There is no defensible reason for the NC-17 rating to exist. It does no useful service to anyone and actively harms artistic freedom. It stays around because nobody stops and thinks about it for a moment. Currently the motion picture rating system in the US contains the following ratings:
G - General Audiences
PG - Parental Guidance Suggested
PG-13 - Strong Parental Guidance Suggested. Fine for most teenagers.
R - Contains Adult Material. Nobody under 17 admitted without an adult.
NC-17 - Adult. Nobody under 17 admitted at all.
The ratings from G to R make sense, even if I disagree with the way they are applied. If a film is deemed sufficiently mature, it makes some sense to at least require that a parent show up to buy their child's ticket. If they are required to accompany them to the movie, I think that's a bit excessive. After all, maybe someone is fine with their child's love of horror films, but don't want to share the viewing experience. Still, that parent can always just buy a two tickets, walk their child into the theater, then leave. No big deal.
The point is that a child should be able to watch whatever their parents deem it okay for their child to watch. That's both their right and responsibility as a parent. Why does the CARA (the Classification And Rating Administration) get to take that right away from them? If the film is rated NC-17 children and teenagers are flat out barred from the theater. There is no law that makes this so, but most mainstream theater chains automatically institute this policy on any NC-17 film that they decide to show. More importantly, most of these theaters will not show a movie at all, unless it is rated R or below.
What usually happens is that the film is recut to satisfy whoever rated it. Most of the time, films backed by major studio money (i.e. most of them) will not see release unless an R rated version is made. Many investors are aware that the NC-17 is a financial kiss of death, and for this reason many directors are contractually bound to deliver a film that the CARA gives a specific rating. The uncut version may eventually appear, but most people's initial exposure will be to a compromised artistic vision.
The CARA's ratings guidelines are completely arbitrary. For example, there is no rule saying "If you have X occurences of the F word, the rating is an R". The anonymous rater (identities of raters are kept secret) can make any justification whatsoever for their rating, and these justifications are not published. If a sex scene is "too saucy" or has "too much thrusting" the rater can say "Hmm... trim a second here, and cut that shot there... yes, I think that will be better. Then you'll get an R". The raters become unofficial co-editors, in effect. If a film makes the raters uncomfortable for any reason, they can demand it be toned down and threaten an NC-17.
Doesn't the R rating signify "adult content"? How do we determine that a film is "adult" versus "really adult"? Is this ridiculous to anyone else? Some people argue that there's a difference between regular movies and porn. They seem to believe that if there wasn't a "really adult" rating, then porn would be shown in the multiplexes. This won't happen, because nobody wants to watch porn in mainstream theaters. They want to watch it in seedy downtown dives with low lighting where nobody asks questions (most people watch porn on their home computers instead nowadays). These are two separate markets. Nobody submits Horny Housewives Vol. 23 to the CARA because they're just going to show it unrated at porn theaters, and sell it through adult video channels.
Incidentally the NC-17 rating does not signify that a movie is porn. A film doesn't legally qualify as "obscene" or "pornographic" because it carries that rating. Many films of valid artistic merit are slapped with it for just being too hot for Middle America in the eyes of an anonymous group of people.
Nevertheless, an NC-17 carries special significance. It's essentially a blacklist keeping controversial films out of the closed ecosystem of mainstream theaters, since barring very special cases, most theaters flat out refuse to show anything with the rating of death slapped on it. This wouldn't bother me if theatrical distribution weren't so important for allowing films to be made at all.
Is this a first world problem? Perhaps. I can, after all, wait for the possible release of an uncut version on Netflix. But sometimes this doesn't ever happen. Even if it did, don't I have as much of a right to see the movies I want to see on the big screen as you do? Anyone who wants to see movies like "Requiem for a Dream" is not going to want to be sold a compromised product. Anyone who doesn't want to see those movies... why do they care? Unfortunately, since most people don't care about art films, the Think Of The Children brigade shouts much louder than I do, and nothing changes.
When has the NC-17 ever actively helped anyone? Never. Nobody needs a cinema-daddy to restrict how they parent their children. It's unnecessary, insulting, and damaging to artists. The ratings system may be imperfect, but the CARA does provide a useful service. Good on them. Now please just do a bit less. That's not very hard, is it?
http://www.filmratings.com (Classification and Rating Administration information page)
Also, check out the brilliant film "This Film Is Not Yet Rated" for a study of the ratings board and its impact on artists.