Core Product, or Loss Leader?

Q. Boyer

Since re-joining the ranks of the self-employed back in June, I’ve been spending a lot of time talking with adult business owners about the state of the market, and more to the point, the state of their own enterprises. I’m sure it will come as no surprise to anyone reading this column that their assessment of the adult entertainment market is not an encouraging one.

Traffic from virtually all sources has declined, they report —in particular from affiliates and search engines, two sources that were crucial in building and sustaining profitability. The traffic they do receive doesn’t convert reliably, not just when compared to the good old days of the late 1990s, but in comparison to recent years, as well. The list of woes goes on and on, and it’s driving a downward spiral of spending cuts, staff layoffs, reduction in ad buys, and virtually every other outlay that they once considered indispensable and inevitable costs of doing business.

The transition to a new revenue model is not to be taken lightly, and it’s not just a matter of swapping out adult ads for mainstream ones, but it’s also not an insurmountable task.

The various causes of the industry’s sales decline have been debated at length in industry publications, on webmaster message boards and during trade show panel discussions. Rehashing those debates serves little point; whatever the cause of the decline, what’s relevant at this point is what adult businesses can do to reverse, or at least offset, losses they have experienced in revenue from the direct sale of content, be it through a subscription adult site, a video-on-demand platform, or the sale of physical media products.

For those who cherish the memory of earning solid profits from the direct sale of adult content, there’s a sad possibility that needs to be considered: the days of driving substantial revenue through content sales alone may be behind us. To be sure, there are still companies making good money from content sales, just as there has been a body of enterprises that have continued to flourish in other entertainment and content markets that have suffered in recent years, like the recording and motion picture industries. The existence of such exceptions does not prove that any given market sector is healthy, however; it merely shows that in a contracting market, revenue often consolidates in a direction that mirrors the relative market share owned by these exceptions to the rule.

So, how does a company that has hitherto earned its bread on the strength of direct content sales respond to a market wherein its content’s value has descended to near zero as a matter of consumer perception? The company has to adjust its orientation to the market, and consider the possibility of treating adult content as a loss leader, a magnet that draws consumers in, and focus on deriving revenue from other goods and services that the company offers.

This is, in essence, what a lot of tube site operators have done — and in doing it largely with content that they didn’t pay to produce in the first place, they are offering a loss leader that really didn’t involve much cost to them, other than the bandwidth consumed by all those millions of video views. In monetizing traffic by advertising products like dating sites and live cams, tube sites have established an ad-supported revenue model that undermines the value of one manner of adult content, while trading on the sustained value of others.

In the months and years ahead, adult content producers will need to consider doing the same with their own content – using it as a draw to bring in eyeballs, and then relying on exposing consumers to products other than content to generate revenue and ROI on the cost of producing the content in the first place.

I’m not saying that content producers need to launch their own tube sites (many already have), or that they should follow the tube site model down to the letter. The market will only support so many tubes, and the same marketshare dynamics that have strangled subscription sites will limit the success of new tube site operators, as well. In other words, until or unless existing tube sites lose some of their marketshare, it’s unlikely that newly launched tube sites will grab much of their own.

The market has clearly shown that free adult content is something that users respond to; the real challenge is in figuring out how to monetize the traffic obtained through the offer of free content that goes beyond the methods already being employed in the adult market. Just as the market cannot sustain an infinite number of tube sites, if every tube site promotes the same dating and cam sites, this will just create market saturation for those properties, as well.

The key might lay in parlaying the increasing social acceptability of porn into relationships with mainstream brands, sites and manufacturers. Adult surfers are not monomaniacal in their interests; they purchase, consume enjoy just as wide a range of products and services as do the visitors to the Huffington Post. It’s a matter of finding an efficient and effective means of exposing adult site visitors to mainstream ads —and the possibly trickier matter of finding mainstream advertisers willing to accept the traffic.

The transition to a new revenue model is not to be taken lightly, and it’s not just a matter of swapping out adult ads for mainstream ones, but it’s also not an insurmountable task.

To be clear, revenue from branching out into mainstream avenues will not magically save the adult entertainment industry, or prevent the collapse of many business that are already struggling. Many companies will try to branch out and fail. Others will find measured success, but not enough to obviate the need to make hard choices about how and where they spend their money, and the even harder decision to cut staff as part of their belt-tightening.

What expanding into mainstream avenues might do is give those who try it a fighting chance to establish a revenue stream to supplement, or even supplant, its currently declining gains from content sales. Unfortunately, in the current market environment, a fighting chance just might be as much as many adult industry entrepreneurs can hope for.

A 16-year veteran of the online adult entertainment industry and long time XBIZ contributor, Q Boyer provides public relations, publicity, consulting and copywriting services to clients that range from adult website operators to mainstream brick and mortar businesses.