XBiz News: 07-24-03

Stephen Yagielowicz

This week’s XBiz News looks at banking issues and online porn, Overture and their strengthening in the search market, and the uproar over teens and p2p porn sharing...

Humboldt Bank Nixes Porn
According to Seth Lubove, Forbes magazine West Coast bureau chief, Humboldt Bank was until recently one of the three domestic banks that processed transactions for online adult merchants. While the bank's porn industry involvement wasn't illegal, it was “distasteful” said Pat Rusnak, CFO for Humboldt Bancorp, the bank's holding company, which partly because it wanted out of the porn business, recently sold out its merchant bankcard division.

According to company president Ken Musante, Humboldt Merchant Services, the new company formed after the sale, still services around 100 ‘adult’ merchant accounts, however, the bank has stopped accepting any new adult-oriented merchants, and will let existing accounts expire. “Up until April of last year, the portfolio was content agnostic; we didn't care. If it was a legal product and they met the credit criteria, they were accepted. But at that time we said, from a reputation standpoint, it's probably appropriate that we have some content control.” said Musante.

While excessive chargebacks played a role in the bank’s decision, it was not the only factor. “That was one of the reasons. We looked at it more in terms of the overall risk,”" said Rusnak. “Certainly chargebacks are one of the direct risks, but another risk was the reputational risk. We did not feel that, even though as a national business it was pretty successful and profitable, it was a business we wanted to be in… At the end of the day what we did wasn't necessarily illegal, though it may have been distasteful… It felt much better being able to tell Seth, ‘We got out of that business.’”

An Overture to Reckon With
The 2003 Overture - it’s not an unknown work by Tchaikovsky but a rampant upswing in the paid for placement search engine’s financial outlook. Reporting better-than-expected revenues for the second-quarter, Overture is signing up more advertisers who are willing to pay for top placement in search results.

With a reported $7.6 million, or 12 cents per share, second-quarter net income on revenue of $265.3 million, the company stunned analysts who had predicted the company’s earnings at around 6 cents per share, according to forecast tracking service First Call.

While Overture has recently focused on international expansion and developing new advertiser services, the company attributed their sales boost to the growing number of “paid introductions” (their term for the number of times surfers have clicked on an advertiser's listing), and the increasing price that advertisers (which now number around 95,000 - a claimed 42% increase over last year) have been willing to pay for those introductions. These listings currently average 40 cents per “introduction,” which is up from 30¢ this time last year, and up from 37¢ earlier this year.

According to Overture Chief Ted Meisel, “Our second-quarter results provide clear evidence that we continue to drive the core business while rapidly transforming Overture from a one-product company to a multi-product enterprise operating successfully on a global scale…”

This latest earnings announcement comes just after Yahoo! declared it will buy Overture for $1.63 billion, shifting Yahoo! from one of Overture’s portal and search partners to a heavyweight player in search-based advertising services.

Teens Sharing Child Pornography
There’s a new hysteria being promoted over peer to peer file trading: it is an easy way for children to access porn online. Falsely claiming that “teens and young children are being targeted in a new battle-tactic of the pornography industry,” certain activists are using porn in an attempt to vilify the peer to peer movement.

Avoiding the issue of copyrighted music, and the freedom to download and exchange files, the presumably ‘outraged moms’ are clamoring over what they see as “a new and far greater problem than the illegal trade of music” and demanding closure of the P2P networks on the grounds that they allow unsupervised children to download porno pics and videos - including child pornography - while creating a haven for pedophiles.

The House Committee on Government Reform and the General Accounting Office conducted a study in March of 2003 and found that not only is pornography widely available and accessible on P2P networks, but that children using P2P networks can inadvertently be exposed to porn, and that the software filters used by parents wishing to protect their children “have severe limitations.”

Searching Kazaa using a dozen keywords commonly associated with porn, the GAO discovered that 76% of the search results’ titles and file names were pornographic, and that 42% represented ‘child pornography.’ When the term “porn” was searched for, 25,000 porn files were found, proving the easy accessibility of porn via P2P, even by children.

The Henry J. Kaiser Family Foundation conducted a study in 2001 that revealed 70% of children between the ages of 15-17 claim to have stumbled across porn online, resulting in an “upsetting experience” for 49% of those exposed to such content. Young girls were most likely to become upset, with most thinking that online porn is a serious problem.

While I would be interested in knowing how many of my tax dollars went to discovering the fact that typing the word “porn” into a search engine would yield links to adult materials, I am relieved that it was simply a case of private funding that led to the discovery that ‘young girls’ find graphic sexual images ‘disturbing.’

And speaking of funding, call me cynical if you wish, but I can’t help but feel the hand of the RIAA behind the latest wave of uproar over porn mongers luring children astray through the seductive powers of Kazaa, et al. Because if you can’t quite convince congress to ban something that so many of the people clearly want for themselves, then convince them that it’s the only way to protect the children - then see how long your free Metallica downloads last…

Stay tuned for more news next week! ~ Stephen