Scott Fayner, www.scottfayner.com posted the following on his website

From: Unknown

As AVN 2009 approaches and hundreds of starlets, producers and studio heads get ready to descend upon Las Vegas I thought it would be a good idea to give my “state of porn” address now.

Part one. The Producers.

Three years ago there were studios popping up every week. Some guy with fifty-thousand bucks decides to become a studio. A pornstar who’s best days are behind him/her meets a sugar-daddy during a private and next day he/she announces they have a studio with a backer. The industry went from 500 new releases a month to 500 a week! Studios went from shipping 3,000 units on new releases to 750. Everyone out there trying to fill the same slots on the store shelves. There was only so much shelf space to go around, so many ‘studios’ (using that term very loosely) went under because they couldn’t survive shipping 200 pieces on a new release.

Part two. The Pimps.

Then came the ‘models’. There was a time when the word pornstar meant something a little different than it does today. When you thought of ‘pornstar’ you thought of Jenteal, Ginger Lynn, Seka, Marilyn Chambers, Nikki Dial, Jenna Jameson, Tracy Adams, Christy Canyon, Ashlyn Gere, Jill Kelly, Aja, Shane and a handful of others. Those were ‘stars’, names we all knew. They were the top tier, and all the rest were like ‘extras’ or ‘second tier’ girls. Movies were built around these pornstars with the second tier girls being used as supporting characters. Today the industry is built on second tier girls, with ‘pornstars’ being few and far between. Why? Because of the talent agencies.

Talent agents are as responsible for the diminished quality of today’s product as anyone. And that won’t change. A girl leaves her job at Wal-Mart and walks into an agents office; average face, average body. Agent takes a few photos, slaps the photos up on his website and says “new arrival”. The girl gets booked for a scene at $750. The agent takes 10% of the girls money and takes $50 from the producer (if not more from both). If the girl works 3 days a week the agent makes $400 off the ‘average’ girl who he now labels as a ‘pornstar’. This girl who took home $140 a week from Wal-Mart is now taking in weekly income of $2,500 less 10% to agent, more money than she ever dreamed of. She’s just an average girl, this is beyond her wildest dreams, so she works hard, aims to please, gives 100% every day, has a great attitude and does anything the agent says. Her attitude and cheap rate gets her more bookings, making the agent more money, making her more money and giving her more exposure to the public. Next step! The agent phones his friend who owns an escort agency, exclusively made up of pornstars, tells the madam of the new girl and tricks the girl out as an escort at $1,000 an hour to start, taking a booking fee from both the madam and the girl again, of 10% minimum. Now the agent can make $800 a week ‘or more’ on a single average girl. Is that stretching it? No chance. It’s reality. Go to one of the industry’s ‘agency’ websites and you’ll find for every ‘star’ there are fifty ‘average’ girls. In other words, the agent doesn’t care if the girls a star or not. I once heard these words from someone ‘quality, not quantity’. That term is long gone. An agent would rather make $400 a week from 50 average girls each, instead of $1000 a week from 10 stars each, do the math. There is no benefit to recruiting only top girls, and telling average to below average girls “sorry this business isn’t for you”. The agent is not an agent, it’s just a fun term for them to throw around, the agent is now no different than a street level pimp. Pimps take all girls, and apply different rates for the class of girl, and at the end of the night the pimp gets his money from each girl, regardless of whether she’s a tall beautiful blonde or a skinny brunette with no teeth. Does this apply to ‘all’ agents in the porn business? Not all, but 90% of them.

A while back, one of these agents was at a baby shower for one of the girls he represents, and while the girl was opening gifts from those in attendance, the agent was booking privates and negotiating rates and his fees for two of the girls he brought to the party unannounced and who had just happened to enter the industry through his agency. True story. Sound like a pimp? Yup. But you’ll see this agent walking the floor of AVN with girls at his arm, showing them off to producers and directors acting like a legitimate business man. Then back at the Venetian, he’ll be sending them from room to room for privates, and all the while collecting his cash.

The industry wasn’t always like this. The agent was never this important. It’s just that over the last five years pimps have found their way into the business and this is what we have today. And please remember, these are not ‘suitcase pimps’ who come and go and hang on to just one girl, these are pimps with educations and some business savvy.

So now you have agents filling the industry with ‘low to no’ standards for girls, that’s part two.

Part three. The Web.

I wrote some time ago that the porn producers had shot themselves in the foot because of VOD. Five and six years ago producers starting making deals with Gamelink, Effex Media, Divx, AEBN and other sites that started popping up daily to ‘stream’ their movies and participate in a ‘revenue sharing’ program. Producers jumped all over it because of the potential profits, never realizing they were sealing their own doom. This was the beginning of the end. With the advent of ‘broadband’ internet, the porn watching community started venturing to their keyboard and monitor instead of the local video store. This meant less sales for the studios, and more revenue for the VOD companies.

Move ahead to 2008, VOD is declining now, why? Tube sites showing porn for free. Who owns the biggest Tube site? AEBN!!! Another reason for decline of VOD and death to studios? Video member sites. Ok, the quality of tube sites isn’t always the best and it’s a proprietary format a lot of the time. BUT, for $9.99 a month you can sign online and download 25,000 scenes all from one site, legally!!! No bullshit. Go to one site, pay $9.99 and choose from over 100 studios, from over 1000 performers, over 50 categories. Updated with 25 new scenes per day, 5 movies per day. No shit! Just two examples. Videobox and Videosz. Go to these sites and download Elegant Angel, Sin City, DVSX, Platinum X, Red Light District, Combat Zone DVD’s in high-def quality. What’s the catch? There is none!!!! Why would any consumer ever buy a DVD at $24.99 or even $9.99 when for that price he can watch/download 5,000 DVD’s and make his own “BEST OF” folders by Studio or Performer right on his hard drive!!!!

Benefit to the producer from these sites? Not a whole hell of a lot! In 2005 the average “New Release” was shipped from a studio to a distributor for a price of $8. If the studio shipped 1500 pieces they booked $12,000 in sales. Fast forward to today. Videobox or Videosz calls a broker like XXX Content Direct or The Content Store and buys unlimited rights to a title for an average price of $300 per title. No revenue sharing, straight purchase!!!! So Videobox or Videosz gets a title for $300 and now adds it to their site and shares it with their 5,000+ members. How many of those Videobox/Videosz, etc. members were at one time DVD buyers? Lots! Today, they buy none! Instead of a DVD collection, they have a collection of folders on their hard drive to watch anytime 24/7! And because the producers are losing DVD sales to these member sites, the DVD sales go from 1500 per title to 600 per title or less.

The Perfect Storm.

Take the sum of all the parts. The Producers + The Pimps + The Web and what do you get? The perfect storm! An industry that’s killing itself without any outside intervention. The DOJ isn’t killing the industry, 2257 isn’t killing the industry, it’s the people running the studios that are killing the industry! And in the middle are the pimps and the web sucking it dry until there’s nothing left. For every ‘smart and intelligent’ businessman who has been running successful studios for the last 10 to 25 years, there’s a new breed of studio owner that has no clue what they’re doing, and while they kill themselves they drag down the successful people with them.

Know the expression “borrowing from Peter to pay Paul”? Or borrow from one credit card to pay off another? Eventually it all catches up to you.

A few years ago it cost $20,000 just to shoot a good quality movie that sold 3,000 units out the door with all top name talent. Now that the agents are touting ‘average/below average’ girls at lower rates, studios can get away with spending $12,000 total to produce a title ready to ship. Because there’s so much competition they only make back $7,500 in DVD sales, so they look for other revenue streams by partnering with VOD revenue sharing partners and collect that revenue each month slowly. Not enough to cover the $12,000 production costs! Sell rights overseas, recover a little more. Still not enough. In an outright act of stupidity and desperation they now turn to selling the rights to their movies through brokers, collect $200 per title and generate another $4,000 per title. Immediate gratification, but Dead End! No more money to make! Profits? At one time profits were 700% per title just based on VHS and DVD. Now profits, if they exist at all, are under 30% based on ALL sales streams. Are my numbers right on the money for ‘all studios’, no, but they’re in the damn ballpark! Are there exceptions? Of course, a few! But like I said before, the idiots of today drag down the few bright stars that are left.

Eventually you have a consolidation, then a slow death, because studios can’t keep up with the losses and shrinking profits and dried up revenue streams. Bottom line is “end users”. Today the end users are not at the video store buying DVD’s, they are joining Videobox and Videoxz for a small fee and getting unlimited downloads! Why is Blockbuster dead? Because of Netflix! Who suffers from Blockbusters death and Netflix success? The movie studios. Who signed the deals with the Netflix? The movie studios. So at least the adult industry isn’t alone in its’ idiocy!

Conclusion. Solution.

What’s next? Can it change? Can it get better? Possible, but it’s very hard to go backwards. The internet changed everything, broadband changed everything. iTunes, Netflix, Videobox, they changed everything.

Is the porn industry dying? Here’s the answer, no its not!!!! What’s happening is it’s shedding its’ skin. Getting rid of the trash. Remember back in 1998 the “internet boom” on Wall Street. Every day a ‘dot com’ issued an IPO the stock went up 500% and there were instant billionaires that knew HTML but couldn’t balance a checkbook. Within six months, investors looked at the books and realized that these companies that had billion dollar valuations based on inflated stock prices had no real value, were years away from profitability, were a sham! The instant billionaires went away, the dot com era crashed, people lost a lot of money. But Yahoo, Google, EBay, Microsoft and other strong internet related companies that also thrived during the boom, they remained. If a company has a solid footing, a solid foundation, it can prevail through these tough times. All we’re seeing today is much needed ‘industry correction’ that I called for a few years ago.

Once complete, things will stabilize. Wicked will keep shooting, as will Vivid, Evil Angel, Zero Tolerance and Adam & Eve. You won’t find any of those studios offering their movies for sale through rights brokers for internet use. You can watch their movies exclusively on ‘their own’ websites! The keyword there is ‘exclusively’. The content brokers will remain, Videobox, Videosz and sites like them will remain, cheap content will remain. But as studios and independent producers drop out because of lack of revenue, so does the amount of content available to these brokers and websites. So the industry and the amount of content thins out. Established web companies like Brazzers have carved out nice market shares because their content is exclusive and they use A list talent for the most part. Wicked has Kirsten Price and Stormy Daniels exclusively, not ‘average’ talent. Zero Tolerance has Courtney Cummz exclusively, Vivid has their stable of girls exclusively. As the studios die, the amount of content is reduced, the ‘average’ girls shoot less and less, the agent makes less and less. The cream rises to the top. Independent A list girls like Jenna Haze, Eva Angelina, Shyla Stylez and other top girls will always be busy shooting.

This is a correction, not an end. A necessary correction. The adult industry will survive, and the talented businessmen who are left will come out of this and recoup. The A list girls and above average girls will go on making good money, and the second tier girls will make money but will have to keep their waitressing/watering jobs.

The Ice Age, The Great Depression, The Dot Com Boom… all had recoveries, thriving recoveries. So will the adult industry. It’s just a matter of shaking the tree and getting rid of the dead branches.