Corporate America Cashing In on Porn

March 25 -- You won't see it in many companies' advertising or in their annual reports, but corporate America is quietly making millions off a product once found only in dingy theaters on the bad side of town: hard-core pornography.

Since the 1970s, pornography has grown from a small niche industry catering to theaters and enthusiasts into a multibillion-dollar business with mainstream appeal. Last year, Americans rented more than 750 million adult films on video or DVD, and watched millions more on cable and satellite at home or in hotel rooms. In addition, they spent more than $2 billion accessing movies and pictures on the Internet's estimated 100,000 pornographic sites.

The modern porn industry was born in California's San Fernando Valley, where it had two huge boosts from new technologies. First came the VCR, which allowed people to rent tapes at the local video store and watch in the privacy of their own home. Then new delivery systems — cable, satellite and the Internet — meant they didn't even have to leave the couch to get their porn.

The new delivery systems have also allowed major corporations to get a piece of the pie without getting too close to the product itself. While the dirty work of actually making the films is still largely done in the San Fernando Valley, major corporations like AT&T, General Motors and Marriott are sharing the profits by helping get the product to consumers. At the same time, a new generation of entrepreneurs — including dot-com techies and Ivy League business school grads — are bringing ambitious business strategies to the mix.

The Web Entrepreneurs

Greg Clayman is a distributor who buys adult content and then sells it onthe Internet. When he and his partner, Chuck Tsiamis, saw the dot-com boom starting in 1996, they quit their insurance jobs to form an adult Internet business, VS Media.

"You want to jump on the New Age bandwagon and provide content for the adult side of the business," he said, "like Microsoft supplies software to many businesses around the world."

Clayman's company operates like cable TV, but on the Internet. From offices in Southern California, VS Media delivers live, one-on-one video of models to a network of sites run by small independent Webmasters. The models are employed by production companies. VS Media makes its money by taking a 30 percent cut of each transaction.