Adland's New Billion-Dollar Baby

Infomercials Fast Approaching Lofty Heights As Revenue Generator

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When it comes to psychic phenomenon-whether it's tarot card reading, crystal ball gazing or the occasional insightful fortune cookie-most people are at least a little bit curious.

At $3.99 a minute, Psychic Friends Network has turned that curiosity into a $100 million-plus business for infomercial producer Inphomation Inc., offering callers access to its national network of psychics.

The 30-minute commercial program tops most experts' lists as the most frequently run infomercial in the industry, airing more than 12,000 times in the past 2 years.

It's revenues from shows like Psychic Friends that make infomercials hard for cable networks to resist. But it's money they love to hate.

From midnight to mid-morning, cable TV has become the residence of pitches for fitness products, psychic lines, juicers, fishing equipment, get-rich-quick schemes and nifty ways to knit a sweater without needles.

And there are more on the way.

As current limits on the number of cable stations give way to the coming explosion in channels, infomercials will be a necessary part of the programming landscape.

"As we begin to see more channels coming on stream, programming is going to become an increasingly important need to those cable networks," says Mike Drexler, president of BJK&E Media Group, New York, which in 1993 formed Bozell TMI, an infomerical joint venture with Transactional Media Inc.

Infomercials now account for about one-quarter of the programming time for most cable systems, bringing in $160 million in revenues last year.

Infomercials produced more than $900 million in total sales revenues in 1993, according to the National Infomercial Marketing Association. And that figure is approaching $1 billion this year, says Helen Blake, executive director.

At any given time, there are somewhere between 180 and 200 infomercials in release, whether in test or in full-run, says Tim O'Leary, president of TV Tyee, an infomercial production company that has produced programs for Revlon beauty products, Proform Fitness' Crosstrainer and Crosswalk, Sears, Roebuck & Co.'s Whispertone vacuum and Philips Consumer Electronics' CD-Interactive player.

In the fourth quarter of 1993, TV Tyee shows averaged media expenditures of $10 million to $15 million per month on broadcast and cable. The company will produce 35 to 40 infomercials this year, Mr. O'Leary says.

"Any of our shows that make the top 10 are spending a minimum of $1 million per month" on broadcast and cable TV time, he says.

Infomercials are ranked by the number of times they appear, with the understanding that shows with high frequencies must also be generating high inquiries or sales. Normally, infomercials that don't generate sales are quickly pulled.

Until about a year ago, some one in seven infomercials made it past the test stage. Lately, it's more like one in 10, industry sources say.

Part of that reduction is due to rising media rates, which have jumped 15% to 20% in the past year.

"Demand for infomercial time has continued to increase, and ... the supply has not, to a great extent. Channel capacity on most cable systems is somewhat limited. Because of the increase in demand, the time that's charged to infomercials and direct-response advertisers continues to go up," says Mr. Drexler.

Although it's still possible to run a 30-minute infomercial on some local cable outlets for as low as $150 to $200, you get what you pay for in terms of time slots and viewership.

National cable rates can run from $3,000 to $20,000 per 30-minute show, depending on the slots and demand.

"When you're in the $5,000 to $25,000 range, those are considered pretty big airings," Mr. O'Leary says. "Anything over $20,000 is a pretty major airing, but there are a lot of slots that sell for $25,000 to $30,000."

The cost to produce an infomercial also has jumped as more Fortune 500 companies have begun producing them, says Sam Catanese, owner and publisher of the Infomercial Monitoring Service, which tracks infomercials on 20 national cable stations.

Whereas the average infomerical once cost less than $100,000 to produce, it now starts at $150,000 and can go to as high as $850,000, Mr. Catanese says.

By 1995, he expects production costs to be in the $1 million range.

An effort to elevate the quality of infomercials through the use of major stars in the productions; a switch from a video format to 35mm film; and larger production crews have all contributed to the increases, he says.

As a result of rising costs, shows are becoming less profitable than they were several years ago, says John Kogler, president of Jordan Whitney. The company produces the Direct Response Television Monitoring Report, a self-described "combination of Nielsen and Siskel & Ebert."

Consequently, "marginal products are having a harder time succeeding," he says.

"There are shows out there that were very good shows that never made it [because] ... airtime cost too much," Mr. Catanese says. "Five years ago, those shows would have been a home run."

Mr. O'Leary views infomercials as a logical alternative for product marketing and advertising. But, he says, "The bottom line the cable industry has to understand is if the products aren't doing a reasonable payback, and if they keep raising their prices, they will hit a ceiling here pretty soon.

"They're in a good situation now, but they can't keep pumping up prices," he adds.

With the coming explosion in cable channels, cable systems are going to need infomericals more than ever.

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