Cable, Satellite Providers to Push Pay-per-View Porn

Huge Profit Potential in Down Economy Prompts Promotional Efforts

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A correction has been made in this story. See below for details.

LOS ANGELES (AdAge.com) -- The economy may be in shambles, but satellite and cable companies are making whoopee.

Faced with increased competition from former phone companies such as AT&T and Verizon, satellite and cable companies are loosening their chastity belts and getting more aggressive about promoting adult content on other male-heavy channels such as ESPN and Spike TV. What's more, even as they raise prices on regular channels, the price of their adult fare is about to get much cheaper and more attractive.

Region by region
Late last year, DirecTV quietly ended its moratorium on hyping adult video-on-demand offerings on other channels. Meanwhile, the nation's largest cable company, Comcast may soon start promoting adult content, though on a region by region basis, insiders say.

A spokeswoman for Comcast declined to comment, but Robert Mercer, a spokesman for DirecTV, said that while the company still has "a long-standing policy of not marketing adult content at retail or to consumers in general," it will now run promotional spots "for existing customers on certain male-oriented channels in the early morning hours -- between 2 a.m. and 6 a.m. ET, say."

"We've always been extremely discreet about this," wrote Mr. Mercer in an e-mailed statement to Ad Age, "for obvious reasons."

All about the bottom line
Still, Ali Joone, CEO of Digital Playground, a Van Nuys, Calif.-based adult studio, notes, "We're coming out of an eight-year political administration that was very tough on the adult business. What is driving cable operators now is money, not fear. They're starting to not really care what people say; they're looking at their bottom line."

In a down economy, adult PPV is almost pure profit for both cable and satellite operators. And those profits are substantial. Mr. Joone said that while the split of revenue between cable operators and Hollywood studios favors Hollywood, when it comes to adult content, "90% of the revenue goes to cable operators. They have the lion's share of the profits."

Accounts vary as to porn's actual economic impact because, like most men, the adult industry also tends to misrepresent its true size. But a 2007 Kagan Research report found that adult video on-demand and pay-per-view is expected to make up a $1.4 billion market by 2014.

More bang for buck
Curiously, while DirecTV and Comcast are in the midst of raising overall prices on their TV channel subscription packages (DirecTV by 4% just this month; Comcast by 4.5% on average this year), pay-per-view porn will be coming down in price.

"I don't know if its going to be a [McDonald's] 'Dollar Menu,' but giving people more for their money is on the agenda," said Ken Boenish, president of New Frontier Media, the Boulder, Colo.-based adult pay-per-view firm that operates both The Erotic Network and Penthouse On-Demand.

The main reason?

Pay-per-view porn is being slowly nibbled to death by more cheaply-priced (or free) internet smut, while adult studios are suffering from stalled DVD sales.

"Five years ago, 90% of our business was DVD," said Mr. Joone, "This year it will probably be less than 60%."

He added: "And a lot of the broadcasters, they're putting out the same material out that you can pay for by the minute on the internet. At that point, the consumer is like, 'I can get this for pennies!'"

Just last week, rival Playboy Enterprises posted a massive $145 million loss, with fourth-quarter domestic TV revenue essentially flat.

But a lack of marketing may also be to blame for porn's ills.

'Shattering' conventional wisdom
In an industry awash with exaggerating raconteurs, Mr. Boenish is one of the few adult-industry executives with the distribution relationships needed to commission serious, factual research of consumers' porn habits. A recent New Frontiers Media in-house study of satellite customers found that almost 75% of satellite customers are unaware that hard-core content is available to them; 56% of cable customers are unaware of the option.

The study "shattered a lot of conventional wisdom at the company," said Mr. Boenish. "We used to be of the opinion that people who purchased adult entertainment on cable were ignorant of the internet. But we found that of the 80% of customers who buy adult content from their cable operator, 63% pay for content on the internet as well."

These surprisingly "dual users" of both internet and PPV porn cited the value proposition that pay-per-view offered: better video quality, superior overall viewing experience on larger screens, and, of course, the freedom from worry about the ultimate sexually transmitted disease -- the internet-porn computer virus.

Package deals
As such, many of New Frontier's adult PPV offerings are now packaged with free adult internet offerings, or with a subscription package that will allow access to 50 adult movies a month for $15.99 instead of a single adult film for just 24 hours. The result has been a 5% increase in adult revenues year-on-year at New Frontier.

Whether more aggressive adult PPV marketing alone will equal higher profits for the cable and satellite companies remains unclear.

"It's a Band-Aid," said Mr. Joone. "Is it a long-term solution? Absolutely not."

He insists the answer is to spend more not only marketing adult content, but on making it, too. While the typical adult film costs between $15,000 and $25,000, Mr. Joone often spends three times that amount to shoot in exotic tropical locations, in high definition video with well-known stars. His "Pirates 2" just crested 1 million units sold in a business where a blockbuster porn title typically sells just 5,000 copies.

"If you you're creating something that's just going to be masturbatory, fine, but if you want to stay alive in this business, you have to do better. I like to say, 'Water is free, but we pay for it in a bottle.' That makes a lot of sense to me."



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CORRECTION: An earlier version of this story incorrectly stated that NewsCorp still owns DirecTV; NewsCorp agreed to sell its stake in DirecTV to Liberty Media in 2006 and completed the transfer in February 2008
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