Shopping Network’s Potential Attracted Diller : Entertainment: The former Fox chairman joined QVC after studying new cable technologies for a year.

Former Fox Inc. Chairman Barry Diller surprised Hollywood on Thursday when he confirmed that he’s casting his lot with QVC Network Inc., the country’s largest home shopping network.

The conventional wisdom dictated a deal in network television, where Diller made his mark as the force behind the Fox network. But the volatile executive sees stronger opportunities in the new technologies that are already driving QVC’s success.

For nearly a year he’s been boning up on the brave new world of signal compression and video on demand. Diller plans to use QVC as the springboard into the multichannel, interactive program environment that experts are trumpeting as the next wave in television.

He will invest $25 million in QVC to acquire about 3% of the company’s common stock. At the same time, he has been given voting authority for Liberty Media Corp. and Comcast Corp., which hold a combined 35% stake in QVC.

QVC, based in the Philadelphia suburb of West Chester, is one of the fastest-growing companies in the United States. Begun in 1986 by Philadelphia businessman Joseph M. Segel, QVC had revenue of $922 million last year and operating income of $19.6 million. Revenue this year is expected to top $1 billion, and profit is expected to double.

Segel will retire in January, when Diller is expected to be named chairman and chief executive. QVC’s directors also approved a lucrative financial deal for Diller that gives him options on 6 million common shares exercisable at above $30.00 per share, plus 160,000 shares of restricted stock. His salary was not disclosed.

A major element of Diller’s agreement is his alliance with Liberty Media Corp. and Comcast, two of the most powerful and innovative cable TV companies in the country. Liberty Media Corp. has stakes in more than half a dozen cable TV networks, including the Discovery Channel, Black Entertainment Television and the Family Channel.

More significant, Liberty is controlled by John C. Malone, the forward-thinking chief executive of Denver-based Tele-Communications Inc., which serves about one of every five cable TV subscribers in the country. TCI is at the forefront of digital video compression, a new technology that is expected to soon provide cable subscribers with over 500 channels.

The vast majority of those channels will be given over to a combination of pay-per-view, home shopping and other interactive services such as banking and bill paying. Diller has spent the last year studying high-technology applications of interactive television, brainstorming with people such as Microsoft Chairman Bill Gates and Apple Computer Chairman John Scully. Visitors to Diller’s office have often found him engrossed in his new laptop Apple computer, key-stroking through an array of multimedia programs.

Diller is optimistic about the potential of interactive television on the retailing marketplace. He foresees a day when there could be a dozen or more home shopping channels, allowing TV viewers to instantly order anything from clothes to groceries to plane reservations.

“I made a $25-million bet, and I’ve placed it on cable,” Diller said. “The significant developments in the future are going to be in that arena.”

Yet skeptics wonder how much demand there will be for 500-channel systems. While pay-per-view movies are a potentially large market, they will have to be offered at very low prices if they’re to compete with the corner video store.

There’s even more uncertainty about home shopping and game-playing programs. Shopping, ticket-ordering and the like can already be done easily by telephone, and it’s not clear that ordering directly via a TV set offers many advantages. Early interactive TV services, such as Interactive Network, which specializes in play-along games, have struggled to find a market.

Diller’s involvement is seen by analysts as the first step in the eventual merger of QVC with its chief rival, Home Shopping Network. Earlier this week, Liberty Media announced that it would pay $150 million in cash and stock for control of HSN.

“It sort of signals a blueprint of what’s going to happen,” said Dennis H. Leibowitz, senior vice president at Donaldson, Lufkin & Jenrette in New York. “They merge the two companies, QVC survives and Diller draws up product to fill the 500-channel environment.”

Times staff writer Jonathan Weber contributed to this story.