By  on May 17, 1994

NEW YORK -- Realizing it can no longer be a single-note company in an increasingly cacophonous home shopping arena, QVC is diversifying.

The network is rolling out two new shopping services, Q2 and On-Q, which are radically different from any existing home shopping formats -- and getting into infomercials, transactional programming and interactive shopping.

When QVC Network changed its name to QVC Inc. in February, it established a holding company, enabling it to build new divisions separately. Q Direct will produce infomercials and other programming. QVC Interactive will launch an interactive on-line shopping service for personal computers, called Q Online, on a system like Prodigy or Compuserve, in 1995.

Together, the two divisions could contribute $450 million to QVC's bottom line in three to five years.

QVC is approaching the interactive future with caution. The company prefers to deal with the here-and-now technology of PCs rather than broadband interactive television, currently confined to labs and test sites.

But critics wonder whether hedging its bets on an online service is a wise decision for QVC when other companies are testing a myriad of interactive vehicles, including television.

QVC is facing competition from Time Warner and Spiegel's Catalog 1, Fingerhut's S Channel and MTV Networks. In addition, Time Warner will be testing its interactive Full Service Cable Network in Orlando, Fla., by year's end, and Pacific Bell, AT&T, Bell Atlantic and GTE are all working on broadband interactive television tests.

QVC is not participating in any of the tests.

Stephen Tomlin, vice president and general manager of interactive technology at QVC Interactive, said the most compelling reason to launch an online service is that a computer audience is already in place.

"A huge portion of the population has some connection with the computer," he said. "When broadband interactive TV becomes a reality, we'll have a trusted service."

Steven Kernkraut, a managing director of Bear Stearns, said that not participating in interactive television tests "might put QVC behind the learning curve. It always helps to be the first one there in an expanding market. The second and third ones there don't always capture the day."R. Fulton Macdonald, president of International Business Development, a retail consulting firm, said, "It might well mean that QVC will be facing some very serious competition that might prove to be very embarrassing in just 24 months."

Bill Harvey, president of Next Century Media, said: "PCs still can't deliver a full screen of video. QVC should be going both ways. It isn't an either/or situation."

Tomlin has no doubt that interactive TV will arrive, but feels it's too far off to warrant immediate action. His logic may prove to be prescient, since the cable TV and telephone industries -- which rushed to form strategic alliances -- are now trying to thwart each other's efforts to build the electronic superhighway.

"The issue is how do you get there," Tomlin said. "We've looked at all the interactive TV tests and there are a lot of questions in my mind, like, will the technology work, and when. We won't be seduced by last year's siren song of broadband television.

"Money poured into this today could be totally wasted because the lessons you learn could be totally useless once the technology gets established and standardized," Tomlin added.

But Tomlin has no illusions that the PC is an ideal vehicle for shopping.

"So far, PC-based shopping has been a total non-event," Tomlin said. "Any retailer who has tried this will admit they never sold anything. What's it going to take to make people want to shop through a PC? Making the data relevant and personal."

PC shopping has largely been limited to text, but Tomlin said technology is improving. He envisions Q Online's format looking like a magazine or book or catalog, "as opposed to some nerdy looking computer screen," he said.

With Q Online, consumers will be able to locate products easily, Tomlin said. For example, a customer could simply type in "Tell me about a particular product," or connect to Q Online's customer service desk for a "live chat," where the customer types in questions and the service agent types back answers.

There will also be "Wizards," personal shoppers or expert sales people, Tomlin said.Tomlin said celebrities could also be used as experts. The company is currently talking to several celebrities about writing shopping columns where they would make recommendations.

Q Online will initially be launched on a service such as Prodigy, Compuserve or America Online, but Tomlin declined to name the service.

Tomlin declined to discuss volume, but sources said Q Online could be at least a $100 million business over the next few years.

Another potentially big revenue producer could be Q Direct, which could deliver $350 million in volume in three to five years, according to its president, Robert J. Perkins.

Not content with simply being an electronic retailer, QVC wants the larger profit margins that come with product ownership.

"We will develop products for TV with retail in mind," said Perkins. "We will test them on QVC and perfect them, then move them to the infomercial arena, then into retail."

"We want to own equity in products," said Doug Briggs, president of QVC Electronic Retailing. The strategy of introducing products from successful infomercials to retail outlets was pioneered by infomercial production companies, which routinely own or share ownership of a product. When it works, it is extremely lucrative. For example, American Telecast, a production company, has done $200 million with Victoria Jackson's cosmetics over the past 4 1/2 years.

Briggs cited Hydron Care, a line QVC developed, which contains a patented emulsion system, as a brand suited for retail introduction.

"We are developing our own hair care line, our own brand of hosiery," he said. "If Randolph Duke were to go to retail, we'd participate in it. I have high hopes for that line."

A source close to QVC said the company is also working on a line of alpha-hydroxy acid-based treatment products.

Perkins said, "A lot of the things we do will end up in the Wal-Marts and Targets of the world. But different products will go to different outlets, depending on price."

While "Can We Shop?" QVC's joint-venture with Tribune Entertainment Co., a subsidiary of Tribune Broadcasting, and Regal Communications, has struggled to find an audience for shopping on broadcast TV, QVC wants to supply programs across the dial."Wherever you turn your dial, you might find us," said Perkins. "It may be infomercials. It may be a joint-venture with a cable company like MTV, or it could be NBC. Everybody wants transactional shows. Part of Q Direct's challenge is to generate transactional shows."

"I don't think anybody has done it successfully yet," Perkins said. "We have a couple of ideas. We think ours will be different."

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