The Business of Porn

Did anyone else see the 60 Minutes piece on the porn industry last night? It was truly amazing how successful some of these companies have become. Why do they make so much money? Because it is a stigmatized product.

"I think that they get involved in it because of the profit margins that are involved. One of the things about pornography that's consistently true across the board is that because there's a social stigma still attached to it, you can charge a premium for these materials. And because you can charge a premium for it, the profit margin is higher. So, it makes pure economic sense," says Fred Lane, a lawyer and author of a book called "Obscene Profits: The Entrepreneurs Of Pornography In the Cyber Age." (his book is here.)

Another interesting discussion took place with the president of Vivid entertainment. Here was his comment on the business model.

"It's an issue of distribution. When customers can get to adult content, generally, they buy it. They enjoy it. The question was, 'Would mainstream companies distribute it?' Now, Playboy and Penthouse for 30 years have enjoyed the same distribution as other magazines. Adult movies really didn't have that up until recently," adds Asher.

It's so funny for me to picture a bunch of MBAs sitting around talking about strategies for selling more pornography.

Probably 90% of my experience with porn was during high school and college. I guess like most people, I grew up and got married and don't really see it much nowdays (although I do watch "Real Sex" on HBO if it looks interesting – that is sort of like porn). Granted, if I saw a Playboy at someone's house I would probably pick it up and look at it, but to buy my own subscription would be a waste of money. That is why the profitability of this industry is so amazing to me – because I am surprised people think the benefit is high enough to spend the kind of bucks they do. How many movies does one person have to buy to get off? The majority of users are 18-25 year old males, and I am surprised that demographic is large enough to drive sales to such high levels.

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After listening to the industry insiders talk about how much money can be made in porn, I am surprised more people don't consider it a viable start-up strategy. Get some friends, make a cheap movie and sell it for big bucks. It has a low investment, and the potential for a great return if you can put some good marketing buzz on it. Normally when an industry has high profits competitors come in and force prices down, but that hasn't happened with porn. If any of you out there work in the industry (someone regularly visits this site from playboy.com), fire me off an email and let me know how accurate the 60 Minutes piece was in your eyes. For those of you who may be interested, here is the magazine for the industry. Of course, how could I mention porn without the new porn blog Fleshbot? (which is NOT work safe)

If you find this interesting, I wrote a post back in May called Porn Goes Mainstream that addressed business aspects of the porn industry.