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Playboy Buys Out Pair of Rival Nets

Further consolidating the adult pay-per-view programming business, Playboy Enterprises Inc. last Monday acquired the television assets of Califa Entertainment Group — including the explicit Hot Network and cable-edited adult service the Hot Zone — for $70 million.

The deal — part of an option Playboy obtained two years ago when it purchased Spice Entertainment Co. — also allows the company to acquire Vivid TV.

The three new acquisitions will shift to the Spice brand. Playboy earlier this year launched three triple X-edited, digital pay-per-view networks under that moniker.

Investors seemed to like the move. On July 3, the day after the deal was announced, Playboy's stock price rose 13 percent to close at $19.75, up $2.25 from the previous close. New Frontier Media, Playboy's rival in the adult PPV category, rose 3 cents on July 3, to $2.64.

Hot Network, Hot Zone and Vivid TV reach a combined 36.2 million households, although that number includes some duplication and comes mostly from direct-broadcast satellite providers.

Playboy also reached an agreement for a 10-year extension of its current output deal with Vivid Video Inc., including video-on-demand and video-streaming rights.

Playboy Networks Worldwide president Jim English said operator interest in less-edited adult programming version prompted the company to exercise its option for the Hot Network. He added that Playboy has no plans to change the programming or rate card for the networks, which averaged around a 70-30 revenue split for operators.

"The cable operators indicated that they were interested in that type of content, so we decided it was easier to put the services under one brand," English said. "Operators have found that the traffic for the less-edited version is much greater than the cable adult version."

Despite the addition of more explicit sexual fare, the flagship Playboy brand will keep its association with cable-edited adult programming, English said.

"Just like [The Walt Disney Co.] has other brands, like Touchstone and Miramax, that offer different programming from the Disney brand, Playboy Enterprises has its Playboy brand and a differentiated Spice brand," he said.

The agreement leaves New Frontier Media — distributor of The Erotic Network (TeN) and Exstasy to a reported 25 million homes —as Playboy's primary competitor in the lucrative adult PPV market. The category generated about $409 million in 2000, surpassing the $394 million-generated by other PPV events, according to a Showtime Event Television report on pay-per-view businesses.

New Frontier president Ken Boenish said he wasn't surprised by the Playboy-Califa deal. The consolidation of the PPV adult category would help New Frontier, he predicted.

"It's a positive development for us, because it narrows down the category to us and Playboy," he said. "The cable operators and DBS services have supported competition in every programming category. This deal energizes everyone to develop quality programming and keep [rate cards] low."