I Live in the Future & Here's How It Works: Why Your World, Work, and Brain Are Being Creatively Disrupted

by Nick Bilton

  Over dinner that night with friends, I told Danielle about the enticing offer.

  “You don’t need to meet with porn stars,” she said.

  “Well, maybe I do … for the book.”

  “No, you don’t,” she said firmly.

  So much for tolerance and understanding.

  Porn, like its subject matter, is always eager to experiment.

  —Peter Johnson, “Pornography Drives Technology: Why Not to Censor the Internet”

  Before we gaze into the future, it might help to peer into history. Adult content—pornography, that is—has roots that can be traced back thousands of years. The ancient Greeks displayed risqué statues and paintings in market squares; the historical artwork and sculptures discovered in Pompeii include an array of lewd and phallic paintings and statues.

  In a mid-1990s essay about the Internet and censorship, lawyer Peter Johnson’s assessment was: “Throughout the history of new media, from vernacular speech to movable type, to photography, to paperback books to videotape to cable and pay-TV to ‘900’ phone lines to the French Minitel, to the Internet to CD-ROMs and laser discs, pornography has shown technology the way.”1 He quotes Camille Paglia, a self-described dissident feminist, who said that “great art is always flanked by its dark sisters, blasphemy and pornography.” Johnson went on to point out that “the same is true of the mundane arts we call media.”

  Johnson noted that Chaucer’s Canterbury Tales, which first appeared in the mid-1300s, was “larded with sexy and scatological” content—and was both sought out by the cultural reading elite of the day and “read aloud to a largely illiterate populace,” helping create the vernacular language of England.

  Once the printing press debuted, the Bible became popular reading, but it had some competition from some more colorful offerings. Sixteen Postures by Pietro Aretino was a series of engravings of sexual positions, and Gargantua and Pantagruel by François Rabelais in the sixteenth century included stories and etchings of sexual encounters that were widely distributed throughout Europe. Rabelais, a famous French writer, boasted that more of his sexually explicit books were sold in two months than copies of the Bible were sold in years—although since BookScan, the database that tracks book sales, wasn’t developed until the twenty-first century, official figures aren’t available to prove it. He did, however, offer prescient advice to those in the media business: Sex sells.

  Centuries later, the roots of and eventual birth of early movie theaters grew out of early movie arcades, where a person could insert a coin and see a short, fuzzy clip of a woman undressing. The clips were quite modest by today’s standards and just a few minutes long, but they were enticing enough that customers would continue to add coins to see where the picture would go. Before viewers knew what they had done, ten to twelve scenes had passed and they unwittingly had paid for a short movie. In San Francisco in the early days of such movie arcades, it was estimated that they brought in millions of dollars in revenue.

  In the 1970s, the desire for pornography played a role in helping settle a long-running battle for the technology that would drive the VCR that used to sit in your living room under your television. (For some of you, it might still sit there.)

  Betamax was developed by Sony. Its competitor—VHS—was developed by JVC. Betamax was superior in quality, but the design of the tapes limited the length of videos to one hour, making them perfect for recording television shows. VHS tapes, by contrast, could run up to two hours, making them much better suited for movies.

  For about a decade, consumers were stuck in the middle of a rivalry over these competing technologies. In the end, although the Betamax was arguably a better product, VHS won the tape wars and Beta disappeared.2 One of the factors can be traced back to Sony’s stance on adult content and the strict antiporn policy it implemented for the usage terms of its tapes. This policy prevented any adult content companies from using or distributing pornographic content in the Betamax format. Adult film producers had no choice but to use VHS, and in turn a swath of early technology adopters and porn consumers purchased more VHS VCRs and fewer Betamax systems.

  The adult industry also found income from the telephone. After a U.S. Justice Department antitrust suit led to the breakup of AT&T in 1982, “Ma Bell” was split into several operating companies, bringing competition to the telephone industry. The adult industry found a new way to make talk expensive. For decades, the telephone had been used for local and long-distance conversation between friends, family members, and business associates. But with pay-by-the-minute 900 numbers, porn purveyors found that people would pay a fair amount of money to talk to someone with a name like Sparkle, Mercedes, or Bruce about anything that caught their fancy. This paved the way for others to charge for horoscopes, business and legal advice, and even the weather, delivered by phone. Surprisingly, these pay-for-porn phone numbers still exist around the world and are still used widely in Europe and Asia. Although the pay-for-legal-advice hotlines didn’t take off, the computer and help-desk industry took advantage of this unique business model. Today you can call expensive customer support numbers to get help with your computer. But once again, the pornography industry was an early leader.

  Then there were the early days of the Internet—a land of science papers, message boards, and porn. Many of the first porn images online were scanned by early Web users from magazines and posted to Usenet message boards.

  As the audience of the Web grew, so did the amount of sex-related content available online. By the mid-1990s, many porn sites were bringing in millions of dollars while many mainstream websites were struggling to figure out how to make any money online. Though photos and videos might take minutes to appear over telephone dial-up lines, porn peddlers were doing a brisk business in images and video. Again leading the way in new media models, they were among the first services to charge successfully for online subscriptions and use encryption for credit-card payments.

  All of that led me to think that today’s porn purveyors—the test drivers for new media—might have some insights for the rest of us. Was there, in fact, a business model for content and storytelling? I assumed that if the porn industry could solve the problems and transitions from print magazines and analog DVDs, surely the rest of the media industry could follow suit and save itself from imminent death. After all, I thought, the porn industry has done this so many times before. Maybe it had solved today’s technological transition too.

  I was excited to venture out into the world of porn. (No, not in that way!) I enthusiastically and optimistically assumed that the Playboys and Penthouses of the world had figured out new business models: how to charge for content and how to tell stories in this new digital age. This trip would be a no-brainer, I thought. I’d return to New York with the secrets of the future of media like a time traveler carrying a winning lottery ticket.

  Despair

  It took only a few meetings before I realized that the lottery ticket didn’t exist—or at least that’s what I was told. Despite my excitement about discovering new ideas in the California porn industry, I heard mostly fear and desperation from directors and the people who run production houses. Prices were falling. The barriers to entry had disappeared. Some money was flowing in, but advertising and sales of traditional media were in decline and it wasn’t clear how long even the current business could sustain itself. The industry, I was told, was being attacked by parasitic piracy and file sharing.

  “It’s tough now,” said one porn purveyor. “We’re dealing with piracy, and we’re dealing with free content on the Internet, which is eroding the normal business models that have been around for many years, like DVDs, magazines.”

  “We tried to fight piracy as much as possible because it is hurting us,” said another marketing employee.

  “Well, we’re making money now from online sales, but I’m not sure how long we can keep this up,” a company owner said.

  A successful producer railed for twenty minutes about the death of th
e adult industry. Once he had to worry only that a competitor would have a hotter star, a sexier scene, or better distribution. But now his competition is everywhere, so vast that he can’t put his arms around it, and there’s no way to stop it or slow it down. Any eighteen-year-old with a $300 netbook, a Web camera, a $25-a-month Internet connection, and a PayPal account can make live nudity available to anyone who is willing to pay for it. And that doesn’t even count the ocean of content available for free. Given that, how was he supposed to pay employees, taxes, office rent, and other bills?

  The paradox is that porn is still popular—maybe as popular as it has ever been. An estimated 36 percent of all Internet users check out at least one adult website each month, according to comScore, which tracks websites and Web users. In 2008, the entire pornography industry brought in estimated annual revenue of around $20 billion, a number that grows a bit each year. Figures collected by AVN Media Network, an adult industry reporting news group, indicate that consumption online grows about 13 percent each year and in 2006 was responsible for a total of $2.8 billion, or about 14 percent of all adult-content revenue.3 The industry has also seen healthy and consistent increases in pay-per-view cable, merchandising (sex toys and other erotic paraphernalia), and of course mobile websites and applications for mobile phones.

  But as with traditional media—books, newspapers, magazines, movies, and the like—the traditional purveyors of big breasts and hot poses are shrinking as their best customers turn elsewhere. Sales of adult magazines are falling 5 percent on average each year, and video sales and rentals are falling a dramatic 15.4 percent annually. Walk into any adult video store in America and you’ll see DVDs that were supposed to sell for $50 discounted to $5 or $10.

  Then there’s the unraveling of the iconic Playboy Enterprises Inc., a rare publicly traded company in the industry. Between 2004 and 2007, Playboy’s revenue was between roughly $330 million and $340 million and the company turned a small profit or basically broke even. But in 2009, revenue slid to just $240 million, a drop of $100 million—almost 30 percent—in just two years as television, video, and print results plunged amid a technology shift and an economic recession. Losses totaled more than $50 million. The company’s stock, which had begun the new century trading above $25 a share, began 2010 trading at less than $5. Its outlook wasn’t any more encouraging: In late 2009, the company said it would print one fewer issue of the magazine in 2010.

  A senior-level Playboy manager confided that the company had become mired in bureaucracy and organization charts and had tried to innovate by committee. In meetings, managers didn’t talk about “how can we be ready for what’s next” but instead were fixated on “how can we continue to get people to buy our DVDs and magazines.”

  How desperate was the company? To counter dwindling revenue, it was reproducing its logo, well, like bunnies. The Wall Street Journal reported that Playboy had “turned its bunny loose” with a range of perplexing and seemingly desperate licensing efforts. Among other things, it was “slapping its famous logo on a tanning spray, a disposable lighter, a mattress, a couch, and a line of drinks designed to boost the libido.” So much oddball stuff featured the bunny that even diehard collectors weren’t interested.

  From interviews and research, it appears that the Playboys and Penthouses of the world believed that their downturn was just an economic hurricane and that they would be able to rebuild and return to normal once the winds died down and the storms passed. Not only is this proving to be wildly optimistic, it’s also proving to be their demise.

  If this sounds familiar, it’s because so many other industries—newspapers, books, music, and movies—feel like they’ve been wrestled to the mat by very similar issues. Traditional products that rely on expensive advertising or products sold over a counter still pay the bills and keep the lights on, and they can’t figure out what will replace that and how. So instead of simply capitulating to some consumers’ demand for a new approach, they are, understandably, trying to hang on to as much of their revenue as they can and trying to persuade their customers to stay with their tangible goods while they experiment with new technologies and scan the landscape for an answer.

  Justifiably, there is plenty of despair, even in the porn industry. I’m usually perversely optimistic when it comes to technology. But after a week of hearing that the sky was falling, I have to admit that I wasn’t too confident in the future.

  In the middle of my travels through the porn studios of California, my optimistic vision of the future of media, based on the tribulations I had heard through the week, didn’t seem so bright. Over and over I had heard stories of despair and defeat. I heard about rampant piracy and the free content people were creating in their bedrooms with cheap webcams. I heard that people no longer wanted DVDs or magazines, which was no surprise, but in addition, they weren’t willing to pay the same price for online content.

  I too believed the despair—maybe the sky had already fallen. If the pornography industry, a trade that had been tested for hundreds of years, couldn’t figure it out, maybe newspapers, magazines, movie houses, and everyone else that sold content for a living should just throw in the towel.

  The rest of the week didn’t go much better. But on the plane ride home to New York, as I sat rustling through my notes from interviews, I saw things a little differently. From a pile of interviews with companies big and small, niche and mainstream, I came to see something else. Yes, it was true that the porn industry didn’t have a single “aha” answer to the new age of content creation and consumption, but collectively, it had numerous answers. In many ways, a new industry is being built from the ruins of the crumbling legacy companies. Collectively, those experiences might help explain what future content outlets will look like and provide lessons in how to adapt.

  From Perfect Bunnies to … ?

  The average Playboy bunny over the last fifty years is blond, blue-eyed, 21.7 years old, and five-feet, six inches tall and weighs about 115 pounds. Maybe she was the dream of every man in a different generation. But no more.

  Jo Mason was once a high school principal. She’s tall and confident and speaks with a calm understanding that would remind you of a caring and tolerant aunt—someone you can talk to about anything. She looks like someone who promises not to judge, and doesn’t.

  She ended up in the porn industry almost by accident. Several years ago, a friend who ran some porn websites needed some help on a project, and Jo agreed to lend a hand on a temporary basis. Before long, she was running X-rated websites in her free time while keeping teenagers in line during the day. Eventually, word started to get around about her moonlighting, and she had to make a choice.

  She chose the porn business.

  “I’ve used all the same skills in both businesses,” Mason said. “There was a natural continuation and connection, and there really wasn’t much of a transition between managing high school students and young and coming porn stars.”

  Mason runs a few small porn sites and compares the giant adult-content companies to the legacy car companies such as General Motors and Chrysler that crashed into bankruptcy proceedings in recent years. Those companies refused to innovate, refused to give up on big sport-utility vehicles even as gasoline prices climbed and customers clamored for fuel efficiency and hybrids. Whereas the legacy adult-content companies pushed magazines and videos, Mason and other operators of small sites offer customers niche content. One of her sites, for instance, is called Little Mutt, featuring new unknown models—usually in their early twenties—engaging in straight and lesbian sex. Although similar content can be found free online, Mason tries to post higher-quality content with better lighting and production values—in other words, professionally produced porn with an amateur-like appeal.

  Although the top-heavy, blond-haired, blue-eyed beauty may still be an ideal to some men, customers of adult content are showing they want a more personalized experience that fits their specific tastes. The Internet, which doesn’t need fancy equi
pment or distribution agreements, will provide it. Maybe customers are interested in black women, Latinas, Asians, striped stockings, older women, bigger bottoms, smaller tops, or some quirky combination. The Internet, which has no commitment issues, will provide it. A universal brand is not enough for today’s consumers. If consumers want gritty, that’s what the Internet will give them.

  Turns out, customers will also pay for it. Benjamin Edelman, a professor at Harvard Business School, has explored how consumers decide which adult sites they are willing to pay for.4 The graph on this page shows a price index of monthly online subscription fees for online adult content.

  You can see that there’s a strict limit to how much people will pay for porn. Customers are willing to spend $5 to $25 a month for a subscription to an adult website. But after the monthly subscription price passes $30, willingness to pay drops off a cliff. In other words, consumers will pay for specific porn that they want online, even in the face of free content, but there is a threshold to how much they will spend even for obscure, niche content.

  FIGURE 1

  Subscription Prices

  (in dollars for subscriptions of one-month duration)

  Source: Analysis of reviews from Rabbit’s Reviews.

  Based on a graph published in the Journal of Economic Perspectives (Vol. 23, No. 1, Winter 2009), published by the American Economic Association.

  Even with such low subscription prices, websites can make a profit because they started out with low overhead and few employees.

  Edelman’s study also foreshadowed the reduced income organizations are facing as consumers move away from products such as videotapes, DVDs, and magazines in favor of digital experiences on mobile phones and computers. Citing industry statistics from AVN, Edelman shows that video sales and rentals fell 15 percent between 2005 and 2006. Digital, in contrast and not surprisingly, grew across all forms of delivery. Internet sales grew 13.6 percent in the same period, and although mobile porn was still small in comparison to other outlets, it continued to grow, increasing by 11.4 percent. (Although Edelman’s study cites financial numbers from 2006, the figures continue along the same trajectory today.)