Venture capital typically avoids adult fare, but a recent deal with online startup Zivity brings the money a step closer. The social networking and art-nude photography website raised its second round of financing, $7 million led by Blue Run Ventures and Founders Fund lifts. The total has reached $8 million, resulting in a substantial mainstream bet on paid content. Also, it is the first VC foray into the world of adult entertainment, even if Zivity isn't porn.
Paid content is a hotly debated subject outside the adult entertainment industry, with many feeling that it cannot be sustained. Few non-porn websites have been able to survive with fee-based models. WSJ.com is among the few that have thrived. Others, such as the Boston Herald and The Atlantic Monthly, have given up their dreams of online subscriptions and resumed offering free content.
Zivity believes in the paid-content model. Users, they believe, are tired of advertising and will be willing to pay for high-quality photos that interest them. On the Zivity website, members pay a monthly fee of $10. Each receives five votes and can buy more for $1 each. Art nudes are the attraction, but a variety of features such as messaging, friend connections and voting enhance the experience. In exchange for the price of admission, members are spared the dancing mortgage ads, annoying text links and other flashing, rotating and spinning appeals to click and spend that have come to characterize free websites.
Zivity's business model seems to run counter to the prevailing wisdom that Internet users don't pay for content, but company Public Relations Director Michelle Laird is quite optimistic. She compares paid online content to cable television. Laird recalls that there was a time when nobody would think of paying for TV programming, while today it is the norm.
"We see ourselves as similar to Showtime," she explained.
CBS offers free network content, Laird added, and Showtime offers racier content to paying customers. The Web, she said, is no different. There is room for providers who charge a premium for non-porn content that is a bit risqué.
Zivity does not lean on its high hopes alone. Currently, the site is operating a beta test with 1,000 users who have been given free subscriptions and has found that many customers are already paying for additional votes. Paid access is expected to be launched in July, when the Zivity community will be much larger. Next week, 10,000 new users will be added to the beta test - leaving another 20,000 on the sidelines, if only temporarily.
With cash already coming into the company, the paid model certainly has momentum, and Blue Run Ventures and Founders Fund seem to agree. The fee-based model and Zivity's adoption rates make the investment more palatable. It hasn't been an issue only of dollars and cents; preexisting relationships have helped a bit, too. Blue Run partner John Malloy assumed the PayPal board seat once occupied by Zivity co-founder Scott Banister, and both sit on the board of online media company Slide.
Relationships aside, it doesn't hurt that Banister has a strong track record of innovation, including ListBot (sold to Microsoft), eVoice (acquired by AOL) and, most recently, the $830 million sale of IronPort (to Cisco). There's a lot on Banister's resume to make an investor comfortable.
Banister has never been shy about his plans for Zivity, claiming that anything short of a multibillion-dollar initial public offering would be a disappointment. But the company is focused on the near term for now, including increasing the size of the staff. The employee population has doubled in months, reaching 20 people.
Zivity may not be porn, but its recent round of VC money sends a clear message to the adult entertainment community. With an adult-oriented business receiving outside financing from institutional investors, the likelihood of large investments in purveyors of hardcore content increases substantially. A VC in play in porn may not be in the immediate future, but the possibility is just that: a real possibility.
-Tom Johansmeyer
