Why Playboy Is Getting Out of the Porn Business

DirectTV (DTV) and Time Warner Cable (TWC)'s declining revenues from pay-per-view porn underlines just how small, and getting smaller, the porn business really is.

Adult entertainment is often portrayed as a gigantic industry that dominates the sex lives of men and rakes in truckloads of cash, more even than the mainstream Hollywood movie industry. The numbers tell a different story: Porn is a marginal industry in which it is almost impossible to make a profit, mostly due to the disaggregating effect of the web. Even Playboy, which invented the genre in its modern form, is getting out of the porn business.

What has happened to newspapers, terrestrial radio, and the music business has also happened to porn, but to an extreme degree. Content marketers and brand managers should sit up and take note: Porn is the canary in the content goldmine. Here are the revenues for PPV TV, per the WSJ:

Overall, cable, satellite PPV
2009: $1 billion
2010: $899 million
2011 estimate: flat

Total porn revenues are estimated to be $2.6 billion to $3.9 billion. For comparison, Hollywood movie studios gross more than $10 billion annually on box office receipts alone -- not including licensing, TV and other revenue.

Those are the numbers. The real story of the sagging, limp state of the porn business can be found at the individual companies that struggle to carve out a marginal existence within it. For instance:

Playboy, the best-known adult brand on the planet, lost $15 million last year on revenues of just $55 million, down 9 percent from the year before. It's easier to make money doing insider trades on Playboy stock than it is to actually publish X-rated material.
Penthouse, now known as FriendFinder Networks (FFN), is a sea of red ink and debt, on revenues of $83.5 million. Its models get paid more than its shareholders do.
Perfect 10 magazine went bankrupt despite suing Google and other web properties for displaying samples of its images for free. The 9th Circuit federal appeals court ruled, cruelly, on Aug. 3 that even bankruptcy wasn't enough of a demonstration of "irreparable harm" to grant an injunction against Google.
Eight of every 10 companies registering in the new "adults-only" .xxx domain are not porn companies. They're regular companies who don't want others to take their names.

Porn is so widely available for free on the net, and produced so widely for free by "amateur" companies, that Playboy is actually getting out of the business of making porn. It signed a deal on Aug. 5 to outsource its content production to Manwin Group, which owns Brazzers, YouPorn and Twistys, among other "brands." Playboy CEO Scott Flanders said Playboy was evolving into a "brand management company" that would focus more on licensing its name and logos than shooting naked models:

This partnership is another major step in the evolution of Playboy from an operator of a range of media and licensing businesses to a brand management company. We began this process with the successful outsourcing of our publishing functions and later partnering to grow consumer-products licensing opportunities in Asia and Europe.

The economic collapse of the adult entertainment world has most hurt the big "studio" labels, such as Vivid, Evil Angel and Hustler. Whether they realize they're in a race to the bottom is not clear, judging by Vivid Entertainment co-chairman and co-owner Bill Asher's reaction to the decline in PPV revenues:

I don't think you want to get down in the trenches and slug it out with cheap porn on the Internet ... Our job is to come up with unique, interesting content, not just more of what's out there.

Good luck with that.

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