Viva Skin-e-max! A look at New Frontier Media, Inc.

Ever since I was a just wee market commentator, I recognized the sheer drawing power of late-night, semi-low budget, cable channel soft-core erotica. Whether it be a delightful take on a Hollywood executive's intimate escapades or a ridiculously accented "diary" of a young princess' forbidden infatuation with the stable boy, this cable fare has been generating "Oh! - Hi, I was--- I was just flipping -- Man, I thought you were.... Ahhhh, gosh, hey - don't you think these are hilarious?!?" moments for over 20 years. It doesn't take much insight to project a continued growth in adult content on cable/DBS platforms, but as Playboy (PLA) has shown us in 2006, an investor can make precarious bets in the adult content arena.

Growing up in the 80's taught me a number of things relevant to this analysis:

The nerd can get the girl, but only after a series of comedic training montages
Van Damme used to be a break-dancing back-up dancer
Cool dads have subscriptions to the Playboy Channel
Cooler dads get the Playboy channel illegally
The coolest dads date General Studies majors from the local community college

I apologize, but let's take a minute to enjoy Van Damme in Breakin' - he's in the middle, behind the main dancers - donning the perma-grin and black wrestling singlet:

Now that I've done my Van Damage for today (sorry if you missed out due to a firewall) - can a Stockmaster invest in Cinemax? Sure, by investing in Cinemax's parent company, Time Warner (TWX) - which would be the equity purchase equivalent of your mother walking in to the living room during Lady Chatterly's latest erotic yarn. What we are interested in is some pure play exposure to the world of, well... cable exposure. This is where New Frontier Media, Inc. (NOOF) can potentially help us get a piece of the action. NOOF derives a lion share of its revenues from its Pay TV segment, which distributes a number of channels to cable and satellite systems under the brand name TEN (The Erotic Networks). The company has also positioned itself as a player in the Video-On-Demand (VOD) market on most major cable systems and through its relationship with On Command (hotel-based adult VOD content).

A 2006 acquisition of a soft-core erotica film production company that historically provides Cinemax with an estimated 25% of our beloved Skin-e-flicks allows for a presence in a tamer field that has proven to hold significant growth potential. Additionally, this acquisition provides for contract production of the wonderful and tastefully sexed-up sequels that we love - like Single White Female 2. On a slightly more humorous note, the company also still broadcasts adult content on C Band (big dish, oh yeah - you remember the big dish) and even maintains a broadcast facility and call center to field customer orders and answer billing questions.

Caller in a remote Idaho Cabin: You see, I call you bastards every damn month to complain about this problem.
Operator: Sir, I understand that there is no way you'd order homoerotic content, but it has happened every month since 1983.
Caller: (long pause interrupted only by heavy breathing and a distant coyote howl) Look, I'm going to finally level with you, I'm not a religious man, and this is my form of confession.
Operator: Bruce, it takes a real man to admit that. Now is there any way you'll stop calling?
Caller: No chance in hell. Talk to you next month, Carol.

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