From Adult FYI

Francis Koening: Says iPorn is worth a Billion; The Adult Business 12 Billion

--on the web


Stands to reason. If you're going to sell a used car to a chump, you don't tell them about the dead body in the trunk.

from www.money.uk.msn.com - Regardless of how you feel about pornography, it is hard to deny that it's big business. The question is: how big and who's involved?

Francis Koenig, founder of the AdultVest hedge fund which focuses on the adult industry for profits, estimates the industry is worth more than $12 billion, while the Playboy business alone was put up for sale this year with a $300 million price tag.

But while Playboy and a hedge fund focusing exclusively on the adult industry are obviously linked to "dirty" movies and magazines, the number of other firms making money from people taking off their clothes might surprise you.

Is the sin economy profitable?

Once you look beyond the filming and photography of adult entertainment, the obvious question is how this material is distributed to the public.

Sky and Virgin in the UK offer a string of adult channels, meaning even if you don't indulge yourself, any subscriber to these companies is benefitting from the additional profits they make from them. Freeview beams premium porn channels directly into your home, so you don't even have to have a satellite dish or cable subscription to view 18-rated entertainment.

How about hotels? The only major hotel chain in the UK not to offer pay-per-view adult entertainment to guests is Travelodge. The others are all happy to make money from X-rated films.

How much do they make from them? Some estimates place adult pay-per-view films as being more profitable than the ubiquitous mini-bars for hotel chains.

Moving on from television and pay-per-view films, there is the mobile content.

It's no secret that there are adult services over the phone. From sex lines to text-based content, live webcam girls can be dialled up on 3G services and all of this comes at a price. Analysts interviewed by the BBC estimate the mobile porn business will be worth $1.7 billion this year, rising to $4.6 billion by 2012.

Can you make money and keep your morals?

Of course the internet is a massive driver of pornography. AdultVest's Koenig estimates the iPorn.com website alone is worth up to a billion dollars.

And as well as the sites themselves, search engines, advertisers and broadband providers all make more money from people searching for and downloading porn.

Then there's the question of how all the online content is paid for. MasterCard and Visa make money every time people use their cards and with the majority of online sites choosing credit cards as their preferred payment methods, that means all the money spent online for porn ads to the credit card providers' bottom line.

Of course, rather than streaming or downloading content, people can also just buy hard copies - in the form of magazines and DVDs - and have them delivered.

And who sells this material? Amazon, the UK's favourite music and video retailer according to Verdict research, has a vast online library of adult entertainment. It's far from alone in offering it.

This is the tricky question. While it's obvious that companies like Google, Amazon, Vodafone, Visa, Intercontinental Hotels and the rest make money from this material, it's much harder to find out how much.

Vodafone's latest annual report shows it took £26.9 billion from voice services, £4.5 billion from messaging, £3 billion from data, £3.9 billion from fixed and other services and £38.3 billion from service revenue. How much of that is driven by subscribers accessing adult services is not disclosed.

A look through Amazon.com's accounts reveals that in 2008 they made $19.2 billion of sales, $11 billion of which was from "media", £7.5 billion from "electronics and other general merchandise" and $542 million from "other". But no breakdown on which products or types of products made the most money.

Intercontinental Hotels made $19.1 billion in gross revenue from its hotels in 2008, stretched across almost 35,000 rooms. But no breakdown of what was made from food, mini-bars, bookings or other in-room services.

But what's undeniable is that these companies do make money from adult services and media and that leaves an awkward question for investors.

While people putting money into AdultVest know exactly where their money's going, many others don't.

Pensions, stocks and shares ISAs, life insurance policies and many other products people have money in invested widely across the industry. Anyone tracking the FTSE 100 will have money indirectly invested in Sky, BT, Cable & Wireless, Intercontinental Hotels and Vodafone.

Banks can pay you interest on your savings only because they invest your money elsewhere. That means that, more likely than not, some of your money is being invested in people who make money from pornography.

Of course, not everyone will have this problem. Sharia investing products are explicitly forbidden from putting money in companies related to pornography (or gambling or alcohol for that matter).

Many ethical funds will not invest in this either, although you might want to check as different ethical funds have very different takes on what is ethical.

But while the extent and reach of the adult industry might worry you, there's another question that needs to be asked: should this bother us?

The point of a company is to make money and they achieve this in a variety of ways. As well as companies in the FTSE 100 making money from adult entertainment, there are also others making cash from weapons, tobacco, alcohol and oil.

None of these industries can be described as entirely "moral", yet all are worth billions. Moreover, many other firms have stakes in these industries too. Tesco sells tobacco and alcohol. British Airways uses huge amounts of oil, as well as making cash from duty free sales of cigarettes and alcohol.

Sky might carry the odd risqué channel, but it doesn't advertise cigarettes, get people drunk or sell guns.

Pornography gets headlines as one of the more controversial topics in society; it's generally consumed in private, with the curtains drawn in your home or hotel room.

Throwing light on it is shocking and people rarely talk openly about it. But once you start pulling at that thread, you have to ask if there are bigger moral issues for investors.

And if you start applying morals to firms whose only purpose is making as much money as possible, you are left with very few companies you can make any money out of yourself or even whose services you can use.

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