Cable Firm Eliminating Sex Channels From Lineup

Sex sells. But that doesn’t excite the city’s largest cable operator, Adelphia Communications, whose conservative rural Pennsylvania owners are taking the moral high ground and dropping sex channels from its systems here. The move is contrary to an industrywide trend by satellite and cable operators to bolster their bottom lines offering highly profitable pay-per-view adult fare.

This fall, Adelphia began dropping the popular Spice channel, neighborhood by neighborhood, from systems that reach from Eagle Rock west to Santa Monica and south to Orange County. The company notified city regulators this summer that it would be replacing Spice with the Health Network.

Adelphia’s move is the most sweeping programming change since the firm acquired Century Communications a year ago. The acquisition made Adelphia the region’s largest cable operator, with about 1.2 million subscribers in Los Angeles and Orange Counties.

The decision is risky, considering that the adult pay-per-view business is soaring. Industrywide, revenues doubled in the last three years to more than $500 million this year, and are expected to accelerate as cable operators expand this segment.

Adelphia would not comment on the change. But industry executives say the patriarch of the Coudersport, Pa., company is morally opposed to what he considers exploitative adult programming that undermines its core family values.

Playboy Television Networks, the owner of two adult brands--Spice and Playboy--that are widely carried over cable and satellite TV, said Adelphia is the only one of the nation’s major pay TV providers with a policy against sexually explicit fare.

“It has been their long-term policy to be anti-adult,” said Jim English, the president of Playboy Television Networks, which is based in Los Angeles. “The only answer I have for consumers is satellite.”

Some industry analysts wonder if the move will hurt Adelphia’s competitive battle against satellite services, which have used sex as a selling point and generally devote more channels to the genre than their cable counterparts.

Satellite providers DirecTV and the Dish Network have a wider array of adult offerings, including harder-core fare such as the Hot Network, owned by Van Nuys-based Vivid Entertainment Group, and Pleasure and the Erotic Network, owned by New Frontier Media of Boulder, Colo.

Leading cable operators Time Warner and Comcast have refused to carry these channels because they are far more explicit than Playboy or Spice.

Tele-Communications Inc. also refused to carry Hot until it was acquired by AT & T, which reversed that decision in what many industry sources said was an effort to improve profit margins. AT & T, the nation’s leading cable operator, said it was a response to customer demand.

An Adelphia executive said the company carries adult programming on certain systems acquired during a two-year buying spree. However, industry sources say the company typically drops such programming to make room for other fare. The Adelphia source confirmed that the company has never itself initiated adult services.

Founded in 1952 by John Rigas, a slight and soft-spoken cable pioneer, Adelphia has retained a down-home culture even as it has nearly tripled in size since mid-1998. Adelphia’s Web site says the company’s core family and community values “drive every aspect of our business.”

Rigas, who will turn 76 this month, runs the company with his three middle-aged sons from a rural outpost where Adelphia is the biggest employer. The family also owns the cinema, a Texas Hots restaurant, a Christmas tree and maple farm and a honey-producing apiary. Adelphia’s headquarters is in a converted elementary school that the three sons attended.

The family invested in a hotel and refurbished several historic barns as guest houses when Rigas could no longer accommodate visiting cable executives at the old Rigas homestead. He has expanded his home several times to make room for the two sons who still live there with him.

Rigas, who owned the local theater in Coudersport, bought the cable franchise there for $100 in the 1950s as a hedge. He was worried that movies on television would kill business at his movie house.

Concerned that he had become isolated from the company’s 5.6 million customers, Rigas recently ordered that his office telephone number be printed on the bottom of about 1 million cable bills.

“On Monday morning, the switchboards lit up, but some of the calls ended up going to his home,” said Ann Montgomery, Adelphia’s senior vice president of operations, who was a panelist at a cable industry meeting here last week.

Industry executives may see Adelphia’s practice as a 1st Amendment breach.

“Where does Rigas get off playing the censor?” asked one cable executive. “And who are they kidding? HBO, Showtime and Cinemax all have shows that are more hard-core than Playboy.”

One analyst cited HBO’s popular late-night series, “Real Sex” and “G-String Divas,” as topping Playboy in raunchiness.

But city regulators say cable operators have free discretion, within legal limits, over their networks. Cable operators are obligated only to notify customers and the city in advance of any changes in their channel lineups.

Some Complaints Lodged With City

Paul Janis, interim general manager of the city’s Information Technology Agency, said that a handful of Adelphia customers had complained about the removal of Spice. He said he was surprised that as many customers had lodged formal complaints, considering that most such viewers prefer to remain anonymous.

But Playboy says the taboo is fading, in part because adult channels are so popular and pervasive. Playboy’s English estimated that 8 million to 10 million of the nation’s 80 million cable and satellite households order some form of adult programming every month.

According to cable industry figures, however, after ordering an adult pay-per-view channel, the average customer watches only seven minutes. It is not uncommon for customers to order the same program on consecutive nights, making it a lucrative business for producers and their distributors.

Cable operators generally keep 85% of the $6 to $8 they collect from each Spice pay-per-view customer. Vivid allows operators to keep 90% of the revenues, which can amount to $11 per customer for a three-hour double feature.

By comparison, cable operators keep about 50% of the revenues from pay-per-view movies, which cost $3.99 each and constitute the lion’s share of all pay-per-view sales. The split is similar for premium channels such as HBO.

Adult fare providers are also trying to encourage distributors to devote precious space to their channels.

Derek Baine, an analyst at Paul Kagan Associates, a market research firm in Carmel, said cable operators have added more adult channels as upgrades have expanded shelf space on their networks. He said cable operators also are more willing to do so now that digital technology allows customers to block children from watching.

As a result, revenues from adult programming are exploding. Baine estimates revenues of $409 million this year, up from $264 million in 1998.

Satellite providers account for more than half of those sales, which do not count pay-per-view orders placed from the nation’s hotel rooms. Analysts estimate that half of all guests buy pay-per-view sex fare.

As for the financial impact that not playing in the adult arena will have on Adelphia, Tom Eagan, an analyst at PaineWebber who follows the cable company, said: “Financially, we would think that not participating would hurt revenue growth.”

Other analysts said there is more pressure than ever on cable operators to favor the most lucrative programming when adding to their lineups because of several years of heavy investments to upgrade their systems.

Adelphia has been as aggressive an investor as any--particularly in Los Angeles, where Century had a reputation as the worst cable operator in the city.

But analysts say Adelphia’s stellar operating performance gives it a cushion.

“They have had the best margins of any of the cable operators--historically in the low 50% range,” said Sharon Armbrust, the cable analyst at Kagan.