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Live and Kicking

Sam Williams
When Greg Clayman launched the Internet video company VS Media in 1996, the average American male had a better chance of seeing live sex performed in the Oval Office than over the Internet.

Nine years later, thanks to streaming video, near-ubiquitous broadband connectivity and the ever-expanding versatility of the typical personal computer, scoring a little discreet action in the workplace or home office is no longer a privilege reserved for those with a standby 747 and their own Secret Service detail.

How's that for progress?

"Our original system was modem-to-modem, and you needed to download a program to make it all work," says Clayman, looking back. "Now it's all Java, and it's all web-browser based. You don't need to download anything."

Technological advancements aside, the social and economic changes that have shaped the live Internet video marketplace have been equally profound. Overseas outsourcing, globalization and market segmentation have combined to turn the once-intimate relationship between performer and viewer into a complex orgy of channelers and distributors. Indeed, some entrepreneurs see the technology as almost an afterthought, a way to attract the small percentage of Internet users who aren't already cruising Google for the next live sex offering.

Changing Business Model
"For us, the business model has changed more than even the technology," Legendary Lars, president of the Las Vegas-based Streamray Inc., said. "In the early years, it was really difficult to find models. In recent years, it has become a lot easier."

Lars attributes the change to the evaporation of trade and communication barriers between the first world, where most of Streamray's customers reside, and developing markets such as Eastern Europe and Asia. In the past five years, Streamray has followed the lead of most U.S. software companies, recruiting top-level talent in low-cost labor markets. The company currently boasts a roster of more than 200 models, many of whom live in the former Soviet Bloc and can get by on lower per-session rates. The typical Streamray session costs $5 but varies from $2 to $9 depending on the model quote. Out of those $2, the model takes 70 cents and the third-party webmaster takes 50 cents, leaving 75 cents for Streamray.

Although the webmaster cut is smallest, most live-video entrepreneurs agree that webmaster affiliate programs have become the make-or-break component in any live-video business model. Web affiliates are not only Streamray's dominant source of traffic, they're also a major source of intelligence. Lars puts the total number of incoming website links at 5,000 and likens the speed and savvy of the web partner community to the "many eyes" phenomenon that keeps news bloggers and open-source software developers a step ahead of their corporate world counterparts.

"You basically gain the brain power of thousands of people working for you, figuring out how to sell your product the best," he says. "If you were trying to do all the same marketing work yourself, you'd be spending thousands of man hours just to come up with the same concepts."

To some live video companies, webmasters have replaced end users as the true target audience. Channel 1 Releasing, a production company that specializes in gay content, handles up to 20,000 viewers per day thanks to a 100 member web affiliate network that includes popular gay porn sites such as Bedfellow, Badpuppy.com and Python.

"We really are targeted toward the experienced webmaster that wants to put out a high-quality feed," says Tony Rios, chief technology officer for Channel 1 Releasing.

To sharpen that focus, the company has put its own corporate focus into branding and unique forms of video delivery. The company has partnered with drag queen-slash-porn director Chi Chi La Rue, supporting the self-branded site ChichiLaRue.com and the coproduced LiveAndRaw.com. In the case of the latter site, Chi Chi supplies the artistic talent and marketing muscle, thus freeing up Channel 1 Releasing's technical staff to fine-tune special "enhanced" features such as full sound and high-definition video. Looking beyond the personal computer platform, the company is currently investing in proprietary software that will format its video sessions for the coming generation of video-enabled cell phones and Sony PlayStations.

"The majority of our customers are going to be connecting to us via broadband," Rios says.

The amount of spare traffic, on the other hand, is shrinking. Under the old pricing regime, Channel 1 Releasing paid webmasters a bulk rate of $1,000 for every 3,000 visitors. To keep webmasters honest, however, the company held off on cutting the first $1,000 check until affiliates crossed the 3,000 threshold. In 2004, fearful that the company was losing out on a chance to win over hungrier, more aggressive startup sites, the company decided to modify its payment system to a straight commission model that pays webmasters from the first relayed visit.

"Webmasters really can't afford as much as they used to be able to afford," says Rios, noting the thinner margins on the retail side of the business. "It's forcing us to embed other ways into our product to be able to support itself."

VS Media's Clayman, however, sees a risk in focusing on web affiliates' concerns over the end user's concerns. For that reason, his company's newest site, FlirtForFree.com, has made a point of partnering up with high-end talent sources such as Vivid.com and ClubJenna, and with brand name stars like Tera Patrick and Ron Jeremy.

"Our goal is the highest quality to satisfy and keep the end users coming back," he says, "because if the end user doesn't come back, the webmaster probably won't make as much money."

Celebrity Chat Sessions
Such celebrity-related chat sessions certainly cost more than a typical video chat session but require less effort to promote. This in turn helps VS Media avoid the aggressive marketing tactics that tend to chase off return visitors. Where some chat sites cross market the chat models' latest movies or club appearances to waiting patrons, VS Media follows a strict policy that says incoming traffic belongs to the referring site and can't be used for promotional or traffic monetizing purposes.

"We made that decision a long time ago," Clayman says. "If you work hard to get that traffic to us, that traffic should remain yours. In fact, we're still writing checks to webmasters who aren't even in the business anymore because of that policy."

Looking forward, Clayman sees the current concern over stricter enforcement of federal law mandating model age documentation, or 18 U.S.C. § 2257, as opening up yet another opportunity to strengthen web affiliate relationships. The Bush administration's recent amendment to the 15-year-old law would diminish the current "safe harbor" indemnity, driving much of modern e-commerce by making webmasters who merely relay users to a live online sex site equally liable in the event of faulty record keeping.

What's more, the unscripted nature of live adult entertainment adds to third-party webmaster risk should future re-reading of the law come down the pike.

To counteract such concerns, Clayman says his site took to publicizing its own policy recording each model's session. He describes the publicity as a both an insurance policy and a way to distinguish his product from other sites that have yet to develop their own, more aggressive monitoring policies.

"Everything we're doing within our power is to make sure we're still here, paying out in 10 years," Clayman says. "That's how we built our business, and that's why I'm still writing checks to people who don't even have websites anymore. As long as that customer you sent us keeps coming back, we'll be sending you a check."

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