Economic Woes Hit Porn Industry

[Lee]

No, the pornography industry is not recession-proof. "Recession-resistant" is a more accurate term these days, and even that assumption is being tested.

The adult entertainment industry is not only seeing its DVD sales plummet as consumers watch more porn online, but the estimated $13 billion industry is also having its own version of a Napster moment - named after the Silicon Valley company that transformed the music industry by allowing users to share songs free online.

Over the past year or two, an increasing number of online sites - dubbed "tube sites" for their emulation of the video-sharing site YouTube - have offered snippets of free porn, some of it pirated, some of it legally obtained from longer films or amateur-shot footage.

Vivid Entertainment founder Steven Hirsch, a longtime porn heavyweight who sued one of the free porn sites for illegally using his company's material, say the Los Angeles company's DVD sales have dropped 30 percent in the past year, and the free porn sites are adding economic insult to injury.

"Between the DVD sales, the piracy, the free porn online and the economy," Hirsch said, "I've never seen it this bad in 25 years in the business."

Compounding the challenge is that the porn industry as a whole has done little navel-gazing - at least of the financial or strategic-planning kind - over the years. While the X-rated industry has always been among the first to adopt new technologies, it has not always embraced long-term forecasting. It hasn't had to, analysts say, because the forecasts were always so rosy.

"But that is changing," said Sarah LoPrinzi, an industry analyst with XBIZ Research in Los Angeles. She says the industry is "recession-resistant" and points to an XBIZ Research study released this year that found that 72 percent of the adult entertainment companies it surveyed either use new technologies or plan to soon.

"More attention is being paid to the business side of things now," said LoPrinzi, who has been an analyst in the technology and oil industries. "It's like the adult entertainment industry is growing up."

Products doing better

Other parts of the adult business haven't suffered. Stockroom.com of Los Angeles, which sells more than $10 million annually in adult accoutrements and owns the Stormy Leather store in San Francisco, had record sales in January.

"Hard goods like we're selling are not as affected by the tube sites," said Stockroom.com President Mike Herman. "People are still buying, but the average ticket we sell (an individual) is down 10 percent."

One of the companies caught in this X-rated digital transformation is San Francisco's 12-year-old Kink.com. Long considered ahead of the curve in the adult entertainment industry because of its focus on the online market, Kink is a collection of 17 Web sites that focus on 30- to 40-minute fetish videos.

While some may find Kink's content distasteful, it has been profitable enough for its Columbia University-educated, England-born founder Peter Acworth to employ approximately 100 people in a four-story military armory in the Mission District. Last year, Kink went on a hiring binge, increasing its staff by 35 percent. The future looked bright, as Kink had plans to introduce several new sites this year.

But last month, Kink laid off 13 employees and scaled back plans for the new sites after business began to flatten. Acworth remains optimistic, but comparing this recession to other economic periods that have negatively affected the porn industry is difficult.

"The day of 9/11 was a (lousy) sales day; 9/12 was mediocre; but by 9/13 it was back to normal. Restaurants may have been empty, but everybody else stayed home and consumed porn," Acworth said. "But this time around there's more of a long-term trend going on" that has to do with the economy.

Fighting piracy
The unpredictable factor, Acworth said, is the "proliferation of free content available on the Internet." For the past several months, Acworth has designated a Kink employee to spend part of each day scanning the Net for pirated versions of the company's productions.

Vivid's Hirsch said his company sends out 700 Digital Millennium Copyright Act takedown notices a month to sites that have pirated its content. And in late 2007, Vivid filed suit in federal court against PornoTube and its parent, Data Conversions Inc., which does business in Charlotte, N.C., as Adult Entertainment Broadcast Network. It accused the free site of profiting from pirated clips of copyrighted material that is placed online there.

But industry analysts - and porn producers - do not yet have any hard data on the tube sites' effect on the industry.

"It's hard to measure," said Dan Miller, editor in chief of Adult Video News, which has chronicled the X-rated industry for 26 years. "It has really gained steam over the past year, though. When material shows up on those sites, nine out of 10 times the original producer doesn't know how it got there.

"It's more of a Napster thing that's going on now in the industry," Miller said.

Niche market
Kink, say analysts like Miller and LoPrinzi, is better prepared to weather the recession than most porn sites. Because it caters to a niche market, it has formed a community with its users.

The company is planning to expand the number of live shows, in which viewers can comment online and communicate with the director and performers. The idea, said Kink Chief Operating Officer Daniel Riedel - a Yahoo.com veteran - is to offer users an experience that the free tube sites can't.

"It's unpiratable content," Riedel said. "A pirated movie you can take and watch over and over again. A live one-on-one experience - you can't pirate that."

http://www.sfgate.com/cgi-bin/articl...DDFB160F55.DTL

Some interesting err... 'snippets' can be taken from this article, i especially like the fact that some companies are still claiming physical product sales are good and have not been effected preceeded not two paragraphs earlier by saying physical product sales are down 30% LOL

I really do wish some of these companies would communicate with each other to let them know what the 'story' actually is.

Regards,

Lee

[gaybucks_chip]

As far as DVDs, both stories are correct.

Adult DVD sales *overall* are actually up, meaning more actual adult DVD units were shipped in 2008 than 2007, 2007 than 2006, etc.

However, everybody and their mother now fancies himself a DVD studio, so there's a huge glut of absolute crap (and a few good titles) flooding the DVD market. This has had the effect of spreading the total unit sales over a much larger number of producers. People like Vivid, who are used to selling 15 to 25,000 units of a title, are being hit really hard, because the crap is selling at retail for less than half of what the premium titles are selling for, and that's eating into the sales of premium titles.

On the other hand, there are a lot of tiny studios that are delighted to sell 400 copies of a DVD, so they are doing OK and even some of the mid-sized producers are seeing sales increase.

What's interesting is that right now, a lot of the small and mid-sized DVD producers are really struggling because sales have flattened both due to competition and the economic situation. So a lot of them are simply going away... stopping production, selling off their existing product for cheap.

In the long run, this is good for the industry, because ultimately there will be less product, probably of better quality, from a fewer number of producers, and so the price, and sales volume per producer, will come back up. Of course, I doubt that producers used to selling 30,000 units will see a return to that level, but they'll still be selling plenty of units to be profitable.

At least, that's what the people who seem most knowledgable about the entire picture, and have been around for a really long time seem to think.

[GayGeek]

... there's a huge glut of absolute crap (and a few good titles) flooding the DVD market. This has had the effect of spreading the total unit sales over a much larger number of producers. People like Vivid, who are used to selling 15 to 25,000 units of a title, are being hit really hard, because the crap is selling at retail for less than half of what the premium titles are selling for, and that's eating into the sales of premium titles.

Those of you in your thirties and forties may remember the great Atari 2600 crash of 1982. Although you have probably never heard that term, I'll bet that you remember the game machine being all sorts of fun when it was released.

The Atari 2600 caused a massive crazy and the rise of several game reknown companies such as Activision. But as time went on though more and more companies started dumping progressively more cheaply made game cartridges on the market. This had the effect of causing prices to plummet until everyone, even non-game companies wanted a piece of the action by dumping crap product on the market.

This caused waves of problems for the better game companies. Their sales plummeted resulting in less good games being developed. Game players started buying less games because most of what existed was crap. And eventually everything that wouldn't sell, good and bad, was getting tossed in $10 bargain bins.

In 1982 the market hit an all-time low with the release of Kool-Aid Man (yes, this was a real game). Users hung up their Atari 2600's and switched to other platforms like Intellivision and Colecovision. Not everyone, of course, but many did. Other kids decided to go play outside instead. The Atari 2600 had lost its once-massive appeal.

The lingering effect of this, by the way, is that systems like the PS3 and Xbox are specifically made so that third party companies can't release games that work on them. Total crap games are kept outta the market, and thus the appeal (and prices) of new games remains high.

Porn doesn't have the option of preventing independent companies from getting into the market. But at the same time there is a much wider and dedicated customer base than the kids that played the Atari.

The market will inevitably self-regulate as time goes on. The rise of porn site review sites like GayGeek, for example, is in direct response to the rise of affiliate programs and the wide divergence between good and bad porn sites. It's also reflective of the increasing number of porn sites on the market. No one can keep track of them all any more. So businesses like mine specifically do this for customers, and in doing so separate the wheat from the chaff.

As the webmaster of a review site, I am naturally most curious to know how the rise of "free porn" sites are going to affect the industry. Tube sites, for example. From everything I have seen TGP sites are slowly dying out as the same content is being presented in more intelligent ways. Blogs, for example, that are dedicated to promoting content for specific themes such as twink bareback sites. And "crap review sites" are popping up fast now. Those are sites that appear as if they're writing reviews, but in reality are just plastering happy banalities about every website they list while providing no independent review. Often their "reviews" are written by the porn companies themselves!

I will also be curious to see how the mega-porn companies like Channel 1 Releasing do over time. They offer a wider diversity of porn than a quality website (say, Sean Cody), but ultimately a typical porn site customer only looks at so much porn in a week. If the porn is high-quality, a dozen sites like Sean Cody may be more than enough to give a company like C1R a run for their money. Especially as time goes on and viewers increasingly turn to downloading porn movies from the Internet instead of buying them on DVD. And for what it costs to buy a single porn DVD, users may find that membership sites are a much better value for their money.

--Aaron (long-winded and on tangents as always, but I hope you found this interesting)

[gaybucks_chip]

I think the (few) DVD studios that are smart and forward looking will do OK.

What we're seeing on the retail DVD side of our business is that a number of studios seem to be going into "panic mode" and are drastically lowering wholesale prices... which, in turn, is going to eventually trash the retail prices of their products... which, in turn, is going to make it impossible for them to produce new content, since they won't be able to sell enough at the reduced price to pay for production costs.

The problem is *really* bad on the straight side of the business. There are lots of straight titles, some of reasonable quality, available at $2 to $4 wholesale, which really doesn't leave much margin, even if your disc run is 5 or 10,000 units.

Other studios are simply taking it slow, maintaining their wholesale (and therefore retail) prices.

Undoubtedly there will be some price adjustment, but I suspect much of that has already happened at the retail level; already, almost every bricks-and-mortar chain is having serious problems, because their business model relied on selling gay product at $50 to $70 and straight product at $30 to $50, which was an outrageous markup... and they are getting slaughtered by the online retailers, who have virtually no overhead costs.

[Squirt]

As the webmaster of a review site, I am naturally most curious to know how the rise of "free porn" sites are going to affect the industry.

I've started formulating a new delivery system for a new site I've been working on for months now.

There are a number of ways surfers can goto your site and be extremely happy downloading a movie but not getting the whole experience of the movie on your site, or whole movie (not what you think).

Providing content as only part of an interactive movie experience is one solution to increasing surfer experience and maintaining rebills while giving something unique that a site stealing your content can never provide.

I know I'm being a bit cryptic and purposely leaving important details out but I've been working on upping my game, and a couple other producers I know have been doing the same, in relation to content delivery and user experience to thwart the blatant theft and death of our industry that torrents and tube sites promote.

[LAJ]

Those of you in your thirties and forties may remember the great Atari 2600 crash of 1982. Although you have probably never heard that term, I'll bet that you remember the game machine being all sorts of fun when it was released.

The Atari 2600 caused a massive crazy and the rise of several game reknown companies such as Activision. But as time went on though more and more companies started dumping progressively more cheaply made game cartridges on the market. This had the effect of causing prices to plummet until everyone, even non-game companies wanted a piece of the action by dumping crap product on the market.

This caused waves of problems for the better game companies. Their sales plummeted resulting in less good games being developed. Game players started buying less games because most of what existed was crap. And eventually everything that wouldn't sell, good and bad, was getting tossed in $10 bargain bins.

In 1982 the market hit an all-time low with the release of Kool-Aid Man (yes, this was a real game). Users hung up their Atari 2600's and switched to other platforms like Intellivision and Colecovision. Not everyone, of course, but many did. Other kids decided to go play outside instead. The Atari 2600 had lost its once-massive appeal.

I remember all of that well... Didn't really realize the "why" at the time of course but that all makes sense.

[GayGeek]

I did a little more research. Turns out I had the year wrong. It was 1983 that the market crashed, not 1982.

Wikipedia has an article about it. The North American Video Game Crash of 1983.

I also learned that a number of pornographic video games were made for the Atari 2600. I never knew that! Apparently Atari sued to stop production of them but lost.

The most infamous of them was Custer's Revenge, but there were others as well. (Some funny pictures in that article, btw.).

--Aaron