Tuesday, May 25, 2010

CWF-RTB, NSFW and other acronyms

Mike Masnick at TechDirt argues that artists need build business models robust to the non-existence of copyright: they need to connect with fans and give them a reason to buy. I've previously highlighted his analysis of Trent Reznor's business strategy.

I wonder what he'd say about this recent Freakonomics piece on how the pornography industry is being hit especially hard by diminished effective copyright.
Whether harmful or not, YouTube’s success has unsurprisingly led to imitations. Among them are the hugely popular “porn-tube” websites like youporn.com, xvideos.com and pornhub.com. These aggregate short clips of both amateur and commercial pornography, posted by the site’s users. Like YouTube, a tremendous amount of content is made available for free. But there are important differences between YouTube and porn-tube, beyond the fact that the people featured on the porn-tube sites are naked. The effect of these clips on the porn industry is clear—and profound.

The biggest of the sites, Pornhub, is currently the 53rd most heavily trafficked site on the Internet. By contrast, CNN.com is No. 59, the website of the New York Times is No. 96, and vivid.com (the site of the best-known high-end porn producer in the U.S.) is No. 19,543. (YouTube is no. 3.) Sales of porn DVDs are collapsing, and the revenues of subscription-based porn sites are drying up. Vivid did sue one of the porn-tube sites for copyright infringement, but that suit was dropped in 2008 and the targeted site continues to operate. There is some talk within the porn industry of a coordinated litigation strategy a la the recording industry’s campaign against Internet file-sharers. But there are other insiders who note that copyright suits have done little to stop the implosion of the major record companies, and who despair of any litigation-based solution. And, unlike the record industry, pornography producers have shown no interest thus far in suing their customers for illegally downloading porn. The industry has preferred instead to appeal to customers’ better instincts – in this video, for example, a group of porn stars pleads with customers not to use the porn-tube sites.
I'm not going to copy the video for this post; go to Freakonomics if you want it.

So, what's then the future for internet pornography?
In short, the porn-tube sites probably won’t kill the porn industry. But they will change it. Production is likely to shift even more from “features” to short porn-tube-friendly clips. At the moment, the commercial porn industry, concentrated in L.A.’s San Fernando Valley, turns out more than 1,000 new feature films every month. This model probably cannot be sustained in a porn-tube world. Pornography is, in large part, a utilitarian product, and for most consumers, the purpose for which it is employed is served just as well by a five-minute porn-tube clip.

We can imagine at least two distinctive strategies emerging that will allow porn producers to survive in a market ruled by the porn-tube sites. The first would be to go upscale — to build a porn-industry brand by associating it with highly-paid stars and high production values. (CNN recently reported on a $4 million 3D porn film about to commence production.) And then diligently send legal notices and sue to keep your content off the porn-tube sites. Large, successful producers like Vivid seem already to be following part of this course. Vivid has two full-time employees sending out hundreds of notices every month demanding that porn-tube sites take down their copyrighted content, and they, along with several other large players, have discussed coordinated copyright lawsuits.

The other strategy is likely to be a much more significant part of the porn industry’s future. Many producers will take advantage of falling production and distribution costs to produce a huge amount of pornographic content catering to every imaginable sexual taste. Revenues may come from banner ads, or from click-throughs to sites offering services, like live chats and video on demand, that cannot easily be copied. The commercial producers will compete with amateurs, and also with entrepreneurs who use porn clips as advertisements for other, more highly paid services – for example, already many porn actresses use clips to attract clients to their more lucrative work in strip clubs. In any case, the pornography business is likely to become progressively lower-margin and competitive. Consumers will pay less, and get more.
All right, a bit of analysis now. The first proposed strategy, I'd argue, is doomed if it relies on suing all the potential clip sharing sites. Hasn't really worked in music.

An alternative litigation strategy that could work would be use of copyright infringing honeypot sites whose viewers would then be threatened with copyright lawsuits for downloading pirated content, with threat of public disclosure of everything the viewer had been watching. I suspect a lot of viewers would pay up rather than have notice served to them at work and the whole list of viewed videos read aloud, for example. Marginal Revolution links through to suggestions that malware installs may also be a revenue source; stories like this may work to push folks to the legitimate pay sites.

Going upscale could work if the inevitably-linked short clips successfully demonstrate that the higher-value production would be worth purchasing, but that only works to the extent that the sharing sites restrict themselves to short clips, which then depends on whether short clip or long clip viewers are more likely to click-through for ancillary services.

The second suggested strategy turns the product into a commodity - a loss leader for higher priced services. Not a great outcome either for performers. Especially when, at least according to comments on the Freakonomics piece, there are an awful lot of amateur performers who upload their materials for free.

I wonder whether things might not sort out more via a Masnick-style "Connect With Fans, Reason to Buy" strategy, albeit in Not Safe For Work form. Clips build brand for particular performers, who give reason to buy by coupling physical artifacts or other amenities with purchases of DVDs or online club subscriptions.

Opportunities here will be far more limited than for musical artists though. Music fans often gain utility by displays of fandom: wearing t-shirts or buttons or stickers that demonstrate the fan's affiliation with the artist and that mark the fan out for other fans of the same artist. The t-shirts tell the world "I'm the kind of person who listens to and affiliates with X." So while it's more than possible for Amanda Palmer to sell higher-end bundles including CDs, t-shirts, and other exclusive branded items letting fans show everyone in the world that they're fans of Amanda Palmer (another nice Masnick interview with Palmer here), porn performers might have fewer such opportunities as fans of particular artists may gain less utility from public displays of affiliation. Heck, even shameless economists have a hard time writing about this market without blushingly hoping that folks won't interpret interest in interesting economic problems with just a prurient mindset. The culture may have changed over the last fifty years, but not that much. In any case, performers could perhaps sell higher-value bundles including more discreet items: items worn by the performer, props from the set, and so on.

The other way for performers to monetize their celebrity from freely shared clips is through touring. In music, CDs become the loss-leaders for concerts; in pornography, filmed performance may become the loss leader for performances in various adult conventions and clubs.

Longer term, I'd then make the following prediction, albeit with relatively low confidence: a low end market dominated by freely supplied amateur clips that has commodity status, with hosting sites trying to drive click-throughs to higher valued ancillary services; and, a higher-end market where a much smaller number of performers are able to generate fan loyalty for purchase of higher-priced bundles and attendance at touring events.

In other news, the Australian clamp-down on pornography continues.

7 comments:

  1. "Pornography is, in large part, a utilitarian product, and for most consumers, the purpose for which it is employed is served just as well by a five-minute porn-tube clip."

    I laughed at this line, but it highlights the central issue here nicely I think; most consumers of porn probably aren't TOO concerned with production values and the like. My guess is that there is a fairly limited market for a premium product, and that given the choice between an ok free clip, or a costly feature film, the free clip will win 99% of the time.
    Naturally usual disclaimers apply.

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  2. Limited market is fine, so long as that limited market is willing to pay enough for the product that it gets profitably produced.

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  3. I would have thought the obvious ancillary product would be prostitution, or at least something that involved personal visits. I'm not at all convinced that performances in strip clubs are overly lucrative, I always thought they made their money from overpriced drinks and selling drugs, or something like that.

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  4. Damn, maybe I should go to strip clubs more often, I've never been offered drugs on the few occasions I've been to one...
    But the drinks certainly are overpriced, and the dancers do tend to mill around in the crowd for tips and offer private dances to the punters. I don't think I know anyone that has taken them up on the offer, but they wouldn't do it unless at least a few do.

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  5. I have to confess I haven't been to a strip club for at least 8 years - last bucks night I went to. The 3 times I've been in one have all involved copious drinking beforehand, so my recollections are probably not particularly correlated to reality. The one I remember best was in Amsterdam, and everyone in Amsterdam tried to sell me drugs.

    I was extrapolating from my assumption that strip clubs are largely owned by criminals and used to launder money. Maybe I watch too many movies?

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  6. @PaulL, Lats: Think more of the star performer coming in to draw in the crowd, paid an appearance fee by the club.

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  7. Hehe, Amsterdam is a bit of an unusual case, you get offered drugs just walking around the streets. At least that was my personal experience...

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