Money Trouble in Internet Porn

Online pornography helped to build the Internet. It was the cutting edge of e-commerce when sites like Amazon.com were just starting. But today the porn industry is suffering. It’s got lots of eyeballs, but experts say fewer are paying to view. A porn empire based in San Francisco is trying to recover by using data analytics.

Pornography is not some hidden corner of the Internet. Analysts estimate that about one-quarter of all web searches are for porn. (Also, here’s a nice literature review on porn stats and why they’re hard to obtain, given the private industry structure and how much sex is in hidden torrent sites.)

I hit the streets of San Francisco to ask strangers their favorite search terms. It was not hard to get answers on the record.

At a coffee shop, Jason Ravel says, “I like teacher porn, student-teacher, fantasy. That’s who I was around most often in grade school. I was a good student.”

Chanelle Dorton, who’s passing by a BART station, is into ebony lesbian sex. “I don’t like straight porn,” she says.

Lyft driver Neel Bell likes “heterosexual porn that doesn’t involve porn stars. It lets you think it’s a real-life situation more.”

Dorton says she consumes porn like some people consume news. “I check my email, play games online. So it probably falls after that -- like an extracurricular activity, I guess.”

But just about everyone I ask says he or she never, ever pays for it. Bell explains, “Never pay for porn, never pay for sex. I guess I’m a cheapskate when it comes down to it. I download all my music, too.”

Industry crisis

That is exactly the problem, according to Internet porn mogul Peter Acworth. “We’re suffering what happened to the music industry a while back. It’s becoming much easier to get content for free and people are less apt to want to pay for it,” he says.

Acworth is founder of Kink.com, a San Francisco fetish porn conglomerate that had 205 million views last year alone.

Back in the late 1990s, Acworth was getting his Ph.D. in finance at Columbia University. He realized there was lots of money to be made in streaming sex. So he started video shoots right out of his own room. “You honestly couldn’t add the sites fast enough. It was like money was falling from the sky.”

Earnings were so strong that, by 2006, the company decided to make a major real estate investment and purchased the Armory – a towering building that takes up a city block in the Mission District.

But because of piracy and an explosion of free sites, the heyday is over.

The porn industry trade group Free Speech Coalition estimated that global revenue plummeted by 50 percent, from $20 billion in 2007 to $10 billion by 2011. Kink.com saw a decline in its own revenue for the first time that year.

Porn has a distinct problem that less racy media companies do not have. Users are afraid of leaving a digital record -- and not because of the National Security Agency.

Acworth says, "We get constantly email from people's wives, because they found a charge on the husband's credit card and they're upset to find out it's for pornography."

Brand loyalty and data mining

Acworth has come under fire recently by regulators for risky employment practices such as unprotected sex. But his central business concern is viewer loyalty. Kink.com is on a campaign to lure viewers out of the shadows, and into credit card payments, by offering a better product. He takes me upstairs at Kink headquarters, to the set of a live porn shoot.

A model who is performing in front of a webcam says in a sultry tone, “The part of my body that I like the most would probably be …” Her voice tapers off and she shows rather than tells.

Paying subscribers are watching and typing in what they’d like her to do next. Across the Internet, roughly 15 percent of Web pages are porn sites. A lot of the free stuff is poorly made, low resolution or just shows a short clip of a longer video. But Acworth points out that counterfeiters can’t pirate this kind of personal request.

At the other end of the room, there’s a community event. Members of Kink.com are dressed in tuxedos and gowns -- which they'll take off when it's time for spanking. The emcee prods them, “Have as much of a plot about how the day is going to go for you as you can.”

Acworth is creating a lifestyle brand -- a common strategy for media companies that need to build loyalty with fans. He’s also hiring a team of data analysts to make Kink.com like the movie company Netflix: track your every move and -- based on what you search and click -- push the content you like most right in front of you.

Acworth says no one has to worry about personal data getting sold to outside advertisers. “I shouldn't think anyone would be interested in that. Who would want to buy data pertaining to whether somebody likes bondage or spanking?"

Is nothing private?

Andrew Kahl has spent many research hours researching that question.

He is an analyst with Evidon, a New York-based company that creates privacy tools. Last summer he studied porn websites and found that they are indeed investing in analytics. Nearly 900 million porn site visitors were tracked by hundreds of third-party advertising companies. “It is bigger than a few companies you might have heard of,” he says.

While a buyer for that data does not exist yet to Kahl’s knowledge, he can easily think up hypotheticals.

A condom manufacturer could go to a credible news site and say, “Hey, I would only show condom advertisements to people who have also viewed porn today.” That news site might decide to be less concerned about the sensitivity of the user and say, “Yeah, we'll take your condom advertising money.'"

Kahl says porn companies are doing data analytics for a reason: to get back on top of e-commerce.