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Adult Entertainment Predictions for 2008
A transition year to reposition the business
Thomas Johansmeyer (tomj)     Print Article 
Published 2007-11-28 10:48 (KST)   
I'm going to make a bold call. Unlike every year since Adult Video News began to keep score, 2007 will be a losing year for the adult entertainment industry. The statistics probably won't be available until the March issue of AVN, but the writing is on the wall now. 2007 will be the industry's first year of "negative growth."

For years, the focus has been on size. Nearly every mainstream media article on the business of porn zeroes in on market size, which in 2006 reached a substantial $12.9 billion according to AVN Internal Research estimates. But, few picked up on the industry's growth rate for the year -- a paltry 2.54 percent. Everybody knows the industry slowed down, and we all know the reason why. It's the internet stupid. Unfortunately, nobody has been willing to follow this thought to its natural conclusion.

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To understand why the porn business is going to have shrunk in 2007, it's not enough to look at the dollars. Yes, the number of zeroes is getting smaller, but this doesn't explain why. You have to take a look at how the business works to see why it is stalling.

Let's not be too grim. A few of the companies in porn are doing just fine. Adam & Eve, for example, has posted spectacular growth every quarter this year, and the fourth isn't likely to be any different. Vivid Entertainment has made bold content moves, particularly in supporting Chemistry, a female-friendly line of sex education films. An even more profound statement that the industry has recognized the need to differentiate is that Joe Gallant is busy. Gallant is the indy legend of porn, directing unique and often aggressive features. The fact that the major studios are calling him signals a desperation to deviate from the same tired series of film.

The Market Remains Fragmented

Annual Revenues (US$ millions)
Market Share

Beate Uhse
362
2.81%

Playboy
338
2.62%

Adult Friend Finder
200
1.55%

LFP
150
1.16%

PHE (Adam & Eve)
109
0.84%

Vivid Entertainment
100
0.78%

New Frontier Media
46.8
0.36%

AdultShop.com
29.2
0.23%

Rick's Cabaret
24.5
0.19%

VCG
17
0.13%

/ Tom Johansmeyer
Missed Opportunities in a Fragmented Market

Disruptive technologies, normally the domain of porn, have been a mixed bag in 2007. While porn is likely to play a key role in the emerging war over high definition (HD) standards, it seems to have missed the real opportunity: podcasting. The industry flirted with podcasting but never developed a way monetize porn for pods. Meanwhile, Apple has been able to turn a new entertainment device into a commercial success without porn. Two years ago, porn was trying to figure out how to make money on content for the iPod. Today, my wife downloads episodes of her favorite televisions shows to her iPod for train rides and flights.

The iPod didn't need porn. It did just fine on its own.

Without the usual edge from technology innovation, porn is left to operate as a mature market, a challenge for which it simply is not prepared. The top 10 porn companies own only about 10 percent of what really is small market. To put it in perspective, the entire adult entertainment industry would have to double to equal Deloitte & Touche in size. Porn really isn't that big, and nobody owns a significant portion of it.

There are no easy levers to pull to accelerate growth, but brakes abound. The industry seems to have found all of them. New title production seems to be the strategy du jour, and more movies than ever seem to flood store shelves. Close to 11,000 titles were produced in 2005, and the number spiked to 13,500 in 2006. 2007 is not likely to be any different. Quality and differentiation are the casualties of this strategy. This, of course, is not news, but the fact that 2007 probably will be the year where this flawed strategy finally shrinks the industry certainly is.

The web has been seen as the industry's hope for growth, and for the most part, it has delivered. In 2006, AVN pegged the online sector's growth at 13.6 percent. Unfortunately, it wasn't enough to offset the 15.4 percent decline in DVD sales and rentals. Online is probably going to post solid growth numbers in 2007, but I don't think it will be enough to make the web a larger source of revenue than film. We'll have to wait until the end of 2008 for that to happen.

With 2007 likely to go down in history as the year the porn market declined, I expect 2008 to be a transition year. The industry will continue to refine money-making strategies for the web, eventually recapturing lost DVD revenues as internet dollars. While new technologies are unlikely to move the needle in 2008, new ideas will take shape with their effects becoming evident in 2009.

Nonetheless, the Future Is Bright

Zivity cannot be ignored next year. An online community in which paying users voteon nude and suggestive photos, Zivity will go live on Feb. 14. So far, the creation of internet entrepreneurs Scott and Cyan Banister has shown promise based on all the usual metrics. eTheir beta test pool was oversubscribed in August (relative to February targets), and they raised $1 million in private funding. The real value in this company, though, is that they have a strong fee-based model and have already succeeded in the internet world. Scott and Cyan sold their last venture, anti-spam company IronPort, to Cisco Systems for $830 million this year.

Boink magazine, the only "college porn" company to become a genuine success, is bringing their book, BOINK: College Sex by the People Having It, to market in the first quarter of 2008. I suspect that this will breathe new life into this young company. The book itself won't change the industry substantially, but it will position the Boinkers to expand their presence and capitalize on a host of other opportunities.

The third company to watch in 2008 is Adult Friend Finder, already a force in adult entertainment with $200 million in revenues last year. Quietly, Adult Friend Finder has been prowling the web for content companies to buy as part of a broader traffic acquisition strategy. Adult Friend Finder did not return calls for comment, but owners of two highly trafficked online content companies said on condition of anonymity that they had been approached by Adult Friend Finder. These two didn't bite, but the ever expanding content sections of AdultFriendFinder.com show that they are committed to growing page views and monthly unique visitors through editorial tactics.

Finally, I'd keep an eye on porn-to-mainstream crossovers, especially as they become more substantial. Traditionally, these breakthroughs have been modest. Stormy Daniels played a stripper in Knocked Up. Kobe Tai played a stripper in Very Bad Things. You get the idea. Porn entered the mainstream but remained porn. Expect that to change.

In 2007, for example, artist Julio Aguilera launched a series of porn star portraits, starting with Adam & Eve contract star Carmen Luvana. Carmen did not play a sex worker in the mainstream world; she instead served a mainstream purpose in a mainstream venue. As porn stars are seen as people (after all, they are) rather than as "porn stars," the broad acceptance that will follow may lead to an expanded market. Instead of continuing to saturate a market with seemingly fixed capacity, more people will participate. In a nutshell, increased mainstreaming will help make the market larger.

After AVN publishes the 2007 statistics, the need for a transition year will be evident. 2008 will be for positioning; 2009 will show results. Porn is not dying; the industry just needs some fresh ideas. Fortunately, there are plenty to percolate next year.
http://www.aetoday.com
©2007 OhmyNews
Other articles by reporter Thomas Johansmeyer

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