Porn & Big Money

[00:00:00] Hello, hello, hello and welcome to English Learning for Curious Minds, by Leonardo English. 

[00:00:12] The show where you can listen to fascinating stories, and learn weird and wonderful things about the world at the same time as improving your English.

[00:00:21] I'm Alastair Budge, and today we are going to be talking about a subject we haven’t covered before, a subject that might make some people uncomfortable.

[00:00:31] And that subject is porn, pornography.

[00:00:35] Now, I should give you some kind of parental guidance warning, in case you want to press pause. 

[00:00:41] In this episode we are going to talk about porn and the porn industry, but, if it changes your mind about whether to listen or not, it will be in no way sexual. 

[00:00:53] Instead, we are going to talk about porn and money, specifically, the business of the porn industry and how it deals with money.

[00:01:02] It’s a fascinating story that involves payment cards, secretive multimillionaires, the so-called “creator economy”, and lots and lots of money.

[00:01:13] OK then, Porn and Big Money.

[00:01:19] On March 16th of 2023, a press release was sent out.

[00:01:26] The title of the press release started “ECP Announces Acquisition of MindGeek” .

[00:01:34] If I read you the start of the press release itself, you’ll probably think it was slightly uninteresting.

[00:01:42] "Montreal, Quebec [March 16th, 2023] – Ethical Capital Partners [ECP], a private equity firm managed by a multidisciplinary team with regulatory, law enforcement, public engagement and finance experience, today announced that it has acquired MindGeek, a technology and media company." 

[00:02:03] Now, so far it reads like any other press release a business might put out after it has acquired another. Pretty boring.

[00:02:12] But then it gets a little more interesting.

[00:02:17] “MindGeek, a technology and media company, owner of a large portfolio of adult entertainment properties, including Pornhub, YouPorn, Redtube, Brazzers, Men.com, Sean Cody, Trans Angels and Nutaku.”

[00:02:36] Now, you might have heard of some of those names, you might not. Don’t worry, I’m not going to ask you.

[00:02:43] This list includes some of the most popular porn websites on the planet. 

[00:02:49] The first one on the list, Pornhub, is visited by 100 million people every single day, and averages 100 billion videos watched every year. To put that in perspective, it’s about 12.5 porn videos watched for every person on the planet.

[00:03:11] It’s one of the most popular websites in the world, by some calculations it’s one of the top 10 most visited websites worldwide.

[00:03:20] It’s a big deal. 

[00:03:22] And it’s only one of the many porn websites owned by this company, MindGeek. 

[00:03:27] But, until very recently, nobody really knew anything about MindGeek. It was a privately held company that operated in almost complete secrecy, making hundreds of millions of dollars every year, attracting over a hundred million people to its websites every single day.

[00:03:50] And in fact, even today, we don’t know a huge amount more about MindGeek, despite the power it exerts over much of the world’s population.

[00:04:02] This episode isn’t going to be just about MindGeek, though. 

[00:04:06] In this episode we are going to look at the evolution of porn and money. We’ll see that MindGeek has an important role to play, but we’ll focus on three main stages.

[00:04:19] First, we’ll look at a brief history of the business of porn. 

[00:04:24] Then, we’ll look at how this entire business model was upended, devastated, by the internet.

[00:04:32] And then we’ll look specifically at the problem of turning all this attention into money.

[00:04:39] So, let’s start with a brief history of porn.

[00:04:43] There’s evidence of sexual or erotic paintings going back thousands of years. 

[00:04:49] The Kama Sutra was written in the third century AD, and depending on how prudish or open minded a society was, erotic works were more or less welcomed as the years went on.

[00:05:04] Fast forward to America in the late 1960s, there was a 15-year-period from 1969 to 1984 that would go on to be called “The Golden Age of Porn”.

[00:05:18] Actors and actresses made good money, and what had previously been a smutty, hidden genre, became more acceptable and moved more into the mainstream.

[00:05:31] The business might have still been unusual and controversial, but it was not particularly complicated. Film studios paid actors and actresses to make a porn film, that film was put onto a video and sold in shops or shown at adult cinemas. 

[00:05:50] It was basically Hollywood, but worse acting and fewer clothes.

[00:05:56] Then the internet arrived, and with it came both opportunities and challenges for the porn industry.

[00:06:04] Firstly, the opportunity.

[00:06:06] Well, the opportunity was massive. The internet meant that anyone, anywhere, could watch porn on a computer without having to go to a shop and go through the perhaps embarrassing encounter of buying it from another human.

[00:06:23] Porn studios could put up websites, allowing anyone anywhere in the world to consume their content instantly, 24 hours a day, 7 days a week.

[00:06:35] But with this came two big challenges.

[00:06:39] Firstly, the challenge of how to make money from online porn, or specifically, how to accept online payments. For most “normal” companies, this isn’t an issue, it's not a problem. 

[00:06:54] There are lots of payment processors, and all you need to do is hook up your website and ta-da, anyone with a payment card can use it to pay you.

[00:07:05] The problem is that most normal payment processors won’t deal with porn websites. 

[00:07:12] There are plenty of reasons for this: firstly, there is a reputational risk. Payment companies simply don’t want their brands to be associated with an industry that is controversial at best and immoral and exploitative at worst.

[00:07:30] Secondly, and perhaps more importantly, the chargeback rate is higher. What this means is that there is a higher percentage of people who call their bank and say, “hey, I didn't make that payment, please block it”. 

[00:07:46] This hardly ever happens for, let’s say, a website that helps you improve your English, because it’s not an embarrassing thing to pay for, you wouldn’t be embarrassed if your partner saw your bank statement and saw a transaction for Leonardo English Limited. Maybe you’d even be proud!

[00:08:04] But if your partner looked at your bank statement and saw a charge for “pornography services limited”, you can imagine that some people might prefer to say “someone stole my credit card, watch, I’ll call the bank right now” rather than admitting “actually that was, uh, that was me”. 

[00:08:25] It costs the card processing company money every time this happens, so many of them understandably prefer not to deal with porn businesses precisely because of this trouble.

[00:08:38] There are plenty of card processing companies that do deal with porn companies, but the fees are higher, because of this increased risk.

[00:08:47] But, we haven’t finished yet. 

[00:08:50] Then there are the all-powerful companies that sit between the payment processing companies and the customer’s bank: VISA and Mastercard, the two companies that control almost 85% of the payment cards in the United States, and are responsible for something like 20 trillion dollars worth of spending worldwide.

[00:09:12] VISA and Mastercard have brands and reputations to protect, but they also have fees to collect.

[00:09:20] They didn’t want to ban all purchases of adult content on the VISA and Mastercard networks; they were happy to be associated with certain types of pornography but not others, so what this led to was essentially VISA and Mastercard setting guidelines about the types of pornography that could be bought with its payment cards.

[00:09:44] We aren’t going to go into the explicit detail of this, but the less socially acceptable a sexual act is, the less likely VISA and Mastercard would be to allow their customers to buy content containing these acts.

[00:10:01] Of course, VISA and Mastercard do not do this on a video by video basis, but the porn studios making the pornographic content are aware, more or less, of what performers can and can’t do, so they ensure that their content plays by VISA and Mastercard’s rules otherwise they risk getting blocked.

[00:10:24] So, the curious situation that this has created is that VISA and Mastercard became the de facto regulators of the porn industry.

[00:10:34] They don’t officially say what types of pornography can be made and they don't ban pornography from being made. Technically they have no kind of oversight on the porn industry at all. But they control what could be bought through their payment processing networks. 

[00:10:53] And clearly, if porn can’t be bought with VISA and Mastercard cards, it’s very hard to sell, meaning it’s less profitable to make it in the first place.

[00:11:05] OK, so this was our first challenge that the internet brought along, the problem of how to actually take payments, and how VISA and Mastercard got caught up in the regulation of porn.

[00:11:18] This challenge was something that could be overcome; the porn studios just needed to play by the rules, they needed to pay a bit more to process payments, but it was manageable.

[00:11:32] The second challenge threatened to upturn the entire industry. This was, as you might have guessed, the arrival of what's called the tube sites, websites like PornHub and the others you heard mentioned at the start of the episode.

[00:11:51] The huge innovation by these websites was that they allowed anyone to upload their own content, their own videos. These could be amateur videos that the person had made, it was their own content.

[00:12:06] But this was a minority.

[00:12:10] In most cases, the videos uploaded were videos that had been made by the porn studios, and uploaded straight to the tube websites, without the consent of the studio that owned the copyright.

[00:12:23] And for a long time, the tube sites did little-to-no moderation. 

[00:12:29] They put up their hands and said, “hey, we’re just a content aggregator. If you can prove that it’s your content, send us a request and we’ll take it down”. But with tens of thousands of hours of content being uploaded every single day, it was impossible to keep up.

[00:12:48] The result of this was that, by the late 2000s, porn studios found that practically all of their content was available on these tube sites.

[00:13:00] And, to make matters worse, the tube sites were completely free, the viewers didn’t need to pay a penny.

[00:13:09] Clearly, from a viewer’s perspective, it was an attractive proposition. A website full of all the pornography someone could ever want, a lifetime of porn, all available for free at the click of a button.

[00:13:24] Yes, there are clearly huge societal consequences to this, many of which I’m sure will only become obvious in years to come, but we need to keep our focus here on the money, on the evolving business of porn.

[00:13:39] Suddenly, the tube sites had all of the power, they had all the eyeballs.

[00:13:46] Initially, they weren’t particularly good at converting this attention into hard cash, but starting in 2006, a German computer programmer called Fabian Thylmann sensed the potential of these tube sites, and bought up a load of different websites, getting the ball rolling on what would eventually become MindGeek.

[00:14:08] Now, bringing it back to the money again, Fabian Thylmann was one of the first people to understand the financial potential of the tube sites.

[00:14:18] Yes, they were free for the user, but with so many people visiting them every day, there was a lot of potential to monetise them first through adverts and then through subscriptions. 

[00:14:31] There were, of course, adverts for other types of porn websites, but there were adverts for adult products, gambling sites, and indeed all manner of products that were completely unrelated to vice at all.

[00:14:47] And with tens of millions of people visiting them every day, there was a lot of money to be made. 

[00:14:55] Just quite how much money is somewhat unknown, but in 2018 MindGeek claimed that its revenue for the year had reached $460 million. 

[00:15:07] Now, that is clearly a lot of money, but to put it in perspective, Netflix now makes that much every week. 

[00:15:15] The counterargument is, of course, that Netflix pays tens of billions of dollars every year to create its own content or to licence it from movie studios, while MindGeek doesn’t pay anything.

[00:15:27] Anyway, “free” porn is big business, big business indeed.

[00:15:33] And it turned out that most of the biggest “free” porn sites were owned by MindGeek, which had secretly been bought by an incredibly secretive German multimillionaire called Bernd Bergmair. 

[00:15:48] His ownership of the company, by the way, would only be revealed after an in depth investigation by the Financial Times in July of 2021.

[00:15:58] But we’re getting ahead of ourselves. 

[00:16:01] In late 2020, something happened that would cause huge problems to Bernd Bergmair, to MindGeek’s business, and indeed to the business of free porn.

[00:16:12] And this all comes down again to the unsexy but important business of payment processing, of how payments are made with payment cards.

[00:16:23] There were increasing stories in the news about videos of people that had been uploaded to the tube sites without their consent, without their permission, and stories of all sorts of very unsuitable content that had been uploaded to the sites.

[00:16:40] The New York Times ran a story in December 2020 about how PornHub allowed videos of underage children to be posted on its website, and told several stories about how videos of sexual abuse and all sorts of horrible things were not taken down by the site administrators.

[00:17:02] It was a shocking story. Doubtless lots of people read it over their morning coffee and thought, “this is terrible, someone should do something about it”.

[00:17:12] One person decided to actually do something about it.

[00:17:17] His name was Bill Ackman, and he was a billionaire investor, which I guess makes doing things about things a bit easier.

[00:17:27] Ackman called up the CEOs of the payment companies and essentially said, “look, you’re making money from this website that has horrible content. Stop it”. 

[00:17:39] And because he was a particularly powerful and influential investor, the CEOs listened and announced that they would no longer allow VISA and Mastercards cards to be used on MindGeek websites and their affiliates.

[00:17:55] As you might imagine, this spelled big trouble for MindGeek. People couldn’t pay for any MindGeek services, and advertisers weren’t able to pay their bills to MindGeek.

[00:18:08] Overnight it was cut off from the world’s card payment systems, its source of revenue dried up in an instant.

[00:18:17] It took action to remove some of its more controversial videos, removing 9 million videos practically overnight, and taking the number of videos on the website down to 4 million. 

[00:18:29] Obviously, that’s still a lot of porn, but it had an immediate impact; its traffic, the number of people going to its website dropped by a third.

[00:18:41] And for a business that makes money by people coming to its website, clearly, that was problematic.

[00:18:48] But it wasn’t only MindGeek that was in trouble. VISA and Mastercard were too.

[00:18:55] See, a young lady took VISA and Mastercard to court, accusing the two payment processing companies of profiting from a sexual video of her that was shared to PornHub without her consent.

[00:19:09] The case was eventually dismissed, but this really ruffled the feathers of the two payment processing giants, and would have knock-on effects.

[00:19:19] And specifically, it would affect a company that doesn’t necessarily consider itself a porn company: OnlyFans.

[00:19:28] OnlyFans, in case you weren’t aware, is a website that calls itself “the social platform revolutionising creator and fan connections”.

[00:19:38] It was most famous for allowing people to share explicit content with their “fans” for a fee. To put that in plain English, men and women, but it was mainly women, could upload naked pictures and videos to the platform, and people could pay to see them.

[00:19:58] And in the summer of 2021, OnlyFans put out a statement saying that it would no longer accept sexually explicit content on its platform. 

[00:20:09] It was somewhat of a shock, a bit like Disney saying that it wouldn’t make any more cartoons or McDonald’s announcing that it would stop selling hamburgers. Sexually explicit content was the thing that had turned OnlyFans into something of a household name, so people started asking themselves why it would suddenly cut off what seemed to be the majority of its business.

[00:20:35] The answer to why it did this comes back to payments. Specifically, it was very afraid of being cut off by VISA and Mastercard, which were both somewhat traumatised by the MindGeek experience. 

[00:20:51] Suddenly it seemed clear that VISA and Mastercard could be considered liable for content uploaded to porn websites, and that was an uncomfortable position for them to be in.

[00:21:04] Now, OnlyFans has since gone back on this decision, but it was a sign of the power of the credit card companies on the adult industry.

[00:21:13] So, where does this leave the porn industry today?

[00:21:17] Clearly, the demand for pornography is going nowhere, there is little question of that.

[00:21:24] The question is about where the money goes, and how the flow of payments work.

[00:21:31] For porn to exist, someone needs to make it, and those people need to be paid for what I think most people would consider not a particularly desirable job. 

[00:21:43] But who pays? 

[00:21:45] In a pre-internet era, the studios could pay the actors, knowing full-well that they would make money from the sale of the videos and magazines. 

[00:21:55] In the era of the tube websites, Porn 2.0 as it has been dubbed, who is the customer? 

[00:22:02] The person watching the porn is almost never paying, because of the proliferation of free porn websites. Some money comes from porn subscriptions, but VISA and Mastercard are increasingly wary of this, and it’s harder and harder for porn websites to take payments directly from customers. 

[00:22:23] Then there are the advertisers, but several of these porn-focussed advertising networks have also been banned by VISA and Mastercard. Previously, companies wanting to advertise on porn websites would pay the porn websites with credit cards, but payments to some of the biggest porn advertising websites are now banned by VISA and Mastercard.

[00:22:45] So, if it is being made so difficult by payment companies for porn companies to make money, how can the porn industry survive?

[00:22:55] Well, the reality is that, even though it’s harder than ever for porn websites to actually get paid, the sheer amount of people who visit them means that the opportunity is still massive, and there are plenty of advertisers who are willing to do whatever it takes to get in front of the massive audiences on porn sites. 

[00:23:16] As you’ll remember, there are 100 million people who visit PornHub every single day. Clearly, that’s a lot of people, a lot of eyeballs.

[00:23:26] And to think back to the start of the episode, MindGeek, the company that owns most of these porn websites, was recently sold. 

[00:23:37] The acquisition of the business is somewhat confusing, and there are plenty of people who have raised questions about what actually happened there. 

[00:23:47] Yes, there are the “official” reasons that were provided in the press release, but a lot of it smelled a little fishy.

[00:23:56] Firstly, the private equity fund that bought it is called Ethical Capital Partners, which is an odd name for a company that now controls the world’s supply of pornography, almost as if it was an inside joke.

[00:24:11] Secondly, there doesn’t seem to be much information about the fund, where it got the money to buy MindGeek. It must have been a significant amount of money, but whose money is anyone’s guess.

[00:24:25] Thirdly, the people running the fund, and thereby owning MindGeek, don’t seem to have much experience doing this at all, which has left people questioning whether it’s simply a front for someone else, a disguise for the real owner of Mindgeek. 

[00:24:44] As a result, ultimately, only a tiny number of people know who owns and controls the world’s supply of porn.

[00:24:53] Now, no matter your opinions on the rights and wrongs of pornography, it exists. 

[00:25:00] And it is incredibly popular, with some estimates suggesting that as much as 30% of internet traffic is pornography. 

[00:25:09] And with this comes extreme power, the power to shape sexual habits and norms, the power to exploit and abuse, and the intimate knowledge of the browsing history and, therefore, sexual preferences of hundreds of millions, if not billions, of people.

[00:25:28] For years, with this power also came the ability to print money, to generate hundreds of millions of dollars. 

[00:25:36] Then, after some porn websites were cut off from the payment processing networks, their ability to make money was dealt an almost lethal blow.

[00:25:46] They were on their knees, bloody and fighting for life.

[00:25:50] But the reality is that, because of its inherent nature, the porn industry has always had to be creative, it’s always managed to find a way to survive. 

[00:26:01] Something tells me that while there are still hundreds of millions of people who watch porn every single day, the porn industry will manage to find a way to get paid.

[00:26:13] OK then, is it for today's episode on porn and big money, and this exploration into how this popular but taboo, mysterious and secretive industry works.

[00:26:26] As always, I would love to know what you thought about this episode.

[00:26:30] Did you know about how interlinked VISA and Mastercard were with porn websites?

[00:26:35] Where do you think the responsibility starts and finishes? Are VISA and Mastercard responsible for payments made with its cards? 

[00:26:44] Do you think the porn industry should be regulated by the government?

[00:26:47] Where should the line be drawn between personal liberty and public protection?

[00:26:53] I would love to know, so let’s get this discussion started.

[00:26:57] You can head right into our community forum, which is at community.leonardoenglish.com and get chatting away to other curious minds.

[00:27:05] You've been listening to English Learning for Curious Minds, by Leonardo English.

[00:27:10] I'm Alastair Budge, you stay safe, and I'll catch you in the next episode.

[END OF EPISODE]

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