By  on February 25, 1994

NEW YORK -- Home Shopping Network and Tele-Communications Inc. have signed a letter of intent with Sumitomo Corp. as a first step toward developing a home shopping business in Japan.

No date has been set for a Japanese television launch, but the venture is expected to be up and running within a year.

The Japanese venture represents HSN's first foray into an international market. The company had tried to enter the United Kingdom through a joint venture with BSkyB, but was beaten to the punch by QVC.

That market has been difficult for QVC to crack due to the low penetration of cable and satellite TV, industry experts said.

HSN will be up against similar challenges in Japan. Michael W.D. McMullen, president of HSN's international division, acknowledged that cable and satellite distribution is currently limited, but said the Japanese market represents a large enough economic entity to justify the investment.

Because cable is available to the monied classes in Japan, McMullen said the network's programming will appeal to a sophisticated viewer.

"Right now, the people who are able to watch cable are [upscale] people," he said. "We will be looking for products that appeal to them. That doesn't necessarily mean products that are totally different than what we sell here. We might just produce it differently."

McMullen used jewelry as an example. He said the jewelry that HSN sells in the U.S. could appeal to upscale Japanese customers, while HSN's buying power will enable the company to keep prices down.

"Apparel will be different because we'll have to create clothes specifically designed for the Oriental body," McMullen said. "Initially we'll be looking at the product categories where we have a very strong position."

Home shopping is not new to the Japanese market. Fuji Television, a division of Fujisankei Group, produces an upscale program called "World Shopping Theatre," which sells everything from designer apparel to Rolls- Royces.

But because WST airs on broadcast television, its emphasis is on entertainment rather than volume sales.

While HSN will export products to Japan, McMullen said the company is intent on sourcing merchandise in the region."We will set up buying operations to see whether we can find local products that we can also bring back to the U.S.," he said. "We think it's politically important that we enhance local industries."

With a population of about 125 million -- about half that of the U.S. -- Japan has per capita income slightly higher than the U.S. McMullen said that once cable penetration in Japan reaches a majority of the population, the market could be slightly higher than 50 percent of HSN's U.S. market of over $1 billion.

But that could take five to eight years.

HSN and TCI are trying to hasten the timetable by looking for other partners that can deliver additional distribution.

McMullen said discussions are under way with phone companies and department stores in Japan.

TCI has had an existing joint venture with Sumitomo, Japan's largest cable operator on the programming side, and also serves as an adviser to Sumimoto's cable business.

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