Playboy to Acquire 3 Hard-Core Porn Channels

Expanding into the hard-core pornography business, Playboy Enterprises Inc. has struck an agreement with Van Nuys-based Vivid Video to buy its three fast-growing XX-rated television channels, according to sources close to the two companies.

Christie Hefner, chief executive of Playboy, contacted some of the Chicago-based company’s largest distributors Friday to notify them of the deal, according to the sources. Vivid, one of the nation’s largest producers of pornography, also alerted some distributors Friday of the planned sale, they said.

Playboy spokesman Scott Barton would not comment Friday. Vivid executives did not return phone calls.

The deal, which is expected to be announced Monday, would bolster Playboy’s lead in the adult television business. Playboy currently owns three soft-core channels: Playboy TV and two Spice networks. In the last three years, the company has been losing market share to new hard-core channels, including the three it has agreed to buy from Vivid.

The three channels are Vivid TV, the Hot Network and Hot Zone. All three Vivid channels carry a rating of XX or higher, making them more extreme than Playboy’s X-rated networks.

Attempting to stop the erosion of its channels by the upstarts, Playboy announced last year its plans to enter the hard-core television arena. But it has found little support for the three proposed Spice Platinum channels. No cable or satellite operators have agreed to distribute Playboy’s new channels, in large part because they already have deals with competitors such as Vivid.

Wall Street analysts have speculated that the chilly reception by distributors would force Playboy to buy one of its new competitors.

The terms of the deal could not be learned, but industry sources and analysts estimate the three channels could be worth more than $50 million. Vivid does not disclose financial figures because it is privately held.

Playboy passed up a chance to acquire what is now known as the Hot Network for a fraction of the price when it bought one-time rival Spice Entertainment Cos. for $127 million in March 1999.

Instead, Playboy took control of only Spice’s X-rated television operations. The company sold off another potentially controversial channel, Spice Hot, to a new company called Califa Entertainment. Califa is owned by Vivid partners.

Unlike the X-rated channels, Spice Hot was a pioneer in XX-rated movies for TV depicting actual sexual intercourse. The channel was from the start more than twice as popular as traditional soft-core porn among cable and satellite customers.

Playboy loaned Califa all but $500,000 of the $10.5-million sale price, but retained an option to buy the channel back in March 2002, according to public filings. It negotiated to exercise its option early. In addition, Playboy agreed not to launch a competing XX channel and licensed the hard-core versions of its movies to the new channel, which Califa renamed the Hot Network.

Since then, Hot has grown significantly, partly because of distribution agreements with DirecTV and AT&T; Broadband, the leading satellite and cable providers, respectively. The three networks in the deal reach about 30 million of the nation’s 85 million cable and satellite homes.