Just when Playboy Entertainment Group Inc. thought that it
had cornered the adult pay-per-view market with its acquisition of Spice Entertainment
Cos., another upstart service promising "alternative" adult programming will
launch this summer.
Boulder, Colo.-based computer-software company New Frontier
Media Inc. is pitching The Erotic Network to operators as a network with programming more
similar in nature to Spice Hot, which goes beyond the standards set for traditional
Nevertheless, TEN will make a run at Playboy's now-dominant
adult-PPV market share, and it hopes to lure a growing segment of operators that may want
to offer lucrative, more explicit adult programming, but that are unsure whether Playboy
will provide it.
"There seems to be a growing acceptance for this type
of adult programming, as indicated with the success of Spice and Spice Hot," said
Matt Cohen, director of marketing for
TEN -- "programming that gets buy-rates 300 percent to
400 percent higher than standard adult programming."
Indeed, the already-booming adult-PPV business has become
even more profitable with the addition of Spice Hot. Adult services generated about $253
million last year, up from $212 million in 1996, despite most operators cutting
adult-network hours because of scrambling issues, according to Showtime Event Television
figures. Adult still represents 30 percent to 50 percent of many operators' overall
monthly PPV-revenue take.
But for systems offering Spice Hot -- which is in front of
1 million addressable cable and 3 million direct-broadcast satellite households -- the
numbers are staggering. Coaxial Cable in Columbus, Ohio, is drawing double-digit buy-rates
with Spice Hot, a 20 percent increase from Spice. That's despite raising the network's
rates and reducing adult PPV's day from 24 hours to eight, said Gregg Graff, senior vice
president of programming, marketing and advertising for Coaxial.
Despite the numbers, many operators have been reluctant to
launch Spice Hot. Most are still reeling from Section 505 of the Telecommunications Act of
1996, which forced many operators without effective signal-scrambling technology to
abandon 24-hour carriage of adult programming for distribution only during
"safe-harbor" hours -- between 10 p.m. and 6 a.m.
Nevertheless, New Frontier, which is publicly owned, hopes
to attract operators with splits that are "extremely competitive with the
competition," although Cohen declined to be more specific.
Sources close to the situation, however, said Frontier is
offering operators splits of at least 70 percent. That would match the current splits for
Spice, but it would fall short of the 80 percent to 90 percent splits offered by Spice
Hot, Adam & Eve and Playboy's AdultVision, according to operators.
TEN's splits, however, would surpass the 60 percent that
Playboy gives to cable systems. Operators are nervous that Playboy will slice Spice's
splits closer to Playboy's once it takes over the company.
In addition, as part of an incentive plan to get operators
to sign up early, Cohen said, a "revenue-sharing" plan will significantly
increase returns for MSOs, which can earn an undisclosed percentage of TEN's revenues. TEN
will cap the plan after it reaches a minimum subscriber rate.
"With the licensing fees and the revenue-sharing
offer, the realized-splits potential could exceed 90 percent," Cohen said.
Many operators were intrigued by the prospect of another
adult-PPV service, but they said they will wait and see what Playboy's plans are before
making any commitments. Playboy has always taken a conservative approach to the adult
business, and it was initially opposed to the launch of Spice Hot. Some Spice Hot
affiliates are worried that Playboy will eliminate that service once it buys Spice.
Representatives from Playboy could not be reached for
comment at press time.
"If Playboy keeps the same product and the same
splits, then I'll keep Spice Hot," Graff said. "But if any of those things
change, I would probably start looking rather quickly, because once you offer the hot
version, you can't go back."
Another top 20 MSO operator who was considering launching
Spice Hot, however, said he will take a very close look at the new service.
New Frontier will have to fight an uphill battle against
Playboy. With its $95 million purchase of Spice -- which includes Spice, Spice Hot and
Adam and Eve -- Playboy now has a stranglehold on the adult-PPV business.
"We were aware of the [Playboy] transaction, but it
won't affect us one way or the other," Cohen said. "Our marketing strategy was
in place prior to this transaction."
New Frontier officially entered the PPV business in
February, when it purchased the
five-year-old, privately owned, C-band-distributed Extasy
Networks, although Cohen would not reveal further details about that deal.
New Frontier also would not reveal its financing plans for
"The fact that we are a public company definitely
lends us to some financial stability," Cohen said.
Operators will be able to sell the service as a full,
24-hour network, in six-hour blocks, as a monthly premium service, or on a PPV basis,
Cohen said. The suggested retail price will be $7.95 for a one-time PPV viewing, or
between $7.95 and $9.95 for the other options.