Porn companies challenged by Internet sites

LAS VEGAS (Reuters) - After years of booming sales supported by videotapes, DVDs and the Internet, the adult film industry is being challenged by easy video-sharing Web sites offering explicit content for free.

"We're dealing with rampant piracy, tons of free content," said Steven Hirsch, co-founder of privately held Vivid, the best-known studio making sex films.

Vivid once earned 80 percent of its roughly $100 million a year from DVD sales, but last year that fell to 30 percent, Hirsch said in an interview.

The Internet challenge, a topic of discussion at the biggest adult film expo of the year in Las Vegas this week, has already presented itself to the music industry and other mainstream entertainment.

Much of the Internet competition for the U.S. porn world, largely based in southern California, comes from Web sites like Toronto, Canada-based XTube.com, whose format is modeled after Google's YouTube.

Some of the videos on the XTube site come from commercial studios while others are posted by amateurs.

"We're not pirates. We are providing a service that people think they can use to pirate," said Lance Cassidy, one of XTube's founders.

The Web site has 200,000 free videos, typically 30 seconds to two minutes long, and about 1 percent of visitors buy DVDs or video streams, resulting in millions of dollars of annual revenue, sales director Curtis Potec said. About two thirds of XTube's viewers are gay, Potec said.

"We've had tons and tons of people tell us this is the future of the adult industry," Potec said. "Most of the money is ads, on any site, mainstream or adult."

Scott Coffman, president of Adult Entertainment Broadcast Network (AEBN) in North Carolina, says his company started a YouTube-type site a year-and-a-half ago to generate revenue through advertising and drive traffic to pay-per-minute sites.

AEBN limits free clips to three minutes. Users make about a quarter of them.

"They don't convert that well when you give away so much. There is a fine line between giving away something small, a teaser ... and giving away the whole thing," Coffman said.

He said his company has revenue of about $100 million a year and is facing a lawsuit from Vivid accusing AEBN of piracy.

Vivid's Hirsch says he will sue other video-sharing sites.

"This industry is going to have to get together and look at these guys that are putting out the stuff for free ... so they are going to have to get in line and start paying for it," Hirsch said.

"If that doesn't happen and we see all of this free content out there, people are not going to be able to afford to produce movies anymore."

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Videotape, fewer prosecutions, DVDs and Internet advertising created an unprecedented boom the U.S. sex film business since the 1980s.

Many studios post short clips on Internet video-sharing sites as advertising to sell more movies.

"This is something we constantly discuss in our office. Is it too much," said Garion Hall, chief executive of www.Abbywinters.com , an Australian company featuring lesbians.

Hall said only one out of 500 viewers clicks over to his site from free clips and of those only one in 50 subscribes.

Some adult industry executives say a solution may lie in future distribution deals with big companies such as AT&T Inc, Verizon Communications Inc, Comcast Corp and Apple Inc.

An Apple spokeswoman said the company would not comment if it had held past talks or was interested in distributing adult product. A spokeswoman for Comcast, the largest U.S. cable provider, said the firm offered adult content in its video-on-demand service but said she knew of no talks for mobile adult distribution.

Sales of sex films to mobile devices occur in Europe but have yet to take off in the United States.

"We won't make money through adult content," said Verizon Wireless spokesman Ken Muche.

AT&T did not comment.

Jay Grdina, president of ClubJenna Inc, a division of Playboy, says sharing previews is a mistake. "We're getting bitten by our own sword," he said.

Grdina, former husband and on-scene partner of Jenna Jameson, one of the industry's most famous porn stars, said he has met companies such as Microsoft and Apple to seek wireless and other distribution deals that could allow easy downloads to devices such as iPods.

A spokesman for Microsoft said they were not in talks to distribute adult content.

"The revenues are massive," Grdina said. But "the biggest fear is share price: what are the shareholders going to say?"