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Adult Entertainment Expo: Biz Lessons from Vivid's Steven Hirsch

Vivid Entertainment founder Steven Hirsch launched his pornographic empire in the mid-'80s and is now leading the billion dollar business into the future. Even porn is having a hard time selling nowadays, however, and Hirsch shared some of his insights when I interviewed him for the Adult Entertainment Expo keynote last Friday. Here is how the porn industry is surviving the downturn from which, as my BNET colleague Geoffrey James wrote recently, all entrepreneurs can learn.

Bans don't matter
Apple (APPL) has caught a lot of flak for its "ban" on pornography, but Hirsch says it doesn't matter: "If someone has a browser, they can access our media." Being web focused not only lets Vivid steer clear of would-be censors, it frees the company from having to rerelease its content on different app stores, like the Mac App Store and the Apple App Store and the Google Market and so on. So it doesn't need to make big shifts every time a new phone, tablet, or another web-enabled device hits the market.

In another smart move, the Vivid website and related media use both Adobe Flash, which is still the de facto Web standard, and HTML 5, which, unlike Flash, is readable on the Apple iPad browser.

DVDs are dead
Hirsch says DVDs make up less than 25 percent of Vivid's sales, with the remaining 75 percent coming from Internet and mobile. To put that in perspective, according to Red Herring, in 2006 video sales and rentals made up nearly 30 percent of adult sales, the Internet about 22 percent, and mobile a paltry 0.3 percent. Powerful, high-resolution devices such as the iPhone and iPad have definitely encouraged mobile porn sales through their browsers alone.

Beyond that, Hirsch believes that the porn consumer, and therefore the porn industry, will be entirely dependent on digital downloads "extremely soon." DVD and even Blu-Ray sales will be virtually non-existent, he says. In other words, get ready for the entire business to begin resembling the pay per view model so popular within hotels, which brings in a great deal of cash for every major hotel chain.
So Vivid and its competitors are putting their focus on streaming media. It's worth noting that major retailers like Best Buy and Target (TGT) are doing likewise.
Update and support older content
Vivid has put out a line of celebrity sex tapes with everyone from Kim Kardasian (which arguably jumpstarted her career) to Playboy model Kendra Wilkenson. However, Hirsch says the best selling video is still the Pamela Anderson/Tommy Lee sex tape released in 1997, "probably because it has been out the longest."

I actually see it as more complex -- and interesting -- than that. First, it was the first major celebrity sex tape of the Internet age, which gives the tape a certain notoriety and nostalgia that no follow-on sex tape could have. Second, and more importantly, the VHS sex tape is still supported by Vivid -- despite Anderson and Lee being just specters of their previous celebrity, the movie is still downloadable on a variety of digital formats and was even "remastered" recently for better visuals.

New customers who may have missed the VHS or even the DVD era can now view the Anderson/Lee sex tape through their favorite computer or mobile device. Vivid, of course, could easily have let the 15-year-old sex tape die with the VHS medium it was first released on. It is the equivalent of Hulu showing full seasons of ABC's MacGuyver or another classic program along with the newer shows -- the older content still has value, and wise companies make sure that the content is available in the newest format.

Embrace technology, because your competition certainly will
YouPorn, RedTube, and several other YouTube-inspired websites have wreaked havoc on the traditional porn business model. The free websites upload copyrighted content from Vivid, Hustler, and other major companies, and allow users to view lengthy clips within their browser. Launched shortly after YouTube's inception, these websites have made serious money just based on banner ads and the like -- enough for Vivid to consider outright purchasing YouPorn a few years ago.

Legal issues such as age verification and licensing content made Hirsch leery on the deal, but on Friday he admitted that the YouPorn phenomenon was slow to appear on Vivid's radar. Early internet technology allowed web designers to show extremely short and choppy pornographic clips (stolen from other companies) to entice users to click on a link. As processing power and bandwidth increased, these clips became more sophisticated and digital piracy started to become a problem. The advent of YouTube showed web designers what could be done with their own pornographic sites.

Vivid is now, ironically, fighting as hard as Disney (DIS), Vivendi Universal, and other conglomerates to push Congress into revising digital piracy laws for swifter justice. Hirsch says that Vivid has sent thousands of cease and desist orders to pirate websites, but current laws prevent any major, long-standing changes to the environment.

The situation might have been different if Vivid and other porn companies recognized the YouPorn trend earlier. The cliche goes that if you want to know where technology is going, you need to follow the pornography. But these developments show that even porn's leaders, if they aren't careful, can be blindsided by competitors using even newer technology.

Photo courtesy of Public Domain Photos // CC 2.0