Fighting over the Adult Brand

Cable World, May 8, 2000 by Debbie Narrod

Playboy's the incumbent. New Frontier Media is the challenger. But analysts predict both PPV networks companies will find enough room to prosper in a broadband world.

With only two players, the adult-oriented TV entertainment niche may be a testing ground for just how important brand recognition will be in a broadband world. Playboy TV is the established "brand" that is confronting a new competitor in the adult PPV space, New Frontier Media.

"Playboy does have an incredibly powerful brand," observes Ted Henderson, analyst with Janco Partners, "but does brand matter in adult? Buy rates may be driven by title, not brand."

That's certainly the opinion of New Frontier Media founder, president/CEO Mark Kreloff as well. He says adult movie viewers are more loyal to talent and directors than to studios. And, he claims, "We have more directors and more studios than Playboy."

Playboy TV president Jim English, however, says his company has long-term, exclusive contracts with 95% of the top adult movie producers, although he wouldn't discuss the lengths of those contracts. Kreloff called the contract figure a "misnomer."

Both companies, however, are working on new programs that aren't straight from the film studios.

"We are in the new world order of VOD and the Internet," English said. "Playboy needs to move itself into more original programming that gives consumers a lot of value for their money. Each year we try to move it another notch forward."

The theme this year is humor.

Among upcoming projects are two interactive movies. The first, set for May 20, is Fast Lane to Malibu, a take-off of the old Bob Hope-Bing Crosby "Road" shows, but with nudity, of course. Using phone, fax or e-mail, viewers will be able to vote on the outcome of plots as posited by Playboy. A second similar film is set for November.

Also planned is Night Calls 911, a spin-off of Playboy's popular Night Calls but with a "more irreverent and younger skew," English said. Other programs in the works include an animated series for the fall and a game show.

Playboy also has set up an Internet simulcast of its summer Wet and Wild Party, although the Internet version will not feature nudity.

New Frontier Media is launching a PPV service, Erotic Television Clips, this quarter. Eight thematically organized, 90-minute clips will round out the 12-hour rotating schedule. Topics will include naughty nurses, convertibles, brunettes or blondes, said NFM VP-communications Keely Hawk. "Adult is adult," she added. "You have to take it tongue-in-cheek."

When ETC is combined with New Frontier Media's other subscription and pay-per-view services -- Pleasure, The Erotic Network and Extasy, "We're getting close to VOD in essence," Hawk said.

Another new twist for NFM is advertising. Local ad avails will be offered by the company's networks this year, a first not just for adult-oriented PPV but also for the industry. Several affiliates have already signed on. Hawk said potential advertisers include condom suppliers, entertainment venues, clubs, and other adult-oriented businesses that have limited traditional advertising outlets. The spots also give NFM cross-promotion opportunities, she said.

Both New Frontier Media and Playboy executives say they're pleased with their services' growth. New Frontier includes cable, DBS and addressable subscribers, which reached 9 million at the end of March, up from 2.5 million a year earlier. Much of that growth comes from EchoStar's DBS package and digital cable systems.

Playboy credits its continued growth to digital as well. "Our distribution continues to move forward as digital cable moves forward," English said. Playboy reported at year's-end 1999, 11.7 million analog cable subs, 1.3 million digital cable and 12.4 million DBS homes, up from 1998's 11.7 million, 0.2 million and 9.8 million, respectively.

"Digital is wonderful," English said, citing in particular the ease in customer ordering, parental controls, non-bleeding of signals and available channel space.

Both English and Kreloff agree there's room for both companies' networks. "We've seen in the satellite business we can offer both," English said.

"Clearly we've demonstrated that there is room for everyone," Kreloff said, adding, "Two players are OK. Three was a little crowded, but Playboy helped that out with its acquisition of Spice."

"There's room in proven categories for more than one player," agrees Janco's Henderson, noting that operators have launched CNN, Fox News Channel and MSNBC, and the success of both ESPN and regional sports channels.

New Frontier Media offers its affiliates an 80%-20% PPV revenue split. It's a better deal for operators than Playboy, but Playboy carries a brand name that's well-established in the print, video and Internet worlds.

Both companies are branching out online. Playboy.com has filed for an initial public offering, and because the ensuing quiet period is underway, English didn't comment on the company's future Web site plans. The Playboy.com unit operates half a dozen Playboy-branded Web sites, including entertainment, information, sales and subscription choices.