Sex, Bombs and Burgers (26 page)

Internet service providers also reaped the benefits as customers converted their slow dial-up connections to more expensive high-speed broadband. In the United States, about 20 percent of AT&T’s high-speed customers paid to watch porn online. In Europe, where high-speed subscriptions grew 136 percent in 2002, music file-sharing services and adult content were identified as the two leading reasons for why people switched to broadband.
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“Adult content is the obvious subscriber service to go for because there is already a proven business model,” one analyst said at the time.
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The revenue growth in online porn continued through the mid-2000s, particularly in the United States, where producers raked in close to $3 billion of the total $5 billion global porn pie in 2006.
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In 2009 an estimated 25 percent of all search requests were for adult content while a third of all websites were pornographic, garnering as many as 68 million hits a day, or 28,000 surfers a second watching porn of some kind.
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Today, $89 is spent on porn
every second
.
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Even taken with a grain of salt, the numbers are astounding.

Too Much of a Good Thing

But this money-printing business is now under attack. A recent estimate by
E-commerce Journal
pegged the online porn market at $2 billion, or about the level it was at in the early part of the 2000s.
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DVD sales and rentals, meanwhile, are down by about 15 percent. For the first time in its history, the supposedly recession-proof adult entertainment business is contracting in
terms of revenue.
Adult Video News
, the
Wall Street Journal
of the industry, attributes the decline to the same two factors that have Tera Patrick worried: too much product and too much piracy. “The laws of supply and demand have been turned upside down. We’re on par to put out fifteen thousand new releases this year, which is just insane,” said
AVN
founder Paul Fishbein in 2008. “Secondly, there’s a battle with pirated or free material on the internet. Much like the music industry, adult producers are trying to figure out how to stem free or pirated content.”
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Ironically, the product glut is the result of internet innovation. With the ability to create and distribute videos more cheaply and easily than ever before, everyone with an internet connection can now be considered a competitor to the likes of Vivid and
Hustler
. Piracy, meanwhile, is coming in two forms: file-sharing and free websites. The mainstream music and movie industries have felt the damage of websites such as Pirate Bay and Mininova, which contain directories of “torrents” that allow users to swap files for free. The potential hurt could be much worse for the porn business since, as Wicked’s Orenstein said, it has no other revenue stream—such as live shows or box-office earnings—to fall back on. Even worse are a rash of porn-flavoured YouTube clones, including YouPorn, RedTube and Tube8, which allow users to upload sex videos. The sites are drawing considerably more traffic than the big porn companies’ own online operations, and they’re rife with copyrighted material. That has the producers hopping mad. “This needs to be treated like a bank, like someone is going in and robbing a vault. As far as I’m concerned, for the music business, for Hollywood and for our industry it has to be treated the exact same way,” says Digital Playground president Samantha Lewis. “We’ll all be out of business at this rate.”
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The producers’ retaliation has come in several forms, some more successful than others. They have done remarkably well in keeping their content off torrent sites, for example. While Warner Bros. declared victory in 2008 by announcing it had kept its blockbuster Batman movie
The Dark Knight
off torrent sites for two whole days after its theatrical release, whereupon it became easily available, the big porn companies are taking comfort in the fact that many of their films are file-sharing rarities. Lewis claims that this is the result of a persistence not practised by Hollywood. Digital Playground, for one, has two full-time employees monitoring torrent sites who take immediate action against any and all infringements. “All we do is shoot off an email and it’s down in thirty seconds. They really don’t want a lawsuit,” Lewis says. “We’ll get something down and then they’ll mix it around, maybe change the spelling of the name and put it right back up in fifteen minutes. We’ll be on them again. If it happens again, then they get the letter [from lawyers]. You just have to be persistent and they know we’re serious.”

Some feel the ultimate solution to stopping piracy lies with what brought the industry to the dance: innovation. Stoya, winner of several “new starlet” awards in 2009 and porn’s current “it” girl, says lawsuits and technological restrictions like copy protection haven’t worked for the music and movie businesses, and they won’t work for adult entertainment. Maybe, then, it’s time to get creative. “It’s not so much that they’re fighting a losing battle, but they’re fighting a different battle. The solution is to think outside the box,” she says.

There is also the matter of too much product. The solutions there will follow the same economics as in any other industry: consolidation or expansion. If revenues continue to decline,
some producers will fall by the wayside or get swallowed up by competitors. As for expansion, there are plenty of countries that still actively ban porn. Getting a foothold in some of those now may reap huge rewards down the road. “The Chinese wall keeping pornography out is going to fall some day,” says Kim Kysar of Pink Visual, which is trying to build its brand in neighbouring Asian countries in anticipation of that eventuality. “As soon as it does, it’s obviously going to be the biggest market there is.”
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Nevertheless, many are still worried.
Hustler
president Michael Klein agrees with Tera Patrick. If the big porn producers can’t figure out how to deal with piracy and the glut of product, they’re going to have to figure out an entirely new way of doing business. “It’s going to be harder to find the next Jenna Jameson or Tera Patrick, someone who’s going to be a standout star,” he says.
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The Final Frontier

The irony of the entire situation is that the destructive power of the internet lies in the very seeds of its formation—the decision by Vint Cerf and DARPA in the seventies to freely distribute the rules that govern connections between computers. That seminal move was duplicated by Berners-Lee in the early nineties when he released his web browser code for free. Both actions, fundamental to the formation of the commercial internet and web, created the “culture of free” that has turned media business models—porn or otherwise—upside down over the past decade. The longer people use the internet for free, the greater this sense of entitlement grows. Perhaps that is the way of the future and businesses will have to figure out a way
of working within the new system, or perhaps old models will somehow reaffirm themselves, possibly through a continuation of lawsuits and enforcement of copyright laws. I suspect it’ll be a mixture of the two: content creators will eventually figure out how to do business and make money in the new paradigm, while users will accept that not everything on the internet is automatically free.

There is, of course, one other possibility. Cerf is working with NASA’s Jet Propulsion Laboratory in Los Angeles on developing the “intergalactic internet,” a new communications network that will connect all the satellites and spacecraft up in orbit with facilities here on Earth. The network got early DARPA funding in 2000, followed by a second round in 2007, then moved into production in 2009 after successful testing. Under the current system, if scientists on Earth want to retrieve data from, say, the Hubble Telescope, they need to schedule a download connection for when the sensor array passes over a node on Earth.

The new system follows the “hot potato” routing idea of the original ARPAnet, where data is stored at nodes and forwarded as soon as possible. Satellites and other craft will be able to automatically transmit their data to other nodes whenever they pass by them, eliminating the need for complicated logistical scheduling. This “delay-tolerant” feature, which sends information even if there are connection disruptions, also has applications here on the ground. The U.S. Marine Corps has tried it and loves it, as have Sami reindeer herders in northern Sweden, who tested it for DARPA in 2005. Commercially, the system could theoretically be rolled out by Google on its Android cellphones for significant bandwidth savings. One Android user
could, for example, download a map over the cellular network and then radiate it out to other Android users, thereby saving the other users from having to download it as well.

Given the history of the internet so far, if the principles behind the “intergalactic internet” are ever commercialized, there’s little doubt that porn companies will once again be first in line to figure out how to capitalize on them. Who knows— maybe expanding porn sales to outer space is the solution to their problem of shrinking revenues here on Earth.

And how does the “father of the internet” feel about the porn industry’s role in nurturing and developing his creation? “It’s slightly embarrassing to think that it might have grown up around that,” Cerf says. “On the other hand, this is where VCRs did very well, too.”

Outsourcing Burgers

Of course, it’s not just the porn industry that is looking for ways to reimagine its business for the internet era—fast-food companies are using it in increasingly inventive ways too. One of the most controversial by-products of the internet has been the outsourcing of labour from developed to developing countries. Businesses of all stripes, from banks to phone companies to computer makers, have taken advantage of the low-cost communications made possible by the internet to relocate their customer-service and IT operations to countries such as India, Brazil or the Philippines. After all, if a customer is calling for help from New York, it doesn’t really matter on the service level if the company representative is in Houston or New Delhi. And it’s much cheaper if the representative is in a developing country, where wages are a fraction of what they are in the United States or United Kingdom.

Outsourcing has been a double-edged sword, though. It has allowed companies to cut costs and create scores of jobs in places such as India. On the flip side, many customers resent having to deal with service agents on the other side of the world— they’re seen as impersonal, unsympathetic and an example of how cheap the company employing them is. This discontent is largely psychological; even though Indian customer agents often provide the same level of service as their local counterparts, many Americans prefer to take their gripes to other Americans, while Australians simply want to complain to fellow Australians.

Big fast-food companies have been quick to jump on the outsourcing bandwagon. Through the early part of the new millennium, most moved in lock-step with other multinationals in transferring their customer service and IT operations to developing nations. But the fast-food chains did one better: they outsourced their drive-thrus. McDonald’s, as usual, was the first to test the idea in 2004, moving order-taking from one state to another. How it works is simple: customers drive up and place their order as they normally would, but the person on the other end of the speaker is located hundreds or thousands of kilometres away. The connection is made using the same internet-based calling technology that makes communicating with India so cheap and easy. The order-taker then relays the customer’s order back to the restaurant, to be filled by employees there.

The new system, which has spread to many fast-food chains both in the United States and around the world, has several advantages over the old. It frees in-store employees from multitasking—rather than running around wearing a headset, taking multiple orders and then assembling those orders, workers
can concentrate on one simple job, which reduces mistakes. It also speeds up the order-taking and processing of drive-thru customers. Wendy’s, for one, has been able to shave between thirty seconds and a minute from customer order times. Given that fast-food restaurants make up to two-thirds of their sales from their drive-thrus, those extra seconds translate into big dollars. In 2006 Wendy’s said sales had jumped by 12 percent at stores testing the system. “It’s the future of the industry. I can’t believe how stupid I was not to do this sooner,” said one Wendy’s executive.
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One other benefit of the new system is the ability to move labour to less expensive jurisdictions. In the United States, this means outsourcing drive-thru order-taking from a state where the minimum wage or required benefits are relatively high to one where they are relatively low. The advantages of employing a call-centre employee in Mississippi, where there is no minimum wage, for example, are obvious if your restaurant happens to be in, say, California, the birthplace of fast food, where the minimum wage in 2009 was $8 an hour. Taken to its next logical step, there seems to be little argument against fast-food companies taking the full plunge by outsourcing drivethrus to call centres in developing countries, where they’ll save even more on labour costs. Some, in fact, are already doing so— in 2006 one London curry restaurant outsourced its corporate take-out orders to India. “It is amusing that the orders travel nearly five thousand miles to be finally delivered just half a mile away,” the restaurant’s owner said.
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Fast-food companies may prove once again to be on the cutting edge by taking internet-based outsourcing and applying it in new and innovative customer service applications. Bronco
Communications, the company that managed McDonald’s early outsourcing tests, is eyeing a way to expand its technology to retail chains such as the Home Depot, where customers would be equipped with internet-enabled shopping carts. A call-centre operator could then guide the customer through the store. A Bronco founder explains how this system would work: “You’re at aisle D6. Let me walk you over to where you can find the sixteen-penny nails.” Such possibilities, with their upsides and downsides, are virtually limitless. Fast food, meanwhile, will only get faster thanks to
the internet.