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Dirty Money -- Porn 500
By James Harder
Insight Magazine
December 15, 2000

gore

Pornography has become one of the hottest growth industries in the
nation. Corporate America has taken notice and is rushing in to make a
profit on smut.

Fortune 500 companies are swooping down from their financial
kingdoms to compete in the pornography industry for a market flush with
profits, growth potential and increasing public tolerance.

Porn is being downloaded, ordered, rented and tuned in at startling
rates across America. And, with millions of customers spending billions
of dollars on pornography, corporate America is starting to compete for a
piece of that pie. In 1999 pornography sales in the United States
exceeded $10 billion - a market so lucrative that even blue-chip
companies such as General Motors Corp. (GM) and AT&T Corp. have jumped
into the dirty game. These two Fortune 500 companies are piping
pornography by cable and satellite feeds into American homes, providing
distribution that porn producers require to increase their production of
smut, perversion and filth.

Bryn Pryor, managing editor of Adult Video News Online (AVN),
hails the entrance of corporate America as essential to the growth of
pornography in the domestic market. "It's more distribution for the
industry, so it's all to the good. It's more places for them [producers
of pornography] to sell their product," Pryor tells Insight. He is
optimistic about the growth of video production the added cable and
satellite distribution will create.

With net sales and revenue of $177 billion in 1999, GM is the
largest company in the world, operating in more than 55 countries.
Through its ownership of Hughes Electronics and DirecTV, a satellite-TV
company, it has a reach of 9 million homes throughout America, offering
each family news, sports, movies - and porn. Or, as DirecTV labels it on
their Website, "provocative entertainment from the leaders in adult
entertainment."

AT&T has annual revenues of more than $62 billion, operates in 59
countries and reaches 16 million customers in the United States with its
AT&T Broadband cable service. In addition to offering a vast selection of
traditional channels, it promotes a full array of adult erotica via AT&T
Broadband.

While GM and AT&T are the biggest fish in the overflowing sewers
of porn, they are not alone in their quest to cash in on the $56 billion
up for grabs in the international porn industry. Hilton Hotels, Marriott
International, EchoStar Communications Corp., On Command and LodgeNet
Entertainment all have large financial stakes in the industry. While
Hilton and Marriott hotels are reaping the profits from showing X-rated
shows, On Command and LodgeNet provide the actual content. The No. 2
satellite company, EchoStar, also makes big money selling sexually
explicit films.

With millions of shareholders concerned about profits, and the
devil take the hindmost, managers and chief executive officers of these
corporate giants are not excited to talk about their foray into
pornography. Tom Marder, a spokesman for Marriott International, dodged
questions, gave convoluted answers or simply didn't respond to questions
put to him by Insight.

"You're asking me if nudity is involved? I'm not a critic so it's
not like I can tell you piece by piece what's going on," Marder says of
Marriott's in-room movie titles. Asked directly about pornography, Marder
says Marriott offers "some material with more mature themes. Mature
themes would involve material directed toward a more mature audience."
Pressed, he admits that some of the content doesn't sit well with the
conservative ownership of the hotel chain, adding, "It's a competitive
business. A lot of what we provide is based on demand."

That alleged demand has created the space for Fortune 500
companies to slither into distribution of hard-core pornography.

Hotels were among the first publicly held companies to profit from
porn, networking their rooms to provide a flow of X-rated movies. It's a
route almost all now are taking - except for Omni Hotels. Even with the
lure of big profits, the privately held Omni decided to stop offering
pornography from its entertainment system. "As a father of two sons, I
was uncomfortable with the late-night entertainment available," says
Omni's owner and chairman, Bob Rowling. "We didn't want to generate
revenue on pornography."

As a result, Omni went to work several years ago to remove the
adult channels and movies networked into its rooms. "It was actually more
difficult than we anticipated. There was a lot of profit in those
movies," Omni Vice President for Marketing Peter Strebel tells Insight.
And the entertainment companies that provide the movie channels for
hotels were not interested in offering a system for Omni that excluded
porn, fearing a dip in profits. "After heavy negotiations we did find a
company," says Strebel, striking a deal with LodgeNet, which agreed to
exclude the adult channels they offer in other hotels. By shutting out
the pornographic movies, the Omni chain of 80 hotels was able to add to
its family movie offerings - and has in fact experienced an increase in
movie-rental profits.

"Every day mail gets hoarded into this office. It's almost like
Christmas," says Strebel of the more than 50,000 letters of encouragement
the hotel has received since banning the video pornography. But Omni's
decision to put decency ahead of a sure buck is rare among large
corporations.

The Wall Street Journal reported in November that Comcast Corp.,
Cox Communications Inc., Cablevision Systems Corp., Charter
Communications Inc. and Insight Communications Co. all carry the Hot
Network, a raunchy porn channel that both AT&T and GM have signed. Owned
by Vivid Entertainment Group, the Hot Network quickly is becoming one of
the best-selling commodities on cable and satellite television. Available
in more than 27 million homes, Vivid now has its sights on the global
market. Its programs already are distributed to 40 countries through
third-party distribution. Intent on gaining an even larger audience,
Vivid executives plan to go public next year, seeking more cash to
produce ever more porn. "We want to fill up the pipeline with as much
Vivid content as possible," Vivid cochairman Steve Hirsch tells the New
York Times.

AT&T acquired its cable business in 1999 when it merged with TCI.
In June of this year, it announced plans to offer hard-core programming
on its cable systems via the Hot Network. The service is available to 95
percent of U.S. markets. "Our business is to serve a wide range of
demographics who have a wide range of programming desires and we strive
to meet customer demand," says Steve Lang, a spokesman for AT&T. "I'm
sure there are people who are disappointed, but they have the ability to
not watch it. We trust our customers to know what's right for them."

The aggressive marketing of porn by such companies as Vivid, GM
and AT&T is outpacing even such infamous pornographers as Larry Flynt. In
fact, GM sells more explicitly sexual films every year than does Flynt's
Hustler empire. And that has Flynt's daughter, Tonya Flynt, concerned.
Growing up with the sultan of porn as her father, Flynt experienced the
devastating effects of the porn industry and the rapacity with which her
father pursued it. She recalls the day he took her into his office,
opened a briefcase full of money and said: "Tonya, that's power. That's
what I care about."

She says, "He always tried to hide behind the First Amendment and
free speech," but it was only to hide business interests in the seedy
world of porn. "I'm not sure if the Fortune 500 companies really
understand what they're advocating," Tonya Flynt says, "or if they're
like my father, and it's all about the money."

Indeed it is about money, says Robert Mercer, senior manager of
communications at DirectTV, which is owned by GM. "It [adult content] is
a profitable category," he tells Insight, acknowledging that the GM
satellite company offers the Playboy Channel, the Hot Zone and the Hot
Network. "The Hot Zone gets a little spicy," he euphemizes, defending the
decision to carry hard-core porn: "We do have standards. We don't show
violence or underage, that kind of thing" - by which he presumably means
sadism and child pornography.

Mercer explains that he does not see GM's relationship with adult
programming as something that would tarnish its image in the eyes of the
American public. "I think people recognize that this is a segment of
programming that viewers want to see," Mercer says.

Toni Simonetti, general director of corporate communications at
GM, agrees. She dodges direct questions from Insight about GM's
involvement in the porn industry. "We have full faith in Hughes running
the business appropriately," says Simonetti of the GM-owned electronics
company that oversees DirecTV. Where the line is drawn, none will say
with certainty.

Porn has not always been readily accessible in this country. Forty
years ago it mostly was relegated to seedy mob-controlled sex shops such
as those around Times Square in New York City. This required a curious
youth or pornography addict not only to leave the comfort of home, but to
come face to face with clerks and even other buyers. It was regarded not
only as demeaning to the pornographers and those they exploited but to
everyone who had anything to do with it. With the advancement of
technology - and the advent of the videocassette recorder in particular -
the worst perversions imaginable have been moved into the homes of
otherwise respectable people where they have become available even to
children.
The final hurdle for those seeking complete anonymity came via
cable and satellite television and the Internet. Gone was the need even
to go to a store to buy or rent X-rated material.

Indeed, sex-video rentals and sales volume peaked in the United
States in 1997 at $4.2 billion. It since has seen a slight decrease,
dropping to $4.02 billion for 2000, a recession that industry insiders
attribute to the emergence of the Internet and increased subscription to
cable and satellite television. Large-capacity hard drives, recordable
CDs and VCRs provide the hardware for home recording - activity
encouraged by the porn industry.

In addition to the rapid growth of triple-X-rated sites on the
Net, porn popularity can be tracked through the growing number of video
titles being produced. Ten years ago 1,275 hard-core titles hit the
market, compared with 11,041 for 2000, according to AVN. AVN's Pryor says
the increase in video production is continuing to escalate, aided by new
technology that makes it much cheaper and easier to produce.

A recent study by researchers at Stanford and Duquesne
universities claims at least 200,000 Americans now are addicted to
e-porn. By many accounts, that's a conservative estimate. According to
Nielsen NetRatings, 17.5 million Web surfers visited porn sites from
their homes in January 2000, a 40 percent increase from four months
earlier. That escalated to 20.7 million in October, or roughly 23 percent
of the Web-surfing population in the United States. And surfing for porn
at work isn't far behind. Nielsen watched 16 percent of the
Internet-equipped working population click onto porn sites in October as
well. With bigger sites raking in more than $100 million a year through
X-rated portals, e-porn continues to be the most successful of all
Internet ventures, according to Neilsen NetRatings. Overall, according to
Forrester Research, Web surfers spent close to $1 billion on pornography
in 1998 and the market continues to grow.

U.S. News & World Report said earlier this year that America
Online (AOL) still is the provider of choice for porn-site visitors with
nearly 16 percent of the Internet's pornography being accessed through
its portal. An October report by the Village Voice claims AOL already is
at the center of the porn empire despite its efforts to keep a
squeaky-clean image with its customers and avoid tainting its merger with
Time Warner.

"I think AOL is a distributor of pornography," says Vickie Burress
of the American Family Association (AFA). "They knowingly allow it to go
across their lines and they are the common carrier that is distributing
pornography right now." Pryor sees AOL as a quick and easy way for people
to get onto the Net and start accessing adult sites and chat rooms, but
doubts the company will move any further into the skin trade as long as
Steve Case remains at the helm.

"He's turned a blind eye so far to the money that AOL is making
from adult content," Pryor claims. Not that Case actively is stopping
people from using his site as the top launching site into porn. "AOL
could be actively blocking these triple-X sites," says Pryor.

However, AOL spokesman Nicholas Graham says, "Pornography is a
violation of our terms-of-service agreement and would obviously result in
the termination of a member's account."

With millions anonymously accessing porn through the Internet and
television, thousands have been caught in a vicious cycle, unable to stay
away from the explicit material. Most experts on porn addiction say it
develops in stages. People start by viewing softer graphics, then slowly
move toward stronger and more violent material as they become bored with
the merely explicit. Tonya Flynt has seen people become addicted to porn
and attests to the effect it had on her own life and family. "Use of
pornography leads to all kinds of deviant behavior. It's the breakdown of
morality," says Flynt, who has started a foundation to "educate people
about the evils of pornography and the violence that often results from it."

Flynt attributes the abuse she claims to have suffered as a child
to the pornographic world in which her father lived. "When we would go
visit him the magazines were everywhere," she says.

That is precisely the problem with pornography, says Burress. She
does not hide her disdain for the videos and Websites filled with X-rated
content, convinced they are factors that lead to disrespect for women. As
AFA state director for Indiana, Burress watches trends in the
relationship between violence and pornography. "It is no longer the man
in the trench coat; it is now the white-collar executive," she tells
Insight. She says she would like to see the federal government take a
stronger stand against porn, but sees the trend going the other way: "We
are rapidly approaching the point where FCC [Federal Communications
Commission] regulation of broadcasting is going to go away," Pryor
predicts.

Futurists say that soon one big screen will emerge in the home as
the centerpiece for integrated television and computer applications, with
content supplied via broadband. Competition will increase as market
broadcasting becomes cheaper and easier than broadcasting over cable. In
the short term, Pryor predicts, blue-chip firms will continue to compete
for distribution through cable and satellite television but, in the long
run, it is the well-heeled companies that are readying themselves to make
the jump to broadband that will rein in the porn business. And that is
exactly what AT&T is preparing for.

"AT&T has taken the J. Paul Getty approach where they want to own
the entire system," says Pryor. This vast telecommunications company has
done its homework, buying up Internet pipelines and investing in
broadband capabilities. Proving they aren't in porn just for a little
quick cash, Fortune 500 companies such AT&T are settling in for what they
clearly regard as the bigger profits to be made from a long-term stake in
the market. Whether public knowledge of these porn ties will force a
retreat remains to be seen.

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