Psychic Friends firm goes bankrupt Lasky's Inphomation Communication files for Chapter 11

Marketing

February 05, 1998|By William Patalon III | William Patalon III,SUN STAFF

Inphomation Communication Inc., owned by Baltimore businessman Michael W. Lasky -- and probably better-known as the operator of the Psychic Friends Network -- quietly filed for Chapter 11 bankruptcy protection this week, with liabilities of $26 million, and assets of about $1.2 million.

At its peak, in the early 1990s, Baltimore-based Inphomation had estimated revenue of $100 million to $125 million. But spiraling competition -- which included price-cutting and free phone minutes offered by rivals -- some bad luck and management missteps combined to put the marketing company deep into the red.

Steve M. Dworman, publisher of Infomercial Marketing Report in Los Angeles, and an expert on the TV "infomercial" business, estimated that the Lasky company's revenue has plunged to between $25 million and $30 million in the last two years.

On Monday, in U.S. Bankruptcy Court downtown, it filed for protection under Chapter 11 of the U.S. Bankruptcy Code.

"They apparently made some bad decisions, and a couple of things happened that they had no control over. That all cut into this," said Baltimore bankruptcy lawyer James Olson, who is handling the case for Inphomation.

Olson noted that the depth of the problem was not clear; he became involved with the case less than two weeks ago and said the company was still poring through its financial records.

William Thompson, who heads TV Inc., a Florida company that specializes in direct marketing and infomercials, was stunned by the news of Inphomation's bankruptcy filing and hesitantly speculated that mismanagement had to be at least part of the cause.

"It seems to me, that if you had that kind of revenue, I don't see how you can say it wasn't," Thompson said.

The Psychic Friends Network, which has used singer Dionne Warwick as the hostess on its 30-minute infomercials, was once the second-highest-grossing infomercial on TV, trailing only Jane Fonda with her fitness video.

Indeed, founded in 1990, Inphomation pioneered the use of "900" phone lines and backed them with the infomercials and a network of about 2,000 psychics.

People could call for advice on their love lives, careers and financial prospects -- all at $3.99 a minute.

The early success of the business shows that Lasky is a brilliant direct marketer, says the Infomercial Marketing Report's Dworman.

"900 lines were new then," he said. "Remember, this was 1991 and the country was headed into the Gulf War and toward a presidential election. The rise of this paralleled a lot of uncertainty. People were calling to get some answers."

The landscape is much different today, however. There's a bevy of telephone crystal-ball gazers and cable-TV infomercials that masquerade as serious talk shows -- slashing the market share of the Psychic Friends Network.

And, while nearly 6 percent of the U.S. population will watch and buy products and services chronicled on an infomercial, "94.35 percent of the population would not buy a $5 bill for $3 on TV," said TV Inc.'s Thompson.

According to industry observers and previous media reports, Lasky got his start as a sports handicapper, at one time selling tip sheets that guaranteed the winner of certain horse races -- sometimes under the name "Mike Warren."

Needless to say, those predictions weren't always correct.

Those activities later led to his being denied a license to own thoroughbred race horses in New York and New Jersey in 1982, and prompted him to withdraw a similar application in Maryland that same year, according to a September 1996 article in The Sun. (He would get a Maryland license in May 1988, however.)

In 1986, the attorney general's office sued him for refusing to turn over the membership list of the Pikesville Nautilus Club, which he had operated until the club failed in March 1985.

A review of the case by the state consumer protection division's health club administrator revealed that Pikesville Nautilus members were holding lifetime memberships, or memberships that had been purchased shortly before the club closed.

Lasky said he was the real victim, having lost $350,000 in the club's closure.

Documents filed in the federal bankruptcy case this week list about 200 creditors and state that Inphomation is disputing about $8 million of its estimated $26 million in liabilities.

Olson said that by filing under Chapter 11 -- instead of Chapter 7, which calls for liquidation -- executives hope to keep the company operating.

The attorney said it's too early to say how much money creditors will recover. But he said there's reason for optimism.

"There's a belief that if they get rid of the distractions, and put the past problems behind it, and concentrate on their business, they can make money again," he said.

Infomercial Marketing Report's Dworman said Lasky should have known what was coming.

"All this could have been avoided if he'd only called his own psychic lines," he said.

Pub Date: 2/05/98

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