Porno; the capitalist ideal?

Commentary, The Porn Bust, by Doug French, for Mises Daily

There is $3,075 spent every second on adult material, according to CNBC. Each second, 28,000 Internet users are viewing porn; and every 39 minutes, a new adult video is being produced. Not only is porn being made for DVDs and the Internet but also for your iPhone or Blackberry. You never have to leave home without it.

“[T]he tenuous legal status of the industry has made it difficult for it to use copyright laws to inhibit competition,” Michele Boldrin and David K. Levine explain in Against Intellectual Monopoly, “and so as technology has changed, pornography has become a cottage industry with many competing small-scale producers.”

As the CNBC special pointed out, “the peep show has come to you,” and anyone willing to have sex on camera can be a porn star, and anyone who can post a video online can be a producer. Plus, Vivid’s Hirsch says his company is constantly playing defense, as people copy Vivid’s material and post it on their sites.

Back in the 1960s and ’70s, when Penthouse and Playboy magazines dominated the industry, the average Joe or Jane didn’t want to slip on a raincoat, head for the seedy side of town, and try to slink into the adult theater unnoticed. Given these barriers, the supply of porn was restricted and those who wished to have it would pay high prices, which generated huge profits. As Boldrin and Levine explain, competition was weak, and the dominant firms in the industry thrived because

“the main technology for reproduction and distribution of pornographic materials consisted of glossy magazines and movies circulating through the chain of X-rated movie theaters.”

According to CNBC, $2.84 billion (out of roughly $13 billion) in annual porn revenue comes from Internet sales.

Boldrin and Levine believe a case can be made that the early growth of the Internet was due to the replication and distribution of pornographic materials: “Online pornographers are usually among the first to exploit new technologies — from video streaming and fee-based subscriptions to pop-up ads and electronic billing,” the economics professors write.

Their bold experimentation has helped make porn one of the most profitable online industries, and their ideas have spread to other legitimate companies and become the source of many successful and highly valuable imitations.

As a result of all this decentralization, porn stars are earning less and less. and wages are dropping down to ‘opportunity wage’ levels (wages they actually should be earning, with market distortions removed) as opposed to millions per film earned by movie stars in Hollywood, which are economically ‘unfair’ in terms of effort put into earnings and in terms of their reflection on price levels.

So despite the constant outrage and occasional legal hassles, the lack of copyright enforcement in the pornographic movie and entertainment business creates “an industry that is more innovative, creates new products and adopts new technologies more quickly, and for which the reduction in distribution cost has resulted in more output at lower prices and a more diverse product,” write the authors of Against Intellectual Monopoly.

Inefficient, outdated product providers that fail to satisfy customers go out of business — to be quickly replaced by smaller, nimbler, more innovative competitors. Customers are able to receive a higher-quality product that is cheaper and provided in more mediums, thus making it more convenient to consume.

And for those who don’t want it at all, it might as well not exist.

This is the way capitalism is supposed to work.

Beautiful. Almost a lab experiment on what can happen when an industry is allowed to completely roam free. The only disturbing aspect in this whole thing is the lack of regard for intellectual property. Which opens us to the crazy notion that intellectual property stunts progress much more than we perceive. Although i admit that it is necessary to encourage innovation in the first place. 

In this case, as in the case of the music industry, the market is often too big and diverse for intellectual property laws to be completely enforced. This still leaves room for partial enforcement which gives enough incentive for initial innovation and production but importantly, an intellectual monopoly is absent. Maybe a sort of market driven bending of the law is what is needed to create more innovative, responsive and non monoplistic industries. But it is a fantastic balance and IMO impossible to get right except by fluke.

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2 comments
  1. Jerry said:

    The internet has porn in it? Wow, never knew!

  2. Whacko said:

    hardly the point of the post, but glad you went away with something useful.

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