AEE Coverage: 'Diversify or Die' Is Mantra

Bob Johnson
LAS VEGAS — It may be a little strong to describe the adult industry’s mantra on the AEE show floor this year as “diversify or die,” but the feeling was palpable.

The survivors and those who are poised for success in 2010 are the companies reacting to the challenges of a depressed economy, free content competition and dwindling DVD sales by developing new business strategies and alternative products to bolster their bottom lines and opening new markets for sex-loving consumers.

Despite a reported 10 percent bump in pre-registration, overall consumer and B2B exhibitor booths were down — close to 200, 50 less than last year’s total — according to AEE spokesperson Sean Devlin. And although fan attendance appeared to be, and still star-struck, the traditional winding lines and hours-long waits didn’t seem to materialize either because of better registration procedures or just another sign of a hurting economy.

But the sketchy numbers and lingering feeling that the industry is still struggling to break free of a bad economy and tough sales was tempered with a new feeling of optimism.

Evil Angel General Manager Christian Mann said that he is “extremely confident and enthusiastic about 2010.” What fosters that sense in Mann’s mind and other adult companies — especially mainstay DVD producers — is that they have figured out how to stay competitive and prosper, or at the very least, maintain a heartbeat by switching gears, changing their product lines and re-branding into new markets. In a word – diversify.

Steve Orenstein, president of Wicked Pictures, noted that the fan attendance this year seemed to be healthy but as always, the frenzy revolves around the stars in every company’s booth.

“The girls are the biggest draw for any company at the show. We have long lines for our stars who are signing calendars,” Orenstein said. “But what we decide to do this ear was not limit the action to just AEE but we’ve extended out to the palms hotel where the girls are also signing there. They signed for three hours here at AEE and three hours at The Palms. We realized that our marketing strategy and product lines have to expand in order to maintain the excellence of the brand and to stay competitive and in the consumer’s mind.”

The Palms signing was part of Wicked’s overall cross-marketing strategy that included having the Wicked girls photographed for the calendar in a number of areas of the trendy hotel. Wicked also has giant banners, professionally lit in the Palms lobby constantly reminding guests of Wicked’s presence both at the hotel and AEE. And the company’s diversification plan didn’t stop there.

On display in the combined Wicked/Real Dolls show floor booth were the first showings of Wicked girls Jessica Drake and Elektra Blue sex dolls – a major move into serious brand and product expansion.

“It’s what we needed to do,” Orenstein said. “Sure I was a little nervous about coming to the show because of the economy, but then I realized it was more important to think beyond the show and offer new products and new avenues to help or brand.”

Hustler has certainly not been a stranger to diversification, having expanded successfully into a number of markets.

But the company’s new director of video operations, Rob Smith, noted that this economy presents new challenges especially in the video marketplace.

Only at the helm of Hustler Video for about six weeks, Smith’s first impression of AEE was that there was “a lot of open space” as compared to mainstream video shows like the National Association of Broadcasters and HD Expo.

It’s admittedly tough to compare adult to mainstream what with adult’s inherent challenges, but Smith’s point was that this kind of bellwether should spur companies to bounce back strong by being more creative and innovative.

He noted that Hustler will continue to release five titles a month — expanding its successful line of parodies to two such titles each month with small and large budgets regardless of parody market saturation, along with three other movies to round out the company’s offerings.

LFP President Michael Klein echoed Smith’s take that the show appeared to be less full with somewhat slower traffic and less exhibitors than 2009. He estimated that exhibitor attendance was 30-40 percent less and attendance 10-20 percent less than last year, also blaming the lackluster economy.

But Klein also was on board with diversification being the key to survival and prosperity in the next year stating the industry will be seeing more novelty products across the board and more DVD companies breaking into toy sales.

Klein painted an even more optimistic picture for adult regarding cable TV, his main charge at Hustler for many years. Klein is seeing strong growth of the Hustler HD linear channel prompted by its diverse content offering and in part by the fact the strong barriers that existed between cable carriers and adult are softening.

Klein said that carriers are realizing the profit potential of adult will help them achieve their financial projections.

“Carriers are now coming to us to do cross-promotions, parental control concepts and magazine ads to help them market adult programming,” Klein said. “Prior to these times there was a huge fear of community backlash. But money has removed the reluctance.”

Having diversified into many product areas over the years has kept Hustler a leader and Klein expects many more adult companies to follow suit.

If $1 million in toy sales from this year’s AEE is any indication, diversification is smart strategy, even for a company that has the luxury of resting on its recent success with its “Pirates” franchise and ride out the storm if it chose.

Farley Cahen, Digital Playground’s vice president of new media, shared the successful announcement with XBIZ explaining that the company’s new “Pirates” novelty line was conceived and created to expand the brand and build a new, strong product line.

“Last year it was DVS, broadcast and the web,” Cahen said. "We’ll continue to be leaders in those areas but this year our strategy was to create a new improved novelty product and package it, manufacture it and market it like no other company. We totally controlled the manufacturing and made the packaging much more appealing using the “Pirates” graphics.

"In addition to the advanced technology – quietest vibrator available, five-setting three-battery bullet, and demo products so consumers don’t rip open our packaging, are all key strategic elements to keep Digital Playground diversified and in the minds of consumers,” Cahen said.

Another producer that has weathered the economic storm maintaining that it still sees monthly re-orders “in the 100s for its Brazzers line alone” is Jules Jordan Video. But according to owner and president Jules Jordan, a move to expand his line into broadcast TV via Playboy’s cable presence has opened up new doors.

“Sure I’m doing well with Brazzers and our other titles but I knew we had to expand to stay healthy. We moved into broadcast with Playboy and that has increased our exposure a great deal and we’re coming out with a new anal line called “Ass Factory” with three titles a month,” Jordan said.

He added that a company can’t wait around and moan about what’s wrong. The leaders need to take action. “I’m looking forward to a healthy 2010 mainly because I see growth by expansion.”

The B2B exhibition space, typically more concerned with making deals than discussing strategies also included a mix of veteran companies looking toward a new direction and companies that have already made the switch.

One B2B exhibitor an adult veteran, Tony DeSio, president of Erotic Embrace novelties has managed a number of adult companies for decades, including producing DVDs for companies including Bizarre Video and others, realized early on that faltering DVD sales necessitated a move into new products, thus his novelty push.

“I can see that there’s slightly more optimism at the show this year even though the booth buys are down. That says to me that the fans are coming back and as usual are interested in sex and stars. As captains of this industry we need to move quickly to adapt – that’s what I did once I saw DVDs drying up,” DeSio Said. He added that some of his business peers laughed at him when he moved into novelties but the business grew. “While they were wringing their hands over tough times I was diversifying my business and it’s starting to pay off.”

Evil Angel opted to have booths both on the show floor and in the general B2B area. Mann felt that he wanted to offer B2B folks a quieter place to do business while at the same time keeping the brand prominent to consumers.

“This show is a hybrid which I think has grown out of a necessity to adapt to the changing marketplace,” Mann said.

Conquering the challenges of 2008 and 2009 were essential for companies in order to stay alive, and more importantly to now be poised for growth in the coming years in Mann’s estimation. He pointed to Evil Angel’s successful strategy over the last two years that included more efficient use of personnel, outsourcing and hard consolidation of warehouse space.

Instead of waiting for distribution partners to request marketing materials, Mann explained that Evil Angel took a proactive stance to better adapt to a tight market.

“We realized that we had to offer our partners better information for our DVD products including comprehensive documents, glamour and scene stills, compliance letters, etc. – all on one disc so they could efficiently market our titles," Mann said. "We’ve also reached out to our VOD partners and negotiated new pricing that’s more commensurate with our profit margins.”

Evil Angel has learned to do more with less, which in Mann’s mind translates to more profit than ever once the economy turns around. A new subscription website with partner FameDollars launches in February, a digital version of Buttman magazine is now available and the company’s considering larger print runs and DVD inclusions. The company has also added new video lines including Sean Michaels’ Productions and Mean Bitch Productions to bolster the product line. “Everything is up for evaluation, except the high quality of the content that John [Stagliano] insists upon,” Mann said.

Diversification is key. And as a 30-year veteran fan, Tom Valentine noted, “Things are beginning to turn around.

“When Jenna [Jameson], who was the face of the industry left and the economy tumbled, the public started to lose interest. But there are new exciting faces and various products showing up again.”

One new product that caused a buzz was True Companion’s Roxxxy, the Sex Robot with its artificial intelligence built by a former Bell Technologies engineer. Could Roxxxy-like products be the new craze, or will the tried and true with a new spin win out?

What’s certain is that the companies that respond, adapt and diversify will be better served by the fans who will be spending money once again — maybe like the old days.