The Biggest TV Network You've Never Heard Of

The more you learn about the PRN television network, the more improbable and impressive its success seems. Although PRN's studios, which share an unremarkable San Francisco office block with a country music station known as "The Bear," are a far cry from the glitzy studios of, say, the Today show in Manhattan, PRN is anything but bush league. In fact, it charges a who's who of advertisers the same rates that cable channels charge for prime time, and it claims more than 180 million monthly viewers, making it the fifth largest network in the U.S. -- lagging only Fox and the big three.

Oddly enough, it manages to attract all of those viewers even though it doesn't play on any residential cable systems and even though compared with broadcast TV -- with its 18 minutes of ads each hour -- it feels like an interminable chain of shill. Put simply, although PRN's CEO describes one of his network's programs as "our equivalent of Desperate Housewives," its shows have no sex appeal (or plots) and certainly would never be called "appointment TV."

But PRN is the biggest television network you've never heard of because of these traits, not in spite of them. Its name stands for Premier Retail Networks, and it is the in-store ESPN of consumer products. In industry argot, PRN is by far the largest network in the domestic "narrowcasting" niche, the business of sharply targeted "out-of-home" networks that was born of the fragmentation of traditional television audiences. PRN responded to the fragmented media landscape with a question elegant in its simplicity: Considering that about 70% of brand-buying decisions -- Charmin or Cottonelle? -- are made inside the store, why not try to get relevant ads in front of shoppers at the moment of decision? "Where else," asks Jim Wiatt, CEO of William Morris and a PRN board member, "can advertisers get the message out better?"

Today, PRN can be seen in more than 6,000 stores. Its biggest channel is Wal-Mart TV, but its clients include Sears, Best Buy, Circuit City, SAM's Club, Costco, Ralphs, Pathmark, ShopRite, and Albertson's. Each month, according to the market research firm MRI, 81% of U.S. adults shop in a store with a PRN network. As a result, the company has been able to raise $77 million in venture capital, file with the SEC for an $89.5 million IPO, and, yes, turn a profit, taking home $10 million in 2003 (the most recent full-year profit data it will release) on revenue of $112.1 million.

And the industry is just coming into its own. Norman McLeod of InfoTrends/CAP Ventures, a Weymouth, Mass., consulting and research firm, expects the domestic narrowcasting business to grow from $613 million in 2004 to $2 billion in 2009. But PRN still faces challenges. It is adamant, for example, that it be evaluated (and paid) according to traditional Nielsen measures such as audience size and brand recall -- even though new technologies like Arbitron's Portable People Meters are helping companies measure more exactly how well (if at all) advertising really works and some competitors, analysts, and advertisers are asking why in-store networks shouldn't be judged on how much they juice sales rather than on how many people watch the screen. On top of that, PRN is heavily dependent on one customer: Wal-Mart, which last year accounted for 87% of its revenue. And as PRN entered the new year, it faced this daunting reality: Its Wal-Mart contract was set to expire in March.

PRN was the brainchild of Michael Stern, a tall, laid-back New York City native. After graduating from Dartmouth's Amos Tuck School of Business, Stern spent just enough time working at Clorox to realize that in the world of packaged-goods marketing he was "a square peg in a round hole." So he engineered an extreme career shift by founding Sourdough Puffs, a (pre-Atkins) restaurant chain that sold sourdough pastries topped with strawberries and whipped cream and other decadent things. After the chain grew to about a dozen locations, he sold it.

Like many entrepreneurial endeavors, Stern's next Big Idea arrived in "Why not?" regalia. For centuries, the in-store marketing side of retail had been, in Stern's words, "just stacking products on the shelves and hoping that people take them before you have to dust them again." He figured there had to be a way to talk to consumers inside the store. So in 1992 he took a several-hundred-thousand-dollar mortgage on his family's Mill Valley, Calif., house. "It was stressful," says Stern's wife, Denise, who worked a steady job as a director of investor relations at Pacific Telesis Group (now part of SBC Communications) while Stern and two partners founded PRN. "But we didn't have options because we didn't have cash to put up." The technology that Stern developed took the form of kiosks designed to sell CDs. Housed in each seven-foot-tall box was an interactive laser disk station that let shoppers sample about 100 music clips.

Early on, Stern realized he would need more money and an executive with more operating experience. Through a broker, he met Jeffrey M. Cohen, the founder of Washington, D.C.'s upscale Sutton Place Gourmet (now Balducci's), who bought the company for an amount he won't disclose and took over as CEO. "There wasn't a real business there when I came in," says Cohen. "I hired Michael back because he was the biggest asset. He needed some help scaling it and operating it, but he was really good at what he did and had a great technology."

Many founders rail against losing the chief's role, but the 53-year-old Stern says he wasn't bothered at all: "It would be stupid of me to think, 'I started this. It's my company.' Bull -- -- . I've never had an issue with not being CEO. My wife tells me that's why I'm going to live to be 100." Stern is now executive vice president of business development.

Stern and Cohen convinced Kmart and Wal-Mart to put their music kiosks in several hundred stores -- where it turned out they made little impact. "You have to stand in line to use it," says Stern. "You spend two minutes playing with it, and if we're lucky there's someone waiting in line behind you."

But he and Cohen had noticed something: "There are tens of millions of dollars of TVs hanging in every Best Buy, Sears, and Wal-Mart playing the stupidest stuff," Stern says. So they used money from early investors such as the State of Michigan and the Ethos Fund, which put in $10 million together, to buy two tiny start-ups that had nascent networks in electronics departments. In 1996 they bought AdVenture Media, which provided in-store media to Sears, and in 1997 they got Stopwatch Entertainment Network, which did the same for Best Buy and Circuit City.

"I was in a Wal-Mart the other day, at the TV wall, and I saw a Sears ad playing on Channel 7. How do you guys feel about advertising sears in your stores?"

Then Stern went after the biggest fish. He spotted Wal-Mart's H. Lee Scott Jr. -- then head of merchandising, now CEO -- at an industry event in December 1996 and waited in line to shake hands and deliver his elevator spiel: He could offer Scott a controlled way to communicate with all of Wal-Mart's customers every time they come into a store. Scott asked him what he was doing in two weeks. It was at that meeting that Stern used his best line: "I was in a Wal-Mart the other day, at the TV wall, and I saw a Sears ad playing on Channel 7. How do you guys feel about advertising Sears in your stores?"