Midnight Vultures

Illustration: Kyle Sackowski

An alleged scam involving a high-ranking exec at Viacom and the "Girls Gone Wild" franchise has opened a window into the strange world of direct-response advertising that cable TV needs (but doesn't love).

The nights are long on cable, and not nearly enough hours can be filled with ads for expensive cars, perfume and summer blockbusters. So networks find themselves relying on direct-response advertising — from shortform spots to longform paid programming — that exhorts viewers to act fast and buy, buy, buy.

Networks don't necessarily want their brands associated with the pushers of the male virility products, exercise equipment and get-rich-quick schemes that are such a key part of their bottom lines, and isn't exactly something to brag about to Wall Street. Now, the fact that a fast-rising star executive in direct-response marketing — Brian Fays, a 40-year-old former senior vp at MTV Networks — has exited Viacom following an investigation into allegations he was involved in a scheme that diverted millions of dollars over a period of years threatens to shine a light on the largely unregulated direct-response advertising business.

Colleagues in the direct-response industry worry that any scandal could increase mistrust among consumers, even as it has been working for years to shake off the dubious reputation born of scam products. The Federal Trade Commission and Food and Drug Administration have taken actions against dozens of products, including SNORenz, Copa Hair System and Thermoslim.

Fays, who attended Fordham University and until recently sat on the board of the Santa Ana, Calif.-based direct-response trade publication Response Magazine, joined MTV in January 2005 after stints at Lifetime Networks and USA Networks. He rose to a top ad-sales job at the network group.

 "A real hustler," says a former Viacom ad executive who worked with Fays. Another former Viacom exec says Fays was a master salesman who dramatically improved the company's direct-response business. "I remember people saying, 'He can turn shit into Shinola,' " says this person.

At MTV, Fays oversaw direct-response advertising and paid programming for most of Viacom's 17 ad-supported cable networks, including MTV, VH1 and Comedy Central.

But his business practices came under scrutiny when Joe Francis, creator of the Girls Gone Wild empire — a direct-response mainstay — went to Viacom to report an alleged scheme between one of his employees and Fays to defraud him of money. Francis says he became aware of the scheme during an internal audit at his company and that he dismissed the employee and complained to Viacom in late 2008, which led to an investigation.

THR contacted the individual named by Francis, but the person did not return multiple phone calls.

Viacom declined comment, as did Fays. It is unclear whether Viacom specifically found evidence of the allegations made by Francis, but a source with knowledge of the situation says the company obtained "credible information" regarding alleged misconduct by Fays and dismissed him (as THR first reported).

Infomercials flooded the airwaves after a 1984 decision by the Federal Communications Commission to do away with regulations that allowed for a maximum of 16 minutes of commercials per hour. Suddenly, media companies had a new revenue stream. "It was money they didn't expect," says journalist Remy Stern, author of But Wait … There's More! a 2009 book about the industry. Some of the products and services hawked on infomercials during the intervening years, such as the Thighmaster, Showtime Rotisserie and Ginsu knives, have become icons — mostly for the catchphrase-laden ads that promoted them.

These spots are much less expensive than standard television advertising, both to produce and buy. On the shortform side, a 60-second spot can be made for as little as $5,000, according to pricing data from InfoWorx Direct Llc., a direct-response marketing production company. That company's top-of-the-line package for a longform infomercial costs $125,000 for 30 minutes. (By contrast, a standard 30-second TV spot can be made for about $300,000.)

When it comes to the cost of airtime, direct-response advertising is a bargain. In recent years, prime infomercial slots — typically weekend mornings — have ranged from $20,000 to $50,000 for 30 minutes. In less-desirable time slots and on obscure affiliates, the half-hour cost can fall below $1,000.

Direct-response marketers typically are not interested in the metrics blue-chip advertisers worry about, such as brand awareness and positive association. Reams of data help direct-response marketers determine exactly how many leads or sales an ad generates, though those rates of return are closely held.

Viacom does not break out revenue from direct response; a company source says it accounts for less than 10 percent of advertising revenue. But a former insider at MTV Networks estimates that direct response produces much more revenue — about $800 million a year. According to research firm SNL Kagan, Viacom pulled in $4.09 billion in net advertising revenue from its cable networks in fiscal 2010.

"The piece of the pie that direct response takes up, especially in the cable world, has been growing and growing for years," says Thomas Haire, editor in chief of Response. He estimates that direct-response advertising has brought in $5 billion to $6.5 billion for the cable industry during each of the past four years.

Fays rode that wave. A flattering 2007 profile of him in Response noted that after the executive joined MTV Networks, it experienced "an unprecedented surge" in direct-response revenue. The magazine reported that Fays, who reported to Jeff Lucas, head of ad sales at MTV Networks, oversaw a large team: 30 people, including 12 account execs.

Colleagues have expressed surprise over the allegations that surround Fays, though they say he seemed at home in the hard-driving world of direct response.

"The business is packed with entrepreneurial guys who started from the premise that you could invent a product, put it on TV and walk away with millions," says a direct-response executive who runs his own firm. "There's a kind of high-roller attitude." It's an industry that emphasizes expense-account entertainment, including lavish dinners in the name of networking. Industry colleagues say Fays, who in December 2008 purchased a condo for $3.38 million in a new luxury building with river views in Tribeca, hosted or attended extravagant evenings at high-end restaurants like Il Mulino in Greenwich Village and, according to one source, at strip clubs.

That high-rolling atmosphere is one direct-response veterans admit draws mistrust. Author Stern says cable networks recognize that in some cases, "the people who are buying airtime are not reputable people selling reputable products."

While network standards-and-practices departments review the moral, ethical and legal implications of advertisements and add disclaimers, that hasn't prevented the airing of direct-response ads for products such as weight-loss and energy potions that have proved to be shams. "You have networks working with guys who have been scamming people for 20 years, some of whom have long criminal records. But their push has always been, 'We don't know what you are selling,' " says Stern.

The FCC has oversight of broadcast networks, but save for children's programming, it does not oversee cable networks. There is a culture of self-policing in cable because those nets are wary of a slip-up that would attract government attention and calls for regulation. After a deluge of shady infomercials led Congress to launch a broad investigation in 1990, a group of direct-response marketers formed what is now the Electronic Retailing Association. The trade organization aims for industry self-regulation and also lobbies Congress and the FTC.

Networks that are most dependent on direct-response marketing include those with risque or violent late-night programming. In January, for example, after Taco Bell, Wrigley and General Motors discontinued advertising on MTV's controversial teen drama Skins, the holes were filled with direct-response spots for such products as acne-treatment device Zeno and Celtrixa, a topical cream that purports to banish stretch marks.

Francis himself has contributed to the image problems of the direct-response business. In 2007, he served jail time in Florida after pleading guilty to contempt of court in connection with litigation over allegations a cameraman contracted by Girls Gone Wild had filmed footage for the company of seven women who were minors at the time.

Francis believes his company was misled about payments that were intended to buy ad time with Viacom but went to dummy corporations instead. He says determining how much money was involved is "a nightmare" and that he still hasn't ascertained the amount.

"There is so just so much money going [to buy ads] — tens and tens of millions of dollars sometimes in a month," he says. "It is a lot to keep track of, both for Viacom and for us." Francis says he was joined by at least three other advertisers in complaining to Viacom about alleged improprieties. He believes the alleged scheme "has absolutely nothing to do with Viacom's business practices as a whole."

Meanwhile, a former MTV Networks insider who was involved in hiring Fays expresses shock at the alleged scheme. "Fays came with high recommendations from clients," says this person. Nonetheless, Fays was "a guy with a lot of bravado" who left this person feeling something less than instinctive trust.

(Fays also has had scrapes with the law, including a late-night March 2009 citation for public urination in Manhattan and a January 2011 citation connected to calling a police officer a "f—ing asshole.")

It is unclear whether allegations arising from Fays' conduct have been reported to authorities. Several legal sources say Viacom would not be obligated to make any such report. (The FBI and the New York County District Attorney's Office declined comment.)

But a former longtime Viacom executive says he would be surprised if the company did not seek prosecution, especially given chairman Sumner Redstone's pugnacious reputation. "It would seem weird, knowing that Redstone and [Viacom CEO Philippe] Dauman are lawyers and love legal action, that they wouldn't go after this guy," says this observer. He remembers an instance in which the company sought criminal prosecution of another employee who ran a comparatively small scam, noting, "They always pride themselves on zero tolerance."

But as the direct-response industry nervously awaits potential fallout from the Fays matter, it is clear that media conglomerates' dependence on this crucial revenue stream means the business will not abate. "It's not like the networks have much of a choice," says Stern. "It's time bought at undesirable points of the day. It is what happens in the middle of the night that keeps these companies in the black."

-- Marisa Guthrie contributed to this report.


'STEALING FROM ALL OF US': A top exec at Guthy-Renker talks about how a lack of trust can affect his business

These allegations, if true, are disappointing to our industry. While it appears that they are isolated to one situation, it is the type of thing we fight against every day. The direct-response industry is scrutinized more closely by regulators than traditional consumer-products companies to make sure our product claims are true and our offers are clear.

Direct-response marketers compete against traditional marketers for the same airtime, but direct-response companies pay less since we get the leftover (unsold) media inventory. Since valuable media time is tracked closely by advertisers and networks alike, those of us selling products via television and the Internet have an enlightened self-interest to be totally transparent.

At Guthy-Renker, we only make a profit if our customers like our products and reorder them often. And we hope they tell others about their good experience. When a customer has a perfect experience, 5 percent of them will tell others. When we give a customer a bad experience, almost half of them will tell 10 or more people.

Anything we can do to build trust — not erode it — is good for business. When the greedy or unlawful things that are alleged here are done, it is not only stealing from one or two companies, it is stealing from all of us.

-- Ben Van de Bunt is co-CEO of Guthy-Renker Llc., makers of beauty products including Proactiv Solution.