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how the porn business works, what it makes, and what its future may be

In these excerpts from their extended interviews with FRONTLINE, Sam Agboola and Danni Ashe of Danni's Hard Drive, Jim Coles of Larry Flynt Publications, and Bill Asher, president of Vivid Entertainment, one of the country's largest sex-video production companies, discuss the economics of their business and their visions for its future growth.

Sam Agboola
director of marketing for Danni's Hard Drive, one of the most popular softcore websites on the Internet.

How big are the profits in this industry?

It depends a great deal on how people run their businesses. It's been well-publicized that Playboy isn't yet making a profit online, even though there are enormous revenues there. I'm sure that's in part due to how they run their business and the number of people they employ.

We're very profitable ourselves. We don't make as much profit as we could because we're picky about how we do things. We'll have a model in for a day and maybe get 20-40 stills out of that day. There are people who are getting a thousand stills on a digital camera. But I would say that profits of 30 percent plus were relatively commonplace. ... I'd say we're on the very top tier. ...

Danni sells something which everybody's always wanted forever and ever.

Absolutely.

Does she have anything else to offer?

She has an enormous amount to offer the business community in terms of the technologies that she's built the adult company on. One really interesting comparison is the medical imaging business -- that is exactly the business that Danny has built to provide people in France and Australia and Japan with pictures of naked models. That technology could be used, entirely unchanged, to deliver pictures of brain scans and CAT scans to doctors worldwide.

And that's an enormously profitable business and something that's really valid. People are beginning to see those affinities.

And the systems that have been built for processing credit cards are among the best in the industry, if not the best in the industry. ... There are lots of mainstream companies who'd make more money if they processed using the technologies that Danni's built than trying to build their own.

Danni Ashe
founder and CEO of Danni's Hard Drive, which Ashe says made $8 million in 2001.

read the extended interview So explain Danni's Hard Drive to me.

... When you come to Danni's Hard Drive you'll find a lot of things. We post a lot of regular content: picture of the week, model of the day, we have news features, the joke of the week. You can preview e-zines, read through all of the model biographies, read my FAQ and biography. You can see sample photos, we do parodies and fun little features. But what you'll quickly find is that the model's directory is at the center of the site. It's at the center of the file structure. Everything comes and goes from the model pages, everything.

How much money, how big a success over the last few years?

... Last year Danni's Hard Drive made $6.5 million; this year we expect to make $8 million. We now employ 45 people, and the business continues to grow and expand. ... Over the years, we've had to develop a lot of technology to support the business of Danni's Hard Drive -- streaming video technology, hosting technologies, credit card scrubbing technologies, processing, customer service. And all of these things are now working so well that they have value to other companies, and we're beginning to market those technologies to other companies. And that's actually the largest area of growth in our business right now.

And the other area that we're moving into is taking the Danni brand, which is probably the only pure adult Internet brand in the space, and moving it to other forms of media. We're doing a video and DVD line, I'm writing a book, we're talking about doing a magazine, doing cable and pay-per-view shows. So I'm trying to sort of expand in some more traditional forms of media.

How attractive is a company like Danni's Hard Drive to outside capital?

... We have taken meetings with some of the biggest companies on the Internet. Every time they come in, they want a piece of our audience, they want a piece of our revenues, they just want a piece of the market. But in the end, we always get right up to the altar and they get cold feet. Somebody on the board says, "Oh, no you don't," and the deal is dead. It happens all the time.

Bill Asher
president of Vivid Entertainment Group, one of the largest adult-video production companies in the U.S.

read the extended interview How big is this industry, and how do we know?

The numbers that have been bandied around are somewhere between $4 [billion] and $10 billion, generally. And I know that portions of the estimate of $4 billion are low. Ten billion is probably high, but it depends on, also, what you group into the adult industry. Technically [it's not just] videos and DVDs and television and Internet; it also includes everything from strip clubs to magazines. I would say that with any definition it's about $4 billion. ... It's probably less than $10 billion right now.

The key, though, is the growth factor. And all of a sudden you have Internet and broadband. And once video can be seen over the Internet without the choppiness, that's when you're going to see it grow by five times in a year. Particularly when you add in what's happening internationally. Right now when we talk about this number, we're talking about domestic number, predominantly. The rest of the world is taking off in terms of entertainment, in terms of accessibility, in terms of technology. And that's going to be a huge growth area for businesses like my own.

Why is it doing so well?

Well, it's relatively recession-proof. I mean, people want it. As a matter of fact, it's entertainment that, if you can see it in your home, it's cheaper than going out and taking a huge family to the movies or going to the ballpark. It's not really an expensive proposition, for adult entertainment again is just distribution. Can I get the product to the consumer? You know, it used to be that someone would have to rent a video in the store, and before that it was a movie theater. Now, as television comes into the home, the privacy of your own home, there's no embarrassment factor, there's no issue with privacy. The Internet is a personal technology and that's very well suited to adult entertainment.

And what was the variety of your videos that you offered on the [cable] tv channels?

What we offered on the TV side could be as simple as a more-edited version of films, literally meaning that it was more the plot, the sensuality, rather than the sexuality. We wouldn't show graphic content, meaning explicit content. And then we had movies that we'd literally show almost the version that you would see in the video store that contained anything that people wanted to see.

Before you sold [your tv channels] to Playboy in July 2001, how many households were you getting into?

Our three networks, at the time we sold them, were in around 40 million households. ...

Is there any way to judge how many of those households would then use the service?

Well, privacy is a very big factor in our industry. ... We did know what's called a buy rate, which is for every million homes you're in, in any given month we'll know how many times someone bought a movie. Generally our buy rates for the networks were between 10-20 percent, meaning that if there's a million homes in a given month, for every million homes you'll do a hundred thousand, hundred-thousand-plus buys.

So 40 million homes you were in and the profit was?

I won't go through all the details of our contract, but with that 10 percent buy rate, 40 million homes would equate to approximately four million movie buys per month.

Jim Coles
President of Larry Flynt Publications, which puts its worth at nearly $400 million.

Help me understand the breadth of the Flynt empire. How big is it?

Well, LFP started as just a publishing company with Hustler magazine. And from there we started publishing 20 publications, of which some were adult, some not. We've got everything from gaming magazines to music magazines to adult magazines. And from there we started branching out. We started retail stores, an Internet division, a video division. And recently we're starting clubs. So we've become very diversified in the last 10 years.

You're vertically integrated, as you've said. How does it work?

We've got the magazine, which is sold on the retail level. From that, a magazine is also put on a website, with additional complimentary material. You've got the videos, which are a separate area. Again, they're sold separately to satellite, to video on demand, and also offered on the Internet. They're also ordered through a mail-order division. You got the retail stores, which also handle a lot of product in addition to other product.

The business core is right here in this building. ... We've got about 200,000 square feet here, of which we're using 100,000 square feet. We run our Internet division. Our retail operations, they're managed through here. The video division is managed through here. The magazines are actually produced here.

Why has this business exploded in the last 10 years?

Well, we've made a real emphasis to get diversified, not to be solely holding to one particular item like Hustler magazine. So, as the economy goes up and down in certain areas, our company continues to gradually grow and get bigger. ...

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