Guthy-Renker Corporation

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Guthy-Renker Corporation

41-550 Eclectic Street
Suite 200
Palm Desert, California 92260
U.S.A.
Telephone: (760) 773-9022
Fax: (760) 773-9016
Web site: http://www.guthy-renker.com

Private Company
Incorporated : 1988
Employees: 200
Sales: $350 million (1998 est.)
NAIC: 51312 Television Broadcasting

Guthy-Renker Corporation is one of the world’s largest direct-response television marketing companies, selling products worldwide through strategic alliances with various television and cable networks. Its primary focus is the production of infomercials, half-hour television programs that market various products. The company also markets products through short-form direct response television spots, telemarketing, direct mail, and a large Internet mall.

1981–88: The Beginnings of a Partnership

Guthy-Renker arose from a chance meeting of two young men with a zest for entrepreneurship. Bill Guthy and Greg Renker met in 1981 at a resort near Palm Springs, California. Guthy, in his mid-20s, was already the owner of a successful audiotape duplication company, which he had started while still in college. Renker worked in the marketing department of the Indian Wells Racquet Club, which his family owned. When Guthy purchased a home in the Renker family’s resort, the two men struck up a friendship based on common interests.

Guthy and Renker shared an entrepreneurial spirit that dated back to their high school days. They also shared a passion for motivational books, especially Think and Grow Rich by Napoleon Hill. The two men stayed in touch for several years, trading books and ideas for money making ventures. Renker continued to work for his family’s business, while Guthy focused on running Cassette Productions Unlimited, his audiotape duplication business.

In 1984, an unusually large order for cassette tapes caught Guthy’s attention. The customer was Paul Simon, an Arizona real estate tycoon, and he wanted 120,000 audiotapes. Curious about the size of the order, Guthy began investigating what Simon was doing. He discovered that Simon had videotaped one of his own real estate seminars, and was airing it on cable stations in the form of a two-hour infomercial. Guthy immediately recognized the synergistic potential of combining the cassette duplication and infomercial businesses. “I figured if I could start my own infomercial company, I could be my own best customer,” he said in an October 1994 interview with Entrepreneur.

In 1986, Guthy approached Renker about the possibility of creating an infomercial, and Renker began researching infomercials. At that time, there was very little information available about the nascent industry, which had started with the 1984 FCC deregulation of advertising limits. Reading books on direct marketing and calling companies that were already using infomercials, however, the partners managed to piece together the information they needed. Determining the product they wanted to pitch was much easier; the pair readily agreed upon Napoleon Hill’s Think and Grow Rich.

With $100,000 in capital, Guthy and Renker obtained the rights to Think and Grow Rich and set about finding a celebrity spokesperson for their production. Selecting football star Fran Tarkenton for the job, they shot an infomercial that pitched both the book and audiocassettes of Napoleon Hill giving lectures. The program was aired on six small-market cable stations. The partners’ Think and Grow Rich piece proved successful, running for almost two years and grossing nearly $10 million.

It also provided an important connection, one that led Guthy and Renker to the production of their next infomercial. Both partners were devotees of the motivational book Unlimited Power, written by Tony Robbins. Aware that Robbins was also a fan of Think and Grow Rich, they asked him if he would be willing to do an unpaid testimonial for their product. Robbins agreed. When Guthy and Renker watched the author and speaker’s testimonial, they were immediately struck by his on-camera presence. Convinced that he should have his own infomercial, the two men acquired rights to all of Robbins’s products and set about producing Personal Power. During production of Personal Power in 1988, Guthy and Renker officially formed their company—the eponymously named Guthy-Renker Corp.

1989–93: Pioneers in a New Industry

From its inception, Guthy-Renker took a slightly different approach than most other infomercial producers. In an era when most such programs had a somewhat shoddy, home-video quality, Guthy and Renker strove for a professional look. They also avoided the practice used in many infomercials of making exaggerated claims about their products. Their integrity won them the notice of the federal government. In 1990, when the government began investigating consumer protection and infomercial advertising, Renker was called to testify before a Congressional subcommittee. The government investigation led Renker and other infomercial producers to form the National Infomercial Marketing Association to set industry standards.

Another thing that set Guthy-Renker apart from its competitors was its practice of identifying itself at the beginning of every infomercial. Starting each program with a notice that “the following is a paid production of Guthy-Renker,” or a similarly worded caption, not only made the company appear more reputable, but it was also good advertising. Soon, people started calling Guthy and Renker to pitch ideas for new programs.

The company fared well in 1990, posting earnings of $36 million. The year 1991, however, got off to a difficult start. With the onset of the Persian Gulf War and the accompanying media coverage, interest in infomercials waned. The company lost more than $1 million in the first days of the war. Only by paring operations down did Guthy-Renker manage to stay afloat.

The company’s situation began to brighten again in the second half of the year, when it put together an infomercial for a line of skin care products by actress Victoria Principal. Rather than using their standard method of test marketing the program—airing it in several different cities and monitoring response—they decided to take a different approach. They tested consumer response to the product by having Principal do a live segment on a home shopping channel. By watching real-time viewer response in the form of phone-in orders, Guthy and Renker were able to determine exactly what parts of Principal’s pitch produced the best results. Using that information, they reshot the infomercial, introducing it in July 1991. It quickly became one of the company’s top producing programs, grossing $75 million in three years.

Other products and other celebrities followed. Among them were a teeth whitening system pitched by Vanna White and an acne treatment solution touted by Judith Light. Within a few years, Guthy-Renker was one of the five largest infomercial producers in the United States, with annual sales approaching $90 million.

In November 1993, Guthy-Renker got a cash boost in the form of a $25 million investment by Ronald Perelman. A player in the media game, Perelman owned a Los Angeles television production and distribution company, a television syndicator, and a chain of major market network affiliates. He also owned cosmetics giant Revlon Group and Marvel Entertainment Group, which produced Marvel Comics and various toys. The alliance with Perelman, which gave him a minority interest in the business, provided Guthy-Renker with preferential access to air time on his TV stations. It also gave the company access to new infomercial products and spokespersons by association with Revlon and Marvel.

1995–97: Diversification and Vertical Integration

In 1995, Guthy-Renker took its direct-response expertise and applied it to a new medium: the Internet. Forming a subsidiary called Guthy-Renker Internet, the company launched a cybermall called America’s Choice Mall. Part of Guthy-Renker’s Internet business was simply selling mall “space” to online merchants. A second aspect of the company, however, was educating people about e-commerce. This was accomplished by offering $69-per-person seminars on the topic. In true infomercial form, the company’s seminars contained a sales pitch that often convinced attendees to purchase a site in America’s Choice Mall.

Also in 1995, a second Guthy-Renker subsidiary was formed, specifically to market exercise products. Fitness products were a very popular item for infomercial marketers at the time; between 1994 and 1995, the number of exercise items promoted on television increased by 50 percent. To capitalize on this growing segment of the market, Guthy and Renker recruited a fitness marketing professional, and put him in charge of product procurement. The subsidiary’s first fitness product was the Power Trainer, with an infomercial hosted by Bruce and Kris Jenner. More products quickly followed, including the Power Rider, Perfect Abs, Turbo Glider, and Fitness Flyer. Guthy-Renker’s fitness products quickly became major producers, generating almost 40 percent of the company’s total revenues in 1996.

Company Perspectives:

Ten Commandments of Management: 1. Thou shalt not be afraid to take risks. 2. Thou shalt make thy competitor thy friend. 3. Thou shalt pick great partners. 4. Thou shalt build thy rolodex and use it. 5. Thou shalt test, test, and test again. 6. Thou shalt cultivate the mini-media universe. 7. Thou shalt join and lead thy association and trade group. 8. Thou shalt cultivate the press and build thy company’s brand name at all times. 9. Thou shalt not limit thy upside. 10. Thou shalt be prepared to eliminate all these commandments and start over.

Guthy-Renker launched yet another subsidiary in January 1996: Guthy-Renker Television Network. GRTV was a 24-hour single-channel TV network devoted to direct-response programming. By developing the network Guthy-Renker was able to become its own programmer and distributor, thereby partially protecting itself from the rising cost of broadcast and cable airtime.

While building its domestic sales by adding new products, Guthy-Renker was also working to expand its international presence. In October 1996, the company finalized agreements with several Japanese television networks, allowing its infomercials to reach 23 million Japanese homes. Just two months later, Guthy-Renker launched its programs in China, broadcasting on five of the nation’s eight main television stations. Consumer response in China was particularly promising; within 20 minutes of debuting the Power Rider program on Shanghai Television, the company sold an entire month’s worth of its inventory.

In the fall of 1996, Ronald Perelman’s holding company—which owned a 37.5 percent stake in Guthy-Renker—was sold to Rupert Murdoch’s News Corp. The sale allied Guthy-Renker with one of the largest media companies in the world, whose vast holdings included the Fox Network and numerous satellite cable companies, both in the United States and overseas. “We were looking for distribution platforms for our programs,” Renker said in an October 1996 interview with Forbes, adding “Murdoch has the biggest and best. It’s an out-of-the-park home run.”

1997–99: Strategic Alliances and Further Growth

Guthy-Renker developed more subsidiaries in the first half of 1997. One of the most significant was Guthy-Renker Direct, a company formed to specialize in short-form direct response TV marketing. Short-form programs were, as the name implied, shorter than the 30-minute long-form infomercials and fit more easily into blocks of regular programming. The development of short-form marketing capacity was particularly important in the light of Guthy-Renker’s new relationship with the Fox Network. Fox and its stations and affiliates were primarily interested in short-form, rather than long-form, direct response.

Guthy’s and Renker’s approach to forming and growing their various subsidiaries was one of empowerment. In most cases, the partners recruited an experienced leader in the specific industry they wanted to focus on, then gave him both the latitude and the support necessary to build a subsidiary. “They’re limited on the legal side, and they should use our operations and accounting—the stuff we must watch at corporate every day,” Renker said in an August 1997 interview with Response TV. “Beyond that,” he noted, “they’re free to build the company as they see fit.” Guthy and Renker viewed their company’s growth strategy as a sort of hub-and-spokes model, with each subsidiary a spoke feeding business into the hub.

In 1998, Guthy-Renker entered into an agreement with Nissho Iwai Corporation, a $79 billion Japanese trading company. The agreement, under which Nissho Iwai purchased a minority interest in Guthy-Renker’s Asian subsidiary, provided Guthy-Renker with access to Nissho Iwai’s extensive worldwide manufacturing and distribution networks. This allowed it to outsource production of its products at more competitive prices.

While Guthy-Renker built its television business through the second half of the 1990s, consumers were falling in love with a new way to shop. E-commerce was rapidly gaining acceptance, as advances in encryption technology made online shopping more secure. Guthy-Renker had been an early proponent of e-commerce, working to educate the public about the potential of the Internet since 1995. Since that time, the company’s web site, Choicemall.com, had grown to include more than 1,400 retailers and services in 16 different categories. Guthy-Renker had also formed alliances with various other Internet companies that served to drive traffic to the Choicemall site. The company cross-promoted its Internet business by mentioning the Choicemall site in every infomercial, as well as advertising the site in materials sent with each product shipped.

As Internet technology developed and the number of Internet viewers grew, Guthy-Renker continued to look for new ways to leverage the web’s marketing potential. In the spring of 1999, Guthy-Renker Internet teamed up with GoOn-line.com, a subsidiary of Jones Naughton Entertainment, to take advantage of a technology called streaming video. The streaming technology allowed viewers to watch a video, complete with sound, on a web site. The GoOn-line site, which was unveiled in July 1999, featured streaming video and audio of approximately 100 products from various vendors.

Another significant Internet partnership occurred during this time as well, when Guthy-Renker partnered with Looksmart, one of the web’s largest directories of reviewed and categorized sites. Under the terms of the agreement, Guthy-Renker acquired an equity position in Looksmart, and agreed to promote the Looksmart site during its infomercials.

Key Dates:

1981:: Bill Guthy and Greg Renker meet and become friends.
1987:: Guthy and Renker produce their first infomercial.
1988:: Guthy-Renker Corporation is officially formed.
1993:: Media mogul Ronald Perelman buys a minority interest in Guthy-Renker.
1995:: Guthy-Renker’s Internet subsidiary launches America’s Choice Mall, an online retail mall.
1996:: Guthy-Renker forms its own television network, GRTV. Rupert Murdoch’s New’s Corp. acquires Ronald Perelman’s stake in Guthy-Renker.
1997:: Guthy-Renker Select Network is formed to focus on short-form direct response marketing.
1999:: GRTV is sold to TVN Entertainment Corporation.

In June 1999, Guthy-Renker agreed to sell its television network—GRTV—to TVN Entertainment Corporation, a supplier of programming for the cable and satellite TV industries. The network, which reached more than 40 million cable and satellite viewers, was slated to continue focusing on infomercials and direct response sales. TVN planned to operate under the GRTV name at first, and to continue offering Guthy-Renker’s products. The company looked at the sale as an opportunity to broaden its broadcast reach. “TVN is perfectly positioned to maximize the distribution potential of GRTV,” Renker said in a June 14, 1999 press release. “We look forward to maintaining a long and mutually profitable relationship with TVN as a valuable distributor of our direct response programming,” he wrote.

2000 and Beyond

As Guthy-Renker prepared to move into a new millennium, it seemed almost certain to maintain a strong focus on direct response marketing. As it had done in the past, the company was likely to continue using a “hub-and-spokes” approach, building its original infomercial business “hub,” while continuing to seek new and related income “spokes.” Web-related initiatives were especially likely, as developing technologies continued to offer increasingly powerful ways to market online. Further strategic alliances with Internet and media companies also seemed probable.

Principal Competitors

Access Television Network, Inc.; Cybex International, Inc.; e4L, Inc.; GoodTimes Entertainment; QVC, Inc.; Shop at Home, Inc.; USA Networks, Inc.; Value Vision International, Inc.