Threats and Opportunities

Stephen Yagielowicz
The adult entertainment industry has always presented a variety of unique challenges to those who would make it their vocation — including the need for operators to grapple with a confounding conundrum — where today's biggest threats may ironically point the way to the biggest current and future opportunities.

For example, the XBIZ.net year-end poll asks, "Which is the biggest threat to the adult industry?" and offers the following as possible choices: Competition, Free Porn, Piracy, Regulation and The Economy.

While all of these are certainly major issues that are actively threatening the stability of many operations — I'll contend that each is a double-edged sword, which can be used to cut — and not just be cut by...

Poll respondents cite "Free Porn" as the big problem, but that, like "Piracy," puts a too-simple wrapper around a very complex dilemma that is really a matter of evolving the business plan (to include not allowing affiliates to give away all of your content for free).

Remember, broadcast television networks have built empires based upon giving away free content; while free adult sites, TGPs, MGPs and now in their turn, Tubes, dominate surfer preference — demonstrating that the ad- and offer-supported free content models remain viable — but this doesn't mandate a "run a tube selling cams and dating" strategy.

If consumers want free porn, give it to them for free — then figure out how to profit by not charging them for that access (rather than approaching the problem from a simple "without charging them" viewpoint — we're dealing with opportunity here, not "lack").

Subtlety is the key to the difference; and those that unlock this puzzle will profit.

The next greatest threat in the mind of poll respondents is "Piracy" — which is not just a matter of "thieves posting your content to tubes." Piracy also involves counterfeit DVDs, rogue affiliates, P2P networks and community forums — the list goes on and is intimately connected to the issue of Free Porn, in that many consumers do not see any problem in "sharing" something they believe should be free in the first place.

Piracy is certainly a big hurdle to overcome, but a growing number of companies and rights holders are monetizing the situation and increasingly doing so in the court room — and in some cases, perhaps realizing far more profit from judgments and settlements than from unit sales.

"The Economy" comes next as a concern; and while there is considerable debate as to whether it is declining, improving or stagnating, one thing is certain: consumers will use it as an excuse to justify Piracy and a reason to not pay, especially when there is so much Free Porn already available.

Often overlooked in the economic equation is the consumer's ability to pay, not just his desire to — with curtailed credit lines, shredded cards and an increasing number of "scrubbed" card numbers as consumers become familiar with chargebacks, makes for the very real possibility of a customer wishing to buy your porn, but simply being unable to.

But even The Economy can be used to your advantage. For example, swap out some of your unproductive ad inventory in exchange for ads promoting credit repair, mortgage refinancing or other financial services (that allow traffic from adult sites) — you may be pleasantly surprised at the results and unlock one of the major keys to profiting from a free-porn-saturated, piracy-laden marketplace.

A small percentage of poll respondents fear Regulation. This can take the form of everything from higher taxes to condom requirements — both of which will impact the bottom line of many adult entertainment operators and producers. But Regulation is also working in our favor, as a new emphasis on Piracy and content rights is rapidly evolving legislation and providing an impetus to law enforcement efforts. Indeed, the WikiLeaks controversy may also play a role in clamping down "publishing excesses" in Cyberspace.

Consider that rather than "end porn," Regulation may save porn by ending Piracy.

Finally, there is the issue of Competition, which apparently few fear; but they should.

Online adult in particular was built upon a spirit of cooperation — a spirit that is now largely an historical footnote. Several large companies are becoming progressively larger through acquisitions, mergers and dwindling competition; while "the little guy" has little chance on 2011's adult playing field.

Smaller operators, however, do stand a chance of survival and even success — but it will take the ability to see the opportunities in the greatest of challenges and take action. It is a matter of proper planning and competent execution, but threats can indeed become opportunities when handled creatively.