“Timing is finally right,” Liberty Interactive CEO Greg Maffei said before ticking off the reasons for having QVC join forces with home-shopping channel rival HSN in a deal for $2.1 billion in stock.
The reasons mostly had to do with HSNi’s stock price falling to the point where it made sense for Liberty Interactive — which already owned 38.2% of HSNi — to buy out the rest of HSNi.
At points over the last couple of years, HSNi’s share price had been nearly 3 times that of QVC Group, Maffei said, but had slid to about 1.3 times. Measured by multiples of cash flow, QVC actually moved ahead of HSN, he said. “It seems like finally the market had come to our point of view.”
For the cable companies carrying QVC and HSN, the impact will take longer to measure, because those contracts are for relatively long terms. But the message from QVC CEO Mike George on a call with analysts on July 6 was: “Our distributors should win when we’re winning.”
Maffei, George and Rod Little, the chief financial officer at HSNi, told analysts on the conference call that after the transaction closes they will begin talks with distributors that carry the companies’ five channels: QVC, in 104 million homes; QVC2, in 60 million; BeautyiQ, in 40 million; HSN, in 91 million homes; and HSN2, in 48 million.
Barton Crockett, of FBR Capital, asked about differences in what QVC and HSN pay TV distributors. HSNi, he said, pays about 10% of revenue back to U.S. distributors while QVC pays out more like 4% of revenue in deals that have differing structures.
George said differences in deals, but also in channel positions and high-definition versus standard-definition carriage, will all be discussed to find out “what configuration would best optimize viewership for the customers and drive growth and then help restructure arrangements where our distributors benefit from the growth.”
A projected Q4 closing of the HSNi deal won’t be tied to Liberty Interactive’s pending purchase of Alaska cable operator General Communication Inc. (see cover story). Liberty Interactive plans to spin GCI into Liberty Ventures after that transaction closes.
