Porn makes the big cover story on the 3/27 issue of U.S. News and World Report: A Lust for Profits, Pornography is a huge and growing cyberspace draw. But will salacious Web sites be a hit on Wall Street?
Starts off the article: "The cartoonishly proportioned women of Bare Breasted Cat Fight are boinging across a computer screen. Perched atop a table littered with CD-ROMs like Naughty Housewives 3, the monitor enraptures passersby with images of seminude combatants tugging ponytails. But attention spans are short at AdultDex, an online adult-entertainment expo held amid the tacky chinoiserie of Las Vegas's Imperial Palace hotel. Quickly bored by erotic mayhem, some viewers drift off to booths extolling various Web-hosting services. Others pause to hear a sunglassed free-speech advocate shout with revival-worthy zeal, "If you knock out X, every other letter in the alphabet is endangered!" The rest shuffle over to Comdex, the world's largest computer trade show, being held a few hundred yards away at the city's mammoth convention center.
"Vendors of explicit material were once welcome at the annual Comdex show. The owners of ultravixen.com set up shop just around the corner from Microsoft, for example. But Comdex ejected the adult community in 1995, fearful that merchants hawking Bra Bustin' Babes 2 would tarnish the event. The exiles went on to found AdultDex, now a refuge for techies eager to study the latest innovations and business models of what has been dubbed the Internet's 'dirty little secret.'
According to the article E-porn, these days, is anything but little and certainly no secret. E-porn has mushroomed from the days of raunchy pictures to streaming video and shopping-cart software. Whereas Web pundits once predicted that erotica would recede into the shadows, it's now a huge and growing cyberspace draw. According to Nielsen NetRatings, 17.5 million surfers visited porn sites in January, a 40 percent increase compared with four months earlier. In fact, the E-Porn site-PornCity.net-boasted more unique visitors in January than ESPN.com, CDNOW, or barnesandnoble.com. "E-porn is a massive moneymaker," according to the article. Adult-entertainment companies like Voice Media and WebPower are flush with profits. "A large, mainstream E-commerce company needs to go out of its way to create demand, [to] explain why it is important," says Keith Condon, vice president of Atlas Multimedia, whose holdings include LivePorn.com. "We don't. We work on filling demand that's already there."
According to the research firm Datamonitor, web surfers spent $970 million on access to adult-content sites in 1998 and that figure could rise to more than $3 billion by 2003. A Forrester Research report also estimates that cyberporn sales-including videos and accessories ordered online-accounted for 8 percent of last year's $18 billion E-commerce pie. That's about the same as the amount spent online for books ($1.3 billion in 1999) and a good deal more than plane tickets (less than $800 million). With low advertising and labor costs, adult sites typically enjoy profit margins of 30 percent or more. Online brokerages are far less lucrative, the article goes on to say. The 1998 profit margin for Ameritrade, for example, was just 0.2 percent. Despite such showings "pornographers were excluded from Wall Street's party," the U.S. News article states. So far, the industry has been shut out of the dot-com initial-public-offering blitz, which last year yielded an eye-popping $702 billion in equity value.
But, E-porn insiders will pay close attention to the fortunes of Playboy.com, which makes its Nasdaq debut next week. If the IPO succeeds, adult companies could be the latest beneficiaries of Wall Street's blessings.
The adult industry has never passed up the chance to manipulate new media. "The first thing printed after the Bible was probably porn," jokes David Card, director of consumer-content strategies at Jupiter Communications, who calls adult entertainment an "early adopter market." It's often pointed out that the adult industry's decision in the early 1980s to release their videos in the VHS format is credited with dooming Sony's Betamax machine. As computer technology advanced, it wasn't long before surfers were paying monthly fees of $30 and up to view X-rated material, and other adult-related products.
According to U.S. News, by the early to mid-1990s, up to 80 percent of all Internet traffic was adult related. Larry Bell, CEO for Florida-based ISP StrictlyHosting.com, notes that his company was not created to cater to adult clients. "But it went that direction because of demand," he says. "We all know the adult entertainment industry drives the Internet." Eighty percent of Strictly Hosting's business comes from adult sites, which require the highest-speed connections to transmit their bandwidth material.
America Online also owes a great deal to sex, says the article - its early survival depended on E-porn and spicy chat which brought in an estimated $7 million per month at one point. The company is the provider of choice for porn-site visitors-nearly 16 percent of the Internet's racy material is still accessed via AOL.
"With the exception of the Wall Street Journal's interactive edition and a few other ventures, porn sites are still the only ones able to generate sizable revenue via subscriptions," says U.S. News. "Most of the millions of individuals who regularly visit adult sites settle for free 'teasers,' but enough surfers pay access fees to make porn the king of online content. Adult material accounts for 69 percent of the $1.4 billion pay-to-view online-content market, far outpacing video games (4 percent) and sports (less than 2 percent).
You can check out the whole article at http://www.usnews.com/usnews/issue/000327/eporn.htm
