Ops Cautious After Playboy Victory

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While cable operators applauded the reversal of Section 505
of the Telecommunications Act of 1996, regarding adult-signal scrambling, most are
examining the legal implications before reinstating full adult-PPV carriage.

With a Department of Justice appeal likely, operators said
all of the legal smoke surrounding Section 505 needs to be clear before they make any
major scheduling changes.

The three-member U.S. District Court's Dec. 28
decision declaring Section 505 unconstitutional on First Amendment grounds allows
operators to once again carry adult-PPV services such as Playboy TV and AdulTVision on a
full-time basis. But operators must block the channel if requested to do so by a
subscriber, as outlined in Section 504 of the act.

Under the law, operators that did not provide full
scrambling technology were forced to offer such networks during "safe-harbor"
hours -- between 10 p.m. and 6 a.m.

At least one midsized operator in the Southwest said he is
hoping to relaunch Playboy as a 24-hour service immediately.

"We still have complaints [from subscribers] about
cutting [Playboy's] hours," he added.

But any immediate moves to reinstate adult programming in
the near future may be unwise, according to government sources. The DOJ has until Jan. 17
to file an appeal with the Supreme Court on the matter, although it was unclear whether it
would do so at press time.

DOJ officials were not available to comment last week.

Also, the DOJ could ask for a stay of the decision, pending
its appeal. Government sources said if an appeal is made, the Supreme Court could hear the
case as early as April or May, or it could wait until the fall, which could push a final
decision well into 2000.

A prolonged appeal would further damage an already wounded
adult-PPV genre. Industry executives estimated that Section 505 has cut adult PPV revenues
by as much as 15 percent to 30 percent.

Yet the genre did generate a record $310 million in 1998,
mostly due to strong direct- broadcast satellite numbers.

Nevertheless, most operators said they would wait and see
what happens on the legal front before making any programming decisions.

"We're reviewing the situation," said Pam
Burton, director of marketing for Prime Cable. "We're waiting to get a legal
interpretation from our lawyers before making any decisions."

Not all MSOs are going back to full adult carriage once the
legal issues are cleared. Some MSOs, like MediaOne Group Inc., will look at each market
individually to see if it's necessary to extend adult PPV hours.

"In systems that are not fully addressable, we will
continue to provide adult programming during safe-harbor hours," an MSO spokesman
said. "There a possibility -- depending on the system and on what the subscribers
wanted -- that we could offer adult on a 24-hour basis."

Time Warner Cable is also not planning any changes to its
adult business due to the ruling, said Michael Luftman, the MSO's vice president of
corporate communications.

"There are only a few systems where we had to offer
safe-harbor hours, so it's not like we're leaving a lot of money on the
table," Luftman added.

Tele-Communications Inc. has no plans to schedule any of
its analog adult services around-the-clock. Instead, the MSO will focus on moving its
analog adult buyers to digital, where Playboy is currently carried on a 24-hour basis,
said Robyn Remick, director of partnership marketing and PPV for TCI.

In declaring Section 505 unconstitutional, the District
Court said in its ruling that there were less restrictive means of addressing the problems
of signal scrambling than limiting adult-programming hours. Further, the act provided
"lost First Amendment opportunities" experienced by Playboy and its viewers by
restricting telecast time to late-night hours.

Playboy argued that consumers view 30 percent to 50 percent
of all adult programming before 10 p.m.

"We are extremely pleased that the court agreed with
our position that Section 505 is unconstitutional and unnecessary," said Christie
Hefner, chairman and CEO of Playboy Entertainment Group Inc. in a prepared statement.
"This affirms our long-standing position that the family, and not the government,
should be in control of television viewing."

"Like the baseball strike and the basketball lockout,
it'll take time for people to come back," said Jim English, president of
Playboy. "We do think that the industry, being prudent with 504 regulations, can gain
a little of what was lost."

Ted Hearn contributed to this story.

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