Home Shopping Network 2008 Annual Report Download - page 6

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3
Reach
HSN produces live programming for the HSN television network from its studios in St. Petersburg, Florida
and distributes this programming by means of satellite uplink facilities, which it owns and operates, to a satellite
transponder leased by HSN on a full-time basis through May 2019. HSN has entered into a long-term satellite
transponder lease to provide for continued carriage of the HSN television network on a replacement transponder
and/or replacement satellite, as applicable, in the event of a failure of the transponder and/or satellite currently
carrying the HSN television network. HSN has also designed business continuity and disaster recovery plans to
ensure its continued satellite transmission capability on a temporary basis in the event of inclement weather or a
natural or other disaster.
As of December 31, 2008 and 2007, the HSN television network reached approximately 91.9 million and
90.6 million, respectively, of the approximately 114.5 million and 112.8 million homes in the United States with a
television set, respectively. Television households reached by the HSN television network as of December 31, 2008
and 2007 primarily include approximately 63.3 million and 62.7 million households capable of receiving cable
and/or broadcast transmissions and approximately 28.6 million and 27.9 million direct broadcast satellite system, or
DBS, households, respectively.
Pay Television Distribution
HSN has entered into multi-year distribution and affiliation agreements with cable television and DBS
operators, collectively referred to in this document as pay television operators, in the United States to carry the HSN
television network, as well as to promote the network by carrying related commercials and distributing related
marketing materials to their respective subscriber bases. HSN currently has 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.
In exchange for this carriage and related promotional and other efforts, HSN generally pays these pay
television operators a fee consisting of a per subscriber fee plus commissions based on a percentage of the net
merchandise sales to their subscriber bases. In some cases, pay television operators receive additional compensation
in the form of advertising insertion time on the HSN television network and commission guarantees in exchange for
their commitments to deliver a specified number of subscribers.
The weighted average overall length of the terms of the multi-year distribution and affiliation agreements in
effect as of December 31, 2008 is 4.6 years. All major pay television operator agreements are scheduled to expire
between 2009 and 2011. HSN typically negotiates multi-year agreements that require HSN to pay monthly or
annual fees. Distribution and affiliation agreements with major and other pay television operators expire from time
to time and renewal and negotiation processes with major pay television operators are typically lengthy. At any
given time in the ordinary course of business HSN is likely to be engaged in renewal and/or negotiation processes
with one or more pay television operators. HSN is currently engaged in such a process with a major cable pay
television operator regarding an agreement that expired in 2005 and, as has typically been the case in similar
situations in the past, carriage of the HSN television network has continued (and is expected to continue) under
rolling short-term extensions (in this case, month-to-month) pending the conclusion of this process. The ongoing
extension of this agreement is on economic terms that are substantially similar to the agreement that expired in 2005.
HSN expects that, as in the past, any long-term extension of the agreement will be on terms that, when taken as a
whole, are commercially reasonable to HSN and competitive with the economics of other major cable pay television
operators.