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New Frontier In Profile: 1

Rodger Jacobs
The business of America, President Herbert Hoover said, is business. When a homegrown industry reaches the capacity to generate billions of dollars in revenue, the need for that product cannot be denied; that's the nature of a supply-and-demand economy. It's a paradigm powerful enough to obliterate any border that may exist between commerce and morality.

When New Frontier Media Inc. was having trouble with its Nasdaq listing in 1999, Hank Gracin, the company's securities lawyer, turned to "the first guy to call when people get in trouble." He called upon Harvey Pitt. The Securities and Exchange Commission, which regulates the nation's stock markets, was Pitt's domain, after all. He was the SEC's general counsel from 1975 to 1978.

In May 2000, when President Bush nominated Pitt as chairman of the SEC, religious conservatives and members of the President's own political party groused that Pitt, the man who helped launch the Nasdaq listing of a company that billed itself as "America's Most Turned-On Media Company," was an inappropriate choice for the powerful post.

Pitt, no doubt, took one look at New Frontier's projected earning capacity and heard the ghost of Herbert Hoover whispering in his ear: "The business of America is business."

"The Bush administration is in office because of the millions of votes from Americans worried about cultural decline," former GOP presidential candidate Gary Bauer said in 2000. "If Mr. Pitt has provided assistance to a company that distributes pornography, it would be deeply insulting to those voters."

The White House dismissed criticism by saying that many lawyers represent clients they do not agree with. Pitt's nomination was confirmed.

There has been an uneasy alliance between show business and politics ever since an actor assassinated Abraham Lincoln 140 years ago. In the light of recent FCC rulings, the chill has become downright icy and the wedge has become physically discernable as evidenced by postelection territorial maps that divide the country by Bible Belt moralists (red states) and the providers, creators and distributors of popular entertainment (blue states).

The red state moralists propose a vast landscape of clean and healthy entertainment, a return to the days when "Father Knows Best" dominated the airwaves and it would be unthinkable to conceive of a pop singer's breast popping out of her costume during a Super Bowl half time show. And yet a demographics study released by New Frontier Media, the undisputed leader in the electronic distribution of adult entertainment, suggests that the very people opposed to adult entertainment are gobbling it up by the handful thanks to the discreet delivery platforms of pay-per-view and video-on-demand.

Based on estimates provided by the hotel industry and a plethora of analysts, PPV and video-on-demand channels offering adult entertainment, both in-home and hotel-based, generate revenue in excess of $1 billion annually, with more conservative estimates placing the value at $250 million.

From data collected internally between January and March 2004, New Frontier — which distributes adult content via PPV and subscription cable/satellite video networks — the great cultural divide narrows when it comes down to the purchase and consumption of adult product.

Perfect Demographic
The most loyal customers of New Frontier's product are overwhelmingly Caucasian (72 percent), between 30 to 39 years of age, with an annual income of $72,000 or more. It is no small irony that the demographic is in almost perfect synchronization with the demographic of the average Bush voter, according to exit polls conducted by the Los Angeles Times in November.

There can be no doubt that PPV and VOD is moving adult product into the realm of respectability. New Frontier's partnerships and strategic alliances with such high-profile companies as SBC Global for broadband delivery via New Frontier's Interactive Telecom Network (ITN) and a five-year contract with On Command Corp. to provide adult content to approximately 895,000 VODenabled hotel rooms only further strengthens the company's position as a leader and trailblazer in a mass-media market whose strength and viability cannot be denied.

The company was founded in 1995 by Mark Kreloff, a cable television professional since 1977, and Michael Weiner, whose experience in entertainment and educational software began with the formation of Inroads Interactive Inc. in May 1995. Inroads Interactive, based in Boulder, Colo., was a reference software publishing company dedicated to aggregating still picture, video and text to create interactive, educational software. The aggregation of content would turn out to be the backbone of New Frontier's success.

Unlike Playboy Television — the company's only close competitor despite a recent satellite launch of Larry Flynt Publication's Hustler TV — New Frontier is strictly a content aggregator, performing screening, licensing, editing and programming functions in-house. New Frontier produces no original content, relying instead on exclusive licensing deals with Nectar, Zero Tolerance, New Sensations, Red Light District, Sin City (for the "Barely 18" series) and a host of others for content.

In June 1999, with $20 million secured to finance the infrastructure build-out and key library acquisitions necessary to build their mini-network empire, New Frontier launched the 24-hour adult network Pleasure over the DISH network and several cable systems. Pleasure, the company announced, "is specifically designed to serve the modest adult viewer and is programmed to be acceptable in every state." Without a doubt, Pleasure was designed to resemble Playboy Television in taste and tone. Playboy Television averaged 900,000 orders per month in 1995, the year of New Frontier's inception.

One month after the debut of Pleasure, a key deal was inked with Metro Global Media. The definitive seven-year licensing and production agreement rendered New Frontier exclusive rights to Metro's 3,000-plus adult film and video library — including the award-winning Cal Vista line and 18 volumes of "Taboo" — and millions of images from their still photo archive. The global agreement also included a five-year provision for cross promotion. Under the terms, Metro promotes New Frontier's networks and websites in all of its publications, videos and product lines.

The production end of the agreement, which expires in 2006, called for Metro to generate more than 400 features and a series of high-visibility special programming events for New Frontier's networks and Internet sites.

"New Frontier Media has grown into a powerful player in the delivery of electronic programming to cable television operators and satellite providers," Metro Vice President Greg Alves said at the time of the deal.

Alves went on to boast that the licensing and production agreement with New Frontier was the "first of numerous strategic alliances planned by Metro that will enable us to dominate the world's adult entertainment industry."

The dominant party in the deal, however, was New Frontier, which, over a period of five years, paid a combination of stock, warrants and cash of approximately $10 million to Metro. Based on the value assigned to the electronic rights portion of Metro's library by New Frontier Media, the company places a global value on the entire library of more than $30 million.

New Frontier's cable/DBS networks include the softcore Pleasure network; TEN, The Erotic Network, which incorporates a partial-editing standard and Extasy, the least-edited and most-hardcore standard. Each cable and DBS system set its own restrictions based on local community standards but generally speaking TEN's hardcore offerings are not available in Mississippi, Alabama, North Carolina, Oklahoma, Utah or Tennessee.

TEN also provides broadband and Internet-delivered product including monthly subscription access to its digital library via TEN.com ($29.95 per month recurring or $24.99 per three month block, billed quarterly), PPV downloads via OnDemand. TEN.com and a hotel/TV version of TEN.com via On Command's TV-Internet service.

Stay tuned for Part 2

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