The smut business just isn't what it used to be. The early days of the Internet were a bonanza for major pornography studios, as the web transformed adult entertainment into an instant, unlimited, and completely private experience -- always just a credit card charge and a cable modem away.
But what the Internet giveth, the internet taketh away. As the most recent Bloomberg Businssweek recounts in its feature on the rise of the new and controversial .XXX domain, the big production companies have seen their profits shrink by as much as half since 2007, as audiences have fled to aggregators such as XTube and YouPorn that offer up a never-ending stream of free naked bodies.
Stuart Lawley, the entreprenuer behind .XXX, has a plan to try and reclaim some of that lost revenue -- micropayments. Per Businessweek:
Next year, ICM plans to introduce a proprietary micropayment system. This service, Lawley promises, will help blue-chip pornographers fight back against the proliferation of free and pirated smut online. "We're going to do for adult what Apple (AAPL) did for the music business with the iTunes store," he predicts.
Consumers who have become conditioned to grainy, poorly shot giveaways, Lawley says, will get reacclimated to paying for higher-quality hard core. Price, quantity, and specificity are key. Rather than the traditional model--$24.99 upfront for all-access monthly memberships--porn consumers will shell out 99¢ apiece for short clips of niche material (akin to buying a favorite song, not the whole album). Perhaps more compelling, people seeking porn on their mobile devices will have a convenient way to purchase a quickie on the run.
Yikes. Comparing your business plan to Apple is pretty standard corporate trope these days, but in the case of porn, the iTunes analogy is hopelessly inapt. Here's the problem: Pornography is mostly a commodity product. Music is not. People have favorite bands and expect a certain level of production value in their music.
Bruce Springsteen devotees aren't just as happy listening to Bob Seger or an a cappella rendition of "Born In the USA." It's at least a little rarer to have favorite porn stars. And the audiences aren't demonstrably sensitive to production values. Worse yet, the tools for do-it-yourself filming are improving every time Apple upgrades the iPhone's video camera.
In other words, convincing people to pay for to watch sex is a much taller task these days than getting them to pay for a song.
In fact, it's a bit like getting them to pay for a newspaper. Like the porn studios, big media companies have seen their own profits plummet in the face of free aggregators, amateur bloggers, and the nearly limitless competition supplied by the web.
Unsurprisingly, micropayments have been a hot topic in the news industry over the past few years. But so far, they haven't really taken off. Here's how Clay Shirky explained the fatal flaw with the idea back in 2009:
The fantasy that small payments will save publishers as they move online is really a fantasy that monopoly pricing power can be re-established over we users. Invoking the magic word "micropayments" is thus grabbing the wrong end of the stick; if online publishers had that kind of pricing power, micropayments wouldn't be necessary. And since they don't have that pricing power, micropayments won't provide it.
What holds for journalism in this case holds for sex. In both cases, the competition is so broad that customers are likely to go elsewhere rather than pay. There are, obviously, exceptions in the case of newspapers -- the Wall Street Journal has a profitable paywall, and the New York Times appears to be having some early success with its own. But that might be cold comfort for the adult entertainment world.
That is, if you assume people still have slightly higher standards for their news than for their porn.
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