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The Competitive Edge: 1

The Competitive Edge: 1

August 16, 2006
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" As recently as five years ago, the adult market produced 75 percent of all cash that was spent with online services. Today, however, that number has moved to just 16 percent. "

I recently attended a mainstream entertainment industry conference held in Los Angeles that focused on new methods of reaching target audiences within the digital world. Obviously, the Internet and the technologies associated with IP deployment were the hot topics, as these technologies are finally being widely used by many content owners.

What I found most interesting about this event was that up until now, few on the mainstream side would acknowledge which content owners were truly generating revenue and pioneering the way for Hollywood to reach into consumers' homes. However, at this conference, they brought this formerly taboo subject to the forefront by creating a panel of experts from the adult industry to discuss their experiences in online content sales.

This and other indicators would suggest that as the world moves to online deployment models for digital content, the value of the expertise from the adult marketplace — though somewhat clandestine — has become of great interest to the mainstream model. Why? Well, it is not that they wish to model any systems after the adult market; rather, their plan is to improve on it.

For years, the adult market has led online sales by providing the market with hundreds of thousands of choices and has rightfully led the way in selling content online. Subscription models, affiliate programs and many other new business modes were either invented or perfected by the adult webmaster. Selling content and asking an end user to get out their wallet and pay in order to enter a site was at one time a model only used by adult webmasters.

As recently as five years ago, the adult market produced 75 percent of all cash that was spent with online services. Today, however, that number has moved to just 16 percent. For all intents and purposes, the adult market has not died, but the mainstream market has gained significant traction over the past few years. This shows that the adult market was the proving ground for not only innovative technologies but for business practices as well. So what does this tell us, and why should this matter? In the same way the mainstream market learned from the adult content market, the mainstream market now has entered into the picture and with a fury.

Apple's iTunes has passed the billion download mark, Microsoft Plays For Sure portable media devices now number more than 300 models in production, and the key players of the content world: broadcasters, movie studios and record labels are assembling their resources to gain dominance over the end user's dollars.

In the end, mainstream has become more acceptable of adult content and as such, a competitive dynamic arises in this new arena. As an adult content distributor, you now must consider one very important factor: value. You are now competing on a much larger scale, which now includes every venue that accepts payments online.

Let me cite an example: A college student on a limited income may have say $50 a week of disposable income. Now, say that $25 goes to beer, with $25 left for entertainment. Consider the fact that you now may also be competing with online music sales, downloadable movies or even non-adult membership sites. Can you then see that there are now many other factors than just content? Keep in mind that if the adult market has reached mainstream acceptance, this also will mean that your users will begin to lack the distinction when it comes to how they spend their money. This is the definition of value in micro-economics terms — what a buyer is willing to give up to have something else. The higher the value to that user, the more likely they are willing to give up something else to get what they value most.

More Choices, Value
More choices for the end user are good for the overall online market, but it does create greater competition for that end user's money. Furthermore, the mainstream market has had the ability to watch the successes of the Internet through the growth of adult sites and now has the ability to learn from any mistakes made along the way without incurring the cost of those mistakes themselves.

If there is anything to learn from the adult online market, it is that content sells and that the Internet is an ideal milieu for niche content. As many already know, there is a market for anything. Or as the late auto dealer tycoon Ralph Williams used to say, "There is an ass for every seat."

So if content is king, who has the most content? Well consider this: The recording, movie and broadcast industries have been producing content 24/7 for decades. This content has value and in many cases has not yet been monetized in any form other than its original format.

Another lesson to be learned from the adult marketplace is how to treat customers. In the early days, there was a "take the money and run" attitude embraced by many webmasters. Though this may have helped to line the pockets of some, it hurt the industry. Payment systems stepped in to protect their merchant accounts and required a higher level of accountability from those webmasters. Over time, unscrupulous webmasters either went away or are now doing time. The online adult industry itself, in many ways, creates its own level of accountability.

The mainstream market is far more conscious of this and is taking a very careful approach to customer service. Satisfaction guarantees, longer trial periods and more flexibility with content have been the concerns of the mainstream market. What we've seen overall is a concerted effort to create a quality user experience, which seems to be paramount over revenue streams.

In part two, we'll look at targeting customers and using technology.


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