HERALD BUSINESS FRONT PAGE
Published Monday, July 24, 2000, in the Miami Herald

Technically, it's cutting edge. Financially, it's one of the few Web areas that knows how to make money.

Adult Web sites bring in one-third of all revenue derived from Internet content. And South Florida, long a home to traditional porn, is a hotbed of the hottest Internet activity.

Moonlighting online: 'amateurs' come from variety of backgrounds, Meet Barbara Leigh, The world's biggest exhibitionist, Sued by Multi-Billion Dollar Mattel and still smiling and going strong.

INTERNET PORN

South Florida Becoming Industry Hotbed

SEE ALSO
NEW STRATEGY: Eddy Marin says his Pompano Beach business saves $35,000 per month by selling archived images instead of using live models.

Tech's early adopters: porn operators on cutting edge

Moonlighting online: 'amateurs' come from variety of backgrounds, Meet Barbara Leigh, The world's biggest exhibitionist, Sued by
Multi-Billion Dollar Mattel and still smiling and going strong.

BBY JOHN DORSCHNER
jdorschner@herald.com

If you want to really know what's happening with the Internet, many experts say, look at the dot-com sex industry.

From spam to interactive streaming videos, sex operators have led the way. They're also among the very few Net companies that have found a way to make money. Sex sites earn one third of all the revenue that is derived from Internet content -- $200 million of a total $600 million, according to Jupiter Communications, a research firm specializing in the Internet.

``It's always cutting edge,'' says David Card, a Jupiter senior analyst. ``It's very interesting to observe what goes on in that business.''

That's particularly true for South Florida, long a home to traditional porn businesses and now a hotbed of Internet activity.

One of the world's biggest site operators, Cyberentertainment Network, is headquartered in Fort Lauderdale. Last year, Miami Beach hosted a little-publicized convention for the industry. One fetish site based in New England says it finds a third of its models on South Beach. And a veteran operator guesses that as many as half of the latest Internet sex trend -- so-called amateur sites -- are operated by adventurous women from their Florida homes.

But while many vehemently protest the sites' graphic visuals and Internet trade stories applaud their alleged money-making prowess, Jupiter's Card warns that cybersex may not be all it's cracked up to be.

``This money-making deal is hugely overblown,'' he says. ``All it shows is how little money is made on content. It's sort of scary. Outside of The Wall Street Journal, very few have found a way to make money on content on the Internet.''

Other sources aren't quite as dismal. AVN Online, a trade publication, estimates that the industry may earn up to $1.8 billion in revenue.

But most adult sites are private and it's impossible to know how profitable they might be. Exact figures are hard to come by in a business where many pornopreneurs work under pseudonyms. Whatever the numbers are, several experienced site operators say that hundreds of adult sites have folded in the past year and many others are struggling.

They are beset by fickle viewers, cheats, federal investigators, rampant competition from global giants and uninhibited amateurs, plus ever-tightening restrictions by credit card companies.

 

BUSINESS OF SEX: Screw Magazine publisher Al Goldstein, with four of his employees, believes the Internet will eventually drive printed porn out of business.
Example: A Pompano Beach firm now calling itself Opt-In Services. Two years ago, it was a thriving dot-com. Its main site employed 40 women who worked in six small studios in a Pompano warehouse. Many were former lap dancers who found cyberspace to be a cleaner and easier work environment. The company even provided them with an exercise room.

For a while, the money flowed in. Viewers spent $6 a minute for a ``one-on-one.'' A guy typed requests into his home computer -- ``take off your blouse'' -- and the woman complied. The average session brought in $100.

Those days are long gone, as are the 40 women. Surfers found the service too expensive, and migrated to different kinds of sites.

A new owner, Eddy Marin, now makes do with a staff of four, selling viewers archives of photos and videos through a myriad of sites for a monthly fee of $19.95.

``You don't have to babysit them,'' he says of the departed women. ``And I save $35,000 a month.''

Marin has spent time in jail for cocaine trafficking charges and is now facing a prison sentence for money laundering, a charge he says he's appealing. He considers himself lucky in one respect -- he's still in business. A half-dozen competitors have gone under, he says.

Still, there are many sites around. Undoubtedly the biggest operation here is Cyberentertainment, which has an array of sites and also provides services for many other adult operators. It boasts online that it pays out $1 million a month to other Web sites just for sending it traffic.

Officials at the Broward company did not respond to two phone calls, but Stacy Boyd, editor of AVN Online, says, ``They're one of the biggest in the world.'' Rumors that the company takes in $30 million or more a year, she says, ``are absolutely possible.''

Marin, like many other operators, works on a much more modest scale. He says he now focuses on selling an array of services to sex and nonsex companies. ``We can do everything. Hosting on our servers, Web design, marketing.'' Plus selling ``content'' -- the library of videos and stills built up over the years -- to Webmasters of other sex sites.

One major customer is a Miami Lakes publisher, Dugent Corp., which produces Nugget and Gent men's magazines. With the assistance of Marin's company, Dugent has gone online. A subscriber gets access to magazines, plus ``live sex,'' videos, ``voyeur cams'' and photos.

Dugent's publisher, who calls himself Travis Keith, a pseudonym, says he's making little money off the Net. ``If we were not publishing magazines, I would not be on the Internet.''

Marin says he also sets up many sites for so-called amateurs who hope to make money on sex. That includes former ``exotic dancers'' who strike out on their own, plus ``lawyers and CPAs, though I'm sure they don't want their names used.''

Experts say hundreds, perhaps thousands, of such nonprofessionals have joined the online sex business. According to Sextracker rating service, there are 280,000 adult-content Webmasters and 60,000 pay sites.

``The porn business has always attracted morons,'' moans Al Goldstein, the veteran publisher of Screw Magazine who lives in Pompano Beach. He charges $20 a month for his online version, and he believes the Internet will eventually drive printed porn out of business. But that's also the fate that awaits most dot-coms.

``You have 4,000 people trying to do the same thing,'' says Goldstein, 64. ``So the morons are going out of business.''

``It's just like any other business,'' says Richard Glidewell, a Sarasota investment counselor who has studied the online sex industry. ``The big fish eat the little fish.''

What happened to the site Marin purchased, Glidewell says, is that it was a middle-level dot-com that was squeezed at both ends. A global giant, Python, now employs hundreds of women for live Webcasts and can charge considerably lower prices.

``Then at the other end, there are all the amateurs, which provide an authenticity that a lot of these professional sites never can.'' Most are one or two-person operations, done from home studios, in which women bare all in regular Webcasts while subscribers type in requests. [See sidebar, The New Pornopreneurs.]

``There's a kind of goofy innocence about it,'' Glidewell says. Last year, he went to a convention on Miami Beach sponsored by Adult Video News. It attracted dot-com sex operators from around the country.

``I thought it would be all drugged out women, but it's all people in their 20s having a hell of a time and making a fortune.''

At least, that's what they told him.

Many of the convention booths were occupied by companies offering to sell their content to other Webmasters, all of whom are trying to take advantage of the growing online audience.

According to Media Metrix, viewing of ``adult content'' sites has grown steadily -- but only at the pace of general Internet growth. Over the years, the rating service reports, the ratio has remained fairly constant: About one-third of all U.S. surfers visit a sex site at least once a month. The most recent figures, for May, indicate that 25 million looked at porn.

While many sex dot-coms charge $1 to $3 for a three-day tryout and up to $30 for a monthly subscription, their financial bottom lines aren't known. The major exception is Playboy.com, which has published its annual report in preparation for going public.

In 1999, the company performed like most dot-coms -- losing money. Last year, it had net revenue of $13.6 million and a net loss of $11.4 million.

Despite widespread emphasis on how sex sites flourish with subscriptions, Playboy.com earned only 18 percent of its income from the $6.95 monthly fee for its CyberClub. The rest came from traditional dot-com sources: e-commerce and banner ads.

The Playboy.com balance sheet was so dismal, reported a writer in eCompany, that it had ``all the sustainability of a Viagra hit.''

Like many other dot-coms caught in the uncertain stock market, Playboy has delayed its IPO. So has Seattle-based Internet Entertainment Group, famous for providing sensational images of actress Pamela Anderson Lee and talk show host Laura Schlessinger.

IEG has had to set aside its IPO ambitions because of reports that its owner, Seth Warshavsky, is under federal investigation for possible income tax evasion and credit card fraud.

For virtually all sex sites -- whether they feature men or women -- credit cards have become a major problem because many customers claim they have been falsely billed.

The problem is so severe that American Express no longer allows its cards to be used on adult dot-coms. Spokesperson Joanne Fisher says the company spent a year working with site operators to improve matters and didn't get anywhere.

Visa merchant banks have also clamped down because online sex chargebacks are considerably higher than the overall average of .7 percent.

Marin in Pompano Beach reports that he now gets penalized $25 or $50 for every chargeback. He says he has kept these reversal of fees under 1 percent of his transactions by out-sourcing the credit-card dealings to a specialist, Epoch Systems.

The co-owner of a fetish site, who goes by the name Colin Daniels, says he has heard of Visa banks slapping up sex sites with penalties up to $25,000. He estimates that 100 adult dot-coms have gone out of business in the last several months because of the ``extremely draconian'' actions taken by credit-card companies.

Daniels, like most porn entrepreneurs, say that credit-card fraud is infrequent. A Visa spokesperson suggests part of the problem is that many sex companies bill under a third name, so that the subject of sex doesn't appear on the monthly statement.

``I attribute 50 percent of it to the `duh' factor,'' says Daniels. ``Mrs. Jones asks her husband what it is, and he says, ``Duh, I don't know.' ''

To combat the chargebacks, most sex sites now demand detailed information along with the credit card number, including e-mail and home addresses. Daniels says that when he asked for home addresses, ``I lost 15 percent of my subscribers right away.''

The coming of electronic signatures may reduce the problem, but that technology may be a year or two away. Meanwhile, alternative billing systems that use e-cash or smart-cards may be too complicated for the sex industry.

``Adult entertainment is primarily an impulse buy,'' says Daniels. If persons had to arrange for an alternative form of payment, ``90 percent of potential sales go right out the window.''

Tech's early adopters: porn operators on cutting edge

Moonlighting online: 'amateurs' come from variety of backgrounds, Meet Barbara Leigh, The world's biggest exhibitionist, Sued by Mattel and still smiling and going strong.