For the sake of argument, let's assume that you are able to create
content that people want to consume. How do you monetize it? The adult
content industry continues to lead the way in monetizing content,
adopting new technologies, and testing distribution models. At SXSW Interactive, porn publishers gathered to share best business practices with the next generation of mainstream media.
(Disclosure note: Panelist links undoubtedly go directly to adult
content - but I'm not sure, since I was too chicken to click through
myself!)
Revenue
Amelia G left magazine publishing for the superior cash flows of the Internet. She brought along this lesson, however: Edgy or niche content is best sustained via a subscription model. In traditional publishing, it's unusual for a magazine to be subscription-driven rather than advertising-driven. In pornography, however, you don't have the option of being advertiser-driven. A subscription model is not only possible, but necessary, since most advertisers are not comfortable with adult content.
As a result, adult publishers adopt the rigor necessary to cultivate a sustainable base of subscribers. An adult content consumer will pay $50 to watch 20 minutes of video. If they like it, they'll go to the producer's (or star's) core site and sign up as a member for $20/month in order to receive unlimited amounts of that content. This is the long tail that mainstream media sites dream about reaching.
After her transition to Internet publishing, G also looked at how people made money in affiliate networks. She found that it's not the 5% commission on clothing or books. Instead, affiliates make money from the 50% commissions associated with memberships. The top payouts? Subscriptions to the Wall Street Journal or the Harvard Business Review.
Porn site producer John Halcyon Styn confirmed the value of participating in affiliate marketing programs. As an illicit, somewhat restricted consumer good, porn benefits from a high perceptive value. Accordingly, the high average revenue per user (ARPU) means that the adult industry is highly lucrative for affiliates. Because of this dynamic, there's an interesting quirk of adult content businesses: publishers often end up promoting their competitors. For example, if a user comes to Site A and doesn't join up, Site A could recommend Site B and still capture the affiliate revenue. No matter what site the customer actually joins, the first site that the user visits is likely to earn revenue. Any time someone visits your site, you have an opportunity to market something.
Marketing and promotion
The adult industry consistently must separate out their site's freeloaders from its potential paying customers. The upsell from free content to paid membership is the publisher's most important goal for each new site visitor.
Styn provided crisp instruction on how to achieve this goal: "If you want a paying customer, then you need to offer more convenience, quality, or quantity than the user would be able to find for free." e.g., if most people only tasted the free cream puff samples at Costco, Costco would stop offering them. Instead, a critical mass of shoppers is saying "I have to have MORE of these!" and buying cream puffs by the case. Whether at Costco or at a content site, a business must both tell the difference between these customers and optimize its revenue against the promotional costs of serving both of thema them.
Seska Lee called out the biggest down side of running your own affiliate program: the need to produce fresh content. Affiliates always want something new. That being said, ready-made promotional materials tend to pay for themselves once distributed to affiliates. Lee also noted that affiliates may make sales commitments that your site can't deliver on - e.g., they advertise that you offer photos of brunettes, but you only have photos of blondes. Also, some affiliates will want to actually have licensed copies of content, rather than simply redirecting customers to your own hosted content..
Site and content design
Styn and G agree: People often criticize adult sites for their poor design, but bad design is often intentional. Put simply, 'bad design' produces more revenue. Not just more profits, but more revenue. Why? High production values and good, updated designs imply mainstream media. Simple, unsophisticated, or even bad design helps the user to either (1) feel like they are in the know, or (2) believe that the content is more 'real.' This feedback was the exact opposite of the advice given by Kathy Sierra in her earlier keynote. I suspect that this in part due to the difference between 'what kind of content consumers like' and 'what kind of applications do consumers want to use,' but comments from experts here are welcome.
This contradictory path to success is also reflected in the content itself. As Styn slyly commented, people aren't watching porn for its production values. And again, low production values means that the content appears more real. Very few producers are able to justify the extra expense of raising the production values, relative to the additional revenue that is brought in. In addition, the frequency of video releases is prohibitively high. 5000 video units sold is a good number, so you have to make lots of videos, and make them cheaply.
Like podcasting and internet television, adult content is highly profitable, niche-focused industry. It will be interesting to see how these business practices inform the scalable business models that end up emerging from the current crop of Web content producers.
