The Key to Survival and Success is Diversification

John Stuart
It’s no secret that the economy’s still struggling.

Consumers are squeezing their dollars and as we all painfully know DVD sales have been challenging to say the least. Everyone is in the same boat, but some adult companies are embracing a Darwinian approach and are surviving in 2010 by initiating bold new moves that appear to be working.

In a word, diversification has become the major strategy for staying afloat in this economic storm. Wicked Pictures tested the theory when the firm partnered with “Real Dolls,” branding two dolls with Wicked contract girls Jessica Drake and Elektra Blue, [see A “Wicked” Change for the Better on page 59] and a surprising number of DVD companies are moving into virgin territories. Arrow Productions, for instance, made the stretch to an entirely new market by launching its “Deep Throat Energy Drink,” while AVNS, Inc. dove into the male enhancement pill arena with its “Rock Hard Extreme” product.

“We’ve had to diversify to make up for DVD losses,” explains Kevin, Vice President of Sales at AVNS. “We’ve moved into novelties and the male enhancement market, and we have a new product called “The Best.” The pills are all herbal, so we have no pharmaceutical involvement, and they’re getting a great response. Right now the pills are available through us, but we’re looking to get into much wider distribution. We’re just branching into this market, so we're exploring a lot of avenues outside the adult space, since these products can go mainstream. It’s already a market that’s flooded, since so many adult companies have their own pills, but we spent six to eight months to produce a pill that actually works,” he said.

Another gambit that is working for DVD companies involves novelties and toys.

“I’ve been working for about nine months on our new novelty line, which received rave reviews,” said Farley Cahen, vice president of New Media and Novelty Development at Digital Playground. “In the past, we were dealing with another manufacturer and putting our name on existing packages. This really wasn’t what the Digital Playground owners wanted to represent to the consumers. Today we have a complete line of 22 products that are selling unbelievably well. They’re all new products, not just repackaged with the ‘Pirate’ theme. It’s part of our multi-dimensional approach.”

It’s the “multi-dimensional approach” that Cahen believes is the real key to the phenomenal success of Digital Playground.

“We feel we’re a leader in being adaptive to the changing economy and business landscape,” he added. “We continue to produce extremely high quality, well-written movies. ‘Pirates 1’ and ‘Pirates 2’ are the best selling movies of all time. Our brand is recognized now for putting out great movies that also resonate with women. This is important, and a lot of production companies don’t stay female focused. From that perspective, we have a viewership that many other companies don’t enjoy. If you don’t adapt, you’re going to die.

“Our whole philosophy is to stay ahead of the curve, and fortunately [owner and director] Joone is a visionary. He approaches the adult film industry as the last frontier of truly independent filmmaking. With our inherent channels of distribution already in place, we know our films are going to sell. They’ve been the best selling products on the market for four years,” Cahen said.

The risky damn-the-expense approach of Digital Playground to its films has paid off partially due to their leadership in employing Blu- Ray technology and using the “red camera,” the ultra-high resolution tool used in major motion pictures. More recently, the company has introduced a revolutionary new camera that photographs a 360-degree panorama, allowing users to control what they see.

“It’s like you’re sitting in the middle of the room where three couples are having sex,” Cahen said, “and you get to spin around and zoom in on what you want to see. It’s all in linear time, where one scene is occurring behind you while another is taking place over your other shoulder. It’s like having three scenes in one 40-minute scene.”

Perhaps the single most effective change at Digital Playground has been the decision to bring its entire operation in-house. Nothing is outsourced, according to Cahen.

“This allowed us to develop a whole new site for this past year,” he says. “We’re also developing a number of other sites, and we design them in such a way that the user gets the best experience available. Our tag line is, ‘It’s porn worth paying for.’

“Frankly, everything about our company over this past year has been focused on bringing all operations in-house and developing new revenue channels ourselves. Many other companies continue to outsource things like their web operations, their licensing, their broadcasts, their VODs, and they’re getting checks from all these different places. But they’re not really in control. We decided to take complete control of all of our revenue channels so we can manage our own destiny, which I think is really important in today’s economy.”

Among other achievements, Digital Playground was one of the first companies to take advantage of the mobile arena by launching an adult pay site on the Apple IPhone. It was a move followed by many others, including LFP Inc., (Hustler).

“Mobile was a big part of our business model last year and it’s become a huge part this year,” Drew Rosenfeld, creative director of Hustler Video said. “We’ve really ramped up our mobile content to where it’s become a priority. We actually have days where we shoot only mobile content. In fact, about 90 percent of the content we shoot now is specific to the internet. We have a brand new I-Phone platform that we hope to launch through Apple in the next month or two. Eventually we hope to branch out to other platforms like Blackberry and Droid.”

There are other bold plans in the works, including a step into the 3-D delivery system for Hustler later this year. The company is exploring new technology to find ways to produce 3-D videos inexpensively enough to be afforded by consumers. It’s a step that requires caution, Rosenfeld admitted, since, “After all, there are a lot of customers out there who still watch porn on VHS.”

Rosenfeld also revealed that Hustler is interested in new digital delivery systems that will supplant waning DVDs. “We’re looking at different options for the packaging and delivery of a movie, like USB. But it may be early for that, however,” he said.

Of course, Hustler always has been willing to take chances, exploring new revenue streams and cutting-edge technologies. The firm has its own internet division, plus a cable platform, Hustler TV. It initiated the video parody features that so many companies have copied, and several new Hustler Hollywood stores will open soon. “Hustler is a tremendously diversified company and has been so since long before this economic depression,” Rosenfeld said. “Larry [Flynt] could see it coming, so he made sure we are diversified. We have a casino, and we’re breaking ground on a new casino that will be based in California. In March, we’re launching a toy line that should be very successful.

“Our company is so large that we have enough people to investigate all the potential revenue streams, and to manage them well. That’s the trick, because I guess it would be difficult to manage all that for a small company. We’ve been able to weather the bad economy because we’re a huge company.”

Farley Cahen believes Digital Playground has a similar advantage.

“It’s exciting to be with a company that takes chances,” he says, “and fortunately it’s worked for us. There are some excellent brands out there still, but they’ve lost their edge and their market share due to bad management and lack of vision. I have a lot of friends in the business who are struggling right now, trying to find their way during these tough times. I don’t know that a lot of them are going to survive.”