ONTV/RONCO *PLEASE READ* Commentary on the shifting landscape of technology and infomercials.
I've been thinking about why this deal took place, and I've culled through a number of newspaper articles that gives some hint to the reasoning behind this move. There's the old adage that if you have a winning formula, stick with it. In 1984 the Reagon administration deregulated televisoin commercials giving birth the the infomercial. Well, Ron Popeil was successful enough to sell 40 products for well over a billion dollars with infomercials. But that was before the advent of cable and the internet. The prohibitive cost of doing infomercials on hundreds of different channels were cutting into his bottom line. The following two excerpts lays out the problem:
<<Popeil still markets some of the old favorites: He recently sold 9,000 Pocket Fisherman rods at $30 apiece on QVC. But because of the cost of television, he's moving away from smaller gizmos. "You can't put a $10 item on an infomercial or you'll lose your shirt," he says. "I'm more into the quality appliance rather than the unique kitchen products I grew up with." His current project is a kitchen appliance that will sell for about $200, but you'll have to wait for the TV ads for more details>>(Kiplinger's Personal Finance Magazine, May 1996)
The San Francisco Chronical notes: "Steep media rates, a bevy of TV channels and the rapid emergence of electronic commerce as an economic engine have prompted the makers of infomercials to expand onto the Internet."(1-25-99)"
The proliferation of TV channels and the high cost of TV advertisements were cutting into the lucrative infomercial industry. Small margin items could no longer be sold on infomercials, so Popeil needed other venues. In March 1997, Popeil attempts to go internet and sell his company to ONTV for 25million plus stock. But the deal falls through. Why? Don't know, but I think the success of the food dehydrator might have something to do with that. At the time of the merger, Popeil had sold 150million of the dehydrator according to the Arizona Republic (April 13, 1997). That was his most successful product to that date. Since then, he's sold a lot more dehydrators. The sale price of his company must have seem too small compared to the potential revenues that he could generate. You would expect a company with such a hit product to sell for more than 25mil, so the deal probably fell through. This is just speculation, who really knows.
Anyway, it's 1999, and Popeil has another hit on his hands--the Showtime Rotisserie oven. As shown in the MSN interview: communities.msn.com Popeil is currently inundated with orders for his product, yet as I've shown above, TV infomercial land has gone through a dramatic change. Since 1997, the date of his attempted merger, even more channels appear and the internet technolgy is starting to mature. It's no longer feasible to flood the TV airwaves, because there are just too many channels! So the only option available for Popeil to maximize his profits is to ride the wave of technology and go internet. He is obviously not a technology guru, so he needs a partner. Enter ONTV again, the same people who he almost sold his company out to a few years earlier. They strike up a deal for ONTV to handle RONCO's sales over the internet in exchange for a split of the revenues. THIS DEAL MAKES SENSE FOR EVERYBODY. I really don't think Popeil had much of a choice but to take on a partner with the skills to handle internet commerce.
So what we are seeing is a giant marketer RONCO, meeting the challenges of a new age of cable and internet. If RONCO does not embrace the technological shift taking place, they are dead in the water. The old infomercial formula has been greatly diluted by cable TV. Instead, Popeil is trying to latch onto the internet craze and start ot market his wares on-line. You can bet that with the financial muscle he's accumulated over the years will be poured into making this venture a success. In many ways, the internet is perfect for RONCO. He can produce high impact infomercials better than anybody else out there right now. Viewers can download infomercials on demand and check out his products at their leisure. He can also sell small markup items like the pocketfisherman and still make a profit. What's more with interactive TVs/internet set top boxes around the corner, soon everyone will be able to see his infomercials and buy his products at the click of a button. He'll flash his website address in one of his ubiquitous infomercials and they can instantly order. Perfect for the impulse buying that drives RONCO's business. What we may be witnessing is a true convergence of TV and internet.
I don't know if RONCO will be successful, but I can bet that Popeil will throw all of his weight into this venture. Again, he has no choice because infomercials aren't what they used to be. He needs to augment his infomercials with the internet to remain at the top of his game. Don't be surprised to see another tie up with a major hitter like AOL or Yahoo as RONCO sets up an electronic storefront. He certainly has the clout to pull this off.
This is not a buy recommendation, but as you can see, I've done the DD to put together a picture that is convincing to me. People scream pump and dump, but RONCO is simply managing an industry transition from a moribund infomercial sales formula to the treacherous waters of e-commerce. It's up to the individual investor to determine whether or not RONCO can make this jump. I'm betting they can becaues I think MARKETING is more important than anything else in selling products. All the technolgy in the world cannot replicate marketing genius. I am betting that the "salesman of the century" who's sold over a billion dollars in his career can replicate his magic in the internet age. It's up to you to decide. I merely present the facts and speculation for your examination. |
