July 2011 Consume | 3

How the industry became a corporate giant

and where it is heading.
the busi ness of
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aphy
MONEY IS POWER IS SEX
SQUINT SLOWLY WHEN NOBODY IS LOOKING.
July 2011 Consume | 5
How the industry became a corporate giant
and where it is heading.
SQUINT SLOWLY WHEN NOBODY IS LOOKING.
6 | Devour July 2011 July 2011 Consume | 7
States. The hotels share the revenue with
the in-room entertainment companies that
provide the TVs and the content.
ABCNEWS asked the companies to discuss the
revenue they derive from adult flms and whether
they have any responsibility for the welfare of
the performers.
News Corporation would not comment, saying only
that they own 34 percent of DirecTV. Representa-
tives of Comcast, Hilton and Marriott refused to
talk on the record about the issue. A spokesman
for AOL Time Warner, Mark Harrad, said that Time
Warner Cable has traditionally offered what they
called more soft-core programming. Also, he
said, in a couple of divisions they have increased
the programming to the next step up, if you will,
which I think some people would understandably
call hard-core. The decision to offer the harder
material was driven by consumers, Harrad said.
Harrad emphasized that adult programs are available only
to customers who want them and are willing to pay extra for
them. One major hotel chain, Omni, stopped showing adult
movies in its owned-and-operated hotels in 1999,
citing its commitment to family values. It encourages
its franchisees to do the same. The company
estimated it lost $1 million in annual revenue.
At conventions and other public events, the adult industry
tends to portray itself as a happy family promoting shame-
free sexual enjoyment. But privately, many performers say
the reality is very different. Theres some unwritten law or
agenda out here in Pornoland that if we tell the truth about
whats really going on here, the fan will get turned off, said
Ona Zee, a former performer who is an advocate for reform.
While a hit movie can bring in as much as $1 million adult
movies have a very long shelf life, and can keep selling for
years after their initial release most performers see little of
the profts. They are seldom paid residuals, and often get only
a fat fee. For most new performers, the fees vary from $350
to $1,000 for a conventional sex scene to a few thousand
dollars for more extreme sex. Few of the companies provide
health insurance, and most performers fnd they must work
without condoms if they want to keep getting jobs. The fans
dont like to see condoms, said performer Belladonna, refect-
ing a belief that is widely held in the industry.
Pornography has grown into a $10 billion business
bigger than the NFL, the NBA and Major League
Baseball combined and some of the nations
best-known corporations are quietly sharing the
profts. Companies like Time Warner and Marriott
earn revenue by piping adult movies into Ameri-
cans homes and hotel rooms, but you wont see
anything about it in their company reports.
And you wont hear them talking about the
production companies that actually make the
flms or the performers the producers
hire, men and women as young as 18,
for sex that is often unprotected. We
have an industry that is making billions of dollars
a year, is spreading to cable television and to the
Internet, and yet their employees are considered
to be throwaway people, said former Surgeon
General C. Everett Koop.
Only a handful of high end production
companies require condoms, leaving the majority
of performers vulnerable to AIDS and other
sexually transmitted diseases. While some
companies require performers to take HIV tests,
there is no government regulation mandating tests
across the industry.
Koop noting that performers sexual activity off
the set, with spouses or lovers, can spread disease
beyond the industry says Americas big
corporations are complicit in a public health
hazard: They want the profts from pornography
but they dont want to get involved.
Nor do the fans, according to Koop. Even the
people who enjoy looking at pornography really
despise the people theyre watching, and they
have no sense of protection for them, he said.
According to Adult Video News, an estimated
11,000 hard-core porn movies are produced in the
United States annually, many of them in
Californias San Fernando Valley, where modern
porn was born.
The production companies market them over the Internet and
to distributors who feed them to video stores the industry
claims that more than 30 percent of all video rentals on the
East and West coasts are sex flms and to giant cable and
satellite companies.
Rupert Murdochs News Corporation, through its subsidiary
DirecTV, delivers hard- and soft-core porn to homes via satel-
lite. Communications giant Comcast supplies various kinds
of porn to homes via pay-per-view. And Time Warner owns a
cable company that offers erotic programming from Playboy
and other outlets, including hard-core.
It is hard to estimate how much money these corporations
derive from porn because they do not publicize it in their
portfolios or anywhere else. Their fnancial statements do not
mention profts from adult movies. However, one industry
analyst estimated that the combination of cable and satellite
outlets makes about $1 billion a year from the adult-movie
market.
Many of the major hotel chains, including Marriott and Hilton,
also derive revenue from adult flms without mentioning it in
their company reports. Adult titles are available as in-room
movies in around 40 percent of all hotel rooms in the United
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10 | Devour July 2011 July 2011 Consume | 11
understand that once you do this, you are
sociologically damned forever, he said.
Koop believes that to prompt reform, Congress
should hold hearings on regulating the industry
and subpoena some of the people who run these
shows. If nothing is done, itll just get worse, he
said, adding, The appetite for pornography seems
to be insatiable. Lured by easy profts, a surpris-
ing number of Fortune 1000 frms have entered
the market and rapidly have begun to dominate all
but the most lurid corners [of pornography].
DirecTV, which is owned by General Motors, brings
in over $200 million a year through porn -- many
times the earnings of porn king Larry Flynt,
analysts say. Comcast, EchoStar Communications
and AOL Time Warner, according to these analysts,
also earn tens of millions a year pushing hard-core
porn.Wall Street insiders note that the combina-
tion of AT&T and Comcast will make the combined
entity the largest purveyor of porn in the country.
Cable, however, is not AT&Ts only foray into porn.
how big is porn?
Recently, much attention has been lavished on the
pornography industry--as a business--and many
have claimed it is large and profitable, especially
on the Internet. Many of the claims are cut from
whole cloth, but are accepted without question by
the legitimate press.
Skepticism is in order, though, because as David
Klatell, associate dean of the Columbia Graduate
School of Journalism notes, [Pornography] is an
industry where they exaggerate the size of
everything. The fact is pornography, or adult
entertainment, is as marginal now as it ever was.
Take for instance the New York Times Magazine: It
ran a cover story on May 18 called Naked Capital-
ists: Theres No Business Like Porn Business. Its
thesis: Pornography is big business--with $10 billion
to $14 billion in annual sales. The author, Frank
Rich, suggests that pornography is bigger than any
of the major league sports, perhaps bigger than
Hollywood. Porn is no longer a sideshow to the
mainstream...it is the mainstream, he says.
The idea that pornography is a $10 billion business
is often credited to a study by Forrester Research.
This figure gets repeated over and over. The only
problem is that there is no such study. In 1998,
Forrester did publish a report on the online adult
content industry, which it pegged at $750 million to
$1 billion in annual revenue. The $10 bln aggregate
figure was unsourced and mentioned in passing.
Like others, Belladonna started in the business
when she was 18, the legal minimum.
The person that packs the porn in a box in the
warehouse is entitled to hepatitis B vaccines
But someone thats having unprotected anal sex,
hmm. There is no standard, said Sharon Mitchell,
a veteran performer who now heads a clinic for
sex workers, the Adult Industry Medical Health
Care Foundation.
According to Koop, many producers and
distributors argue that performers are independent
contractors, not their employees, so they dont
have any responsibility for them. But Koop calls
that a copout.
These youngsters are not unionized, they dont
know how to do anything for themselves, and
theyre really stuck, he said. Mitchell believes
that the producers have an obligation to care for
the performers in their flms. This is not a moral
issue. Its an issue about disease, about HIV,
chlamydia, gonorrhea, young men and women en-
tering an issue that they often dont know enough
about.
Bill Margold, a veteran porn star who now counsels
young people entering the business, says 18-year-
olds are too young to make the
potentially life-altering decision to go into porn.
I get 18-, 19-year-old girls who just dont
12 | Devour July 2011 July 2011 Consume | 13
What about pay-per-view? The entire legitimate a la carte movie business, including
satellite and cable pay-per-view, was just $642 million last year, says Tom Adams,
president of Adams Media Research, which tracks video sales for the
industry. If sex movies get 20% of the legitimate movies, that
adds $128 million to pornographys gross.
Adding pay-per-view to the Internet & video sales
and rentals, the sum
total is about $2.9
billion. Is it possi-
ble that adult maga-
zines add another
$7 billion--which
would have to come
in sales since they
have minimal adver-
tising? Hardly, when
you consider that
the entire consumer
magazine market in
1999 grossed $7.8
billion, accord-
ing to the Veronis
Suhler Communi-
cations Industry
Report. The Times Magazine concludes
there may be no other product in the en-
tire cultural marketplace that is more
explicitly American, going so far as to
call it mainstream. We have no idea how
explicitly American it is, though we
suspect men in other countries
like to look at naked women, too.

Together with MCI WorldCom, AT&T dominates

the 1-900 phone-sex market. By allowing mostly
lonely men to talk dirty to women, these two frms
add almost $1 billion a year to their bottom line.
Large hotel chains such as Marriott, Hilton and
Sheraton have welcomed the porn distributors.
For the hoteliers it is found money. They take a
substantial cut of the profts and there is no cost
to them for providing it.
Credit-card companies, such as Visa, American
Express and Mastercard, have not been shy about
cutting themselves into this market. Estimates say
that Internet-porn sites sell $3-4 billion worth of
smut-related products annually. Over 90 percent
of these transactions are made with credit cards.
The logos of these credit card frms litter Internet-
porn sites, including many dedicated to scatology
and bestiality. Total profts from enabling porn
transactions total well over $500 million.
For the $10 billion figure to be
accurate, you have to add in adult
video networks and pay-per-view
movies on cable and satellite, Web
sites, in-room hotel movies, phone sex,
sex toys and magazines--and still you
cant get there.
According to Adult Video News (AVN),
an industry trade magazine, Americans
spent just over $4 billion to buy and
rent adult videos last year. This
figure is baseless and wildly inflated.
From there, the numbers get even
more obscure.
Tossing in the Internet will add less
than $1 billion to the total porn pie.
The 1998 Forrester report pegs the
online adult content market at $750
million to $1 billion, which was an in-
crease from its initial estimate of $150
million. When a study admits that its
initial result was off by at least 80%,
its hard to be confident in the new re-
sult. In any event, Tom Rhinelander, a
Forrester research director, says they
have given up trying to put a price on
porn--either on Internet or otherwise.

Its rival research outfit, Net Ratings, tracks
the number of visitors to porn Web sites. It
says that in April 2001, there were 22.9 million
unique visitors to porn sites. This says nothing
about how long each visitor stayed or whether
they spent a dime. In any event, the number of
visitors is less than the number who visited
news sites (41.1 million), finance sites (34.2 mil-
lion) or greeting card sites (25.5 million). When
was the last time you heard anyone talk about
how greeting card sites dominate the Net? It
is often said that pornographers are the only
ones making money on the Internet. Certainly,
there are a lot of porn sites and many assume
that they wouldnt be there if they werent prof-
itable. But that assumption is baseless.
Playboy (nyse: PLA), which calls itself a mens
magazine rather than an adult magazine, lost
money last year, as did New Frontier Me-
dia (nasdaq: NOOF - news - people). There are
thousands of e-commerce sites that still exist
despite never having made a profit. There are
millions of personal sites and fan sites whose
publishers have no intention of ever profit-
ing. Why are porn sites, of which there are an
untold number competing fiercely with each
other, necessarily any different?
The Business oF PornoGraPhy
The Business
of PornograPhy
The Business
of PornograPhy
The Business oF PornoGraPhy