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But Mr. Peterman showed that he had 4,000 regular customers for sex videos. His lawyer argued that Mr. Peterman was not violating community standards, because people in Utah County bought 20,000 adult sex videos from one satellite programmer alone in the period that Mr. Peterman was said to have broken the law; it was double the volume in most cities the size of Provo. And in the Provo Marriott, guests were paying for nearly 3,000 explicit adult videos every year, according to court testimony. After the Peterman trial, that hotel dropped its adult movies.
"My client was just a little guy," Mr. Spencer said, "a mom-and-pop dealer in a very big business."
The Corporate Factor It's the Demand, Companies Say
At a time when political campaigns from the presidential level down to that of the local school board have made an issue of sexual excess in broadcasting, the corporate entanglements in the pornography business have blurred the lines of the debate.
In Missouri this year, Senator John Ashcroft, a Republican, ran ads denouncing "Hollywood's decaying influence" on society, singling out his Democratic opponent, Gov. Mel Carnahan, for accepting donations from Christie Hefner, the Playboy executive.
Mr. Carnahan, who died last week in a plane crash, had countered by pointing to donations to Mr. Ashcroft from Charles W. Ergen, chief executive of EchoStar, which sells adult pay-per-view through its fast-growing DishNetwork satellite division.
"If he's going to start that, he's in greater trouble than I am," Mr. Carnahan had said.
Mr. Ashcroft's supporters had replied that there was still a distinction between the two companies: EchoStar did not produce pornography-it merely sold it, while Playboy created its own videos and pictures, they said.
"We added adult at the request of our customers," said Judiann Atencio, a spokeswoman for EchoStar. "We have something for everybody, from Irish hurling to cricket. Adult is there if you want it."
When AT amp;T announced that it would start offering the hard-core Hot Network to its 2.2 million digital cable subscribers beginning in August, they were castigated by critics and pressured by religious and civic groups that hold stock in the company.
A group of mutual-fund investors, which included the Sisters of Charity of New York, the Evangelical Lutheran Church of America and the Mennonite Church, told AT amp;T its members did not want their three million shares invested in a company that sold pornography.
"At the heart of our concern is the concept of mainstream companies getting into hard-core pornography," said Mark Regier, who manages a mutual fund for 800,000 members of the Mennonite faith. "For a company with AT amp;T's tradition and its charitable work to be involved with pornography at this level is unbelievable. And I don't think many people understand what it means to take away the barriers to this kind of material, such as AT amp;T is doing."
For AT amp;T, there are sound business reasons to start carrying the highly profitable Hot Network. Unlike distributors of mainstream Hollywood pictures, sex-film distributors typically offer the programmers a split of 80 percent of the revenue, compared with 50 percent or less for routine features.
Impulse buys, in which customers tap a code into a remote and a movie follows, have also spurred in-home sales of pornographic films.
"Impulse technology-that's been just incredible," said Mr. Asher of Vivid Entertainment, which makes hundreds of adult films and claims that it sells a million copies a month to cable, satellite, home video and hotel retailers. "You have about 35 million homes with this kind of technology now," Mr. Asher said, "and it's growing enormously. It's easy and it's private-that's the key."
Although the companies that program explicit sex films will not give out their revenue figures for this category, a report by the Showtime Event Television company found that adult pay-per-view took in $367 million last year-a more than sixfold increase from the $54 million of 1993, easily outpacing the growth of pay-per-view "events" like boxing and wrestling.
Time Warner, EchoStar, General Motors and AT amp;T all say they are simply responding to a growing American market that wants pornography in the home. At the same time, the companies say new technology makes it possible for parents to keep such programming away from children.
"We call it choice and control," said Tracy Hollingsworth, a spokeswoman for AT amp;T Broadband, the company's cable division. "Basically, you use your remote to block out any programming you don't want. But if you want it, we offer a wide range of programming that is available in the market we're in."
Hotel chains have made similar decisions when, this year, several groups urged them to get rid of the adult pay-per-view programs that are in nearly 60 percent of all middle- to high-end hotels. Only one chain, the relatively small Omni Hotels, chose to remove the sex films.
"What we noticed was that early on, the content was R-rated, but then it migrated rather quickly to really raunchy stuff-just hard-core porn," said Jim Caldwell, the president of Omni. "I thought: What are we doing? We don't have topless waitresses in the restaurant."
Mr. Caldwell said more than 50 percent of all guests were buying the sex films. "The anonymity is the big thing," he said.
Omni's decision to remove pay-per-view sex videos from the company's 15,000 rooms will cost the company more than $1.8 million a year, Mr. Caldwell said. But he said he had received phone calls and letters of thanks from 50,000 people — more than for any other corporate decision.
Much larger hotel chains, like Marriott, which calls itself the world's largest hotel management firm, with nearly 300,000 rooms in the United States, and Hilton, with 290,000 rooms under its control, have not made changes.
Some critics said Marriott, run by several prominent members of the Mormon Church, though not affiliated in any way with the church itself, should drop its adult movies, given the stand against explicit sexual materials that Mormons have long taken. But company officials said they were mostly franchisers, and could not make unilateral decisions for the hotel owners who paid to be a part of the Marriott chain.
The two companies that provide hotels with pornographic films are both traded on Wall Street and have enjoyed big run-ups in their stock prices over the last few years. The leader, On Command, based in Denver, is worth more than $400 million, and its principal owner is Liberty Media, controlled by John C. Malone, the cable and telecommunications magnate who sits on the board of AT amp;T and recently agreed to buy up to 15 percent of the shares of Mr. Murdoch's News Corporation.
The chairman and chief executive of On Command is Jerome H.
Kern, a former New York corporate lawyer active in civic and volunteer causes, serving on the board of New York University and as a director of Volunteers of America in Colorado.
On Command would not discuss how much money it is making on adult films. But in its annual report, the company said it was generating $23 a room each month for the 835,000 hotel rooms it reaches. The company goal is to get into an additional one million hotel rooms. Analysts say at least half the revenue comes from adult films. The company recently began offering all-day erotic television to hotel customers, for a single price of $15.99.
"Talk about your captive audience," said Mr. Asher of Vivid. "I've heard that in some hotels, 85 to 90 percent of all profits from in-room spending comes from adult channels."
The Money Factor
Big Profits Now, Bigger Ones on Way
While the big companies that deliver sex films to homes and hotels will not talk about how popular explicit sexual materials are, the makers and distributors say the volume is enormous. And court testimony and documents that were made public in the Peterman case also offered some insight into the profit potential.
"Despite the fact that this material isn't marketed, revenue-wise, it's one of our biggest moneymakers," said Peggy Simons of TCI Cable, in court testimony in Mr. Peterman's case. TCI, controlled by Mr. Malone, has since been bought by AT amp;T.
"When we talk to the companies one-on-one, they tell us we're great, that we're a huge moneymaker for them,
" said Mr. Asher, whose company owns the Hot Network, which is available in 16 million homes. "And by the way, I tell my biggest customers-don't say you ever met me."
In trying to take public his company, which now does about $80 million a year in sales, Mr. Asher said, "The biggest problem I have is the image of the adult business. People think it's run by the mob, or a bunch of guys with gold chains. I grew up in Paris, Illinois. I have a master's of business administration degree."
The Hot Network portrays people having sex in a variety of methods-what the company calls "widely accepted sexual activity" — and prohibits scenes of violence, nonconsensual sex, drug use, forced bondage and sex with minors.
Analysts of electronic commerce and telecommunications say the mainstream sex market might be leveling off, but new technology is likely to bring in even more consumers.
"The novelty of it has not worn off yet, and I don't believe it will wear off," said Sean Calder, a vice president for e-commerce at Nielsen/Net Ratings, which gauges the popularity of Web sites. "The numbers point to a huge personal need. We see lots of people logging on at 3 in the morning."
The $30 billion project to rewire the cable industry with lines capable of bringing more material, and allowing people to buy on impulse, will play a big part in the emerging home pornography market.
"These companies like AT amp;T, they're thinking ahead to a time, perhaps in 10 years, when 50 million Americans will have broadband capability and all their television and Internet will be interactive through one big box," said Bryn Pryor, technology editor for Adult Video News, the trade magazine.
"But it's not just technology that made the big boys get into it," Mr. Pryor said. "This just happens to be a business where you can't lose money."
Correction: Wednesday, October 25, 2000: An article on Monday about investments by large companies in sexually explicit entertainment referred incompletely to the relationship between the News Corporation and the EchoStar Communications Corporation, which provides explicit films by satellite to subscribers. The article quoted a lawyer for a video store owner in Provo, Utah, as saying that his client's prosecution was unfair because many companies that provided "adult" entertainment were heavily backed by large corporations, including the News Corporation.
At the time of the trial, which ended on March 31, 1999, the News Corporation owned about 37 percent of EchoStar, but by the next reporting period, in June 1999, the holding was reported as 14 percent.
The News Corporation's last federal filing shows an 11 percent stake but a spokesman said the corporation's share in EchoStar was now down to 6 percent. The spokesman also said the News Corporation had no direct control over EchoStar and no direct financial investment in "adult" films.
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