September 2004 - Reflections on an Industry

After 20 years, direct response television (DRTV) has not only spawned a multibillion-dollar industry and survived government and public scrutiny, it established a trade association, opened the doors to global markets and, more importantly, changed the way consumers purchase goods and services.

By Vitisia Paynich

In the summer of 1984, President Ronald Reagan opened the door wide open to free enterprise when he deregulated commercial media time. No one in those days had ever heard of the term infomercial, while the direct response television (DRTV) medium was simply an anomaly. That quickly changed when more people began to realize the power of television and its ability to entice the consumer to pick up the phone and order product.

However, what was becoming a rapidly growing industry could have been obliterated in 1989, when Congress began to make inquiries into alleged unethical business practices. This was a real threat that could have had dire consequences, had it not been for the efforts of a group of individuals who created a trade association as well as the companies that supported it.

These early catalysts were born from a natural desire to protect their individual companies and preserve that entrepreneurial spirit, which eventually opened up new avenues in direct marketing both in the United States and on a global scale. These are their stories as they reminisce about 20 years of buying and selling over the television airwaves and the trials and tribulations that led to the formation of an association in the early 1990s.

Often new industries become the offspring of other more established markets. Hal Altman, president of Motivational Fulfillment & Packaging Services in Chino Calif., recalls that DRTV’s origins stemmed from the print medium. “We started in 1977 when what was once called direct sales, [soon] became direct mail,” he says. “When DR started in the late ’80s and early ’90s, the original [pioneers] of DR were the direct-mail people who found a new way to ship and advertise their goods. So, we just made the [move] with them. We were basically one of the first companies to get involved with what is now called co-direct response, because there was this evolution through direct mail, inserts and catalogs to television.”

“We started 30 years ago on April 17, 1974, and we started as a product fulfillment company,” explains Rob Woodrooffe, president of Interwood Direct in Toronto, Canada. The company handled many U.S. products that marketed using short-form commercials. “We always had our finger on the pulse of what was going on in the States, because in the early days, that was where we found all the product offers. And so, we would license those products and bring them to London and Canada.”

In 1982, Ben Giordano was operating a print media business from the basement of his New York home. His company at the time, Media Syndication, specialized in billing inserts for banks and direct marketing clients such as the Franklin Mint and Columbia House. Eventually, the company partnered with DRTV firms, converging print DR with television. “The early beginning of DRTV was much different than it is now, because 90 to 100 percent of it was done with people calling or writing in for the offer and then having it shipped COD,” notes Giordano.

He adds that the challenge in those days was getting the product to stick with consumers, being able to accurately read the results and maintaining a profitable program. However, he says the real difficulty was dealing with the problems of COD.

Ajit (A.J.) Khubani, founder, president and CEO of TELEBrands in Fairfield, N.J., began selling his father’s imported consumer goods via print ads in 1983. Khubani’s print ads led to $11 million in sales in just two years. This prompted him to transition from print to television, beginning with three short-form spots. Soon after, he added retail to his business model.

Fern Lee had graduated from college with a Masters degree in marketing in the 1980s when she answered an ad in the New York Times for a direct-mail marketing position with Peter Hammond, principal of the Hammond Companies. The company specialized in print marketing for Cosmetic Research Corp. “Once the deregulation occurred, we became one of the first people to do a DRTV infomercial,” she says. Today, Lee is the executive vice president of GoodTimes Entertainment in New York City.

In the 1980s, some international direct marketers were experiencing their own share of growing pains in trying to define their business in an industry that did not exist during that period. For Roland Kluger and Pierre Bellemere, partners of PBRK in France, they wanted to sell products through television programming but strict government regulations made that impossible. Thus, PBRK had to establish traditional programming, which meant they were prohibited from showing the brand during the program, much less, a call to action. “We had to sell items without telling which brand it was,” explains Kluger.

Bellemere and Kluger discovered another marketing route. “From day one, we considered ourselves part of the mail order industry and tried to apply the same rules to television as they had in the catalog business,” notes Kluger. This set the groundwork for PBRK’s lobbying efforts that would eventually prompt the mail order industry to include selling at a distance, which later helped to define home shopping programs.

While industry insiders continually speculate over the first, official infomercial, the majority of industry purists contend that real estate and business opportunity seminars and home study courses launched the industry as the result of the deregulation.

Richard Stacey’s first foray into direct response was with home study courses in the 1980s. “We did home study courses that were sold by mail order and we did seminars across the country in hotels,” he explains. “We started to see some of the American-type seminars [that featured] mostly real estate [people]. We didn’t even know that Reagan had lifted the regulations; we just thought it was a good idea.”

Thus, Stacey and his colleagues decided to shoot one of their seminars as a show. “It was an hour long, because at that time, the formats weren’t established.” In fact, it wasn’t uncommon for some shows to run two hours and beyond.

The CEO of Northern Response in Toronto, Canada, recalls that once the show, called “Looking for Success in Your Own Business,” aired, it simply took off like gangbusters. “It was like winning the lottery,” he says. “We just ran the infomercial, which was basically a condensed version of my seminar.” Soon two other programs, called “Success in Real Estate” and “Invest for Success,” followed.

In the United States, entrepreneurs like Paul Simon and Ed Beckley found success conducting live seminars and selling their courses that included books and audiotape recordings. Nancy Marcum, then president of Media Arts Intl. in Phoenix, and Ray Lindstrom, vice president, signed Simon as a client in 1982-booking Simon in auditoriums for speaking engagements, placing print ads in newspapers and buying short-form spots on TV to promote the seminar venues. Two years later, Marcum and Lindstrom decided to videotape Simon’s seminars and condense them into one-hour formats.

Beckley, a real estate mentor to Simon, held seminar courses of his own, called “No Down Payment,” in hotel ballrooms and meeting rooms across North America. He soon followed Simon’s lead and in the fall of 1984, approached Tim Hawthorne-who was working at the time as a documentary producer and director for a number of network TV shows in Los Angeles.

Hawthorne says Beckley persuaded him to come to Fairfield, Iowa, and produce one of his infomercials. The first show, called Ed Beckley’s “The Millionaire Maker: No Down Payment,” debuted on air in December 1984.

In the 1980s, Jack Kirby, chairman of the ERA Board and CEO of Los Angeles-based Continuum Commerce Group, moved to California to run a television station in Santa Barbara. “[It was] quite by accident that I ran into people who were the very early pioneers in this industry-people like Mike Levey, Tony Hoffman and Hal Morris,” he says, “and I was fascinated by what they were doing and thought, ‘Here’s a business that’s really going to take off!’”

In the mid-1980s, the idea of long-form commercials was a complete mystery to many in the media business, particularly the television and cable stations. Hawthorne explains, “In Fall 1984, most of these infomercials were typically an hour long with one call to action at the very end of that show. “We started to create some of the first multiple call-to-action infomercials in 1985.” He explains that toward the end of that year, there were more call-to-action half-hour periods. Thus, Hawthorne cut the shows down to 29:50, which was different from the standard 28:30 program that is common today.

“In those days, people didn’t really know the value of TV time,” notes Lee. “They didn’t know what was a PI (per inquiry) or how much to charge.”
Marcum recalls traveling to New York to the TNN offices to purchase media time for the Paul Simon programs. “At the time, TNN only programmed 18 hours a day, which meant they went black at night. We didn’t even know what to ask for other than just to say, ‘I would like to buy one-hour blocks of time.’” Puzzled by Marcum’s request, TNN classified the media purchase as religious programming with the likes of evangelists Jimmy Swaggart and Jim Bakker. The programs did so well in the beginning that Marcum recalls TNN bumping the religious shows and offering Media Arts the full block of time from 3 a.m. to 9 a.m., Monday through Sunday. “My partner and I bought it all,” she says.

This gave Media Arts a competitive edge over the other players in the industry, especially since there were less infomercial avails at the time. “That block of time I had on TNN was so [valuable],” Marcum points out. “Some of our competitors were jealous of it, and I was afraid of losing it. As a result, we ended up paying more money than we should have for it just to protect and keep it.” Media Arts was of one of a small group of media companies that owned the lion’s share of avails in the DRTV arena.

Collette Liantonio, president of Concepts TV Production in Boonton, N.J., had begun her own production company in 1983. Along the way, she had formed partnerships with Kevin Harrington and Jim Cauldwell of Quantum Marketing to create a number of half-hour shows for products like The Blade and the Great Wok of China. However, what she recalls vividly was the perception of the industry by the ad agencies. “I remember the early days of being called in by different ad agencies and having them snicker at the whole infomercial market,” she says. “And now, I just love when I see a Swiffer commercial emulate our methods and try to make it look homespun.”

As DRTV companies were expanding into other product categories, such as cosmetics, fitness equipment and kitchenware, they soon realized that they needed help on the back end. Northern Response’s Stacey admits in the beginning, they didn’t have a clue about support services. “For our first show, we used this little telemarketing services company that had something like 10 operators. I remember the phones were still ringing [off the hook] three or four days later after the show had aired.”

Bill Guthy began his career in 1978 on the services side when he owned Cassette Productions Unlimited (CPU). “I started mass producing audiotapes and videotapes and doing packaging and printing,” he explains. In fact, CPU produced real estate seminar audiotapes for Ed Beckley, Paul Simon and Dave Del Dotto. Later when Guthy partnered with Greg Renker to form Guthy-Renker, they weren’t quite sure where to begin. “Twenty years later, it seems a bit easier if you can go to a trade show and meet all the vendors and suppliers. Back then, that didn’t exist. And so, we had to make calls to 800 numbers that we saw on TV and try to track down the companies from the people who answered the phone calls,” Guthy describes.

Thus, as the industry was growing, relationships between DR media firms and support services companies were forged.

Steve Pittendrigh, CEO of !nPulse Response Group in Phoenix, had been in the DR business since the mid-1970s. He recalls that in the early days of DRTV, it was mostly front-end driven. He explains that the focus was more on the issue of immediate response, and “there was very little interest in lifetime value [and] very little interest in growing the relationship with the customers. It was just more opportunistic and [the belief] that you sell a product and move on. Some of my challenges in talking to potential clients was to reinforce the value of ongoing relationships with their customers to sell additional product to grow that relationship.”

Bret Butterfield, marketing director for Convergys in Ogden, Utah, agrees. “When you look at our industry, the [companies] that seem to survive are the ones that really work on taking care of the customers. When I interview potential clients, I [ask them,] ‘What do you do to take care of your clients?’” Butterfield joined the industry in November 1984 and worked on backend services with DRTV products such as the Ginsu knife and Guthy-Renker’s “Think and Grow Rich” program.

In 1990, Media Arts Intl., which became a division of National Media, received a letter from the Federal Trade Commission (FTC), notifying the company that it planned to conduct an investigation of its product claims in several of the infomercials that had been airing since 1988. Further, the letter stated that claims were made that required justification.

“At the time, Media Arts/National Media had quite a history of infomercial success beginning in 1984,” explains Marcum, who had sold her company to National Media but remained on staff. “However, the programs being investigated mainly centered around the Amazing Discoveries series of infomercials.” Some of the shows touted such products as Auri car polish, HP 9000, the Magic Wand, Europainter and Natural White teeth whitener.

Marcum adds that the Commission believed the claims made in each of those shows were too good to be true. As a result, the parent company advised Marcum to seek legal counsel from Eric Ruben, an attorney based in Washington, D.C. The lawyer suggested that Marcum and Media Arts form an association to advise them on the rules and regulations of marketing claims in advertising.

Prior to the FTC’s letter, the U.S. House Small Business Committee held the first of two sets of investigative hearings in 1989. These hearings focused on the direct response industry. That year, the government put the DRTV industry on notice and extended its investigation well into spring 1990.

It was in the wake of the second hearing that Jeffrey Knowles, partner in the law firm of Venable LLC in Washington, D.C., approached the largest company in the industry at that time, Synchronal Corp. of New York City. “[Synchronal] at the time was under investigation by the Federal Trade Commission, and I suggested to them that one of the ways that they could protect their interests and interests of the industry would be to form an association,” notes Knowles.

In May 1990, both Greg Renker and Bill Guthy, founding partners in Guthy-Renker in Palm Desert, Calif., were asked by Knowles and Synchronal to participate in the investigation by attending a hearing in Washington.

Guthy recalls, “It was decided that Greg would be the best candidate to field questions.

Renker notes that at the time, Congress and the FTC weren’t just questioning product claims but the format as well. “Many of the shows were done on what looked like news programs. They were blatantly misleading in some cases,” he affirms.

Thus, both Renker and Guthy traveled to the Venable offices to prepare for the hearings. Knowles and Synchronal’s Tom Fenton prepared Renker’s testimony before the Small Business Committee.

Fenton had been the head of television production in New York City prior to joining Synchronal. “He was a very seasoned advertising agency executive with a very broad background in media,” notes Knowles.

On the day of the hearing, Congressman Norman Sisisky (D-Va.), a former board chairman for the National Soft Drink Association and Congressman Ron Wyden (D-Ore.), now a senator, asked Renker whether an industry trade association and standards existed to which Renker stated there were not. The DR company owner then proceeded to field a series of questions posed by the Committee.

“To this day, I would say that Bill and I are grateful that we took advantage of the opportunity [to testify], because it was a real eye-opener,” recalls Renker. “Basically, Congress said, ‘If you don’t clean up your act now, we’re going to clean it up for you.’”

Knowles also recalls during the 1990 hearings “a senior government official from the U.S. Postal Service actually testified that the infomercials were not simply misleading, but were inherently deceptive and ought to be banned,” he notes.

He adds that the FTC was also being taken to task by the investigating members of the House Small Business Committee for not cracking down on the industry.

As for Media Arts, Marcum says the FTC deposed her three times, with final fines totaling $200,000. “Further, the programs were changed to meet FTC guidelines and continued to air for many years thereafter,” she notes.

As individual companies feared the worse from the Congressional hearings, others took a more proactive approach. David Chaladoff, principal of David Chaladoff Media in Fairfield, Iowa, had worked with Ed Beckley and Tim Hawthorne in the 1980s, eventually branching out on his own as an independent media broker for companies like Synchronal. When talks were circulating about forming an association, Chaladoff actually tried unsuccessfully to obtain support from the Direct Marketing Association (DMA).

“I went and talked to Jonah Gitlitz, the president of the DMA at the time, and his executive vice president,” recalls Chaladoff. “These guys didn’t know what infomercials were-they were totally in the dark.” However, Chaladoff would soon learn of Knowles’ efforts to establish an association, and contacted the attorney.

Says Knowles, “I reached out to a number of other companies and individuals who were involved in the industry and sort of put together the original group of founding companies that served as the initial Board of Directors for the association.”

Thus, the National Infomercial Association (NIMA) was formed by nine individuals, representing nine DR companies, including Doug Bornstein of B&L Marketing Concepts, Tom Fenton of Synchronal, David Chaladoff, Kevin Harrington of Quantum Marketing, Tim Hawthorne of hawthorne direct inc., Nancy Marcum of Media Arts/ National Media, David Marsh of American Telecast, Greg Renker of Guthy-Renker, Gene Williams of Power Media Marketing Group, and Jeff Knowles of Venable LLP.

Other companies such as Hammond, Media Solutions, Motivational Fulfillment, Concepts TV Productions, Northern Response and TELEBrands eventually joined NIMA as well. “I thought it was important for the industry to pull together and be represented properly with the U.S. government,” notes Khubani.

Katie Williams, chair of Williams Worldwide Television in Santa Monica, Calif., says, “As soon as I found out about NIMA, I joined. I thought it was extremely important to really be involved with ethical practices and support our industry so that we could keep on doing this.” Williams began her DR career in 1984 when Ed Beckley recruited her to handle marketing in his Chicago offices.

One of the first objectives as an association was to develop industry standards. “The first document that really reflected those standards was the NIMA Marketing Guidelines,” says Knowles. It the was the first document that actually outlined a set of ethical business practices and standards for the industry members to follow. During the summer of 1990, NIMA held its first annual meeting at the Grand Hotel in Washington, D.C., attracting about 125 people.

“It was an exciting time because these people were competing with us for airtime-knocking one another off,” notes Renker.

Among the DRTV giants were public companies like Media Arts/ National Media, Synchronal and Twin Star. “These were real companies trading and had responsibilities to shareholders,” he adds. The stakes were high for the industry.

The first meeting also attracted speakers from the government sectors such as Barry Cutler, then director of the Bureau of Consumer Protection, Congressman Sisisky and representatives from the FTC and Congress. In 1991, NIMA was officially established, along with its Executive Committee that included Renker, Fenton and Chaladoff. It also revised the NIMA Marketing Guidelines by adding FTC staff comments and held its first trade show at the Mirage in Las Vegas.

When asked who had the most influence in shaping the industry during the early beginnings of the industry, it was quite difficult to narrow their choices. However, the majority believed both Greg Renker and Jeff Knowles made a powerful impact in forming NIMA. They recognized Renker for stepping up to the plate and testifying on the industry’s behalf and Knowles for his efforts in building the foundation for NIMA, which in 1997, would later evolve into the Electronic Retailing Association (ERA).

Others, however, look back at the personalities such as the infomercial hosts as early adopters of the medium. The pioneers such as television icon Ron Popeil, pitchmen Arnold Morris, Tony Hoffman and Hal Morris and real estate personalities Ed Beckley, Dave Del Dotto and Paul Simon struck a chord with industry professionals.

They have also recognized two industry members, Tom Fenton and Mike Levey who passed away a few years ago. Chaladoff, who had worked with Fenton, credits him for his dedication to NIMA’s Executive Committee. “He brought a lot of commonsense to the table,” notes Chaladoff. “Tom was also very influential and proactive.”

As the host, producer and writer of Media Arts’ “Amazing Discoveries” series of shows, Levey simply connected with his audience. His dynamic on-camera presence and trademark sweaters led to 26 hit shows in one year. “Mike was truly an entrepreneur and a visionary,” says Marcum, CEO of Marcum Media. “I don’t think today, many shows receive fan mail.”

What were the products that shaped the industry? Many believe the real estate and financial home study courses launched the industry; and therefore, should be recognized. Some, on the other hand, credit beauty and health-and-fitness products for putting DRTV on the map.

TELEBrands’ Khubani believes fitness products by far have been the biggest winner in the industry, because it helped to grow the market. “It produced huge volumes of sales starting with the 1980s both in long form and short form,” he states.

Venable’s Knowles cites American Telecast’s Total Gym fitness system. Here you have a company that has “taken a product and kept it on the air for about six years now, and as you know, most infomercial products have a short life cycle-some lasting as little as six months.”

“I don’t think it’s possible to overstate the importance of Guthy-Renker,” suggests !nPulse’s Pittendrigh. “The company started off like all of the other entrepreneurs started off with a couple of successful products, [but Guthy-Renker] provided world-class customer service to their clients. They grew the relationship with their clients and began continuity programs.

Kirby concurs with Pittenrigh and goes one step further to say, “I would cite Proactiv Solutions for a couple of reasons. [First,] the acne product that Guthy-Renker [sells] has shown that by using direct-to-consumer electronic marketing, you can build a successful, sustainable long-term brand. They have built the No. 1 acne brand in the United States that is reported to do almost a half-billion dollars in annual revenue,” he contends. “Further, the company has proven that this business is capable of building brands.”

Despite the early efforts of industry members to establish marketing guidelines and standards, many realize the industry had to weather a few storms along the way with products that either simply didn’t work or couldn’t deliver on their claims. Williams believes the electronic Ab-belt products really hurt the industry’s image both domestically and internationally. “Anybody who did their homework would know that it was illegal to sell those in the U.S., because it was classified as a medical device,” she says. Marketers had to seek FDA clearance before attempting to sell the products.

Hawthorne, chairman of hawthorne direct in Fairfield, Iowa, adds, “What was so embarrassing about that whole episode was that it was so obvious to me, other people in the industry, and the average person at home that these products did not do what they were advertised as accomplishing. I thought is was really kind of a sorry day in our business.”

“The marketing of the Ab belts has led to a dramatic change in law enforcement by the Federal Trade Commission,” adds Knowles. “Because of the FTC’s lack of success in stopping the marketers of Ab belts and then collecting substantial civil penalties, the FTC has adopted a much tougher law enforcement stance with respect to direct response marketers. That has led to lawsuits, the FTC seeking temporary restraining orders, asset freezes, appointments of receivers to actually run companies in our industry, and other drastic remedies that have put enormous pressure on the companies than on the targets of these lawsuits.”

The industry also took a hit in the media a few years ago with negative publicity perpetuated by one unhappy diva. Motivational Fulfillment’s Altman recalls when Cher came out to the media and said doing infomercials was the worst thing that she had ever done in her career. “For a year or so, it kept other personalities from coming out as spokespeople for products,” he says. Eventually, well-known celebrities returned to the airwaves to endorse various DRTV products.

In 1997, NIMA underwent a metamorphosis when it changed its name to the Electronic Retailing Association (ERA). The groundwork that Knowles, Renker and the Executive Committee set for industry standards and guidelines during the early days of NIMA has blossomed into ERA’s Self Regulatory Program, which has opened the doors to a new generation of members who have been the catalysts of growth and change. “Linda Goldstein, the champion of self-regulation, was the person after Greg Renker [as ERA chairman], who sort of said, ‘Look, we have a standard to maintain. We have to bring it forward and we have to have solid guidelines,’” Kirby points out.

Today, ERA has not only expanded its membership and staff, it has broadened its scope from television and print marketing by opening its doors to other marketing channels-including radio, online and mobile marketing-as well as embracing new technology. It also has taken an international stance by welcoming industry professionals from Asia and the Pan Pacific region, Latin America and Europe, as well as reaffirmed its commitment to its Canadian membership.

Long-time association members, however, believe more work needs to be done to ensure ERA’s longevity and impact on the industry. “I’ve always been in favor of an organization involving everybody in the industry and in the planning of its future,” contends Altman. He adds that the Board of Directors should include one or two representatives from every industry segment to ensure that they have a voice in the growth and planning of the organization. “[Otherwise], you’re not getting a full representation of the members that you have there.”

As Kirby puts it, “NIMA was the foundation, and ERA has grown into this magnificent building [that was] built upon that solid foundation. The founders of NIMA really had the vision and the foresight that an industry-wide organization would be better in protecting the industry’s future rather than individual companies going at it on their own. ERA has really accepted that mission, maintained it and elevated it to a new level-because as the industry grows, so does the complexity of the problems that it faces.”

Industry Pioneers

Aijit (A.J.) Khubani

Ben Giordano

Bret Butterfield

David Chaladoff

Greg Renker

Katie Williams

Jack Kirby

Jeffrey Knowles

Nancy Marcum

Richard Stacey

Rob Woodrooffe

Steve Pittendrigh

Tim Hawthorne

Fern Lee

Collette Liantonio

Hal Altman


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