IT WAS 2012, and Fabian Thylmann’s goal was world domination. The man who had put together Manwin, an emerging online-pornography giant, now controlled most of the top ten porn “tubes”—aggregators that, like YouTube, contain thousands of videos and are wildly popular, because much of their content is free. If he could get hold of the two biggest, XVideos and XHamster, he could put it all behind a pay barrier and build an online porn empire. If competitors emerged, he would buy them, too. What antitrust authority would rein in a monopolist in a business that upstanding people pretend does not exist?Previously:
But neither of his targets would sell. The French owner of XVideos is said to have turned down an offer of more than $120m with a scornful “Sorry, I have to go and play Diablo II.” Mr Thylmann later sold out of Manwin (since renamed Mindgeek), after coming under investigation by tax authorities in Germany, his home country.
Still, Mr Thylmann left a lasting legacy—just not the one he had intended. Inadvertently, he helped cement the tubes’ dominance, turning porn into a commodity in the process. The upheaval suffered by other media businesses in recent years has been experienced by the porn industry in fast forward. And it is now signalling the direction of further change, including the fusing of real and online worlds through virtual reality and robotics.
Cheaper thrillsPorn used to be pricey: although it is legal in many countries, sexual taboos, regulation and the difficulties of distribution limited supply. That made for high prices—and outsized profits. Business was best after first videotapes and then DVDs made it cheap to shoot and distribute films to watch at home. In the 1990s dozens of producers, many of them based in California, churned out hundreds of X-rated films each month to buy or rent.
In the internet’s early days, pornographers continued to profit. They realised the potential of e-commerce faster than other businessfolk: an American law requiring them to make customers of phone-sex lines punch in a credit-card number to prove they were not minors meant they were technically well prepared. By the early 2000s there were more than 3,000 porn sites, most of them tiny, subscription-based outfits. Making money was simple: set up a website with some pictures, control access using billing software and see the bank account fill up.
But then porn was hit by the truth, first spotted by Stewart Brand, a technology guru, 30 years ago, that content “wants to be free”. To attract custom, sites started to give away “teasers”. Amateur pictures—and not a few pirated ones—joined the free commercial content. Soon it was all being aggregated by “list sites” and “thumbnail galleries”, essentially collections of links. As the internet got faster, videos replaced pictures. Then came the tubes, which made their thousands of clips searchable. That porn is an industry where raw market forces reign helped them lay siege to the established producers: when anything goes, everything is tried, and quickly copied if it turns out to work.
In America the number of porn studios is now down from over 200 to 20, says Alec Helmy, the founder of XBiz, a trade publication. Performers who used to make $1,500 an hour now get $500—even as increased competition means they are asked to produce more extreme content. Revenues are well below their peak; how far below is hard to say, as most porn producers are private. Just before the tubes took off, plausible estimates put worldwide industry revenues at $40 billion-50 billion. Mr Thylmann thinks they have fallen by at least three-quarters since then.
Mr Thylmann was not the first corporate porn-predator, but he had an edge: originally a programmer with an interest in data science, he had rare insight into what made one site successful and what it would take to drive more traffic to another. Sometimes his data-crunching meant he knew businesses were more valuable than their owners had realised. Among those he scooped up were some of the most successful pay sites. In 2012 he took over Digital Playground, which specialises in (by porn’s standards) big-budget productions, such as a highly successful parody of “Pirates of the Caribbean”. Mindgeek has continued its acquisition spree since he stepped back.
With most porn on the internet now free and easy to find, the number of adult sites, and traffic to them, have exploded. The web boasts an estimated 700m-800m individual porn pages, three-fifths in America. PornHub, Mindgeek’s biggest tube, claims to have had nearly 80 billion video viewings last year, and more than 18 billion visits (see chart). In terms of traffic and bandwidth, Mindgeek is now one of the world’s biggest online operators in any industry. The company says its sites serve more than 100m visitors a day, consuming 1.5 terabits of data per second—enough to download 150 feature films.
Earlier than other parts of the online world, porn discovered that traffic and data are the coin of the digital realm. Tsunami-like traffic became the basis for a new business model. The list sites of the web’s early days sold clicks on their sites to traffic brokers, which redirected visitors to pay sites. If one ended up subscribing, the pay site would give the broker a fixed fee or a share of the revenue. Next-Generation Affiliate Tracking Software, known as NATS, which Mr Thylmann developed in the 1990s, was best at monitoring traffic and ensuring that it was paid for. Mindgeek now uses the data it collects to refine ad placement: TrafficJunky, its online advertising network, delivers highly targeted ads, for instance to mobile devices owned by gay people in San Francisco.
Beyond explicitThe traffic the tubes can direct towards pay sites means that their relationship has evolved from hostility to close, if grudging, co-operation. More and more content producers are signing deals to let their stuff appear on tubes: if a viewer clicks through to the originating site and subscribes, the tube will get a cut, sometimes as much as 50%. Since tubes get so many visitors, the bargain may be worthwhile for pay sites even if only one in 1,000 of them decides to subscribe. But the tubes are by far the bigger winners, getting not only commissions but more videos, which in turn drive up their traffic and ad rates. The model has been likened to a “vampiric ecosystem” in which Mindgeek and the other tube sites feed on pay sites, sucking their profitability.
All this will sound painfully familiar to other media firms. Echoing the aggregation deals struck by the tubes with commercial porn producers, social-media sites are starting not just to link to content, but to host it. Snapchat, a messaging app that lets users send each other photos and videos that vanish after a few seconds, allows news outlets to publish articles on its service in return for a share of advertising revenue. Facebook is doing something similar with its Instant Articles service. Indeed, Facebook, Twitter and their like have essentially evolved into traffic-brokers. Many of the clicks they pass on come from links posted by users. But the number of ads, promoted posts and suchlike is growing....MORE
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