Cable Operators

Sexing Up Technology

6/17/2005 8:00 PM Eastern

Nothing arouses adult channels more than some of the “nerdiest” areas of communications. “High-speed broadband,” “wireless telephony,” “video on demand” and “HDTV” are loaded with sex appeal for channels like Playboy TV, TEN, Hustler TV and Playgirl TV — all of which are quickly positioning themselves on an expanding number of content platforms.

Already well versed in the pay-per-view and Internet businesses, adult-network executives say that the key to their continued success is an ability to play successfully in a number of technological arenas.

“If you look at the marketplace, you'll see companies like Comcast [Corp.] or Verizon [Communications Inc.] that are competing in the broadband business, the wireless business and the cable or satellite business,” Playboy Entertainment Group president Jim Griffiths says. “They are providing a number of services for all of their customers. So we have to be their partner to find out what their customers want and where they want it.”

Technological Innovators

That modus operandi has been par for the course at the adult channels for years. Their growth has been fueled by jumping on the bandwagon of a number of new technologies that consumers now take for granted, including videocassette recorders, the Internet and PPV. In a sense, it's a no brainer: Executives at the brands say that consumers of adult programming are often men and early adopters of new technology, so therefore the adult industry has been the catalyst of early revenues for such technologies.

“People that enjoy adult content tend to be very aggressive in seeking out new ways to access that content,” says Ken Boenish, president of New Frontier Media, whose assets include the TEN branded adult services.

Industry executives say erotic content is on the cusp of securing a place in the consumer lexicon for several new technologies. Wireless video applications, video on demand, HD and broadband video streaming platforms are all using adult programming to fuel their ascension into critical-mass usage.

“I think adult entertainment is always one of the first sustainable models on most new technology platforms,” Boenish says. “On platforms like wireless and [Internet Protocol] VOD, adult entertainment will be an early revenue driver.”

As a result, adult networks are creating content that takes into consideration numerous platforms in the early stages of development.

In fact, instead of dividing up its executives under traditional categories like cable PPV, wireless and broadband, Playboy TV says that the programming, marketing and affiliate sales staff control the rights and negotiations for all distribution platforms.

“We don't look at [the marketplace] as a cable business, or a wireless business, or the broadband business,” Griffiths says. “We see them as integrated platforms. And the product that we provide in the marketplace is provided across all platforms.”

Although cable's adult segment was born and thrived on PPV channels in the 1980s and 1990s, network executives say the category's future success will be played out on VOD. They say the more controlled and instantaneous nature of VOD — along with a greater choice of content — will bolster adult revenues over the next few years.

In fact, the new crop of adult networks, including LFP Broadcasting LLC-owned Hustler TV and female-targeted networks Two Hearts TV and Playgirl TV, have or will launch services exclusively for VOD.

Industry analysts support their decision: Kagan Research LLC reports that the adult category is expected to generate $230 million in VOD revenue this year and will nearly triple to $600 million by 2010.

But Boenish, whose TEN networks currently offer close to 150 hours of VOD a month, believes those estimates are conservative. He expects that as operators improve the on-demand user interface and begin marketing adult VOD, the number of buys will improve significantly. (New Frontier will offer MSOs the ability to run G-rated adult movie previews.)

“[Kagan's projection] doesn't contemplate operators moving to a more explicit editing standard,” Boenish says. “The majority of VOD product is double X, but we're hearing from a lot of systems who would like to get triple X content.”

Hustler TV, which has reached deals with six of the top 10 MSOs within its first year of launch, also believes the VOD business could eventually match or eclipse the company's robust Internet subscription business.

“Video and the Internet are two very big areas, and we're experiencing amazing growth on VOD in terms of launches and buy-rate performances,” says LFP president Michael Klein, although he would not reveal specific figures for the company's Hustler brands.

Wireless Window

While PPV and VOD have been major revenue sources for adult networks, other platforms such as wireless distribution of content via cell phones have been slower to develop here in the U.S. But internationally, wireless is big business for adult networks.

“The adult market has always been the testing ground for all new technology, and the same will be for mobile,” says Klein, who added that some estimates peg adult mobile revenue at $1 billion around the world by the end of the year.

Hustler TV, Playboy TV, Playgirl TV and TEN are all offering some form of content-branded wireless services abroad, featuring short video clips, alluring ring tones, suggestive wallpaper photos, games and live-chat services. Executives say it's only a matter of time before the U.S. catches up to the technology — and the demand — for the product.

“We are working with all the major service providers to help them develop programs that will be appropriate here in the U.S.,” says Playboy's Griffiths. “This is a very, very important market for both them and us.”

The wireless market has such growth potential that startup women's service Two Hearts TV may test its programming via wireless downloads before launching its PPV/VOD service sometime in first half of 2006, according to co-founder Sandra Staggs.

“Wireless technology is really taking off in Europe, and the adult industry is leading the way in that area,” she says.

Boenish says the wireless business mirrors the cable industry, in that vendors that are quite protective of their brands. New Frontier, which earlier this year reached an agreement with the mobile content distributor Brickhouse Mobile, estimates its content will be available to as many as 500 million to 700 million users over the next three to six months.

“[Wireless carriers] are looking at the cable business as a model to determine how to make money on adult entertainment without tarnishing the brand name,” Boenish says. “So they will look to the more established companies to make sure the content is reliable.”

But he also admits that the business model for wireless is one that won't be viable financially for another couple of years. “Those areas are really, really important areas for the company, and financially important 18-24 months from now,” Boenish says. “I believe that the future growth of this company relies on emerging technology platforms such as wireless and interactive television.”

The Broadband Play

Industry observers may say the growth of broadband is one of the rare services that isn't driven as much by content as technology — i.e. cable-modem speed and versatility — but adult network executives say they are beginning to lure consumers to broadband offerings. And they're using the Internet to market PPV and VOD services.

Playboy's adherence to a multiplatform strategy — which includes 11 PPV and VOD channels, as well as several subscription Internet services — has provided the company with opportunities to develop value-added promotions that tie its video services with operator broadband offerings.

“We now offer programs where you can purchase Playboy monthly on cable and get a free subscription on Playboy.com,” Griffiths says. “That type of synergistic approach is a critical component of our strategy.”

Hustler TV — which has over 20 Web sites that offer live content streaming and video downloads — also says it's in discussions with satellite and cable operators about ways to utilize the Internet as a marketing tool for new customers. “If an operator or satellite provider is interested in utilizing the ability to give a half-price membership or free time on a certain site to promote its broadband offerings, then we're willing to discuss those possibilities,” Klein says.

Meanwhile, LFP is using its various Internet sites to cross promote its PPV and VOD offerings. For example, Klein says Hustler is currently promoting the VOD service's airing of the infamous Paris Hilton sex video One Night in Paris.

“We're using every entity to try to promote and enhance all the business lines,” Klein says.

HD Thrusts

Of course, one technology that is completely defined by content is HD.

Playboy TV was one of the first adult services to jump into the enhanced TV business with a 24-hour Playboy HD channel, which launched earlier this year on Cablevision Systems Corp.'s now defunct Voom HD service. The channel is currently negotiating deals with other operators.

With a state-of-the art production center in Los Angeles, Griffiths says Playboy develops much of its original product for the Playboy and Spice networks in HD. The company currently has deals with several operators to offer Spice-related HD programming as part of Playboy's overall PPV or monthly subscription package.

“Our distribution strategy will evolve as consumer tastes evolve,” Griffiths says. “To the extent that our distribution partners see high-def as an important component for their consumer strategy, we'll be there.”

But not all adult companies are bullish on HD. New Frontier's Boenish says he's not sure that HD can drive additional adult PPV revenue for either operators or the networks.

Since HD programming consumes four times the bandwidth of traditional digital content and only 3% to 10% of customers actually purchase adult product on a consistent basis, Boenish says it would be difficult to generate incremental revenue.

“Consumers of adult entertainment really don't watch adult for the dynamic sets, cinematography, acting and character development,” Boenish says. “As such, I don't believe that high-definition really enhances adult programming, and it has the high potential of being distracting in revealing more than what one really wants to see in certain cases.

“Until there are a lot more HD sets and the technology has become a mainstream staple, I think that it would be a waste of bandwidth to put adult on HD,” Boenish adds.

Boenish does tout the potential of adult interactive services. While he would not reveal specific plans, he says New Frontier is in development to create 12 interactive adult games for use with two-way cable boxes for distribution sometime in late 2005 or early 2006. “It's taking a more humorous, campy approach to adult content then trying to be seriously sexy,” he says.

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