Four Diller-backed Euro shopping nets fold

HOLLYWOOD — USA Interactive chief Barry Diller’s European home shopping spree is being cut short.

HOT Networks, the Euro home shopping company backed by USA Interactive through its HSN subsidiary, is shutting down its money-losing channels in the U.K., France, Holland and Belgium. All four are filing for bankruptcy.

Decision comes in the wake of the financial woes of HSN’s main Euro equity partners and stiff competish from rival QVC in the main continental territories.

The two cash-strapped Germans stopped funding the joint venture in late 2001, compelling HSN, which owns 47% of HOT, to continue to advance working capital to the tune of $100 million.

Diller’s company apparently notified its partners last month that it would no longer fund the venture.

Tentative buyout deal

HSN has reached a tentative agreement to buy out the vast majority of Kirch and Kofler’s controlling stake in the venture for $100 million. Kofler will retain a small minority position in Home Shopping Europe, the company that operates the German channel.

“Our partners were not in a position to continue to fund a growing venture,” HSN spokesman John Gieselman told Daily Variety on Wednesday. “Germany is profitable, and Italy shows great potential for profit, so that is where we will focus.”

HSN chief operating officer John Watson has been appointed interim CEO at Home Shopping Europeuntil a suitable replacement is found.

Gieselman noted that HSN’s shopping ventures in China and Japan will not be affected by the pending deal.

Squeezed by German media’s financial meltdown, Kirch and Kofler are unlikely to be able to pay the majority of the $100 million they owe HSN, analysts said.

USA Interactive will likely have to take a writedown on that receivable, though the cumulative losses at HOT essentially offset the value that has been reflected on USA’s balance sheet.

New partner needed

Katherine Styponias, media analyst at Prudential Financial, believes Diller must now find a new strategic partner for HOT if it is to survive in Germany and Italy and fulfill HSN’s international expansion plans.

The only other alternative, she said, is to maintain 100% ownership of HOT and be forced to consolidate substantial losses from the six channels.

The dueling home shopping nets are locked in an expensive battle for viewers’ wallets, and QVC has recently taken a decisive lead in Germany.

QVC has shown significant growth in viewership and orders in Europe.

Focusing on higher-end products, 24-hour QVC Germany increased its customers tally from 438,000 to 600,000 in the first nine months of 2001. Orders during the same period rose from 3.3 million to 4.75 million. HSN’s stats are believed to significantly lag in that territory.

USAI is the publicly owned company that controls e-commerce assets such as Expedia.com and Ticketmaster as well as HSN, USA Network and the Sci Fi Channel.

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