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In the final segment of the XBiz Exclusive interview with the founders of Video Secrets, XBizLori focuses on content and distribution, the booming international market, and what is expected down the line with patent holder Acacia.
XBizLori:
What do you think about the international adult industry?
Chuck:
England has always been one of our best. In my heart of hearts, I always hope and wish it would be the German market. That’s the biggest European market. They are huge. We have some friends in mainstream business that run public companies and it's their biggest market. The problem with that country is the language barrier. They really want their content localized and we are working on those things. One thing I've heard a lot about is Asia, but I think that’s going to be a jungle. That will be like bringing South America into the fold. Greg says England. I agree. England has always been a good market for us. But as far as emerging, Germany is a huge market.
Greg:
I think Asia is really an untapped market, just like Chuck said. If it all comes together nicely it could be a tremendous marketplace. So we are gearing up, we're buying time pages in multi-languages and other things to be able to try to keep the content as centralized or as localized as the consumer.
XBizLori:
What is the biggest risk for people who take on the Internet as a platform for content?
Chuck:
That’s an easy one. It’s copyright infringement. You've got to be careful about who you are buying your content from. You've got to be careful where you are putting it. Intellectual property rights are huge. We all know that it’s been like the Wild Wild West out there. You are starting to see companies and individuals go out and enforce their copyright issues with other people. The other thing would be obscenity, but I think smaller populations of people delve in that type of kind of gray area.
XBizLori:
Do you feel like the online industry has hit a saturation point, or do you feel that there is still growth potential for newcomers and if so where?
Chuck:
I think there is still potential. I think I reached a saturation point about three and half years ago when we'd go to a trade show and people had booths the size of condominiums and you didn’t even know what they were selling, they didn’t even have a product to sell. Saturation. I don’t think there will ever be a day in this industry with any kind of regulation in place, where an 18-year-old kid who is really good at computers can’t figure out the newest way to get a lot of traffic and manipulate some existing technology or some kind of marketing technique to make a lot of money.
Greg:
I feel a little bit of a split thing. I feel that the membership business is a little bit peaked, meaning that there are probably 100 if not more different websites that are professionally run. Probably great websites for probably every niche you could find, that you could join. The video side though still has a lot of ground to gain, whether it’s live video or recorded video. To give you a great example, I’ll give you Paris Hilton. It’s just a video right? But yet it stirred a whole big thing where people wanted to watch it. Live video. People still want to watch it because it’s interactive. So I think that video is definitely not as over-saturated as the website market, and I think that video has a lot more room to grow.
Chuck:
In the website market what you’ve seen is a lot of companies that have some kind of specialized sites. It’s not just that big mega Wal-Mart site that you can get at any one of the 10 biggest affiliates. Now you get certain specialties like ebony sites, Latina sites, and fetish sites. It’s becoming a little bit more targeted. I think content is getting a little stickier on the website part of the business. But like Greg said, you are talking about 1 percent that are making the adjustment, or maybe 5 percent tops. The rest of them are just replicating what everybody else does and it's really hard to separate yourself. What’s the difference between going to this site or that site when in fact what you are selling is pretty much the same thing?
XBiz Lori:
Do you have any offline ventures?
Greg:
As a matter of fact we do. We have a few things. One is that we sell our content to cable. I’d rather not mention to which cable channels, but you will definitely see us on late night cable television outlets that we use, or should I say "non Internet outlets."
The other is a line of DVDs that we are going to be coming out with in conjunction with another major DVD/VHS company that has been around for 25-30 years. They are going to take our content and make it into clips, snippits, and so forth of all the best of Video Secrets. So yeah, we are branching out and constantly looking for different ways to diversify this company.
XBizLori:
When do you project your DVD venture to begin?
Greg:
We are hoping to have our first one or two of the series out by the show in Florida, which would be in August. Why would we be bringing it there and debuting at an Internet show? We probably will just bring a few to hand out to people. That’s when it will hit the streets and go across America.
XBizLori:
What distribution channels are you going to have? Are you using retail or Internet ordering?
Chuck:
The full gambit.
Greg:
That’s why we are working with a company that has 25 years of embedded distribution channels. We can make the content. We can contribute that as part of the DVD. What they will contribute is the distribution, packaging, the order of fulfillment.
XBizLori:
I want to talk a little about IMPA. Greg can you enlighten us a little bit on that?
Greg:
IMPA is a nonprofit organization that addresses what we feel are the most current and pressing issues of doing commerce on the Internet today. It doesn’t necessarily revolve around adult, but rather the adult players. A lot of adult players are involved in IMPA, which is separate from the joined defense group that is involved with Acacia.
IMPA is what we call an ethical body of people who do Internet commerce, and our goal is to lay out a code of ethics that we would like everyone to follow. So if someone does come in and say they want to regulate the Internet, we can already show them what we’ve done. We have done everything from create bylaws that include no spamming, to best practices for record keeping of 2257 information, what legal lease notices should be in place when someone is signing up, what the email process should be, to video encoding.
So we are really just trying to set aside a body that is able to deal with Internet commerce issues, especially the pressing issues we have at hand that we feel no other organization out there is as concerned about as IMPA. So if something comes up, whether it be copyright infringement that we were talking about earlier, then we’ll set up maybe a subcommittee or a completely separate organization for just that particular issue.
XBizLori:
How does that relate or differ to the Free Speech Coalition?
Greg:
That is a great question. The Free Speech Coalition is a great organization. They primarily deal with free speech and First Amendment issues. With IMPA, although we do deal with some First Amendment issues, we deal much more with Internet ethics, computer ethics, what should be shown on the inside verses the tour pages and the outside websites, what should be shown for free and what should be put behind some sort of age verification wall. These are things the Free Speech Coalition doesn’t touch upon. They are traditionally made up of video companies that are looking at the First Amendment and free speech issues. We are big proponents of the Free Speech Coalition. However, there are a lot of issues that they do not cover and that we felt we had to cover like Internet commerce issues.
XBizLori:
Let’s talk about Acacia and its effects.
Greg:
I think everyone knows that Acacia is claiming that they own all the rights to the process of streaming and the way MP3s are transferred and listened to, as well as all video. I personally do not believe this. I do not buy into this. They asked us to either settle or go to court. We have excellent legal counsel and we are going to fight this with them until the end. I can say right now that we have four Markman Hearings. The Markman Hearings are really to tear apart the different patents so that the judge can see what is really underneath all this. We have only gone through one of the four. Hopefully at the end of the fourth Markman Hearing the judge will make some sort of ruling. That’s where we are right now with this case. We believe one thing and they believe another. That’s America, and at the end a judge will decide.
XBizLori:
Chuck, what are your thoughts on Acacia?
Chuck:
My thoughts are very much in tune with Greg’s. As a function of continuity for the sake of our business, Greg has taken the lead in that side of the Acacia situation. I really don’t concern myself with it. The way I see it is truly that Greg and I, these two guys from Manchester, N.H., made it into something just like the Homegrown guys.
Greg:
Gamelink. Club Jenna.
Chuck:
Yes, Gamelink and these great people we’ve come to meet. It’s really been a blessing. We’ve really bonded with a lot of great people and forged new business. It’s kind of a feather in my cap. Some people may think I’m a sadomacasist for saying it, and I said this to Mr. Berman at my booth at the Miami show, it’s exciting that we have hatched up this little thing that has become the center of attention. This court case could set a precedent for this new medium. It's so mind-boggling. It’s exciting and worth fighting for. It’s not about the money. It’s about the principal, and it’s not just about us. It’s about everybody who streams, everybody who listens to audio and downloads videos. It’s for everyone. It’s kind of a neat thing.
Greg:
If we get a court ruling on this and it’s not in our favor, it’s going to be much more difficult for them to overturn a judge’s ruling. We really need to do this because if we don’t put our nose to the grindstone it will affect the entire Internet industry. So that’s why we are going through it.
There are a few different ways a judge can look at a patent and say it is completely invalid, which means the patent should have never been issued in the very first place. Which really means at that point that the patent becomes invalid, non-void, and anybody who signed a licensing agreement can pretty much say, unless there are certain speculations in the agreement, that it’s over. It’s over once the case is over. However, the judge could decide for whatever reason that he's not going to claim the patent invalid, but that these people are not infringing, which the judge may very well do. That means that everybody else who signed is pretty much stuck with those licenses that they signed because the patent has not been destroyed. The patent is valid. We have just proved that we do not specifically do the procedural applications that Acacia says we do.
Chuck:
It’s a pretty interesting thing.
Greg:
The case could find itself in a very interesting way in a year or two when you may see even more splitting of the industry and more consolidation and all sorts of stuff. Some people could be stuck to licensing and some people will be able to just walk.
Chuck:
This is the intangible consequence of fighting this thing and I give my partner all the credit in the world because when this was first served he was adamant about exploring the options and finding out the facts. Once he found out the facts he came to me and said we are fighting this thing. I agreed with him 100 percent because my philosophies are pretty paralleled with Greg’s. I remember when we first got those letters and started to form the defense group and he said, “If we don’t fight this now, just imagine how many people are going to be lining up behind these guys. They think this is the adult realm and they’ll just roll over.”
Acacia is banking on the fact that the people they are trying to go after for these licensing agreements will bilk under the pressure of having to open their books or audited. We have an absolutely open door here. You can come in and look at our books and we are not afraid to fight you. We know that there are people hovering out there and just licking there chops to enforce their patents. From what I hear, some of them are our peers in this business, guys who have made money with us and guys who have had booths with us at these tradeshows. We've got to send a message: "You might beat us up but we are going to knock your teeth out while you are at it."
Greg:
You better make sure that you have a very serious patent. At this point, it’s all going to be up to the judge or possibly even the jury. But given all the facts that we have surmised and that our law firm has surmised, I just personally can’t see the judge saying that Acacia can go ahead and involve our affiliates by basically letting them open their books and so forth whenever they feel it is necessary.
XBizLori:
Is there anything you would like to add or tell the community?
Chuck:
We meet so many people, and we’ve got so many friends. We have guys that are older than us that used to look at us like we were like little spuds when we first came into the business. We’ve got guys and girls that are our age that we have kind of grown up with in this business together. The one thing that I find refreshingly similar is that just about everybody that we hang out with in the industry, and the people that I look up, are much like the tortoise. They are not the hare. They take the slow road. They take the conservative path.
It's been eight years and we are sitting here and we didn’t know anything when we first started, and we still don’t know very much. We just work our butts off. If you are a webmaster and you are starting out, whether you are starting a small site or an affiliate program or you are making your own content, don’t take short cuts. Keep your expectations low and keep your nose to the grindstone and stay true to what you really want to do. Things will work out in the end.
XBizLori:
Thank you both for a really insightful, real interview. It was a pleasure to meet you both and I think it’s great information for the community.
See Part I here, & Part II here.
