NEWS ANALYSIS : Diller to Create New Type of Network to Rival Majors : TV: What exactly the media mogul has in mind with Silver King is a mystery. The obstacles are formidable.

If anyone else had made a modest investment in an obscure and weak collection of television stations that run home shopping programs, the transaction would have gone largely unnoticed, and possibly drawn some sneers.

But Barry Diller is not your everyday investor, and on Friday Wall Street and Hollywood were trying to unravel the mystery of what the secretive media mogul has in mind by gaining control of Silver King Communications Inc.

Diller envisions creating a new type of television network to rival the majors, including Fox Broadcasting Co., which he built for Rupert Murdoch’s News Corp. in the late 1980s. It is the 53-year-old Diller’s latest move in his quest to be counted among an elite league of entertainment tycoons that includes his old boss Murdoch, Viacom’s owner Sumner Redstone, and his new partner in Silver King, John Malone, a mysterious entrepreneur in his own right who controls the nation’s largest cable operator, Tele-Communications.

But the obstacles are formidable. The stakes in the television network business are getting higher with the entry of studios such as Walt Disney Co., which last month agreed to pay $19 billion for Capital Cities/ABC.

Though Diller now has a public company that will allow him to raise money, he may need as much as $500 million for starters to compete for programming against the majors, even if he allies with a movie studio such as MCA or Sony.

Although Silver King’s 12 stations are in big cities such as New York, Chicago and Los Angeles, they have much weaker signals than those affiliated with the other networks. This means Diller cannot expect to quickly attract the masses of viewers who bring in the big advertising dollars that make conventional networks profitable.

“It’s not always clear to the rest of us where he’s going, but for his entire career, Barry Diller has been a pioneer and a visionary--able to see over the horizon,” said Jeffrey Katzenberg, a co-founder of DreamWorks SKG. “He’s building another network that will be neither conventional nor predictable. When Barry steps up to the plate, he hits a grand slam.”

Certainly, Wall Street quickly bet on a home run, despite only the vaguest hint of a plan. The stock price of Silver King soared more than $13 a share Friday, to close at $39.375 after the official announcement that Diller would buy a 20% equity stake in the St. Petersburg, Fla., company. The market value of the little-known company rocketed nearly 50% Friday to about $370 million.

Diller will control about 70% of the voting stock if the Federal Communications Commission approves the deal.

“There’s a new word on Wall Street,” said Mario Gabelli, who invests in media stocks through the Gabelli Fund. “ Dillerizing means hiring an energetic CEO.”

By way of explaining the run-up in the stock, Dennis Bovin, a vice chairman at Bear Stearns & Co., said: “The media industry is at a point of maximum uncertainty. People don’t know what’s going to define the future so they focus on individuals with track records who they think know more than they do.”

What Diller will do with Silver King is far from clear. But for starters, sources said he would scrap the long-term contracts his stations have to run home shopping programming and exploit an alliance with a studio to give him access to higher-quality shows.

Because the best television stations are already affiliated with one of the five networks in the biggest cities, Diller has had to settle for the 12 UHF and 27 lower-powered stations at Silver King. UHF stations have much weaker signals than VHF stations.

To compensate for this, Diller is expected to apply in a new way federal rules that require cable operators to carry the programming of local broadcast stations. Diller thus will be able to expand his reach in the markets where Silver King owns stations.

“You can pay the cable operator to put you on the low end of the dial so it doesn’t matter if you are on UHF 86 if you appear on Channel 11 on the cable dial,” said one TV executive.

To reach the rest of the country with his package of services, Diller could use his partner Malone’s nearly 12 million cable subscribers nationwide, sources said.

“These stations reach 30% of the U.S. households,” said Diller, calling from an airplane telephone Friday.

He added, offhandedly, as if it were a simple thing to do: “You establish local broadcast stations with entertainment, news and sports and as that is taking place, you begin network service.”

In characteristic style, Diller said he was too rushed to provide more details, while on his way to a full day of meetings in a city he would not disclose.

But sources said his network probably would not resemble any of the majors or the two recent ventures started by Time Warner and Viacom, which Diller has publicly ridiculed as me-too enterprises with no niche to fill.

Since leaving Fox in 1992 with a severance package of an estimated $150 million, Diller has been lusting for a network. He invested about $25 million in QVC Network in 1993, hoping to use the home shopping channel to help his two partners, TCI and Comcast Corp., another cable operator, expand their programming options. Using QVC, they launched an expensive and unsuccessful hostile takeover of Paramount Communications against Viacom.

Diller struck out again last year when he tried to merge QVC with CBS only to be foiled by his own shareholder, Comcast, who had second thoughts about the idea and waged a tender offer for the shares of QVC it did not own. Diller cashed out his ownership of QVC in February for what analysts estimate was more than $100 million in profits.

Diller has kept a lower profile than usual in recent weeks, causing former colleagues and friends to suspect that he was close to hatching a plan.

Under the complex series of transactions signed Friday, Diller would take control of Silver King from Liberty Media Corp., the cable programming company controlled by Malone. Silver King was formed in 1986 as an arm of Home Shopping Network to distribute the channel’s programming. It was spun off to the public in 1992 for $2 a share by Home Shopping’s new owners, Liberty Media.

Diller has acquired 20% of Silver King at a price of $22.625 a share and immediately becomes its chairman and chief executive. Liberty Media will transfer control of an option for about 70% of Silver King’s voting stock after the station licenses are approved for transfer to Diller by the FCC, which could take several months.

It was not clear what Malone would get for his voting interest in Silver King, although as part of the deal, Diller will join the board of Home Shopping Network, which has experienced financial difficulties in an attempt to dump old inventory and upgrade its merchandising image to compete more directly with the spiffed-up QVC.

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