HSN, Inc.: weathering the retail storm, instructor's notes.(Instructor's Note)

Assouad, Alexander ; Jackson, William T. ; Fellows, James A. 等

CASE DESCRIPTION

This case was developed through the use of secondary research material. The case has a difficulty level of five and is appropriate to be analyzed and discussed by advanced undergraduate and graduate students in a strategic management or accounting class.

The case allows the instructor the flexibility of concentrating on one strategic issue, or as a means of examining the entire strategic management process as well as complicated financial accounting reporting. The major focus within the strategic analysis as well as excellent stand alone modules is in the area of legal/political influence, economic, accounting, or the ability to survive in an unattractive industry. The instructor should allow approximately one class period for each element addressed. Using a cooperative learning method, student groups should require about two hours of outside research on each element researched. The case also provides opportunity for the instructor and the class to discuss in detail the disruptive effects of technological change and how the internet and online retailing is changing the retail landscape for good.

CASE SYNOPSIS

This case is a library, popular press and internet case which examines HSN (The Home Shopping Network). A company that built itself on what was considered a pervasive and dominant technology, yet is today experiencing first hand the disruptive challenges posed from the proliferation of the internet. Some introduction to online retailing and mail order, how it started, how it has become much of an oligopolistic industry and how as with other sectors and markets the internet is changing the face of home shopping is necessary. Likewise research into the other main competitors in the sector and how consolidation has occurred will also help to create an appropriate framework from which to analyze the environment.

INTRODUCTION

The information available in both the written case as well as outside research material provides a thorough platform for students to conduct a complete strategic analysis of HSN as well as discussion of various select elements of that model. Provided in these notes are the highlights of each element of the strategic management model.

GENERAL ENVIRONMENT

There are numerous issues that can be explored within the general environment. This level of the external environment will provide opportunities and threats that must be faced by all firms. In light of the fact that the issues arising from this level of the external environment are out of the control of individual firms, it is critical to position a firm to grasp emerging opportunities as well as avoid potential threats. Below are some pointers and or discussion points that may be used as a springboard into a full analysis of not only the attractiveness of the industry but also for its long-term viability.

THREATS

The internet: the internet is perhaps the single biggest threat for HSN and the other players in the TV Retail industry. As the characteristic of their particular demographic changes and the customer base are becoming more and more computer literate whilst more time starved.

Potential customers are turning to the internet as a major alternative to TV retail as well as in many cases high street shopping.

Related to the above threat, is that of internet providers moving into the TV shopping arena through what is described as user defined home shopping, an example of this is Talk Market, now partially owned by Amazon,

"... customers can create their own personalized shopping channel and click on videos to make purchases. The poor economic environment, these shopping outlets seemed to have a lot of demand generated by, "spur of the moment" decisions. During this economic downturn it is going to become more and more difficult to convince people to purchase items, they may not really need.

Being an on line retailer HSN is dependent on sales armchair buyers; however, this demographic is rapidly changing. Basically their market is dying off and being replaced by consumers a lot more tech savvy whilst physically more capable.

HSN is subject to various regulations that are ever changing thus requiring considerable time and efforts on the part of the company. In addition, HSN is already on the watch list for the FCC due to prior actions by the company.

In conclusion however the most significant threat comes from the changes in technology as well as the change in demographics (age group) of the target markets traditionally aimed for by all the TV shopping retailers. We can see HSN adjusting to this through the pursuit of alternative methods to market products, in particular HSNi and the Internet.

OPPORTUNITIES

Technology: Likewise while the Internet is a threat to HSN standard way of doing business it has also become an opportunity for diversification. They recognize the power of the Internet and with HSNi are now attempting to take full advantage of this new media.

Cost of transportation, as gas prices increase and it becomes more and more of an issue to move around, consumers are going to turn towards retailers that can offer not just the value added service of delivery but the actual shopping experience itself.

Time: as with gas, time is becoming a commodity of value that people have to budget for more and more. By offering home based shopping both through the internet and through other media vehicles HSN can potentially save the average consumer large amounts of time while shopping. "what you want, when you want it, where you want it."

Consumers are seeking out "best value" opportunities in their purchase decisions. These same consumers are often driven by the convenience of on-air, on-line purchase options.

Traditional retailers have been forced to scale back inventory levels due to the recession thus offering less choices to consumers.

THE INDUSTRY ENVIRONMENT

To allow for an affective industry analysis we must first define a framework specifying which groups of companies may be brought together to constitute an industry. Simply put an industry can be considered a group of companies that not only produce similar products or services that are targeted at the same customer base, but also compete directly with each other not just for those consumers but also for the required supplies and resources.

It is then possible for us to use the framework of Porters 5 forces to engage the class in discussions designed to stimulate understanding and a starting point whereby students may begin to develop perspective needed to understand corporate and business unit level strategies. Likewise the basic fundamentals of competition, demand, supply and substitute products addressed by the discussion on Porters 5 forces will provide tools for the students to complete and compare their own analysis of other cases or use for the own projects.

Threat of new entrants

Bargaining power of suppliers :

Bargaining power of Buyers :

Substitute products

Competitive rivalry

THREAT OF NEW ENTRANTS.

In entering a new industry the investor must look at capital needed, distribution capabilities and infrastructure, government regulations, economies of scale and the threat of retaliation of present competition. These constitute the threat of new entrants.

The threat of new entrants is pretty low, It is a high investment industry where there are few players, a large investment in not just administration and research (finding the appropriate products) but the actual TV network/broadcasting infrastructure itself does not lend itself to new competitors easily being able to enter the industry. Therefore due to the shear size in investment needed, public broadcasting requirements and compliance issues, huge economies of scale needed, (the company has to broadcast close to 24 hours a day) we can therefore easily deduce:

HIGH BARRIERS TO ENTRY

BARGAINING POWER OF SUPPLIERS

Based primarily on the number of suppliers a firm has to deal with we can measure the bargaining power of those suppliers. Simply put the more the suppliers a firm has the less power each one of the will hold with respect to that firm, likewise whether or not there are substitute products (the more substitutes the less power each supplier has) for those being supplied and the costs a firm would incur to switch suppliers, (the higher the switching costs, the more power the supplier has.)

As HSN generally supplies a wide range of products from household appliances to jewelry, perfumes, cooking utensils and really just about anything their product range can be considered to have little differentiation, also the broad lines of products offered means not only are they not dependent in any way on individual suppliers, they are not even dependent on product categories or even industries.

Suppliers are definitely in the weak position with respect to HSN, the products offered are so varied that no one producer/supplier really has much advantage and or bargaining position. Likewise there are so many potential suppliers vying for the "airtime" that frequent wholesale discounts given to HSN are above the retail norm. However, consumers are seeking out those "best value" options and the firm that represents those products will garner the needed customer appeal.

Two other supplier groups represent considerable concerns for the company--pay television operators and credit lenders. For the first group, HSN is in continued negotiations with many of those providers with a large percentage of contracts expiring between 2009 and 2011. It is imperative that HSN be near the top of the channel selections to fully utilize the digital capabilities of the programming. Many networks are working furiously to gain those same slots.

For the second group, the lenders, concerns are just as great. With the decline of the economy lending has become even more conservative. Due to the results of the spin-off, HSN is facing increased scrutiny in this area. The same can also be said of the average consumer in regard to their credit card arrangement.

It is know that airtime on HSN is an almost sure path to at least short run success, therefore that benefit has the suppliers in a very weak position.

BARGAINING POWER OF SUPPLIERS--MODERATE WITH VENDORS, STRONG FOR CREDIT AND TV PLATFORMS

BARGAINING POWER OF BUYERS

Similar to the bargaining power of suppliers, the bargaining power of buyers is determined by the cost of switching products for the consumer, the differentiating factors offered by the product, the amount of substitutes available to the consumers and the actual quantities or volumes purchased by individual consumers. Again we can draw similarities between Wal-Mart and HSN. They are volume movers, selling large quantities of individual items to individual customers. The consequence of this is that no particular customer as much power. While customer care and support is of course important, it is purely a numbers game and as long as the majority of the customer base remains satisfied HSN maintains the upper hand.

Another important consideration in looking at the power or lack of power of the buyers is the degree of competition and or alternatives for the consumers. Again we see the TV/Retail sector as being made up of a handful of suppliers, (Shop NBC and QVC being the only ones of note in the North American market) There fore we may consider the market to be almost captive, a lot of these buyers are addicted to process itself, (shopping though TV)

BARGAINING POWER OF BUYERS--WEAK

SUBSTITUTE PRODUCTS

Do other industries offer consumers similar convenience and similar service than that of the TV retailer, the answer is of course is yes, the Internet and online shopping. This growing industry is rapidly not only becoming a replacement for the TV Retailer but also becoming a threat for the brick and mortar retail market. While there is some argument that in the short run the make up of the customer base (a demographic of 40+ years, women) is pretty well protected, the long term is destined to change that demographic and inevitably shift the focus of all TV retailers. This can be seen in HSN's introduction of "HSNi" and a new focus internally on becoming a significant player competing with the likes of Amazon and other online product aggregators.

Consequently however there is a significant threat of "substitute products" overall and the rapidly adapting environment should produce much material for in class discussion as to who exactly will become substitutes for the TV retail business

THREAT OF SUBSITITUTES--HIGH

RIVALRY OF EXISTING FIRMS.

Competition and or lack of defined through the amount of other competitors; internal direct costs involved in running the business, (storage, fixed costs, exit costs etc) and growth rates of the industry itself define how competitive any industry is. The TV retails sector categorized by few firms and low growth, in fact it could be considered an oligopoly with the lions share of the business divided between the big three players, (HSN, Shop NBC and QVC) Likewise the cost in liquidating and or existing a TV channel based company could be excessive. The industry is therefore marred with intense rivalry specifically for the same audience.

HIGHLY COMPETITIVE INDUSTRY

IN CONCLUSION

This is not a particularly attractive industry, especially for new competitors to enter. Although in both the cases of the bargaining power of suppliers and buyers, the firm has the upper hand, the initial investment, knowhow and presence of the present competition would probably put off most investors.

Secondly the demographics of the target group of consumers is decreasing rapidly whilst the industry itself is under major attack from other alternative retail options, primarily the internet, therefore negatively weighting the industry's strengths in the factors of power of buyers and suppliers.

Therefore it would be reasonable for us to deduce based on the 5 forces that this industry is highly unattractive.

ORGANIZATIONAL DIRECTION

COMPANY VISION:

"To be an original brand experience that becomes a disruptive force on the retail and cultural landscapes"

COMPANY MISSION:

"Deliver the joy and excitement of new discoveries every day:

Discover new products--"You will find things that you can't get anywhere else"

Discover new ideas--"I get so many ideas ... how to make things work for me, how to solve problems"

Have Fun--"Its light its fun, it's my time, just for me"

From both the vision and mission statements, we can see that the company is highly undecided on where it is going exactly. In fact we may see that the vision and mission statements reflect a level of confusion that can be inferred.

From what was once a specialized TV Retailer to now becoming an online product aggregator, the statement of providing..."disruptive force" seems a somewhat entangled position. Is the company aiming at still maintaining some level of superiority in the TV Retail industry or is it looking to find and or provide a completely new shopping experience, even something not provided by present online merchants?

Likewise having a mission statement that is simply and set of declarations of what customers want rather than how that will be achieved again reflects not only confusion but lack of specific direction.

These poorly authored statements dictate that the company is in a high state of flux with regards to organizational direction. A recent spinoff from a mother company (IAC Group) and the subsequent shake up in conjunction with labor cutbacks seems to reflect this situation.

A discussion on creating thoroughly lucid, specific and relevant vision and mission statements should be easily prompted and this example would reflect an organization that is presently failing to provide such basic organizational backbone.

STRATEGY FORMULATION

CORPORATE LEVEL STRATEGY

Corporate level strategy may be defined as a set of actions an organization will pursue to gain a competitive advantage in the market place. These strategies may further more be classified by the degree to which each of the business units operating under the umbrella of the corporation are related to each other and the levels of synergies that may be attained.

Until recently HSN has employed a strategy of growth through acquisitions and partnerships, (see purchase of Cornerstone, a major home catalogue service.) This has allowed them sell other products and retail services that they were not doing through their TV outlet. Likewise diversification into specialized websites, (Smith + Noble, The Territory Ahead, Travel Smith etc.) and 26 brick and mortar retailers has allowed further diversification. However all activities remain within in the retail/consumer sector and therefore we may define their corporate level strategy as "related diversified"

Furthermore, their continued foray into the online world of e-tailing through HSNi whilst not through mergers and acquisitions, rather through in house development, complements their corporate strategy and shows a consistent approach.

Most importantly however is to stir discussion into how this strategy is creating value through implementation of their strategy? The "related diversified" position allows them to use their corporate competencies of media knowledge, marketing and product management and effectively transfer those competencies with very little additional cost into building managing their other business units. For example the same skills needed for actors and directors from within the organization can be simultaneously used to produce clips and streams for their e-commerce website.

Likewise their value chain capabilities in areas such as distribution/shipping, storage the physical plants, studios etc, internal networks and call center capabilities can also be directly utilized for the e-commerce and online retail markets as well as other consumer delivery requirements that they need.

BUSINESS UNIT LEVEL STRATEGY

The dominant strategy is to sell consumer products to end users through the medium of the TV retailer. By exploiting their core competencies in consumer product markets, particularly, home furnishings and fashions, jewelry, basic electronics and targeted women's fashions they aim to leverage their competitive advantages in TV and channel production to drive sales to that target demographic.

"HSN, Inc. (NASDAQ: HSNi) is a leading interactive multi-channel retailer, with eight unique, proprietary and compelling lifestyle brands. HSNi offers innovative, differentiated retail experiences on TV, online, in catalogs, and brick and mortar stores. The Company's two operating segments, HSN and Cornerstone, have exceptional direct-to-consumer expertise"

Again we may formulate a perspective to define exactly what is this strategy, is the business cost focused? Is it differentiated? Or is it a combination strategy.

Taking the business model alone, we could say their strategy is between, "Focused Differentiation" as they focus on women and simultaneously offer product lines that to some extent indicate a cost leadership approach, as they promote the "incredibly low prices" they offer, deals that cannot be found anywhere else. Therefore taking both product lines and their business models together we could say they are aiming at an integrated cost leadership/differentiation set strategy.

STRATEGY IMPLEMENTATION

LEADERSHIP

Leadership at HSN has numerous challenges ahead of it. While the style of the leadership has been grounded in a participative approach, the hard times facing the company has resulted in many centralized decisions to salvage the company after the spin-off. It is unclear which direction the very capable leaders of the organization will be forced to take in the future. The company has already seen a considerable number of firing and top manager changes in the past year.

CORPORATE SOCIAL RESPONSIBILITY

It has been and is becoming more so critical for large organizations in particular to "give back" to the community. Discussions on there being in fact not one bottom line but rather a "triple bottom line" are now widespread and that the summation of three really define long term sustainability for a business. Notwithstanding while there are many ongoing studies examining the correlation between an organization that is active in being socially responsible and ongoing sustainability and profitability, there is as yet not much empirical evidence as to a strong correlation. However while these studies are inconclusive it is widely accepted that an active and socially responsible strategy in place does not have any negative impact on the bottom line.

HSN does take part in "giving back" to the community. There are community days where employees spend the day providing a volunteer service for the local area and people. Likewise they do take part in volunteer and community service projects. However, based on their website coverage of these activities we can assume that neither are they wholly active nor do have they chosen to develop their CSR capabilities as an important marketing tool.

STAKEHOLDERS

As well as discussing CSR, it is vital today for strategy students to also define and discuss who a corporation's stakeholders are. Especially in such a litigious climate it become increasingly critical for the senior management to define the direct as well as the non direct stakeholder and to prepare strategies in dealing and engaging with those groups.

Obviously most students will be aware of the direct stakeholders being, employees, management, customers, shareholders/owners, government agencies, suppliers, vendors, debtors and the like. A good classification of stakeholders can be found in Strategic Management (Hitt, Ireland and Hoskisson) where they are divided as follows; capital market stakeholders, product market stakeholders, organization stakeholders, as the major groups.

We should also invite ideas as to who the non-direct stakeholders may be, such as the local community, the environment and other entities with non-direct interaction with the corporation.

From basic research it does seem that HSN maintains a reasonable balance between her stakeholder groups, not obviously favoring one more than another. It remains an opportunity for discussion whether or not benefiting particular groups above others would require strategic redirection and or have alternative outcomes.

ORGANIZATIONAL CULTURE

The company culture has been, and may return to one of being a maverick in the industry. Currently, the company has been forced to adopt a survival mode in light of the economic conditions and the impact of the spin-off. Only time will tell whether the disruptive force mentality that the company possessed for many years will return.

STRATEGIC CONTROL

There are numerous ratios that can be analyzed relating to the specialty retail industry. Some would argue, however, that analysis of these ratios would be skewed by the recent spin-off results especially as it relates to the write-off of goodwill as well as the concurrent impact by the economy. While the majority of this instructor note focuses on goodwill and the economy, below are a few ratios that the students would be expected to explore and compare directly against QVC as the most representative reference group.

Gross Profit Margin: This ratio is calculated as net sales less the cost of goods sold expressed as a percentage of sales. The intent of the ratio is to reflect a company's operational efficiency.

Operating Profit Margin: This ratio is calculated by taking the gross profit margin and subtracting operating expenses (usually includes selling and general administrative expenses and excludes interest payments and other non-operating expenses. SWOT STRENGTHS WEAKNESSES Weak power of buyers Losing core customer base Weak power of buyers Large capital overheads Well known business-- Dominant organizational structure strong brand awareness Negative brand association for Turnkey Operations some demographics Distribution network (HSN--elderly housewives) Marketing and sales OPPORTUNITIES THREATS High entry barriers Alternative home shopping models--internet Increasing fuel costs Alternative technologies Decreasing delivery/ Poor economic environment distribution costs User defined shopping (cookies and profiles) Online presence--leverage Smaller more flexible competitors distribution competencies Strong suppliers in pay television operators Numerous legislative concerns

Debt to Capital Ratio: This measure is usually used in the specialty retail industry to measure the firm's ability to meet short-term obligations (Liquidity).

Inventory Turnover: This ratio is calculated by adding beginning inventory and ending inventory, dividing by 2 and dividing this result by total sales. This measure is generally a reflection of the efficiency of the operations in terms of inventory management.

GOODWILL HUNTING

One of the more mysterious assets that appears, and then sometimes disappears, on a company's balance sheet is goodwill. What is goodwill anyway? How does a company acquire goodwill? Does it amortize goodwill as an expense over time? What happens if the goodwill becomes worthless? Does the company record this as a loss? The recent history of HSNi and its former parent IAC provides insight into all these questions.

WHAT IS GOODWILL?

Goodwill is an intangible asset that represents the value of a company over and above the sum of the fair market value of its specifically identifiable assets, e.g., land, buildings, inventory, cash, receivables, etc. It is an asset that cannot be separated from the company as a whole. [Financial Accounting Standards Board (FASB), Statement of Financial Accounting Standards 141R, Business Combinations, December 2007)]. For example, ABC Company's specifically identifiable assets may have a total fair market value of $10,000,000. However, if another company, say XYZ Company, offers to buy ABC Company intact, with the intent of continuing its historic business, it may be willing to pay $15,000,000 for ABC. The excess amount of $5,000,000 is considered goodwill.

Why would XYZ Company pay this extra $5,000,000? XYZ probably recognizes that there are certain synergies that will occur if ABC and XYZ are combined. These synergies may the marketing skills of XYZ combined with the product development team of ABC. Standing alone in their separate companies they do not have the value they bring to a combined entity by working together. Goodwill could also simply be the existence of some value that only ABC has that XYZ wants to acquire, such as brand loyalty or even favorable government regulation. Goodwill thus represents an intangible asset that gives the ABC-XYZ combined entity a unique value beyond the mere existence of its assets.

RECORDING GOODWILL

Goodwill can only be recorded, i.e., "booked," by a company when it acquires another company. In the ABC-XYZ example above the new combined entity will initially record goodwill at $5,000,000, and this amount will continue to be shown in the consolidated financial statements.

How does all this affect HSNi? Before the spin-off by IAC of HSNi in August 2008, the consolidated financial statements for IAC included $2.9 billion of goodwill that resulted from IAC's acquisition of HSN and the latter's acquisition of Cornerstone. The vast majority of this goodwill, nearly $2.4 billion, was attributable to the IAC's 2002 acquisition of the remaining minority interest in HSN, which gave IAC complete 100 percent ownership of HSN. The remainder of the consolidated goodwill, approximately $500 million ($0.5 billion), was attributable to HSN's acquisition of Cornerstone in 2005. Because all three companies were part of a larger consolidated entity, all of this goodwill, totaling $2.9 billion, was reported as an asset in the consolidated financial statements of IAC.

The spin-off of HSNi as a new public company was accomplished by transferring HSN and Cornerstone to HSNi as subsidiaries of the new parent company, HSNi. Consolidated financial statements for HSNi now include the financial results for both HSN and Cornerstone. The transfer of HSN and Cornerstone also brought to HSNi the goodwill account of $2.9 billion that had previously been shown on the consolidated financial statements of IAC and its subsidiaries. These two former subsidiaries, HSN and Cornerstone, in essence took their goodwill with them. But could they keep their goodwill? That became the next issue to resolve.

THE IMPAIRMENT AND WRITE-OFF OF GOODWILL

Recall that goodwill is an asset that represents a synergy among companies in a combined setting that might not exist if the companies existed separately. The spin-off of HSN and Cornerstone, out of the umbrella of IAC, led to a consideration by HSNi management as to whether any of this goodwill existed anymore. After all, there is only HSN and Cornerstone in the new combined entity. There is no longer any fusion with the synergies that IAC and its other subsidiaries might have brought to HSNi. What are the financial accounting requirements that companies face when they have goodwill on the balance sheet?

The Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards 142 (SFAS 142), Goodwill and Other Intangible Assets, in 2001. This standard requires companies to revalue its goodwill at the end of each fiscal year. If it has been determined that goodwill has been impaired, i.e, declined in value, since the beginning of the year, then this impairment must be recorded as a loss in the financial statements. The actual methodology for valuing this impairment is complex and beyond the scope of this case study. (See the note following this analysis for a conceptual explanation). However, in its first set of financial statements after the spin-off, for the period ending December 31, 2008, HSNi recorded a loss on impairment of goodwill of the entire balance of $2.9 billion that was initially recorded on its balance sheet at the time of the spin-off. As of December 31, 2008, HSNi no longer has any goodwill listed among its assets.

In addition there was a one-time loss of recorded for the permanent impairment of value of other intangible assets of slightly over $300 million ($0.3 billion). This brought the total loss, or write-off, in the HSNi consolidated financial statements for 2008 to nearly $3.2 billion. These other intangible assets that were considered no longer of any value were such items as trade names and trademarks of various brands associated with HSN and Cornerstone. The financial statements did not disclose which of these trade names and trademarks were considered valueless.

This write-off of nearly $3.2 billion obviously had a major impact on the operating income reported by HSNi in its December 31, 2008 income statement. The loss from continuing operations for 2008 was $3.1 billion, and included the $3.2 billion write-off. If this write-off is not included HSNi would have operating income of $100 million. Even when considering the tax benefit of the write-off, the net after-tax loss on the income statement was nearly $2.4 billion.

Why did HSNi write off the entire amount of its goodwill, rather than just a portion of it? Why did it write off the entire value of the other intangible assets? A review of its annual report (Form 10-K) filed with the Securities and Exchange Commission is instructive here. Note 3 to the financial statements explains the reasoning behind the write-off. Basically the write-off was due to macroeconomic conditions. The deepening recession and its negative implications for the retail sector led HSNi to conclude that any synergies that may have existed between HSN and Cornerstone no longer had any value. For the same reason the company felt that its intangible assets represented by trademarks and trade names that it owned also have no value any more. Generally accepted accounting principles, as outlined in SFAS 142, required the company to write-down the value of goodwill and the other intangible assets to -0-.

ADVANCED EXPLANATION:

SFAS 142 requires a company to write-down goodwill and other intangibles by using a complex two-part process. Conceptually, the process works as follows.

1) The company, using principally discounted future cash flow analysis, estimates the fair market value of the "reporting unit," e.g., HSN or Cornerstone. From this total fair market value of the reporting unit, the fair market value of the specifically identifiable assets (other than goodwill and the other intangibles) is subtracted. The difference is the current value of goodwill and the other intangibles. It is a residual amount in the calculation.

* For example, assume RST Company is a reporting unit of a larger consolidated group. At the end of the current year RST has a total fair market value of $5,000,000. The fair market value of its specifically identifiable assets, e.g., property, plant, and equipment, cash, receivables, inventory, etc. is $4,500,000. The implied value of the goodwill and other intangibles is $500,000. It is a residual amount in the process.

2) Next, the new value of goodwill and the other intangibles is compared to the carrying value of these intangible assets on the books of the reporting unit at the beginning of the year. If it is less than the carrying value, goodwill and the other intangibles are written down to their new values, which become the carrying values of these intangible assets to start the next year. The process is repeated next year. However, there can only be write-downs. If this process shows that goodwill has increased in value, there is no write-up to a higher carrying value. The goodwill (and other intangibles) remain at their previous written-down carrying values.

* Continuing with the RST example, if the carrying value of goodwill and the other intangibles at the beginning of the year was $800,000, RST has an impairment in value of $300,000. This amount is written off as an expense in the consolidated income statements for the combined group which includes RST. The new carrying value for goodwill and other intangibles is $500,000.

Evidently, when HSNi performed this process the total fair market values of the both reporting units, HSN and Cornerstone, were less than the sum of the fair market value of their specifically identifiable assets. This is not surprising given the sharp decline in stock values (and thus the value of the HSNi as a whole). When the value of the specific assets was subtracted from the value of the company as a whole, there was no residual amount left over for goodwill or the other intangible assets. Thus the entire amount was written off in the 2008 income statements.

QUESTION REPONSES

Coverage of this answer should focus on three main areas for HSNi. Clearly the economy is the most significant uncertainty facing the firm. This is closely followed by Social with its interconnection with the economy. Of significant importance is technology as it has not only allowed the filter of make this industry viable, but also with its advancements allowing for increased competition. As discussed in the case, legal and political threats also exist.

Refer to the above discussion for the five industry forces to address this answer.

Refer to the SWOT above to address this answer.

Refer to the Control Section above to address this answer.

Refer to the section above on Goodwill Write-Off to address this question.

REFERENCES

Anonymous (2008). IACInteractiveCorp.; IAC completes spin-offs of HSN, INC., Interval Leisure Group, INC., Ticketmaster and Tree.com, INC. Investment Business Weekly, Sept 7, p. 115.

Anonymous (2008). HSN, INC. adopts stockholder rights plan. PR Newswire, Dec 29.

Anonymous (2009). Steve Lococo's eco-care hair products to launch on ShopNBC; New color-safe eco-care system debuts on august 9th. PR NewsWire, August 6.

Dodes, R. (2009). Style--In fashion: Isaac Mizrahi meets QVC--the network creates a part-pitch, part-reality show to capture the designers outsize persona. Wall Street Journal, July 25, p. W4.

HSN, INC. Form 10-k Report, 2008.

Porter, M. E. (1980) Competitive Strategy: Techniques for Analyzing Industries and Competitors. New Your: Free Press.

Porter, M. E. (1985) Competitive Advantage. New York: Free Press.

Savitz, E. J. (2008). The writing is on the wall for HSN and John Malone. Technology Trader, June 19.

Sullivan, S. (2000). Shopping channels: Less of a hard sell. Broadcasting & Cable, Nov 27, 130 (49), 86-88.

Thompson, A. A., Strickland, A. J. & Gamble, J. E. (2007). Crafting & Executing Strategy (15th Ed.). Boston, McGraw-Hill Irwin.

www.dmwmedia.com/news/2008/06/09.

www.finance.yahoo.com

www.hsni.com

www.hsni.com/index.cfm

www.qvc.com/about

www.netadvantage.standardpoor.com/docs/indsur

Alexander Assouad, University of South Florida St. Petersburg

William T. Jackson, University of South Florida St. Petersburg

James A. Fellows, University of South Florida St. Petersburg