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Porn and Mobile Content

WWW- Three self-financed entrepreneurs in Barcelona launched Safira Solutions in 2003 to develop customer relationship management software for small businesses. Soon after they began, a friend offered to pay them to build a content delivery platform for the mobile Internet. Intrigued by the technical challenge and needing cash, they created one of the early Wireless Application Protocol (WAP) platforms to deliver Web content to cell phones and other mobile devices.

Today, Safira’s annual revenue is just under a million dollars and growing, derived equally from CRM software and the mobile content platform. With six full-time developers, Safira continues to invest in both products. Its mobile customers include providers of music, games, sports and adult content. In fact, cybersex started the whole thing. That first paying customer was Julia Dimambro, managing director and founder of Cherry Media, whose Web site, Cherry Sauce, is a mobile portal for cybersex content and adult services. Dimambro prefers to call it erotica.

Call it erotica, cybersex, adult content or just plain smut, pornography is important to Safira. “Adult content is more than 15 percent of our business,” says Ghatim Kabbara, Safira’s managing director. “If we were just mobile, it would be nearly half of it.”

The mobile Internet is the most recent example of the industry’s dirty little secret: Pornography is an old friend of technology. Flush with content, pornographers can reap new profits from each new channel, and they risk being left behind if they don’t adopt them. As risk takers, pornographers offer the heavy-volume usage that startups need in order to prove and improve their concepts. As prompt paying customers, by most accounts, pornographers provide important early revenue to technology partners (see “The irony of strange bedfellows” below). Indeed, other current beneficiaries are several IPTV startups, which derive financial sustenance from porn providers. Executives at these startups decline to discuss pornography but have no problem talking about less controversial content.

Technology helps spread pornography, but the reverse is also true. Porn has played an increasing role as one of the early adopters-along with gambling and gaming-or as a driver of early consumer adoption of the VCR, desktop computers, DVDs, the Internet, Web hosting, e-commerce, viral marketing, online payment, digital rights management, broadband connectivity, cable, satellite and digital TV, Webcams and streaming video (see “Porn’s impact should not be exaggerated” below).

“The conventional wisdom is that adult entertainment is always an early adopter, partially because it has a relatively focused audience willing to put up with relatively low quality in things like video,” says David Card, an analyst at Jupiter Media. “It is true that porn helped start the video rental business, streaming video, payment systems, affiliate marketing systems, micropayments and such. It is absolutely an early adopter of media technology.”

Pornographers rarely develop intellectual property for electronics. Their impact is indirect. Porn accelerated the purchase of Web servers by the hosting business-a boon for IBM, Sun Microsystems and others in the early days of the Web. In mobile, young males with cash to spend are repeating the boost they gave early multimedia computers, broadband and video-on-demand, by paying premium prices for advanced multimedia cell phones so they can surf for sex anyplace, anytime-to the benefit of ARM, Motorola, Nokia, Qualcomm, Samsung, SanDisk, Sony, Texas Instruments and a host of other companies that supply mobile.

Now, New Frontier Media,Private Media Group and other large adult content companies have launched mobile initiatives; some startups, such as Cherry Media, are farther ahead. Until recently, the cell phone, with its stamp-size grayscale display, was not ideal for visual content. But multimedia phones with high-powered processors, quality displays, increased memory and hard drives are increasingly available.

Meanwhile operators are rolling out 3G services, and new technologies such as Qualcomm’s MediaFlo, a broadband wireless digital media distribution system to be tested this summer in the U.K., are under development. TI’s DaVinci development kit and Philips Semiconductor’s Nexperia media processor are making it cheaper and easier for mobile handset developers to improve video and lower the cost of hardware implementation.

The cell phone is destined to be the next beneficiary of porn.

“Pornography is an important influence on some technology, particularly in the early stages,” says Jonathan Coopersmith, an associate professor at Texas A&M University, whose area of research is the history of technology. “It is becoming more visible. The question is whether it’s becoming more important. It is very hard to get accurate data. Most of those who say they have accurate data have a vested interest.”

The lack of accurate data makes it nearly impossible to gauge market size. Mobile cybersex is in its early stages, farther along in Europe than in the United States. Yankee Group predicts that the U.S. market will reach between $543 million and $1.5 billion in 2009. Another research firm, Informa Telecoms & Media, forecasts that the worldwide market will hit $2.34 billion and the number of users 112.5 million in 2010. Strategy Analytics estimates that worldwide revenue from mobile adult services will grow to $5 billion by 2010.

Jupiter Media’s Card estimates that consumers spend $200 million to $300 million on paid adult content from the Web-highly conservative numbers. Although he agrees that mobile will become a platform for adult content, he argues that most estimates are overstated, because pornographers exaggerate their revenues the way they exaggerate in their videos.

“They lie through their teeth about how big the market is,” Card says. “There are also a lot of mom-and-pop operations making a little cash on the side, and not a lot of $15 million to $20 million companies.”

It doesn’t help forecasters that few porn companies are publicly held. New Frontier Media and Private Media Group are two exceptions. In 2005, New Frontier had $46.3 million in revenue, with $43.5 million coming from pay TV and the rest from the Internet, including mobile. Private Media had revenue of $32.7 million in 2005, with $1.2 million from wireless and the rest from other product lines, including videos, DVDs (its biggest revenue), magazines and broadcasting. Private Media reports Internet revenue separately from wireless-$4.8 million.

With numbers such as those from two of the larger players, it is hard to see where the billion-dollar markets come from for either the Internet as a whole or mobile as a slice.

Ken Boenish [pictured], president of New Frontier, agrees that forecasts are overstated. He expects mobile adult content to take time to reach critical mass. “We’re still 18 to 24 months away from getting significant revenue, but after that, I think it will be a big part of our business,” he says. That would coincide with the coming to market of a new generation of mobile phones powered by TI’s OMAP3 platform, a processor designed to bring a heightened video and other multimedia experience to handsets.

Despite shaky market estimates, there is clearly interest. A recent study by two college professors commissioned by Google analyzed more than one million page views from Internet searches with Google’s mobile search engine. The largest portion of pages-20 percent-was adult content, followed by general entertainment, at 10 percent. This comes at a time when porn accounts for a smaller and smaller portion of PC searches on Google, presumably because other content areas have gained in interest.

The researchers wrote, “People may feel more comfortable querying adult terms on private devices. Anecdotally, we have observed that users often consider their cell phone as a very personal and private device; perhaps even more so than their computer-the probability of others discovering their search behavior (through cached pages, auto-completion of query terms or URLs) is smaller.”

Supporting the notion that pornography drives adoption, the researchers wrote, “We may simply be observing the types of queries that are favored in the early stages of adoption of new technological mediums.”

Dimambro was counting on privacy, immediacy and early adoption by porn consumers when she approached Safira. There were problems initially in Europe-as there are today in the U.S.-getting mainstream cell networks to provide streams of adult content that users could pay for as part of their monthly bill. So Dimambro decided to launch a WAP portal, which mobile Internet surfers could use without any help from operators, beyond the cell connection.Cherry sauce

After earning Web credentials on Madison Avenue in the 1990s, Dimambro launched Cherry Sauce in Barcelona in 2003, using the tools designed by Safira. She soon began to get queries. “We started to get requests from media companies, aggregate portals, marketing companies that were delivering mobile content and wanted to move into erotica,” she says.

Many early consumers of a platform not only want pornography but are also willing to pay a premium for it. Boenish recalls that early adopters of video-on-demand, a profitable and growing business for New Frontier, wouldn’t pay more than $2.99 to $3.99 for a Hollywood movie but would shell out $12 or more for an adult video. For operators, media companies and others, adult content has the potential to pay the freight during early stages of new-platform rollout. This was just as true with WAP-based mobile content, Dimambro found.

When she began to get queries, Cherry Media and Safira struck a deal: As partners, they would codevelop the platform, with software development by Safira and marketing by Cherry Media. Pornographers, including Private Media, one of the largest providers in Europe, lined up and were soon followed by providers of other genres, including sports, music, humor and games.

“Our business is creating WAP sites, sites the users can see without having to rely on the cell operator,” says Kabbara. His earliest customers were mainly pornographers, but now most customers are not. His customers offer mobile content in motocross, conventional sports, music, games, animation and extreme sports, as well as movie clips. But the adult content providers were early, giving Safira much-needed cash, which helped it launch the product it had originally started out to build.

“Our CRM didn’t have paying customers for more than a year,” Kabbara says.

Safira’s mobile platform can integrate several online mobile billing systems, which also benefit from porn. Bango.com, a London-based mobile billing service, was Dimambro’s choice. It has several adult content providers among its many customers. Bango.com executives declined to be interviewed-a common reply to interview requests for this article.

That’s why the pornography/technology connection is a dirty little secret. Many entrepreneurs, VCs and analysts acknowledge porn’s impact on technology but do not want to discuss it. Electronic Business contacted 60 possible sources; fewer than 20 percent responded, and many who did reply declined to be interviewed.

Unlike the wired Internet, one thing holding mobile adult content back is regulators who have something to say about how the airwaves are used. Whereas network operators in the privacy of their offices probably see potential dollar signs from adult content, they are wary of going down that path without proper controls over what kind of porn goes out and who has access to it. Regulators in the U.K. tackled the problem head-on with help from the adult content industry and now have age verification programs that drastically limit the ability of juveniles to get adult content. Hence, major U.K. network operators now offer adult content above and beyond what users can get from a WAP portal. No similar regulatory advances have been made in the U.S.

Boenish points out that mainstream U.S. cable TV once had similar concerns but has gotten beyond them, in part, he argues, because of the model New Frontier offers. New Frontier produces no original content. It aggregates material from major and many minor pornographers and sanitizes-for lack of a better word-the material to make sure there is no child pornography and no S&M or violent acts, either real or faked, and then sells through to mainstream companies, including Comcast and Time Warner. With a model like this or another innovation, he thinks, cell network operators will come around.

He may be right, because in the end, it is all about the money.

“Adult content providers come to us because they are among the few making money on mobile content,” Safira’s Kabbara says. “There is big money to be made in adult content, whatever the medium. In the past, whenever they could use a technology to sell sex, they improved that technology, the VCR or the Internet. Mobile is no different.”

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