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TV's New Prophets Seek Profits

They're all upstarts trying to break the traditional home shopping mold, but the road to profitability may be a long one for The Shopping Channel.

Byline: SHARON EDELSON


NEW YORK -- They're all upstarts trying to break the traditional home shopping mold, but the road to profitability may be a long one for Catalog 1, Q2 and Fingerhut's S The Shopping Channel.


The format perfected by QVC and Home Shopping Club, hosts hawking products -- which the newcomers are trying to reinvent -- may be precisely what makes home shopping work. It has propelled QVC and HSC each past the $1 billion mark.


But the new channels will have to tinker with their formats to get more sales volume out of their programming, since their higher production values will cost more than the no-frills hard sell of the established networks.


There are other challenges facing the new channels. Among them:


Q2 will be doing business only three days a week since it is restricted to Fridays, Saturdays and Sundays. But it shares a channel with On Q.


Viewership of the new channels will be limited until they expand to their full distribution. They will have a fraction of QVC's 50 million and HSC's 60 million households.


The new channels will have to work hard to find upscale audiences, which are not traditional TV shoppers. Experts say these time-pressed viewers won't sit through entire programs waiting for a product that interests them.


Some new channels will sell fewer products per hour because they will devote more time to editorial content or location footage.


Several of the channels will have higher average price points, which has meant lower response rates for electronic shopping in the past.


Since some of the new channels will be taped, not "live;" they won't be able to utilize "real time management," the industry term for responding to audience reaction. For example, if a product is selling well, a host pumps it. If not, the host moves on to the next product.


The new channels, such as Time Warner and Spiegel's joint venture, Catalog 1 and QVC's Q2, sound alluring because they promise to raise home shopping from its tacky origins: Finally, channels for people who think diamonds, not cubic zirconium, are a girl's best friend.


But after several months of testing on the air, these channels are learning just how expensive upscale programming can be.


"It is real difficult with Catalog 1 to figure out the [economics] of lower transaction and high production value," said Gordon Cooke, president of Time Warner Interactive Merchandising. "We keep evaluating the number of co-hosts and products. Are the products being picked to work for television as opposed to print? Those are the things you reevaluate.


"We're definitely not throwing in the towel," Cooke added. "We have not gone crazy with doing editorials. We're producing in a little studio on 23rd Street. We look at this as people who have to make a profit."


Catalog 1 currently consists of taped segments from participants such as Spiegel, Neiman Marcus and Bombay Co. While real time management can't literally be applied to taped programming, Cooke said there are ways to squeeze more productivity from the segments.


"If something is selling well, you can do what catalogers do, which is repackage the items. You can do a 'Best Of' segment with bestsellers," Cooke said. "Part of the cost differential between live and tape is the number of times you can rerun the tape."


But some industry experts worry that re-airing a product that hasn't sold well won't solve the problem.


"I think you can do a 'Best Of' show, but if a product is a dog once, it's a dog 100 times," one observer noted.


While Q2 would seem to have a high cost structure with its own production facilities and a large staff of former broadcasting, retailing and publishing executives, Candice Carpenter, Q2's president, said, "The economics have already been under a very tight discipline. How do you take the economic limitations and work with them? It's a lot of trial and error, like figuring out which merchandise is really appropriate on TV.

 

Our sensibility is very much a Gap, Pottery Barn style, and yet those are the hardest things to show on television. Either they are white and don't show or they're black and look tacky."


Another challenge has been finding on-air talent.


"It's hard to find people that are really credible editorially, but haven't had TV training," Carpenter said.


"You have to invest in television training and teach them to sell. That all takes money," she noted.


Q2 devotes more time to editorial content, with category editors setting up a trend and interviewing a specialist. Then there can be man-on-the-street interviews about the trend, all before the actual products for sale are even shown.


"We sell as many products as QVC per hour because we sell things in clusters sometimes," Carpenter said. "We've been selling 12 products in an hour. One of the things we're experimenting with is how much selling we need to do. We have a gardening show now where the selling is not quite strong enough. Inevitably, that's the balance we have to find. We're going to try everything across the spectrum."


Like Catalog 1, the average price point for S The Shopping Channel will be about $100, according to Greg Lerman, chief executive officer.


Concerned about the typically low response rate to higher-priced products sold on TV, Lerman said Fingerhut's ability to offer credit terms will help induce viewers to buy.


"For us, having the ability to grant credit and use credit as a marketing tool has been very powerful," Lerman said.


S will have a studio outpost at the Forum at Caesar's Palace in Las Vegas, to capture the aura of one of the country's glitziest shopping malls.


Lerman said special guests will be interviewed at the Forum. Then the show will go back to the S studios in Las Vegas for other sets.
"We will be doing live remotes from other distinctive shopping centers around the country," he said.


Lerman admitted that doing remotes is more expensive than staying in the studio. But the profitability of S The Shopping Channel is tied to other ventures.


"The 24-hour shopping channel is only part of our concept," Lerman said. "We don't expect the profits to all be made on the 24-hour linear [home shopping] network. The network will be used to create a brand franchise, which can be brought to catalogs, telemarketing, retail and infomercials."


Gerald Hogan, president and chief executive of HSN, which is trying to launch its own new channel, a shopping mall concept with 35 manufacturers and retailers, said, "I think it's well worth the investment to try these other new forms, but I think it will take a long time to prove that they work."

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