Shareholder Update Vol. 1
We want to begin by wishing all of you reading this a happy and healthy 2016. As stakeholders in ICTV Brands, we thank you for your continued support throughout 2015 and look forward to sharing news of our progress throughout this New Year.
Several of our shareholders have commented to us that they wish they could get more regular updates as to our progress, in addition to what we share on the quarterly investor calls or in the occasional news release. There is always so much going on in our business that often we forget to share the excitement those of us who work at ICTV Brands experience on a daily basis. So, as we enter 2016, one of our corporate New Year’s resolutions is to post on our newly redesigned website (www.ictvbrands.com) frequent updates on what is going on at ICTV and spotlight some of our key employees and the work they are doing. This is the first installment in fulfilling that resolution.
This update is designed to give you an overview of the business plan for 2016 that our team is confident will get ICTV on track for sustained growth and profitability over the quarters and years ahead. The title of the update is “ICTV Brands’ 2016 Bucket List”, because the plan can best be broken down into three key “buckets”, or areas of focus:
- The direct to consumer business
- Network of International Distributors and the ability to launch products into that network
- North American retail, including live television home shopping
Bucket #1 – Direct To Consumer Business
For those of you who listened to or read the transcript of our November 9, 2015 third quarter earnings call, we explained that our management team has determined that we must make changes in our direct marketing focus from primarily building our brands through direct television (infomercial) marketing, to a digital marketing platform that uses targeted social media, banner, and pre-roll video targeted ads to build awareness of our brands to our key target demographics. We have already made great strides in this transition. Currently, about 35-40% of all media expenditures for our brands is spent on digital marketing, and for English language media, that number is over 50%.
Why is this transition important? There are two key reasons, the first of which is that each year television viewership keeps decreasing as more Americans are consuming media digitally. At the same time, television media rates for infomercials have either stayed flat or increased due to larger brands entering the remnant media space. So media that would result in profitable direct sales just a year or two ago, today does not perform for us as well.
The second reason why the transition to a digitally focused marketing platform is so important is that it allows us to test products much faster than in the past and at a much lower cost. For example, to produce an infomercial typically would take around six month between writing a script, sourcing the talent for the show, filming, and editing the show. The cost of such a production would range between $100,000 and $250,000 depending on the product. Then, once the show was ready, we would have to buy between $10,000 and $20,000 in media, to see if the show was successful in generating profitable sales. In comparison, marketing a product through a digital marketing test only requires a landing page website that is capable to take orders, a few social media creatives, banners, and email ads, with a media budget of about $1,000-$2000 to get the same exposure to the equivalent $10,000-$20,000 television test. In all, to test a product digitally it will cost us $5,000-$10,000. Our goal for 2016 is to test between 10 to 15 new products digitally, which would be more than we have tested in the last 3 years combined.
One asset we have to test new brands is our DermaWand customer email list. The list contains over 150,000 email addresses and is comprised of people who have specifically indicated that they would like to receive special offers on new products. We have been actively marketing our Jidue, DermaBrilliance, CoralActives, elastin-rp and Dr. Ho Perfect Back Rest brands to our list and are now sending three to four email blasts per week. These are very inexpensive and typically return over 5:1 ratio of sales revenue to cost.
Bucket #2– International Distribution
For years, our network of international distributors has been growing. The way our distributor relationships work is that ICTV will license rights to our products to a distributor for a specific territory or territories. We provide creative assets (TV commercials, digital assets, printed marketing materials, etc.) to the distributor, who then purchase bulk product from ICTV and markets the product to the licensed territories.
In this area of the business, we have two core goals for 2016. The first is to expand DermaWand into new markets. For some time we have been working on opening up markets such as Japan and the United Kingdom. Japan has been a big challenge in that it requires us to pass very strict electromagnetic current (EMC) regulations to receive what is called an “S-Mark” certification. I am pleased to report that as I write this update to you, we believe we have made the proper adjustments to the DermaWand to receive S-Mark and we are currently in the testing process at TUV Japan (TUV is one of the leading independent testing laboratories accepted around the world). We believe we will have the results of the test by late February and will be marketing in Japan early in the second quarter of 2016.
The resolution of the EMC issue has benefits for ICTV beyond just opening the door to sell in Japan. Another market that requires this issue to be resolved is Brazil, which is an enormous market, especially for beauty products. Brazil requires DermaWand to be classified as a medical device and solving the EMC problems is one step in that process.
Another benefit of solving this problem will be that we will be able to increase the power of the DermaWand. For some time we have planned on designing a new DermaWand unit that will have sleeker design and shape. We feel it is very important for DermaWand 2.0 to not only look different, but to be more powerful as well. The newly designed circuit board for the Japanese unit will allow us to add about 15-20% more power to the DermaWand. We believe this new unit will reinvigorate some markets around the world, as well as our direct business in North America.
The issues in marketing in the UK are less black and white. The UK has a governing body called the Advertising Standards Authority (ASA) which must approve all the claims we make before we air a commercial. During 2014 we invested in a double blind placebo clinical test which we believe supports all the claims in the infomercial we hope to use in the UK. Currently, our distributor has a face-to-face meeting with a representative from the ASA in mid-February to go over our claims and corresponding substantiation, and we are hopeful this will accelerate the process for us to launch marketing for DermaWand in the UK in 2016.
The second core goal as it relates to international sales is to bring several new products to our international distributors. In the past, our approach had always been that we would try to build a brand in the United States before taking it to our distributor network around the world. We have come to realize that this approach is not always the best as often products that do not work in the US will sell well in other territories.
Point Perfect Sprinkler
A great example of this is a product called Point Perfect Sprinkler. Point Perfect is an intelligent sprinkler with 12 adjustable heads so you can create your own custom watering system. The adjustable heads can be bent in any direction so you can water irregularly shaped gardens or lawns, water individual planters, avoid sidewalks or vehicles, target brown spots or even create a fun water experience for kids. The sprinkler head can attach to any hose, covers up to 400 square feet and includes a Quick Mount Kit to water from any angle.
This product was launched by another marketing company we know in Pennsylvania. The test did not work and they basically had given up on the brand. Through our relationship with this company, we were able to secure the rights to the product and their creative assets. Late last year we presented the product to our distributors and during the last week of 2015 we received our first order from a distributor that covers several eastern European countries for just under $100,000. We received a second test order from our French distributor earlier this month.
Ultimate Pedi by DermaWand
We have several other products that we plan to launch in the first half of the year internationally. We are still producing infomercials for the international market and many of these show will be 15 minute long, as opposed to 30 minutes. This approach will lower the production cost dramatically. In December, we completed a 15 minute infomercial on a product called, “Ultimate Pedi by DermaWand”, which is an at home pedicure product. The show has been sent to several key distributors and the first test is scheduled for early February in Australia.
Just last week, our team completed a 30 minute infomercial for our facial massager brand “Jidue”. We tested Jidue in several international territories during 2015 with a two minute spot. We got the feedback that if we could deliver a long form infomercial that the product would sell well in many of these territories. This show is in post-production and should be completed in early March.
A third project we are working on for the international community is called “Spin Force”. Spin Force is a patented at home exercise machine that focuses on strengthening the core. In talking to our distributors, at home exercise equipment is one of the hottest product categories for them. We are in the process of shooting a 15 minute show and believe it will be completed during the second quarter of 2016.
Once the creative materials are completed and the marketing for each of these products begins, we will post links to the shows to our corporate site (www.ictvbrands.com) for you all to view.
Bucket #3– North American Retail Distribution
For those of you who have followed our company for some time, you will know that a long term goal for ICTV has been to establish a sustainable retail business with major North American retailers. Over time, we have had some opportunities to test DermaWand in stores such as Bed Bath & Beyond (2008) and Rite Aid (2014), with minor success. As we have reassessed our direct to consumer strategy, we have done the same with US retail.
Coming out of this past holiday season, statistics have proven that more consumers are choosing to buy online as opposed to the brick and mortar stores. Our approach to major retail stores is to now working on getting into their online stores, as opposed to going immediately to a test on the shelf. Our first test with this approach began in November 2015 when DermaWand went live on bedbathandbeyond.com. The initial order from BBB.com was 18 DermaWands, which promptly sold out within 72 hours on the site. The second order was over 600 pieces and we have consistently been selling between 65-75 units per week, even into January.
Several of our brands are now available at Overstock.com, Groupon.com, and Amazon.com. ICTV has also been approved as a vendor at Walmart.com and JC Penny.com and should have products on their sites by early February 2016. Our hope is that by building brands in the online environment, it will open the doors for us to strategically place products on traditional retail shelves and will prove to the retailers that given the right placement and strategy, that our brands can be as successful in store as they are online.
Finally, one last area of retail we will focus on during 2016 is live television home shopping. Currently DermaWand is in legal review for a test at QVC. This is something our team has been working on for several months and we are very optimistic that DermaWand will be approved at QVC. Our belief is that DermaWand will sell very well on QVC if given the opportunity. The reason for this confidence is that from 2007-2011 DermaWand sold over 300,000 units on The Home Shopping Network (HSN) and QVC sales are significantly larger than HSN’s. In addition, since 2011, DermaWand has had about $25 million in adverting to further expand the brand. While we feel QVC is the best live shopping channel to sell DermaWand, we continue to maintain strong relationships with HSN and The Shopping Channel Canada and are in discussions with both organization about selling several of our other brands.
The year of 2015 did not go as well as we had planned. We had several initiatives that we invested much time and money in that did not deliver the return we expected. This forced us to look at our approach and make some serious strategic changes, which I have laid out in this update. We are pleased to tell you that many of these changes are already proving profitable. We are also very excited about our acquisition of the DermaWand Patent and Trademark as announced in our press release on January 26th. As you can see from the plans we have for DermaWand, especially as they related to new markets opening up, there is a potential for great results for the DermaWand brand in 2016 and beyond. In addition, we now have a real asset that ICTV can build brands upon and own, as opposed to license.
We are confident that ICTV is positioned for growth in 2016, while taking much of the risk off the table from our old “television first” approach. Thank you for your continued support and we look forward to share our progress with you in the near future.
ICTV Brands, Inc.
Forward-Looking Statements. This communication contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (which Sections were adopted as part of the Private Securities Litigation Reform Act of 1995). Statements preceded by, followed by or that otherwise include the words “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “project,” “prospects,” “outlook,” and similar words or expressions, or future or conditional verbs such as “will,” “should,” “would,” “may,” and “could” are generally forward-looking in nature and not historical facts. These forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the Company’s actual results, performance or achievements to be materially different from any anticipated results, performance or achievements. The Company disclaims any intention to, and undertakes no obligation to, revise any forward-looking statements, whether as a result of new information, a future event, or otherwise. For additional risks and uncertainties that could impact the Company’s forward-looking statements, please see the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, including but not limited to the discussion under “Risk Factors” therein, which the Company has filed with the SEC and which may be viewed at http://www.sec.gov.