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Making Bank

Making Bank

April 16, 2007
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" mainstream industries that have been profiting nicely, consistently and discreetly from adult entertainment "

When CBS' "60 Minutes" put together a segment on mainstream corporate America's involvement with adult entertainment in 2004, none of the executives that "60 Minutes" wanted to interview were willing to discuss the specifics of their erotica-related profits on camera — and that attitude has not changed. Mainstream corporations are still discreet about the profits that adult entertainment brings them; they prefer to keep it on the down-low. But those profits are very real.

The following are 10 of the mainstream industries that have been profiting nicely, consistently and discreetly from adult entertainment.

Cable TV
In the 1990s and early 2000s, adult-oriented programming generally was offered by major cable television companies in the U.S. Now in 2007, adult-oriented programming is offered by Time Warner Cable, Cox Communications and Comcast — the largest cable TV provider in the U.S. with reported 2006 revenue of $26.3 billion. Because these companies are reluctant and/or unwilling to discuss their involvement with erotica on the record, it is difficult to assess exactly how much cable giants earn from it. But Kagan Research estimated that in 2005, cable operators earned about $282 million from adult video-on-demand and approximately $199 million from adult pay-per-view sales, though other researchers have said that the numbers are much higher.

Satellite TV
Satellite television providers are not only competing with other satellite television providers but also competing with cable television providers — and the last thing satellite outfits need is to lack a type of programming that is in heavy demand. Thus it makes good business sense for satellite television companies to offer much of the same adult-oriented programming that cable television companies do. The adult-oriented programming offered by satellite television giant DirecTV, which reported revenue of $4.18 billion for 2006's fourth quarter, has included Playboy's Spice Network and LFP Broadcasting's Hustler TV, and adult-oriented programming also ha been abundant at EchoStar, parent company of DISH Network and DirecTV's main competitor.

Hotel Chains
The availability of adult PPV in large hotel chains in the U.S. has been a major source of frustration to the Christian Right; in fact, Christian fundamentalist and strident anti-porn crusader Phil Burress, who heads the Cincinnati-based Citizens for Community Values, urges the Department of Justice and the FBI to investigate hotel-room porn and would love to see major hotels prosecuted in federal court for distributing obscene material. But as 1st Amendment attorney J.D. Obenberger has pointed out, large hotels have major overheads — and voluntarily giving up adult PPV would be bad for their bottom line. According to some estimates, the hotel industry has been enjoying annual revenue of more than $500 million from adult PPV, which is offered in many hotels in the Holiday Inn, Marriott, Hilton, Sheraton, Radisson and Hyatt chains.

Pay-Per-View
In-room PPV erotica is not only profitable for hotels chains, but also for the companies that supply it, which include the Sioux Falls, S.D.-based LodgeNet Entertainment Corp. and its main competitor, the Denver-based OnCommand. LodgeNet, which reported total revenue of $288.2 million for 2006, and OnCommand are by no means focusing on adult PPV exclusively. Just as Marriott, Holiday Inn and Sheraton offer more mainstream PPV than adult PPV, the vast majority of films that LodgeNet and OnCommand supply to large hotels are mainstream Hollywood films. Nonetheless, adult PPV is a consistent source of revenue for LodgeNet and OnCommand, and giving it up would leave prominent holes in their wallets.

ISP, Broadband
ISPs have made it clear that they have no problem with adult websites being regulated. For example, ISPs have aggressively cracked down on porn spam — which isn't much of a problem these days because the vast majority of adult webmasters have been obeying the CAN-SPAM Act of 2003. But that doesn't mean that ISPs are necessarily against adult sites. Although some ISPs refuse to host adult content on their servers, others appreciate the revenue they get from hosting adult sites. And even the ISPs that refuse to host adult sites have plenty of customers who frequent adult sites. According to researchers HitWise, 18.8 percent of Internet users visit adult sites on a regular basis — and if roughly one in five Internet users are frequenting adult sites, there is no denying the positive effect that adult webmasters have on ISPs and providers of broadband DSL or cable.

Developers, Search Engines
Countless adult-oriented entrepreneurs use Microsoft Word for their word processing needs, and numerous adult companies spend a fortune on various financial, accounting and graphic design software. Adult businesses may even be quick to upgrade to the Windows Vista or Mac OS 10.5 Leopard operating systems. The fact is that web browsers and search engines alone account for a strong link between the mainstream corporate technology world and the adult Internet — Opera, Microsoft's Internet Explorer, Apple's Safari and Mozilla Firefox are among the popular browsers that are used frequently to access adult websites or conduct adult-oriented searches. And that fact is not lost on the Bush administration, which in 2006 angered civil libertarians by asking Google and Yahoo to hand over millions of search records.

Credit Card
Although some adult webmasters have turned to alternative billing methods, credit cards are still widely used to patronize adult websites, many of which use third-party payment processors to handle billing. When adult webmasters make a profit, so do Visa and MasterCard — American Express, however, cut off adult sites altogether in 2000, not for religious or moral reasons but because of chargebacks. Credit card companies profit from different types of adult sites, ranging from subscription sites to sites specializing in the sale of tangible goods, such as sex toys, fetish attire and BDSM equipment. And as adult studios sell more of their DVDs online, as opposed to in brick-and-mortar adult stores where cash sales are still possible, they will likely conduct more credit card transactions.

Mobile
Cellphone erotica isn't as popular in the U.S. as it is in Western Europe, but there is no question that the alliance between adult companies and mainstream mobile/wireless companies continues to grow. According to market analyst Juniper Research, cellphone erotica was worth $1.4 billion worldwide in 2006, and Juniper predicted that the niche will be earning annual worldwide profits of $3.3 billion by 2011. Vivid Entertainment's Steve Hirsch, in fact, has been quoted as saying that cellphone erotica eventually will account for 30 percent of Vivid's business. Bearing such figures in mind, it is a safe bet that mainstream mobile companies' ties to the adult industry will only continue to grow in the future.

Real Estate
Some real estate moguls refuse to sell or rent property to adult-oriented businesses. Streamray Inc./Cams.com's Legendary Lars and VCX's David Sutton, two adult entrepreneurs with a Las Vegas connection, have both said that many Mormons who own real estate in Vegas resent the presence of so many adult businesses in the area. But Joshua M. Kleinman, a Los Angeles-based accountant with adult industry clients, has pointed out that for the real estate people who are adult-friendly — even if they prefer to be discreet about it — doing business with adult companies makes good business sense. Kleinman has noted that the adult film industry brings high profit to realtors in the San Fernando Valley, and in many different parts of the U.S., Europe and Asia, real estate people prosper when they sell or rent commercial property to adult webmasters or sex toy manufacturers. And commercial property that is sold or rented can be used for strip clubs, sex shops, swing clubs or BDSM dungeons.

Banking
The relationship between banks and adult businesses has, at times, been a testy one; back in 1981, New York City-based adult entrepreneur Martin J. Hodas filed a lawsuit against Chemical Bank in a federal district court to keep them from canceling his accounts because of the sexual nature of his material. Now in 2007, banks hardly go out of their way to support upstart adult businesses, which they consider more high-risk than upstart mainstream businesses. Regardless, major banks are making a fortune from the adult industry. All of the large adult companies have bank accounts, and established adult entrepreneurs with proven track records use banks for a variety of services; established adult entrepreneurs have a lot of money to invest in stocks, bonds, mutual funds and certificates of deposit. The current relationship between the adult industry and banks can be summarized as follows: Banks are skeptical of new adult businesses, but if you run an established adult business and have six, seven or eight figures to invest, they are more than happy to make money from your money.


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