JOINT-VENTURE PROJECTS
Financing is a common roadblock for most start-up businesses, particularly
if the business involves direct response television, which people outside
the industry often perceive as an extremely high risk.
Infomercials, a relatively new form of marketing, have their share of critics
who consider their stability to be suspect. Because of this - and the general
volatility of television - conventional financing is often out of the question.
Start-up businesses and individual entrepreneurs often seek friends and
family members to provide seed captial for infomercial production and test
marketing.
A simple infomercial with no celebrities, elaborate props, or post-production
effects may cost anywhere from $10,000 to $15,000 to shoot and edit in 3/4
inch U-Matic format.
Add to this another $10,000 to $15,000 for TV airtime, and you are looking at
a minimum of $20,000 to reasonable launch an infomercial campaign on your own.
INFOMERCIAL MARKETING COMPANIES (IMCs)
IMCs are among the best sources for financing for two primary reasons: (1)
they are familiar with the industry and have available funds, and (2) their
hands-on involvement with your campaign provides helpful expertise.
AIRTIME INVENTORY. The strength of IMCs lies in their huge inventory of
excellent TV airtime available for half-hour paid programs. Most of these
companies buy huge blocks of strategic (early evenings and weekends) airtime
from most major cable networks.
QUALITY PRODUCTION. Most IMCs have their own production facilities. Those
that don't, usually have access to the best production houses in the country.
These production capabilities are usually combined with talent agencies that
enable them to negotiate the best rates for celebrities.
MANAGEMENT. The third benefit to usingan IMC is its experience in managing
informercial campaigns. If a major IMC takes on your product, your campaign
is likely be handled by a team of experienced managers.
PROVEN PRODUCTS ONLY
Two major constraints are normally imposed by IMCs. One has to do with your
product - IMCs do not take on every product that comes their way.
Presenting your product to an IMC is like an author selling his manuscript
to a major publishing firm. Your product must pass a set of litmus tests
before the IMC will consider risking their dollars on your product.
If you have only a prototype of your product, it may be more difficult to
sell to an IMC. If the IMC does buy it, they usually want to get involved
with the actual manufacturing of your product.
Conversely, if your product has been successfully sold in some other form
of direct response marketing, or if you have already produced and test
marketed some version of your infomercial and have impressive sales
performance numbers, IMCs will be more receptive. Furthermore, having
numbers to substantiate your offer will give you negotiating leverage.
CONTROL
Some entrepreneurs hesitate to deal with an IMC because ofthe control factor
both financial and creative. Without any numbers to bakc your projections,
your figures are mere speculation.
As a newcomer to the business, you will not have the leverage to dictate
financial terms nor will you have a free hand in determining how you
product should be presented.
As with most other businesses, the leverage goes to the party with the
most to offer. if you are new in the business and have an unproven product,
you do not have the luxury of shopping aroung for the best offer. On the
other hand, if you have a proven product, particularly one that has been
test marketed via an infomercial, you can compare offers and negotiate the
best terms.
OPEN DEAL
There is no set structure for financial terms between entrepreneurs and
IMCs. Each company has a formula for structuring a deal, which may vary
from one product to the next.
You will be better off focusing your evaluation on two factors: (1) How
much money you stand to make based on their projections; (2) How much time
it will take for you to make your first dollar.
Needless to say, where profit projections are concerned, IMCs tend to be
conservative. When your objective is to convince them that your product will
make them a lot of money, the IMC will naturally argue the opposite. There-
fore, when evaluating an offer, consider your own projections objectively
while viewing the IMC's figures as being pessimistic.
GOING UPSCALE
To provide leverage for dealing with major IMCs, entrepreneurs commonly
launch their own small scale infomercial campaigns to produce performance
figures favorable for negotiation.
The strategy usually follows this sequence: (1) You produce a simple
infomercial to test market your product; (2) You buy airtime in a number
of secondary markets and track the results; (3) You present your product
and your test market numbers to an IMC.
A MAJOR INFOMERCIAL COMPANY CAN REV UP YOUR SALES AT AN ACCELERATED PACE
YOU MAY NOT BE ABLE TO AFFORD ON YOUR OWN.
With a heftier production budget and a huge inventory of prime infomercial
airtime, an IMC can do wonders for your campaign. You can reshoot your basic
infomercial to feature celebrities and give your new infomercial a glossy look.
And with the expanded access to better TV airtime, your sales can soar at a
rate you may not have been able to produce on your own.
