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Brave New World of Gay VOD

Brave New World of Gay VOD

October 30, 2006
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" The brands that don't go exclusive then have a strategic advantage among new consumers. "

No gay adult producer needs to be told that the industry is changing. A flat DVD market, increased competition from smaller, amateur studios coupled with the quick penetration of broadband, both at home and abroad, all threaten the current business model. While only a small percentage of profits for traditional studios are made from video-on-demand at present, the distribution of profit will be inverted over the next five years. The implications of this for margins, marketing and especially brands are staggering.

As the first decade of VOD porn comes to a close, we've witnessed a virtual gold rush of producers, distributors, affiliates, traffic brokers, billing providers, search engine optimizers, user interface designers and media outlets, each promising a gleaming mine of willing consumers. But anyone who's invested in the process knows that all that glitters is not gold.

For traditional producers, the stakes are high. Make the wrong move, and plenty of other brands are lined up to take your place.

At the same time, incredible opportunity and a world market unencumbered by regional restrictions or cultural taboos await. As the paradigm shifts, VOD distributors are racing to sign studios to exclusive contracts, often making promises and commitments that may sound too good to be true. Often, they are.

'Content is King'
Producers quote Viacom president Sumner Redstone's "content is king" maxim with ever-increasing frequency, but few realize the full extent of what that means for the industry. For distributors — both online and retail — it means that the content they have access to determines the success of their venture. If you're a VOD site and you have lousy movies, you'll have trouble making serious sales. The maxim often gives producers the impression that they decide the fate of the distributors — and in many ways they do. But for their content to remain king, they need to be vigilant about with whom they get in bed and how they manage their brand in the next few crucial years as the DVD market fades.

Take traditional video producers like Falcon and COLT, each of which has had strong brand recognition among purchasers and renters of VHS and DVDs for decades. (Both companies have been around for more than 30 years.) But the business has changed dramatically in the past 10 years, first with the explosion of low-cost DVD and then with the web's greater availability of niche content and a flood of new brands. How does a strong brand stay relevant in such a market?

Distribution companies like my own, NakedSword.com, certainly would love to lock up studios in exclusive contracts, but in most cases, it's not in a studio's best interest. In the past few years, we've argued that the health of the industry depends on a producer's freedom.

As an example, say a third-party VOD provider like ours has 100,000 users. That's a good amount, but by locking your content away with one single distributor, you may miss the other 100,000 (or 200,000 or 500,000) who don't frequent the site.

The brands that don't go exclusive then have a strategic advantage among new consumers. You may make some extra money through increased payout percentages and pay-per-view sales at first, but you miss out on the branding and exposure, particularly to newer consumers who may never even reach the website that holds you to an exclusive. What may amount to a 5-10 percent increase in revenue in the short run may deprive you of two- or three-fold increases in the next five years.

There are times, of course, when an exclusive contract is beneficial to a producer. When a provider can guarantee you access to more than their own members or affiliates — when they can offer you publicity across various media sites or have distribution deals set up with other key players in the industry, the ball game changes.

Is the VOD provider offering exclusives to many companies? If it's more than a handful, the strategy may be in their favor, not yours, if the chief goal is not to showcase your product but merely to eliminate the competition from using it.

Can this distributor offer you exposure beyond its VOD network? Do they have a close working relationship with major press outlets and online publications? Will they work for you to promote your brand or will they merely leverage it for their own needs?

Do they really know your content, or are they just on an acquisition spree? The better they know you and your content, the more likely they are to be honest about their ability and willingness to promote it.

Do they have a multi-level distribution plan? Is your content going to be locked in an ivory tower or do they plan on releasing it through multiple proven channels at different times and price points?

How long is the contract? Are their contingency plans if they fail to promote you?

Do you trust the partner? Are you comfortable working with them over an extended period of time? Do they have your best interests at heart?

Is the relationship with your studio website safe? Will they undercut you or sell against you? Will your home site maintain its brand integrity or become part of a network?

Imperative Questions
These questions will become more and more important as distribution companies size up the brick-and-mortar market. The VOD field is becoming as crowded as the production field, and there's a dangerous mix of ambition, investment and aggression in the industry. As companies grow to the next level, it's important that they take you with them rather than take you out.

In most cases, I'd recommend you keep your brand free of the restrictions of exclusivity. If a new site were to arise — imagine an innovative VOD equivalent of YouTube.com or MySpace.com — would you be able to take advantage of it, or would your competing producers leave you in the dust? The industry is growing more rapidly than ever before. What seems like a smart financial decision today may become a nasty regret six months or a year down the line. Guard your brand carefully. The health of your business depends on it.


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