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Yahoo's Profit Search Leads to Porn

11 Apr, 2001


Yahoo Inc., struggling for profit amid a shaky dot-com marketplace, has become the first top-tier Internet company to embrace the porn industry, opening an online store stocked with thousands of hard-core DVDs and video tapes.

The marriage between porn and technology is one of the few profitable online business models, but no other Internet titan has jumped into bed with the adult entertainment industry.

Because of Yahoo's dominant online presence, the company immediately emerges as a behemoth in the online pornography business, industry experts say. An estimated 185 million people worldwide access Yahoo each month.

"In the online sex market, size does matter," said Dan Lavin, a principal with the high-tech market analysis firm International Venture Research. "There's no one bigger than Yahoo."

The push into porn is a departure for Santa Clara-based Yahoo, which has long cultivated a Main Street reputation in its bid to become the window to the online world. Consumers have always been able to find racy material through the company's Web directory, but Yahoo served as only a pointer -- not a promoter -- of such X-rated products.

Yahoo's decision to become porn's online middleman reflects the desperation of Internet companies to find new sources of revenue amid a slowing economy. It also underscores a long-standing truism about porn and the Net -- sex sells.

Yahoo officials declined to discuss the erotic video outlet or say why the company is expanding its offerings. The "adult and erotica" store, connected to Yahoo's main shopping channel, was quietly expanded and relaunched in recent weeks as part of a companywide effort to offset a sharp drop in advertising sales, according to merchants tied to the online shop.

In a written statement issued late Tuesday, company officials said that "under stringent control, adult products have been available through Yahoo Shopping for more than two years."

Yahoo declined to elaborate on the availability of porn. Adult-video merchants said Yahoo started selling a smattering of erotic films last year. But the shop's offerings, and its security system blocking underage shoppers, has grown in recent weeks, the merchants said.

Despite the potential lucre, other leading online companies are squeamish at the thought of embracing porn.

America Online does not allow the sale of adult material on its service, and "that is not going to change," a company official said. Amazon.com Inc. stocks some adult video titles, but shoppers can locate them only by searching for specific titles, officials said.

Microsoft Corp. allows outside merchants to sell "sensual" products such as relationship books and massage oil through its eShops on the Microsoft Network. But X-rated DVDs are verboten because "we believe there's a difference between healthy sensuality...and products that simply exploit sexuality," according to a company spokesman.

Even Blockbuster Inc., the Dallas-based video retailer, doesn't sell porn either in its stores or online.

"We have one of the top [corporate] brands in the United States. You don't mess with that," said Karen Raskopf, senior v.p. of corporate communications for Blockbuster. "This is not a morality statement. We just don't need to sell adult products to make money."

Critics of Yahoo note that the company, which is expected to report its second consecutive quarterly loss Wednesday, has not avidly promoted the porn venture.

The softening Internet economy has forced Yahoo into an awkward balancing act between making money and endorsing the controversial porn market. The online store essentially gives a virtual Good Housekeeping seal of approval to porn, by virtue of both Yahoo's size and its long-standing corporate mantra that its service is more than a digital white pages, according to analysts.

"This is the opposite of what Yahoo is about, of chat and community and all the news you can get," said John H. Corcoran, executive director for the Internet and new-media group at CIBC World Markets. "This is all about dollars."

Yahoo's rush for revenue is a risky gamble and could easily backfire by alienating advertisers, its main source of revenue, analysts said.

"This is a company that has posted losses because ad sales are down," said Van Baker, v.p. of the e-business group at research firm Dataquest. "This won't hurt them with advertisers in the young male demographic. But to everybody else -- and certainly anyone who's advertising to the Christian or kids market -- this is going to be shocking."

It isn't clear how much Yahoo expects to make off of porn. As it does with its other online stores, Yahoo will receive a percentage of each sale, according to merchants working with Yahoo.

Company officials declined to discuss revenue and profit scenarios.

In addition to the video shop, Yahoo is building a series of customized stores for adult-entertainment production companies, which are planning to use those sites to sell a variety of intimate products.

It is relatively easy to find Yahoo's new porn video store, either through its central shopping area or by merely entering the word "sex" into the site's main search engine. Each shopper, however, must register an e-mail address and enter a credit card number, which is cross-checked with the issuer to verify the shopper's age.

Once cleared, consumers can purchase titles aimed at both straight and gay audiences and from a variety of categories: explicitly hard-core to animated features to fetish titles such as "Genderella."

After selecting a film, shoppers can then tap into Yahoo's comparison-shopping program to find the cheapest price being offered by various affiliated porn merchants. "Genderella," for example, costs $7.95 from DVD Advantage and ships in three days. DVD Empire, however, can pop the film in the mail in a day but charges $15.99.

"We've been seeing a ton of traffic from Yahoo shoppers," said Mike Barry, director of adult operations for DVD Empire, the industry's largest mail-order and online retailer. He declined to provide sales figures but noted that the number of orders coming from Yahoo "is larger than most of our other partners."

Yahoo's online store, which features a top 10 list of video "Yahoo Top Sellers," offers films from 36 adult-oriented studios. The selection ranges from smaller fringe companies such as Androgeny Productions to mainstream outlets such as Hustler and Playboy.

"I'm a bit surprised that Yahoo's doing this, to be honest," said Larry Lux, president of Playboy.com, a unit of Chicago-based Playboy Enterprises. "Clearly, having a Yahoo in this space furthers the trend of mainstream acceptance of adult content."

Yahoo has long accepted banner ads for adult-oriented Web sites, and the company's prominence makes it an attractive target for adult-site operators looking to place ads to draw traffic.

Ads alone, however, are not enough to bolster the company's bottom line. Around the beginning of the year, Yahoo began charging online commerce sites a fee if they wanted to be listed in its directory. Mainstream shops pay $200. Adult-oriented sites fork out $600.

The idea of being a porn middleman is an uncomfortable one for Yahoo. Company officials insist their new shop "is just like any other we have on our site."

Nobody knows how many porn DVD or VHS titles were sold last year, but industry watchers peg the U.S. market at several billion dollars.

Video rentals and sales, both of mainstream Hollywood and adult titles, accounted for $20 billion in revenue last year, according to the Video Software Dealers Assn. U.S. consumers snapped up nearly 184 million DVDs in 2000, for a total of $3.9 billion, according to market research firm InfoTech Inc.

DVD Empire sells more than 30,000 DVDs -- at $24 to $30 apiece -- each month through its Web site, according to company officials. Porn makes up a large chunk of its overall business, which can range in sales from $720,000 to $900,000 a month.

"Yahoo understands that these slopes are slippery," said CIBC's Corcoran. "They also know that sex, sports and stocks are the power of three that drove the Internet in the past... Yahoo can put a bit of a filter up, put their hand out and take the money."


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