Porn Quietly Becoming Pay-TV Gold Mine

“Freaky Gym Tales” and “Wild, Sexy Brunettes” are headed to millions of American cable boxes, courtesy of Ma Bell.

AT&T; Corp. is planning over the next month to make available to its 2 million digital cable subscribers the Hot Network, a pay network that has spiced up adult entertainment on cable and satellite television with a much more explicit brand of adult entertainment.

AT&T; is among a growing list of some of America’s biggest corporate names that have built high-speed fiber-optic networks offering cable television, phone and Internet services, and are using the networks to meet one of the strongest demands in media: for pornography, the more graphic the better.

Cable TV providers have offered adult movies on a pay-per-view basis for more than a decade, but heightened competition and new digital technologies are encouraging many companies to provide programming that stops just short of hard-core pornography.

The adult category amounts to more than 15% of the nearly $2 billion pay-per-view television market and is growing fast. The highly profitable business is creating strange bedfellows between the telecommunications and skin industries.

The adult movie niche has quietly become the dominant pay-per-view revenue stream, said Ted Henderson, a media analyst with Janco Partners Inc. in Denver. Despite its success, nobody wants to talk about the adult category, Henderson said. “Obviously, the cable industry doesn’t want to promote it because it’s relatively embarrassing.”

In addition to AT&T;, other companies providing more explicit movies are DirecTV Inc., a satellite television subsidiary of Hughes Electronics Corp., and Starpower Communications Inc., a cable service that is a joint venture of Potomac Electric Power Co. and RCN Corp., a New Jersey telecom company.

It remains to be seen whether other major cable companies will follow. The biggest holdout is Time Warner Inc., which says the Hot Network programming goes too far. Time Warner does, however, offer Playboy’s tamer programming on a pay-per-view basis.

But in markets in which Hot Network and the softer Playboy TV are available, the more explicit channel outsells Playboy 2 to 1.

The corporate move into the more raw adult entertainment has its roots in the late 1990s, when these companies decided to secure a stake in the Digital Age by building fiber-optic networks that could serve as a one-stop conduit for cable, Internet and telephone service. Now these companies are competing on a household-by-household basis for subscribers willing to pay for the high-end amenities provided by digital cable, such as crystal-clear pictures and CD-quality sound.

They have found that one thing customers want is raunchier entertainment. DirecTV, the satellite industry leader, refuses to disclose the revenue from customers who buy adult pay-per-view movies, but sources estimate DirecTV’s 8 million subscribers spent more than $150 million just on Hot Network movies in the past year.

Standard & Poor’s Corp. estimates the adult pay-per-view industry took in $349 million in 1999, with industry insiders predicting the sector will hit $500 million in 2001. The cable and satellite TV firms do not widely advertise their affiliations with the suppliers of the new, racy movies, keeping a low profile that also helps them avoid attracting criticism from politicians or arousing the ire of activists.

Asked about its decision to carry such programming, AT&T; spokesman Steve Lang would only say, “We offer a wide range of programming that consumers would like.”

The Hot Network, which has deals with AT&T; and Hughes’ DirecTV, is a subsidiary of Vivid Entertainment Group, one of the world’s biggest adult movie studios. The Hot Network reaches 16 million homes and its affiliated network, the Hot Zone, reaches 10 million homes.

The Hot Network and its rival, the Erotic Network, attribute a large part of their success to the cable industry’s decision to invest $30 billion to rewire itself with fiber-optic lines, giving it broader and quicker distribution of its sex videos. In contrast to the traditional copper and aluminum cable wires, which can carry slightly more than 50 channels on average, a fiber-optic network can carry hundreds of digital channels, leaving plenty of room for the adult pay-per-view services.

And with digital technology, pay-per-view movies are completely blocked from view unless a customer goes through the steps of ordering the movie. Traditional cable systems often “leak” video and audio signals from adult channels, possibly exposing children to sexually explicit material.

“This business is a real business, to be sure,” said Mark Kreloff, chief executive of New Frontier Media Inc., a publicly traded company in Boulder, Colo. New Frontier owns the Erotic Network. Kreloff predicts satellite and cable TV subscribers will spend more than $100 million on his company’s adult movies next year.