Taking The Hard-product Plunge

Q. Boyer
We all know the adult DVD is rapidly going the way of the dinosaur, so only a fool would invest the good capital generated by its online distribution channels into an effort to market a new line of adult DVDs … right?

Not so fast — unless you are prepared to label some of the adult Internet's most respected, best established and highest revenue- generating companies "fools."

While many adult studios who have long counted on hard product sales as their primary source of revenue have reported substantial declines in DVD sales of late, the medium still presents a viable revenue stream, even for new entries into the market.

For starters, DVD presents an opportunity to online companies that produce their own content to repurpose that content into a new distribution channel, according to SilverCash Albert, vice president of business development for Price Communications, the parent company to SilverCash and its new DVD arm Silver Sinema.

"The most significant incentive to enter the DVD market was certainly to monetize our existing online content through a new DVD profit center," Albert said. "Content was and continues to be our largest expense and profit generated through Silver Sinema and certainly absorbs some or all of expenses derived from content production."

The primary challenge in launching Silver Sinema was launching the new DVD line without losing the momentum of the company's main source of profitability, SilverCash.

"The answer is 'carefully,'" Albert said. "Any well thought out business plan outlines an exit strategy. Our business planning was strategic and the timeline of opportunity was determined by a number of different factors. All our research suggested that there was still an extraordinary amount of money to be generated. The DVD [customer] has become savvier and more price conscious, but they have not necessarily declined in numbers."

When TopBucks established its DVD line Pink Visual in 2004, it too was motivated by a desire to further monetize the exclusive content created for its websites, according to company president Allison Vivas.

"We saw success in PluginFeeds [the company's leased content division] and we anticipated DVD sales would increase revenues from content as well," Vivas told XBIZ. "We also thought it was important to develop a strong consumer brand as more and more competition entered the adult market."

Kim Kysar, the distribution operations manager for Pink Visual, told XBIZ that the DVD line not only introduced the content to a new set of consumers, it provided some brand cohesion that was not necessarily inherent to the affiliate program's model.

"Previously, each site was branded on its own, or to webmasters under the TopBucks brand," Kysar said. "Being able to pull the content from various site sources into a single identifiable brand and market it to new consumers opened up a lot of opportunities that are open to production companies, but not to strictly Internet content companies or affiliate programs."

What about the state of the DVD market, itself? Is it as bad as it is cracked up to be? Not according to those who are still seeing sales growth.

"The state of the DVD market is awesome, if you ask me," Director of Marketing and Affiliates for LightspeedCash Bob Rice told XBIZ. "Our sales have been through the roof - the presales were through the roof, for that matter. To us the DVD venture has been nothing but pleasant."

Rice attributed much of Lightspeed's recent DVD success to its choice in business partner for the venture. After doing relatively smallscale production of DVDs that it did not distribute in retail locations, Lightspeed struck a distribution deal with Shane's World in March 2007.

"The DVD consumer and the online consumer are a very different animal," Rice said. "If you want to get into the DVD market, you need a whole different approach. We went to Shane's World because they know that market. Shane's World educated its buyers about our line, educated us about the market, and the whole thing is going great. The sales of our first DVD distributed through Shane's World have been spectacular and we're getting ready to roll out more."

The perspective one has on DVD sales could have a lot to do with timing as well; as a company's wholesale distribution grows, retail sales generally continue to climb. When that distribution plateaus, a leveling off of sales is likely to follow.

"Fortunately, Pink Visual is still in its growth stage and we are seeing increasing sales," Vivas said. "This is due to us still being the new kids on the block and also because of our fresh perspective — we're trying things that other companies may not be doing."

Kysar said that Pink Visual's success did not come easy, but that once the company established the right partnerships, things quickly began to fall into place.

"It was very difficult the first 18 months or so, but sales slowly gained momentum," Kysar said. "Once we were able to get in with the larger distribution companies and prove ourselves, set a track record and build new relationships, then sales grew - and they continue to take off."

Kysar added that there was an adjustment period of sorts for a company that was used to the frenetic pace — and tremendous efficiency — of the online content distribution game.

"Sales, updates, changes and tweaks are not as quick to happen with DVDs as with the sites, which was hard to get used to," Kysar said. "But we continued to learn as we grew, and since we did have a unique approach to sales, marketing and relationship building, we seemed to grow quickly and the industry was quick to take notice once we didn't disappear after the first year out - like so many new studios do every year. I think we really took a lot of the industry and established studios by surprise."

Even with their current growth, these new entrants into the adult DVD market do agree with DVD market pessimists on one score: the market is increasingly threatened by a wide range of factors including competition, piracy, the presence of massive amounts of free online content and "technological determinism" — the inevitable forward progress of technology that routinely reduces once-killer applications to historical footnotes.

"I think the majority of the decline in sale is due to increased competition — 70 percent, say — while 30 percent is due to piracy or accessing free content," Vivas said. "There is not only competition offline but the competition online makes a market where your content really has to stand out from the rest."

SilverCash Albert said that free content presented a major drain on the potential market, calling the massive presence of free online content "great for the consumer but horrific for the paysite operator and DVD line operator."

"To 'police' this phenomenon is a matter of resources; paysite and DVD operators rarely have full divisions or teams to monitor your typical piracy, torrent or P2P system," Albert said. "Fraud control is vital to both business models, but realistically we can only deal with fraud in relation to the amount of in-house resources we can dedicate."

So, facing all those challenges, how long will the adult DVD market remain viable?

"I don't think the Internet, VOD, IPTV, mobile delivery, etc. will 'kill' DVD in the next 5-10 years," said Kate Sylvan, marketing and public relations coordinator for Pink Visual. "I'm sure another finished good may take the place of DVDs, just as DVDs have replaced VHS, which we still get consumer requests for, by the way.

"I truly believe there is a faction of consumers who will want to have something physical in their hands, to put on a shelf, to go to when they want, in addition to a quick Internet fix, or compiling drives full of their favorite scenes. The Internet didn't 'kill' books, right? People still go to libraries and used and new bookstore chains are successful."

Albert said that negotiating the eventual true death of the medium will again come back to timing.

"Arguably, the DVD market is saturated and competition is chaotic," Albert said. "We know that there is a window of opportunity, and as an organization we will do our best to compete as long as it makes good business sense, turns a reasonable profit and does not disrupt the SilverCash momentum."