Does the porn industry point the way to a more equal America?
Unfortunately, the post itself will disappoint—just a test to see if I could bait people in with that headline. Here is Wired magazine:
In the popular imagination, the eternal trope is that the porn industry drives the adoption of new technology; that it accounts for some astronomically large portion of all Internet traffic; and, yes, that it generates equally enormous sums of money for all the faceless people who run its operations. We picture these people as sleazy Southern Californians wearing pinkie rings and polyester. . . .
But it isn’t like that at all.
Some of it may have been true in years past. But no longer. . . . With the rise of mobile devices and platforms from the likes of Apple and Google, not to mention the proliferation of free videos on YouTube-like porn sites, the adult industry is in a bind. Money is hard to come by, and as the industry struggles to find new revenue streams, it’s facing extra competition from mainstream social media. Its very identity is being stolen as the world evolves both technologically and culturally.
. . .
O’Connell, Adams, and McEwen pull in yearly salaries somewhere in the low six figures, after paying “competitive” wages to a handful of coders in Seattle and Eastern Europe. “None of us own a yacht,” O’Connell says. Or as McEwen puts it: “You can’t understand the obstacles that are in our way.”
‘The Perfect Storm’
She doesn’t mean obstacles of morality or law. Yes, many people frown on porn, calling it exploitative and debasing. But many others just see it as a part of life—a big part of life. There’s an enormous audience for porn, and whatever it signifies, whatever emotions it stirs in critics, this audience isn’t going away. McEwen means economic obstacles, business obstacles, technical obstacles.
It wasn’t always this way. In the early aughts, online porn was ridiculously lucrative. Colin Rowntree, a porn producer, director, distributor, and member of the Adult Video News Hall of Fame, was a just mid-level player, and in those days, he and his wife, Angie, earned millions each year. But at the end of the decade, just about everything changed. Apple introduced the iPhone, which moved so much of our digital lives onto mobile devices while officially banning pornography in its App Store. Google pushed porn to the fringes of its search engine. And as The Economist and Buzzfeed have described, an army of “Tube sites”—essentially Youtube knockoffs with names like Youporn and Pornhub—began offering a smorgasbord of online porn for free, much of it pirated, making it far more difficult for pornographers and distributors to make money. All this happened as the worldwide economy tanked.
. . .
The porn biz can issue DMCA takedown notices and threaten legal action like anyone else, but it doesn’t have the clout to enforce the notices on a wide scale—or make anyone care that it’s being ripped off.
“The adult industry isn’t able to enforce its intellectual property protection,” says Kate Darling, a researcher at the MIT Media Lab who explored the economics of the adult industry in the 2013 study What Drives IP without IP? A Study of the Online Adult Entertainment Industry. “It’s not that much different from others industries—except that policy makers don’t really look at the adult industry and aren’t interested in helping the adult industry.” [Emphasis added]
So when the government stops offering copyright protection (and other barriers to entry), it becomes far more difficult to amass large profits. Incomes fall close to the free market competitive rate of return.
Paul Krugman talks about how the growing inequality of incomes reflects the increasing power of the elites. This example suggests to me that it’s not so much market power that is key, but rather political power. Some industries have it, and the porn industry does not. Too bad America can’t make all its industries look more like the porn industry (in terms of political power, obviously.)
PS. Wired also explodes some other misconceptions about the industry:
Meanwhile, with the rise of Netflix and YouTube and so many other mainstream video services—including Facebook and Twitter—porn is no longer the dominant form of online video. It’s hard to tell how much porn streams across the ‘net—no reliable operation tracks this, including Sandvine, the primary source for internet traffic research—but it doesn’t account for 37 percent of all traffic. It’s not even close. Mikandi declines to discuss its traffic. But a better barometer is the Pornhub Network, which now spans several of the major Tube sites. Pornhub says its network receives about 100 million visits a day, and at least on part of the network, the average visit lasts about nine minutes.
(Thank God it’s not “more than 4 hours”!)
If you extrapolate, that’s somewhere in the range of 450 million hours of viewing a month. Meanwhile, Netflix serves 60 million subscribers, and these subscribers watch over 3.3 billion hours of programming a month (10 billion a quarter). Youtube claims hundreds of millions of hours of viewing daily.
So we are a bunch of disgusting hypocrites, but not quite as disgusting as we had previously assumed.
PPS. The term ‘porn’ has become an overused metaphor, as in food porn or architectural porn. But if we are going down that road, why aren’t we calling a certain type of GOP campaign “political porn”? I can’t precisely define it, but I know it when I see it. The version aimed at downscale voters can be called “political porn”, and then when other candidates espouse a more sophisticated version of the same hot button views it can be called “political erotica.”
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13. December 2015 at 08:25
Indeed, political power is key, but money can also buy political power, so they are not unrelated. Software and pharma companies do benefit from copyright and patents (and are much bigger in scale than the porn industry), and doctors and lawyers benefit from occupational licensing. One also need not elaborate on “too big to fail” etc.
Free market for those without political power, protectionism for those with.
13. December 2015 at 08:42
Also, this IMF study: http://www.imf.org/external/pubs/ft/survey/so/2015/NEW070215A.htm
“Energy subsidies are projected at US$5.3 trillion in 2015, or 6.5 percent of global GDP”
13. December 2015 at 10:13
>>This example suggests to me that it’s not so much market power that is key, but rather political power.>>
1) Political power is one way to get market power. Other ways are for competitors to merge (especially in industries which have barriers to entry) or to conspire with each other (e.g., price fixing). Antitrust laws (i.e., government) are supposed to do something about anti-competitive mergers and price fixing or other such reductions in competition, but political power can stop government from enforcing the laws.
2) How much copyright or patent protection would the free market provide?
13. December 2015 at 10:29
I don’t quite understand the position on equality here (surely you aren’t suggesting that if one aims for equality, then so too should such a person support all policies that foster equality?).
All property rights are a barrier to entry. How do you differentiate between the physical and intellectual sort? Further, when and where should IP rights be upheld? The paper you reference directly states that sustained innovation in an environment of weak IP controls is based on industry-specific factors:
“While not all of these attributes translate to other industries, …”
It follows that other industries may not flourish with weak IP rights.
13. December 2015 at 11:44
The biggest killer is probably the lack of access to most advertising revenue. “Free”-with-advertising is the backbone of the internet content economy, and if tube sites like the MindGeek network were earning commensurate advertising revenues to sites of similar traffic they’d be making enough money to do what Youtube has done and figure out a revenue stream for performers. But they can’t.
The one thing porn has going for it is that it can be produced very cheaply. Even if all the studios wither, die, or get bought by MindGeek or their successor (as is happening), they could probably still produce porn at relatively low levels of quality. They can usually find people willing to do porn for a couple hundred to thousand dollars in the US (maybe even less if said folks are also moonlighting as escorts), and it’s even cheaper if they go abroad to places like eastern Europe.
13. December 2015 at 11:48
Sorry, to ad-
That’s much less views than I thought for the Pornhub Network. It’s still a lot, and they don’t have to pay performers that much, but it’s less than I thought.
The payment processing situation sucks, although the adult film industry sort of brought that one on itself. I remember reading a fascinating book by a guy who was involved in Girls Gone Wild, and he said it was almost a game – they’d get people to sign up to receive the auto-charged monthly videos, said people would do chargebacks on the payments, and then they’d eventually be kicked off of the payment processor and have to go find another one. It was like a game of whack-a-mole, staying one step ahead of the payment processor cut-offs.
13. December 2015 at 12:00
Anand, Yes, energy subsidies are both grossly inefficient, and a major source of global warming. Getting rid of them is a win-win situation.
Foosion, I should have been clearer, I meant market power in a unregulated industry. Yes, regulation creates market power.
Dustin, Yes, IP rights are important, but should be scaled back quite a bit. Copyright protection should be for far, far shorter periods of time. Patents should be given for completely new products, not tweaking existing products.
13. December 2015 at 12:36
Blog porn, or monetary policy?
http://www.wsj.com/articles/fed-officials-worry-interest-rates-will-go-up-only-to-come-back-down-1450034022
13. December 2015 at 14:35
It’s interesting that the weak IP protections for porn don’t seem to be much of a disincentive to produce it: we don’t seem to suffer from a shortage of porn. Part of that, though, may be because porn producers may not be able to earn higher salaries in other industries. If we weakened IP protections in software and pharmaceuticals, for example, then those engineers and scientists might have ended up in other industries. Either that or these industries would evolve non-patent means for protecting IP like secrecy and non-competition agreements. That’s what has happened in finance, and I’m not sure that secrecy and non-competition agreements are better than patents and more open information sharing and employee mobility.
“Patents should be given for completely new products, not tweaking existing products.”
I think that the biggest problem in IP law is in defining it. Everyone agrees that only novel and non-obvious innovations should be patentable, but it is very difficult to define those terms and, in turn, to define the scope of patents that are issued. The patent examiners are not well-equipped to make those judgements. The experts, who are well equipped, are conflicted because they are the inventors and people that want to get around patents themselves. Juries, who are the final arbiters when patents are challenged in courts, are of course the least equipped to make these judgements.
Intellectual property is much different from real property like land, but we try to apply the legal framework for real property to intellectual property.
13. December 2015 at 16:05
Hope you had at least half as much fun writing the PPS. as I did reading it.
13. December 2015 at 16:19
>>I should have been clearer, I meant market power in a unregulated industry. Yes, regulation creates market power.>>
Of course regulation can create market power. But market power can arise in light of a lack of regulation (e.g., lack of antitrust regs and enforcement).
To the extent regulation creates barriers to entry, it should be eliminated, but sometimes government is needed to eliminate or ameliorate market power.
>>IP rights are important, but should be scaled back quite a bit.>>
I continue to wonder how much IP protection a free market would provide.
13. December 2015 at 16:55
Monetary porn? When 0% inflation is seductively packaged as an economic cure-all, and once entered, feels like nirvana?
13. December 2015 at 18:08
So the elite and string pulling do matter in America. Thanks, Scott. I always have believed that to be true, ever since I watched Alan Greenspan on TV saying you could get a “better deal” with an adjustable mortgage. I see conspiracy and manipulation everywhere.
13. December 2015 at 18:56
“This example suggests to me that it’s not so much market power that is key, but rather political power. Some industries have it, and the porn industry does not.”
I expect we will be hearing the phrase “Washington Cartel” quite a bit over the next few months. I keep hoping folks with otherwise different ideological predilections and rhetorical choices can see the large overlap in underlying ideas.
As basic necessities have become cheaper, more and more of the economy is directed by Washington
– auto mandates (safety, fuel economy, electronics, soon cameras and communications mandates, too)
– health mandates (purchase mandate, minimum coverage mandates), massive tax distortions, monopoly rents, billing price discrimination, etc.
– energy mandates (ethanol, green, export bans, etc)
– banks (tbtf, anyone?) charters, numerous regulatory agencies
– tech (monopolies with planned obsolescence strategies)
– media (highly consolidated and very biased)
– internet/tech (strategy of heavily funded “free” products, until the competition is bankrupt, and the tos are changed- when does price dumping apply, anyone?)
I’m sure I missed some–it’s just a starter list 😉
13. December 2015 at 21:58
@BC
It’s the low cost and relatively low barriers to entry. You’re talking about a thousand dollars max as the base rate for actresses for a scene, and it’s probably even less now (that was from an article in 2012). And of course if it’s “amateurs” producing it, it can be much less – or if the actresses are from overseas, like eastern Europe.
If it’s that cheap and the audience doesn’t really put a premium on quality, then they might be able to make a profit even with next to no IP protection. They only need small margins.
13. December 2015 at 23:24
When it comes to real estate downzonings and other pernicious land use regulations have priced many of the smaller developers, especially ones who build more affordable structures, out of business.
Sad state of affairs.
14. December 2015 at 00:17
Sumner: “Patents should be given for completely new products, not tweaking existing products.” – lol, obvious Sumner doesn’t know a thing about how inventions are made, nor about standing on the shoulders of giants, nor blocking patents, nor cross-licensing, nor nor nor…the list goes on.
14. December 2015 at 06:07
How much is standard Hollywood versus porn simply the cost of production (or barriers of entrants)? Porn has been made so cheap so long so there is a ton of the stuff and most material is worth more free (with advertising) versus people paying for it. It is simply not worth protecting copyrights on your average porn video produced 10, 20, 30, or 40 years ago. Also, the biggest change in porn is most of the money is now going to the performers versus the producers. For Hollywood stuff that is not true as the cheapest films are $10M and there is substantial risk. Of course Hollywood might be increasing budgets to elbow out small and foreign producers. I spend most of my time watching the last Transformers to see how Hollywood is moving towards Asian markets. I loved how the US government and tech giants are negatively shown compared to Chinese government.
Anyway what scares Hollywood is Porn videos has always been the leading indicator of where future of home video.
14. December 2015 at 06:41
Political porn, Scott you are priceless. This is what it truly is.
You are probably aware of the categories of art according to James Joyce, are you? Proper art elevates into aesthetic arrest without judgment. Improper art is either didactic, teaches loathing, or pornographic, arouses desire. So anything artful meant to chiefly arouse desire, passion, is pornographic, according to Joyce. Joyce would have loved your “political porn”.
14. December 2015 at 10:50
Larry Summers:
https://www.washingtonpost.com/news/wonk/wp/2015/12/14/larry-summers-we-might-be-facing-a-world-of-high-volatility-risk-taking-excessive-leverage-and-frequent-accidents
“Rachel and Smith do not find that slowing growth is the main explanation for declining real rates. Rather they attempt to quantify most of the factors that I and others have enumerated in accounting for declining real rates…..”
14. December 2015 at 11:00
Tyler Cowen recommends: WSJ: “The Mystery of Missing Inflation Weighs on Fed Rate Move”
http://www.wsj.com/articles/the-mystery-of-missing-inflation-weighs-on-fed-rate-move-1450056838
14. December 2015 at 12:14
BC, For instance, you should be able to patent inventions like cars and TV and telephones, but not improvements in those products once the basic product has been invented.
Thanks Bob,
Foosion, I believe that regulations create far more market power than lack of anti-trust enforcement.
Steve, Yes, and given enough time someone could produce a list 10 times that long.
ChargerCarl, I agree.
Ray, Not sure how any of that relates to this post.
Collin, You seem to have ignored the points made in the article.
mbka, I had not read that, but I am also averse to “didactic art”
Thanks Travis.
15. December 2015 at 05:49
I know your point that this is the porn industry shows a more equal America and how industry lobbying/patent power hurts consumers. But why don’t the porn producers fight the websites more? The battles would be in the lower level courts and lots of letters to the websites not the lobbying of Congress. (so Senators would have to get their hands dirty.) The producers would likely win their cases without much political issue. My point is the value of significantly battling the websites costs more than the benefit of eliminating the pirated material as old material is little value as an asset. (I also suspect the websites have purchased rights as well.)
In the case of Hollywood, there are hordes of lawyers in LA that protect these copyrights.
15. December 2015 at 10:13
There is still big money in live-streaming real people. I have a friend in the industry who toured an entire motel in LA in which there was an act in every room.
15. December 2015 at 17:16
Collin, The article suggests they can’t win in court.
Chris, I doubt those people make the big bucks you see in Hollywood, Silicon Valley, etc, at least based on this article. But then I know very little about this—maybe I should research the issue after I move to LA.