Unlock Emerging Markets

The adult industry has yet to reach emerging markets. While there is some overseas activity, most of it occurs in developed economies, which like the United States, have little potential for growth. Emerging markets, on the other hand, offer the promise of new revenue streams, essential to the needs of existing and start-up businesses in adult media. New technology offers a unique way to enter emerging markets, with mobile payments allowing would-be consumers to transact with established content providers. As content producers struggle to differentiate and eke out small, incremental gains at best, mobile technologies in emerging markets may provide an effective solution.

      Even with a struggling stock market and the subprime mortgage crisis, the world as a whole has become wealthier. At the same time, populations are growing rapidly in some parts of the world. China, India and Brazil, for example, have respective populations of 1.3 billion, 1.1 billion and 196 million this year, according to the U.S. Census Bureau. Per capita GDP is approximately $7 trillion, $2.3 trillion and $1.8 trillion, respectively, per the CIA World Factbook. And, these are only the three most frequently cited emerging markets. Juniper Research has indicated that there are substantial economic growth opportunities in Africa and the Middle East.

      The problem is not finding new markets in which to sell; they exist. Businesses from every sector-including adult-need to figure out how to reach them in a cost-effective manner.

Clearing the Hurdles

Language and culture may seem to be the obvious challenges that U.S.-based adult businesses face, and they are unlikely to change. Local religious beliefs do preclude access to certain emerging markets, and certain types of content (e.g., dialogue-heavy) would call for costly translation efforts, complicating the business model and putting pressure on margins. The management effort necessary to expand is also substantial, making a domestic focus much easier than pursuing a global audience. Undoubtedly, it is easier to stay at home.

      The conventional wisdom, though, is not as powerful as it appears. The emerging economies are hungry for U.S.-developed content, and an increase in worldwide wealth makes all forms of entertainment more accessible. This includes material from the adult entertainment industry. Past problems of local beliefs and disposable income are evaporating. Now, the barrier is mechanism.

      They want it. They can afford it. They just need a way to pay for it.

      Phil Harvey, CEO of Adam & Eve parent company PHE Inc., sees the maturation of payment methods as the key to tapping into emerging markets. The demand, he says, is palpable, suggesting that local beliefs do not pose the challenge once expected. Also, language is not an issue. He joked, "How hard is it to translate, ‘Oh, oh, oh'?" While it was an easy gag, the core message is profound. The consumption of online adult content is not likely to be driven by the complex plots and intensive scripts of the video market. Delivering adult content that does not have extensive dialogue obviates the need for translation and results in a reduced management burden relative to the total internationalization effort.

      What the emerging markets need, Harvey says, is a payment mechanism. "Once payment processing is sorted out," he explained, "those markets will open up."

Old Payments Are New Again

A recent report by Juniper Research says that mobile technologies may be in a position to provide adult companies with a new road into emerging markets. The phenomenon is not far-fetched. Many emerging markets are leap-frogging the Internet and adopting mobile instead. As the prevailing communications technology, investments in mobile infrastructure are being made where wired communications never had a chance to develop. Instead of focusing on "catching up," these parts of the world are skipping the evolutionary nature of communications adoption and heading straight for the flavor-du-jour.

      The credit card is the currency of the Internet. As a result, the lack of a traditional Internet infrastructure has made plastic unnecessary, especially in the informal consumer economies that characterize emerging markets. India offers the best example. Despite having more than 1 billion people and a GDP of close to $3 trillion, a mainstream global retail analyst said that 98 percent of the retail trade is informal. What does this mean? Most buying and selling occurs among street retailers and outside major stores. Unlike the "big box" retailers of the United States, the local merchants don't take credit cards.

      New technology, essentially, makes old forms of payment relevant again.

Big Money, Growing Markets

In addition to the maturation of technology, projections for mobile Internet adult content are quite high. Juniper Research pegs the global market's 2012 size at $4.6 billion. In 2007, the total adult industry was an estimated $12.7 billion, based on AVN Internal Research's $12.9 billion for 2006 and assuming flat growth for most sectors and a 30 percent year-over-year decline for video based on anecdotal evidence. Given the prevailing trends for most sectors, mobile could become one of the industry's major forces over the next few years, ultimately dominating adult media.

      In this situation, consumption in North America would constitute only a small portion of worldwide sales, making the consideration of global markets crucial to success. While Western Europe is expected to account for the majority of mobile adult sales, emerging markets in Eastern Europe, South America, Asia and Africa are expected to show substantial growth.

      Moves into emerging markets, especially where one would expect to find cultural barriers, should be made easier by the relative anonymity that mobile purchasing affords. This may offer U.S. content providers access to markets that would not allow for traditional video market penetration. Places that have been ignored for decades become promising markets.

      Juniper Research puts the mobile market opportunity in Saudi Arabia at a total of $575 billion (cumulatively) from 2008 to 2013. If the adult industry were to capture a mere 0.1 percent of this market, it would translate into close to $600 million for the five-year period. Saudi Arabia is the Africa/Middle East region's leader in mobile wireless adoption, though the region as a whole is the second least developed (followed by the Indian subcontinent). Advanced mobile networks continue to be installed, and the mobile device adoption rate for Africa/Middle East has skyrocketed to 391.6 million in 2007, up 49 percent from 2003.

      Mobile device adoption, on a per capita basis, is only 7.4 percent in the Africa/Middle East region, according to Juniper, compared to 22 percent in South American and 35 percent in Eastern Europe. Thus, one can ascertain the potential for adult. In the latter two markets, new forms of content will become more important to a market that has already adopted the technology. For content providers, the time to strike is now. The rapid adoption in Africa and the Middle East suggests that early adult penetration can result in firm-footing for future adoption and revenue growth.

Change Your Thinking

Traditionally, the mobile evolution has been viewed simply as a new way to deliver content to existing consumers. While today's reliable buyers should not be ignored, the broader market opportunity appears to be overseas. Content, though, will not drive adoption. Instead, the adult industry can take advantage of demand that has been pent up by providing a payment mechanism.