Smut giants are showing mainstream Hollywood how to fight back

from Business Week

Jason Tucker is one of a new breed of pornographers. As president of Falcon Foto, he publishes such skin-baring magazines as Hometown Girls and Virgins. But his résumé hardly reads like that of a typical gold-chained smut king. A slight 33-year-old with spiked hair, Tucker came to the X-rated world after a failed Hollywood career that included a gig in film production and parts as a youngster on TV shows such as a Little House on the Prairie spin-off. Adult entertainment was a fallback for the self-described geek who bounced from Tinseltown to work as a consultant advising large tech companies about the skin trade’s technology needs.

What worries Tucker these days isn’t the possibility of a raid on Falcon’s studio — a 40-acre farm north of Los Angeles — or a congressional hearing scrutinizing his industry. It’s piracy. Falcon, which he runs with his former-model wife, Gail Harris, owns the rights to more than 2 million photos and 350 videos. At a recent Saturday morning shoot at the ranch — where a petite 23-year-old wriggles out of her bikini under a waterfall — Tucker is livid after learning that a Falcon-owned photo appeared in a magazine without authorization, having been downloaded from the Internet. "We’re getting ripped off again," he fumes, swatting at a copy of the pirated photo. Seven lawyers on his payroll chase the pirates; he has half a dozen lawsuits going right now. He also recently hired a software engineering firm to design a program to scour the Net for other unauthorized uses. Says Tucker: "If we can’t protect our content, we’re dead."

Sound familiar? It’s the rallying cry of any Hollywood mogul worth a corner seat at Mr. Chow. Nowadays, the pornography business, once relegated to a dark corner of the media world, has become a powerful, if unlikely, ally with mainstream Hollywood in the battle against digital piracy. But where mainstream companies fret endlessly before deciding how to proceed with new technologies and business models, the never-bashful porn industry is making some moves that may well show the way for Hollywood — whether in thwarting pirates or adapting to digital realities. Representatives of the big studios declined to comment about what they might learn, but clearly they are keeping a close watch on the skin merchants’ business decisions.

Case in point: Some producers of porn are starting to share revenues from online movies with the distributors of their DVDs, who might otherwise feel endangered by digital distribution online. Bolder yet, one large studio is allowing fans who buy movies online to burn them from their computers onto DVDs, with some protections included, of course.

Always a first mover on new distribution channels, adult entertainment has exploited technologies to create, by some estimates, what is today at least a $2 billion-a-year business. The downside, though, is that in producers’ haste to post online, porn has become easy pickings for digital pirates with superfast modems. Even though the industry has hired security firms to sniff out pirates, illegal DVDs still flood cities from New York to Bucharest, and XXX movies show up for free on peer-to-peer sites. And just like Hollywood, the porn industry has no way of pinpointing its losses. "We lose hundreds of thousands of dollars, maybe millions, a year to pirates. We just don’t know," laments Steven Hirsch, co-CEO of Vivid Entertainment Group. One of the industry’s largest studios, with an estimated $100 million in revenues, Vivid boasts a stable of heavily marketed stars, including top-rated Jenna Jameson, whose videos Vivid distributes.

With DVD sales for all movies now in the midst of a protracted slowdown, adult entertainment companies are more eager than ever to find new — and safe — technologies to spur business. Vivid offers downloads of movies from its company site to Apple Computer Inc.’s iPods, albeit without help from Apple, and is the first studio to let users make their own DVDs. By contrast, Hollywood blocks viewers from moving flicks beyond PC hard drives. Vivid insists, however, that the download site, CinemaNow Inc., use newly upgraded software from a German firm to enhance protection, says CinemaNow President Bruce Eisen.

The adult entertainment industry isn’t just playing defense, either. Having to protect movies with budgets of $100 million or more, Hollywood studios have held back early releases from the Net for fear of upsetting their lucrative partnerships with theater chains and DVD retailers. But some porn operators are prepared to recast old relationships, even if it means handing over some cash. Spain-based Private Media Group Inc. is trying to appease European video chains by offering 40% of revenues from Net sales.

At the same time, adult entertainment companies, used to being underdogs, aren’t shying away from skirmishes with the giants to protect their products. In February a Los Angeles federal judge issued a preliminary injunction against Google Inc. for showing "thumbnail" pictures that belonged to skin magazine Perfect 10 after the glossy sued. Perfect 10 hired lawyer Russ Frackman, who represented the music companies in the Napster Inc. and Grokster Ltd. cases. Going after Google? Yet another reason for Hollywood to keep an eye on its X-rated brethren.

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