Famously, in the markets of mainstream cinema 'nobody knows anything'. Porn or 'adult' film, on the other hand, is often thought of as the ultimate soft sell. Tony Keily looks at the economics of the US adult film and the impact on the sector of the New Technologies.

Bible bashing in America
'Porn sells'. It's a sort of staple thrown out when talking about the difficulty of selling anything at all on film. And 'horror sells'. Well, we're currently finding the latter out, often to our cost. But 'porn sells' still pops up a lot, though we don't get much information on where it sells, and how it sells.

In 2005, Video Business, the bible of the US video business, quoted AVN, the bible of the US porn video business, on a figure of $12.6 billion in revenue for the entire 'adult' sector in the States, $4.3 billion of which came from adult video sales and rentals. VB claimed that this last figure had been 'relatively flat' since 1997. These figures, or others close to them, are quoted across the board by news services.

Porn sells.

Rewind.

Back in 2001, true to its own relatively flat epithet, AVN was indeed waving the same $4 billion figure, and Forbes, the bible of all US business, decided to investigate. Forbes quickly ridiculed AVN's hearsay statistics and quoted media researchers (Adams) on a 'very generous' $1.8 billion estimate. Forbes's own guess, based on its independent research, was that 'the whole US adult video sector' had revenues of at best $520 million in sales and rentals. A large chunk of this market was owned by big players such as Vivid Entertainment and Larry Flynt Publishing, who dominated distribution networks with relative ease since mainstream distributors and retailers (Blockbuster, K-Mart) would not touch porn. Sex shops, mail-order and online retailing accounted for a marginal level of sales for the rest of the sector, a pool of very small fish. IVD, the largest distributor of adult videos in the States, estimated in the same year that about 13,000 titles were produced annually, with an average sale of between 1,000 and 2,000 units at around $20 each.

Porn sells?

Burning, not looting
A little background is required here. The adult entertainment sector has always been linked closely to technological innovation. The film Boogie Nights depicted the decline of the 'classic' adult film of the '70s before the rise of video quickies in the '80s. Video allowed the number of adult films produced annually in the US to reach about 2,500 by the early '90s. Then in the mid-90s cheap digital technology sent the cost of production of 'quality' images plummeting, and soon after that the internet appeared, which greatly facilitated advertising and mail-order of especially non-mainstream adult videos. Production in terms of titles released increased more than fourfold in the decade to 2001, but with a badly flattening revenue curve for the second half of that decade. The new players, with their cheap cameras and dodgy websites, often had to concentrate on marginal niche products ('amateurs' of all sorts, fat people, old people, mud-wrestling lesbians, fake incest or rape scenarios, and a host of less savoury fare) since they could hardly compete with the mainstream players in terms of production values.

The next big innovation, which has changed the nature of the adult industry since 2001, is the spread of broadband. Broadband allows much quicker up- and downloading of large files, be they still or video, as well as video streaming. This has meant that in the last few years still content has slowly yielded to video on adult paysites and on the so-called TGP hosting sites which advertise them in the form of free samples of pictures or clips. Such still material as exists is now often made up of screen captures from films.

Thanks to broadband it's also hard to know how reliable any 'sale and rental' figure for the US is as an index of volumes of production, since adult sites are increasingly selling movies for download rather than mailorder. Since downloading and streaming bypasses the need for the physical production of a video on tape or DVD, we have probably passed the point where it is possible to estimate with any accuracy the number of adult videos produced in a given territory annually. Although the bandwidth necessary for video streaming/downloading is considerable and involves proportional bandwidth rental costs, these costs are more than offset by the disappearance of the need to create a physical 'video' to sell, at least in more successful operations. The US adult video production figure must therefore already be far greater than the 13,000 estimate quoted for 2001. In Japan, where video production in a giant adult entertainment industry had already passed 10,000 titles per year before the advent of digital technology (400% greater than the US in the early '90s) levels of output must by now be truly staggering.

Downloading of course raises the issue of piracy. But true to its reputation as a technological pioneer, the US adult sector found a tailor-made solution well in advance of the Studios. In spring 2005, Vivid Entertainment launched a new download-and-burn system. The nut to crack was installation of a copyright protection system such as CSS, used to encrypt standard movie DVDs. CSS of course requires payment of hefty licence fee and sails close to antitrust winds by forcing manufacturers to create DVD players which do not read discs encrypted with other protective systems. Vivid however somehow developed (or had developed through CinemaNow) an entirely different proprietary system which both by-passed the need to purchase CSS and was compatible with standard CSS decrypting players.

Porn smells
Vivid Entertainment is the undoubted industry leader in the US adult video sector, producing about 60 films a year at a cost of about $50,000 in production dollars per title. These 60 films feed about 150 annual releases once recut, anthologised and repackaged in various imaginative ways. Vivid's overall revenues are stated at about $100 million, although the revenues come from an impressive array of sources, including a vodka, videogames, a night club, virility-enhancement concoctions, X-rated comic books, custom car wheels, and phone sex chatlines. The most successful films will go on to generate up to $5 million, albeit through very varied forms of distribution and exhibition (retail, mail order via internet, VOD, subscriber channels, streaming including to cellphone, download and burn), fruit of Vivid's 22 years of experience in the adult industry.

But as stated, Vivid and one or two other key players have the limited distribution paths sewn up. While it's true that all you need to make and market a porn film is a video camera, a PC, some bandwidth, and a few willing performers, that very fact has meant that supply has multiplied exponentially whereas demand has failed to grow. It could be argued that new revenues generated by broadband-related technologies might exist outside of the figure allocated traditionally to a 'sales and rental' sector, but any such revenues would have to fall within recent overall estimates for adult 'Internet' sales in the US, which account for only $2 billion, or roughly what lap dancing joints bring in.

Estimates are the order of the day in a sector where hard figures are wanting, due to the fact that almost all porn movie producers are privately-held companies with little interest in publicly stating their profits. Two main reasons are generally given as to why such producers have not gone public (or why publicly-owned adult film operations are not been set up). One is that investors mightn't like to be associated with 'smut'; two is that the adult sector is subject to risk due to threats from repressive legislation under conservative governments. But the real reason is a little more in-your-face: the few adult entertainment companies to be quoted publicly have to date yielded at best very modest profits. Porn may smell of a lot of things, but money isn't one of them.

Some sources
– Forbes.com: 'Stock Focus: Adult Entertainment Companies', 05.23.01; 'How Big Is Porn?', 05.25.01; 'Obscene Profits', 12.12.05; 'The Porn King', 03.07.05.
– Video Business Online: 'Pornography Pays',12.12.2005; 'Fiddling While ROMs Burn', 5.19.2006.
– Reuters: 'Porn Business Driving DVD Technology', 1.10.2005 (Ben Berkowitz).
– Milton Diamond, 'The Effects of Pornography: an International Overview', 1998, University of Hawaii.

Read Private Worlds 1: Death Junkies here.