PORN PART III: The nuts and a bolt

If the porn business has an equivalent of the Lower Manhattan business district, it would have to be the anonymous suburb of Chatsworth, Calif. And if porn has a Los Angeles equivalent of Wall Street then it is the ironically named Ronald Reagan Freeway. The offices of nearly every major porn studio, production company and editing house lie within blocks of the freeway named for the man who was perhaps the industry’s fiercest foe.

Business is booming in Chatsworth. The porn industry is racking up record numbers, by some estimates making $10 to 12 billion in sales this year, churning out more than 11,000 titles in the last 12 months.

Over the past 15 years, porn has metamorphosed from a taboo, underground and perhaps illegal diversion to a multibillion dollar sect of the entertainment industry. “‘X’ is just another letter of the entertainment alphabet,” an industry spokesman said. But clearly, porn plays by a different set of rules than the mainstream entertainment establishment. Porn may be able to post profit margins that would make executives of Paramount and Universal gape, but it faces a unique combination of political, legal, social and business hurdles few industries could survive.

Fuzzy math

How much is the porn business worth? That all depends on who you ask. The New York Times Magazine claims the industry’s annual sales total about $14 billion – more than baseball, the NFL and the NBA combined. Forrester Research, a consulting firm, estimates the industry to be worth $10 billion while Forbes pegs the value of the industry at $2.6 to $3.9 billion.

“No one has accurate figures,” says Mark Kernes, senior editor for Adult Video News, the porn industry’s publication of record. “No one has really done a study of the porn market.”

While it may not have conducted a study, AVN estimates the industry’s sales to be in the ballpark of $10 billion. AVN regularly publishes that in 2001, the sale and rental of videos from video stores totaled $4 billion. And Kernes says there’s a lot more than that.

“You have to add in mail order and Internet sales,” he says. “That probably adds another billion.”

Start throwing in magazines and Web sites and you begin to see that porn is big business – though exactly how big is uncertain. What is known is that porn is a cash cow.

“I look at a lot of business opportunities and (porn) is a great investment,” says a financier who calls himself Reuben.

Reuben recently bankrolled his first adult film. Yet he is not worried about success.

“You’ve got to be stupid to fail,” he tells me.

And Reuben’s right – a porn movie typically grosses four times more than it costs to shoot and the average budget for a porn film is $30,000. An added bonus – porn is virtually recession-proof. AVN’s sales figures for the video market were virtually the same in 2001 as in 2000. According to AVN, more than 756 million videotapes (not including DVDs) were sold or rented last year. Clearly a lot of people are making money.

Big business, low key

Though it has distinct characteristics, many aspects of the industry are run like any other big business. Private, Europe’s largest porn company with a sizable presence in America, is listed on the NASDAQ. VCA, the second largest adult studio in the country, provides full medical and dental insurance to its employees.

“People are not screaming and yelling, drinking, doing drugs and fucking in the hallway here,” says Jane Hamilton, who directs films for VCA. “It’s a business.”

VCA’s offices are disconcerting in their normalcy. Were it not for the Best Anal Scene award statuette displayed in the lobby, the 40,000-square-foot operation could be mistaken for anything from a law firm to a computer company. Hamilton gave me a tour of the complex, touting the brand new digital editing consoles that rival many local broadcast channels and the recording studio – complete with Pro Tools (VCA does all its own music). I also saw the tape duplication room with 3,000 duplicators (that can put out 400,000 tapes in a month) and the efficient and organized warehouse adjacent to the offices.

The outside of the building melts in with its industrial park setting. I ask why the sign on the side of the building reads “Trac Tech” rather than VCA.

“It’s to your advantage to be low key when you’re in a controversial business,” Hamilton tells me, driving home the fact that for all the normalcy VCA appears to have, it still must play by a different set of rules than any other business.

I met a DVD producer who introduced himself as Bruce but handed me a business card with the name Wit Maverick on it. I spoke to someone who designs DVD menus who wouldn’t let me print even his first name because he was afraid he would lose his teaching job at a Cal Arts summer camp for teenagers.

“If anyone at the camp found out I had anything to do with porn they’d never let me work near kids again,” he said.

New frontiers

Maverick, who heads VCA’s DVD unit, tells me that he came to work for VCA because it was porn, not Hollywood, that was innovating DVD technology.

“(Porn) really allowed me to pursue the new technologies and ideas that they don’t do in Hollywood,” he says.

He gives me a copy of Being with Juli Ashton, VCA’s take-off on Being John Malkovich, in which the viewer can choose to watch the film from the perspective of the man who is “being with” the movie’s star, Juli Ashton. Also included on the disc is Maverick’s Fantasex, a first person porn movie version of a choose your own adventure book.

New technologies are reshaping the business models of the porn industry. At Private, DVDs outsell videocassettes by a margin of three to one.

“DVDs are really what the serious consumer is buying,” Mara Epstein, who heads Private’s North American operation, tells me.

Adult DVDs are a high ticket item – Private’s DVDs list for $39.95 in stores, which usually kick back about $14 to Private.

The Internet has allowed pornography to reach a mass audience in ways never before possible.

“The Internet is so popular because a lot of people are terrified that they might see their neighbor at the adult video store,” said AVN’s Kernes.

“Porn is the most popular thing on the Web next to Amazon.com and Ebay,” porn legend Ron Jeremy said.

The numbers back him up. According to two Internet ratings services, about one in four Internet users visit an online sex site at least once a month – making porn sites more popular than sports or government pages.

What’s good for General Motors is good for the country

VCA, Private, Vivid and the stable of adult entertainment companies in Los Angeles are not the only beneficiaries of America’s appetite for pornography. Fortune 500 companies from AOL Time Warner to Marriott are making millions of dollars selling pornography, often with direct assistance from porn companies themselves.

The General Motors Corporation, the world’s largest company, indirectly sells more porn than Hustler, Vivid or even Playboy. GM, which owns DirecTV, the nation’s largest satellite TV operator, rakes in about $200 million a year from pay-per-view porn, according to most estimates.

DirectTV isn’t alone. EchoStar Communications, America’s No. 2 satellite service whose principal investor is Rupert Murdoch, takes in well over $100 million a year from porn movie sales according to most accounts. Four of the five top cable companies – including Wall Street powerhouses AT&T and AOL Time Warner – all offer pornography as part of their regular selection of pay-per-view programming.

Cable has become such a large market for the major studios that most turn out two different versions of movies – one for video and one for cable. Porn movies shown on cable are usually aren’t of the hardcore variety – that is, they don’t show penetration. Most movies put out by major studios now are shot with two cameras – at “hot” camera, for the hardcore video, and a “cable” camera, for the tamer cable offering.

Porn rivals the mini-bar as the hotel industry’s biggest profit item. Chains from Holiday Inn to the Ritz-Carlton to Marriott (which has many prominent members of the Mormon Church on its board) peddle porn flicks to guests at an average of about $12 a pop. Porn sales are the closest thing to free money for hotel operators. Companies like LodgeNet and On Command install in-room movie systems (which also offer mainstream movies) at no charge to the hotel. The companies make their money by taking a cut of the movie sales.

What do shareholders of these companies think of their companies pushing smut? Many aren’t aware, as porn sales are mentioned only vaguely in corporate reports. Several movements have risen to protest major corporations’ involvement with pornography, but haven’t gained popular support. Cardinal William Keeler, who heads one such group, told the chairman of AT&T, “Ma Bell shouldn’t be selling smut.”

But corporate America is addicted to the cash that porn pumps into its coffers, even if its executives do not mention it. According to the New York Times an AT&T executive once said, “(Porn) is the crazy aunt in the attic. Everyone knows she’s there, but you can’t say anything about it.”

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