Firm Reaches for Infomercial's Big Leagues : Marketing: Mike Levey, who has become a TV personality running Positive Response, is using a $6-million infusion to launch an ambitious expansion.

By MATTHEW HELLER

Aug. 23, 1994 12 AM PT

SPECIAL TO THE TIMES

SHERMAN OAKS — Over the past five years, Mike Levey has filled television air time across the nation, selling everything from car wax to electric juice extractors on 30-minute infomercials.

The programs have generated about $20 million in sales for his company, Positive Response Television, and in a good year the company makes 30 cents of profit for every $1 in sales. Along the way, Levey, its chairman and chief executive, has become a TV personality, known for his boyish enthusiasm and garish sweaters.

But all that has not put the Sherman Oaks-based company in the big leagues of the $1-billion-per-year infomercial business. It has been a small player, producing infomercials for other direct marketers, notably Philadelphia-based National Media Corp., and earning only a small royalty on sales of the products. Last year, Positive Response earned $1.3 million on revenues of $3.8 million.

Now, armed with a $6-million cash infusion from an initial stock offering in May, Levey is embarking on an ambitious expansion. His objective is to bring every facet of the infomercial business--from buying products to buying air time--under one roof. That way, instead of just getting a piece of the action, Levey hopes to get the whole pie.

“We have outgrown the need to go to a company like National Media,” Levey says.

As with any marketing firm, Positive Response’s future depends entirely on the serendipity of lining up products that viewers are eager to buy. So far, Levey claims that five out of every seven infomercials he has made have been hits. And he believes the expansion strategy will cushion the company from the effects of any flops.

But some wonder if Levey will drain the company’s cash by building up its overhead costs dramatically by now doing everything from buying advertising time to running telemarketing staffs to push his products. How will he cope with the additional costs, inventory, legal headaches and demands on their management skills?

“They’re looking for bigger rewards, but I think they’re taking on a much bigger risk,” said a veteran of the infomercial business, who asked not to be identified. “If I were them, I would have looked to produce more shows rather than try to broaden their business.”

But Levey, 45, has been working in the infomercial business since 1985, soon after the Federal Communications Commission paved the way by freeing TV stations and cable networks to sell entire half-hour blocks of air time for advertising. Levey got his start producing shows for Twin Star Productions, an Arizona firm that long after he left filed for bankruptcy protection in 1991.

Levey had left Twin Star to found Positive Response in 1988 out of an office above a restaurant in Topanga.

With Positive Reponse, Levey devised the “Amazing Discoveries” format and emerged from behind the camera to host the infomercials on-camera. That way, he reasoned, there would be no danger of a host demanding more money or leaving to work for a competitor. “I decided the only person I have control over is myself,” he said.

The products mostly came from inventors who contacted the company and Levey’s own scouts. The fast-paced shows were produced for between $150,000 and $200,000, including renting a sound stage and building a set. And the shows usually worked. Levey’s “instincts are perfect,” said Rosemary Kavanaugh, chief executive of a rival, Agoura Hills-based Infomercial Solutions. “He hauls the viewers in long enough to hear the message and close the sale.”

“Positive Response has one of the highest success ratios in the business,” said John Kogler, publisher of Jordan Whitney Inc.’s TV Direct Response Monitoring Report.

Positive Response has made 40 infomercials, and its hit products includes a car wax and a natural white tooth polish. One of the few flops was a fire extinguisher called Haloflex. “Preventative products do not sell in direct response,” Levey explained. “The person who buys from direct response wants to be able to take home the product and have it better their lives” right away.

Levey’s success, however, has not translated into huge sales. The “Amazing Discoveries” shows were produced for National Media, which bought the air time, filled the product orders and took on the risk. While Positive Response got a royalty payment of 6% to 10% of every unit sold, National Media got the windfalls.

But the relationship soured and Positive Response ended up suing National Media in May, 1993, for failing to make royalty payments.

Now Positive Response is taking on many of the roles that its partner performed. “That’s why we did the public offering, so we can do the whole thing ourselves,” company President Stephen Weber said.

In January, the company acquired a media-buying firm that purchases TV slots for Positive Response infomercials, as well as for those made by other producers. It has also set up a sophisticated telemarketing operation aimed at generating “continuity” sales, that is, persuading buyers of previous infomercial products to purchase additional items. Those who bought recently advertised exercise videos, for instance, will be offered such products as treadmills.

The objective is not only to reap the windfalls but also to soften the impact of any flops by maximizing the hits. “The infomercial is just the beginning of the selling cycle,” Levey said. “What we do is put a show on the air and then we figure out ways of getting continuing revenue out of the customer after the show is off the air.”

Positive Response’s recent results have been mixed. For the first six months of this year, the company earned a profit of $336,000 on revenues of $6.5 million, compared to a profit of $219,000 on sales of $1.3 million in the same period a year earlier. The company claims that earthquake damage to its headquarters hurt profits this year.

Meanwhile, the stock has risen steadily from the offering price of $6 a share to close at $13.125 on Monday. Levey, the company’s principal shareholder, now owns a 44% stake worth about $13 million.

Still, Positive Response is a long way from having the resources of infomercial titans such as Guthy-Renker, a Palm Desert-based company in which billionaire Ronald Perelman recently invested $25 million, or USA Direct--a unit of Fingerhut Cos., a $1.6-billion direct-mail company in Minnesota.

But Richard West, an analyst with Gaines Berland in New York, endorses Positive Response’s expansion strategy. “If you look at the royalties they received, if they’d done everything themselves, they would have had revenues of $267 million,” he said. “They realized this is the way to go.”

Others have doubts. Kavanaugh, the infomercial executive, predicted that Levey will need to draw on a wider range of expertise to manage additional operations. “He has the panache, the instincts and the marketing skills,” she said. “The key will be having the business management skills.”

Another industry source warned that by taking full responsibility for its products and pushing the “continuity” idea, Positive Response will increase its exposure to product liability and regulatory problems. “Every public company in our business is almost sinking under litigation,” that source said.

Positive Response is already bound by a 1993 consent decree with the Federal Trade Commission under which it paid $275,000 in consumer redress, and agreed to abide by broad restrictions on its programs. Among other charges, the FTC had alleged that Levey made false claims for a food mixer advertised on an infomercial.

Levey says Harvey Saferstein, a Los Angeles attorney and past president of the State Bar of California, now attends the taping of every Positive Response infomercial to make sure no unsubstantiated claims for the product are made.

Levey also insists that behind his loud sweaters, there is a savvy and experienced businessman.

“Though you see me take the role of host, I have made much more of a contribution to that campaign,” he said. “I also negotiated the deal with the manufacturer, named the product and did everything else too.”

And according to Levey, the expansion has already had at least one immediate benefit: “It’s afforded me the ability to get much better sweaters.”