Where Does Porn Come From? Anyone with a camera and a dirty mind can create an X-rated image. Amateur porn is common, but the vast majority of adult sites are professional outfits. Rick Muenyong, who offers information and resources to adult Webmasters through his YNOT Adult Network, estimates that 90 percent of free porn sites, and nearly all pay porn sites, buy their material rather than create it themselves. Under the Lights As long as the money's right, there's no shortage of people willing to take their clothes off and perform in front of a camera. Photographers with connections in the traditional adult industry have the easiest time finding subjects: models actively seek them out, hoping to move up to better-paying jobs in adult films or magazines. New players advertise for models in magazines and trade weeklies and often use individuals who already work for strip clubs or escort services. In any legitimate adult shoot, every model must show proof of age and sign a release giving the photographer the rights to sell the pictures. In the last two years, self-regulation has become an accepted reality, and most photographers can no longer sell material without the right paperwork. The risks to Webmasters--lawsuits for copyright infringement or a visit from a child porn crackdown squad--are too high to ignore. Behind the Lens Although many Net porn photographers have a background in the traditional adult industry, demand is enormous, and many camera clickers with no previous adult background now make money doing sex shoots. But it's not a job for the squeamish. Florida photographer Bruce Zell, who began selling CD-ROMs of his X-rated shots directly to Webmasters in early 1998, has found that it's much easier to sell "anything with some oddity to it." The fact is, anybody can snap pictures of attractive people in simple poses. But in order to stand out, adult sites must appeal to every conceivable fetish. If Webmasters can find services selling unusual images, they're likely to buy more typical items from the same sources at the same time. Distributing the Material The shoot is done. The material is ready. Next, it has to get to the people who want to put it online. In the early days of the Net, individuals would simply scan dirty pictures from magazines and video-box covers, then post them to bulletin boards and newsgroups. Many of the first adult sites consisted of this hijacked material, copied and passed from site to site. The Web Posse Cracks Down Then, in 1997, the Association for the Protection of Internet Copyright (APIC), also known as the Web Posse, began policing adult material. The group, consisting mostly of photographers and copyright holders from the traditional porn industry, sent threatening letters to Webmasters, pressured ISPs to boot offending sites, and encouraged local district attorneys to bring infringement charges. APIC's aggressive tactics worked, and professional distributors--as well as photographers and models--are benefiting from the results. Distributor Mike Rick of CyberSynergism saw his monthly revenue rocket from $1,000 to $60,000 in a single month after APIC began its activities. How Free Sites Get Their Material Some photographers sell their own material directly to free sites. But usually it's a two-part process: a distributor buys photography from a number of original sources, then resells the pictures to site owners. The vast majority of X-rated pics are either taken digitally or scanned from prints, then stored on CD-ROMs. Each disc contains up to 600 photographs and sells for anywhere from $100 for oft-used material to several thousand dollars for exclusives. A few content sellers, realizing how easy it is for unscrupulous Webmasters to burn duplicate CD-ROMs, don't share their image files with the Webmasters. Instead, they force sites to link directly to files on secure FTP servers--viewers think they're looking at porn on the free site, but they're actually accessing it directly from the distributor. In order to maintain a successful business, distributors often work with 1,000 or more Webmasters, mostly small-time proprietors who post the material for free. But, recently, there's been a shakeout among these free sites, and distributors are cutting into a steadily shrinking pie. Worth Paying For With so much free porn available, pay sites must feature something other than simple pictures. Interactive video, celebrity shots, and images of well-known adult stars are expensive to produce and can also command a lot of money from viewers. So lots of pay content is distributed by the same companies that create it--they'd be crazy to lose money to a middleman. One company, the Internet Entertainment Group (IEG), has built annual revenues to about $50 million by controlling most of its content from start to finish. Not only does the company charge individual Web surfers to access material (including its notorious shots of celebrities like Dr. Laura Schlessinger), but it also sells its material to magazine and video distributors, becoming one of the first Net-based companies to expand horizontally into other adult markets. Adult Webmasters A young entrepreneur flips through erotic pictures on a CD-ROM, picking candidates for her upcoming Web site. She has no experience with pornography, but she knows computers, and she's heard the same success stories as everybody else: 25-year-old Seth Warshavsky turned a bankrupt phone-sex business into the enormous Internet Entertainment Group; former accountant Beth Mansfield grosses nearly a million dollars a year from Persian Kitty's Adult Links. She's in for a surprise. The easy money days are over. The High Cost of Hosting Unlike mainstream sites, Web porn deals almost exclusively in bandwidth-hogging pictures. Bonus items like animated clips, live video, and interactive chat suck up even more space. Adult Webmasters can't get bandwidth the same way as anybody else. Getting axed by an angry ISP or sneaking onto a free mainstream service like GeoCities are the quickest ways to get blacklisted throughout the industry. These unfortunates lose all their ad banners and link-exchange partners--forever. So most adult sites use an adult-oriented hosting service and pay by the amount of material served per month. A couple thousand users grabbing one or two high-quality images adds up to at least two gigabytes per month--the usual amount allocated in cheap starter packages. Break the limit, and the bills can multiply five or ten times beyond expectations. New customers with big money behind them are driving up costs as well. Paul Howser, who co-owns South Beach Hosting, notes that "the client who used to balk at $2,000 doesn't exist compared with the client who now says 'Great!' when we say '$25,000.'" Free adult hosting, a new trend, is fine for small-scale labors of love, but unworkable for porn proprietors who want to make money-- Webmasters must give their banner ad spots away to the hosting company, eliminating their main source of potential revenue. Not Easy Like Sunday Morning There are other difficulties as well. Webmasters can't post dirt-cheap pictures from newsgroups or other sites, thanks to industry watchdogs like the Web Posse. Vice squads and district attorneys make names for themselves by targeting Net porn, which means expensive lawsuits. But the real bear is publicity. No matter how big, bold, or beautiful an adult site is, it will never make any money without lots of traffic to and from other sites. Andrew Edmond, president and CEO of hit-counting company SexTracker, explains: "The whole industry is based on partnerships and cooperation. Your real estate is going to go nowhere if you can't do favors for other sites and get people traveling back and forth." Now some of the early entrants into the Net porn industry, flush with financial success, are buying competing sites. This makes it more difficult than ever for new Webmasters to make business connections. Lee Noga of content distributor ZMaster predicts the shakeout will continue: "We're already seeing people buying other sites just for power. Ten years from now, there might only be ten humongous adult companies, but they'll own about 100,000 sites each." Free Sites Set the Bait Up to 30 million individuals a day log on to adult Web sites. After running a search at a portal site or adult index, the next stop is probably a site with free images. According to Rick Muenyong of The YNOT Adult Network, free sites comprise between 70 and 80 percent of the adult material out there. These sites are used as "bait" for pay sites and make their money by successfully guiding viewers to premium services on other sites. Clickthrough and Conversion Conventional online companies can still get away with charging advertisers for the number of banner ads shown to viewers. In sharp contrast, free porn sites make money only when a user visits an advertiser's site and makes a purchase. Typically, a premium site shares between 30 and 60 percent of each sale with the referring site. This may seem generous, but it's actually very difficult for free sites to capitalize on these arrangements. Although 5 or 10 percent of visitors might click on an ad (known as clickthrough), only one or two out of every thousand will actually purchase the services advertised (known as conversion). In order to survive, free sites will use almost any trick to raise clickthrough rates: false promises of more free content and multiple pop-up ads that appear when a viewer tries to leave are the most annoying recent trends. By and large, viewers don't seem to mind the tricks, as long as there's enough free content to satisfy them. As mainstream advertisers begin to charge by clickthrough and conversion, look for these tactics to make their way over to the mainstream Web. Grabbing Eyeballs In order to make any money referring customers to pay sites, free sites themselves must attract thousands of users. So far, index sites with thousands of links, such as Persian Kitty's Adult Links, have had the best luck grabbing traffic and making money. With this lesson in mind, Webmasters aggressively pursue cross-linking agreements. Top ten (or fifty, or three hundred) lists, which rank "partner" sites based on overall traffic, were trendy in 1997, but partners often artificially inflated hit counts through endless circles of links within their sites. SexTracker, a more sophisticated service that tracks traffic throughout the entire adult industry, is perhaps the ultimate outgrowth of the list trend: its 12,000 adult-site rankings are a frequent starting point for porn-hungry surfers. Now free sites are consolidating their material in other ways in order to attract users. In a picture post, for instance, a group of free sites puts text links to individual images on a single, free clearinghouse page. When users click to each picture, they see a banner advertising the site it came from and will (hopefully) find the material enticing enough to click through. Free adult hosting services, which make money by selling ads on their customers' sites, are also popular. Neither of these models has yet demonstrated financial success, but they currently rank near the top of SexTracker's traffic lists. Premium Sites Cash In At some point, a viewer decides that the free material simply isn't enough. One day, he (yes, the vast majority of online porn viewers are still male) clicks on an appealing banner ad, pulls out his credit card, and signs on to a pay site. Attracting Business Premium adult content, particularly live video and interactive chat, is extremely expensive to produce, and most pay sites buy their material from one of several hundred providers at the very top of the food chain. In order to pay these content providers, the sites need to attract thousands of paying customers and keep them around. Advertising on other adult sites is the primary way to attract customers. Indeed, pay sites drive the porn industry, sharing revenues with the tens of thousands of free sites that refer customers to them. Premium sites also advertise on mainstream Web sites--run a search for the word sex on almost any major portal and notice the banner ad that pops up. But these banners are expensive, as most mainstream sites require payment up front based on impressions, rather than based on the number of customers who actually buy something. A Reputation for Fraud Once the customer has signed up, it's vital to have him stick around for a few months. Premium porn sites offer the same kind of incentives--cheaper prices over the long term, special deals, discounts for signing friends up, and so on--as any other subscription-oriented business. Many believe that the uniqueness or quality of their content will encourage long-term membership as well. But, despite all this, the average customer stays on a specific pay service for only three and a half months. With such financial pressure to keep customers, some pay sites have stooped to shady business practices. Many services make it difficult to cancel memberships, hiding "cancel" buttons or changing phone numbers without warning. Some promise one free month of access--but then secretly charge for the first month before allowing customers a free second month. One insider even told us of a company that shared its credit card database with other Webmasters who fraudulently charged the cardholders for services that were neither ordered nor delivered. When the cardholders began filing fraud claims with their credit card companies, the other sites declared bankruptcy and split with the loot. Pornography is enough of a loaded issue to attract government attention on its own, but widespread allegations of fraud make a crackdown even more likely. Rick Muenyong of the YNOT Adult Network worries that a few bad apples will spoil the entire industry: "Either the Better Business Bureau or the FTC is going to come in, and we're all going to pay for it." This fear of government intervention pervades the industry and is one reason why many Net porn insiders are looking to get out of the business. The Porn Preventers Of course, adult images will never reach some viewers at all. There are plenty of people working to protect children, communities, and society at large from the perceived threat of pornography. Uncle Sam Gets Involved The federal government hasn't had much luck stopping Internet porn. Congress passed both the Communications Decency Act of 1996 and the Child Online Protection Act of 1998, but both have been halted by federal courts for violating the First Amendment. But if the feds can't shut the business down based on obscenity, they may go after Net porn based on widespread allegations of consumer fraud. The IRS has the power to investigate business dealings in other countries if it suspects tax evasion, which could put a crimp in plans to "move offshore" if the climate grows hostile in the United States. Some local governments can prosecute based on community decency standards, and arrests may become common as we enter the next big election season. Technology Solutions and Free Speech Some politicians and parents laud filtering software as the best way to protect kids from X-rated material. Even adult sites themselves, wary of government intervention, post messages promoting Cyber Patrol, Net Nanny, and other filters. Unfortunately, today's filtering technology is easy to disable. Organizations like Peacefire post simple instructions and offer free downloads that disable both standalone software and the filtering mechanisms in recent Web browsers. The authors of these hacks are not in favor of porn for kids; rather, they see themselves as warriors in the battle for free speech. Filtering software can be too broad, blocking innocuous pages based on keywords. Although such instances are relatively rare, sites about breast cancer, homosexuality, and computer activities (which may contain the words "hack" or "code") have all been screened out. Some centralized services block suspicious IP addresses, taking out an entire server because it hosts one or two pages with adult content. Despite these early problems, some insiders believe a technological solution will eventually triumph. Andrew Edmond of SexTracker sees a future, perhaps five years off, in which every packet of information traveling on the Internet will contain an electronic content tag. Intelligent routing equipment will read these tags before the packets ever get to users' computers, allowing private and public networks and large backbone hubs like MAE West to give priority to certain types of information--and allowing businesses, organizations, or entire countries to block offensive material much earlier in the chain. Running Scared Regardless of whether the crackdown comes from new technology or new regulations, many insiders are tired of the legal risks and increasingly difficult marketplace and are moving into more conventional Web businesses. Their demonstrated financial success and experience with the latest Net technologies could translate well, particularly in e-commerce and Web advertising. As Lee Noga of content-provider ZMaster says, "If there's something successful and new happening on the Internet, there's probably somebody with an adult background heading it." But Edmond, for one, is sticking with the adult industry. "The business is too big [to fail]; too many people like it. There are 160 million people on the Net, and we track 32 million individuals every day who access adult sites. We consider this a long-term business."