Sex Sells Itself

Talk to adult programmers about their marketing, and they have trouble containing their frustration over the reluctance of distributors to hawk their content. That frustration has been evident during some of Playboy Enterprises’ earnings calls. Earlier this year, chairman and CEO Christie Hefner told financial analysts she was pleased with the performance of Playboy TV’s subscription product "despite the lack of marketing support from operators who we think could improve results."

Other adult programmers speak of a "Chinese Wall" around adult content. They understand — and appreciate — the hesitation many operators feel about marketing a product that is controversial with some subscribers. But they also know that operators view adult fare as a cash cow that could grow fatter with stronger, but sensitively conceived, marketing pushes.

How much fatter? Revenue would "literally go through the roof," says Shirley Rohn-Saito, a founder and chairman of the Inpulse TV on-demand channel. "I understand the operators’ opposition, because I was a cable operator from 1976 to 1980. But there are a lot of people — especially with our [female-focused] product — who don’t know it’s out there."

Clearly, the category as a whole is growing. On-demand adult programming garnered some $912 million on cable, telco and satellite platforms last year, Kagan Research LLC estimates. Kagan is projecting an increase to $1.015 billion this year.

But the adult industry has gone through seismic change. Operators are ready and willing to offer much more explicit content, thanks to the technological safeguards of on-demand, which blocks racy material from innocent eyes (CableWorld, Dec. 18, 2006). But on the downside, buy rates for adult content have plummeted from the 8%-12% enjoyed in years past to a typical rate of 2%-3% today. What’s more, operators have slimmed down the revenue split for programmers, taking as much as 90%.

Experiments in Cross-Channel Promos

Not everyone sees that 10% in grim terms. "We’re still making a nice profit," says Michael Klein, president of Hustler TV’s corporate parent, LFP Inc.

And there might be a thaw on the marketing icecap. "It’s safe to say that adult entertainment is becoming more socially acceptable. People are becoming more comfortable with it. And as a result, cable operators have been more open to executing certain marketing strategies," says Ken Boenish, president of New Frontier Media and The Erotic Networks.

"Historically, we haven’t marketed adult programming," says an MSO exec who requested anonymity. "But there are some tests we’ve done of cross-channel promotions that are very well done and were created in partnership with one of the adult programmers." It’s not certain whether that operator will move beyond the experimental stage, but the experience has been positive so far.

Indeed, cross-channel promotions are the most common way programmers and operators work together, as long as the spots are G rated. For example, Playgirl TV and the Spice Digital Networks rolled out a series of promos earlier this summer in a bid to capture more marketing exposure from operators.

MSOs and programmers also typically partner on direct mail postcards that inform the public about security features to prevent minors from viewing racy content. Programmers say that also helps to spread the word about their services.

Programmers often go beyond on-screen promos with grassroots marketing, using a "check your local cable listings" suggestion rather than direct references to particular operators who carry their content. "For the new Bachelor Party [special] we’re doing [at Wicked TV], the girls will do a number of radio interviews and show up at a big radio station festival in Los Angeles," says Lisa Sumja, SVP of sales and marketing at Trans Digital Media. "They’re very savvy about marketing themselves."

Charity event sponsorship is another way to spread the word. To raise money for tsunami victims a few years back, TEN invited people in the New Orleans area to get in bed with adult superstar Nicole Sheridan and get their photo taken for a $5 charitable contribution.

A Decent Proposal

So what do adult programmers want from operators? "Ideally, develop a real [marketing] strategy that we can both participate in," says Bryan Postlethwait, SVP of programming at Playboy Enterprises. He’d like commitments from operators about what channels will run promos and at what times — an actual on-screen schedule and quarterly strategy. "It’s humorous that beer companies and car companies can use the allure of sex to sell products, but we can’t," he says, alluding to the relatively tame ads that some cable operators demand. "But we look for inventive ways to be responsible and still let viewers know we’re there."

Adult Content Leaders

2HEARTS

The founders of 2Hearts couldn’t have come from more thoroughly American, and vastly different, backgrounds. Sandra Staggs, the CEO, describes herself as a Southern belle who aspired to be an actress. Anne Aaronson, 2Hearts’ COO, was born in a snowbound car in Syracuse, N.Y., and earned a master’s in economics. Their hearts locked on the idea of creating an on-demand channel for women and couples that would bridge the gap between Sex and the City and hard-core adult content. "With typical adult fare, it’s the same old, same old, and nothing truly original," says Staggs.

They’re setting their sights on a late summer or fall launch.

HUSTLER TV

It’s been quite a ride for Michael Klein since joining the house that legendary erotic king Larry Flynt built. He’s overseen Hustler’s zoom to 40 million U.S. PPV and VOD households since launching the channel in 2004.

"The best thing for us has been word of mouth," says Klein, president of Hustler TV, LFP Broadcasting and LFP Internet. "We tell people we don’t know the buy-rate numbers for the other adult networks. But just ask people at other systems [about our buy rates]. That’s our best marketing tool."

Klein developed his chops at Rainbow Networks decades ago. After a stint at Playboy as head of programming, he worked at Showtime, iNDemand and TVN Entertainment.

INPULSE TV

Creating Inpulse TV was anything but impulsive for the on-demand channel’s founders, Shirley Rohn-Saito and Kimberly Wilson. They spent years talking about their burning desire to create the service before it launched in 2004.

"When I grew up in the ’50s and ’60s, we lived in the [sexual] dark ages," says Rohn-Saito, the channel’s chairman. "As a grandmother, I think it’s time for women to have their own [erotic] channel."

"It wasn’t anything I had to do. I felt it’s something I must do," adds Wilson, Inpulse’s CEO. Inpulse has about 3.4 million cable and telephone video subscribers, and is working on the satellite companies.

NEW FRONTIER MEDIA

Ken Boenish says he’s a country boy at heart. But this kid from the wilds of Minnesota has proved himself to be a fleet-footed racer in the distribution game.

President of New Frontier Media and The Erotic Networks, Boenish joined the company in 2000, when it had 2 million subscribers. "I guess the thing I’m most proud of is growing the company from essentially a standing start [to about 139 million subscribers in aggregate]."

TEN’s package of seven PPV channels and VOD content has replaced Playboy Enterprises’ services in 60 million households, he claims. So what if the company’s VOD revenue declined 5% in the quarter ended Dec. 31, 2006? That’s just a one-time "blip" related to recent system mergers, he insists. And indeed, VOD revenue surged 10% in the subsequent quarter.

PENTHOUSE MEDIA GROUP

Snapping up distressed assets has been Marc Bell’s business for years. Penthouse certainly qualified when Bell and partner Daniel Staton bought its assets in 2004 in a bankruptcy proceeding.

Bell launched an on-demand Penthouse TV service in December. It has 7 million subs.

He claims to compete on quality. "The amount of money we spend [on programming] is significantly more than our competitors," he says, adding that a typical adult title costs about $25,000, while Penthouse is spending about $100,000 per.

PLAYBOY ENTERPRISES

Bob Meyers doesn’t consider it much of a leap to move from mainstream gigs at Viacom Inc. and CNBC Enterprises to the steamier Playboy Enterprises, where he serves as EVP and president of media.

"I’ve been working all my life at companies that have very strong brands, and working at ways to position those brands so they work across multiple media," he says. Playboy is a continuation of that, Meyers says.

Meyers considers his top challenge at Playboy to be domestic TV. "The entire [business] is changing rapidly," he says, "not just for Playboy, but every U.S. TV brand."

For some, it might seem daunting that Playboy’s domestic TV revenue declined 18% in fourth quarter 2006 and 12% in the first quarter 2007. But "I love a dynamic environment," Meyers says. "When people around me are freaking out, it doesn’t faze me."

TRANS DIGITAL MEDIA

Lisa Sumja knows all about the cravings people have for certain start-up channels. After all, she was part of the launch team for Food Network, and later was a senior staffer at Scripps Networks, overseeing Food, DIY and HGTV. But her work as SVP of sales and marketing at Trans Digital Media gave her a big surprise: sexual appetites trump food lust. "This product was accepted much quicker than even Food Network was," she says.

The "product" is threefold: 3-year-old Playgirl Channel for women and gays; 2-year-old Wicked, a partnership with the famous adult production house of that name; and foreign-flavored Cheri International, which launched five months ago. Playgirl is available in 75% of the estimated 27 million VOD households; Wicked TV is available in 65%; and Cheri International 55%.

Sumja says she thought a long time before entering the adult business. In the end, she took the TDM gig because "Playgirl is not like anything out there. We pay attention to the lingerie, the lighting. It’s not so in your face."