Sex on the Internet: Sizing Up the Online Smut Economy

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Computer: Alamy; Screen: Getty Images

When the news broke that Goldman Sachs had rid itself of its investment in Village Voice Media due to the company’s connection with Backpage.com, a website known mostly for its advertisements for “escorts” and certain kinds of massage, and which one prominent critic had charged with being the “biggest forum for sex trafficking of under-age girls in the United States,” two questions immediately came to mind:

1) How on earth did Goldman Sachs get mixed up in all this?

2) How pervasive is the online sex business anyway?

Let’s leave that first question to the Goldman Sachsers and move on to the second.

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Cynics have long held that the secret driving force behind the spread of the Internet, and new technologies in general, has been our insatiable desire for all things sexy. Actually, this wasn’t so much a secret as something close to conventional wisdom in the 1990s, when one expert confidently declared that porn and other so called “adult services” were, as he put it, the “No. 1 income generator on the Internet.”

These days, of course, there are plenty of other “income generators” on the internet, ranging from online shopping to dopey Facebook games, and there is so much free porn so readily available online it’s hard to imagine who exactly is paying for any of it. But porn – and those “adult services” – still generate a boatload of cash.

The “escort” ads that ended up so embarrassing Goldman Sachs are only a small part of the puzzle. According to The AIM Group, which tracks such things, Backpage.com is the dominant player in the healthily growing “prostitution advertisement” industry online, generating some $26 million in revenues in the last 12 months. Other players in this market, with names like Eros.com and MyRedBook.com, added another $10.6 million in revenues to the pile. (The former big Kahuna in the field, Craigslist, reluctantly shut down its own adult listings in 2010.)

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Porn — perhaps because it, unlike prostitution, is often legal — is a much bigger business online, though reliable numbers on the industry are hard to come by, and misinformation abounds. (Both proponents and opponents of online porn have reasons to exaggerate.) One factoid making its way around online, and even into the pages of Wikipedia, is that “the internet pornography industry has larger revenues than Microsoft, Google, Amazon, eBay, Yahoo, Apple and Netflix combined.” That’s just plain wrong. Several years back, the Adult Video Network estimated the total revenues of the online adult entertainment industry in the U.S. to be $2.8 billion; others in the industry suggest this may be exaggerated. (By contrast, Microsoft’s revenues in its most recent quarter were $20.9 billion.)

While $2.8 billion is nothing to sneeze at, porn is hardly the golden goose many assume it to be. CNBC suggested in a recent report that the porn industry “stands at a precipice as it heads into 2012,” with “revenue from films … shrinking, due to piracy and an abundance of free content on the Internet.”

Meanwhile, on Salon.com, porn veteran Michael Stabile has declared the “end of the porn golden age.” When he entered the curious profession in 2002,

Everyone was making money. Internet startups had started to figure out streaming video, and you could still sell DVDs all day long. Hundreds of new companies sprouted, like mushrooms after a rainstorm.

But in the age of easy piracy and abundant free online porn, the party is over – at least for those trying to make money in the business with plain old porn.  These days, Stabile says, live webcams are where the action is, financially speaking, genrating (he claims) some $2 billion in revenues a year by themselves.

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Unlike traditional porn, live webcam shows haven’t been hurt by piracy. The live shows’ appeal rests as much on interaction between the performer and the audience as it does the video feed.

Just don’t expect to become a webcam star on your own.

[T]he upfront costs of breaking into the market and massive outlays in equipment locks newcomers out. It’s a bit like the oil industry; even if you discover a rich vein on your property – in this case a star – you have to turn to the big boys to mine it properly.

The big boys, huh? Goldman Sachs, I’m sensing an opportunity for you here.

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