USA Networks, Inc.

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USA Networks, Inc.

founded: 1982 (as home shopping club)

Contact Information:

headquarters: 1 hsn dr.
st. petersburg, fl 33729 phone: (813)572-8585 fax: (831)539-6362 url: http://www.usanetwork.net

OVERVIEW

USA Networks, Inc., a diversified media and electronic commerce company, bills itself as one of the leading cable programming companies in the United States. Following a complicated cash and stock swap, the St. Petersburg-based company was formed when HSN acquired the television interests of the Seagram beverage company.

USA Networks, Inc. runs five distinct divisions, but it is best known for its Home Shopping Network, the billion-dollar television channel that pioneered TV shopping. The Home Shopping Network sells consumer goods by displaying the items on television, flashing a toll-free number on the TV screen, then inviting the audience to dial up and order.

Both the USA Network and the Sci-Fi Channel fall under the USA Networks division of the company. USA Network lays claim as the most watched cable network in the country, available in 75 percent of all U.S. homes and reaching 73 million homes worldwide. Original programs include: Baywatch, La Femme Nikita, Silk Stalkings, and Pacific Blue. The Sci-Fi Channel, one of the fastest growing cable networks, features horror, fantasy, science fiction, and science/fact oriented programs, and reaches 48 million homes worldwide. The USA Networks Studio division produces and distributes television programs and made-for-TV movies. Selections include Xena: Warrior Princess and Hercules: The Legendary Journeys. The USA Broadcasting Group runs 16 high-power TV stations, including three satellite stations.

The parent company also owns controlling interest in Ticketmaster, the telephone and online ticket service, and reached an agreement to take over the remainder in a 1998 deal valued at $380 million. Seagrams still owns 45 percent of USA Networks, Inc. and Liberty Media holds 15 percent.

COMPANY FINANCES

In its first three months of operation USA Networks, Inc. had revenues totaling $669 million. The revenue breakdown is as follows: networks and television production, $324 million; electronic retailing, $249 million; ticketing operations, $93 million; and other, $3 million. The broadcasting division had yet to make a showing.

ANALYSTS' OPINIONS

In a November 1997 article Fortune magazine reported that CEO Barry Diller "snookered" Seagram CEO Edgar Bronfman Jr. in the $4 billion deal that handed over control of the TV operations of Seagram's Universal Studios to Diller. Additionally, Diller did not win a great number of fans in the financial world with his acquisition of Home Shopping Network in 1996. Given his already established reputation as a prime mover in the TV industry, his name had plenty of appeal on Wall Street, which initially reacted with favor to his late 1995 announcement of the bid to acquire Home Shopping Network subsidiary Silver King. But a year later, when he had his eyes on the network itself, along with Savoy Pictures, The Wall Street Journal was reporting that Diller had angered investors with what seemed a foolhardy scheme to cobble together a media empire on their money.

Diller, who had seemingly been unable to do any wrong in his years of building Fox, appeared to have made a false step in purchasing the Home Shopping Network. In the late 1990s, observers waited to see whether time would vindicate his decision. Yet it was clear that something had needed to be done, as Business Week put it, to "polish up the cubic zirconia." (The term is a reference to cubic zirconium imitation diamonds, often marketed on the Home Shopping Network.)

The Home Shopping Network itself has won praise as an innovator in a difficult market. Chain Store Age delineated the difficulties of operating within the electronic retail industry in 1995. Among the problems noted were the lack of technology that would make instantaneous purchases possible, and the fact that major retailers had not joined the fray. The article cited Home Shopping Network and QVC as notable exceptions to the rule. Likewise Brandweek in March 1996 said that TV shopping channels had the least promising future of any players on cable, which did not bode well for the Home Shopping Network.

HISTORY

The Home Shopping Network began as the result of failed radio programming. In 1977, Clearwater, Florida, radio station owner Lowell Paxson found that his AM station was losing out to FM stations in the local ratings. In an effort to boost listenership, he started a radio program called "Suncoast Bargaineers," which sold close-out and discounted merchandise to call-in listeners over the air.

The show proved highly successful, and with the spread of cable television in the early 1980s, Paxson saw an opportunity to move into television. Together with Roy Speer, who at the time was assistant attorney general for the state, he founded the Home Shopping Club in 1982. By 1985, on the heels of their enormous success on Florida's west coast, Paxson and Speer took the club—now named the Home Shopping Network—to a national audience.

In 1986 the network began selling shares of its stock, and the Home Shopping Network subsidiary Silver King, which operated the TV stations it had acquired, became a separate entity in 1996. Later the subsidiary would become the parent. Barry Diller, a Hollywood power player who had built the Fox television network, bought Silver King, and Silver King in turn purchased Home Shopping Network for $1.2 billion in 1996; he renamed the company HSN.

Diller immediately began to build a TV empire. In a 1997 stock swap, HSN acquired a 47-percent interest in Ticketmaster from Microsoft co-founder Paul Allen, and Allen got 17 percent of HSN. The company then started a Spanish version of the home shopping network, as a joint venture with Univision Communications. Later in 1997, HSN struck a $4-billion deal with Seagram Company Ltd. for its television interests, which included USA Network, the Sci-Fi Channel, and the domestic TV business of Universal Studios. In preparation for the annual HSN stockholders meeting, Diller cited three main reasons to approve the deal: to diversify cash flow, to create a new mass distribution system, and to form one of the leading cable programming companies in the United States.

In March 1998 the company's USA Networks division attracted the largest audience ever for original entertainment programming on basic cable with the airing of Moby Dick. The next month, Kay Koplovitz, the CEO of USA Networks, announced her resignation. Koplovitz had founded the original forerunner as an all-sports cable channel called the Madison Square Garden Network in 1977. Three years later she changed the programming formats, offering viewers syndicated TV shows and feature films, and renamed the network. USA Networks later ran through a series of big-name owners and court fights before landing under Diller's wing.

INFLUENCES

When the Home Shopping Network went public in 1986 there was a run on its stock. It appeared that the company could do no wrong, but soon its very success would place challenges in its path. The problem was that others had become aware of the lucrative market in selling products on the air. Though not all of those competitors remained in the running 10 years later, strong challengers such as QVC cut a wide swath through Home Shopping Network's share of a market that it had virtually created.

Failures mounted in the late 1980s. The company experienced difficulty with its phone lines, a disastrous situation in an industry that relied on call-ins, and it ultimately sued GTE, its phone service provider (GTE won the suit). In 1989 Roy Speer, still at the head of the company, made several unsuccessful diversification moves, taking the company into businesses only marginally related to its core enterprise. Sales continued to climb, though profit margins narrowed.

FAST FACTS: About USA Networks, Inc.

Ownership: USA Networks, Inc., formerly known as HSN, Inc., is publicly traded on NASDAQ.

Ticker symbol: USAI

Officers: Barry Diller, Chmn. & CEO, 55, 1997 base salary $1,618,722; James G. Held, VC, Pres. & CEO, Home Shopping, 47; Victor A. Kaufman, CFO, 53; Douglas Biznak, Exec. VP, USA Station Group, 1997 base salary $207,500

Employees: 10,960

Principal Subsidiary Companies: USA Networks, Inc. operates five main businesses: Home Shopping; USA Networks; USA Networks Studios; USA Broadcasting; and Ticketmaster.

Chief Competitors: Owing to its diverse business mix, USA Networks competes in a variety of industries. Home Shopping, for instance, must compete with store and catalog retailers, as well as with other cable programmers. The parent company's competitors include: Amway; CBS; Cox Enterprises; Fingerhut; GE; Global Shopping Network; Hearst; L.L. Bean; QVC; Sony; Time Warner; ValueVision; Wal-Mart; and Walt Disney Company.

The mid-1990s saw a change of leadership, which ultimately resulted in Barry Diller's assumption of the helm. It was an ironic circumstance, since Diller had once controlled QVC. Industry analysts hoped that the media-savvy Diller, the man perhaps most responsible for Fox TV's emergence as a major player against the big three networks, would have a positive effect on the future of Home Shopping Network.

CURRENT TRENDS

Prior to the formation of USA Networks Inc. in 1997, the home shopping division of HSN accounted for 82 percent of the company's revenue. Home shopping may have been a new concept when it started, but in the late 1990s the biggest trend in its industry was as old as business itself—competition. Competition came from many places and many players. The network's creator, Lowell Paxson, who retired in 1990, founded an enterprise called Shop at Home in 1995. And then there was QVC, joined in the mid- to late 1990s by a host of other new upstart networks such as Global Shopping and ValueVision. MTV Networks began The Goods in 1994, a series of shows promoting merchandise to young people via its channel.

In response to this, Home Shopping Network began to give itself a facelift in 1995. Specifically, this would mean improvements in the picture that television viewers received from the network, including higher resolution and better graphics. The company also upgraded the quality of its entertainment and the variety of its celebrity hosts and merchandise. Behind the scenes, Home Shopping Network had upgraded its customer service and purchasing departments. An area of concern that remained, however, was the fact that, according to Business Week, a large portion of the people who had ever ordered from Home Shopping Network—17 million—had only done so one time.

One aspect of the Home Shopping Network format that may have turned off some younger viewers is the fact that they have to see a number of items they don't want before ordering one they do. The Internet seemed to offer an alternative. In December 1995 competitor QVC inaugurated its own on-line store, iQVC. However, the Internet remained an unsecured arena for consumers to give out financial information. Until companies could put up safeguards against "cyber criminals," Internet shopping could not grow quickly.

PRODUCTS

USA Networks, Inc. produces and broadcasts many orginal TV programs, including: Baywatch, Sally Jessy Rafael, Silk Stalkings, and Xena: Warrior Princess.

CORPORATE CITIZENSHIP

In 1996 the company ran a 12-hour shopping marathon on the Home Shopping Network to benefit Habitat for Humanity International. In celebration of the non-profit organization's twentieth anniversary, viewers shopped for products for the home, presented in a room-by-room format, while watching the construction of a house made possible with the help of the company.

GLOBAL PRESENCE

Programming from USA Networks, Inc. reaches a wide audience. The Home Shopping Network, for instance, can be seen by 70 million households in the United States. The Sci-Fi Channel reaches 48 million homes in the United States, Latin America, Brazil, Europe, and South African countries.

CHRONOLOGY: Key Dates for USA Networks, Inc.

1977:: Lowell Paxson starts "Suncoast Bargaineers" selling closeout and discounted merchandise to call-in listeners over the air
1982:: Paxson joins with Roy Speer and moves into the realm of television with the Home Shopping Club in Florida
1985:: Home Shopping Club becomes the Home Shopping Network (HSN) and goes national
1986:: Goes public
1996:: The former HSN subsidiary Silver King purchases HSN
1997:: HSN buys Universal Studio's television interests and renames the company USA Networks

EMPLOYMENT

A forerunner to USA Networks, HSN established a remarkable record for putting the elderly to work. In 1990 the company started a program called Prime Timer, which encouraged the hiring of persons over 55 years old. Among the ways it attracts the elderly is by offering flexible schedules and deliberately seeking out senior citizens.

THE CONVENIENCE OF IT ALL

The Home Shopping Network is owned by USA Networks, Inc., a conglomerate run by Barry Diller, who began his career after dropping out of UCLA in 1958. He got a job working in the mailroom at the William Morris Talent Agency, and by 1961 he was a full-fledged agent. Since then, he has worn any number of different hats within the entertainment industry. In 1968 he was the vice president of programming at ABC. By 1974 he was the chairman of Paramount Pictures and green-lighting such pictures as Raiders of the Lost Ark and Terms of Endearment. He subsequently headed to Fox in 1984, where he built their television network. Throughout his career, he has proved to be a master at anticipating America's entertainment needs. With the Home Shopping Network, Diller appears to have reached the pinnacle of his career, because, after all, is there anything that Americans want more than the convenience and ease of shopping from home?

SOURCES OF INFORMATION

Bibliography

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