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Industry Insiders Say Adult Market Consolidating

Industry Insiders Say Adult Market Consolidating
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Nov 21, 2004 8:00 AM PST    Text size: 
SANTA MONICA, Calif. — Amid bouts of raucous laughter and good-natured insider ribbing, six of the top players in the adult Internet community gathered in the Marquee Ballroom at the DoubleTree Guest Suites Santa Monica to discuss the state of the adult industry and the direction that it’s heading in.

Helmed by GoFuckYourself.com’s Lensman, owner of Adult.com and organizer of Webmaster Access, the standing-room-only panel discussion touched on topics ranging from the consolidating nature of the current market to the possible disappearance of affiliate programs with the next ten years.

Members of this year’s panel included NationalNet President Tony Morgan, Ron Cadwell, CEO and president of CCBill, LA Mike, owner of SilverCash, Legendary Lars, and Chris Mallick of Epoch.

The general consensus of the panel was that big players in the adult industry are now spending more money on a few key websites and attempting to consolidate their resources.

“We’re not experiencing anywhere near the same growth as in ’98 or ’99,” said Cadwell. “It is definitely a consolidating market.”

LA Mike agreed with Cadwell.

“We used to be coming out with 20 or 30 new sites a year,” said LA Mike. “Now we’re spending $80,000 on a single site. It’s definitely a lot tougher.”

Legendary Lars was quick to point out, though, that things were different for some of the smaller adult websites out there.

“Big sites are consolidating,” said Lars. “On the low end, though, a lot of people are coming out with niche, single-model sites.”

NationalNet’s Tony Morgan attributed the consolidating trend to a growing stagnation among adult websites.

“The industry is kind of stale,” said Morgan. “It’s all paysites with member areas and affiliate programs.”

According to Morgan, the industry is currently in stasis, awaiting the advent of the next big business strategy.

Somewhat surprisingly, one of the next “big things” raised during the panel discussion was a possible gravitation away from affiliate programs.

“In four to six years, people are going to see that affiliate programs are not profitable anymore,” said Morgan. “Large programs are going to circumvent the affiliates in order to get traffic. They are going to drop the middle man between the big programs and the surfer.”

This movement away from affiliate-type business models was attributed primarily to decreasing profit margins between affiliate payouts and retained memberships.

“Surfers are so educated now,” said LA Mike. “They all know how to sign up and cancel. Retention used to be at 80-plus percent. Now you’re doing good with 30 or 40 percent.”

Cadwell agreed with LA Mike, suggesting that the older mentalities didn’t fit with the new, more experienced adult web surfers.

“People get hung up on ‘how many joins did I get today,’” said Cadwell. “The real question is how many did you keep.”

The subject of proposed changes to 2257 regulations was also raised during the discussion, with panel members agreeing that it would probably mean webmasters would be creating more original content for their sites instead of purchasing it from others.

Panel members were quick to point out, though, that while the new laws may be create some initial problems for the adult industry, they probably shouldn’t be a cause for mass hysteria.

Beleaguered payment processor iBill also brought up during the discussion, with both Mallick and Cadwell suggesting possible reasons for some of the problems that iBill experienced and what it meant for the industry as a whole.

“They just didn’t get it,” said Mallick. “We were at the same bank. We didn’t sit around for nine or ten months to get a new bank. They just didn’t get one because they didn’t know how to manage their risk.”

Cadwell suggested that the some of the problems might have stemmed from the numerous hands that iBill has passed through over the past few years.

The panel ended its discussion with possible advice that new webmasters with around $10,000 should do to get started in the business.

“Put it on black,” joked Morgan. “You’ll have a much better chance of making your money back.”

On a more serious note, Morgan said that having a good idea and running with it will probably continue to be the best bet.

“If you have a good idea and have the money to get it started, you’ll make a fortune,” Morgan sad.

Cadwell’s advice to new webmasters was to not overextend themselves and to try to focus solely on one or two websites.

“Some of the biggest jumps we made weren’t reaching 50 or 60 sites,” agreed LA Mike. “It was five or six big ones.”

“Find your one thing you do well and beat the hell out of it,” said Lars, who pointed out that when he first started he was working 80-hour weeks and not making very much money. Lars also suggested that one of the best ways to make money in the industry today was to find ways to maximize other people’s profit margins.

Mallick’s advice was more traditional, but hearkens back to the idea that the industry is becoming more and more legitimized.

“It used to be that [with a] camera, a girlfriend and dial-up, you were a webmaster, but things are different now,” said Mallick.

“Be serious about your business, because this is a real business,” Mallick concluded.

The panel discussion was sponsored by CECash.

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