DOGS & CATS SHOPPING NETWORK

Ritu Raj, ritu@ritu.us, (415) 876 7000

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YAbstract Components

Business

D&C is not embarking on anything that has not been done before, but has been done in different pieces, no one has put together all the parts in a very branded, detailed oriented and focusing on creating completely a new customer experience.

Dogs & Cats Shopping Network will have the following components:

• Key would be creating a Home Shopping Network exclusively for Dogs and Cats.

• In the beginning using the paid programming slots (infomercial time) on select tier-2 channels

• Creating a D&C shopping marketplace – like Amazon.com marketplace, invite product reviews, highlight products, becoming the “publisher” and “store” for the huge cottage industry which produces the pet toys. Eventually to produce infomercials for products for the website and do product launches.

Home Shopping Network

(HSN)

Infomer-cials

AmazonMarket-

place

“Dogs and Cats Shopping Network” agenda is to bring a very media rich and high-end shopping experience to the owners of dogs and cats to their homes.

D&C aims to establish really fast a premium brand for shopping for pets, and that brand could be easily expanded to bricks and mortars store, other media & entertainment ventures and also D&C branded merchandise.

Market

• 72 million people own a pet, which is 63% of all households

• Number of Dogs & Cats in the US are 163.1 million

• Average amount spent for common pet products for Dogs is $530 and Cats is $272 and this does not include food or medical expenses annually

• Currently there are 44.8 million dog-owning households in the US, of those 78% bought a gift for average $10 which translates to an astounding 39.4 million gifts or 394 million spent on gifts every year.

Dogs & Cats Shopping Network (C) Confidential 2008 2

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Abstract Cottage industry market strategy now

D&C Marketplace model

•Pet Products

Cottage Manufacturing

•List their products for no fee, revenue share

D&C Marketplace

•Search Engine Optimization

•Advertising campaigns

•Branding

Pet Owners

Cottage Manufacturing

Marketing

•Web

•Retail

•Advertising

Pet Owners

This is the first building block of D&C. The marketplace addresses the issue of a highly fragmented, and primarily cottage industry manufacturing pet toys.

Most small manufacturers (most of them out of their) homes have no resources to market their products, they create websites think the traffic would come, or if they are bigger they try to get their products in to pet boutiques.

D&C Marketplace is an e-commerce website which does not carry any inventory. Pet toys manufacturers put their toys on themselves for a 25% share of the revenue. The model is the same as Amazon.com.

D&C Marketplace will market to the consumers through print ads, SEO and through relationships with non-profits etc.

D&C Marketplace would also seek consumer rating of vendors, and also products (some of the product reviews will be pre-populated).

Once D&C Marketplace has got some traction, would also create small 2 min paid infomercials for the vendors and put them on the site. This would also attract more consumers as its more emotive and they can see how it would fit into their lifestyle.

Producing infomercials' (low quality) for the web is not costly, costs approximately $500 per edited min if done in-house.

D&C Marketplace will become the model for reaching the consumers for the cottage industry.

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ETAILS

Customer Experience Revenue

Expenses (Rough)

Main issue with large number of SKU’s is customer getting overloaded with information, and most of it is not relevant to them.

D&C Marketplace main goal for the customers would be to have “relevance” as the main focus. Some of the areas of relevance that we would focus on:

• Breed of Dog

• Lifestyle – urban or suburban

• Price range

• Sending them reviews of new products if its relevant to them.

• Registery for dogs

• At some point also we would start creating products generated from what the consumers want.

• Become the place for vendors to launch their products

• Develop a configuration tool based on the profile of the consumer

Dogs & Cats Shopping Network (C) Confidential 2008 4

Major cost & drivers Sub Drivers Notes Annual

Development & running D&C Marketplace

This includes development, maintenance, customer service, merchandising

$ 1,745,000

Marketing Marketing would include print advertising in dog magazines, banner ads in high traffic dog related websites, relationships and revenue share with non-profits like the SPCA, and finally through short infomercials $ 600,000

Management Including President, finance and marketing support $ 400,000

Miscellaneous including leases etc $ 200,000

Total expense for a year $ 2,945,000

There are 3 components for projecting the revenue

• Price point – preliminary research and experience shows that the cart size average $30

• Traffic – through marketing we are confident to reach a minimum of 1 million hits, this is very conservative.

• Conversion – We would have a higher conversion rate as we want to have the maximum number of sku’s available to the consumers looking at a 5% conversion rate

• Projected revenue $1.5 million a month and a revenue share of 25% would net for D&C $375K or $4.5M a year

• The growth of this on annual basis is directly proportional to the traffic and conversion, and they are based on the consumer experience. We think could increase traffic substantially every year.

• This does not include the revenue from creating a short infomercial business for small pet manufacturers. . This would enhance the customer experience on D&C.

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KAbstract Home Shopping Network (with a difference)

D&C growth plan

Start with 1 hour on paid programming time (late night)

Move to better slots, late evening, or middle of the afternoon

Eventually increase time and have a D&C channel!

Shoot live and have instant analytics available

Like Home Shopping Network

Exclusive Products

High End Production

Celebrity Talent

Few guests with their

Pets

Create the first ever shopping network exclusively for dogs and cats. It would be similar to QVC or Home Shopping Network (Direct Response) with exclusive pet products. However as there is a very high emotive factor we would have for sure dogs/ cats on the sets, maybe shoot b-roll of products with the pets etc.

The Show

• The show will be a hosted show initially for an hour

• The show will air on all week nights

• As a start would air in the late night paid programming slots

• Every week have a celebrity talent (like Paris Hilton) for a short duration

• Have 3-4 people representing different psychographics with their pets on the show, where the pets are the expert testers

The Production

• Shoot one day a week.

• 8-12 products

• Edit every week day the show, based on what sold the day before. Introducing a new product every day.

The Direct Response

• Have a direct response company deal with all the logistics of shipping and taking the calls 24/7

• Also have 24/7 customer service and web orders

The Merchandising

• Merchandising the right products and the other side is getting the vendors to agree to give “large” numbers on a consignment basis

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Major cost & drivers Sub Drivers Notes Cost Annualized

Distribution Channel On dedicated Paid Programming Channels at say 10pm, with sufficient buy in advance both on cable and satellite

$10,000 per hour $ 2,600,000

Length of show 1 hr show

Frequency 5 days a week at 10pm

Production Real time/ off line

To start with recording for 5 days/ 8-10 products in 1 day and editing the content for 5 days. Once there is a certain viewership established going to the live model with online analytics support

$12,780 per hour $ 3,322,800

Celebrity talent This would bring in the viewership, everyone wants to know what Paris Hilton gets her dog stuff

Direct Response & Fulfillment

To start with outsource DR & fulfillment. Normally it costs 2% of revenue, and is built into the S&H costs Nil

Analytics Offline analytics, change the show everyday based on the product responses Nil

Merchandising At least 2 merchandiser, and a person they report to who is the business guy $150,000/ year $ 150,000

Marketing This would be a mixture of "cross channel promotion", print and PR $600,000/ year $ 600,000

Management Corporate Management, Finance and Marketing $400,000/ year $ 400,000

Miscellaneous Including legal + office + etc $200,000/ year $ 200,000

Total expense for a year $ 7,272,800

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D&C growth plan

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The revenue is based on 2-3 components and having an extremely well produced show

• Number of viewers (primary) – we think given the quality of the show and marketing done prior to launch we could start with 5 million viewers a show

• Price points – most infomercials peg the price to be shy of $30, we think with the celebrity talent the average could be higher

• Conversion – we think that the conversion would be 0.1%

• Merchandising -- the merchandising would be generated more from the celebrity talent and making sure that its hitting different price points.

• Revenue per day $150,000

QV

CFacts about QVC Financials

• QVC, Inc., one of the largest multimedia retailers in the world, broadcasts live 24 hours a day, 364 days a year. Founded in 1986 by Joseph Segel, QVC is a wholly owned subsidiary of Liberty Media Corporation attributed to the Liberty Interactive Group (Nasdaq: LINTA). Mike George currently serves as the company’s president and CEO.

• QVC employs approximately 17,279 people worldwide.

• QVC has international broadcast operations in the United Kingdom, Germany, and Japan.

• QVC reaches approximately 96% of all U.S. cable homes and nearly 25.3 million satellite homes, totaling more than 166 million homes worldwide.

• QVC’s buying staff of more than 168 people searches the world for quality merchandise. Product categories include: Home, Electronics, Cooking and Dining, Collectibles, Health and Fitness, Beauty; Jewelry, and Fashion.

• QVC introduces more than 1,600 products each week (250 of them, new) to our customers

• QVC.com achieved sales of over $1 billion in 2006.

• QVC.com (U.S. site only) attracts an average of 5 million unique visitors each month and receives between 1,500 to 2,100 product reviews and customer ratings daily. This traffic is the largest daily review volume of any Bazaarvoice client to date.

• In 2006, QVC received close to 179 million phone calls in the United States alone. The record for the most calls handled in a 24-hour period is 1,246,387, set on April 8, 2006.

• To date, more than 45 million people worldwide have shopped with QVC.

• Over the last 21 years, QVC has shipped more than one billion packages in the United States. In 2006, QVC shipped more than 165 million packages worldwide.

• On November 12, 2006, QVC set records both in number of shipments (600,682) and number of items shipped (678,078) during a 24-hour period.

• QVC’s U.S. distribution centers can pack up to 300,000 packages daily.

• QVC achieved its best sales day on December 2, 2001 with more than $80 million in orders taken; the Dell Intel Pentium IV personal computer was the most popular item sold on that day.

VALUATION MEASURES

Market Cap (intraday)5: 9.62B

Enterprise Value (19-Feb-08)3: 15.77B

Trailing P/E (ttm, intraday): 15.26

Forward P/E (fye 31-Dec-08) 1: 20.55

PEG Ratio (5 yr expected): 1.09

Price/Sales (ttm): 1.23

Price/Book (mrq): 1.20

Enterprise Value/Revenue (ttm)3: 2.07

Enterprise Value/EBITDA (ttm)3: 8.139

FINANCIAL HIGHLIGHTS

Fiscal Year

Fiscal Year Ends: 31-Dec

Most Recent Quarter (mrq): 30-Sep-07

Profitability

Profit Margin (ttm): 8.40%

Operating Margin (ttm): 14.89%

Management Effectiveness

Return on Assets (ttm): 3.70%

Return on Equity (ttm): 6.91%

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