from www.dailyfinance.com – At the Adult Entertainment Expo four years ago this month, I passed through the security checkpoint at The Sands Hotel in Las Vegas — and was struck by the sheer volume of people.

The porn industry’s annual convention had packed more than 30,000 attendees into two exhibit halls. It was nearly impossible to move around, or have a conversation, let alone interview a company executive. But as I pushed through the crowded aisles between elaborate displays, I could feel the energy pulsing through the room.

This conference, held every year concurrently with the Consumer Electronics Show, is where the adult-entertainment industry goes to work: cutting deals, announcing new talent and products, and setting the tone for an exciting and lucrative new year — not to mention fueling their adrenaline and desires with alcohol and blackjack.

A Quick Decline:

In 2006, porn was reaching new heights. DVD sales had hit nearly $4.3 billion for the year just ended, according to Adult Video News; online was good for another $1.5 billion (and hadn’t begun to cannibalize video sales yet). But two years later, AEE was almost unimaginably different. Despite the increased elbow room, the conference had both a smaller crowd and fewer exhibitors. A few major players, like Penthouse, skipped out on what had always been the industry’s biggest event of the year.

Those who attended last year say both public and exhibitor attendance had eroded further. Few are optimistic for this month’s conference, which opened Thursday. Sherry Ziegelmeyer, owner of Black & Blue Media, says she has seen advertised discounts of up to 50% off regular booth space as recently as October. Industry admission price cuts, she says, are still being offered: “unusual,” she says, “as it’s less than two weeks before the show.”

What’s Good for AEE…

The fortunes of the adult entertainment industry, it seems, track with AEE attendance. Porn is wrestling with a recession deeper and more severe than what’s constraining the mainstream entertainment businesses.

But some are still hopeful. Scott Coffman, CEO of Adult Entertainment Broadcast Network, among the industry’s most successful companies, cautions that although adult DVD sales are off around 50% from the industry’s peak in 2006, a bit of interpretation is necessary “There were way too many companies making DVDs over the last three to four years,” he says. Many had no brand recognition and didn’t fill a specific niche, he says, so they were destined to fail.

Online, the porn business has run into similar challenges. “The best companies have experienced double-digit declines in sales,” he says, “with other companies experiencing even higher declines, and some going completely out of business.”

Given an industry that flooded the market with product and is now stricken by the worst economy of the past 70 years, many adult-entertainment companies seem paralyzed by the challenges. Coffman says AEBN is diversifying: He’s using the opportunity of AEE to unveil RealTouch, an early foray into the field of “teledildonics”: devices that connect to your computer and to you, recreating the sensations of porn viewed onscreen.

“Real Touch is to watching porn what the Wii is to video games,” Coffman says. “It’s an interactive experience. You’re no longer just watching the movie — you’re part of the action.” The change in end-user interaction, he’s betting, will get consumers to start opening their wallets again.

A product launch is always cause for celebration, especially when it addresses one of the most vexing problems facing the porn industry: piracy and the proliferation of free content. It also makes existing content more valuable, rather than requiring more cookie-cutter video that on its own is failing to produce profits.

Coffman doesn’t seem concerned about thinner crowds at AEE. Although the numbers still lag those posted during the go-go years, it’s still the biggest show of the year for consumers and Webmasters, Coffman says. There’s no other game in town.

And with the pressures on the porn industry, a renewed sense of urgency should stimulate some activity. “In this new economy, everyone is more aggressive in closing deals,” Coffman says. “I expect to do a lot of business at this show.”

With adult-entertainment production companies stuck looking for answers and finding few viable alternatives, a trip to AEE this month might just give them the solution they’ve craved for the past four years.