educational

Going Public

From computer technology to pharmaceuticals to fast food, publicly traded stock is the norm for a wide variety of industries. But there is one industry in which publicly traded stocks are the exception instead of the rule: adult entertainment.

Erotica providers are not absent from Wall Street altogether. Playboy Enterprises, New Frontier Media (based in Boulder, Colo.) and the Barcelona, Spain-based Private Media Group (which is the largest adult film powerhouse in Europe) are among the adult-oriented companies that have been publicly traded, but the vast majority of adult entertainment outfits have not.

XBIZ contacted some allies of the industry — including 1st Amendment attorney Lawrence G. Walters; accountant Joshua M. Kleinman, of the firm Solomon, Winnett & Co.; and investment adviser Martin P. O'Malley Jr. — to discuss the reasons why publicly traded adult companies are such a minority.

Los Angeles-based O'Malley, who heads his own company, Plan B Investments Inc., and is a member of the National Association of Security Dealers (NASD) as well as the Free Speech Coalition, told XBIZ: "People in the adult industry like marching to the beat of their own drum. The owners of the companies tend to be the sort of people who don't like having a boss; they don't like working for someone else. And when you become a publicly traded company, you have to report to someone else; you have to report to shareholders. You have to have certified audits; you have to have annual reports. You have to give public access to your books, and I just don't think that sits well with a lot of people in the adult entertainment industry."

Walters offered a similar description of adult-oriented entrepreneurs.

Libertarian-Oriented
"For better or worse, the adult industry is made up of a bunch of entrepreneurs who are very free-thinking, individualistic and libertarian-oriented," he said. "They tend not to like a lot of structure, and none of that harmonizes well with being a publicly traded entity, which has to be very meticulously run and must adhere to a series of rules, disclosures, regulations and reports. All that kind of stuff is very antithetical to the typical adult industry entrepreneur, who tends to be more of a creative, fly-by-the-seat-of-the-pants person who is willing to take a lot of risks."

Los Angeles-based Kleinman, who has both mainstream and adult clients, cited a desire to "fly under the radar" as one of the main reasons why he thinks most adult businesses are in no hurry to become publicly traded.

"What would dissuade an adult company from going public is knowing that a lot more people are going to be looking closely at you," Kleinman said. "Based on what I have seen, people just want to keep a very low profile in the adult industry. There are some flamboyant and outspoken adult directors and talent out there, but they're promoters of the industry to begin with, and some of the more savvy business people who are really profiting from the industry are very behind-the-scenes. You don't know who they are, and they don't want you to know who they are. I would think that if you asked a lot of adult companies whether or not they wanted to go public, the majority of them would say, 'Absolutely not.'"

Kleinman estimated that only 1 percent of adult entertainment companies are publicly traded — maybe 4 percent or 5 percent at the most.

While Plan B's O'Malley said he understands the reasons why most adult-oriented businesses are not publicly traded, he also believes that more public trading of adult entertainment companies could be beneficial for the industry as a whole.

"More public trading of adult entertainment companies would draw more people into the adult sector," O'Malley said. "By purchasing stocks and becoming shareholders in adult companies, people are owners, albeit very small percentage owners, of adult entertainment companies — thus making adult entertainment more mainstream."

O'Malley has first-hand knowledge of how strong the stigma against adult entertainment can be. In the past, before he started Plan B Investments, the San Fernando Valley, Calif., resident worked for some investment firms he said prohibited him from pursuing clients in the adult entertainment business and from being actively involved.

But O'Malley's enthusiasm for the industry was strong, and starting Plan B gave him the freedom to pursue as many adult-oriented clients as he wanted.

Walters pointed to politics as a reason why having more publicly traded adult companies could be advantageous for the industry. American voters, Walters said, may be less likely to vote for politicians who stridently attack the adult entertainment industry if they have more of a financial stake in it.

"If you have a publicly traded company and the investors are doing well and they're receiving dividends, and the price of their shares is going up and up, they're going to want to protect that investment — and they're going to be much less likely to vote in ways that will harm that investment," Walters said. "That's true with any investor in any company. If you have somebody investing in an oil drilling company, you're going to be more likely to vote for the folks who favor more oil drilling. Right now, there aren't many publicly traded adult companies, but if public trading were to become more common in the adult industry, it could only help the industry from the standpoint of having more and more supporters who would have something to lose in the event of a government crackdown and having more people who were willing to stand up for the industry and protect their investment."

But Kleinman doesn't believe that being publicly traded would necessarily shield adult companies from political attacks.

"Being publicly traded certainly hasn't done anything to help the tobacco industry," he noted. "If the public gets into an uproar about something, they don't care if you're publicly traded. They don't care how much money you have. The tobacco industry got crushed because there was such a public uproar."

The Scrutiny of the S1
Kleinman is not a proponent of more adult companies becoming publicly traded since most adult entrepreneurs are much too privacy-loving to subject themselves to the intense scrutiny of an S1 audit, which is needed to become publicly traded. Kleinman stressed that if adult companies are seeking investors, there are plenty of private investors who are quite happy to invest if they think an adult-oriented entrepreneur has a smart business model.

"If an adult production company is seeking investors, they don't have to go to Wall Street," Kleinman said. "There are very good attorneys and accountants in Los Angeles — in the San Fernando Valley — who can guide you to untapped capital markets, which are generally wealthy individuals who will say, 'Sure, I have $100,000 or $200,000 lying around that I would love to invest with you.' And if an adult production company finds that type of private investor, they can keep things nice and quiet and tidy. Here in Southern California, there is a ton of money; there are plenty of people looking to invest in the adult industry, but they're looking to invest privately."

Copyright © 2024 Adnet Media. All Rights Reserved. XBIZ is a trademark of Adnet Media.
Reproduction in whole or in part in any form or medium without express written permission is prohibited.

More Articles

opinion

To Cloud or Not to Cloud, That Is the Question

Let’s be honest. It just sounds way cooler to say your business is “in the cloud,” right? Buzzwords make everything sound chic and relevant. In fact, someone uninformed might even assume that any hosting that is not in the cloud is inferior. So what’s the truth?

Brad Mitchell ·
opinion

Upcoming Visa Price Changes to Registration, Transaction Fees

Visa is updating its fee structure. Effective April 1, both the card brand’s initial nonrefundable application fee and annual renewal fee will increase from $500 to $950. Visa is also introducing a fee of 10 cents for each transaction, and 10 basis points — 0.1% — on the payment volume of certain merchant accounts.

Jonathan Corona ·
opinion

Unpacking the New Digital Services Act

Do you hear the word “regulation” and get nervous? When it comes to the EU’s Digital Services Act (DSA), you shouldn’t worry. If you’re complying with the most up-to-date card brand regulations, you can breathe a sigh of relief.

Cathy Beardsley ·
opinion

The Perils of Relying on ChatGPT for Legal Advice

It surprised me how many people admitted that they had used ChatGPT or similar services either to draft legal documents or to provide legal advice. “Surprised” is probably an understatement of my reaction to learning about this, as “horrified” more accurately describes my emotional response.

Corey D. Silverstein ·
opinion

Free Agent Auteur: Casey Calvert Expands Her Directing Horizon

Now, having brought that highly-awarded polyamory trilogy to a close, Calvert is concluding the exclusive Lust Cinema directing chapter of her career and charting a new course out into open creative waters as a free agent.

Alejandro Freixes ·
profile

WIA Profile: Holly Randall

If you’re one of the many regular listeners to Holly Randall’s celebrated podcast, you are already familiar with her charming intro spiel: “Hi, I’m Holly Randall and welcome to my podcast, ‘Holly Randall Unfiltered.’ This is the show about sex, the adult industry and the people in it.

Women In Adult ·
trends

What's Hot Now: Leading Content Players on Trending Genres, Monetization Strategies

The juggernaut creator economy hurtles along, fueled by ever-ascendant demand for personality-based authenticity and intimacy — yet any reports of the demise of the traditional paysite are greatly exaggerated.

Alejandro Freixes ·
opinion

An Ethical Approach to Global Tech Staffing

One thing my 24-year career as a technologist working to support the online adult entertainment industry has taught me about is the power of global staffing. Without a doubt, I have achieved significantly more business success as a direct result of hiring abroad.

Brad Mitchell ·
opinion

Finding the Right Payment Partner

Whenever I am talking with businesses that are just getting started, one particular question comes up a lot: “How do I get a merchant account?” It’s a simple question, but it has a complicated answer.

Jonathan Corona ·
opinion

The Taxman Cometh for Every Business

February may be the month of romance, but it is also a time when we need to think about something that inspires very little love: taxes. April is not far away, and the taxman is always waiting. This year, federal and most state income taxes are due Monday, April 15.

Cathy Beardsley ·
Show More