Naked capitalism

Porn used to be pricey: although it is legal in many countries, sexual taboos, regulation and the difficulties of distribution limited supply. That made for high prices—and outsized profits. Business was best after first videotapes and then DVDs made it cheap to shoot and distribute films to watch at home. In the 1990s dozens of producers, many of them based in California, churned out hundreds of X-rated films each month to buy or rent.

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In America the number of porn studios is now down from over 200 to 20, says Alec Helmy, the founder of XBiz, a trade publication. Performers who used to make $1,500 an hour now get $500—even as increased competition means they are asked to produce more extreme content. Revenues are well below their peak; how far below is hard to say, as most porn producers are private. Just before the tubes took off, plausible estimates put worldwide industry revenues at $40 billion-50 billion. Mr Thylmann thinks they have fallen by at least three-quarters since then.

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PornHub, Mindgeek’s biggest tube, claims to have had nearly 80 billion video viewings last year, and more than 18 billion visits (see chart). In terms of traffic and bandwidth, Mindgeek is now one of the world’s biggest online operators in any industry. The company says its sites serve more than 100m visitors a day, consuming 1.5 terabits of data per second—enough to download 150 feature films.

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The traffic the tubes can direct towards pay sites means that their relationship has evolved from hostility to close, if grudging, co-operation. More and more content producers are signing deals to let their stuff appear on tubes: if a viewer clicks through to the originating site and subscribes, the tube will get a cut, sometimes as much as 50%. Since tubes get so many visitors, the bargain may be worthwhile for pay sites even if only one in 1,000 of them decides to subscribe. But the tubes are by far the bigger winners, getting not only commissions but more videos, which in turn drive up their traffic and ad rates. The model has been likened to a “vampiric ecosystem” in which Mindgeek and the other tube sites feed on pay sites, sucking their profitability.

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Social-media sites are starting not just to link to content, but to host it. Snapchat, a messaging app that lets users send each other photos and videos that vanish after a few seconds, allows news outlets to publish articles on its service in return for a share of advertising revenue. Facebook is doing something similar with its Instant Articles service. Indeed, Facebook, Twitter and their like have essentially evolved into traffic-brokers.

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Earlier this year PornHub launched a Netflix-style subscription service, which offers high-quality, ad-free streaming for $10 a month. But it has not yet said anything about early take-up.  

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Last year Snapchat introduced Snapcash, a feature that lets users of the app send each other money. This is being used to pay for viewing pictures of strippers, lap-dancers and the like. Prices range from a dollar or two for a few pictures, to double digits for a personal sex show.

http://www.economist.com/news/international/21666114-internet-blew-porn-industrys-business-model-apart-its-response-holds-lessons