Thursday, November 08, 2001

Whether you like it or not – sex sells

The article below was the last I wrote for Gorilla Asia, and one of the final IandI events that I remember being held. The article was never published online. Remarkably, Gorilla Asia hung on for almost a full year from the Jimmy Liew article to Sean Clarke's talk with a handful of IandI events throughout the year. Eventually Gorilla Asia went under, one of many dot com casualties.

Author’s Note: The data quoted within this article is anywhere from one year to fifteen years old. Therefore, extrapolate at standard Internet growth rates. The views expressed in my blog(s) are my personal opinions, have not been reviewed or authorised by my employer and do not necessarily represent the views of my employer.

What is the typical exit strategy for an Internet porn entrepreneur? “There isn’t one,” quipped Sean Clarke, the Chief Technology Officer for Hong Kong-based Whoopers Network at IandI on Thursday, November 8. Once established, a successful online porn site can pull in $ US 10,000/month in profits with a regular flow of fresh, new content and less than ten staff.

The statistics are staggering. As long ago as 1998 Forrester Research estimated the Internet pornography industry to be as large as $41 billion USD. A two-year survey from Alexa Research revealed that, sure enough and no surprise, “sex” is the most searched word on the Internet. Also in the top twenty most coveted words are: Porn, (4th most popular including ‘porno’ and ‘pornography’), nude(s), xxx, Playboy, erotic stories and erotica. Playboy is the most sought after media property. There are anywhere from 50,000 to 300,000 porn web sites world wide depending on what you classify as a full blown porn site. At least three of the largest sites (in reality a network of urls) each have net incomes in excess of $ 100 million USD per year. From there an additional several dozen big players see net incomes of around $2 million USD/month and the next tier of players are pulling in revenues of only $12 million per year. Whether you like it or not, sex sells.

And also, whether you like it or not, surfers visit web sites in droves. For example:
  1. SexTracker, a service that monitors 26,000 adult sites maintain that 60 million unique visitors surf to porn sites every day.
  2. A March 2000 Zogby International and Focus on the Family study of over 1,000 American adult internet users found that 20% of them admitted to visiting sites with sexually oriented content. That translates into 40 million American adults visiting pornographic sites.
  3. Last year Nielsen Net ratings reported that in January 2000, 17.5 million surfers visited porn sites from their homes.
  4. Playboy’s website, which offers free teaser shots of its Playmates, averages 5 million hits per day.
  5. NetAngel.com claims that 80% of the Internet’s content is pornographic. Newsweek claims 30%.
  6. One year ago web-audience measurement firm NetValue reported that in September 2000, children spent 64% more time on porn sites than they did on games sites. In the same study it was found that 27.5% of children age 17 and under visited an adult web site. That represents 3 million unique underage visitors. Of these minors, 21.2 percent were 14 or younger and 40.2 percent were female.
  7. NetValue also reports that 40 per cent of the one million active Internet users in Hong Kong look at online porn at least once a month – one-third of those visitors are women.
Like any set of Internet statistics the numbers on pornography vary widely. However, there is one clear fact about Internet porn: it makes money. But most people fail to realize it takes tremendous resources and problem solving skills to pull in the kind of cash loosely written above, and that was Sean’s message at IandI.

While the jokes and laughs flew wildly that night, Sean gave an insightful talk into the professional, commercial and ethical issues associated with online porn. (IandIers were distraught to discover no PowerPoint presentation.) Sean spoke moderately about the statistics, taking neither extreme, and thus gained credibility with the IandI crowd. With a background rich in business and technology, Sean’s porn business experience stems primarily from Whoopers Network, a company initially in the online sex toys trade and now also in the online porn trade. Whoopers encountered many of these issues Sean highlighted after deciding to add online porn to their sex portfolio. (Whoopers parent company, Beacon Light Holding Corporation (Nasdaq Pink Sheets: BLHG), slipped in the backdoor of NASDAQ after taking hold of a defunct mining company.) Whoopers Network’s business is truly global with interests stretching from head office in Hong Kong to studios in Europe to its target market in North America.

To begin with, Sean agreed “There is a lot of disagreement as to how many porn sites are out there” but confirmed that a select few big players dominate the industry. To play in the bottom end of the big player league a horny entrepreneur needs $1 million USD according to the experts, but Sean says this number is inaccurate and $2 million USD is requisite to get established. “It must be very cut throat,” I suggested, but Sean said no, instead explaining that the industry is extremely competitive mainly because of the sheer volume that the major players carry on the net. Even if a start-up site had the requisite $2 million dollars to become established, staying positioned in the top search engines would be virtually impossible – they are already well saturated with the big players. “With all this porn out there it is estimated that adult ecommerce will be worth US$30 billion by 2003,” claimed Sean. A modest estimate compared to Forrester’s $41 billion.

In the beginning there were very few players and start-up costs were much lower. Today those players have grown to be the industry giants like Adultshop.com, CyberErotica, and Python Communications. Sean claimed that much of the Internet’s explosive growth can be attributed to the online pornographic industry. For example, “numerous internet technologies that mainstream business rely on such as video teleconferencing, streaming video and audio, compression and real-time credit card transactions can trace their origins to the porn pioneers pushing the technology forward,” explained Sean. He continued by predicting “broadband and Peer to Peer technologies will be the next to benefit as people realize they can get more porn if they use these technologies.”

However, don’t be discouraged by the big players pushing expensive new technologies and dominating the industry. The giants encourage little players since it spreads there own network further and further through affiliate type programs. Therefore, porn could still be the land of opportunity for would-be entrepreneurs. Sign on with the giants as an associate or affiliate and you will be provided “with everything from free content to free hosting that pay you handsome commissions to set up your own porn business, because you will be promoting their massive porn empires,” a persuasive Sean described. Just as the IandI audience saw visions of cash dancing in their heads, hopes were manically dashed when Sean continued. “To make any real money you need to be a marketing genius, devote long hours to submitting your site to search engines, Thumb Nail Posts (TGPs), Toplists and anywhere else that you might get a little bit of traffic from. Then once you have some traffic you need to filter it, trade it and funnel it,” he said. This would probably earn you a few extra thousand US dollars a month.

Sean proposed that attempting to compete with the big boys, to earn the kind of cash cited at the beginning of this article, requires lots of the following:
  1. Money, expertise, time and patience
  2. Lots and lots of really good, fresh content
  3. Secure, reliable, huge and super fast bandwidth
  4. Expensive marketing (prepare to spend to promote)
That same entrepreneur can expect to encounter any one of the following problems if not all of them simultaneously.
  1. Stolen bandwidth from links directly to your budding porn site
  2. Stolen content, therefore your servers must be heavily safeguarded
  3. Licensing restrictions
  4. Lack of fresh content
  5. Ethical issues (For example, VC’s know that porn is profitable but they still resist for ethical reasons and in Hong Kong Whoopers Network has had problems enticing new employees to join a porn company.)
  6. Legal issues (If you are going to promote bestiality there are many jurisdictions you can easily get into plenty of legal trouble. Sean joked that “NA” – as in North America – means “No Animals” in the porn industry.)
Sean issued one final note of caution to anyone venturing into the online porn industry from a provider perspective – there is a big difference between a establishing a successful porn site and successful porn business. Yes, there is money to be earned but as each day passes it becomes a tougher and tougher industry. A good resource to learn more can be found at AVNonline.com. (AVN = Adult Video Network.)

If you have any doubts about the ethical side of the business consider the following tidbit of information provided by Sean at the end of his talk. According to Sean, the Mormon Church owns a US hotel chain earning hundreds of millions of US dollars per year from in-room adult entertainment sex channels.

The IandIers perked up again… like it or not, sex sells.

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