How MindGeek transformed the economics of porn

There’s an economic paradox at the heart of the porn industry. Consider:

• The amount of porn that has already been produced is more than anyone could possibly watch. A single tube site, like Pornhub, can have well over 200 terabytes of porn on it–which works out to something like 50,000 hours. What’s more, according to Rule 34 of the internet, if you can imagine it, there’s porn of it. As a result, there’s little obvious reason to produce new porn: everything has already been done, probably better, by somebody else, and is already freely available online.
• The cost of porn to consumers, after falling for decades, has now reached zero. Once upon a time, men would pay large sums to assiduously amass large collections of “erotica.” Today, porn, even more than music, lives in the cloud, and effectively unlimited quantities of it can be streamed for free. As a result, selling porn has never been harder.

If it’s all been done and new pornographers are finding it harder than ever to get paid for their efforts, the consequence is pretty obvious: the industry should be dying. Yet, if only by sheer volume, it’s flourishing: more new porn is being made, every day, at volumes never seen before. One report has a new porn video being made in the U.S. every 39 minutes.

So, what’s going on?

One explanation lies in the fact that while porn stars are making money, they aren’t making most of it directly from porn anymore. Instead, they’re offering videos for free, in hopes that doing so will help them sell more intimate sexual services to their fans. (Fusion did a documentary series on the changing porn industry over the summer and it’s well worth watching.)

Porn used to be a product: something which was made and then sold. That was true for a long time even after it got onto the internet: porn sites were historically the very best at being able to charge for content online. But over the past several years, a new copyright-busting monopolist named MindGeek has taken over, and completely changed the game.

MindGeek owns most major tube sites, including PornHub, YouPorn and Red Tube. Its network reaches over 100 million people every day. Each set of eyeballs tends to spend a substantial amount of time on the sites—over 10 minutes, in the United States. That kind of reach can produce massive profits from ad revenue alone. MindGeek sites tend to have many banner ads on each page, as well as large popunders. (Interestingly, they don’t tend to have prerolls.)

MindGeek is a complex and fascinating business, which is based almost entirely on advertising revenue. My efforts to speak with MindGeek executives for this column were unsuccessful, but I highly recommend you read David Auerbach’s Slate piece on the company if you want to get a feel for how it works, how it makes money, and why copyright owners feel forced to work with it rather than try to fight it. MindGeek’s sites tend to feature rampant copyright violation, but in many ways the only thing worse than having your porn video pirated on Pornhub is not having your porn video pirated on Pornhub.

Since MindGeek has become what’s known in economics as a “dominant distributor,” it has had profound effects on the way the entire sex industry works. The big story here is not how much money MindGeek is making, or even how MindGeek makes its money. Rather it’s how, in upending the X-rated economy, MindGeek has brought porn back to its roots.

After all, the word “pornography” comes from the Greek pornē, meaning prostitute, and graphein, meaning to write, or record. It literally means “a recording of prostitution.”

Modern society makes an important distinction between porn and prostitution: the former is generally legal, while the latter generally isn’t. With the rise of the tube sites, however, the line between different types of sex work has become much, much blurrier.

Most of the men and women appearing in porn today are not “porn stars” in the way the term would have been understood in the 1970s or 1980s. Like the porn stars of old, they’re sex workers, but they make money in a very different way.

Porn videos, today, have become free advertising for other business lines—whether that’s camming, or stripping, or outright prostitution. Even in the world of escorting, tube videos are increasingly replacing the photographs of old. As a result, it can make financial sense to appear in porn films even if you get paid very little for doing so, because developing an online following is a great way to build a fan base. And that is where today’s porn stars earn most of their money: fans will pay to see stars like Veronica Rodriguez in a strip club, or for one-on-one Skype sessions, or for IRL sex. It’s the “freemium” business model: most people will be perfectly happy with the free product, but a small minority will pay for more exclusive services.

Meanwhile, the cost of appearing in a porn film—both in terms of production costs and in terms of reputation—has never been lower. We live in a world where young adults are freer than ever to explore and express their sexuality, and where everybody has a high-def video camera in their pocket at all times. The shame factor of porn has been nearly eliminated in popular culture: just ask Kim Kardashian, whose sex tape essentially launched her career.

Porn can be—and often is—exploitative. And to be clear, many porn workers are unhappy about the dominance of MindGeek, because of the pirated videos it hosts and because it has forced them to change their business models.

But because MindGeek’s monopoly is so deeply entrenched, they have very little choice in the matter. As a “dominant distributor,” it is similar to Amazon in the world of book publishing. When there were many bookshops and a few big publishing houses, publishers held most of the power. But when there’s one enormous bookshop, the balance of power changes, and Amazon can start dictating terms to publishers.

Similarly, when a few big porn studios dominated online distribution through their own sites and the sites they licensed their content to, the creators of pornography held all the cards. They determined what was available for free and what consumers would need to pay for. Now that MindGeek has become the industry’s dominant distributor, the tables have been turned.

Studios might hate the idea that enormous amounts of their content are available online for free. But they can’t afford to demand that their material be pulled from MindGeek’s servers any more than publishers can refuse to allow Amazon to sell their books. MindGeek’s sites have become the discovery mechanism for porn, and everybody else needs to make peace with that. (There are still a handful of porn creators who try to exist outside the MindGeek system, but many of them first became famous on MindGeek’s sites, and few have had much success.)

MindGeek’s rise to industry dominance has coincided with a digital revolution that has encouraged the production of ever-greater quantities of porn. Setting up a basic studio is cheaper than ever, and once you’ve done so, the marginal cost of shooting another video and uploading it to the web is basically just your labor costs.

Those dynamics inevitably result in a lot more porn being produced. Today’s porn industry no longer needs to support a massive value chain, where many people would take a cut: producers, directors, studios, distributors, theaters, wholesalers, retailers, and so on. Most of those players have now been disintermediated and, in turn, costs have dropped significantly. The days of films with million-dollar budgets are long gone.

MindGeek has been cast as a cutthroat operator that steals other people’s content, massively reduces the industry’s total profit, and has gobbled up a huge slice of that smaller pie. That’s true. Certainly the big studios are suffering, or they’ve ended up being bought by MindGeek. But MindGeek isn’t completely monopolizing all porn profits: it also acts as a platform on which individuals and small studios can try to build relatively modest businesses.

Small-time porntrepreneurs like Lance Hart upload free videos to sites like Pornhub because it’s the only way to get noticed, and because it has a massive audience. Their goal: to persuade a tiny portion of Pornhub’s visitors to then subscribe to their content—or pay them for other sex-related services. It’s not an easy business to be in, and it’s likely to get even harder if Pornhub’s own subscription offering proves a success. But the barriers to entry have never been lower, and the number of people entering the industry—even when they end up earning very little as a result—has never been higher.

The whole ecosystem bears very little resemblance to the studio system of yesteryear. But maybe the best way to think about this transformation is to look at sex work more generally. MindGeek has become the single most important player not only in the porn industry, but also in the sex industry as a whole.

Sex and money have been entwined for millennia, but generally in a highly fragmented manner. Porn was in many ways the first big revolution in the sex industry because it allowed sex work to scale—to reach thousands or millions of customers—in a way that was never previously possible. MindGeek, in turn, is transforming the sex industry for a second time, bringing the platform revolution to sex workers around the world.

If you’re a worker seeking to turn sex into money, you need a platform to advertise your wares. MindGeek, impressively, has managed to create that platform; the massive disruption it has caused in the porn industry is merely a symptom of the much larger effect it has had on sex work. Using MindGeek’s suite of websites, sex workers can reach more potential customers more safely and more cheaply than ever before. That might be bad for porn studios. But if you’re a camgirl, or an escort, there’s a good chance you think of Mindgeek quite fondly.