trends

Where Are Micropayments Going for Adult?

Alex Henderson

Micropayments have become increasingly prominent in mainstream e-commerce. Apple’s iTunes model has changed the way music is consumed, helping to create an entire generation of youths who would rather download individual songs than purchase entire albums.

And with micropayments having become so widespread in mainstream ecommerce, many people in the adult entertainment industry have been weighing the pros and cons of implementing micropayment models for erotica.

Studies have shown that an increasing number of consumers are more willing to pay for digital objects in incremental payments rather than shell out large sums for subscriptions.

The adult website membership model made countless webmasters rich, and when consumers are billed every month for access to content, that is a recurring profit steam — even with fees for transactions.

Micropayments, however, can be sporadic, making fees a tougher pill to swallow. Mitch Farber, founder and CEO of NETbilling, noted that with credit card sales, micropayments can be cost-prohibitive for adult webmasters because of the fees.

Nonetheless, the demand for micropayments is showing no signs of decreasing in e-commerce — and some adult companies have responded by offering micropayment options. One example is CFSelect.com, the gay-oriented Corbin Fisher’s micropayment site. VendContent.com, an ecommerce video platform that debuted in early 2014, has been offering adult webmasters a micropayment option for their content.

Cathy Beardsley, president and CEO of SegPay, asserted that webmasters will need to find ways to make micropayments profitable despite the challenges. “Studies have shown that an increasing number of consumers are more willing to pay for digital objects in incremental payments rather than shell out large sums for subscriptions,” Beardsley observed. “This seems to be the model of success for the gaming market and can be translated to adult program owners. I believe the adult market will head in this direction, provided program owners are able to turn the micropayment into a larger purchase or longer term membership. The use of a wallet or some form of tokenization for purchases would definitely help the cost of handling micropayments.”

The fact that micropayments are so popular in mainstream e-commerce doesn’t necessarily make them as profitable as older sales models. For example, CD sales are way down in the music industry while downloads of individual songs are way up — and there is a lot more profit in selling an entire CD than selling two or three of an album’s songs as digital downloads. And like the music industry, the adult entertainment industry is looking for creative ways to adapt to the micropayments model.

“Micropayments provide a great way for a consumer to take a snippet of content without much risk or cost,” Beardsley explained. “For webmasters, hopefully, that snippet will turn into much bigger purchases or membership in the future. A big disadvantage to adult companies is from a cost perspective.

The premium applied by acquirers for high-risk adult transactions makes it very difficult to process a very low one-time micropurchase. The key is to bundle multiple purchases into a single checkout or set up a token-based checkout where consumers are loading an account and then using a simple EZ click checkout to make small micro-purchases.”

According to Farber, selling blocks of electronic tokens may be one of the possible ways that adult webmasters can make micropayments more profitable. The tokens, Farber said, could be used for a micropayment now and additional micropayments later. But Farber said that while that approach works well with “loyal purchasers,” it doesn’t work well with a new customer or an inconsistent customer who is not willing to commit to future purchases.

Asked to identify some of the steps that online adult companies will need to take to make the micropayments model profitable for them, Beardsley replied: “Creating programs in which consumers can bundle smaller or micro-purchases to a larger single payment or convert the micropurchase to a bigger purchase or membership down the road. We have a very successful client with a cam program that has used this strategy to build their business. They focus on acquiring consumers through lower price point sales and turning those consumers into customers that make bigger purchases or set up long-term memberships.”

The ICM Registry has had a micropayment system in the works for .xxx sites. In June, ICM CEO Stuart Lawley told XBIZ that the system would be “like iTunes meets PayPal.” But the company declined to comment on any specific plans for 2015.

Gary Jackson, managing vice president of sales and Internet markets for CCBill, said that adult companies offering micropayments in multiple countries will need to be flexible when it comes to a country or region’s billing preferences. “The best option for a business is to test payment types, either from one provider or from multiple providers, to know the market,” Jackson explained. “A few trickling sales compared to the effort to market to a specific market may not make business sense, and you should be able to adapt quickly to the changes.”

Octav Moise, CEO of Paxum, noted that companies need to keep alternative billing methods in mind when it comes to micropayments. “Throughout 2014,” Moise observed, “alternative payments and mobile billing have continued to experience worldwide growth in all markets, including the adult industry.”

Offering micropayments as an option doesn’t necessarily mean that an adult company is giving up on the membership / subscription model.

Jason Gibson, Corbin Fisher’s founder and CEO, has stressed that CFSelect.com is meant to “supplement” its core site, not replace it. And many of the webmasters who are offering micropayment options are hoping that if consumers like the content enough, they might decide to upgrade to a monthly subscription eventually.

“How and why an adult merchant would use micropayments is very similar to the mainstream merchant,” Beardsley emphasized. “At the end of the day, it all comes down to which merchant has the lowest cost structure to support micropayments and a program that can convert those small purchases into larger, more profitable purchases down the road. Adult webmasters that can utilize this sales strategy will have the most success.”

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