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January 4, 2007

Indications of a Slowdown in Sex Entertainment Trade

By DAVID CAY JOHNSTON

The sex-related entertainment industry’s leading performers, owners and fans gather in Las Vegas for three
conferences starting next week amid indications that pornography’s robust growth since it came out from behind
the counter in the 1970s is slowing.

The sex-related entertainment business grew in 2006 by just 2.4 percent, roughly the rate of inflation, to just
under $13 billion, according to Paul Fishbein, president of the AVN Media Network, which publishes five trade
magazines and runs industry conferences.

Jerry Ropelato, an opponent of the industry who owns the Web site TopTenReviews.com, gave a slightly smaller
estimate of the size of the business, about $12 billion.

“The porn industry is still growing,” Mr. Ropelato said, “but just not at the growth rates they experienced in the
past.”

Mr. Fishbein’s estimates indicate that for every dollar Americans spent buying tickets to Hollywood movies last
year, they spent about 90 cents viewing sex movies in various formats.

The slowdown may be just the latest example of how the Internet is shaking up well-established industries.

Because most of the industry is privately owned, accurate numbers are hard to come by. But in one part of the
industry where there is independent reporting of sales — sex movies sold over cable — there are indications of a
slowdown.

JupiterKagan Inc., a media and technology market research company, said it expected that sex movies sold
either as pay-per-view or on-demand would grow over the next decade at only half the pace of overall paid-for
programming on cable.

George Niesen, managing editor of Kagan Research in Monterey, Calif., said that $1.6 billion was spent on cable
pay-per-view, video-on-demand and similar services in 2006, with $515 million, or roughly a third of that, going
to sex-related entertainment.

Over the next 10 years, Kagan Research projects, overall paid-for programming on cable will grow at 12.9 percent
a year, while the sex-related segment’s growth will be half that, at 6.4 percent.

Revenues appear to be growing in the dance club business. The industry’s one publicly traded concern, Rick’s
Cabaret, which runs dance clubs in seven cities, said same-store sales in its fiscal year that ended Sept. 30 were
up 25.1 percent over the previous year.

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The idea that revenue growth has slowed for the sex-related entertainment industry was disputed by Steven
Hirsch, one of three owners of the Vivid Entertainment Group, a major producer of both soft- and hard-core
movies. He and other industry executives said the ways that Americans get pornography are changing, with sales
of videos and magazines in decline, while sex-related entertainment over cable television and Internet streaming
is growing quickly.

“Right now, DVD is going down faster than video-on-demand is ramping up; it is just a lag in technologies,” Mr.
Hirsch said, not a fundamental easing in demand.

He said he did not believe that the aging of the American population had affected sales.

The Census Bureau estimates that the average age of Americans last year was 36, up from 30 in 1980, when the
industry was growing rapidly in the wake of favorable Supreme Court decisions, fewer police raids and easy
access to movies through the technology of videocassettes, which were new then.

Mr. Fishbein and others said “the one area of huge growth” was hard-core movies featuring women in their 30s
into their 70s, a trend that has brought new work for some of the industry’s stars.

“The flashpoint for this in our culture was the teen movie ‘American Pie,’ where there is a famous sequence
involving one of the kids and his friend’s mother,” Mr. Fishbein said.

Mr. Fishbein and others also said that there was big growth in sales of sex toys to women.

Outside the United States, the fastest growth is in sex videos and images sent to cellphone viewing screens, Mr.
Fishbein and others said.

None of the American cellphone companies cooperate with the industry, which he said limited the market
because consumers must use complicated technology to work around the cellphone networks.

Mr. Fishbein estimated domestic revenue from these cellphone sales at just $39 million.

Mr. Hirsch, the co-owner of Vivid, said such sales via cellphones in Europe were a growth center. He said he
hoped that technological changes within a few years would prompt big sales in the United States, even if the
cellphone companies did not cooperate.

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