Nearly all year, the specter of Barry Diller has hovered over Home Shopping Network Inc. It has not been a comforting presence. First, there was HSN's agreement to launch a shop-at-home service in Britain with British Sky Broadcasting. Diller scuttled the deal in June by negotiating a pact with Sky for his QVC Network instead. Then came the merger. On July 12, Diller announced that QVC would acquire HSN in a stock swap worth $1.1 billion. Now that plan, too, is off--superseded by Diller's bid for Paramount Communications Inc.

Suddenly, it's back to square one for HSN Chief Executive Gerald Hogan, who has been buffeted by events since he took the reins in February. "To say he has been under fire is putting it mildly--I don't think a guy could have come in under more duress and fared better," says HSN Director J. Anthony Forstmann. "Under the circumstances, he's done quite an incredible job."

Hogan was recruited from Turner Broadcasting Systems Inc. by Liberty Media Corp. following its purchase of a controlling interest in St. Petersburg (Fla.)-based HSN. His mandate: revitalize a company that had stagnated under co-founder Roy M. Speer. Sales had rocketed in five years, to $1 billion by 1990, then flattened. Management controls were lacking, and Speer's forays into such ancillary businesses as infomercials had weakened the core shopping service.

Within weeks of Hogan's arrival, HSN was rocked by allegations of financial misdeeds and self-dealing--including accusations that employees took kickbacks from vendors. The allegations were contained in a lawsuit, still pending, by HSN's former general counsel against the company, Liberty, Speer, and other HSN officers. HSN and the other defendants have denied the charges in legal briefs. HSN also faces shareholder suits containing similar allegations and says the Securities & Exchange Commission is investigating.

As the scandal unfolded, Hogan tried to buck up HSN's demoralized work force. But he admits that it has taken longer to change the corporate culture, which suffered from Speer's autocratic management. "All decisions were funneled to him," says Hogan, who has worked to decentralize decision-making and institute other changes. HSN took an inventory write-down of $22.7 million and altered its merchandising mix to eliminate items that cost less than $10.

Not all of Hogan's fixes have worked. In the nine months ended Sept. 30, revenues dropped to $750 million from $795 million the year before. In part, sales slipped because HSN spun off two operations. But business suffered over the summer after HSN began focusing on pricier goods, such as computers and jewelry. And consumers objected when HSN moved a fashion program out of an early-morning slot. HSN reinstated the fashion program and readjusted its merchandising mix--and sales in September and October improved.

Still, Wall Street generally praises Hogan's early moves. "He has done what he could--small things and the right things," says Peter J. Siras, an analyst with UBS Securities Inc. The bigger challenge now: to improve sales by broadening HSN's reach and turning occasional customers into regular buyers.

MERGER MYSTERY. HSN's most compelling advantage: its new allies, Tele-Communications Inc. and Bell Atlantic Corp. Liberty has agreed to drop its 22% interest in QVC should Diller acquire Paramount. That outcome certainly is in question: Both QVC and Viacom Inc. extended their offers for Paramount pending a court ruling on the legality of Viacom's tender. If Diller wins, Bell Atlantic Chairman Raymond W. Smith, who will acquire the Liberty interest as part of his proposed acquisition of TCI, would be free to focus on HSN as an entree to the home-shopping arena.

Smith's backing should aid HSN as powerful retailers, such as Spiegel-Time Warner and R.H. Macy & Co. launch their own home-shopping vehicles. Meanwhile, Hogan is building relationships with programmers to provide new HSN venues. He is discussing a joint venture to market products with Black Entertainment Network through BET's existing cable programs. And international expansion, particularly in Europe, remains high on Hogan's list.

Europe, of course, was where Hogan first got burned by Diller. Is he still sore? Nah. Diller's presence has generated excitement in the home-shopping arena, Hogan says, adding that "it's a long race." Indeed. If Diller's Paramount bid falls through, though, he may well be back on HSN's doorstep.

      1993 Results
      NET SALES*         $750.1 million
      GROSS PROFIT*       239.2 million
      OPERATING LOSS*     -16.9 million
      HOUSEHOLDS REACHED   59.2 million
      CLUB MEMBERS          5.0 million
      MEDIAN AGE            43.5
      PER MEMBER            $305
      *Nine months ended Sept. 30  DATA: COMPANY REPORTS
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