NOOF » Topics » PAY TV GROUP Industry Overview

This excerpt taken from the NOOF 10-K filed Jun 14, 2007.

PAY TV GROUP
Industry Overview

      Under our registered trademark The Erotic Networks ®, our Pay TV Group digitally distributes adult entertainment programming to cable and satellite television companies. The National Cable & Telecommunciations Association (“NCTA”) estimates that there are nearly 95 million cable and satellite television homes in the United States, of which approximately 60 million are digital subscribers. 100% of all satellite homes are digital and, according to the NCTA, the number of digital cable subscribers has increased to 32.6 million as of December 31, 2006 from 28.5 million as of December 31, 2005, representing an increase of 14% and resulting in digital cable penetration of over 50% of total basic cable subscribers.

      Cable and satellite television providers distribute our Pay TV Group’s content on a pay-per-view basis. Pay-per-view offers consumers access to a timed block of programming — for example, a movie or an event — for a set fee payable to the cable or satellite providers. Our pay-per-view programming is offered on linear channels that are available to viewers through the same electronic program guides that display basic cable channels. A pay-per-view transaction allows access to the channel for a given period of time and is executed either by telephone or instantly through the use of the viewers’ remote control. Our Pay TV Group’s products typically retail for a price between $8.99 and $12.99 for a single movie or event. Some of our distributors offer our Pay TV Group’s programming on a monthly subscription basis as well.

      Cable television operators also offer our Pay TV Group’s programming via their video-on-demand platforms. Video-on-demand presents viewers with nested menus, similar to what is traditionally found in hotel room television offerings. These menus allow users to interactively select a movie or event and then view it immediately upon execution of the transaction. Video-on-demand products typically sell for prices similar to those of pay-per-view. Video-on-demand tends to have an accretive impact on our Pay TV Group’s business because instant start times assure that an impulse demand results in a transaction, whereas with pay-per-view, the scheduled start time may not be synchronized to a viewer’s requirements. As of March 31, 2007, our distribution data indicates that video-on-demand is available to an estimated 28 million U.S. homes. Our Pay TV Group presently provides programming to 26 million video-on-demand homes in the U.S. MAGNA Global Research estimates that the number of video-on-demand households will grow to 63.0 million by the year 2010.

      Pay-per-view and video-on-demand programming competes well with other forms of entertainment because it is offered conveniently in the comfort of users’ homes, in high quality, and at a reasonable price point. Kagan Research LLC (“Kagan”) estimates that adult pay-per-view and video-on-demand revenue generated by cable and satellite providers in 2004 was $761 million (most recent data available). As the number of cable operators that offer adult content increases and distributors continue to expand their offerings, Kagan projects revenues from the adult product category will grow to $1.4 billion by the year 2014. During our fiscal years ended March 31, 2005, 2006 and 2007, 94%, 92% and 75%, respectively, of our consolidated revenues was attributed to our Pay TV Group.

      As of March 31, 2007, our Pay TV Group distributed content to nearly every television provider in the United States, including:

• The two largest providers of Direct Broadcast Satellite services (“DBS”), EchoStar Communications Corporation’s DISH Network (“DISH Network”) and The DIRECTV Group (“DirecTV”). According to public filings, these providers serve approximately 28.0 million customers in the U.S. Kagan estimates that the number of DBS subscribers will grow to 35.4 million by the year 2015.

• Nine of the top ten largest operators of cable television systems in the U.S. (Multiple System Operators or “MSOs”). Together, these operators control access to 55.4 million, or 84%, of the total basic cable household market. According to the NCTA, as of December 2006 cable MSOs delivered service to 65.6 million basic cable households in the U.S. As of March 31, 2007, the only major MSO not under contract with our Pay TV Group has delivery capability to

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approximately 3.1 million basic cable customers in the New York City metropolitan area. We anticipate launching our video-on-demand content on this MSO’s platform during the first half of our 2008 fiscal year.

This excerpt taken from the NOOF 10-K filed Jun 13, 2006.

PAY TV GROUP
Industry Overview

      New Frontier Media, through its wholly owned subsidiary TEN (also referred to as “Pay TV Group”), is focused on the distribution of adult entertainment programming through electronic distribution platforms including cable television, DBS, hotels and C-band. Adult entertainment content distribution has evolved over the past twenty-five years from home video platforms (video cassette) to cable television systems and DBS providers, and most recently to the Internet and mobile phones. Cable television operators began offering subscription and PPV adult programming from network providers such as Playboy Enterprises, Inc. (“Playboy”) in the early 1980’s.

      Conditional access technology enables cable television operators or satellite providers to sell content as PPV (i.e., individual movie), a timed block of programming, or as an event for a set fee. In addition, it also permits cable television operators or satellite providers to sell the Pay TV Group’s programming on a monthly, quarterly, semiannual and annual basis. PPV and VOD programming competes well with other forms of entertainment because of its relatively low price point. Kagan Research, LLC (“Kagan”), a leader in media research, estimates that adult PPV and VOD revenue generated by cable systems and DBS providers in 2004 was $761 million (most recent data available). As the number of cable operators which offer adult content increases and distributors continue to expand their offerings, Kagan projects revenues from the adult category will grow to $1.4 billion by the year 2014.

      PPV programming is delivered through any number of delivery methods, including: (a) cable television; (b) DTH to households with large satellite dishes receiving a low-power analog or digital signal (C-Band) or DBS services (such as those currently offered by EchoStar Communications Corporation and DIRECTV Group, Inc.); (c) wireless cable systems; and (d) low speed (dial-up) or broadband Internet connections (i.e., streaming video).

      The Pay TV Group provides programming on both a PPV and subscription basis to home satellite dish viewers through large backyard satellite dishes receiving a low-power analog or digital signal (C-Band). According to General Instrument Corporation’s (“GI”) Access Control Center reports, the U.S. C-Band market has declined 47% year-over-year, from 232,746 households as of April 2005 to 124,120 as of April 2006.

      The Pay TV Group also provides PPV and subscription programming to small dish viewers receiving a high-power digital signal (via DBS providers such as EchoStar Communications Corporation’s DISH Network). As of March 31, 2006, EchoStar Communications Corporation (“DISH”) and DIRECTV Group, Inc. (“Direct TV”) had 12.04 million and 15.13 million subscribers, respectively, according to public filings made by each company. Kagan estimates that the number of DBS subscribers will grow to 35.4 million by the year 2015.

      In addition, the Pay TV Group provides its programming on a PPV, subscription and VOD basis through large multiple system operators (“MSOs”) and their affiliated cable systems, as well as independent, privately-held cable systems. As of April 2006, the Pay TV Group maintained

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distribution arrangements with nine of the ten largest domestic cable MSOs that control access to 55.0 million, or 76%, of the total basic cable household market. According to the National Cable and Telecommunications Association (“NCTA”), Cable MSOs delivered service to 65.4 million basic households in the United States as of December 2005 (the most recent statistics available). In addition, Kagan indicates that as of December 2005, total analog and digital addressable cable service (i.e., basic cable households that have the capability of receiving PPV or subscription services) was provided to 35.8 million households.

      Growth in the PPV market is expected to result in part from cable system upgrades utilizing fiber-optic, digital compression technologies or other bandwidth expansion methods that provide cable operators additional channel capacity. Cable operators have shifted from analog to digital technology in order to upgrade their cable systems and to respond to competition from DBS providers who offer programming in a 100% digital environment. When implemented, digital compression technology increases channel capacity, improves audio and video quality, provides fully secure scrambled signals, allows for advanced set-top boxes for increased interactivity, and provides for integrated electronic programming guides (“EPG”). The Pay TV Group expects that all of its future cable launches will be on a digital platform.

      According to the NCTA, as of December 31, 2005 over 44% of U.S. Cable customers, or approximately 28.5 million households, received digital cable service. This represents an increase of 14% over the number of digital subscribers receiving service at the end of 2004 (25.0 million). Kagan estimates that the number of digital cable subscribers will grow to 49.7 million by the year 2015, which will represent a 76% digital penetration rate.

      Cable operators are also using their upgraded plants to provide their digital customers with VOD services (due to technology constraints, DBS providers are not currently able to provide VOD service to their customers; however, DBS providers are expect to launch new technologies that will facilitate VOD in the future). VOD is a more advanced form of pay-per-view service which provides a digital video subscriber with the ability to watch movies, TV shows, infomercials, and other content on demand with full VCR functionality, in contrast to watching programs at preset times. The Pay TV Group currently provides programming to over 20.0 million VOD enabled households.

This excerpt taken from the NOOF 10-K filed Jun 14, 2005.

PAY TV GROUP
Industry Overview

      New Frontier Media, through its wholly owned subsidiary TEN (also referred to as “Pay TV Group”), is focused on the distribution of adult entertainment programming through electronic distribution platforms including cable television, DBS, hotels and C-band. Adult entertainment content distribution has evolved over the past twenty-five years from home video platforms (video cassette) to cable television systems and DBS providers, and most recently to the Internet. Cable television operators began offering subscription and PPV adult programming from network providers such as Playboy Enterprises, Inc. (“Playboy”) in the early 1980’s.

      Conditional access technology enables cable television operators or satellite providers to sell content as PPV (i.e., individual movie), a timed block of programming, or as an event for a set fee. In addition, it also permits cable television operators or satellite providers to sell the Pay TV Group’s programming on a monthly, quarterly, semiannual and annual basis. PPV and VOD programming competes well with other forms of entertainment because of its relatively low price point. Kagan World Media (“Kagan”) estimates that adult PPV and VOD revenue generated by cable systems and DBS providers in 2004 was $761 million. As more cable operators add adult and distributors continue to expand their offerings, Kagan projects revenues from the adult category will grow to $1.4 billion by the year 2014.

      PPV programming is delivered through any number of delivery methods, including: (a) cable television; (b) DTH to households with large satellite dishes receiving a low-power analog or digital signal (C-Band) or DBS services (such as those currently offered by EchoStar Communications Corporation and DIRECTV Group, Inc.); (c) wireless cable systems; and (d) low speed (dial-up) or broadband Internet connections (i.e., streaming video).

      The Pay TV Group provides programming on both a PPV and subscription basis to home satellite dish viewers through large backyard satellite dishes receiving a low-power analog or digital signal (C-Band). According to General Instrument Corporation’s (“GI”) Access Control Center reports, the U.S. C-Band market has declined 38% year-over-year, from 375,683 households as of April 2004 to 232,746 as of April 2005.

      The Pay TV Group also provides PPV and subscription programming to small dish viewers receiving a high-power digital signal (via DBS providers such as EchoStar Communications Corporation’s DISH Network). As of March 31, 2005, EchoStar Communications Corporation (“DISH”) and DIRECTV Group, Inc. (“DIRECTV”) had 11.23 million and 14.4 million subscribers, respectively, according to public filings made by each company. Kagan estimates that the number of DBS subscribers will grow to 32.6 million by the year 2014.

      In addition, the Pay TV Group provides its programming on a PPV, subscription and VOD basis through large multiple system operators (“MSOs”) and their affiliated cable systems, as well as independent, privately-held cable systems. As of April 2005, the Pay TV Group maintained distribution arrangements with nine of the ten largest domestic cable MSOs that control access to 55.7 million, or 76%, of the total basic cable household market. According to the National Cable and Telecommunications Association (“NCTA”), Cable MSOs delivered service to 73.2 million basic households in the United States as of February 2005 (the most recent statistics available). In addition, Kagan indicates that as of December 2004, total analog and digital addressable cable service (i.e.,

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basic cable households that have the capability of receiving PPV or subscription services) was provided to 36.8 million households.

      Growth in the PPV market is expected to result in part from cable system upgrades utilizing fiber-optic, digital compression technologies or other bandwidth expansion methods that provide cable operators additional channel capacity. Cable operators have shifted from analog to digital technology in order to upgrade their cable systems and to respond to competition from DBS providers who offer programming in a 100% digital environment. When implemented, digital compression technology increases channel capacity, improves audio and video quality, provides fully secure scrambled signals, allows for advanced set-top boxes for increased interactivity, and provides for integrated electronic programming guides (“EPG”). The Pay TV Group expects that all of its future cable launches will be on a digital platform.

      According to the NCTA, as of December 31, 2004 over 34% of U.S. Cable customers, or approximately 25.0 million households, received digital cable service. This represents an increase of 13% over the number of digital subscribers receiving service at the end of 2003 (22.2 million). Kagan estimates that the number of digital cable subscribers will grow to 64.9 million by the year 2014, which will represent an 89.8% digital penetration rate.

      Cable operators are also using their upgraded plants to provide their digital customers with VOD services (due to technology constraints, DBS providers are not able to provide VOD service to their customers at this time). VOD is a more advanced form of pay-per-view service which provides a digital video subscriber with the ability to watch movies, TV shows, infomercials, and other content on demand with full VCR functionality, in contrast to watching programs at preset times. The Pay TV Group currently provides programming to over 18.0 million VOD enabled households. Kagan estimates that there were 19.8 million VOD enabled households at the end of 2004, compared to only 12.6 million VOD enabled households at the end of 2003. Kagan projects that there will be 62.9 million VOD enabled households by the end of 2014.

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