Audience warming up to the tele-shopping habit : INSIDE BUSINESS

BARRY DILLER, America's best-known media predator, should have known better when he jumped into bed with BSkyB to start a UK offshoot of his QVC home-shopping network. The deal in 1983 gave BSkyB 50 per cent of the UK venture in return for the use of a satellite channel. Mr Diller confessed last August, however, that QVC was "losing money like a sieve" and that the BSkyB deal was "a mistake".

Mr Diller is on his way out of QVC after three years at the helm, and the UK satellite venture is no more than a stone in his shoe. QVC UK might be down £15m, but the former president is collecting £110m from share options as he goes.

Yet, ironically, fortune is beginning to change for his UK venture, and the European market for home-shopping is about to explode.

Last month, QVC UK turned over £3.25m with sales of nearly £300,000 in a single day. In December, it did even better and the management is bullishly predicting turnover of about £47m for the year. Not bad for a station few have heard of and even fewer watch. QVC says it is putting on 20,000 to 30,000 customers a month, and City analysts are convinced that television shopping is a serious long-term threat to high-street retailers.

In the US, QVC turns over a phenomenal $1.2bn (£750m) a year, and the Wall Street Journal recently named one of its presenters, Cathy Levine, one of the year's top saleswomen after she persuaded her audience to part with £120m.

All over Europe home shopping networks are popping up. Leo Kirch, the German media mogul, will launch Home Order Television this autumn, and the French, who are even more vehemently opposed to "vulgar" Americana than the British, have had two 24-hour shopping channels since December.

"They could take 10 to 15 per cent of sales within 10 years. That is very serious for high-street retailers," says Neil Blackley, an analyst at Goldman Sachs, who believes electronic retailing is the way of the future.

High-street jewellers such as Signet (formerly Ratners) and H Samuel are already looking vulnerable. Jewellery accounts for about 50 per cent of QVC's sales. Diamonique, a diamante-type jewellery manufactured by QVC for the channel, is its hottest-selling item. In a single day in December, £158,000 worth of the stuff was shifted - more than half the day's total turnover. On another day, QVC sold 17,000 coin watches because they were considered "different" from the high-street fare.

Silver-plating kits costing £12.50, which work after a four-second spin in a microwave, were also a big hit in 1994. "It is what I call electronic retailing magic," says Budd Margolis, a former consultant to QVC. "Everyone wants to see their copper candlestick transformed into a silver candlestick before their eyes."

The high-street customer still shows a remarkable reluctance to tele- shop. A typical viewer will spend 40 hours watching before plucking up the courage to make the first purchase. Customers are also extremely cost- conscious: nine out of 10 have an Argos catalogue on their laps while watching QVC. For its part, insiders say, QVC was until recently equally slow and cautious But, they insist, problems caused by a refusal to expand the switchboard and problems with stock were "self-inflicted". One source said: "It was all to do with in-house fighting. When Diller came in, nobody supported him. He wasn't the conventional Philadelphian they were used to - he was Super Highway Cowboy. Then when he mounted the bid for Paramount, the old guard sat back and wanted him to fail. So they let the business stagnate in Britain."

The UK problems were not confined to switchboards and stock levels. From the start, QVC seemed to be hobbled in its deal with BSkyB. Costs were high as it was paying a 50 per cent premium to rent BSkyB's vacant Marco Polo building. More significantly, it was also tied into the Sky Multi-Channels package, which automatically limited its reach to subscribers taking the full BSkyB service.

Now that Mr Diller is on his way out, a new army of Americans has taken control. Last month, the original deal with BSkyB was torn up. BSkyB's original 50 per cent stake has been cut to 20 per cent, and QVC is expected to move out of the Marco Polo building within a year. The switchboard in Liverpool is about to be doubled in size, and the on-screen detail will be refined with £1m worth of new close-up cameras. Ofmore significance, QVC haschanged its encryption and for the first time will be available to audiences outside Sky Multi-Channels. This move should add another 300,000 viewers.

With the structural changes out of the way, QVC is confident it can beat City predictions for turnover this year. It says sales are up 400 per cent on last year's, and although the customer base is low, the percentage of viewers who buy through the service has already reached that of QVC in the US.

That may be enough - QVC is watched in 50 million US homes, but 50 per cent of its income is from a loyal core of 300,000 customers and 10 per cent comes from 6,000 fanatics.