My Two Cents.

Pornography has moved from seedy alleys to Wall Street and Silicon Valley and has sneaked into respectable homes thanks to the Internet. But the Internet can thank the porn industry for its technological achievements.

Here you have it, folks: a subject that panelists at the U.N. TV Forum and this month's other conferences will be avoiding like HIV.

On the financial side, Forbes stated: "High technology and high finance are making the smut business look legitimate." Then the magazine ran a feature of the Private Media Group, a NASDAQ-listed international pornster which sponsored a U.S. Masters pro-golf tournament. Forbes also named 10 other adult-content companies listed on the technology stock exchange. Among the blue-chip companies indirectly involved with the porn business are AT&T, which connects callers to phone-sex numbers, and Time Warner, which offers adult programming via pay-per-view (PPV) and video-on-demand (VOD).

Since 1973, when the Supreme Court differentiated between "pornography" and "obscenity," the porn business has been picking up steam. Today, the legal porn business is a $56 billion global industry. In 1998, 8,948 hardcore videos hit the U.S. retail market. During the same year, Americans rented 686 million adult tapes. Last year, these X-rated videos generated some $5 billion in sales and rentals.

On the technical side, according to Kagan World Media, the porn industry tends to take the lead in the use of new technology. That was one observation made as early as 1996 by Bill Gates in his book The Road Ahead(Penguin Books). This is hardly news: pornography has been credited with promoting the growth of the home-video business. Nowadays, Internet porn companies are employing MIT programming wizards to pioneer webcasting techniques.

Internet-distributed adult programming generated close to $1 billion in 1999. It has been reported that the Internet is a gold mine for pornmeisters since the medium bypasses any regional censorship efforts and cheaply pries open previously inaccessible markets like the Middle East. The success of adult Internet product also fans interest in adult TV fare.

At the CTAM PPV conference in March 1999, it was pointed out that adult content was an important part of the PPV offering. Several PPV executives believe hotter adult programming may soon set a new standard for PPV. The adult PPV business reached $367 million in 1999. Competition seems to be driving the move toward more explicit fare and some industry executives believe that risque programming could become a major sales tool for getting digital boxes into homes.

The porn industry is thus driving technology on four fronts: digital set-top boxes, high-speed Internet connections, security improvements and a new form of a la carte pay services.

A 1994 Time Warner VOD trial with 4,000 households in Orlando, Florida proved too costly to implement nationwide. Stymied by digital PPV so far, the racier adult services are exploring the potential of VOD. Consequently, the price of a VOD set-top box has plummeted from $3,000 per unit to $300 each.

Cable operators are taking advantage of new and developing broadband technologies in order to offer VOD but they also need to offer adult fare in order to finance their upgrades.

VOD also adds an extra level of protection for the consumer because it comes into the home only if a consumer chooses it. Reportedly, VOD buy-rates for the more explicit adult programming could as much as triple current buy-rate levels.

The pornography industry has also addressed credit-card/Internet payment problems, finding a solution to security concerns (40 percent of online transactions are fraudulent) and the fear of leaving a trace. Some Internet porn sites have been exploring the use of "phone cards," anonymous debit cards that consumers could use to purchase adult fare. These cards also could be used by pay-TV subscribers who wish to see certain offerings without incurring the monthly pay-TV service charge.

DOM SERAFINI