The Biggest TV Network You've Never Heard Of

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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?"

Wal-Mart signed.

PRN came along at an almost perfect moment in media history. With the number of TV channels proliferating at an absurd rate, consumers were becoming almost impossible to reach in a mass way. In 1960, a typical U.S. household had fewer than six channels and 37.3% of viewers watched the top show, Gunsmoke. By 2003, average households had more than 100 channels and the top show, ER, managed to grab only an 11.5% share. At the same time, people's ability to recall advertised products had dropped from 35% in 1965 to 10% in 2000. Add to that the ad-skipping capacities of TiVo-like devices, which Forrester Research expects to be in 45% of all homes by 2009, and it looked to some as if the 30-second spot might be over.

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