Cable Operators

Adult PPV, VOD Prosper as DVDs Get Burned

8/03/2007 8:00 PM Eastern

It may be premature to pronounce the adult DVD market dead, but the format certainly appears to be taking its final breaths. That has content providers increasingly focusing on video on demand and pay per view, which are expected to make up a $1.4 billion market by 2014, according to Kagan Research.

“As we move further into the era of digital downloading, it's clearly impacting our DVD sales,” said Stephen Hirsch, co-chairman of Vivid Entertainment Group, a global supplier of adult DVDs and PPV content. “We're dealing with an enormous amount of free content out there, and it's starting to have a negative impact on our sales.”

Hirsch estimates his company has seen a 40% drop in year-over-year DVD sales. “Five years ago, 80% of our business was DVD,” said Hirsch. “This year it will probably be less than 30%. We're dealing with a huge sea change right now.”

Vivid is making up the difference by feeding the VOD and PPV pipelines. “The key to VOD success lies in how you position yourself so people know who you are and buy your movie,” Hirsch said.

In July, Vivid launched “Vivid Voyeur TV,” a PPV series of 55-minute long productions that will be distributed once-a-month. The $12.95 programs debuted on DirecTV and will appear on VOD in September with In Demand.

For Hustler TV parent LFP Broadcasting, growing its burn-to-DVD, mobile and online revenue remains a constant goal. But these revenue streams aren't nearly as profitable as Hustler TV's VOD platform, which is the most lucrative, according to LFP president Michael Klein.

“Our VOD business is doing exceptionally well and is one of the fastest growing segments on our network,” said Klein. “Between PPV and VOD we're in over 40 countries. We're happy with that success and we're constantly looking at new technologies and ways to get content out there.”

LFP recently announced exclusive agreements with popular adult entertainment providers Zero Tolerance Entertainment and Black Ice Limited.

Meanwhile, New Frontier Media's The Erotic Networks is focused on growing its PPV and on-demand businesses specifically by aligning with cable and satellite partners, president Ken Boenish said.

“Everything we do supports the business of cable and satellite partners,” said Boenish. “We see companies like Hustler and Playboy trying to compete with cable and satellite by selling content directly to consumers through their magazines, brick-and-mortar clubs, stores and selling and renting DVDs.”

Boenish added: “Bottom line, we're in the television business and that's why we're working with a number of our cable and satellite providers to deliver some of the same product that we deliver over their primary platform over secondary platforms.”

Those secondary platforms might include a broadband entertainment portal that connects to consumers' personal computers,” Boenish said.

If quarterly earnings are any indication, this strategy is generating tepid results for TEN.

The company's Pay TV Group reported revenue of $11.2 million for the quarter ended March 31, 2007, as compared to $11.1 million for the quarter ended March 31, 2006, representing an increase of 1%. PPV services declined 4% to $5.5 million for the quarter ended March 31, 2007 from $5.7 million the year before.

But TEN's VOD service provided to the cable and hotel markets fared much better, rising 10% to $5.3 million up from $4.8 million the prior year.

TEN's Watchten.com Web site also supports cable and satellite providers, according to Boenish, because the site only offers previews for adult movies available on PPV channels.

September