MSOs Using Hot Network’s VOD

Andrea Figler

Some cable operators have started to use or test explicit on-demand porn in an effort to have the X-rated fare help pay for their video-on-demand upgrades.

Four of the top eight multiple systems operators have begun trials or deployments with Hot Networks or its affiliate, Hot Zone, says Bill Asher, president of Vivid Entertainment, an explicit adult content provider of Hot Networks and Hot Zone material.

“You go back to the whole pay-per-view, near video-on-demand upgrades, and you see the technology is paid for by the adult programming,” Asher says. “Clearly, the profit comes from the adult business. For video-on-demand, adult business will drive the business.”

While Asher would not disclose the specific cable operators, a staff member of Oceanic Cable, a division of Time Warner Cable, confirmed that his cable system in Hawaii has been using Hot Networks’ content on its VOD system almost since it started in December 1999.

“Adult sales are only about one-fourth of all our orders but they contribute half of all our monies,” says the employee who asked to remain anonymous.

Many consumers of adult material prefer Hot Networks content because it shows actual sexual intercourse rather than just nudity.

The Playboy Entertainment Group, which traditionally provides softer sex movies, realized this trend and now plans to promote more explicit movies through a new VOD product called Instant Access, company officials say. The company plans to announce the new system, to be headed by Bill Furrelle, VP-sales and marketing, this week.

Playboy would not disclose which cable operators it works with, either, but says it has been selling adult content to turnkey video-on-demand provider Diva Systems since 1998. Diva has deals with Insight Communications, Charter Communications and AT&T Broadband.

Comcast, which has been a leader in VOD developments, declined to comment on whether it has been testing Hot Networks. Cox Communications, also on the forefront of VOD deployments, denied affiliation with Hot Networks.

Since major cable operators, such as Time Warner, worry about negative publicity connected with porn, the Oceanic employee in Hawaii explains that his system doesn’t promote it.

“It’s part of the mix of movies we offer. It’s a good business, but we won’t play it up,” he adds. “If we were an independent cable company, not tied to any national MSO, we’d have a profit motive and business model for adult.”

Like Time Warner, most cable operators shy away from talking about adult programming because of potential backlash from communities that could threaten to revoke an MSO’s franchise, says Larry Gerbrandt COO and senior analyst for Paul Kagan Associates (like Cable World, owned by Media Central). But, he adds, that adult content has always been a part of new video technology and is, actually, a critical economic component to any new service.

Playboy takes 40% of its softer films and between 10% and 15% for its more explicit movies, a source said. Hot Networks, takes only about 20% of the revenue.

Although the deployments and trials of Hot Networks reach a few thousand homes to date, Asher says preliminary data shows that there will be a 50% to 100% increase per home for VOD porn compared with pay-per-view adult movie. Hot Networks charges between $6 and $9 per VOD movie.

This charge, combined with the revenue going to cables, could pay for a cable operator’s VOD upgrade altogether, Asher says.

Since porn VOD also hurdles the barrier presented by mainstream Hollywood studios, which have stalled contracts to provide their titles for VOD use, Asher’s claim may come true, says Keith Kennebeck, a cable analyst with The Strategis Group. But whether revenue generated from VOD porn will pay the costs to store these movies at the head-end, stream them at a moment’s notice, and cover all service charges in between remains a difficult task, he notes.

Jim English, president of Playboy Networks Worldwide, doesn’t think that porn will pay for 100% of an upgrade cost.

“But it certainly softens the blow,” he adds. “Adult content will, once again, be the driver for a new technology. The splits for the cable operator will help him recover the costs three times faster than regular Hollywood movies.”

COPYRIGHT 2001 Copyright by Media Central Inc., A PRIMEDIA Company. All rights reserved.

COPYRIGHT 2003 Gale Group

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