Home Shopping Network 2008 Annual Report Download - page 12

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assurance that we will be able to regain the levels of revenue and profitability that we achieved prior to the
recession.
Our level of indebtedness could limit our flexibility in responding to current market conditions, prevent
us from meeting our obligations under our debt instruments or otherwise restrict our business activities.
The existence of, and limitations on the availability of HSNi’s debt could have important consequences.
The existence of debt could, among other things:
• require a substantial portion of HSNi cash flow from operations to be dedicated to the payment of
principal and interest on HSNi indebtedness;
• limit HSNi’s ability to use cash flow or obtain additional financing for future working capital,
capital expenditures or other general corporate purposes;
• increase HSNi’s vulnerability to general economic and industry conditions; or
• expose HSNi to the risk of increased interest rates because certain of its borrowings, including
borrowings under its credit facilities, are at variable interest rates.
Limitations imposed as a part of the debt, such as the availability of credit and the existence of restrictive
covenants may, among other things:
• make it difficult for HSNi to satisfy its financial obligations; and
• limit HSNi’s ability to respond to business opportunities.
We depend on relationships with pay television operators and any adverse changes in these
relationships could result in the cessation of carriage of the HSN television network.
We are dependent upon the pay television operators with whom we enter into distribution and affiliation
agreements to carry the HSN television network. We currently have contracts with many local and national pay
television operators to distribute HSN television programming. Some of HSN’s larger pay television operators
include Comcast, Time Warner, DirecTV and Echostar/DISH. HSN television network sales from customers
residing in households that subscribed to these larger pay television operators accounted for approximately 30% of
HSNi’s annual revenue in 2008. The cessation of carriage of the HSN television network by a major pay television
operator or a significant number of smaller pay television operators for a prolonged period of time could adversely
affect our business, financial condition and results of operations. While we believe that we will be able to continue
to successfully manage the distribution process in the future, certain changes in distribution levels, as well as
increases in commission rates and/or other fees payable for carriage, could occur notwithstanding these efforts.
Distribution and affiliation agreements with all major pay television operators are scheduled to expire
between 2009 and 2011. In some cases, renewals are not agreed upon prior to the expiration of a given agreement
and the HSN television network continues to be carried by the relevant pay television operator without an effective
affiliation agreement in place. Renewal and negotiation processes with pay television operators are typically
lengthy. We are currently engaged in the renewal and/or negotiation processes with a certain major cable pay
television operator regarding an agreement that expired in 2005, with carriage of the HSN network continuing under
short-term extensions pending the conclusion of this process. No assurance can be given that we will be successful
in negotiating renewals with all these operators, or the financial and other terms of renewal will be on acceptable
terms. The failure to successfully renew, or negotiate new, distribution and affiliation agreements covering a
material portion of these existing cable and satellite households on acceptable terms could adversely affect our
growth, sales revenue and earnings.