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The Tubes phenomenon destroyed the industry as we know it. Giving so much away for free, paying top dollar to do so allowed Tubes to take over most of the porn traffic.
Could they have made a profit if the industry had paid 10% to promote itself? There's no reduction in the customer base just a huge reduction in the size of the free porn base.
We'll never know because most live in a small bubble where slinging out loads of mediocre sites is a great way to make a buck and creating a few great sites is beyond some people's perception.
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