Why Porn May be Worth $10B a Year

The debate about revenues in the adult industry is everywhere and Christ-on-a-dildo is it wrong. Too many smart people with too little experience of major adult websites are dismissing the value of the internet.

Newspaper hacks can’t do much better. Websites, as private concerns, don’t publish books and are thus impervious to journalist driven forensic accounting. Given the big companies aversion to being investigated by the tax authorities (though I’ve watched it happen to zero effect – my porn guys are the good guys) the only people able to honestly discuss the income of the web-industry are insiders who’ve seen the books and even one of those isn’t enough.

To asses the web business you have to know about the workings of more than one company, and the only people fitting that description have been inside the handful of billing companies which handle transaction processing for the big websites. Your ideal informant has worked within a major billing company and has had board level access to companies on every side of the online adult industry, content sites, TGP and video-chat.

That’d be me then.

Forbes are quoting Playboy (which is like interviewing Huell Howser for a piece on ‘The best paid people on TV’) and everyone else has assumed the video retail industry is the bulk of modern porn because they don’t know any better. I do. As someone who’s seen the subscriber and revenue numbers for more of the major adult companies than any-one else writing on the subject, I can tell you that there are billions missing from the current debate.

Allow me to break it down:

• The average tier-1 adult website charges $20 a month and has 20-40K subscribers. That’s $400k a month per site, or $4.8M a year, and a conservative estimate puts the number of sites on that level world wide at 100. That’s $500M a year of business without looking at the talented amateurs, the top tier of whom are also clearing $1M per anum and who number in the hundreds.
• Video-chat sites (iFriends, IMLive, CamContacts, LiveJasmin etc) charge an average of $1.50 a minute and the biggest players have an an average total take of about $150 a minute. That’s $216K a day which, even when split 50/50 with chat-hosts and minus running costs provide $100K a day, or $3M a month (yes, there are the costs of running an affiliate program to factor in, but I’m being conservative in my other assumptions and accounting for that expense by underestimating in other areas. E.g. Most companies don’t split 50/50 with chathosts, and 100 active conversations at $1.50 a minute is less than the big guys are averaging – most of them handling fewer chats but at significantly greater average revenue). There are roughly 10 sites of that size and, though the drop-off is sharp, the top 3 are all making over $100M a year and the #1 player is bringing in well over $300M. These figures are not guesses and the top 10 live video-chat sites thus represent over $1B in revenue.
• More philosophically, can our definition of ‘porn’ remain rational while including Playboy and excluding Nuts and Loaded, while all three publish identical photos with identical intentions. If porn is defined by content, not the press releases put out by fearful publishers, we should include everything that’s designed as sexual entertainment and include NN (nearly nude) sites too (tell me this nudity-free site isn’t porn). ‘Demi-porn’ is a growing sector which isn’t being counted by anyone but which can only be left out of industry discussions using the same blinkers the video guys use to ignore the web.

Jenna Jameson doesn’t make as much hard-cash as some of the biggest amateurs in Canada and she’s at the top of the performer tree (though she performs so little it’s get-ting hard to put her in that category). Though the average porn-performer makes more than the average adult webmaster, there are just a few hundred working adult performers on the planet, there are tens of thousands of webmasters. Sites you’ve never heard of are making $1M a month and many more in the $10-$100K range operate completely under the radar. No one who understands the difference between gross and net would rather own Vivid Pictures than The Hun because in porn a sole-trader with a PC and a basement can easily out-perform a corporation with product in every adult store in America.

Yes, the porn industry’s smaller than the $10-12B so often bandied about and enthusiastically swatted down, but video, TV and cable are just the public face of a very private enterprise. The global internet business is worth billions, even if estimates are limited to the conservative back-of-the-envelope sketches presented here. Factoring in the long-tail and demi-porn you’d have to double those estimates. Suddenly those ridiculous numbers don’t look as off as some are suggesting – and the web looks a hell of a lot bigger than the video market. Amazingly, in 2006, this seems to be news.

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