Courting the Adult Viewer

Hustler, Penthouse Frame Their Multimedia Strategies

It’s the content nobody wants to talk about publicly, but it never fails to attract a loyal audience. Yes, we’re talking here about adult content.

Penthouse’s CEO Marc Bell

JupiterResearch pegged the U.S. online adult paid content industry at $254 million last year. While adult magazines have been around for ages, and adult Web sites were among the first to turn a profit on the Internet, content companies in this arena now also are distributing their stuff via other mediums, including TV, mobile phone, iPod and even radio.

In fact, around the time this magazine gets into your hands in late June/early July, Penthouse Media Group Inc. should be flipping the switch on Penthouse TV. “We’re starting with video on demand, and then we’re moving toward linear pay-per-view TV,” Marc Bell, CEO of Penthouse, tells xchange. He would not disclose the names of the new channel’s distributors.

Penthouse TV — whose catchphrase is “The brand that delivers” — is just one more way for the company to leverage its content and its brand, which already are used to sell magazines, Web sites, clubs and iPod downloads. Bell tells xchange that mobile also will be big for Penthouse, indicating the company plans to announce an initiative in this vein with several “global service providers” in the near future.

Bell says Penthouse, which he bought in 2004 in a bankruptcy fire sale, already owns nearly 600 titles that can be used for Penthouse TV and other opportunities. But the TV network also will deliver new content such as Dr. Z’s Sex Tips, Speed Swap, Call the Shots, and Fresh and Stripper Confidential, which will be done live from the Penthouse Clubs. Bell adds that Penthouse TV is shooting all of its programming in high-definition.

Michael H. Klein, president of Hustler TV and its parent company LFP Broadcasting LLC, previously headed up programming for on-demand content solutions provider TVN Entertainment; ran his own consulting company, Next Step Entertainment; and has held management positions at iNDemand Networks,On Command Video, Spectravision, Showtime, Playboy Entertainment and Rainbow.

In announcing it had closed a $48 million round of private financing in September of 2005, Penthouse Media Group said it would use the money to build out multiple broadcast networks to compete directly with the Playboy Network, the Playboy-owned Spice network, and New Frontier Media Inc.’s TEN (The Erotic Network). That same month, James English, the former president of the Playboy Entertainment Group Inc. and Playboy TV Networks Worldwide, joined Penthouse Media Group’s board.

This spring, Penthouse Media Group named Doug Lindquist as managing director of its international television and mobile video group. He also came from Playboy Entertainment Group, where he had worked 11 years.

Playboy declined to be interviewed for this article.

Another well-known name that got its start in the magazine world but recently has expanded into multimedia is Hustler.

The company initially launched Hustler TV in Canada in June of 2003; the network currently is on every cable system in Canada. Hustler TV introduced a video-on-demand offer in the United States in May of 2004 and came out with a linear pay-per-view channel later the same year. Michael H. Klein, president of Hustler TV and its parent company LFP Broadcasting LLC, declined to name the distributors, but says Hustler TV is launching on new systems and affiliates every month and as of late May, was in more than 20 million U.S. homes, “and we have deals coming up that will increase that significantly in the next two months.”

Hustler TV also is available in Europe, where it made its debut in November of 2005. Klein says around the same time the following year, Hustler TV was the most widely distributed adult channel in Europe. And earlier this year, Hustler TV came out with a linear pay-per-view channel in Mexico.

“The reason why we launched [Hustler TV] is, LFP Video, which is our sister video company, has been producing Hustler video movies for years and selling them to other networks prior to our launching the channels. They were, from what we’ve been told, among the most popular titles on the other adult networks — series like Barely Legal and our Asian Fever and Ghetto Booty and such. So the idea was, ‘Why sell them to the other networks? Let’s launch our own.’ We have a terrific brand. We have top-selling movies. As well, we acquired a couple years ago a leading adult studio called VCA [Pictures].”

Klein says Hustler TV consistently has more titles in the top 25 of the adult charts than any other network. “Besides having the Hustler video and VCA, we also have the exclusive rights to other top studios like Red Light District and Evil Angel and Tera Patrick’s Teravision and Jules Jordan Video and Defiance [Films] and Torrid [Entertainment] and Harmony [Films],” says Klein. “It just goes on. These are all top studios. They used to have titles on all the other networks.”

Distributing adult programming is good for the cable companies and other network operators because of the solid demand and the attractive splits; Klein says distributors get a better cut on adult content than they do on mainstream movies.

“Everybody recognizes that adult programming is part of the mix that’s available. It’s a huge revenue generator for every affiliate,” says Klein. “People don’t have to talk about it; they don’t have to go public. But they offer it, they put it there, it’s what consumers want. It’s still a choice option, that’s the beauty of video on demand or pay-per-view — you have to choose to see it. It’s not just there. You’re not going to randomly come across it. You have to make a conscientious choice of the programming and every system has parental lockouts for their menu screens just like they do in the hotels so you can block it out to make sure that no one sees it that doesn’t want to see it, that no child can order it. All the protection is there.”

Klein adds that Hustler TV doesn’t do any marketing in the geographies where it offers the channel without first getting approval from the affiliates in those areas. The channel is also flexible about branding, he says, so distributors may opt not to include the Hustler TV name on the first screen of the affiliates menu. “We work with them at their comfort level,” he says, adding that, in some cases, the content is listed only under the adult genre. “Obviously, we know using the Hustler name will increase the buys. But we find that in the systems that don’t use the Hustler name, according to [those affiliates], we still dominate their adult buys.”

In addition to its magazine and Hustler TV, LFP also distributes its content via about 23 different Web sites under the LFP Internet Group, LLC; that includes membership sites, VoD options, streaming downloads, and sites that connect to its stores to enable visitors to buy videos from its Hustler Hollywood stores. Klein says the company would like to allow its customers to be able to burn its content to DVDs at home, and expects to offer this option later this year. “We are currently waiting for the technology to be fine-tuned so that the DVD copy cannot then be massively replicated,” he says, adding, “should someone develop a system that has a set-top box with a DVD burner in it, and it has the right security functions, we would certainly explore that option, but nothing like that has been presented to us.”

Hustler also plays in the mobile space abroad, offering clips of movies, wall paper and “sexy ringtones” through distribution partner Mobival in Europe, says Klein. LFP also had forged a deal with GIANT Mobile Corp., a Santa Monica, Calif.-based mobile content provider, related to the Hustler Mobile service, but LFP terminated that deal and charged GIANT with breach of contract, tortious interference and infringement, according to reports.

As reported in xchange’s On the Tube eBook in March, the overall market for mobile adult content will triple to $2.1 billion by 2009, driven by more availability of 2.5 and 3G networks, according to Juniper Research.

Satellite radio is yet another area in which the adult content industry has dabbled. Specifically, Playboy had a deal with XM, which subsequently dropped the program upon reportedly disappointing results. But Playboy Radio now is available on SIRIUS Satellite Radio, under a deal the two announced in January.

While Bell of Penthouse didn’t express much interest in pursuing a similar arrangement for his company, LFP’s Klein says, “we’d love to explore something” if adult radio turns out to be a viable business.

And if it is a viable business, the adult content industry is sure to be there first, as it has been in the past with such new technologies and business models like videotape and +1 800 numbers.

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