HSN changes model, takes product placement money

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Home Shopping Network (HNSI) will no longer just make money selling clothing, kitchen appliances, and cosmetics. Soon it will also begin promoting products from companies like Kraft (KFT) on its programs. According toThe Wall Street Journal, "Next month, the network says, it will air a three-minute segment in which an HSN chef will show how to create a recipe from Kraft's Food & Family magazine using Kraft products." A number of other companies are cutting similar deals with the network.

For HSN, it is a brilliant move. With its stock at a 52-week high of $15.06, it needs to show investors that it can go beyond its traditional retail roots. Its sales were down 8 percent in the June quarter to $640 million. Adjusted EBITDA increased 12 percent to $43.3 million because of better gross profit margins. However, net income may be a poor measurement of performance for the quarter because the firm had large one-time charges last year.

HSN has almost nothing to lose and a lot to gain from adding these product placements into its segments. And it may even help promote the merchandise it is already selling. Putting Kraft foods into programming which sells pots and pans, or plates and utensils, is hardly likely to upset an audience that is watching the channel to look for new products and bargains. The new business model could help HSN begin to grow again. (For more on the Home Shopping Network's latest moves, read our interview with CEO Mindy Grossman.)

Product placement won't bother viewers but it may brighten the outlook for HSN investors.

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Paul Sakuma, AP

Douglas A. McIntyre is an editor at 24/7 Wall St.

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