(CBS) Selling sex is one of the oldest businesses in the world, and right now, business has never been better.
One of the biggest cultural changes in the United States over the past 25 years has been the widespread acceptance of sexually explicit material - pornography.
In the space of a generation, a product that once was available in the back alleys of big cities has gone corporate, delivered now directly into homes and hotel rooms by some of the biggest companies in the United States.
It is estimated that Americans now spend somewhere around $10 billion a year on adult entertainment, which is as much as they spend attending professional sporting events, buying music or going out to the movies.
Consumer demand is so strong that it has seduced some of America's biggest brand names, and companies like General Motors, Marriott and Time Warner are now making millions selling erotica to America. Last November, Correspondent Steve Kroft reported on this billion-dollar industry.
The best place to see it is at the industry's annual convention in Las Vegas, where more than 200 adult entertainment companies gather under one roof to network, schmooze and show off their latest wares.
Presiding over it all is Paul Fishbein, the founder and president of Adult Video News, the industry's trade publication, which sponsors the expo.
Who’s out there? “Manufacturers of adult products, distributors, suppliers, retail store owners, wholesalers, distributors, cable TV buyers, foreign buyers,” says Fishbein. “They're all here to do business, and then you have the fans.”
The fans came from all over the country, stood in line for hours, and paid $40 to get into what was essentially an X-rated trade show. From appearances, you might find the same crowd at the boat show.
According to Fishbein, there are well over 800 million rentals of adult videotapes and DVDs in video stores across the country. “And I don't think that it's 800 guys renting a million tapes each,” he says.
Suffice it to say, there was something available for every sexual demographic - even material aimed at the 60 Minutes crowd.
In Fishbein's words, all of this is performed and produced by consenting adults, for the use of consenting adults in the privacy of their own homes. The industry also has its own major studios.
“Here you have two of the leading companies in the business, VCA and Vivid,” says Fishbein. “They're known for the biggest-budget top movies in the industry, along with Wicked Pictures.”
The industry also has its own major stars, like Jenna Jameson, a teen beauty queen, turned showgirl, turned porn actress. With the approval of her family, she reportedly earned more than a million dollars last year performing sex for money.
“The way I look at it is, this is kind of an art to me. I'm performing. I'm not doing it for the gratification of another man,” says Jameson. “I'm doing it because this is my job and I'm entertaining the masses. So it's just like being Julia Roberts, but just a little bit further, one step further.”
The porn world now has all the trappings of a legitimate industry with considerable economic clout. Besides its own convention and trade publication, it holds marketing and legal seminars. It even has its own lobbyist.
“It employs in excess of 12,000 people in California. And in California alone, we pay over $36 million in taxes every year. So it's a very sizeable industry,” says Bill Lyon, a former lobbyist for the defense industry.
When 60 Minutes first spoke to Lyon, he was running the free speech coalition, a trade organization that represents 900 companies in the porn business.
“I was rather shocked to find that these are pretty bright business people who are in it to make a profit. And that is what it's about,” says Lyon.
What kind of reaction does he expect to get when he tells legislators all over the country that he’s a lobbyist for the adult entertainment business?
“Initially, I think there's a degree of shock. But when you explain to them the size and the scope of the business, they realize, as all politicians do, that it's votes and money that we're talking about,” adds Lyon, who says there are reputable companies traded on the New York Stock Exchange that are involved in the business. “Corporations are in business to make money. This is an extremely large business and there's a great opportunity for profits in it.”
In 2002, Comcast, the nation's largest cable company, pulled in $50 million from adult programming. All the nation's top cable operators, from Time Warner to Cablevision, distribute sexually explicit material to their subscribers. But you won't read about it in their annual reports. Same with satellite providers like EchoStar and DirecTV, which is owned by Hughes Technology, a subsidiary of General Motors.
How much does DirecTV make off of adult product?
“They don't break the number out. But I would guess they'd probably get a couple hundred million, maybe as much as $500 million, off of adult entertainment, in a broad sense,” says Dennis McAlpine, a partner in McAlpine Associates, who has tracked the entertainment industry for over two decades. “I would think it's probably more than what their overall profit is. The other areas are losing money. That's making money.”
Then there are the big hotel chains: Hilton, Marriot, Hyatt, Sheraton and Holiday Inn, which all offer adult films on in-room pay-per-view television systems. And they are purchased by a whopping 50 percent of their guests, accounting for nearly 70 percent of their in-room profits. One hotel owner said, "We have to have it. Our guests demand it.”
One of the largest owners and programmers of in-room pay-per-view is Liberty Media, a publicly traded company run by media mogul John Malone, one of the most powerful people in the communications industry.
McAlpine says that adult entertainment has become a critical part of the entertainment business: “Adult is a major factor in determining the profits of a cable system, an in-house hotel system, a satellite system. It's a big profit contributor.”
So how do these corporations get involved in it?
“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.”
The epicenter of the porn industry is Chatsworth, Calif., a quiet suburb north of Los Angeles. It is indistinguishable from the other middle-class communities that sprawl across the San Fernando Valley, except for one thing.
Tucked among the defense contractors and aerospace companies are dozens and dozens of adult film companies like Vivid Video, the porn industry equivalent of Paramount or Universal. It makes adult films, distributes them on video, DVD, and then sells them to hotels, cable companies and over the Internet.
Bill Asher, Vivid's president, says these films are relatively inexpensive to produce, and Vivid has had double-digit growth every year for the past five years. Last year, he says, consumers spent a billion dollars on Vivid products.
“We know that when we were selling the content to certain satellite companies, they did an analysis, and we were the most profitable channel they had for the distributor,” says Asher. “I would say it [cable systems] is the most profitable channel … The industry is big business now. It’s mainstream. It's really no different than what Playboy was 30 years ago, 20 years ago.”
Asher, who graduated from Dartmouth and has an MBA, used to work at Playboy as a financial analyst.
“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.
“And what happened was, as companies like Vivid came around, and made everyone more comfortable with adult product, mainstream companies said, ‘OK, we'll be willing to distribute it. We would like to join in the benefit - the financial benefit of distributing it.’"
Asher says it wasn't a hard sell. All he had to do was show and provide an upscale product on the polite side of the pornographic spectrum. “We strive to have good sets, good plots, attractive people. People who can hopefully speak and act. Everything that you would expect to see in a mainstream movie,” says Asher.
60 Minutes was hoping that at least one big mainstream corporation would talk to us about its involvement in adult entertainment. But no one did. A few gave us statements saying essentially their companies provide a whole range of entertainment choices, plus the ability to block them out, and such choices should be left to the customer.
“When 60 Minutes comes to your door asking about adult content, and you're a major corporation, my advice to you would be: 'Don't open the door,'” says Asher. “What possible victory could come out of it for them? They are offering content, the customers are buying the content, everyone is happy.”
Adult entertainment is so lucrative and profitable that it's become part of the mainstream culture -- readily available, easily accessible, and all but impossible to legislate away.
How did it happen? It began 25 years ago with a brand new household appliance: the video cassette recorder.
“The first thing that a lot of people did when they got their VCR was rent or purchase an adult movie. ‘Deep Throat.’ ‘Devil in Miss Jones.’ ‘Behind the Green Door.’ ‘Debbie Does Dallas.’ That's what they asked for,” says Fishbein, who publishes The Adult Video News, the porn industry’s trade magazine.
“Most people had never seen an adult movie, because they had to go out in public, to a theater, to see it. I mean, sex is a very private thing. So, now that you can watch it in the privacy of your own home, nobody has to know. And I think that's what drove the VCR. And I think, to a degree, it's what drove a lot of people to get on the Internet.”
In fact, pornography has helped drive early sales and the development of most new entertainment technologies for the past 25 years - providing software for the latest gadgets, and a reason to buy them. And usually the first people who do are affluent young men who like porn.
Type the word "sex" into an Internet search engine like Google and you will get 180 million hits. For years, adult sites were the only ones to turn a profit. They have pioneered and helped to develop numerous technological breakthroughs from online payment methods to streaming video.
Lane wrote a book about this unofficial, commercial partnership between technology and the adult entertainment industry. He believes it has had a tremendous impact on American values, popular culture, and the government's ability to regulate pornography.
“The way I like to put it is that we went from 1,000 adult movie theaters in less than 10 years to 80 million adult movie theaters. And that basically is what happened with the VCR,” says Lane.
“The computer now, in terms of its penetration into American households -- the last figure I saw was somewhere on the order of 70-80 million households, out of the 100 million in this country?. So again, we've got enormous potential for people to look at things in the privacy of their home.”
Has it become more difficult in the United States to win an obscenity prosecution?
Absolutely, says Lane. “And as adult materials have found their way into different communities by different means, whether it's by cable television, or it's by hotel chains, people have grown increasingly comfortable with adult materials. And there seems to me to be, I think, a growing sense that what people do in the privacy of their own homes is their business.”
Porn is so accessible now that it’s working its way into the subtext of American culture, crossing over into fashion, music and television. Take, for example, a Christina Aguilera music video on MTV or VH1 or a Brittany Spears concert on HBO, dripping with sexual imagery obviously borrowed from the world of adult entertainment. You will even find porn references on the TV show, “Friends.”
Luke Ford, who spent seven years writing an Internet gossip column about the adult entertainment industry for his own Internet Web site, isn't sure what to make of it.
“It's become popular, cool, acceptable in this 18-to-25 age group. My age group, I'm 37, my age group and up. We think porn is something that's shameful. But for kids half my age, they think it's cool,” says Ford, who guesses it’s an act of rebellion, embracing one of society’s last taboos.
Ford, who is often referred to as the Matt Drudge of porn, gave 60 Minutes a tour of a backyard porn set in a residential neighborhood of Chatsworth that has been used by porn directors for more than 20 years.
“It is just like Hollywood,” he says.
Like the porn industry itself, it becomes less glamorous the closer you get. If you take away the accountants and CEOs, you’re left with a small insular world, filled with renegades and outcasts, who like to flaunt society's rules.
“They come into this industry, because this is the single easiest way that they can earn $1,000 in a day, in two hours,” says Ford. “It's not like we're losing people from going to medical school or business school or becoming lawyers.”
Hang around the World Modeling talent agency on Van Nuys Boulevard in Sherman Oaks and one of the first things you notice is that there is no shortage of men or women who are eager to work in the business.
“It’s just fun. I think it’s awesome that you, like, can be, like, a sex icon. I think girls will argue that it's a bad thing, you're crazy,” says Destiny. “Because, you know, everybody thinks you’re beautiful. Everybody wants to meet you.”
You'll also see why Fortune 500 companies making millions off the industry don't like to be publicly associated with it.
“Most girls who enter this industry do one video and quit. The experience is so painful, horrifying, embarrassing, humiliating for them that they never do it again,” says Ford.
The argument that pornography exploits women has long been one of the flashpoints for social debates about the industry. Now, anti-porn groups say hundreds of thousands of men have become addicted to it, leading to anti-social behavior, and causing divorce and family breakups.
“Just because this material is available, and citizens tolerate it, doesn't mean that they accept it,” says Mary Beth Buchanan, the U.S. Attorney for the Western district of Pennsylvania, and the point person in the Justice Department's campaign to rein in pornography.
When John Ashcroft was appointed attorney general, among his first acts were to hang blue drapes in front of a topless statue in the lobby of the Justice Department, and to promise a crackdown on smut.
Buchanan's prosecution of a California company called Extreme Associates is the first major obscenity case brought by the federal government in more than a decade.
“We have just had a proliferation of this type of material that has been getting increasingly worse and worse. And that's why it's important to enforce the law, and to show the producers that there are limits. There are limits to what they can sell and distribute throughout the country,” says Buchanan.
She believes that three films produced and distributed by Extreme Associates by mail and over the Internet contain coercive and violent sex, along with other material that is vile and degrading.
Rob Black, president of Extreme Associates, considers that a compliment.
One film, called “Forced Entry,” includes shots of women getting raped and murdered. It also includes suffocation, strangulation, beatings and urination. Black calls “Forced Entry” a slasher film with sex, loosely based on the Hillside Strangler case. But 60 Minutes couldn’t find enough plot to show anything beyond the opening credits.
“They made absolutely no attempt to comply with federal law. In fact, it was probably their intent not to,” says Buchanan. “Because what they wanted to do was to make the most disgusting material available on the market. And they succeeded.”
What is federal law on pornography? The only explicit, hard-core sexual material that is absolutely illegal by law in the U.S. today is child pornography -- all other material must be put before a jury.
The Supreme Court last defined obscenity as material appealing to a degrading interest in sex, depicting it in a patently offensive manner, and lacking any serious artistic, literary, or scientific value. But this was way back in 1973, before the VCR and the Internet were in existence.
In California vs. Miller, the Burger Court recognized that individual communities had different values and opinions on pornography, so it allowed localities to make their own judgments, based on contemporary community standards.
But since 1973, standards have changed, and so has the definition of a community. Today, with the Internet, cable, and satellite television, most pornography can be transmitted directly into someone's home without ever disrupting the community, or its standards. And that will be Extreme Associates’ argument in court.
“It’s not involving the community. It's involving a private individual, who purchased these videos, and downloaded the images from the Internet into their home. So, where does that community standard apply,” says Black. “You can't apply a community to it if only one person is viewing it. They didn't go to a local video store. It was purchased privately by an individual at home, and sent to them in the mail. And that is the debate. And so, where is the community? Where do you apply it?”
How do you apply community standards when you're talking about something that is just downloaded into somebody's home?
“I think that is precisely the question that the court has to answer. The original purpose of the Miller test was to give communities the opportunity to regulate what came into their borders, what was displayed on Main Street, what kids were actually seeing as they went around the community,” says Lane.
“Obviously, if something's downloaded into the privacy of one's own home, it doesn't have that kind of impact on the community. So the question is, does the community still have the right to determine what people look at?”
Buchanan says she’s doesn’t have to convince the entire community, just the jury: “We're focusing our resources on the most egregious offenders. So, we're looking at the producers and distributors who are producing the worst material, the largest quantity of material, the largest area of distribution.”
Buchanan says it's not the Justice Department's intention to shut down the adult entertainment industry, or eliminate all sexually explicit material -- even if it could. The point is to enforce some standards, and it hopes to do so when the case against Extreme Associates finally goes to trial this fall.
Since 60 Minutes first brought you this report, General Motors sold its subsidiary, Hughes Technology, and got out of the porn business. And, actress Jenna Jameson says she wants to do the same thing: retire and become a "regular mom."
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