Fans are the multibillion-dollar industry's lifeblood, but in a strange twist, they're also part of its biggest problem.

"I don't know how they make money," said porn consumer Steve Curely. "I'm a cheap bastard. ... Why pay when you don't have to?"

Paul Fishbein, the publisher of Adult Video News, the industry's largest trade publication, said his business is in trouble.

"The very technology that helped bring the business into the 21st century is also killing it," he said. "It's hard to sell to certain consumers when they can get stuff for free."

It used to be that making money from new technology was the adult industry's biggest advantage. From VHS and DVDs to the early days of the Internet and even mobile devices, pornographers have led the way in creating capital from new forms of distribution.

But being at the forefront of Internet profit-making has made the industry vulnerable to losses from Internet piracy.

"It's a huge issue and it's something that the entire industry is looking at -- and not only the adult industry, but I think Hollywood is looking at it as well," said Steve Hirsch, a top porn producer and founder of Vivid Entertainment.

Hirsch, who has helped make porn mainstream, used to worry about protecting his right to make adult films. Now, he worries about protecting himself from piracy.

"We have two full-time people -- all they do is they're out there on the Internet looking for pirated content," he said. "When they find it, we send a notice, it comes down, then it goes back up and it's sort of a cat-and-mouse game."

Several people ABC News spoke to at the AVN Awards estimated their profits were down 25 percent as a result of piracy and a glut of free content.

"The adult business was the first to figure out how to make money on the Internet, before anybody else. What they didn't foresee was the availability of all this free content," Fishbein said. "You can only do so much policing and so much, you know, of the trying to prevent your material from being pirated and shared."

But as an industry, how do you compete against free content?

"It's very difficult," Hirsch said. "Maybe the best way to fight free is with free, but as of now, the economics don't make sense. You're not able to get enough advertisers to come in where it would really make sense to give your content away, so the key is high quality content, exclusive stars. If you have that, you can sort of carve out a niche for yourself and people would come to your site."

Hustler magazine's Larry Flint found his niche last year with a porn spoof of Republican vice presidential candidate Sarah Palin. At the AVN convention, the line to meet porn star Lisa Ann, who starred as "XXX Governor Sarah Palin," was one of the longest.

"It's worked out very well for me, to be honest with you," Lisa Ann said. "It definitely created a big surge in the business. A lot of these DVDs have been sold, which keeps a lot of people working."

While she's grateful for what turned into a huge financial success, Lisa Ann has little tolerance for porn thieves.

"We can talk to people about having a little integrity and not stealing porn," she said, "I wouldn't steal music. I always download and buy music. ... Everybody deserves to get paid for what they do."

But many porn viewers don't care so much about seeing the top stars rather than what they can find for free.

"A certain percentage of people just don't care. They want it for free. And what we've done is we've educated an entire generation to think that adult material is free," Hirsch said. "Very difficult to change that mindset."

The industry's trouble is of its own creation -- or more specifically, of Scott Coffman's. He's president and CEO of the Adult Entertainment Broadcast Network (AEBN).

In 2006, he launched the adult industry's version of YouTube, called PornoTube, which has become the leading provider of on-demand adult videos online. Users can upload video clips or photos for anyone to see at no cost.

"We launched PornoTube like everyone else, looking for traffic, and it skyrocketed," Coffman said.

But now Coffman has some regrets, admitting he thought the site would encourage users to purchase porn instead of pirate it.

"That was the worst thing I've done since I was in the adult business," he said. "What I didn't realize is the amount of people who would copy what I was doing and take it to a degree that was unheard of by ... hundreds of sites out there showing stolen content with lengths of clips of 30 to 45 min."

Coffman's creation made him a lot of enemies in the industry.

"They hated me when I first started it," he said. "About six months later, when all these other sites came out, then they really realized the impact of what we had brought forth.

"There's nothing you can do. It's almost impossible to battle piracy. The 'tube' sites in the porn world are here to stay. We've got to live with them," he said.

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Los Angeles Times, 8/24/09 - On a recent Saturday night, Savannah Stern earned $300 to hang out for seven hours at a party in Santa Monica wearing nothing but a feather boa.

The veteran of more than 350 hard-core pornography productions took the job to earn extra cash and to network. But the word at the 35th anniversary party for Hustler magazine was not heartening, especially among the roughly 75 other women working there.

"At least five girls I haven't seen in a while came up to me and said, 'Savannah, are you working?' " said Stern, who started in the industry four years ago and, like most adult performers, uses a stage name. "I had to say, 'No, not really,' and they all said, 'Yeah, I'm not either.' "

The adult entertainment business, centered in the San Fernando Valley, has weathered several recessions since it took off with the advent of home video in the 1980s. But this time the industry is not dealing with just a weakened economy. A growing abundance of free content on the Internet is undercutting consumers' willingness to pay for porn, and with it the ability of many workers to earn a living in the business.

For Stern, 23, the rapid decline of job opportunities in the porn business over the last year has been dramatic. She has gone from working four or five days a week to one and now has employers pressuring her to do male-female sex scenes for $700, a 30% discount from the $1,000 fee that used to be the industry standard.

Less than two years ago, Stern earned close to $150,000 annually, sometimes turned down work and drove a Mercedes-Benz CLK 350. Now she's aggressively reaching out for jobs and making closer to $50,000 a year.

As for that Mercedes? She's replacing it with a used Chevy Trailblazer -- from her parents.

"The opportunities in this industry really are disappearing," Stern said. "It's extremely stressful."

Industry insiders estimate that since 2007, revenue for most adult production and distribution companies has declined 30% to 50% and the number of new films made has fallen sharply.

"We've gone through recessions before, but we've never been hit from every side like this," said Mark Spiegler, head of the Spiegler Girls talent agency, who has worked in porn since 1995.

"It's the free stuff that's killing us, and that's not going away," said Dion Jurasso, owner of porn production company Combat Zone, which has seen its business fall about 50% in the last three years.

Porn is hardly the only segment of the media industry struggling with these issues. But its problems appear to be more severe. Whereas online piracy has forced big changes in the music industry and is starting to affect movies and television, it has upended adult entertainment.

At least five of the 100 top websites in the U.S. are portals for free pornography, referred to in the industry as "tube sites," according to Internet traffic ranking service Alexa .com. Some of their content is amateur work uploaded by users and some is acquired from cheap back catalogs, but much of it is pirated.

Sites like Pornhub, YouPorn and RedTube attract more users than TMZ and the Huffington Post. The porn sites are even bigger than Pirate Bay, the top portal for illegal downloads of movies, TV shows and music.

Frustratingly for porn producers and distributors in the Valley, none of these sites appears to be making much money. Suzann Knudsen, a marketing director for PornoTube, said the site's parent, Adult Entertainment Broadcast Network, uses it to attract customers for paid video on demand.

"PornoTube isn't a piggy bank," she said. "Its true value is in traffic."

The adult entertainment business, which was previously in the vanguard of home video, satellite and cable television and digital distribution, now finds itself leading the rest of the entertainment industry in losses from them.

"The death of the DVD business has been more accelerated in the adult business than mainstream," said Bill Asher, co-chairman of adult industry giant Vivid Entertainment, who estimates that his company's revenue is down more than 20% this year.

"We always said that once the Internet took off, we'd be OK," he added. "It never crossed our minds that we'd be competing with people who just give it away for free."

There are plenty of other signs of the porn industry's pain. Attendance at the Adult Entertainment Expo, an annual trade show in Las Vegas that's open some days to the public, was down 20% this year. Pay-per-view programming, a key revenue source for the industry, has fallen about 50% from its peak three or four years ago, according to a person familiar with the cable and satellite TV business.

Reliable revenue and employment figures for the adult industry don't exist, since no analysts or economists track it. Adult Video News estimated in 2006 that it was worth $13 billion, but Paul Fishbein, editor of the trade publication, said the number was "an educated guess."

"Almost all of the companies in our industry are privately held, and they keep the cards close to their chests," said Diane Duke, executive director of the Free Speech Coalition, an industry trade group.

The effects of the downturn have been felt most severely by the thousands of people who work in the adult entertainment business.

Kelly Labanco doesn't need industry estimates to know what's happening. The makeup artist, who has worked in porn for five years, is landing half as many jobs as she did a year ago and has seen her pay drop from a high of $250 an hour to less than $100.

"A lot of companies say they don't even need makeup artists now and the girls can do it themselves," said Labanco, who has returned to her previous job doing freelance music publicity to pay the bills.

Even the industry's biggest events aren't worth what they used to be for working people like Labanco. Last year, she and a friend did makeup for a week at the Adult Entertainment Expo and earned $8,000. This year: $1,200.

Caroline Pierce, an adult film performer who lives in Las Vegas but flies to Los Angeles for work, said many companies have pressured her to do more scenes for less money.

"Instead of paying you $800 to do one, they'll pay you $1,200 for both," she explained.

As economic pressures increase, many performers have also changed their minds about what they are willing do on-screen. Previously, women earned hefty bonuses for unusual sex scenes. That's often no longer the case.

"A few years ago the girls we got were OK, but not stellar models, and we were sometimes paying $2,500," said porn director Matt Morningwood, referring to a website he shoots for that features one woman and multiple male partners.

"Nowadays some of the top-tier models will do that scene for us and you're looking at maybe $1,800. I'm happy for the production, but I feel bad for exploiting the girls' situation."

The only growth market most executives see is mobile devices, since they let consumers watch porn anywhere and in relative privacy.

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

"Anyone betting against porn being a meaningful driver of traffic and revenue on mobile networks would be making a bad choice based on history," said Charles Golvin, an analyst at Forrester Research.

Adult performers with big followings probably will continue to prosper, since they often work under a guaranteed contract and have loyal fans who buy all their work. Business managers for Belladonna and Tera Patrick, two of the industry's biggest stars, said their clients were using their celebrity to make money in other ways, like dancing in exotic clubs and licensing their name to sex toys and lingerie.

"The economy has forced us to look in other directions such as tangible goods," said Evan Seinfeld, who co-manages Patrick, his wife, and runs her production company, Teravision.

But for the "middle class" of the industry, those opportunities don't exist.

"It seems at this point that if you haven't established a well-known name, it's really hard to keep working," performer Alexa Jordan said.

Savannah Stern is adjusting to that reality. She's shooting scenes for her own subscription website and planning a tour of exotic dance clubs to earn money from her name while she can. After that, she hopes to go to college for an interior design degree and work in her family's real estate development and contracting business.

"I wish I would have never gotten into it," Stern said of her career in porn. "When you get used to a certain lifestyle, it's really hard to cut back and realize this may not be forever."

Free Porn and the Adult Film Industry

ABC News, 6/11/07 - "Free porn" just might be the two most exciting or frightening words in the English language, depending on your point of view.

And they're especially threatening to the adult film industry, which has made billions through the sales of DVDs, videos, and sex products.

After two decades of phenomenal growth in profits, the porn industry is facing some major challenges as its X-rated DVDs and Internet content lose out to free videos and photos distributed by amateurs on the Web.

Sales and rentals of adult DVDs fell 30 percent in the last two years and sales of Internet-based porn, while still growing, have started to plateau, according to Adult Video News, an industry trade publication.

"The DVD market is a battle that we're losing," says Drew Rosenfeld, the creative director of Hustler Video Group. "Looking back historically, we're at less than half in numbers. Even a line like Barely Legal, which is our hero brand, used to be off the charts and it's gone down to a third of what it used to be a few years ago."

But pornographers will keep trying to adopt changes and hoping to make a buck. "I don't really think that there is less money to be made because of free content," says Drew Rosenfeld, the creative director of Hustler Video Group. "We're making important changes, from hard DVDs to video on demand and we're focusing a lot of production for Internet purposes first. In the past, we've put it online 90-100 days after we sell it on DVD. Now we're shooting it for the Web, which is less expensive for us and the consumer."

Longtime observers of the industry are more pessimistic about its prospects. "Why buy it when you can get it for free on the Internet," says Luke Ford, an industry gossip columnist, comparing pornography to the plight of newspapers losing readers to the Web. "There is less and less reason to pay for porn because there are plenty of free two to three-minute clips out there."

Although many of the big companies, such as Vivid Video and Wicked Pictures, offer free clips to entice viewers to buy the full movie online, Ford claims that only one in a thousand viewers actually whip out their wallets.

Ford thinks that some of the changes planned by the industry, such as video-on-demand, higher-quality design of the DVD boxes and mobile phone cybersex, will not make any difference to their sagging profits. "It doesn't matter what the industry does -- it's screwed in terms of profitability," he say. "There is a ton of free stuff floating around and the amateur stuff -- people filming themselves in their bedrooms and posting it online -- is not going to go away. It will just keep growing."

One of the entrepreneurs taking advantage of those changes is Steve Yagielowicz, a columnist for industry newsletter Xbiz and a porn Webmaster. He runs several Web sites with free content, including Amateurs Guide, which features free thumbnail photos and movie galleries of amateur porn video. Yagielowicz earns money by driving traffic to his wife's amateur site, which features paid content. And as an affiliate of larger porn producers, he earns commissions by featuring their content on his site.

"There must be 50,000 affiliates out there," explains Yagielowicz. "They get free content, usually free hosted galleries or 15-second teaser clips, from Vivid or another big company and post it on their site. And if someone likes that gallery and they click through and join the Vivid Web site, the affiliate gets a cut."

For examples of free porn see Porn Websites With Samples.

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