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The Porn Bust

Mises Daily: Monday, August 24, 2009 by

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The purveyors of porn have always had to overcome numerous obstacles to sell their product: whether its local zoning laws, federal and state laws that prohibit the distribution of obscene materials, or protesting feminists and righteous right-wingers.

"The foremost danger to marriage in our time is the wholesale degradation of women in the popular culture," writes Shmuley Boteach in The Jerusalem Post.

In magazines, on TV and especially on Internet porn, women are portrayed as the libidinous man's plaything, not an equal to be respected but a subordinate to be used.

Despite sermonizers like Boteach wailing about it, claiming that it's the reason approximately 30 percent of married women in America are on antidepressants, the porn business generates nearly $13 billion a year in sales.

"Society has spoken and they have demanded it," Max Hardcore told CNBC's Melissa Lee in an interview just prior to being sent to prison on obscenity charges. "There are more people buying my videos than there are protesting my videos."

Besides, as Murray Rothbard pointed out in For A New Liberty,

It is not the business of the law — even if this were practically possible, which is, of course, most unlikely — to make anyone good or reverent or moral or clean or upright. This is for each individual to decide for himself.

For A New Liberty

As always in history, the market provides the most efficient methods for both the sin and the redemption. There are many sure-fire methods for keeping porn off the computer, and every family with kids surely knows by now about the free service called K-9 web protection. If they do not, they should.

But for those who prefer the sin, pornography is everywhere. The great irony here is that many in that business don't like it this way. Despite all the money that's generated, more and more pornography is now available for free.

"[T]he tenuous legal status of the industry has made it difficult for it to use copyright laws to inhibit competition," Michele Boldrin and David K. Levine explain in Against Intellectual Monopoly, "and so as technology has changed, pornography has become a cottage industry with many competing small-scale producers."

Against Intellectual Monopoly

And the big producers in porn, like Vivid Entertainment, don't want porn customers to be able to satisfy themselves without paying $29.95 for one of Vivid's DVDs — which takes only two days to shoot and is made on a $20,000 budget. "You get something for free and you never want to pay for it," Vivid's head man Steven Hirsch said on the CNBC special "Porn: Business of Pleasure."

Back in the 1960s and '70s, when Penthouse and Playboy magazines dominated the industry, the average Joe or Jane didn't want to slip on a raincoat, head for the seedy side of town, and try to slink into the adult theater unnoticed. Given these barriers, the supply of porn was restricted and those who wished to have it would pay high prices, which generated huge profits. As Boldrin and Levine explain, competition was weak, and the dominant firms in the industry thrived because

the main technology for reproduction and distribution of pornographic materials consisted of glossy magazines and movies circulating through the chain of X-rated movie theaters.

This has all changed with the Internet. As the CNBC special pointed out, "the peep show has come to you," and anyone willing to have sex on camera can be a porn star, and anyone who can post a video online can be a producer. Plus, Vivid's Hirsch says his company is constantly playing defense, as people copy Vivid's material and post it on their sites.

It's not the state but rather technology and a bad economy that have made porn profits go limp — reportedly down 30–50 percent. But there is still money to be made, just not the monopoly profits that intellectual-property law provides.

There is $3,075 spent every second on adult material, according to CNBC. Each second, 28,000 Internet users are viewing porn; and every 39 minutes, a new adult video is being produced. Not only is porn being made for DVDs and the Internet but also for your iPhone or Blackberry. You never have to leave home without it.

"Major companies that serve as a gateway to content on cell phones in the U.S. such as Verizon don't allow explicit adult content," the Los Angeles Times reports. "But like cable and satellite companies in the 1990s, they may change their minds when they see the potential profit."

Boldrin and Levine believe a case can be made that the early growth of the Internet was due to the replication and distribution of pornographic materials: "Online pornographers are usually among the first to exploit new technologies — from video streaming and fee-based subscriptions to pop-up ads and electronic billing," the economics professors write.

Their bold experimentation has helped make porn one of the most profitable online industries, and their ideas have spread to other legitimate companies and become the source of many successful and highly valuable imitations.

According to CNBC, $2.84 billion in annual porn revenue comes from Internet sales.

And given the new number of applications available to customers, the porn product arguably gets better and better — unlike the product in industries that are strictly protected by copyright laws.

But while customers receive a better product that's more available at a lower cost, big-budget monopolies that are slow to innovate struggle and die. Penthouse filed for Chapter 11 bankruptcy in 2003 and Playboy Enterprises lost $156 million last year and has struggled financially for many years. And X-rated movie theaters are going the way of the buggy whip.

Another reason porn is cheap compared to Hollywood movies is that, instead of the actors and actresses making millions per picture, porn actors only make hundreds per scene with actresses sometimes making thousands per scene.

Boldrin and Levine write,

The stars of the porn movie industry are simply a lot closer to earning their "opportunity wage" — economic parlance for what they would be earning, given their skills and prevailing market conditions, in their best alternative occupation — than are the stars of the legitimate movie industry.

And just as reality TV cuts into the income potential for mainstream actors, amateur porn decreases the moneymaking potential for adult actors and actresses.

CNBC's Melissa Lee visited the home of adult superstar Jessie Jane in Oklahoma City. Ms. Jane appears to live a normal family life in a modest home with a husband and son, doing laundry and going to ball games. Although she wouldn't provide numbers, Jane indicated that she makes most of her money dancing live at gentlemen's cabarets around the country rather than in films — while Angelina Jolie makes millions doing just one picture and doesn't have to work nearly as hard.

Porn star Savannah Stern earned $150,000 two years ago, at the height of the boom, working four or five days a week. But Stern is now lucky to work one day a week, and has traded in her Mercedes-Benz CLK 350 for a Chevy Trailblazer given to her by her parents. While Stern hopes to earn some money dancing on the exotic-club circuit, she's planning to go to college for an interior-design degree, the L.A. Times reports.

So despite the constant outrage and occasional legal hassles, the lack of copyright enforcement in the pornographic movie and entertainment business creates "an industry that is more innovative, creates new products and adopts new technologies more quickly, and for which the reduction in distribution cost has resulted in more output at lower prices and a more diverse product," write the authors of Against Intellectual Monopoly.

Inefficient, outdated product providers that fail to satisfy customers go out of business — to be quickly replaced by smaller, nimbler, more innovative competitors. Customers are able to receive a higher-quality product that is cheaper and provided in more mediums, thus making it more convenient to consume.

And for those who don't want it at all, it might as well not exist.

This is the way capitalism is supposed to work.