Hey Murdoch, Take a Lesson from the Smut Kings

Common wisdom, over the past seven years, has been that consumers would spend money to tumesce just two things on the internet – their wallet and their wanker.

But what goes up must come down. Today that list has been cut in half – and the wallet may be the next to go. Unfortunately, that does not bode well for Rupert Murdoch’s plan to charge for everything his company publishes – and its bad news for the companies hoping that “TV Anywhere” will save television as we know it.

Porn used to be a shining example of how to make money on the internet. Heck, even Jennifer Ringley – with Jennicam – made a good living for seven years simply showing off her less than erotic life. From 1996 to about 2007 erotic services were all the rage online. Everyone from Penthouse to Hustler to more ribald sites were raking in the cash hand over fist.

But all good things come to an end. Magazines, newspapers, and now porn have been laid low by user-generated, free content. The culprits in this case? A bevy of free sites mimicking YouTube, with names like RedTube, YouPorn and PornHub. These freeview sites have thrown the niche paid-content model into a tailspin. According to Forbes.com, paid porn sites are down 30-50% in revenue in just a year.

According to my friend “Bob” (not his real name), who has done extensive research in this area, there’s more than just user-generated content swelling the pages of these sites. Much of the material is culled from professionally produced videos. Users cut out their favorite bits, upload them to the sites, and millions of others snack for free.

It’s even poised to take a bite out of cable and satellite services like the Spice channel and Playboy’s other channels. The shift to “over the top” video, where Hulu, CBS and other mainstream video sites are streamed directly to high-definition TV sets now includes easy ways for those smut sites to go big screen as well. One of my favorite PC-based services, called “Play ON” also supports YouPorn and RedTube. I use the service to stream Revision3 and other web video – along with Hulu – from my home PC to my 52” HD set via my XBOX 360. “Bob” uses it to watch humongous undulating and oscillating organs on his – for free.

So why should Murdoch be worried? It’s just low-life scum programming, right? Not exactly. Here’s a little known secret of the tech industry. The “adult entertainment” industry has been one of the most savvy and smartest early adopters of new technologies over the past 20 years. Porn pushed the adoption of a wide range of services, from text messaging to web video. And where porn goes, the rest of the industry usually follows.

The incredible erosion of the paid porn industry shows that when a free product is available – even an arguably inferior product – a very large fraction of the audience will defect to free. And this is now true even for high-quality video. That means that even if Fox manages to lock down all of its shows, and cable and satellite launch their paid “TV anywhere” product, a sizable fraction of consumers just won’t care. Lower quality free beats higher quality paid for many, many viewers every single time.

TV Anywhere is designed to stop the erosion of multichannel households – not to bring in new customers. But it’s doomed to failure. Many of our viewers at Revision3, millennial males, have either already abandoned cable and satellite or are seriously considering doing so. Pay walls will not deter their flight. When it comes to news, they’ll just find alternate versions elsewhere – even if it’s arguably not as good. When it comes to entertainment, the vast sea of free – coupled with piracy services that will not ever go away – will satisfy the bulk of their viewing needs. And when they watch a popular show, Netflix on demand – or the local video store – will help them satisfy that itch.

The adult industry’s latest desperate survival plan: go niche. When general sex sites don’t work, so the thinking goes, build a business on the backs of the fetishists. Thus we see subscription services (so “Bob” tells me) migrating to leather, bondage and shemale sites.

Those, too, are doomed – as a quick search on any of those free sites will attest. Relatively narrow cable channels take note: your days of sucking off of the hind teat of affiliate fees are rapidly drawing to a close. Your supposedly loyal audience will dump you like an over-the-hill hooker when they find out how easy it is to find compelling and free alternatives online.

Sure, a lot of people will adopt TV anywhere, and they will continue to pay for premium video services. But there won’t be enough to staunch the coming tide of red ink. Because just as porn developed an early adopter base that paid for the latest technology, it’s also a canary in the coal mine of free. Paid porn is dying. Paid TV will be next.

(this blog post also appeared on Jack Myers’ MediaBizBloggers site, and you can read it and follow the conversation there as well).