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Adult's Numbers: 1

Adult's Numbers: 1

December 21, 2006
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" the industry is likely nowhere near as large as most estimates claim "

We have all read the reports that claim to pinpoint exactly how large the industry is in terms of revenue, sometimes claiming that adult entertainment in the U.S. brings in more money than the three major professional sports combined.

But there never seem to be any sources to back up the numbers, so XBIZ attempted to find out where they're supposedly coming from.

Along the way, we made three important discoveries: 1) the industry is likely nowhere near as large as most estimates claim, 2) anyone who says he has accurate figures for the entire industry is full of it, and 3) over-inflating numbers hurts everyone.

A quick Google search of the terms "adult industry" and "revenue" returns a slew of articles quoting far-flung estimates about the size of the industry in hard dollars.

In its January 2006 issue, AVN reported that the adult industry grossed $12.6 billion in the U.S. in 2005, $4.28 billion of which was from sales and rentals of videos and DVDs. In a Nov. 21, 2003, segment on "60 Minutes," AVN President Paul Fishbein said that the adult industry grossed $57 billion worldwide.

The Los Angeles Times in its April 19 edition quoted the AVN estimate of 2005's adult-oriented sales in the U.S. at $12.6 billion.

A May 18, 2001, New York Times article by Frank Rich claimed a $10 billion to $14 billion annual gross for the American adult industry, based on earlier investigation by Forrester Research in 1998, which claimed the online adult industry took in $750 million to $1 billion annually.

In a March 2001 column by journalist and author Lewis Perdue, the Wall Street Journal estimated that payments for bandwidth (nearly half of all bandwidth) to transmit porn came to about $2 billion per year.

One year earlier, a Datamonitor study estimated adult content to hold a whopping 69 percent share (around $1 billion of a total $1.4 billion) of content revenue in the U.S. and Western Europe for 1998. This same study predicted that online adult entertainment revenue would reach $3.1 billion in those same venues by 2003.

The message implicit in these published figures is pretty clear: All you have to do is shoot an adult DVD or open a sexy website and you're rich.

And we all know this to be true, right?

You can stop laughing now.

It seems the oft-quoted numbers of adult sales and gross revenue might have two small problems. For one, no one knows where they come from. There is no scientific or even remotely reliable method of measuring sales and revenue figures in the adult industry. Secondly, the illusion of easy money could be doing everyone serious harm because it encourages dilettantes and hobbyists to flood the market with crap.

"It's hard to know exactly how large the industry is," says Luke Ford, one of the few people to seriously attempt to research the sales figures and bottom lines in the adult industry. "Almost all the companies are privately held and have no incentive to release accurate figures."

Ford, widely known for his gossip blog LukeIsBack.com, was commissioned last year by a third party to undertake a comprehensive research project to get a more realistic handle on the true size of the industry. While he's the first to admit that claiming to know definitive numbers is faking it, he's done enough work in this arena to venture an educated guess, and the more realistic figures he's come up with show that the much-publicized sums in adult sales are grossly inflated — possibly by a factor of 10.

There were about 13,600 new releases in 2005, according to Ford's research. "If we estimate the number of units sold per release at about 1,000 at $10 per unit retail — because about half of those sales are compilations that sell anywhere from $1-$5, while new releases sell from $8-$20 on average — it comes to $136 million in new releases in 2005.

"New releases seem to be about half the total revenue of catalog releases made from before 2005, so now we're looking at $272 million plus $136 million, which comes to about $400 million per year in DVD sales in the U.S."

The Video Software Dealers Association (VSDA) — a trade group for American DVD/video/software dealers — published its sales and rentals estimate for all DVD/video sales and rentals in 2005 at $24.3 billion. Based on VSDA's July 2005 estimate that adult DVD sales and rentals come to just 2 percent of the whole DVD pie, adult DVD sales and rentals for 2005 would be $486 million, in line with Ford's estimates, rather than the $4.28 billion figure that has been bandied about. Bear in mind that VSDA — a trade group with incentive to make its industry seem as robust as possible — has no reason to deflate its figures or downplay sales of any kind.

"A leading porn distributor told me that the six biggest production companies would sell no more than $100 million wholesale a year, worldwide," Ford says. "That would equate to about $200 million in retail sales. With about 400 production companies selling movies in the U.S., I'd estimate the market share of the top six at 15 percent. Estimated this way, U.S. DVD porn sales would amount to $1.33 billion for 2005. So however you slice it, [in my opinion] porn DVD sales per annum are no more than $1.33 billion in the U.S."

In part two, we'll continue our examination of phantom studies and the basis for the numbers.


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