Beyond the Ginsu Knife
Shoppers and Advertisers Change Their Attitude About Infomercials
By Stuart Miller -- Multichannel News, 4/24/2005 8:00:00 PM
Okay folks, we have a great item to demonstrate today: the 21st century infomercial. Sure, it still slices and dices, but the new, improved infomercial does so much more — the hard sell, the soft sell, the straight information demonstration, all with our new high quality, market-tested production values. But act now, because prices are going up.
Yes, the infomercial has grown up. After years on the fringe of the industry, with a reputation as a place where “yell and sell” hucksters hawked snake-oil medicine and Ginsu Knives, the 30-minute infomercial and its “mini-me,” the short-form direct-response ad, now are accepted and even attract upscale advertisers, who see interactive advertising as the answer to their 200-channel, clutter-filled nightmares.
“The biggest change is that it’s looked upon as a legitimate form of revenue and doesn’t carry such a stigma in the world of advertising anymore,” says Dan Casey, executive vice-president at WorldLink, a global sales rep in the direct-response business that specializes in long form inventory.
“The business is continuously robust, but now there is a more diverse group of advertisers, including Fortune 500 companies,” says Dean Goodman, president of Pax TV, which runs a heavy slate of infomercials.
“We’re more accepted now by the television industry,” says Barbara Tulipane, president of the Electronic Retailing Association, the infomercial trade group. It’s not just new channels trying to earn their stripes as advertising vehicles that place infomercials and direct-response ads. Discovery Communications Inc. runs infomercials and a range of direct-response spots. The company has a direct-response sales division with six account executives, and two account executives on the infomercial side.
Last year, some 250,000 infomercials ran each month in the U.S. and Canada. That represents an 8% increase over 2003; 100 new products aired in October alone, according to Sam Catanese, president of IMSTV.com, which tracks this info and sells it in Nielsen Media Research-style reports.
The ERA says infomercials and direct-response ads generate $91 billion in sales. Successful players like Proactiv Solution sell $600 million worth of goods in a year. For broadcast stations and cable networks, these ads are worth about 5% percent of their annual revenue, but with more players — especially deep-pocketed ones — they have been able to raise rates in recent years. Local broadcast stations can charge up to $15,000 for a half-hour while national cable networks can rake in up to $40,000. (According to Goodman, that increased channel capacity has meant more inventory which tamps down rate hikes.)
Daphne Kwon, a former executive at A&E Television Networks and Lifetime Television, says informercials have changed dramatically since the Federal Communications Commission dropped rules limiting ad time per hour to 16 minutes and individual spots to two minutes.
Soon, a new genre was born with spots by moguls like Bill Guthy and Greg Renker of Guthy-Renker, as well as Victor Grillo. Most early infomercials were low-budget and hard-sell.
“Even though there was enormous revenue and no expenses for networks, when you looked at the industry you didn’t want to get involved,” says Kwon, who is now CEO of Expo TV, a company looking to launch an all-infomercial network in both VOD and linear formats.
To address that problem, ERA polices its own, creating a formal self-regulatory process to find questionable products and alert the Federal Trade Commission. But sleaze merchants remain a problem; last year the FTC forced Kevin Trudeau — who was selling a products that claimed to cure cancer and eliminate pain from arthritis and migraines — to pay a $2 million settlement and banned him from infomercials.
On the plus side, exercise equipment makers spent more on production and celebrity endorsements. The results, Total Gym, with spokespeople Chuck Norris and Christie Brinkley, broke the $1 billion sales barrier and inspired imitation.
What’s more, “search engines like Google and Yahoo — and the fact that products can force their way into stores through the power of product demonstration — has changed the industry,” Kwon says. Standards at retail superstores also pushes the quality of product advertised upward. “Wal-Mart [Stores Inc.] won’t deal with fly-by-night companies,” Kwon says.
The newer approach is particularly appealing to more established companies like Proctor & Gamble Co., Pfizer Inc. and Ford Motor Co. “The huge 'lesson of the jungle of overnight’ for these companies is that product demonstration on video is compelling,” Kwon says.
Tulipane says Fortune 500 companies are taking infomercials more seriously because they are being charged more for traditional ads even as fragmentation has lowered ratings. The ability of infomercials and direct-response spots to offer quantifiable results adds to their allure.
But bigger players and higher costs mean “it’s getting more difficult to make something work,” says Steve Dworman, author of $12 Billion of Inside Marketing Secrets Discovered Through Direct Response Television Sales.
Dworman says one in seven infomercials succeeded a dozen years ago. But these days only one in 60 might make it. According to Catanes, an infomercial must sell $2 in merchandise for every $1 spent on an avail. So if CNBC charges $60,000 for a Saturday slot, an infomercial must move $120,000 in product. The top 25 advertisers all spend at least $200,00 a week, Catanes adds.
Experts say that some products launch with an infomercial and then run the more affordable two-minute direct-response ads. But once a product has gained some TV exposure, the Internet provides more affordable solution. Infomercial advertisers are also turning to print and radio ads to an extent unheard of five years ago.
Kwon believes that ExpoTV will attract even more consumers and advertisers because it intends to weed out bad products. “They need a place they can trust,” she says.
Expo TV currently rejects one-third of the infomercials submitted because of the quality and integrity either of the product or the commercial itself. It also is providing experts to lend an air of authority, and aims to build a cohesive, logical schedule. “Procter & Gamble doesn’t want their product next to a Girls Gone Wild infomercial,” Kwon says.
Tulipane says emerging technologies will be a boon to infomercials, with TV sets storing information like shoe size and favorite colors. “You will make your purchase with a flick of the remote,” she says.
Dworman sees a chance for companies to take the next step in direct response ads by embedding spots within shows. He points to ABC’s Extreme Makeover — Home Edition, which highlights Sears, Roebuck and Co. products. If each episode ended with a direct-response ad, including an 800-number to call, “sales would go through the roof,” he says. “This strategy is a slam dunk.”
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