Internet's Dirty Little Secret

By the name on the door or the voice on the phone you'd never know what they sell at the Internet Entertainment Group, reports CBS News Correspondent Anthony Mason.

The company's 25-year-old CEO, Seth Warshavsky, presides over an internet sex empire. This is the corporate headquarters for Sex Fifth Avenue, sluttv.com, and the company's real cash cow, clublove.com.

"The first week is free. You can go there and check it out and see if you like it. And if you like it, it's $24.95 a month," Warshavsky said.

And there's a whole lotta club lovin' goin' on. Even at nearly $25 a month, Warshavsky says he has - hold your breath - 100,000 subscribers.

"We're doing $50 million in revenues in 1998, turning a $15 million profit on that. And that makes us one of the very few profitable Internet companies," he said.

While these numbers may give parents nightmares, it's the Internet's dirty little secret. When the Internet industry bragged about how e-commerce was exploding this Christmas, they claimed that electronics, books, and travel were all hot. But they didn't tout what was right up there at the top.

"They feel like it taints the whole Internet to discuss pornography. They'd rather sweep it under the rug and pretend it doesn't exist," said David Bennahum of Wired magazine. "Pornography statistically is probably the number one money consumer for services on the Internet."

Warshavsky, who drives a silver Porsche, started his company by borrowing on his credit cards. His business runs 18 hours a day, with six live sex rooms, complete with performers.

There's a bedroom, a health club, a shower, a
dungeon ...," he explained.

From your home, you can actually call the performers on the phone, or you can email "Gayla" in the control room.

"They can say, zoom in. They can say what part of the body they'd like to see. I'll focus on that," Gayla explained.

It's an age-old business, but Warshavsky is using cutting edge technology, sending live images from the camera through servers, compressing them into a digital format and rebroadcasting them over the Internet.

"You know adult manufacturers have been more willing to take risks at developing new technology because they know their material will sell," Warshavsky said.

Added Wired magazine's Bennahum: "The real-time video. The real-time audio. They're pioneering all these two-way interactive technologies and the odds are that the technologies invented by these pornographers will eventually filter out into the mainstream."

Warshavsky boasts that he anticipates a big audience for the live broadcast of a sex-change operation.

You might not be in that audience. But Warshavsky claims his average user has a household income of over $100,000. That's why he also started sexquotes.com, stocks and sex in one service.

"What I'd really like to do is try and take the company publi," he said.

But so far, Wall Street has been reluctant to back a company whose ticker symbol might be triple X.

"Adult material is something there's a huge demand for, something that's always on people's minds," Warshavsky said. "If I could make the same amount of money selling widgets or toaster ovens, I'd be selling widgets or toaster ovens."

Seth Warshavsky has found that being a pioneer is very profitable. In that respect, a lot of Internet companies would love to be in clublove.com's club.

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