Porn Industry Is No Longer Recession-Proof

While several industries have been labeled “recession-proof,” porn has historically best lived up to that title. No matter how bad the economy, adult entertainment companies have managed to survive—if not thrive.

Until now.

Getty Images A fan has his photo taken with adult film actress Jesse Jane at the Digital Playground booth at the 2010 AVN Adult Entertainment Expo in Las Vegas, Nevada.

The latest financial crisis, mixed with rampant piracy problems, has taken its toll. Profits are down and porn production studios are folding at a pace faster than anyone would have imagined two years ago.

Exactly how hard the industry is being hit is hard to gauge. While porn is regularly described as a $13 billion industry, some insiders question the accuracy of that number—saying the true figure is impossible to determine, given how many companies hide their true nature in tax filings.

“I’ve never bought off on the amount of money that news articles suggest we are making,” says Dan O’Connell, president of Girlfriends Films. “We are one of the top companies—certainly in the top 10—when it comes to numbers of DVD’s sold for a new release and I don’t see how the industry can be making that sort of money.  Girlfriends Films is a privately-held company and our tax returns show us as being an ‘amusement’ company.  As such, accurate revenue figures just aren’t available.”

For the first time, porn is showing signs of vulnerability. This was evident at January’s Adult Entertainment Expo in Las Vegas, which took up just one floor of the Sands Convention Center—and had lots of room to spare, compared to the two floors that were filled last year. And while the industry is trying to find a way back to its glory days, no one seems certain about the best formula to get there.

Consumer interest certainly hasn’t diminished. Despite the smaller number of vendors, the same Expo in Las Vegas saw a 14 percent jump in fan attendance, topping 22,000. The trick for companies is figuring out how to capitalize on that interest.

Parody films, such as Hustler’s "This Ain't Star Trek XXX" and "Not Three's Company XXX," are a growing trend for some studios. Others, like Digital Playground, are betting on high production values to attract customers away from free online offerings.

“My philosophy is: Water is free (too), but people still pay for it in a bottle,” says Digital Playground founder Ali Joone.

Digital Playground says it spent up to $10 million to create its biggest film—“Pirates”. It was a significant gamble, but one that paid off. Joone says he was hoping to make the money back within two years, but when the film’s trailer went viral , he recouped those expenses in pre-orders alone.

That success isn’t preventing the company from diversifying, though. Digital Playground recently launched a line of sex toys that were created in-house. (The company had previously worked with a third party, but wasn’t happy with either the revenue split or the quality of the products.) It also launched a video on demand channel with Avail-TVN, the country's largest VOD distribution service, at the start of 2010.