Eco 101 breakdown of Adult
 

Hey everyone. I have a really simple analysis of the adult industry. I'm just going to make a few general points, then everyone is free to discuss. I don't claim to have a complete, cohesive argument.. just a set of facts.

1) Adult video is a perfectly competitive market.

a) This means that the consumer doesn't care who makes the content, who's in the content or what takes place in the content. The consumer is only interested in jerking off.

b) The marginal cost of delivering 1 jerk-off worthy piece of content approaches zero. No matter how you slice it, even if a content scene cost $10000 to shoot and edit, the marginal cost of delivering that scene over the internet approaches zero. At 100,000 views, that marginal cost is $0.10+bandwidth and falling. The more popular the content, the lower the marginal cost. The fixed cost of shooting the scene approaches zero as the number of views approaches infinity.. and at infinity the cost = cost of bandwidth to show the scene. In a perfectly competitive market, price = marginal cost and there is zero economic profit.

2) Prior to the internet, the adult video market operated as a monopoly-cartel

a) One of the main defining traits of a monopoly is a very high barrier to entry. Before the internet and during the video / DVD era, there were many barriers to entry: Cost of production (physical cost of making video tapes / DVDs for inventory), limited distribution sources (competition for distribution). There are also barriers to entry in general that exist in adult, and they are moral and ethical barriers. Many people will simply not enter the adult space because it conflicts with their moral or ethical beliefs. These barriers exist today. Prior to the internet, there existed a "barrier to comsumption". This barrier was a social barrier created by what one had to go through to consume adult content. A consumer would have to either go to a theater (sketch-bag), go to an adult video store (sketch-bag), or wait until they were in a hotel room (social faux-pas, limited access as compared to the size of the market as a whole).

b) The video producers operated as a cartel: a group of homogeneous producers making a commodity artificially inflated the price of the commodity by controlling the supply. The supply was restricted by the barriers to entry mentioned above. There were also barriers to consumption also artificially propped up the price of the commodity

c) The internet has done the following: Destroyed the adult video cartel, removed all physical barriers to entry (geographic included) and removed the barriers to consumption. The net result? The global market for porn has exploded and the destruction of the cartel has opened up the supply.

So why are people upset? Because they believe that the artificially high price of porn in the past implied value. Unfortunately, the true nature of adult content is being hased out by a free market: There is little to no value in adult content and it is a pure commodity, like water.

Content producers overvalue their work and are scrambling to fabricate barriers to entry, thinking that the 'value' is being stolen by consumers abusing the internet as a medium of distribution. This is exactly the same as the music industry - except the difference is that musical artists have intrinsic social and economic value. Adult 'artists' have little to no intrinsic value. This is upsetting to some.

The record companies are dying a slow death because the market has called them out - they do not add value... but money is still being made by the people that do add value in the music industry: the companies that provide a cohesive distribution platform (eg itunes), the artists them selves, concert promoters and advertisers, etc.

The market is telling the adult industry something loud and clear: We do not value your content.

The future of the adult internet is crystal clear: Mass production of content by a small number of companies, mass distribution of content by an even smaller number of companies and a shift of value to non-commodity content: live sex / live adult interactivity.

If you produce content, you are going out of business unless you plan to be the biggest and/or have a plan to leverage your low-value content into high-value revenues.

Hey Steve:thumbsup

Nice read champ.
:thumbsup

Heyyy JFK - Thought I'd pop in to see what is shakin with the GFY crowd :winkwink:

nice to see you around:thumbsup

Wow, someone who understands free market economics on GFY?!?! Goog God, what is the world coming to?

I don't know about all that. I do know that if people can get something for free, they will. It doesn't mean they don't value it, just that why pay for it if you don't have to.

Water is commonly described as a necessity -- and one that all life is reliant upon.

monopoly-cartel for life.

Agreed, bad example. Let's use Red Pens and Blue Pens.

I kind of disagree. People are willing to pay for added value. Even when things are free, people will pay for value-added versions of those free things. The people who only ever consume the product when free, are not actual consumers.. and they ONLY consume BECAUSE it's free. This only adds to the mirage of value - a content producer thinks their content is very valuable because a lot of people are 'stealing' it. Unfortunately.. many times those people didn't actively choose to 'steal' their content, and they would never be a customer of theirs if they had to pay for it. The view of the situation is asymmetrical.

"and a shift of value to non-commodity content: live sex / live adult interactivity"

hello.

Very nice read, Txs for sharing :thumbsup

i thought the water analogy was a good 1, bottled water is big business.

and while it's been revealed to be no more than filtered muni water for more than a few brands, they keep selling.

True, I guess water as H2O and "water" an an industry can be looked at as seperatem with H2O being a necessity and "water" being the commodity.

Excellent post and spot on.

I can go to the faucet in my house and get a glass of water for free -- and yet I might choose to purchase water bottled in France of the exact same purity because it is marketed and packaged in a very clever manner.

Sound almost exactly like the internet in reality...

That sums it up quite well indeed.
But any threat is an oppertunity at the same time too.

That's a refreshingly intelligent, well though out post by someone who was
obviously paying attention in economics class. Well, may I just like it because
it's so much like what I've said so many times about the internet being a perfect
market economy.

One tidbit did occur to me. One significant barrier to entry was partly legal issues.
Thirty years ago if you started making porn DVDs, in most areas of the world, you'd
better get the right lawyer on retainer first. Though the laws haven't changed that
much, enforcement has - DAs are far less likely to try to track down the the producer
a bunch of scenes, hoping to find a guy in in their county who shoots in his basement
than they were likely to hit the large and easily located production houses of old.

oh hi, 8 chars

Just to expand on your thoughts a little. When the industry began, porn was a "private good". When the internet came along it shifted into mainly being a "club good."

Tubes have shifted content from being a club good into a public good.

Sadly "public goods", in the long run, generally lead to a market failure unless the good is regulated or has funding.

That is Beautiful example of using ingenuity and a bit of marketing to shift a public good back into the private sector.

Nice read.thanks