Economic woes hit porn industry
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.
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.
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."