Then came the rise of the Internet — the Digital Age equivalent of a primordial ooze from which an entirely new adult industry would evolve. That evolution has continued, taking the shape of what legendary paleontologist Stephen Jay Gould would call punctuated equilibrium: sudden shifts and explosive developments as opposed to a slow, gradual change.
In order to keep pace with the rapid shifts in the market, old school adult companies — brands that existed prior to development of the web, or that established themselves first in hard goods like adult VHS tapes and DVDs — had to master the challenges of the new media.
Among the early adopters of the brave new world that was the late 1990s adult Internet was New Sensations, which leaped headlong into the online sphere in 1999. According to Sean Holland, vice president of Internet marketing for New Sensations, that early entry into the market was a bit of a double-edged sword.
"One of the biggest advantages was impressions for our brands," Holland told XBIZ. "Back then, there were very few avenues to get the name out for studios. Adult magazine advertising, tradeshows, displays in brick-and-mortar stores and commercials on pay-per-view were basically the norm. With the rollout of our sites, backed by monster marketing campaigns by us and our affiliates, the New Sensations brand went worldwide real fast.
"This in turn opened up many doors to new distribution channels, revenue sources and consumer brand awareness. There was really no saturation of porn on the web opposed to how it is today — which was a big plus, monetarily."
On the downside, the rapid pace of technological change in the late 1990s presented a high cost for those with a need to upgrade to meet the demands put on their technical infrastructure created by, among other things, improving connectivity on the user end.
"Back in the day everything was geared light and tight for modems — high-speed bandwidth was a just dream back then," Holland said. "Now through the years with faster download speeds and the high-end processing power of computers, we have found ourselves doing full sites over and over again keeping up with modern technology. If we started again right now, this day, we'd make everything huge and beautiful the first time and never look back."
One of the best-known adult brands in the industry's history, Hustler, has seen its ups and downs in extending that brand into the online space, according to Michael Klein, president of LFP Inc.
"The company went through a lot of forms and approaches to the online market," Klein said. "It's a huge company and a huge brand, and I think maybe we tried things that were a little too bold, a little too aggressive, initially."
The growing importance of the Internet to the industry's future was clear to Hustler, however, and the company pressed ahead in its pursuit of establishing a strong web presence despite the early challenges.
"Everything has a learning curve, and once we were able to bring in the right people, the right experts, and pick the right brains, everything started to fall into place," Klein said.
According to Homegrown Video CEO Spike Goldberg, many of the lessons learned along his company's own learning curve involved being careful in who and what you trust.
"You really have to be careful about the 'dark side' of the online space," Goldberg told XBIZ. "If it looks too good to be true, it is too good to be true."
Both in your choice of business partners and in staffing decisions, it is crucial to do your due diligence, Goldberg said.
"You have to find the right guy to run your operation," Goldberg said "Be very careful who you hire from within the industry, be positive that they are who they say they are. When you're looking for that right person, be sure that you don't just get recommendations from their friends."
Vivid Cash MikeC General Manager told XBIZ that among the most important first steps for any company entering the online adult market is to "build a strong, experienced team."
"I cannot stress enough the importance of solid programmers, web designers and webmasters," MikeC said. "Just as a production company would look to hire the best director, a company looking to make a move into the online market should look to find the best people to manage and operate their online presence. At the end of the day, exclusive content is what sells; properly getting it to market is where experience comes into play."
A more recent entry into the adult Internet space, Red Light District recognized the importance of getting serious about establishing a significant revenue stream via its online division, and Vice President of Internet Operations Jon Berg told XBIZ that the company has revamped its affiliate program accordingly.
"We had an existing affiliate program but it was not competitive with the ever-changing market," Berg said. "We felt we needed to bring the newer technologies into our program and take advantage of our strong brand in the DVD industry."
Berg said the Red Light District had "depended on DVD sales and broadcast for a few years before jumping into the affiliate program market," and as a result of that dependence found itself playing catch-up with brands that had established themselves online.
"The companies that started online had an advantage in that they were traffic generators more than content producers," Berg said. "As you saw the progression from a lot of big affiliate programs buying content to producing their own, we naturally decided to shift our focus to the online sector."
In August 2007, Red Light District rolled out its overhauled affiliate program, RedLightRevenue.com, and Berg said the investment in improving its program has already begun to pay dividends.
"We are very happy and excited with the results of the program," Berg said. "Our retention is great and conversions are already where they need to be for us to be profitable. As you know the pay-per-signup market is very competitive and can cost companies a lot of money up front, until the recurring members rebill. Our revenue has already ramped up and we see a very bright future for more profits."
One of the primary market forces driving adult studios to step up their online marketing and distribution efforts is the perceived decline in the DVD market.
Some argue that the drop in DVD sales can be attributed to widespread piracy and unfettered peer-to-peer distribution, but Vivid's MikeC told XBIZ that the real problem is more fundamental.
"I would attribute the decline of the adult DVD market to the medium itself," MikeC said. "To me it seems quite natural that a cheaper, faster and more efficient means of content delivery would replace the lesser. Why someone would think the adult DVD market would be any different, I don't know. If someone feels they're not making enough money and attribute that fact to ThePirateBay.org, they should reconsider their entire business model."
New Sensations' Holland said that increased competition and the ready availability of free content — both legitimate and pirated — have all played a role in chipping away at the market for adult DVDs. Despite those market conditions and a dip in the company's overall DVD sales, Holland said that there is still plenty of money to be made in the DVD sector.
"[The DVD sector] represents a significant portion of our profitability," Holland said. "We see a steady decline in revenue from DVD sales overall, in the last year alone we released some of our most successful products to date."
As the adult industry moves forward, evolution and adaptation are not mere buzzwords, they are imperatives for survival. Whether or not the market for adult DVDs is "dead," as Extreme Associates owner Rob Zicari famously declared last year, a diverse set of revenue streams is the best ballast in negotiating an uncertain and rapidly changing market.
Given the quick pace at which new distribution platforms and content delivery methods develop in this market, Hustler's Klein said a diversified palette of revenue streams is increasingly important in ensuring the continued health of a modern adult business.
"If you are only in the DVD business, or only in any one sector of the business, you probably aren't going to be in business for long," Klein said. "You have to have other avenues of distribution on your plate."
