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Another View: Ops 505 Victory a Big Yawn to Some

1/10/1999 7:00 PM Eastern

The pay-per-view industry received a late Christmas gifttwo weeks ago, when three federal judges declared unconstitutional Section 505 of theTelecommunications Act of 1996, which had forced the scrambling of adult-PPV product.

Most operators reacted to the news with surprise anddisbelief, considering the fact that even the most avid supporters of adult programminghad conceded that the law would most likely stand, particularly given the currentconservative political climate.

Nevertheless, Playboy Entertainment Group Inc.'stireless efforts to overturn a revenue-crippling act on First Amendment grounds wererewarded. Section 505 -- which forced many operators to limit their offering of PlayboyTV, AdulTVision, Spice, Adam & Eve and Spice Hot to late-night and the wee hours --took a 30 percent to 40 percent toll on the adult-PPV business.

So now, the natural assumption is that systems will almostimmediately reinstate adult programming to full-time status, reaping in millions moredollars from the already solid and profitable genre.

Instead, operators are moving very slowly and cautiously --for now.

Why? For one, the Department of Justice, which defended thecase, could appeal the decision, forcing the issue back into the courts in the nearfuture. Operators don't want to go through the logistical nightmare of increasingPlayboy's hours, only to have to switch it back to safe-harbor hours if the decisionis overruled on appeal.

For other operators, building up their analog-PPV businessis no longer worth the time and effort. Fully entrenched in the launch of digitaltechnology, where adult product is sufficiently scrambled and offered on a 24-hour basis,a number of operators have focused their adult-PPV-marketing resources on movingsubscribers to digital.

With digital-PPV buy-rates clearly superior to those of thelimited analog universe, some operators say it doesn't make economic sense to enhanceanalog -- even though a full-fledged adult business represents as much as 40 percent to 50percent of many operators' overall analog-PPV revenues.

Not that Section 505 struck a fatal blow to the analogadult business. In fact, according to Showtime Event Television figures, adult-PPVrevenues were up nearly $60 million from 1997 -- although the fully scrambleddirect-broadcast satellite services contributed significantly to that figure.

Also, operators in conservative communities may be willingto accept limited adult-PPV profits at safe-harbor hours, rather than risking subscriberupheaval by announcing full-time adult-network carriage.

Of course, once the legal smoke clears, a significantnumber of operators will opt to offer adult programming on a 24-hour basis. But don'tbe surprised if a very large contingent of systems say, "Thanks, but no thanks,"to Playboy once the Section 505 issue is history.

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