There’s no doubt that digital content delivery has changed the world for adult entertainment companies. Empires that took decades to build during the Golden Age of adult video – when sexually explicit content that was tame by today’s standards was distributed in cinemas, sex shops, adult arcades, and even out of the trunks of cars, and always with one eye peeled for the long arm of the law – seem small compared to modern corporate giants that enjoy global markets and distribution channels that once were considered the stuff of science fiction.
In the 21st century, adult entertainment aficionados can find a wider variety of content and receive it via a broader array of technologies than ever before. Purchasing adult movies, in particular, has become less tedious: No longer must a horny guy drive miles to the nearest “adult bookstore” to get an erotic video fix, risking his reputation in the community if someone spots his car in the parking lot or – even worse – the local constabulary raids the place while he’s inside. Today, fanciers of erotic fantasy need take action no more drastic than tuning their televisions to a pay-per-view feature or any of a handful of set-top-box channels, ordering a DVD by mail, going online, pulling out an iPod, or even calling up dial-a-porn on their cell phones. Life is good for the erotica consumer.
But what about the retailer? Although no one is completely ready to sound a death knell for traditional distribution channels, it’s becoming tougher for them to compete in a digital society. Content producers are changing not only their channels, but also the products themselves. Many no longer produce VHS cassettes, once the staple of the adult video industry, instead manufacturing smaller-in-size-but-larger-in-capacity, less-expensive-to-produce DVDs. In recent years, that has meant that adult stores with “back rooms” where consumers could lock themselves in arcades and watch adult content on the spot had to re-tool their operations to stay current. As sex has come out of the closet in the Internet Age, many mom-and-pop operations have fallen under the onslaught of big, bright adult superstores that have emerged from the shadows on dim back streets. In metropolitan areas like Dallas, Philadelphia, and Los Angeles, adult stores now stand shoulder-to-shoulder with mainstream relatives in some of the cities’ most eclectic shopping districts—but even those stores may have trouble surviving if more adult content producers follow the lead of a few small companies, like Hellhouse Video, which announced it will no longer manufacture physical product.
Small brick-and-mortar adult stores continue to thrive in rural areas and in some large cities, but the really successful ones are making changes to their business models to at least moderate the effects of the digital revolution. Do the changes represent just a temporary fix, delaying cultural Darwinism for a few years until the inevitable finally prevails? Will traditional adult retail stores be forced into extinction by forces too large for them to combat, or will they prove to be tougher and dearer to the industry than some think?
The brick-and-mortar view
Sidney Grief’s family has been selling erotica in Texas for at least two generations. Grief is the president of AAA News Inc., which operates five retail stores in Austin. Although the stores stock mainstream magazines and newspapers, the lion’s share of AAA’s income comes from sales and rentals of adult material.
Several years ago, Grief says, adult product manufacturers he declined to name told him “their goal was to put retail stores completely out of business.” Grief, a former member of the Free Speech Coalition board of directors and a tough Texan to the core, responded by developing an online presence (AAANews.com) where his stores could sell to the wired public at retail and distribute some adult content to other websites. The content distribution end of the business was shuttered less than two years ago, Grief says, because he doesn’t want to take chances with the legal uncertainties surrounding the secondary-producer requirements of the embattled federal records-keeping law. Still, he says, he sees brick-and-mortar and Net-based businesses complementing each other.
“The funny thing about it is that now that it’s been going on for awhile, Internet operators of traditional Net sites are releasing DVDs [of their original content] to traditional retail stores,” Grief says. Those products are selling very well for him, he notes, because “there are still some people who don’t have Internet access, and some people will never want to watch adult material on their computer screens.” Non-wired consumers are intrigued by the Internet content they’ve heard or read about, though, and they’re eager to rent or buy DVDs containing it. To play to that market, Grief has installed special areas in each of his stores to feature material that originated on the Web. “It’s a terrific revenue source,” he says, not only for his stores, but also for “webmasters who have all this content in the can.”
Dan Richards, the purchasing manager for specialty products at Movie Gallery in Dothan, Ala., agrees that video stores won’t completely disappear, at least not yet. “For instance, we have approximately 46 percent of our stores in rural markets,” he says. “These markets may or may not have cable television, which means broadband delivery is not accessible unless through satellite. Plus, the computer is still a luxury item in these same markets, which means the percentage of households with a computer is much less than in the metro markets.”
Bo Kenney, on the other hand, thinks traditional adult video stores are well on their way to extinction. The chief executive officer and self-described creative force of LGI Digital has business interests in both the virtual and real worlds. LGI began as an Internet-based company in 1997, later adding video production company Sex Z Pictures and 12 brick-and-mortar stores in California to its portfolio. The brick-and-mortar stores, Kenney says, are underperforming compared to the company’s digital content outlets, which currently include websites, broadcast venues, and iPods. “To give you an idea,” he says, “we sold 50,000 [Video-on-Demands] in two months. Compare that to the 5,000 hard goods we sold over the past nine months.” He’s looking forward to cell phones providing more oomph to the company’s digital endeavors. “We’re only using the brick-and-mortar stores to get to where we don’t have to need them anymore,” he says.
Producers have feelings, too
Especially for smaller, newer, or tightly niched adult content producers, it’s the manufacturing cost that has them anticipating the days when retail stores are obsolete. “DVD sales top out at some point,” says Jules Nelson, director of sales for Crush Video, a producer of popular blowjob scenes. He believes the market for VoD is almost limitless, and that kind of content is much cheaper to provide than its hard-copy counterparts. That doesn’t mean his company is going to abandon brick-and-mortar distribution anytime soon, though. “It’s expensive to get DVDs out, but that’s still the backbone of the industry. That’s your bread and butter right there.”
Acid Rain Video President Mitchell Spinelli pretty much agrees. “When we went to DVD from VHS, manufacturing got markedly cheaper, and it’s much cheaper even than that to distribute electronically,” he says. “There’s going to be a bit of reluctance [in the industry] to go entirely digital, because when you’re used to the old ways, it’s hard to change. But for adult, I see the numbers out the door diminishing.”
Following in the footsteps of his late father, the legendary director and AVN Hall of Fame inductee Anthony Spinelli, Mitchell has been in the adult business since 1976. Spinelli says his company, which is only four years old and produces about five or six new titles each month, still clings to some of the “old ways.” It still distributes some of its older titles on VHS, but that will end when the stock on hand runs out. Another thing that’s probably going to end at some point in the future is brick-and-mortar distribution of any kind. “Eventually nobody’s going to want to go to the video stores anymore—five or six years, maybe sooner,” Spinelli says, adding that digital distribution currently makes up as much as 20 percent of Acid Rain’s bottom line, and the percentage is growing rapidly. The company’s virtual sales break down roughly into quarters: 25 percent is VoD, 25 percent is streaming, 25 percent is content sales to other websites, and 25 percent is physical product sold online.
“Even online rentals are going to be dinosaurs before too long,” Spinelli says. “Digital delivery is just so simple: You can do everything from your easy chair at home. You don’t even have to touch a disc.”
Inside the digital domain
Platinum Bucks’ Dave, co-founder of VoD provider AdultRental.com, is even more enthusiastic about the future of digital delivery. “The Internet and TV are going to completely converge within five years,” the Canadian says. “It may happen sooner, because there are so many new laws in the [U.S] about where you can and can’t ship DVDs.” Fifty percent of AdultRental.com’s clientele is American, Dave says, and he thinks content producers who have to ship physical product across state lines and international borders eventually will tire of the rigid legal landscape.
There are other benefits to digital delivery, as well, especially for consumers. “It saves time, and it saves embarrassment,” Dave says. “People who wouldn’t be caught dead in a video store will go for VoD.” Moreover, current digital distribution models take all the guesswork out of selecting just the content a viewer wants to watch. “With pay-per-minute, you can select by scene, by star, by type of content, or almost anything else you can think of,” he continues. “Search convenience is a major force behind the success of the VoD model. With thumbnails and user reviews on a website like ours, users get much more information than just a pretty box cover, and they’re not limited to scenes in just one category like they are with compilation DVDs.”
Dave credits the invention of Internet VoD with broadening sexual horizons and satisfying people’s inherent curiosity about new things. “And they don’t have to spend a lot to do it,” he says. “At 8 cents a minute, you can afford to check out something you don’t really think will appeal to you, just to see what all the fuss is about. You watch it for five minutes; you’ve spent 40 cents, and you can go on about your business.
“I really believe VoD is the future,” he continues. “In five years, 50 percent of that $20 billion a year in adult DVD sales and rentals will go to VoD. People who absolutely must have something to hold in their hands can always burn it to DVD themselves at home. Video stores are becoming a dying breed, and their market share is going to continue to shrink.”
Jax Smith, chief executive officer for SugarDVD, agrees with Platinum Dave that brick-and-mortar stores will vanish, but he doubts that people will turn loose of a desire to own content they can touch. “Even though ‘community standards’ can fluctuate by the month, people still want something they can hold in their hands,” Smith says. “I don’t think producers are ever going to stop producing physical product.”
That said, however, he admits VoD sales at SugarDVD.com “increase a little each month,” although rentals through the mail continue to compose about 95 percent of the site’s business. Even though the tactile experience of holding a rented DVD is only temporary, it’s still important to some people. In addition, the quality of much of the VoD that’s available currently still doesn’t match the quality users experience when watching a movie on DVD, Smith says. “I see TiVo and TV VoD really cutting into brick-and-mortar,” he notes, “but are Net rentals going to kill the video stores? I don’t think so, and I say that from my own real-world experience. I still go to the video store to get movies, because the immediacy’s better at brick-and-mortar stores than it is with online rentals. You pick it up right there. Within the next five years, though, 50 to 80 percent of all adult Video-on-Demand will be delivered to the TV at your house, just like mainstream movies are now. That’s what’s going to kill the video stores—but that $11-price-point on adult VoD’s got to go.”
Peaceful coexistence
Some companies that operate in both spaces see only the fittest in both areas surviving. For them it’s less a question about if Internet will kill the video store than of how video stores can adapt to coexist with emerging distribution channels.
TLA Entertainment Group is one such outfit. Based in Philadelphia, the company began as an art-house theater that, among other offerings like Eraserhead and Rocky Horror Picture Show, exhibited adult films. When the videocassette player exploded onto the home electronics scene in the 1980s, TLA opened its first retail store around the corner from the theater.
“We continued to open stores after that, and had planned to expand nationwide,” reveals director of marketing Brian Sokel. “We were actually on the plan to open a store every year from 1985 on, but the cost in rental space was always an issue, and by the early ’90s it was obvious that technology was moving beyond that. When the Internet began getting serious in ’95, our focus was on analyzing this new technology. We waited until ’97 and then went online with TLAVideo.com. The reach of the Web coupled with the decreased cost made it that much more interesting.”
Today, Sokel says TLA’s six retail stores in Philly and New York remain “a strong source of revenue and community for our business,” despite the website being more profitable. Brick-and-mortar operations are high on the expenses scale, considering they require staff, real-world digs, and inventory. However, Sokel says the brick-and-mortar stores in concert with the company’s Web presence make a very powerful combination. “For example, a lot of folks in Philadelphia, where we are known and grown, aren’t even completely aware of our Web destination. We always direct those folks to our site to encourage browsing and deeper investigation, but it’s different kinds of customers [at the two venues].
“People like to think that someday folks will no longer shop in stores, ever, and they are wrong,” Sokel continues. “Unless we all become androids, sell-through retail will always be there. Browsing with our eyes, feeling product, and instant gratification are all incredibly important components to consumer enjoyment.
“I don’t think the Internet will completely kill brick-and-mortar, but I think brick-and-mortar needs to be fluid. Sell-through is the key: It provides instant fixes. But turning brick-and-mortar stores into more community-focused centers with a more cross-referenced identity, bringing the online world into the brick-and-mortar, allowing customers to browse hard product but also look online through kiosks, getting online action within the stores—that’s the secret. It’s the coffee shop of the future, really.”
