it is shame on us. … We need to be better stewards of this.”

Officials blamed the tough economy, ShopNBC's high distribution costs — namely, the revenue it pays to cable operators — and its high rate of merchandise return, at 33% to 35%, in large part for its financial woes.

“We're giving back $300 million in returns,” Buck said.

ShopNBC ranks third behind electronic-retailing giants QVC and HSN, which was spun off by IAC/InterActive Corp. in August. Home-shopping players, like brick-and-mortar retailers, have seen sales growth slow down as worried consumers pull back spending because of the troubled economy.

In the second quarter, domestic sales for QVC, a unit of Liberty Media, decreased slightly to $1.181 billion from $1.184 billion in 2007, while operating income before depreciation and amortization, or OIBDA, fell 2% to $286 million.

In the same quarter HSN fared better: Revenue increased 11%, to $460.9 million, with operating income up 23%, to $26.7 million.

A “majority” of ShopNBC's carriage deals with cable operators and satellite providers, representing 65% of its distribution, expire at the end of the year, and the network recently signed an extended carriage deal with a top-five cable operator, according to Buck. ShopNBC is in 70 million homes.

“We are pleased with the progress made so far and are seeing a meaningful reduction in our cable-distribution carriage fees,” Buck said.

NBC Universal handles ShopNBC's affiliate sales.

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