Management & Trends
How Big Is Porn?
Dan Ackman, 05.25.01, 1:45 PM ET

NEW YORK -
 
Is this the face of big business? Actually, no.
 


Recently, much attention has been lavished on the pornography industry--as a business--and many have claimed it is large and profitable, especially on the Internet. Many of the claims are cut from whole cloth, but are accepted without question by the legitimate press.

Skepticism is in order, though, because as David Klatell, associate dean of the Columbia Graduate School of Journalism notes, "[Pornography] is an industry where they exaggerate the size of everything." The fact is pornography, or "adult entertainment," is as marginal now as it ever was.

Take for instance the New York Times Magazine: It ran a cover story on May 18 called "Naked Capitalists: There's No Business Like Porn Business." Its thesis: Pornography is big business--with $10 billion to $14 billion in annual sales. The author, Frank Rich, suggests that pornography is bigger than any of the major league sports, perhaps bigger than Hollywood. Porn is "no longer a sideshow to the mainstream...it is the mainstream," he says.

The idea that pornography is a $10 billion business is often credited to a study by Forrester Research. This figure gets repeated over and over. The only problem is that there is no such study. In 1998, Forrester did publish a report on the online "adult content" industry, which it pegged at $750 million to $1 billion in annual revenue. The $10 billion aggregate figure was unsourced and mentioned in passing.

For the $10 billion figure to be accurate, you have to add in adult video networks and pay-per-view movies on cable and satellite, Web sites, in-room hotel movies, phone sex, sex toys and magazines--and still you can't get there.

According to Adult Video News (AVN), an industry trade magazine, Americans spent just over $4 billion to buy and rent adult videos last year. This figure is baseless and wildly inflated. From there, the numbers get even more obscure.

Tossing in the Internet will add less than $1 billion to the total porn pie. The 1998 Forrester report pegs the online adult content market at $750 million to $1 billion, which was an increase from its initial estimate of $150 million. When a study admits that its initial result was off by at least 80%, it's hard to be confident in the new result. In any event, Tom Rhinelander, a Forrester research director, says they have given up trying to put a price on porn--either on the Internet or otherwise.

Its rival research outfit, Net Ratings, tracks the number of visitors to porn Web sites. It says that in April 2001, there were 22.9 million unique visitors to porn sites. This says nothing about how long each visitor stayed or whether they spent a dime. In any event, the number of visitors is less than the number who visited news sites (41.1 million), finance sites (34.2 million) or greeting card sites (25.5 million). When was the last time you heard anyone talk about how greeting card sites dominate the Net?

The Business Of Smut: What Is It Worth?
Adult Video $500 million to $1.8 billion
Internet $1 billion
Pay-Per-View $128 million
Magazines $1 billion
Total $2.6 billion to $3.9 billion
Sources: Adams Media Research, Forrester Research, Veronis Suhler Communications Industry Report, IVD
It is often said that pornographers are the only ones making money on the Internet. Certainly, there are a lot of porn sites and many assume that they wouldn't be there if they weren't profitable. But that assumption is baseless.

Playboy (nyse: PLA - news - people ), which calls itself a men's magazine rather than an adult magazine, lost money last year, as did New Frontier Media (nasdaq: NOOF - news - people ). There are thousands of e-commerce sites that still exist despite never having made a profit. There are millions of personal sites and fan sites whose publishers have no intention of ever profiting. Why are porn sites, of which there are an untold number competing fiercely with each other, necessarily any different?

What about pay-per-view? The entire legitimate "a la carte" movie business, including satellite and cable pay-per-view, was just $642 million last year, says Tom Adams, president of Adams Media Research, which tracks video sales for the industry. If sex movies get 20% of the legitimate movies, that adds $128 million to pornography's gross.

Adding pay-per-view to the Internet and video sales and rentals, the sum total is about $2.9 billion. Is it possible that adult magazines add another $7 billion--which would have to come in sales since they have minimal advertising? Hardly, when you consider that the entire consumer magazine market in 1999 grossed $7.8 billion (sales plus advertising), according to the Veronis Suhler Communications Industry Report.

The Times Magazine concludes there may be no other product in the entire cultural marketplace that is more explicitly American, going so far as to call it "mainstream." We have no idea how "explicitly American" it is, though we suspect men in other countries like to look at naked women, too.

What pornography lacks is cultural resonance, it also lacks in financial clout. The industry is tiny next to broadcast television ($32.3 billion in 1999 revenue, according to Veronis Suhler), cable television ($45.5 billion), the newspaper business ($27.5 billion), Hollywood ($31 billion), even to professional and educational publishing ($14.8 billion).

When one really examines the numbers, the porn industry--while a subject of fascination--is every bit as marginal as it seems at first glance.

How Grown Up Is Adult Video?




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