Diller May Have to Fall Back on Plan B : Deal: Most expect apparent loser to make a play for another company while his momentum remains strong.

For Barry Diller, it’s apparently back to Plan B.

The chief executive of QVC Network consistently maintained that his ambitious bid for Paramount Communications never had a “better than 50-50” chance of succeeding.

Now that he seems to have come out on the losing end of those odds, Diller, 52, must set his sights on another target to fulfill his goal of reigning over a multimedia powerhouse.

The veteran Hollywood executive came painfully close to that dream in the protracted Paramount battle, largely by assembling a group of big-gun backers who together pledged $3 billion toward the deal. He also established himself as a major Wall Street player.

But in the end, industry sources said, Diller’s plans were undone when one backer--Advance Publications, the vast media company controlled by the S.I. Newhouse family that publishes Vanity Fair and the New Yorker--decided that the stakes had gotten too high.

“They were the sticking point,” said one knowledgeable executive. “Advance is very vigorous (about overpaying), and they just thought it wasn’t worth that kind of money.”

With the battle seemingly behind him, Diller is not expected to dally at QVC’s tranquil suburban Philadelphia headquarters picking merchandise for the company’s home-shopping channels. Most people expect him to turn his attention to another company, while his momentum is strong.

“Even if he loses, never count Barry out,” said Mark Nathanson, chief executive of Los Angeles-based Falcon Cable TV. “I would expect within a year another big deal for Barry. He is the most qualified person in Hollywood to run a multimedia conglomerate.”

Yet, finding another worthy takeover target may be tough.

The entertainment landscape has gone through a tectonic shift since Viacom and Paramount announced Sept. 12 that they would merge. That agreement triggered a whole series of mergers and alliances among Hollywood and cable TV companies that have redrawn the media map.

Denver-based cable TV giant Tele-Communications Inc. is merging with Bell Atlantic Corp. a regional phone company; TCI is merging again with its former programming division, Liberty Media Corp.; Southwestern Bell has formed a joint cable TV venture with Cox Enterprises; US West completed its investment in Time Warner Entertainment; and Nynex is investing in Viacom, which, in turn, is merging with Blockbuster Entertainment.

These new alliances, with their often-conflicting agendas, complicate the options left to Diller, who still needs partners to transform and elevate QVC.

Moreover, the mergers of the last five months also resulted in strained relations between John Malone, the powerful chief executive of TCI, Diller and Comcast Corp. President Brian Roberts. Malone’s secret deal to sell TCI to Bell Atlantic, which forced it to pull its support of QVC’s bid for Paramount, caught Diller and Roberts by surprise.

Still, it is a given among those close to Diller--a former chairman of both Paramount Pictures and Fox Inc.--that he will again try to undertake a transforming deal involving another movie studio or even a broadcast network. “It goes back to the same things he’s been scouting since Fox,” said one insider.

The conventional wisdom is that Diller has not been hurt, indeed has probably been helped, by his Paramount bid.

According to several analysts, Diller has demonstrated his ability to pull together a multibillion-dollar coalition.

Yet, there is a downside. One of Diller’s chief weapons in his takeover fight--QVC stock--has been badly depleted.

QVC’s shares shot up so high last year--reaching a peak of more than $70 per share--that “it became an acquisition currency,” said Chris Dixon, an analyst with Paine Webber. “That enabled Diller to make a run at a company that was clearly in play.”

Moreover, Dixon added, Paramount represented a unique opportunity “that’s going to be hard to replicate.” There are only a handful of entertainment companies--major studios, cable TV operators or networks--that can be turned into the multimedia giant Diller envisions.

Indeed, all the studios except Metro Goldwyn Mayer are key assets in sprawling conglomerates that also want to take advantage of the anticipated changes in technology. Only CBS and NBC of the four television networks seem possible targets.

Also problematic is whether the complicated $3-billion strategic alliance Diller put together to help back his bid for Paramount will remain in place.

The investors, which included BellSouth Corp., Comcast Corp. and Cox Enterprises in addition to Advance, were not required to stay together if QVC did not acquire Paramount.

Under the agreement reached last November between QVC and BellSouth Corp., if a merger with Paramount were not completed, the telephone company had a six-month option to buy $500 million of QVC common stock at $60 per share. Similarly, Cox Enterprises and Advance Publications each has the right to invest $100 million in QVC common stock at $60 per share.

Another outcome from not completing a merger with Paramount is that Liberty Media, the affiliate of TCI, does not have to divest its 16.4% stake in QVC. Some see Diller and Malone renewing their partnership in the wake of the Paramount loss.

Liberty, under an agreement with the federal government, was forced to divest its stake in QVC because it is also a controlling shareholder in rival Home Shopping Network. That agreement expires once QVC’s merger agreement with Paramount is terminated.

Such a move revives speculation that the on-again, off-again merger with HSN will resurrect itself in the aftermath of a failed Paramount takeover. A QVC-HSN merger would create a home-shopping colossus with annual revenues exceeding $2 billion.

That also could be the launch pad Diller is seeking. With the traditional outlets perhaps increasingly shut off, Diller may steer QVC into more traditional programming ventures than simply home shopping.

HSN, for example, is linked to one of the largest TV station groups in the country, and that could serve as the base for a new entertainment network.

“He will go gangbusters at QVC,” predicted one person close to Diller. “He’s thinking ‘Sumner (Redstone, Viacom head) was the richest, but I’m the smartest.’ ”