Sex, Drugs, and the Rocky Economy: Pornography

By Mike Schuster Oct 22, 2009 7:40 am

Does an empty wallet make nudity less appealing?

Ever since cave paintings presented a rudimentary depiction of the male and female form, pornography has had its place in the history of human existence. From Victorian lithographs and Tijuana Bibles to circulated film reels and amateur cellphone photos, erotic material has prevailed in almost every conceivable form. And unlike other vices -- booze, cigarettes, gambling -- the porn business has traditionally weathered even severe financial hiccups. There's just no quelling our natural, carnal instincts.

However, in the last two years, the porn industry has witnessed a monumental shift from a recession-proof empire to a struggling endeavor. The one-two punch of a weakened economy and the availability of free, easily accessed videos online has delivered a crippling blow to a once-impervious market.

XBIZ -- an organization that analyzes the adult-industry business -- pinned the decline on piracy, legal issues and a saturation of free content. This month, the group's president, Alec Helmy, told CNN, "The adult entertainment industry is facing its first downturn ever in its history."

Things have grown so noticeably bad, two prominent porn insiders have drawn parallels between their businesses and the doomed banking and automotive industries. In early 2009, Hustler kingpin Larry Flynt and Girls Gone Wild ne'er-do-well Joe Francis implored Washington to take pity on the erotic sectors as they had with Wall Street and Detroit, and asked for a $5 billion porn bailout. "Congress seems willing to help shore up our nation's most important businesses; we feel we deserve the same consideration," Flynt surmised.

Unfortunately for the adult filmmakers, Congress didn't see a connection or a viable threat to the nation -- despite how many of its members are continually linked to the industry.

In fact, the advancement of free streaming video sites was already underway -- the bad economy just made them more appealing to customers. No less than eight adult websites are currently among the top 100 visited in the United States, according to Alexa (AMZN). If free streaming video is available to any home with a relatively high-speed connection, there's very little reason to fork over money for the entertainment.

But at least two sex-industry companies seem to be avoiding the brunt of the recession.

SugarDVD -- an online adult DVD rental site in the style of Netflix (NFLX) -- has actually enjoyed a rise in business, excelling in titles Netflix continues to avoid. Tony Medrano -- vice president of business development -- told Wired Magazine that his Santa Ana-based company also beat Netflix to the punch with streaming portions of its library a year before Netflix, proving the adult industry is continually ahead of the technological curve (see Eight Great Moments in Pornographic Innovation).

Adult-toy purveyor Adam & Eve, based in Hillsborough, North Carolina, is also surviving quite well. Company spokeswoman Katy Zvolerin has said that 2008 was "surprisingly good." Speaking with CNN, Zvolerin said "We were all collectively holding our breath. While DVD sales were down, toys or novelties sales were holding strong."

Financial analysts continue to bicker as to when the recession will actually be over, but will an economic upswing -- or new images of Marge Simpson in the buff -- actually help the nearly obsolete adult-magazine and video markets? Probably not. But while some downsizing and business-model shifting may occur, there's no question the porn industry will endure in some form -- amateur and professional.

As long as there's vice in our hearts and impure thoughts in our minds, folks can always turn to fantasy to spice things up.

Hoofy and Boo have covered some of the baddest vice stocks before. See their report below.