Team Infidel
Forum Spin Doctor
by Claire Hoffman
November 2007 Issue
DVD sales are in free fall. Audiences are flocking to pornographic knockoffs of YouTube, especially a secretive site called YouPorn. And the amateurs are taking over. What’s happening to the adult-entertainment industry is exactly what’s happening to its Hollywood counterpart—only worse.
As copyright suits go, Viacom v. YouTube is about as big as they get: a $1 billion claim, charging YouTube with unlawfully showing Viacom cable-TV programs like SpongeBob SquarePants.
On Friday, May 18, Steve Hirsch, founder of Vivid Entertainment Group, the world’s largest producer of adult videos, was expecting a mysterious visitor. But Stephen Paul Jones was late. When Jones, an unknown figure in the pornography world, finally arrived in the all-white reception area of Vivid’s Los Angeles offices at 2 p.m., he was apologetic. His private plane had broken down, he explained, and he was forced to fly commercial. Hirsch, dressed in a T-shirt and jeans, found that excuse a little slick. But he was eager to speak with Jones, so he let it slide and introduced him to two Vivid colleagues. When the four men sat down in the company’s conference room, Jones got right to the point: He wanted Vivid to buy his website, YouPorn.com.
As its name suggests, YouPorn lets users upload and watch a virtually unlimited selection of hardcore sex videos for free. The user-generated clips on YouPorn—like those on YouTube, the site it mimics—range from the grainiest amateur footage to the slickest professional product. Also, like YouTube, the site has far more traffic than income. Just nine months after going live, in September 2006, YouPorn was on pace to log about 15 million unique visitors in May, Jones told the Vivid executives, and its audience was growing at a rate of 37.5 percent a month. Today, YouPorn is the No. 1 adult site in the world; Vivid.com, a pay site, is ranked 5,061. According to Alexa, a website-ranking company, YouPorn’s overall rank is higher than CNN.com (84), About.com (114), and Weather.com (195). (Those numbers are averages for the three-month period from mid-June to mid-September.)
Blond, barrel-chested, and wearing a sport coat, Jones oozed Silicon Valley confidence. According to Hirsch, he mentioned his Stanford M.B.A. repeatedly. He offered reams of documents and audience data, emphasizing YouPorn’s global reach. (Only 12 percent of the site’s traffic comes from the U.S., he said.) Jones told the men that he and one other executive, a young Malaysian man living in Australia, were the owners of YouPorn, and he stressed that with the site’s traffic, its opportunities were manifold: dating, gaming, mobile content, pay-per-view, webcams (“already very popular in China”), and more. He shared his vision of turning YouPorn into a “very cool brand, perhaps the Virgin of adult entertainment.” As Jones rambled on, Hirsch and his executives traded raised eyebrows. Malaysia?
Still, they were intrigued by YouPorn—and more than a little intimidated by its size. In recent years, competition from the internet had cut deep into the porn studio’s revenues. DVD sales, once Vivid’s financial bedrock, were down almost 50 percent since 2004, and the proliferation of cheap Web-based videos was stealing market share from the company, which specializes in high-end sex films. Vivid and its top rivals—Wicked Pictures, Evil Angel, Digital Playground, Red Light District, Penthouse Media Group, and Hustler, to name a few—had lately been getting an unwanted glimpse of the overnight crisis that the file-sharing revolution brought to the music industry and Craigslist brought to newspaper classified ads.
The meeting lasted an hour. As Hirsch listened to Jones’ pitch, he considered the risks of acquiring YouPorn. Hirsch had been in the adult-entertainment business long enough to be mindful of its legal pitfalls, and that was a chief concern. How do you verify the age of the participants in these thousands of sex videos—or, for that matter, the age of the audience?
For the time being, Hirsch put those questions aside and focused on the business challenge: How, exactly, would you monetize this site? All the features were free, and, as Jones admitted, the advertising revenue was meager—about $120,000 a month. Jones said he wasn’t too interested in figuring that out himself. He planned to grow the audience as large as possible and then “exit” to an established company with the resources and know-how to parlay the traffic into revenue. Not that he’s expecting the $1.65 billion Google paid for YouTube or even the $580 million Rupert Murdoch coughed up for MySpace. Jones told Hirsch he’d be willing to part with YouPorn for $20 million. Hirsch said he’d be in touch.
“It doesn’t make any sense!” Hirsch tells me a month later. It’s a hazy afternoon in June, and he is sitting behind his oak-slab desk, his eyes flickering between a pair of flat-screen monitors, one tuned to Bloomberg News and the other showing a YouPorn clip featuring a gaggle of naked women and an oxygen mask. “They’re giving porn away. You can’t make money on this.”
A compact, well-exercised man of 46, Hirsch is one of the biggest names in the $12 billion adult-entertainment business. The very picture of a respectable, down-to-earth smut peddler, he lives with his wife and two young children in a gated community in a quiet suburb in California’s San Fernando Valley, the industry’s global capital. He’s proudly sober, eschewing the rollicking parties of the sex business for quiet passions, such as his prehistoric-amber collection.
Hirsch’s life in the industry started early. In 1970s Cleveland, his father left a career as a stockbroker, says Hirsch, to sell stag films for Reuben Sturman, the porn pioneer who eventually went to jail for tax evasion. Hirsch went to work for Sturman during high school, and Sturman nurtured the young man into a sort of porn prodigy. In 1984, when Hirsch was 23, he co-founded Vivid with the then-novel idea of signing actresses to exclusive contracts and marketing them like Old Hollywood stars. He was just in time for the dawn of the VCR, and Vivid grew quickly. It has been the largest producer of adult videos in the world for more than a decade now, in part because Hirsch borrowed heavily from the Hollywood studios he can see from his office window: expensive sets, big names (most famously Jenna Jameson), and slick packaging. By porn-industry standards, his films are expensive. He says they typically cost $50,000 to $300,000 to produce and $20,000 to market and distribute; they sell for about $25 on DVD. The company makes approximately 60 movies a year and posts roughly $100 million in annual revenue.
But lately, success hasn’t come easily for Vivid and its upmarket rivals. Three years ago, 80 percent of Vivid’s income came from DVD sales. Today, Hirsch puts that number at about 30 percent, with the rest coming from a fragmented range of sources: subscriptions to Vivid.com, pay-per-view TV, internet video-on-demand, merchandising, and mobile-phone deals. Domestic DVD sales are down 35 percent this year alone. His revenue is flat, he says, but that’s mainly because he’s been cutting costs. Within five years, he claims, DVD sales will be close to zero.
Vivid’s situation is grim but not unusual. DVD woes plague the entire Valley, from multimillion-dollar corporate operations to backroom bottom-feeders: Total sales fell 11 percent in 2006, to an estimated $3.8 billion, according to Adult Video News, the industry’s leading trade publication. Hirsch’s company shares the high end of the market with about 20 other studios that each claim more than $20 million in annual revenues. Outside of those are at least 100 small producers who bring in $500,000 to $5 million a year, estimates Paul Fishbein, president of Adult Video News. These companies shoot on shoestring budgets of $10,000 or less (sometimes much less) per film. “Those rinky-dink companies are struggling to get 1,000 to 1,200 DVDs out at $8 to $10 wholesale,” says Fishbein. “That barely pays for the cost of a cheap production.”
DVD sales are in free fall. Audiences are flocking to pornographic knockoffs of YouTube, especially a secretive site called YouPorn. And the amateurs are taking over. What’s happening to the adult-entertainment industry is exactly what’s happening to its Hollywood counterpart—only worse.
As copyright suits go, Viacom v. YouTube is about as big as they get: a $1 billion claim, charging YouTube with unlawfully showing Viacom cable-TV programs like SpongeBob SquarePants.
On Friday, May 18, Steve Hirsch, founder of Vivid Entertainment Group, the world’s largest producer of adult videos, was expecting a mysterious visitor. But Stephen Paul Jones was late. When Jones, an unknown figure in the pornography world, finally arrived in the all-white reception area of Vivid’s Los Angeles offices at 2 p.m., he was apologetic. His private plane had broken down, he explained, and he was forced to fly commercial. Hirsch, dressed in a T-shirt and jeans, found that excuse a little slick. But he was eager to speak with Jones, so he let it slide and introduced him to two Vivid colleagues. When the four men sat down in the company’s conference room, Jones got right to the point: He wanted Vivid to buy his website, YouPorn.com.
As its name suggests, YouPorn lets users upload and watch a virtually unlimited selection of hardcore sex videos for free. The user-generated clips on YouPorn—like those on YouTube, the site it mimics—range from the grainiest amateur footage to the slickest professional product. Also, like YouTube, the site has far more traffic than income. Just nine months after going live, in September 2006, YouPorn was on pace to log about 15 million unique visitors in May, Jones told the Vivid executives, and its audience was growing at a rate of 37.5 percent a month. Today, YouPorn is the No. 1 adult site in the world; Vivid.com, a pay site, is ranked 5,061. According to Alexa, a website-ranking company, YouPorn’s overall rank is higher than CNN.com (84), About.com (114), and Weather.com (195). (Those numbers are averages for the three-month period from mid-June to mid-September.)
Blond, barrel-chested, and wearing a sport coat, Jones oozed Silicon Valley confidence. According to Hirsch, he mentioned his Stanford M.B.A. repeatedly. He offered reams of documents and audience data, emphasizing YouPorn’s global reach. (Only 12 percent of the site’s traffic comes from the U.S., he said.) Jones told the men that he and one other executive, a young Malaysian man living in Australia, were the owners of YouPorn, and he stressed that with the site’s traffic, its opportunities were manifold: dating, gaming, mobile content, pay-per-view, webcams (“already very popular in China”), and more. He shared his vision of turning YouPorn into a “very cool brand, perhaps the Virgin of adult entertainment.” As Jones rambled on, Hirsch and his executives traded raised eyebrows. Malaysia?
Still, they were intrigued by YouPorn—and more than a little intimidated by its size. In recent years, competition from the internet had cut deep into the porn studio’s revenues. DVD sales, once Vivid’s financial bedrock, were down almost 50 percent since 2004, and the proliferation of cheap Web-based videos was stealing market share from the company, which specializes in high-end sex films. Vivid and its top rivals—Wicked Pictures, Evil Angel, Digital Playground, Red Light District, Penthouse Media Group, and Hustler, to name a few—had lately been getting an unwanted glimpse of the overnight crisis that the file-sharing revolution brought to the music industry and Craigslist brought to newspaper classified ads.
The meeting lasted an hour. As Hirsch listened to Jones’ pitch, he considered the risks of acquiring YouPorn. Hirsch had been in the adult-entertainment business long enough to be mindful of its legal pitfalls, and that was a chief concern. How do you verify the age of the participants in these thousands of sex videos—or, for that matter, the age of the audience?
For the time being, Hirsch put those questions aside and focused on the business challenge: How, exactly, would you monetize this site? All the features were free, and, as Jones admitted, the advertising revenue was meager—about $120,000 a month. Jones said he wasn’t too interested in figuring that out himself. He planned to grow the audience as large as possible and then “exit” to an established company with the resources and know-how to parlay the traffic into revenue. Not that he’s expecting the $1.65 billion Google paid for YouTube or even the $580 million Rupert Murdoch coughed up for MySpace. Jones told Hirsch he’d be willing to part with YouPorn for $20 million. Hirsch said he’d be in touch.
“It doesn’t make any sense!” Hirsch tells me a month later. It’s a hazy afternoon in June, and he is sitting behind his oak-slab desk, his eyes flickering between a pair of flat-screen monitors, one tuned to Bloomberg News and the other showing a YouPorn clip featuring a gaggle of naked women and an oxygen mask. “They’re giving porn away. You can’t make money on this.”
A compact, well-exercised man of 46, Hirsch is one of the biggest names in the $12 billion adult-entertainment business. The very picture of a respectable, down-to-earth smut peddler, he lives with his wife and two young children in a gated community in a quiet suburb in California’s San Fernando Valley, the industry’s global capital. He’s proudly sober, eschewing the rollicking parties of the sex business for quiet passions, such as his prehistoric-amber collection.
Hirsch’s life in the industry started early. In 1970s Cleveland, his father left a career as a stockbroker, says Hirsch, to sell stag films for Reuben Sturman, the porn pioneer who eventually went to jail for tax evasion. Hirsch went to work for Sturman during high school, and Sturman nurtured the young man into a sort of porn prodigy. In 1984, when Hirsch was 23, he co-founded Vivid with the then-novel idea of signing actresses to exclusive contracts and marketing them like Old Hollywood stars. He was just in time for the dawn of the VCR, and Vivid grew quickly. It has been the largest producer of adult videos in the world for more than a decade now, in part because Hirsch borrowed heavily from the Hollywood studios he can see from his office window: expensive sets, big names (most famously Jenna Jameson), and slick packaging. By porn-industry standards, his films are expensive. He says they typically cost $50,000 to $300,000 to produce and $20,000 to market and distribute; they sell for about $25 on DVD. The company makes approximately 60 movies a year and posts roughly $100 million in annual revenue.
But lately, success hasn’t come easily for Vivid and its upmarket rivals. Three years ago, 80 percent of Vivid’s income came from DVD sales. Today, Hirsch puts that number at about 30 percent, with the rest coming from a fragmented range of sources: subscriptions to Vivid.com, pay-per-view TV, internet video-on-demand, merchandising, and mobile-phone deals. Domestic DVD sales are down 35 percent this year alone. His revenue is flat, he says, but that’s mainly because he’s been cutting costs. Within five years, he claims, DVD sales will be close to zero.
Vivid’s situation is grim but not unusual. DVD woes plague the entire Valley, from multimillion-dollar corporate operations to backroom bottom-feeders: Total sales fell 11 percent in 2006, to an estimated $3.8 billion, according to Adult Video News, the industry’s leading trade publication. Hirsch’s company shares the high end of the market with about 20 other studios that each claim more than $20 million in annual revenues. Outside of those are at least 100 small producers who bring in $500,000 to $5 million a year, estimates Paul Fishbein, president of Adult Video News. These companies shoot on shoestring budgets of $10,000 or less (sometimes much less) per film. “Those rinky-dink companies are struggling to get 1,000 to 1,200 DVDs out at $8 to $10 wholesale,” says Fishbein. “That barely pays for the cost of a cheap production.”