Bertelsmann Challenges QVC and HSN in Germany

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RTL, Germany's largest TV network, debuted a home shopping channel this week to compete with QVC and HSN, which has a 46 percent stake in H.O.T., the industry leader on the German market.


The new shopping channel started on the Astra 1 A satellite and will reach 6 million German households in addition to providing one- to three-hour windows on four other channels.


"We'll try to get the whole channel on cable eventually, but that takes time in Germany since licenses are issued by the states and only when there is room, i.e., when other programs are taken off cable outlets," said RTL spokeswoman Ingrid Haas. "We expect to break even in three years, and yes, the German market is large enough for three major home shopping channels, given RTL's tremendous promotional power and the fact that the home shopping market here has not yet been fully exploited."


RTL has deep pockets because it can tap not only its own resources, but also those of the giant Bertelsmann media complex, which has a controlling interest in the network. With cable, satellite and terrestrial lines, RTL reaches 98 percent of Germany's 33 million households.


The RTL shop will try to differentiate itself from the competition through a more up-market approach.


"We've invested heavily in our studios to create a home-like atmosphere," Haas said. "Kitchen products are shown in a kitchen. We have a living room and a hobby room. We plan to present new products before they are available at the retail level as if we were staging a world or German premiere."


Initially, the RTL shop will have six hours of live programming daily, but it plans to go to 16 hours "as quickly as possible," Haas said.


Presenters were recruited from other networks, including RTL and Vox, a subsidiary, and the company raided personnel from QVC, which is located in Dusseldorf, close to RTL's home in Cologne.


The new competitor's impact on QVC is "neutral," said Francis Edwards, QVC Germany's CEO. "It's been positive and negative. Positive because RTL's entry has created a lot of media awareness and publicity from which we benefited; negative because they raided some of our people."


Edwards called that "a short-term inconvenience," since many of those who left had only been with QVC a year or two "and it takes more years than that to learn this business."


Edwards came to Germany five years ago looking for partners to help him start a home shopping business but found no takers.


"I was told teleshopping wouldn't work because it is a UK and a U.S. phenomenon," he said. "They have been proven completely wrong. We've been very successful here, and that has caused major broadcasters to reconsider their long-term strategies."


So has rival H.O.T., which turned a profit in 1999 and generated 476 million deutsche marks ($230 million) in sales last year, up 56 percent over 1999. Pre-tax profits rose from DM 24 million ($11 million) to DM 45 million ($20 million), an increase of 89 percent.


QVC expected to break even last year but missed the target, even though sales for 2000 were DM290 million to DM300 million, on target for the projections that Edwards made at the beginning of 2000.


"What happened was we grew so rapidly that we outgrew our warehouse," he said, "so we are building a new one at a cost of DM 170 million that we plan to complete next year."


Sales in February were 50 percent higher than in February 2000. QVC now reaches 25 million households 24 hours a day and 3 million on three-hour windows, largely on the German NBC channel.


As for the competition, Edwards said, "Only time will tell if the market is big enough for three." He pointed out that QVC and HSN dominate the much larger U.S. market.


"So unless they can come up with a strategy that clearly differentiates them from the current players, it's hard to see how a late entrant can be successful," Edwards said.


But he insisted there was plenty of room for both QVC and H.O.T. to grow. He expects to reach sales of DM 1 billion in several years and said the new warehouse was designed with that volume in mind.


H.O.T. has a more expansive strategy in mind that reaches beyond Germany to tackle every market with more than 5 million households.


It opened in Holland and the Flemish-speaking part of Belgium last month. It also has a French program aimed at Belgium as a kind of early test of the French market, although no date has been set for opening in France.


The company also has been trying to open in Italy for more than a year but has been stymied by media laws that made a formal takeover of the Rete channel difficult. HSN has cut back its stake in the Italian operation to 20 percent to meet requirements of Italian law. Plans are also in the works to open a UK channel later this year.


H.O.T. has a Web site on which it sells product. QVC may launch a test site this year and roll out once the warehouse is completed. RTL is using its site to promote the shop and may sell on the Web in the future.


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