REPORT FROM THE U.S.—It’s no secret that hotels and in-room content providers have generated a significant amount of revenue from guests who order adult-oriented content in their hotel rooms. It’s also quite apparent those revenues are declining as fewer guests order on-demand movies—adult or otherwise—and instead bring advancing technologies with entertainment options into their guestrooms.
A recent decision by Marriott International to remove adult content from the television menu for virtually all of its newly built hotels highlights the shift in in-room entertainment. In a statement, Marriott explained its decision: “Changing technology and how guests access entertainment has reduced the revenue hotels and their owners derive from in-room movies, including adult content. We are working with in-room entertainment providers and technology vendors to transition to the next generation of in-room entertainment.”
So how much revenue were hotels bringing in via on-demand content, and how much have they lost in recent years?
Colliers PKF Hospitality Research tracks movie rental revenue in its annual Trends in the Hotel Industry survey. Data results are made up of about 99% movie rental revenue, but would also include video game purchases, said Robert Mandelbaum, director of research information services at PKF. PKF only tracks overall on-demand content and could not offer a breakdown by movie type.
In 2000, hotels that reported gross movie rental revenue to PKF earned US$288 per available room for the year. Based on that figure, a hotel with 125 rooms earned US$36,000 a year from movie rentals. In 2009, that same hotel with 125 rooms earned US$175 per available room, or US$21,875. That’s a 39% decrease in movie rental revenues (over nine years) from hotels that report data to PKF.
PKF also tracks movie rental income per occupied room. In 2000, hotels made US$1.07 per occupied room via movie rental for the year; that figure dropped to 72 cents in 2009, a 33% decline.
“The decline in dollars PAR is indicative of the fact the typical hotel is collecting fewer total dollars for movie rental,” Mandelbaum said. “The fact that the POR revenue is also declining indicates that the drop in movie rental revenue is not just attributable to the decline in occupied rooms.”
LodgeNet Interactive—the most widely used media provider in the hotel industry, including service for Marriott hotels—addressed that decline in revenue with its investor relations community after Marriott’s decision to pull adult content was publicized. The company said it is diversifying its revenue base to become less dependent on revenue from adult content, and that as of January 2011 LodgeNet is “less reliant on revenue from mature content than at any point in the past.”
“We have a couple of other notable hotel chains that we have worked with for more than a decade and do not offer mature audience content,” said Ann Parker, director of corporate communications at LodgeNet. “Our systems and services are designed to meet the specific needs and requests of our hotel partners and agreements structured to meet our required return on investment—so we are really content agnostic and have been for a long time.”
Omni Hotels made the decision to forgo adult content in its hotel rooms in 1999 and, although the company doesn’t use it as a marketing tool, the brand has booked Christian-based conventions solely on their moral stance.
“It was a moral decision that our ownership made—they had young children at the time. It wasn’t a way they wanted to make money,” said Caryn Kboudi, VP of corporate communications for Omni. “While we don’t market the decision, often times there are groups that have learned about it and said ‘that’s fantastic and we want to stay with you.’”
LodgeNet’s Parker said no other hotel chains have approached LodgeNet with requests to remove adult content from their packaged offerings.
According to LodgeNet’s most recent earnings report (Q3 2010), guest entertainment revenue--which includes on-demand entertainment from movies, TV episodes, games and music--brought in US$64.8 million, which was roughly 57% of its total revenue for the quarter. Revenue from guest entertainment fell US$11.5 million from the previous quarter, but the loss was slightly offset by revenue gains in service and support of hotel Internet and TV, as well as sales of higher-priced, HDTV programming packages.
Marriott is one of LodgeNet’s biggest customers. As for its decision, LodgeNet said Marriott has the option to restrict adult content, but not until 2013. “(Marriott) and LodgeNet have adjusted the economic model in such a way as to assure the company is economically indifferent to decisions made by the brand to offer mature content,” the company said.
Marriott acknowledged it is working with LodgeNet to transition to the next generation of in-room entertainment, but declined an interview request. Instead it provided a statement: “This new platform of Internet-based video-on-demand will facilitate our exit from the traditional hotel video systems that included adult content in the menu selection, and will also provide guests greater choice and control over what they watch.”
Bill DeForrest, CEO of Lane Hospitality, which owns two Courtyard by Marriott properties and manages a Springhill Suites, said Marriott’s decision will affect owners more in terms of evolving in-room entertainment options than missing revenue.
“The majority of that revenue goes back to the provider, whether it be LodgeNet or whoever,” he said. ”The hotels keep only a small portion.”
DeForrest said the in-room experience guests are looking for today goes beyond premium channels and instead involves faster Internet connections and more connectivity with the TV. There are still tremendous challenges in working with cable TV and satellite providers, and changing the in-room movie options to provide what the guests are looking for today is a real issue.
“I think the decision Marriott made is really stepping back and looking at what the customers tell them they really want and the ability to deliver that in the best fashion,” he said. “That’s typical of what brands do: provide what customers are asking them to provide.”
For one anti-pornography group that has repeatedly spoken out against Marriott and LodgeNet, pulling adult content from the menu three years from now isn’t enough.
“It’s the right move for the wrong reasons,” said Phil Burress, president of Citizens for Community Values, which started the website TruthAboutLodgeNet.com in 2007. “Marriott is getting out of it from what they say is a platform decision. I don’t believe that. I believe Marriott is getting hit very hard with losing customers.”
Burress said his organization formed as a result of a Billy Graham crusade and has successfully prosecuted adult-content vendors in Cincinnati, Ohio, and lobbied for evolving strip-club laws in Ohio preventing dancers from having contact with one another. In 2009, the organization held a press conference in Sioux Falls, South Dakota, in attempts “to expose LodgeNet as a hardcore pornography purveyor,” he said. The organization has been unsuccessful in attempts to bring a lawsuit against LodgeNet.
Burress said most Marriott hotels still will be providing adult content for the next three years, therefore he doesn’t consider the decision a win for his organization.
“From what I understand, Marriott makes about (US)$3 a movie, and we know for a fact they are losing money (because guests are choosing other hotels without adult content),” Burress said. “We know many other conventions that use other hotel brands specifically because they don’t offer pornography. Omni clearly did it for moral reasons, but that word never came out of the mouth of Marriott. They did it for money.”