Sexy and smart: one sector that won't be left behind: Japan's massive sex industry has shifted from bricks-and-mortar deflation to Internet elation.

LIKE IT OR LOATHE it, the sex industry in Japan is big business. And despite the rickety economy, it's getting bigger. A recent survey by Takashi Kadokura, an economist with Daiichi Life Research Institute Inc., found that the Japanese market for what is rather quaintly called the entertainment trade fuzoku sangyo, swelled to a tumescent [yen] 2.37 trillion in fiscal 2001, up from [yen] 1.7 trillion a decade earlier.

This figure does not include "virtual sex"--Japan's huge sales of adult magazines, rentals and sales of porn videos and DVDs and the burgeoning market for Internet porn. And let's not forget receipts from the country's 40,000-odd love hotels.

Put together, the buying and selling of sex and related services in the world's second largest economy is worth more than the GDP of many smaller countries.

As the sex business expands along with the service sector it becomes increasingly integrated into the mainstream economy, earning billions for blue-chip firms like NTT and increasingly becoming a source of direct and indirect tax revenue for the government.

Why does this industry seem immune to the problems that have kept Japan on the economic disaster pages of the world's newspapers for over a decade? The truth is: It isn't.

As a stroll around the licentious pink heart of Tokyo's sex industry, Kabukicho, or the "soaplands" district of Yoshiwara confirms, many operators of sex clubs and massage parlors have resorted to the same deflationary price-cutting approaches practiced by other businesses.

More noticeable than the stagnation and decline of some areas of the sex trade, however, are the vitality and innovation that characterize the industry as a whole. Despite its murky image and legal problems, thousands of new businesses have sprung up in the last five years, offering all the eye popping lechery that money can buy.

The older ranks of industry veterans have been swelled by thousands of younger entrepreneurs and casualties from the mainstream economy who are transforming the selling of sex using new technology. Many of them are voraciously ambitious.

Some commentators are now using the once grubby sex trade as a stick to poke in the eye of Japan's arthritic political class. As Dacapo weekly magazine declared in May of this year: "Structural reform has been progressing rapidly in this [sex] industry exactly because the reform-driver has not been Prime Minister Junichiro Koizumi's administration. If he wants to know what reform is about, this is where he should be looking."

Winners and Losers

So who are the winners and losers in Japan's sex services industry? At the top of the list of losers are brick-and-mortar businesses like brothels, soaplands and strip clubs, which have seen collective revenues slump by over a third since the mid 80s, says Kadokura.

Stuck with high overheads (particularly for utilities), prices in these outlets are mostly fixed and are driving away male clientele, who have less disposable income than in the past. The price of a single visit to a soapland outlet (staffed by naked prostitutes offering soapy massages) is about [yen] 60,000--a price that is out of reach for most salarymen.

Strip clubs too are seen as expensive and old hat, and many exotic dancers are under pressure to broaden their appeal, says Tomomi Sawaguchi, who recently formed Japan's first union for sex workers. "The number of customers has fallen, so managers will ask some women to perform extra services on the cheap. I've seen foreign women having sex for as little as [yen] 1,000."

Rushing to fill the gap are the thousands of "fashion (sex) massage" outlets that sprang up nationwide in the 90s. With faster turnaround and cheaper labor costs (many are run and staffed by heavily exploited foreign workers), they offer sessions for as little as [yen] 10,000--keeping their services within range of the average male worker.

Sex message joins an increasingly long list of exotically titled innovations including imekura (image clubs), sumata (crotch play--an everything-but sex service designed to get around regulations banning intercourse in outlets) and "delivery health," or deliheru, a pizza-like business that dispatches a prostitute directly to your door for about [yen] 20,000 to [yen] 30,000.

"The life span of popular services used to be 22 years in the high economic growth era, but now it's less than three years," says analyst Takuro Morinaga of UFJ Research. "Firms are working harder to come up with innovations designed to add value to their services."

Many of these services flirt with the limits of the law and exploit mobile phone technology to do it. Prostitution, for example, is prohibited under the Prostitution Prevention Law of 1956, helping to explain the huge growth of delivery health. Now a [yen] 461 billion annual business, says Kadokura, delivery health firms hook up working women with paying men by advertising on utility poles in most city neighbor hoods, using only a keitai number. What happens next takes place in the privacy of the client's home and is therefore out of reach of the law.

Many of the women have never met the people they work for. "They call me on my keitai, I get picked up by a driver and delivered to the client's house," says 26-year-old Jun, who works in the Hachioji area. "Afterwards I send them their cut by bank transfer and pocket the rest."

With operating as easy as that, the delivery health business has attracted thousands of budding entrepreneurs. Under the revised Entertainment Establishment Control Law of April 1999, companies must register these services, which provides some idea of how fast they have grown. National Police Agency figures show the number of businesses that "send out female companions" soared from 2,684 in 1999 to 12,251 by the end of 2002.

The sex business has also been a boon to cable, satellite and telecom companies. Consider the fee a mobile phone company pockets every time a user finds his way to a telephone sex business, which often advertises with mass calls to thousands of numbers. The female operators of de-ai businesses are then paid by the minute to keep men on the other end of the line, often by hinting at the possibility of sex.

"I worked in a nice, clean office in Shibuya. Everyone looked like salarymen and office ladies," says Narumi, who spent a year temping at a de-ai firm. "My job was to get men to talk for as long as I could by playing along with their fantasies. Sometimes they ran up bills of [yen] 10,000 to [yen] 20,000."

Other sex services such as telephone clubs terikura and even enjo kosai (or compensated dating) also rake in billions of yen for the telecom firms.

Official data on this sort of business is hard to come by, but in 2001 DoCoMo said that revenue from "non-official sites" was [yen] 250 million--practically all derived from adult and de-ai sites, according to Giles Richter of Mobile Media Japan.

Satellite companies and cable firms, many of which are involved with local governments, are reluctant to divulge revenues from porn, but content and equipment providers say it is significant. "They might not tell you, but people in the industry recognize that the real profits initially are in adult content," says Lincoln Owens, who is director of Asia-Pacific sales at SeaChange International Inc., the largest seller of video servers in the world.

"Pay-TV firms became big in the US by selling adult TV to hotels and other outlets, and they're now tire front-runners in cable. In Japan, one of the few cable and broadband content providers able to make money has 40,000 subscribers to streaming porn, and half the content on pay-per-view satellite is adult."

The impact of the Net

The other big losers in the recession have been adult content publishers and videogaphers. Sales of glossy adult magazines have been in steep decline for some time, falling by over 15 percent last year alone, according to the All Japan Magazine and Book Publisher's and Editor's Association.

Apart from the ever-shrinking average male budget, the main culprit is the Internet, which not only offers billions of free bytes for the curious surfer but often comes uncensored, a novelty for many in Japan where a mosaic-like effect called bokashi blocks out the sex organs.

"The Net has hit us hard," says Go Wada, editor of an adult magazine with Tatsumi Press in Tokyo. "Older guys have stayed with us but the youngsters have all drifted off to cyberspace."

Hiroyuki Tsunoda, president of one of Japan's biggest adult entertainment firms, Media Station Co. Ltd., which releases 15 titles a month under the brand Uchu Keikaku, also admits Net freebies have taken a big chunk out of his business, along with mobile phones, which have eaten up the disposable income of younger customers. "People have a lot more options now, and they can look at uncensored porn from US servers. We estimate video rentals are down by half compared to what they were 10 years ago."

These difficulties bring a rare industry call for government help from Tsunoda. "The government should be doing more to stop uncensored material," he says. "They should realize that this is just another industry and that illegal porn from abroad is hurting us."

Other industry insiders, however, such as Ganri Takahashi of Soft On Demand, say the problem is not falling demand but the failure of firms like Media Station to change quickly enough. "There has been an explosion in the number of genres, so it's no good just churning out the cute-girl-older-guy formula," he says. "If the industry offers imaginative quality products, customers will stay with us."

Most large adult video makers are dealing with the threat from cyberspace by moving online themselves. Media Station's Tsunoda says that about 7 percent of the firm's income currently comes from the Net, and this is likely to grow. "Profit is high because we've already shot the movie. Internet sales are an extra."

Machiki Katsumi of V&R Planning Co. Ltd., another large erotic-video maker, agrees. "About ten percent of our income now comes from the Internet, but there's no question that this will be a crucial part of this business in the near future, once people discover how to make real money from it. The problem at the moment is people will not yet pay for something they can get for free."

The Internet is only one of a raft of new delivery methods that is transforming the industry and leaving video in the technological dustbin. Most adult firms are phasing out VHS for DVD, and many sell directly to satellite and cable companies. All agree that broadband will be hugely important for the industry.

"Until now, people who consumed porn had to find somewhere to keep it," says V&R's Katsumi. "Most didn't want wives or children to find it. The Internet conveniently solved this problem because you don't have an actual product lying around anywhere. Once the quality improves, and it takes less time to access and download the stuff, it will take off."

RELATED ARTICLE: The Ray Kroc of adult video.

Ganari Takahashi is the telegenic president of Soft on Demand, one of Japan's fastest growing porn companies. Now in its eighth year of business, SOD has grown from a company with six employees to a staff of 180 and profits of [yen] 1.5 billion on sales of [yen] 7.8 billion. SOD currently releases 1,000 titles on DVD and video a year. You might think Takahashi would be happy, but far from it. Takahashi wants to destroy the competition, transform adult entertainment in Japan into a mainstream business, open up the market for women and become the "McDonald's of adult entertainment."

JI: HOW'S BUSINESS?

GT: Great. We're aiming for market share by dropping prices, increasing our titles and smashing our rivals--it's the McDonald's formula. Years ago there were about 400 car markers in Japan. Now all that's left is Honda, Toyota, Nissan, Mitsubishi and Mazda. There are currently about 1,000 adult-film companies. I'd like to make this into 100. The remaining 900 release garbage and fool customers.

We should be aiming higher in this industry. Look at Titanic. It cost $2 billion, but you could buy the video for [yen] 3,000. Why should adult videos, which are much cheaper to make, cost [yen] 4,000! We aim to make high-quality products and sell to a much bigger market, allowing us to cut costs and still make expensive products. Even after paying taxes we're still left with over [yen] 700 or [yen] 800 million in profits--that gives us the power to remove the small makers and sellers. That's our strategy.

JI: Those are ambitious plans. How will you achieve them?

GT: We want to create a relationship of trust between adult entertainment and its customers. Right now, guys buy three videos in the hope that one will be good. I want to become the Sony of adult entertainment, a byword for quality. People should rely on us.

I also want to sell to women. We need to create outlets where women won't feel embarrassed about buying porn. If we create an industry like Universal Pictures with big stars, women will definitely buy.

We have to create an industry where people are not just viewing adult material furtively in their rooms but where customers, women included, regularly buy our products. We should sell in convenience stores. If we stay hidden we'll never become part of mainstream culture, but if we make it a cool industry with attractive stars all out in the open, women will come to us. Japanese women don't think for themselves; they change their opinions based on what everyone around them is thinking.

JI: How about investment?

GT: I want to list the firm, but the nature of our business causes problems. The stock market authorities wanted us to cut our adult products to under 20 percent. They eventually agreed to 50 percent, but I don't think there's anything wrong with adult entertainment so I told them no and that's where it stands. We're now thinking of the Nasdaq. Within two or three years, I think we'll have a good chance of listing.

JI: Has the recession had an impact on business?

GT: We're like Eskimos. In Hawaii, if the temperature drops 10 degrees people complain that the weather is freezing. But native Alaskans are used to the cold. In this industry, we've always been out in the cold, so we have no expectations that the economy is going to get better or worse, or that the government is going to help us out.

People who would never think of doing something like this if the economy were good are coming into the business--I know because I'm one of them. If I had succeeded elsewhere, I wouldn't have started making adult videos.

That said, the recession and the rush of people into the business are helping to slash prices. Seven years ago the retail price of an average adult video was about [yen] 10,000. Now it's down to about [yen] 2,500. The cost of making a video seven years ago was about [yen] 2 million, now it's about [yen] 5.5 million.

JI: Is it easy to find "talent" for your products?

GT: Yes, and it's getting easier, because the morals of Japanese women are falling. There used to be an education system here that taught women that this sort of thing was wrong.

JI: Do you take any responsibility for this?

GT: We're all to blame, yes. Parents are teaching their children the wrong values. We lost the war to America and now we are losing to American values. Have fun whatever else you do--that idea comes from America, and that's why the number of hedonists is on the rise in this country. I would like to return Japan to its Bushido past, when people worked not for themselves but for their country, their firm, their family and parents. That was the Bushido idea.

JI: Do you have plans to sell abroad?

GT: We're already started to sell in the US. We set up a company there three years ago and we're sending two people over there this year as staffers. Americans are used to straight intercourse--just like their steaks, big and bland. I want to sell them high-quality Kobe Beef. American porn goes straight from the screen to the crotch. We stimulate the imagination. This may not work in Texas, but we'll start in white collar areas like San Francisco and New York.

JI: What has been the impact of technology on this business?

GT: The best thing about the last five years is Digital Video Discs. DVD currently accounts for about 70 or 80 percent of our products. In two years VHS will be gone. DVD is cheaper to mass produce. A 180-minute VHS tape that used to cost [yen] 500 can be made on DVD for about [yen] 250 and even [yen] 200. The discs are smaller than tapes so you can store them, they're better quality, and you can put lots of extras on them. The viewer can become the director, so men with fetishes will be able to focus on breasts or other parts of the body.

So far, the Internet has had little impact on us because the quality is bad. You can see naked women all over the place now, so people are searching for quality sex products. But it will become important, there's no doubt about that. We're looking now at the costs of broadband. We reckon we can deliver adult movies directly to homes for [yen] 2,500 a pop.

JI: What do you say to people who hate this industry?

GT: I think we have to make people trust this industry. People who work in adult video have very loose morals, to tell you the truth. They have affairs, multiple sex partners. I don't. I'm married with kids. None of my managers interfere with the women. If we show people we're serious like this we'll be accepted. And if we make money we'll give some of it away to charities.

We also have to pay taxes, lots of taxes! This will be our biggest contribution, I think. The problem is people in this industry are afraid of the authorities, which is why they stay in the shadows. If the cops stop us, this industry will go back to the dark ages.

RELATED ARTICLE: The one-man show.

Rio Yasuda is what they call a hamedori, or a one-man porn director, one of hundreds that supply the voracious porn industry with material. Yasuda writes and edits stories and shoots and acts in his own videos before selling them to magazines, satellite companies like SkyPerfecTV and Paradise TV and, increasingly, Webcasters. The 35-year-old does three shoots a week with women hired from modeling agencies, a job he claims is not as easy as it looks. "I can't to do it anymore without Viagra, and it blocks my nose, makes my heart go too fast and gives me a headache." The compensation is revenue of [yen] 1.2 million a month, about half of which comes from growing Internet sales.

FOR ME, AT LEAST, adult magazines are stuck in the past. They're in terrible shape. People can find free porn photographs on the Net so they wonder why they should pay for it. The only adult publications that are selling well now are weekly-type magazines called jitsuwa, or true-life stories, which are actually full of lies. But they sell for about [yen] 300 to [yen] 400, cheaper than glossy magazines, and they're quite full of material so they're good value for money.

The influence of convenience stores is also very important for magazine sales. You used to be able to get adult publications in small book stores, but they're all nearly gone now and the bigger stores won't stock them. That leaves the family stores. but they're really strict about what they sell and they are really powerful now.

Adult video is a little better because most have long term relationships with retailers for a certain number of releases, and this hasn't really changed. But the Internet will definitely hurt video sales too.

I'm focusing on the Net, on Web streaming. I make half my income from Net sales now, and it's growing. Most Net firms still can't make money, but they will someday. Credit card sales will become more popular. Magazines won't die, but they will become a niche industry. The bigger picture is that there will just be so much more of this stuff around, the market will get much tougher.

The porn satellite boss

Porn barons probably don't get more affable than Michiyuki Matsunaga, the 56-year-old president of 24-hour sex channel Paradise TV. A self-confessed family man, Matsunaga positions photos of his children and grandchildren on his office desk beside images of his company's Bacchanalian shenanigans in the four-story building that houses his company in West ShinjuKu.

An award-winning documentary filmmaker before trying his hand with satellite porn after the airwaves were liberalized in the late 90s, Matsunaga now claims revenue of over [yen] 100 million a month in subscription fees from cable and satellite operators and love hotels in Japan, the Philippines, Hawaii and elsewhere.

During our interview a television monitor in the corner of the room shows a semi-naked woman pottering around her small apartment "somewhere in Tokyo." "She's an ordinary housewife," says Matsunaga. "We pay her [yen] 30,000 to [yen] 40,000 a day to have a fixed camera on her all the time.

"I worked in the sales department of a company called Tsuburaya (makers of Ultraman) for 10 years. When I was there I learned that the big issue was copyright. You could merchandize Ultraman all over the place, sell abroad, repeat broadcast. They haven't made Ultraman in years, but it still makes money.

"When the broadcast market was deregulated I decided to go into business, but licenses were hard to get. The qualifications were tough, and you needed a lot of capital to start up. We finally got our license in 1998, but we had no programs and no money left, so I decided to make something that is cheap and which few others will touch--adult entertainment.

What do we make? Anything that sells. Naked English lessons, people having sex in front of a panel of judges, housewives, young guys, old men. It's all a bit of harmless fun, but people do the stupidest things in this business!

Our strength is that we own all the rights to our shows and we broadcast 24 hours a day, 365 days a year. We employ 80 people, up from 15 at the start. Our big customer is SkyPerfecTV. We earn up to [yen] 85 million a month from selling to them. About another [yen] 20 million comes from cable TV and love hotels, and we sell video-on-demand to Hawaii.

We market products over the Interact in English, Russian, Korean and Japanese. We have 10,000 subscribers a month paying [yen] 2,000 each, and we have also started to sell short clips to keitai companies. The Net is becoming a bigger part of our business, but it's still comparatively small.

RELATED ARTICLE: The star of the show.

One of Japan's highest-earning adult actresses and probably its most famous until she retired a few months ago, Maria Yumeno turns up in a West Shinjuku coffee shop rife with salarymen. She wears a short and glittering gold dress that barely covers her ample assets and brings male faces swiveling in our direction.

"JAPANESE MEN LOVE BIG breasts," she says, popping out a bare breast for closer inspection. "You're going red," she adds. "That's cute, but why are you embarrassed?

"I'm just playing a role, like a movie actress," she continues, slipping the wayward breast back into its gold pouch "When I step out the door, a switch goes on in my head and I become Maria Yumeno, the pore star who loves sex. It's not the real me. I designed and made her and now I act her. I know who I really am. She's like my best friend. If I didn't keep her separate from myself, I'd go crazy."

Like many in the sex industry, Yumeno has a published profile that is entirely bogus. The 24-year-old from Tokyo is in fact a 30-year-old from Yamaguchi who worked as a graphic designer after leaving school. The fact that she didn't begin her movie career until she was in her mid 20s--making her older and smarter than many of her counterparts--and that she still looks about 19 helps explain her career longevity.

Since (literally) bursting onto the scene in 1998, Maria has made over 60 movies, many with titles that play on the supposed erotic pleasures of her manga-like 37-inch bust and skinny girl's body. Walk into any big video rental store and you'll find Maria staring out of the covers of The Wild Bust, My Neighbor's Sister Has a G-Cup, The Busty Slave and the classic Give Me Endless F * * *.

It's just a role, but does it make her uncomfortable to have millions of men obsessed with her?

"Not at all," Yumeno says. "If they don't enjoy my movies, I'm not doing my job properly. The older they are, the harder I have to work, but that's okay. That's what I'm paid to do."

The cliches for why people work in the porn industry--childhood trauma and abuse, low self-esteem and absent fathers--are quite often true. Maria's father disappeared when she was a child and she says many women work in the industry precisely because they hate men and think porn is one way of symbolically controlling them. But don't underestimate the draw of porn's quick money and the passport out of a life of drudgery in a gray corporate bunker.

Top AV stars earn up to [yen] 3 million a movie, but they have a very limited shelf life--and their price goes down, not up. Most of the men, on the other hand, are willing to work for [yen] 100,000 or less. Machiki Katsumi, general manager of adult filmmaker V&R Planning Co., claims actresses can earn enormous sums of money in what is probably the only industry in Japan that pays women four or five times what men earn.

"A single shoot pays about [yen] 200,000," says Katsumi. "Some women like to work straight through, say for 20 days, when they can earn as much as [yen] 4 million. Some are obviously in financial trouble. But more important is the rise of part-time working culture. A lot of people just want to work for short periods and earn as much money as they can."

Most women are recruited by the ubiquitous scoots around Tokyo's large stations (Yumeno was scouted in Shibuya), but some walk through the door after seeing profiles of sex workers in easily available magazines like Tinkle and Bustier. Many of the smarter women recruit managers, sometimes from unusual places. "We had a girl come in here one day with her mother," claims Hiroyuki Tsunoda, president of Media Station Co. Women who last longest often carve out niches for themselves and earn a semi-loyal following.

"My specialty is breaking down the defenses of guys who are really straight-laced and having sex with them, but I've also done violent stuff, getting raped by three guys, that sort of thing," Yumeno says with a smile. "As soon as the director shouts 'cut!,' the guys completely change, start asking me if I'm all right. It's just a role. I don't hate men. Most of them are good to me, but they're weak."

Lots of men think women work in porn because they like sex.

"That's because we're good at our jobs. We make them think that. If they don't think that, we've failed."

The worst thing about the job, according to Yumeno, is "keeping a boyfriend. First of all, finding a guy who doesn't get jealous. Some men say they don't care and understand it's just a job, but most get jealous afterward. If I don't tell them who I am, someone will tell them or they'll check out my past, but I'm not interested in that sort of man anyway. There are few guys who are strong enough to stay around."

Yumeno has never hung around with her fellow actresses, most of whom she calls "stupid. I like people who are strong, who know themselves, like writers and artists. I like traveling. I've been all over Europe. I love art."

So what happens to porn actresses when they retire? Yumeno is trying to find out by transforming herself into an "all-round entertainer," venturing into singing, acting in variety programs, drama shows, movies and even webcasting (see www.yumenomaria.tv).

Her advice for aspiring actresses?

"If you really want to do it, then try it. But if you're half-hearted about it, forget it. Work in a Seven-Eleven."

* DAVID McNEIL (Sexy and Smart, page 58) is a Tokyo-based freelance writer from Ireland whose writing is carried by the London Independent, The Irish Times and the South China Morning Post. He holds a Ph.D. in sociology and spent five years university teaching in the UK before moving to Tokyo in 2000. "I personally find porn boring and have all the usual moral objections to commodifying sex, but I'm fascinated by the motivations of the characters who work in the industry."