XBIZ: Is adult still recession proof, or has the recession showed that adult entertainment is vulnerable to downturns in the larger economy? If so, do you think adult will see any lasting fallout from the recession?
Michael Klein: I don't think any industry can be completely recession proof and certain areas of adult entertainment are going feel the pinch of the economy just like everyone else. But if you position your company correctly and have a strong diversity in product offerings, you can certainly weather the storm. Some smaller companies are either going to fold or be picked up a larger company looking to expand on its core competencies, but there will be a lot of survivors in this industry. And we have found ways to use the down economy to get people affiliated with our businesses, to promote our properties even more, since they realize that they need to make their projections and adult is the best way to do it.
XBIZ: Another old saw says that adult entertainment is an impulse purchase. If that's true, and many consumers are succeeding in staying those impulses, what can adult companies do to encourage people to continue their consumption of adult content? Should producers be considering process reductions?
Klein: The best way to continue to encourage consumption is to continue delivering top-tier productions and add frequent updates. There is always going to be an appetite and people willing to pay for something that is going to deliver quality and satisfaction every time. Pricing is always a factor and you have to keep that in mind in everything that you sell, but you never want to devalue your product by cheapening it with a deep discount rate.
XBIZ: Can you talk about Hustler's long-term strategy for growth? Assuming you have something like a five-year plan, how far along are you in the timeline and what at this point in time are your grand objectives? Precisely how ambitious is LFP Inc.?
Klein: Fortunately for us our business continues to grow and our profits have continued to increase year after year. LFP continues to look at which businesses have the greatest growth potential and direct more of our attention and resources to them. Like everyone today, we keep all our expenses in check but we continue to look for new opportunities and ways to either grow our existing businesses or enter into new ones that make sense. This could be through acquisitions or by focusing our dollars on better marketing and production. And we also try to stay ahead of the technology game.
XBIZ: How large a role will the Internet play in the continuing evolution of adult entertainment, and of Hustler itself? Obviously, everyone must have an online presence and derive revenue from the Internet, use it for marketing, branding, networking, etc., but how much of the pie will it ultimately be with respect to offline and brick-and-mortar products and services?
Klein: The Internet is very important to us at Hustler and is one of the fastest growing segments at the company. I think it will continue to be one of the stronger ways to deliver content and we are always looking to expand our overall Internet presence into all methods of viewing, whether through new membership sites, improved VOD, dating and live cams sites and increased affiliate marketing tools. Last month, we opened a new studio dedicated to shooting content primarily for the Internet. We recently took our ecommerce business back in-house and it has been one of our better decisions; we are showing strong growth patterns and reaching new levels of marketing that we didn't realize were available for an adult ecommerce site.
XBIZ: Will adult entertainment remain a top-down profession, where professionals make most of the content, or will amateur productions and consumer submissions continue to grow, effectively changing the identity and dynamic of the industry?
Klein: I think it will continue to be a business where professionals make most of the content, even in the area of the so called "amateur" productions shot by major Internet companies that are prevalent on the Internet today. Consumers can try to emulate it but what we have found is that this sort of "fake" reality programming is what people want to see, because whether they believe the plausibility of the situation in the scene or not, they like that it is well lit, has a clever concept and contains good-looking people, and that it is not something shot in someone's garage with bad lighting and the usually unattractive people they managed to convince to be in it. You can use the old line when ranking the type of people usually seen in the true consumer submissions, "The last person you want to see naked is usually the first person who is."
XBIZ: For whatever reasons, Playboy is in obvious trouble, and appears to be for sale. If someone other than a Hefner were to own and run that company, how does that impact Hustler, if at all? Don't these iconic adult brands lose something irretrievable when they no longer have their iconic leader at least symbolically at the helm?
Klein: Playboy's financial troubles started while Hefner was still there, so if they do sell the company and put someone else in his place, if it were continue to spiral down the blame couldn't be laid upon the fact that Hefner is no longer around (and, really, he is always going to be connected to the Playboy brand). In my opinion, the problems there are more related to the overall image of the brand in today's society, in particular, not having one focused direction to ensure consumer confidence in terms of what they are getting. What Larry Flynt has instilled in Hustler is a clear-cut image of his adult entertainment and a quality and brand that has been utilized to its full extent to deliver to the consumer a consistent feel and expectation. It makes it easier to expand our businesses, since we follow his credo of making sure that the Hustler brand name is used correctly and within the same prestige that has been maintained for 35 years. While Larry Flynt is clearly the face of Hustler, he has wisely built a Hustler brand that will continue for a long, long time.
XBIZ: Are you excited about convergence? How will most people watch adult entertainment in two years, five years? Do you think that this interactive haptic technology will take off and be accepted by most people? What developing technologies excite you the most?
Klein: I am excited about the prospects of smart TVs that will be fully integrated with the Internet and allow people to do everything from their big screen TVs, such as email friends, pay bills and choose from thousands and thousands of hours of content. I think somewhere down the road IPTV may have a strong future, but that is clearly a number of years away before we will start seeing real revenue from it. Mobile delivery for adult content will continue to expand and once we have the right platform for North America with true age verification, then you will have a good true revenue stream with all these iPhones and other similar mobile phones that are out now and will be coming out soon.
XBIZ: Assuming that the industry's traditional enemies are in retreat, or on the defensive, and that the culture war will cool down for the next several years, what other pressing issues might keep the adult industry from reaching its true potential?
Klein: You are always going to have politicians trying to make a name for themselves, so you still always have to keep your guard up and make sure that you follow the guidelines of a good legal team. I believe we as an industry have to monitor ourselves and make sure that we are doing all we can to keep minors from viewing our content by using the right warning labels on our sites. In order to prevent any governmental intervention, we need to show the government that we can police ourselves. In my opinion, one of the biggest problems is the adult companies that feel they have to push the level of content far to the edge, just to test how far they can go. You can make content that is sexy and explicit and will satisfy the majority of the consumers seeking adult entertainment without having to test the limits. That just brings down the type of political wrath that affects the industry as a whole.
XBIZ: What is the next great creative leap in adult entertainment? Will it come from some creative mind or as the result of a technology breakthrough?
Klein: The wonderful thing is that there are always people out there looking to explain the marvels of technology, and one of the fortunate things with having such a strong brand as Hustler is that we usually are one of the first places that people go to with their new inventions, since the feeling they have is that if they have us behind them, there might be more acceptance by the rest of the industry. We try to look at everything and have some now that we are testing to see if they are viable, and I am sure that more great new technological breakthroughs are on the horizon.
XBIZ: How is Michael Klein enjoying his time in adult? Hasn't it been about five years now? Is it everything you imagined it would be, or more?
Klein: It has been slightly more than five years since I joined Hustler and I have to say that I have been enjoying myself immensely. I really enjoy the people in this industry because of all the openness and respect that develops even among companies that are competing for the same consumer dollar and the willingness to share information. Clearly, a refreshing way to do business that you just don't expect coming from the mainstream side, not to mention all the strong friendships I have developed with people I have met in the adult industry. And of course, the continuing opportunity to learn from someone like Larry Flynt is a true bonus to the job.