Playboy: WEATHERS 505 STORM

Matt Stump

Hollywood studios aren't the only PPV content players looking forward to increased digital rollouts. Playboy TV is celebrating a breakthrough digital carriage agreement with Comcast Cable that is helping to take some of the sting out of last year's Section 505 ruling that forced cable operators to cutback Playboy carriage before 10 p.m.

"1999 turns out to be a fairly good year, considering..." said Jim English, Playboy TV president. Playboy saw some growth in the cable markets, it's enjoying sound success with monthly buy rates on DirecTV and digital rollouts are generating double digit buy rates - two and three times as large as analog Playboy buy rates.

The security that digital affords, where there's no chance for audio and video bleeds, makes the Section 505 cutbacks moot, at least in those systems.

(Playboy took a hit to its bottom line when operators pulled back Playboy during daytime hours, relegating the service to the 10 p.m. to 6 a.m. block, based on the Section 505 case.)

"That's the breakthrough with the Comcast deal," English said. "Comcast is saying: I understand adult and I'm going to market it."

Indeed, one of the secrets of adult PPV is that 25% to 30% of buys occur between 10 a.m. and 4 p.m., English said. In digital markets, that percentage can climb to 40%. Although there are male shift workers and college students, the daytime buyer also includes women, English said.

English said Playboy intends to reach out to women, as well as ethnic audiences and couples with programming over the next year. The February through April editions of Night Calls next year will be ethnically themed, English said.

Although the content on the digital service will largely mirror today's Playboy analog service, it will be structured to go along with the monthly subscription model present in digital. That will mean a shift in how it looks and how it's tied together, English said, as well as a bit more volume.

The monthly subscription model is working well in the DBS environment, English said. "We're going to take it back to a monthly modem in a digital world, and even analog if operators want it," he said.

But Playboy isn't abandoning per movie buys. "We tell operators, if you don't offer both, you leave half the money on the table," he said.

In addition to adding more ethnic faces on Playboy, English plans to use 2000 as a building year towards other programming changes in 2001 "through consistency and shows that are tied together."

Sexectera, Playboy's, half-hour news show, currently is seen six times a year. English envisions the day when it appears daily, as an anchor to a nightly schedule.

The tweaks in the programming and the Section 505 battle are set against a backdrop of increased competition, from both harder-edge services and softer fare. Playboy purchased Spice from Graff PPV only to find The Erotic Network and two Hot Channels springing up to compete in cable and DBS with more explicit programming.

And from the softer side, HBO's Real Sex and Sex in the City represent more mainstream examples of competition to Playboy. Throw in some hot scenes from Buffy, The Vampire Slayer, Ally McBeal and daytime soaps and English sees competition from many sources, to say nothing of the Internet. But what Playboy still has, English points out, is a brand name that gives it an identity in a crowded field.

TeN: Pitching an upstart No sooner had Playboy TV purchased its adult competitor Spice last year, than executives at a Boulder, Colo.-based company developed plans to launch a competing adult network.

New Frontier Media, which purchased the assets of Exctasy Networks, a Canadian-based DBS programmer, launched TeN (The Erotic Network) last year and supplemented that with a second channel, Pleasure, earlier this year.

TeN's major deployment coup has been on EchoStar, and the company is feverishly working to secure more cable affiliations.

TeN differentiates itself from Playboy in two main areas: operators get a large share of the split and its networks offer more explicit material.

"People have welcomed us," said Mark Kreloff, CEO of New Frontier Media, referring to the cable industry desire to often have at least two vendors for some product.

NEM distributes three adult networks, Exctasy, TrueBlue and Gonzo X, through the 1.7 million home C-band universe. The material is the most explicit on any television outlet and is largely not available on cable. NEM has about 165,000 C-band subscribers, who pay monthly rates between $6 and $14.95. The average subscription period is 90 days.

TeN, which is comparable to Spice and Spice 2, is carried by EchoStar (three million homes) and a handful of cable operators, including Cable One, Harron, Jones and Charter, Kreloff said. The cable universe is roughly 800,000 homes.

Of EchoStar's three million subscribers, TeN has 80,000 monthly subscribers, NEM said, but the service is also moving to push per movie and per blocks buys.

On cable systems, a 90-minute block for TeN is priced at $7.95.

Pleasure, which launched on June 1 on EchoStar and to about 100,000 cable homes, is priced at $5.95 per block. "Some operators are more comfortable with a softer service," said Steve Walter, director of affiliate sales and marketing, NEM.

NEM offers 70%/30% splits that can increase to 80%/20%, depending on the deal, the company said. But the harder edge material is often what makes the difference in adult PPV. According to NEM, buy rates in Jones/Comcast's Gambrills, Md., system rose from 3.64% to 8.74% after a switchout from Playboy to TeN. NEM said the system's revenue jumped from $74,599 to $239,263.

Gains aren't as large when systems switch Spice Hot with TeN. In Augusta, Maine, NEM said the operator switched the two services and although buy rates stayed the same, at 14%, operator revenue rose from $207,018 to $235,450 because of TeN's more favorable operator splits.

TeN draws content from more than 40 adult studios. TeN offers 60 movies a month, including 18 premieres in 90-minute block. Premieres are important, Kreloff said. "New faces are a big draw."

NEM has purchased a number of adult Web sites over the past year, and it's focusing on developing a broadband content service. The broadband service has more of a television look and feel, NEM executives say, with short video clips (10 minutes or less) from movies or adult stars.

NEM's narrowband sites are priced at $29.95 per month for a subscription. Its dial-up business is producing $31 million in revenue and $6 to $7 million in cash flow, Kreloff said. Video, meanwhile, produces about $50 million in revenue and $8 to $9 million in cash flow.

NEM hopes to complete a deal soon with a top 5 MSO to test NEM's broadband site through a cable modem. NEM is looking to build a server to be housed at the local systems, alongside the operator's other Web caching servers.

NEM would receive a button on the local home page and share revenue from the site with the operator. And how high is up for broadband? Kreloff is bullish. "Subscription and pay TV will be cannibalized in large part or in whole by broadband and video-on-demand" in the next few years, Kreloff predicts.