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Sexual Dysfunction?

8/08/2008 8:00 PM Eastern

Porn is king — at least on the Internet.

Every second around the world, more than 28,000 Internet users view pornography, while more than 370 Internet users type adult terms into search engines.

With that kind of demand, drawing customers should be a snap.

But some of the largest adult-entertainment players in cable TV, including Playboy TV, Hustler TV, Penthouse TV and The Erotic Network (TEN), are struggling online, despite success in pay-per-view and video on demand.

Indeed, Playboy Entertainment Group and New Frontier Media have all but jettisoned their subscription-based video Web businesses to concentrate on building their PPV, subscription VOD and, in Playboy’s case, its subscription premium adult services.

Why are such dominant, well-heeled players looking past such ripe opportunity?

For starters, the sheer volume of established competition is staggering, having multiplied like rabbits almost overnight. Today more than 4 million adult-oriented Internet Web sites offer pictures and video to titillate every imaginable sexual taste.

As the number of sites has surged, they’re increasingly being fortified with unfiltered pictures or partial video clips, creating a flood of saucy — and free — online content. And if the content isn’t free, it’s typically priced to reach a mass audience.

Moreover, the category is experiencing a new influx of user-generated content. Millions of amateurs, sporting little more than digital video recorders and poor lighting, are also changing the fundamental business dynamics of the pornography industry by seeking nothing more than exhibitionist notoriety — and not charging a cent.

Indeed, Bruce Leitchman, president of new-media research company Leitchman Research Group, said it’s becoming more difficult for premium adult services like New Frontier’s $29.95-per-month www.ten.com site to maximize online revenue or draw advertisers when it has to compete against a plethora of free sites like xtube.com that may offer clips from the same shows that appear on TEN.com.

“There’s a lot of free stuff out there, so it’s like with anything — how does fee compete with free?” Leitchman said.

Still, big-name adult TV brands aren’t going down without a fight. Executives are betting that adult video connoisseurs will ultimately pay for the ability to watch quality, digital and high-definition content from trusted brands in the comfort of their own homes rather than access often unbranded, poor quality video content for their laptops.

“What we’ve found is adult users like television and they like the high-quality-video, big-screen format that can be located in the bedroom and it’s a perfect platform to watch with a partner,” said New Frontier Media president Ken Boenish.

Indeed, the cable adult PPV and VOD category is expected to surpass the $1 billion revenue mark for the first time in 2008, according to SNL Kagan, as companies such as Playboy, New Frontier, Trans Digital Media — which operates Wicked On Demand and Cheri International — and adult DVD-based Pure Play Broadcasting exhibit their adult video wares to a willing and able cable subscriber base.

With cable and satellite distributors offering often-explicit fare from adult networks, with titles such as Wetter the Better and Tease Before the Please often in 90-minute blocks selling for $10.99 to $14.99 — some in HDTV — the business is as vibrant as ever, according to adult network executives.

Still, it’s unusual to see cable-based video services shy away from the Internet as other general-entertainment cable networks, such as USA Network, Sci Fi Channel and A&E Network, boost their Web sites with quality, original product in an effort to reach a growing audience of consumers who watch video in cyberspace. More than 20% of consumers view some amount of primetime television programming online, according to a recent survey by San Mateo, Calif.-based Integrated Media Measurement.

But Hustler TV president Michael Klein concedes that the prevalence of free video Web sites such as xtube.com, youporn.com, pornhub.com and pornotube.com have cut into potential online revenues for company. It’s unclear, however, how much of the overall adult Web traffic these sites generate.

“For us, the big issue on the Internet side is all these free tube sites, and that hurts the broadcasting, Internet and DVD sales when you have all of these people putting up these sites, stealing content and giving it away for free,” Klein said.

Hustler TV is one of the few cable adult services aggressively pursuing the Web, offering as many as 35 Web-based sites under its umbrella, including an HD Web site.

For consumers already inclined to purchase adult content cable via PPV and on demand, the chances of them purchasing more adult content on the Web is relatively low, which doesn’t bode well for cable networks looking to extend their business models online, according to New Frontier’s Boenish.

He pointed to a recent Magid Associates/NFM report that found that 80% of consumers who buy adult content on cable and satellite also visit a free adult Web site at least once a month. About 40% of consumers who watch adult content on cable actually pay for content on the Web.

“What that tells us is that consumers are willing to pay a premium for television content, but not premium Internet content,” said Boenish. “The Internet may provide a better value proposition for consumers — there’s a lot of free sites out there — but those looking for more quality look at cable.”

Todd Schwartz, vice president of programming for Playboy TV — which earlier this year launched a free, marketing-based playboytv.com site to promote the company’s monthly subscription and on-demand services — believes the Web is a great supplement to and not a replacement for the adult television viewing experience.

“I think watching TV online is a gateway to the future, but I’m not so sure that it’s the way of the future,” he said. “We always want our services available wherever and however so that you can get it and subscribe to the channel.”

To that end, he said the network is talking to operators about developing a broadband service that would mirror Playboy’s monthly subscription channel.

Similar to HBO’s On Broadband Web channel and Starz’s Vongo Web service, Playboy would offer Internet subscribers a simulcast of the TV network as well as a library of on-demand product, according to Schwartz, although he would not provide a specific launch date or pricing details.

He added the service will help bring value to operators’ high-speed Internet service, such as Time Warner’s Road Runner or Cablevision Systems’ Optimum Online, while providing consumers with the option of watching its content on their laptops.

“You can get Playboy TV On Demand and watch what you want to watch when you want to watch it or watch the linear feed,” Schwartz said.

Hustler TV is also seeking to provide a similar type of broadband service, although no deals have been consummated, according to Klein.

“We want to work with operators to tie in our Internet product on their high-speed platform and use that to sell to the consumer the ability to either watch the product on your TV set or the Internet, but to have it all go through that operator,” he said. “That’s the goal and there’s an opportunity to expand that.”

Cable-based adult video providers are also using its Web competitors such as xtube.com — an adult video site similar to the popular social video site youtube.com — to help build cable business by uploading free, branded clips and pictures to the site. “If you go to any of those sites you’ll see they borrow from each other tremendously,” said Schwartz. “Our business is getting you to subscribe to Playboy TV, so we’ll use those sites to promote our service.”

Added Klein: “We try to do business with them — we send traffic to them, they send traffic to us — it’s a very open community and everyone works together. At the end of the day you’re competing for the consumer dollar but it’s not a cutthroat business — if you can send business my way and I can send business your way and we both make money, great. That’s how it works in the Internet world.”

New Frontier has tried to emulate one of the biggest strengths of the Internet — diversity of content — in its cable offerings. On the Web you can find topics as diverse as various ethnic genres, S&M and a long list of fetishes, but New Frontier does not include such content as part of its PPV/VOD services.

Instead, the company earlier this year launched a VOD service based on the Penthouse brand, as well as an adult/reality channel dubbed Real and a foreign-import channel branded Juicy.

It has also purchased popular short-form adult content from the Web, such as a series that exhibits the naughty things people get caught doing by security cameras in the back room of the local convenience store or the desktop at the corner bank.

“One of the good things that has come out of the Internet has been the way some Web sites have been very innovative in the way they produce their content,” said Boenish.

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